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As filed with the Securities and Exchange Commission on October 7, 1999
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
CDKNET.COM, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3586087
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
595 Stewart Avenue, Suite 710
Garden City, N.Y. 11530
(516) 222-2345
WWW.CDKNET.COM
(Address, including zip code,
telephone number, including area code, and
web address of the principal
executive offices of the registrant)
Securities to be registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.0001
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TABLE OF CONTENTS
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART 1
Page
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ITEM 1. DESCRIPTION OF BUSINESS AND SPECIAL RISK FACTORS........... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS ......................13
ITEM 3. DESCRIPTION OF PROPERTY....................................17
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................17
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS........................................21
ITEM 6. EXECUTIVE COMPENSATION.....................................24
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............27
ITEM 8. DESCRIPTION OF SECURITIES..................................28
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........29
ITEM 2. LEGAL PROCEEDINGS..........................................30
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS..............30
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES....................30
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS..................31
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA............................32
PART III
ITEM 1. INDEX TO EXHIBITS ..........................................58
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CAUTIONARY STATEMENT
All statements, trends, analyses and other information contained in this Form 10
Registration Statement relative to trends in net sales, gross margin,
anticipated expense levels and liquidity and capital resources, as well as other
statements, including, but not limited to, words such as "anticipate,"
"believe," "plan," "intend," "expect," and other similar expressions constitute
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to certain risks and uncertainties that
are difficult to predict. Potential risks and uncertainties include those set
forth below in "Item 1. Description of Business and Special Risk Factors."
Particular attention should be paid to the cautionary statements involving the
Company's limited operating history, the unpredictability of its future
revenues, the unpredictable and evolving nature of its business model, the
intensely competitive online commerce industry and the risks associated with
capacity constraints, systems development, management of growth and business
expansion, as well as other factors described below.
RISK FACTORS - SPECIAL CONSIDERATIONS
We have described several risk factors which we believe are significant and
should be given careful consideration by you when you evaluate CDKNET.COM, INC.
We consider each of these risks to be specific to us, although some are industry
or sector related issues which could also impact other businesses in our market
sector. In our case and in addition to the risks just referred to, there are two
related risks to which we wish to draw your attention specifically:
- Our independent certified public accountants have added an
emphasis paragraph to their report on our consolidated
financial statements as of June 30, 1999 and for the year
ended June 30, 1999, and the period October 1, 1997 (date
of inception) to June 30, 1998, relating to factors that raise
substantial doubt about our ability to continue as a going
concern.
- We need significant additional financing.
If we are unable to obtain significant additional financing or otherwise fund
our operations, we will likely have to file for bankruptcy. (See "Special Risk
Factors -- Our ability to continue operations is in question" and "-- Our
financial condition is highly uncertain and we need to obtain significant
additional financing to avoid bankruptcy.")
ITEM 1. DESCRIPTION OF BUSINESS AND SPECIAL RISK FACTORS
1. GENERAL
CDKNET.COM, INC. ("CDK" and, collectively with its subsidiaries, the "Company")
is a New York-based Internet company that has developed a multimedia technology,
CDK-TM-, integrating audio, video and Internet connectivity on a standard
compact disc ("CD"). The Company's MixFactory-TM-system, an extension of the
core CDK-TM- technology, enables users to create their
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own personalized CDs from a Web site. These custom CDs include full-screen,
high-quality videos, digital audio, software applications and targeted Web
links. The Company generated $474,344 in net revenues in the year ended June
30, 1999. $317,810 of such revenues from CDK-TM- technology came from two
customers, one of which accounted for approximately $241,915. The Company
intends to establish three principal revenue streams: (1) sale of custom CDs,
(2) sale of Web links and Web advertising, and (3) development and use fees.
The Company is currently capable of providing services in each of these areas.
The Company requires substantial additional working capital to expand production
capabilities for CDK-TM- and MixFactory-TM-, expand business development efforts
and implement marketing programs. (See "Special Risk Factors -- Our ability to
continue operations is in question" and "-- Our financial condition is highly
uncertain and we need to obtain significant additional financing to avoid
bankruptcy.")
As of September 17, 1999, the Company had 14,631,157 shares of common stock
issued and outstanding. Of these shares, 1,868,034 shares are restricted
stock owned by certain directors and key employees of the Company. The
remaining 12,763,123 shares are owned by approximately 67 shareholders, five
of whom the Company believes holds more than five percent (5%) ownership of
the Company. (See "Item 4. Security Ownership of Certain Beneficial Owners
and Management").
The Company's stock is currently traded on the National Association of
Securities Dealers ("NASD") Over-the-Counter Bulletin Board ("OTCBB") under
the symbol "CDKX." The Company anticipates that it will be removed from the
OTCBB. If the Company is removed from the OTCBB, the Company expects its
shares will be traded on the so-called "Pink Sheets." (See "Special Risk
Factors -- Our shares will be traded on the so-called pink sheets".)
2. COMPANY HISTORY
CDKNET.COM, INC. ("CDK" and, collectively with its subsidiaries, the "Company")
is a holding company formed under the laws of the State of Delaware with its
executive offices located at 595 Stewart Avenue, Suite 710, Garden City, New
York 11530. CDK operates its business through CDKnet, LLC, the Company's wholly
owned subsidiary, which is a New York limited liability company ("CDKnet"). The
Company's manufacturing, research and development is conducted out of CDKnet's
office located at 250 West 57th Street, Suite 1101, New York, New York 10019.
The Company's offices may be contacted by telephone at 212- 547-6050 or on its
website at: WWW.CDKNET.COM.
Prior to December 16, 1998, CDK was known as Technology Horizons Corp., a
Delaware corporation ("Technology Horizons"), which was formed on May 7, 1998.
CDK began trading on the OTCBB on May 21, 1998, under the symbol "THCX." On May
21, 1998, CDK merged with International Pizza Group, Inc. ("IPGI"), a Florida
corporation that was inactive but had its common stock traded on the OTCBB under
the symbol "IPZZ." As a result of the merger, CDK acquired the net assets of
IPGI.
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Creative Technology, LLC ("Creative") is a limited liability corporation
organized under the laws of the State of New York on August 20, 1997, and in
November, 1997 acquired a 40% interest and voting control in CDKnet in exchange
for capital contributions of approximately $750,000 and subordinated loans of
$750,000. Subsequently, Creative's interest in CDKnet was increased to 51.5%
though a combination of conversion of additional loans to CDKnet and a reduction
of the interest of Kelly Music and Entertainment Corp., a Delaware Corporation
founded in 1995 ("KME"), in CDKnet resulting from the reduction of loans
receivable from KME for a reduction in their interest in CDKnet. On May 21,
1998, CDK acquired all of the membership interests in Creative in exchange for
six million shares of Technology Horizons' stock.
On November 11, 1997, KME contributed all of the intellectual property which
forms the core of the Company's products and certain other assets to CDKnet
in exchange for a 40% member interest in CDKnet. Alvin Pock and Robert Kelly,
both principals of KME, contributed certain collateralized notes of KME for
an aggregate of 20% of the membership interests in CDKnet. Subsequently,
Alvin Pock's and Robert Kelly's interests were increased to an aggregate of
22.35% through a combination of additional contributions as well as the
conversion of addition loans to CDKnet. On June 3, 1998, CDK acquired an
additional 22.35% interest in CDKnet from Messrs. Pock and Kelly for
1,300,363 shares of CDK's common stock, bringing its ownership in CDKnet to
approximately 74%. On July 8, 1998 CDK acquired the balance of the ownership
interests of CDKnet from KME in exchange for 1,883,635 shares of CDK's common
stock.
On December 16, 1998, Technology Horizons changed its name to CDKNET.COM, INC.
and, on December 18, 1998, began trading on the OTCBB under the symbol "CDKX".
No other material organizational changes occurred in the Company, nor were there
any additional acquisitions or mergers, after December 1998.
3. INDUSTRY
A. OVERVIEW
Internet usage has increased dramatically in the last decade. As a result, many
new personal and commercial applications have been developed for Internet users
and, increasingly, consumers are conducting business through Internet
applications. The Company believes that web-connected multimedia CDs will be one
of the next significant applications of the Internet. Web-connected, Multimedia
CDs contain audio, video and HTML all navigable by a standard web browser. The
Company's CDK-TM- forms the foundation multimedia for CD-ROM authoring,
production, and custom online compilations. The Company believes there is strong
market potential for CDK-TM- technology across various industries. Target
industries include:
-- Entertainment (music, movies, TV) -- Toys/Games
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-- Travel & Tourism -- Fashion
-- Professional Sports -- Food/Cooking
-- Financial Services -- Automotive
-- Education -- HealthCare
The premiere companies in each of these industry categories have fully developed
Web sites with significant user traffic, lending themselves as prime candidates
for the MixFactory-TM- operation. The Company believes that the industry will
become more competitive. The Company's inability to compete in the market will
have a material affect on its business operations.
B. COMPETITION
While other companies have the potential to develop web-based, multi-session,
custom multimedia CDs, the Company believes that none offer the economic,
development or quality advantages of the Company's CDK-TM- and MixFactory-TM-
technology. The Company believes that there are five main companies currently
offering custom audio CD development. These companies are Musicmaker.com,
Customdisc.com, CDUCTIVE, Amplified.com, K-Tel.com, and EZCD.com. However,
the Company believes that none of these companies offers custom multi-session
CD development. In an effort to further secure a strong position in the
marketplace, CDKnet has submitted patent requests for certain aspects of the
Company's technology. Finally, the Company believes that other companies,
including established Internet companies, software companies and companies in
the entertainment business could enter this business and become competitors.
4. PRODUCTS AND SERVICES
A. PRODUCTS AND SERVICES
The Company has developed and is marketing the following products and services:
CDK-TM- TECHNOLOGY
CDK-TM- technology combines CD digital audio, full-motion, full-screen video and
web linking through a browser interface.
The CDK-TM- HTML authoring system is used by CDKnet to produce custom HTML
interface pages for specific clients in about a day. The Company has proprietary
techniques for creating fullmotion, fullscreen video playback from CD-ROM with
low minimum system requirements (PC-Side: Pentium 166 mmx, MAC-Side: Macintosh
G3).
CDK-TM- has been engineered to offer compatibility with the majority of CD-ROM
drives on the market. The Company believes that it has achieved a high level of
reliability, as evidenced by extensive testing and major CDK-TM- releases, and
the Company believes this reliability will provide a major competitive advantage
over other multi-session CDs in the market. Additionally, the
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CDK-TM- system is engineered for mass-production. The integration of the
complete file structure of the CDK-TM- is automated. Audio, video and HTML
assets can be placed in the production template for quick development
turn-around time.
MIXFACTORY-TM- CUSTOM MANUFACTURing
MixFactory-TM- is a custom, multi-session CD manufacturing system built upon
CDK-TM- technology. The entire system is automated so that little human
intervention is required for the custom manufacturing process. Based on the
Company's review of current custom-CD operations in the marketplace, the Company
believes that MixFactory-TM- is a unique system.
To create a custom CD, a user visits a Web site and selects a compilation of
audio, video, or other content titles. Titles are browsed and/or searched and
audio/video clips are previewed through an easy to use interface. After
selecting the compilation, the user personalizes the disc by selecting artwork
for the disc label, cover and HTML interface.
The MixFactory-TM- system allows multimedia content providers to offer their
assets on a customized basis, either as promotional content or as full retail
products. For example, a visitor to the CollegeMusic.com Web site will be
presented with a MixFactory-TM- link that will enable the user to develop a
custom CD consisting of available site content. This content will include
video and audio tracks of live music performances from major nightclubs
across the United States.
The Company plans to form agreements with multiple content providers, the
Company expects to leverage the planned MixFactory.com-TM- Web site to serve
as a portal to digital entertainment content. Initially, MixFactory.com-TM-
is expected to serve as a point of content distribution for independent music
artists and labels with links to other MixFactory-TM- sites. Ultimately, the
Company expects the site will have extensive search and browse capability
that will guide the user to a wide range of digital entertainment Web sites
and content. The Company also plans that the portal will provide a custom-CD
burning service for users who want to download digital content but do not
have the bandwidth and equipment to download and burn their own CD at home.
The Company believes some of the specific benefits of the MixFactory-TM- model
to the content provider include:
- a new marketing platform for goods and services that drives
Web traffic and provides valuable customer information from
both buyers and non-buyers
- the opportunity to leverage marketable inventory that was
previously "dormant"
- attractive operating efficiencies (e.g., no added inventory
costs)
- targeted mailing lists
- new advertising revenue opportunity on customized CDs
- return hits to the content provider's Web site direct from the
customized CD
- cross-promotion from the MixFactory.comTM Web site
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Additional possible sources of income for the Company from the MixFactory-TM-
operation include advertising revenues from the MixFactory.com-TM- Web site and
possible revenue sharing from advertising on the Company's partners'
MixFactory-TM- sites. The Company also plans to charge content providers a
nominal fee for digitizing audio and video assets above a specified level.
The MixFactory-TM- operation is designed to be a complete end-to-end e-commerce
solution, including production, payment processing and fulfillment. Once the
user confirms the content selections and completes a credit card transaction,
the selected titles are queued from storage to a Compact Disc Recordable
("CD-R") burning workstation. The customer's tracks are formatted into a Red
Book audio session along with an iso9660 session and transferred together to the
CD- R (disc). The automated workstation transfers the complete CD-R to the CD
printer where the user-selected label is printed onto the surface of the CD-R.
In parallel with the transfer of the tracks to the CD-R, the custom packaging
materials are printed. That is, as soon as the job is queued for burning, the
printed job is also queued to the printer. Packing and shipping of the finished
product is currently the only manually operated step in the process. The Company
is currently investigating equipment that will automate the packing process.
MIXFACTORY.COM-TM- PORTAL SITE
The Company expects MixFactory.com-TM- to serve as a Web portal for digital
multimedia content, including music, movies, and game demos. The Company plans
to design the site so that consumers will be able to search and browse for
content, select items to include on their custom CD and purchase the CD. Once
the CD is received, the consumer will be able to view the information on the CD
via his or her personal computer and link back to related Web pages through
targeted links included on the CD.
The Company believes the main consumer advantage derived from the MixFactory-TM-
portal site is the ability to receive high-quality, high-bandwidth digital
assets without waiting hours for the files to download. The content provider may
also derive advantages from the MixFactory-TM- site including, possibly, a new
distribution channel, a reliable consumer database/mailing list, as well as
return hits to the content provider's Web site.
The Company believes that from a technical standpoint, the custom-burning
service that MixFactory.com-TM- plans to provide is a unique application. The
ability to select files (from various Web sites) to include on a custom CD, send
that information to the MixFactory-TM- server and then have a custom CD created
and shipped is a service that, to the Company's knowledge, does not currently
exist on the Internet.
B. RESEARCH & DEVELOPMENT
Through the fiscal year ending June 30, 1999, the Company expended $343,000
on research and development of its products and services. Since
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June 30, 1999, the Company has expended an estimated $132,000 on research and
development. The Company anticipates that its research and development costs
will increase during fiscal 2000.
Among the Company's various activities, it is transitioning to a Unix-based
manufacturing system and is developing products and services which will deliver
customized and client specific information to customers. The Company is
continuing development of both the newly released CDK 2.0 technology as well as
MixFactory-TM-, the Company's customized multimedia CD system.
Additionally, CDKnet is currently in the process of developing a software based
communication module enabling marketers to develop true one-to-one relationships
with consumers. The Company will distribute the module through Web-connected
multimedia CDs.
During fiscal 1999, the Company continued to enhance the value of its
product/service offerings through ongoing research and development efforts.
Specifically, the Company is engaged in the following internal projects:
- An enhanced version of CDK-TM- (1.5) that is Macintosh
compatible. This version was released on June 10, 1999.
- Development of the next generation of CDK-TM- software. The
2.0 version feature list includes Macintosh compatibility, a
reduced installation set as well as improved video
performance. This version was released on August 9, 1999.
- Efforts are underway to integrate DVD manufacturing capability
into the MixFactory-TM- system. This effort includes DVD-R
writer to the robotic manufacturing system and the integration
of DVD authoring tools into the MixFactory-TM- system.
Recognizing that high-speed Internet access will ultimately become available to
a wider audience, the Company is evaluating other opportunities to take
advantage of this technology.
5. SALES AND MARKETING
A. STRATEGY
The Company's business model is based on three revenue streams. The first
revenue stream is the sale of custom CDs to consumers through
MixFactory.com-TM- and MixFactory-TM- partner sites. The Company plans to make
MixFactory-TM- technology available to content providers enabling them to
promote or sell their wares on a customized basis. In exchange for a per disc
manufacturing fee, the content provider receives the right to utilize the Mix
Factory services on
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their Web site(s). This scenario also includes Company-licensed content that is
then sold through a Company-owned Web site.
The second revenue stream is the sale of Web links and Web advertising on
MixFactory.com-TM- and MixFactory-TM- partner sites. Digitization fees
associated with preparation of partner content is expected to add to these
proceeds.
The third and final revenue stream is expected to be derived from development
and use fees for client-specific CDK-TM-s. Companies using the technology for
promotional purposes are charged a per-disc fee based on the total quantity
replicated.
The Company believes that the combination of custom-CD sales, Web advertising
revenue and client-specific CDK-TM- development fees provides a powerful, yet
diverse, revenue engine for the Company.
B. PLAN OF OPERATION
The Company's operational plan for fiscal 2000 includes: (1) opening a Los
Angeles, California office that will focus on business development within the
entertainment industry; (2) moving custom, multimedia CD operations (i.e.,
MixFactory-TM-) to a higher volume, lower rent production environment; (3)
forming strategic alliances with a digital video services company to meet
increasing demand for these services; and (4) signing up MixFactory-TM-
partner sites across various industries.
The Company plans to raise additional financing to fund its operations through
private placements of equity securities. The Company needs to raise such
financing to continue its operations. If the Company is not successful, the
Company may have to seek protection of the bankruptcy courts. See "Special Risk
Factors -- Our ability to continue operations is in question" and "-- Our
financial condition is highly uncertain and we need to obtain significant
additional financing to avoid bankruptcy."
6. INTELLECTUAL PROPERTY RIGHTS
The Company relies on copyrights, trademarks, trade secret laws and contractual
restrictions to establish and protect its proprietary rights in its services and
products. The Company does not have any patented technology at this time that
would limit competitors from entering the Company's market. However, the Company
has a patent pending for the basic CDK-TM- technology. The patent application
covers the format of a multisession, digital encoded recording medium navigable
by an Internet browser.
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The Company's intellectual property counsel informed the Company that this
patent application should be allowed soon. The intellectual property counsel has
filed a continuation application to separate the earlier rejected claims into a
new application, leaving the new claims in the parent application. A notice of
allowance from the examiner is expected soon.
No assurance can be given that a patent will issue or that if a patent does
issue that it will be broad enough to provide significant protection to the
Company. Management of the Company believes that the steps taken by the Company
to protect its intellectual property are consistent with industry standards for
online, custom CD companies today.
The Company also relies on third-party software licenses, such as Microsoft
Development Network (MSDN), which provides software development tools. All
employees and contractors are required to and have entered into confidentiality
and invention assignment agreements. Suppliers, distributors and certain
customers are also required to enter into confidentiality agreements.
To date, the Company has received no notification that its services or products
infringe the proprietary rights of third parties. Third parties could however
make such claims of infringement in the future. Any future claims that do occur
may have a material adverse affect on the Company and its business.
7. EMPLOYEES
As of June 30, 1999, the Company had 12 full-time and 2 part-time employees.
While sourcing and recruiting appropriate technical personnel is often difficult
and competitive, the Company expects that its need to recruit additional
personnel in the future will not negatively affect its operations. Management
believes that its employee relations are good, and none of the Company's
employees are represented by a collective bargaining unit.
8. SPECIAL RISK FACTORS
Investors should carefully consider the following information which outlines
special market and other risk factors affecting the industry and the Company.
OUR ABILITY TO CONTINUE OPERATIONS IS IN QUESTION. Our history of operating
losses raises substantial doubt about our ability to continue operations. If
we are unable to obtain significant additional financing or otherwise obtain
working capital to fund our operations, we may be obliged to seek protection
of the bankruptcy courts. In particular, our independent certified public
accountants have added an emphasis paragraph to their report on our
consolidated financial statements as of June 30, 1999 and for the year ended
June 30, 1999, and for the period October 1, 1997 (date of inception) to June
30, 1998, relating to factors that raise substantial doubt about our ability
to continue as a going concern. The factors cited by them include the
following:
- continued losses
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- use of significant cash in operations
- lack of sufficient funds to execute our business plan
OUR FINANCIAL CONDITION IS HIGHLY UNCERTAIN AND WE NEED TO OBTAIN SIGNIFICANT
ADDITIONAL FINANCING TO AVOID BANKRUPTCY. As of the fiscal year ending June
30, 1999, our current assets were less than our current liabilities. We need
to raise significant additional financing or otherwise obtain working capital
to continue operations through the next year. If we do not raise the
necessary financing, we will probably have to seek the protection of the
bankruptcy courts and holders of our common stock would stand to lose their
entire investment.
DUE TO CHANGES IN OUR BUSINESS, OUR HISTORICAL FINANCIAL INFORMATION IS OF
MATERIAL RELEVANCE. The ability of the Company to generate revenue and income is
unproven, and changes in our business make an evaluation of our operating
history difficult. Our company must be considered in light of the risks,
expenses and difficulties encountered by companies in the new and rapidly
evolving market for online, custom CD technology and related enhanced services.
To address these risks, among other things, we must market our services and
build our brand names effectively, provide scalable, reliable and cost-effective
services, continue to grow our infrastructure to accommodate additional
customers and increased use of our products and services, expand its channels of
distribution, continue to respond to competitive developments and retain and
motivate qualified personnel.
WE NEED ADDITIONAL FINANCING IN ORDER TO CONTINUE OPERATIONS. The Company
currently plans to meet its capital requirements primarily through the issuance
of equity securities and, in the longer term, revenue from operations.
FUTURE SALES MAY HAVE A DILUTIVE EFFECT ON FUTURE SALES OF SECURITIES. Future
sales of substantial amounts of our common stock in the public market could
adversely affect the market price of the common stock and our stockholders could
experience dilution in their stock ownership and in the value of their shares.
Dilution is a reduction in the value of the holder's investment measured by the
difference between the purchase price of the shares of the common stock and the
net tangible book value of the shares after the purchase takes place. As of
September 17, 1999, there were 14,631,157 shares of common stock outstanding of
which 12,147,402 are restricted or affiliate shares ("Restricted Shares"). Those
Restricted Shares will gradually be converted to free-trading shares, the sale
of which could have a material adverse effect on the future market price of our
common stock.
OUR SHARES WILL BE TRADED ON THE SO-CALLED "PINK SHEETS." Recently, the NASD
imposed eligibility requirements, which were approved by the U.S. Securities and
Exchange Commission ("SEC"), for listing on the OTCBB. As a result of these new
eligibility requirements, we are required to register under the Securities
Exchange Act of 1934 (the "Exchange Act") in order to maintain a listing on the
OTCBB. The current phase-in schedule for the new eligibility requirements
provide that we must meet the requirements on or before October 7, 1999,
including filing and clearing a
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registration statement under the Exchange Act with the SEC. We expect to be
delisted on October 7, 1999. We believe there will continue to be a market for
the Company's stock. This is because the Company qualifies for an SEC exemption
that will allow it to automatically be quoted on the National Quotation Bureau's
"Pink Sheets" until such time as the eligibility requirement for the OTCBB is
met. Trading on the "Pink Sheets" will result in a less liquid market for our
stock than would exist on the OTCBB.
IF WE DO NOT ADAPT TO RAPID TECHNOLOGICAL CHANGE, OUR BUSINESS WILL BE ADVERSELY
AFFECTED. Our success is highly dependent upon our ability to develop new and
enhanced services, and related products that meet changing customer
requirements. At present, our two main products -- CDK-TM- and MixFactory-TM- --
are both available and being sold to the public. Nonetheless, the market for our
services is characterized by rapidly changing technology, evolving industry
standards, emerging competition and frequent new and enhanced software, service
and related product introductions. In addition, the software market is subject
to rapid and substantial technological change. To remain successful, we must be
responsive to new developments in hardware and semiconductor technology,
operating systems, programming technology, and computer capabilities. In many
instances, the new and enhanced services, products, and technologies are in the
emerging stages of development and marketing, and are subject to the risks
inherent in the development and marketing of new software, services, and
products. We may not successfully identify new service opportunities, and
develop and bring new and enhanced services and related products to market in a
timely manner; there can be no assurance that any such services, products or
technologies will develop or will be commercially successful, that we will
benefit from such developments or that services, products, or technologies
developed by others will not render our services, and related products
noncompetitive or obsolete. If we are unable, for technological or other
reasons, to develop and introduce new services and products in a timely manner
in response to changing market conditions or customer requirements, or if new or
enhanced software, services, and related products do not achieve a significant
degree of market acceptance, our business, operating results, and financial
condition would be materially adversely affected.
WE FACE INTENSE COMPETITION IN THE CD DEVELOPMENT MARKET. Portions of the
online, custom CD market are becoming increasingly competitive. We expect in the
coming years to face significant competition in all of its customer markets.
Although companies have focused their efforts as multi-session CD development,
we expect new companies will emerge and compete for the same customers. We
expect competition to increase from both established and emerging companies and
that such increased competition will result in reduced costs which could
materially adversely affect our business, operating results, and financial
condition. Moreover, our current and potential competitors, some of whom have
significantly greater financial, technical, marketing, and other resources than
the Company, may respond more quickly than we do to new or emerging technologies
or could expand to compete directly against us. Accordingly, it is possible that
current or potential competitors could rapidly acquire significant market share.
There can be no assurance that we will be able to compete against current or
future competitors successfully or that competitive pressures faced by us will
not have a material adverse effect on our business, operating results, and
financial condition.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY AFFECT OUR BUSINESS. Only a
small body of laws and regulations currently apply specifically to content of,
access to, or commerce on, the Internet. It is possible that laws and
regulations with respect to the Internet may be adopted by governments in any of
the jurisdictions in which we can sell our products, covering issues such as
user privacy, freedom of expression, pricing, characteristics and quality of
products and services, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with Internet communications. The nature of future legislation and the
manner in which it may be interpreted and enforced cannot be fully determined
and, therefore, legislation could subject us and/or our customers to potential
liability, which in turn could have a material adverse effect on our business,
results of operations and financial condition. In addition, applicability to the
Internet of existing laws governing issues such as property ownership, copyright
and other intellectual property issues, taxation, libel, obscenity and personal
privacy is uncertain. The vast majority of such laws were adopted prior to the
advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies. Changes to such laws intended to address these issues could create
uncertainty in the marketplace that could reduce demand for our services or
increase the cost of doing business as a result of costs of litigation or
increased service delivery costs, or could in some other manner have a material
adverse effect on our business, results of operations and financial condition.
In addition, because our services are available over the Internet virtually
worldwide, and because we facilitate sales by our customers to end users located
in multiple provinces, states and foreign countries, such jurisdictions may
claim that we are required to qualify to do business as a foreign corporation in
each such state/province or that we have a permanent establishment in each such
foreign country. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties for failure to qualify and could result in the inability to enforce
contracts in such jurisdictions. Any new legislation or regulation, or the
application of laws or regulations from jurisdictions whose laws do not
currently apply to our business, could have a material adverse effect our
business, results of operations and financial condition.
WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL. Our success depends to a significant
degree upon the continued contributions of CDKnet's key management, marketing,
service and related product development and operational personnel, including its
Chairman, and Chief Executive Officer, Chief Financial Officer and Secretary,
Steven A. Horowitz; its President and Chief Operating Officer, Shai Bar-Lavi;
its Senior Vice President of Business Development, Michael W. Jolly; its Senior
Vice President of Software Development and Chief Technical Officer , Keith A.
Fredericks; and its Vice President of Marketing, Russell A. Kern. Our operations
could be affected adversely if, for any reason, any of these officers ceased to
be active in our management. We maintain proprietary nondisclosure and
non-compete agreements with certain employees, contractors and
collaborators/partners. We do not have key person life insurance policies on
directors, executive officers or key employees. Competition for employees in the
multimedia technology industry is intense, and there can be no assurance that we
will be able to attract and retain enough qualified employees. If our business
grows, it may become increasingly difficult to hire, train and assimilate the
new employees needed. Our inability to retain and attract key
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<PAGE>
employees could have a material adverse effect on our business, operating
results, and financial condition.
WE MAY HAVE DIFFICULTY IN MANAGEMENT OF GROWTH. We may experience a period of
rapid growth which could place a significant strain on its resources. Our
ability to manage growth successfully will require us to continue to improve our
operational, management and financial systems and controls as well as to expand
our work force. A significant increase in our customer base would necessitate
the hiring of a significant number of additional customer service care and
technical support personnel as well as computer software developers and
technicians, qualified candidates for which, at the present time, are in short
supply. We must manage relationships with a growing number of third parties as
we seek to complement our service offerings and increase its sales efforts. If
our management is unable to manage growth effectively, hire needed personnel,
expand and adapt our computer infrastructure or improve our operational,
management, and financial systems and controls, our business, operating results,
and financial condition could be materially adversely affected.
PRODUCT DEFECTS CAN ADVERSELY AFFECT OUR BUSINESS. The software products
utilized by us could contain errors or "bugs" that could adversely affect the
performance of services or damage a user's data. In addition, as we increase our
share of the multi-session CD market, software reliability and security demands
will increase. Attempts to limit our potential liability for warranty claims
through limitation-of-liability provisions in its customer agreements. There can
be no assurance that the measures taken by us will prove effective in limiting
our exposure to warranty claims. Despite the existence of various security
precautions, our computer infrastructure may be also vulnerable to viruses or
similar disruptive problems caused by its customers or third parties gaining
access to the Company's processing system.
WE HAVE LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY AND THERE IS A RISK OF
THIRD PARTY CLAIMS. We regard some of our services as proprietary and rely
primarily on a combination of patent, copyright, trademark and trade secret
laws, employee and third party non-disclosure agreements, and other intellectual
property protection methods to protect our services. Existing intellectual
property laws afford only limited protection, and it may be possible for
unauthorized third parties to copy our services and related products or to
reverse engineer or obtain and use information that we regard as proprietary.
There can be no assurance that our competitors will not independently develop
services and related products that are substantially equivalent or superior to
ours.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10 and the documents incorporated herein by reference contain
forward-looking statements based on current expectation, estimates and
projections about the Company's industry, management's beliefs and certain
assumptions made by management. All statements, trends,
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analyses and other information contained in this report relative to trends in
the Company's financial condition and liquidity, as well as other statements,
including, but not limited to, words such as "anticipate," "believe," "plan,"
"intend," "expect," and other similar expressions constitute forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to certain risks and uncertainties that are
difficult to predict. Accordingly, actual results may differ materially from
those anticipated or expressed in such statements. Potential risks and
uncertainties include, among others, those set forth below. (See "Special Risk
Factors" above.) Particular attention should be paid to the cautionary
statements involving the Company's limited operating history, the
unpredictability of its future revenues, the unpredictable and evolving nature
of its business model, the competitive online, multimedia CD industry and the
risks associated with capacity constraints, systems development, management of
growth and business expansion, as well as other risk factors.
1. GENERAL
To date, we have funded our operations through equity financing and
convertible debt financing and have had no lines of credit or other similar
credit facility available to us. We rely on our ability to raise money
through equity financing to finance all of our business endeavors. The
majority of funds have been allocated to the development of CDKTM products
(including CDK-TM- 1.0, CDK-TM- 2.0, and Gameplayer 2.0) and our new
E-commerce facility MixFactory.com-TM-.
Our history of operating losses raises substantial doubt about our ability to
continue operations. If we are unable to obtain significant additional
financing or otherwise obtain working capital to fund our operations, we may
be obliged to seek protection of the bankruptcy courts. Our independent
certified public accountants have added an emphasis paragraph to their report
on our consolidated financial statements as of June 30, 1999 and for the year
ended June 30, 1999, and in the period October 1, 1997 (date of inception) to
June 30, 1998, relating to factors that raise substantial doubt about our
ability to continue as a going concern. The factors cited by them include the
following:
- continued losses
- use of significant cash in operations
- lack of sufficient funds to execute our business plan
During fiscal 1999, the Company raised a total of $2.1 million from the
following private placements of debt and equity:
- Between September 4, 1998 and January 21, 1999, the
Company raised $600,000 through the issuance of
$600,000 in 6% Subordinated Convertible Debentures
and five-year warrants to purchase 60,000 shares of
common stock at $3.00 per share.
- On February 2, 1999, the Company raised $1,500,000
through the issuance of $1,500,000 in 5.75%
Subordinated Convertible Debentures and four-
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year warrants to purchase 100,000 shares of common
stock at $1.75 per share.
During fiscal 1998, the Company raised a total of $ 224,986 from the
following private placements of debt and equity:
- On May 21, 1998, the Company issued 2,999,985
common shares as consideration for $224,986 as
part of a private placement. The Company issued
7,300,363 common shares in connection with the
acquisition of a combined 73.85% of the equity
interests in CDKnet, LLC.
The proceeds from these issues have and will be used to continue the ongoing
operation of the Company and development of CDK-TM-, Gameplayer, and
MixFactory.comTM-TM- product lines.
RESULTS OF OPERATIONS - 1999 COMPARED TO THE PERIOD ENDED JUNE 30, 1998.
During the fiscal year ending June 30, 1999, the Company incurred a net loss of
$6,147,600 on revenues of $474,344 compared to a loss of $1,184,475 on revenues
of $616,137 in the prior period ended June 30, 1998. Revenues resulted from
sales of products from its CDKnet product line. Revenues declined from $616,137
in the prior period because the Company's financial condition restricted its
ability to promote its products. Cost of revenues in fiscal 1999 were
approximately $288,762 or 61% compared to $415,769 or 67% in the prior period.
The Company believes this minor improvement is within normal variances and is
not material.
The majority of the expenses incurred during the year ended June 30, 1999 were
research and development expenses related to the continued new development and
enhancement of the CDKnet product line, the creation of MixFactory.comTM, and
making the E-commerce venue operate. From July 1, 1999 to the present, the
Company has expended an additional $142,000 on research and development.
Selling, general and administrative expenses increased from $1,580,478 in the
prior period to $3,257,551 principally because the prior period was only eight
months and because of material increases in payroll, consulting and professional
fees related to expansion of the Company's business, research and development
activities and operating as a public company.
Depreciation and amortization expenses increased from $ 133,776 in the prior
period to $1,981,130 principally because of amortization of goodwill related to
the purchase of certain minority interests of KME and various shareholders of
KME as well as increases due to increases in fixed assets.
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<PAGE>
Other significant expenses incurred during this period arose in the from of
the fair value charges for stock options and warrants granted principally for
consulting and legal services of $450,870 and the discount on certain
convertible debentures and other loans of $1,038,008.
At year end, cash amounted to $231,347 and current liabilities were $829,051.
The Company does not have sufficient funds to finance operations for the next
year. The Company expects to finance its operations through revenues from sales
of its products and services and through private placements of equity and debt
securities. If the Company is unable to raise additional financing, it may be
unable to continue operations. (See "Item 1. Description of Business and Special
Risk Factors" above.)
In March of 1999, the Company received approval by the United States Patent
Office of a variety of claims made in its patent application for CDK-TM-
technology. Subsequent to year ended June 30, 1999, a submission has been made
to the United States Patent Office for reconsideration of the unapproved claims
and filing publication and perfection of the Company's claims.
The Company is now actively marketing and beginning to sell CDKnet products and
has launched the first of several MixFactory-TM- sites.
RESULTS OF OPERATIONS - OCTOBER 1, 1997 TO JUNE 30, 1998.
From October 1, 1997 (date of inception) to June 30, 1998, the Company incurred
a net loss of $1,184,475 on revenues of $616,137 at year ended June 30, 1998,
cash amounted to $469,267 and current liabilities totaled $443,355.
FACTORS AFFECTING FUTURE RESULTS.
The Company does not provide forward looking financial information. However,
from time to time statements are made by employees that may contain forward
looking information that involve risks and uncertainties. In particular,
statements contained in this Form 10-SB that are not historically containing
forward looking statements and are made under the Safe Harbor Corporate Private
Sector Litigation Reform Act of 1995. The Company's actual result of operations
and financial condition have varied and may in the future vary significantly
from those stated in any forward looking statement. Factors that may cause such
differences include without limitation the risk, uncertainties and other
information discussed within this Form 10-SB, as well as the accuracy of the
Company's internal estimate of revenue and operating expense levels.
The Company faces a number of risk factors which may create circumstances beyond
the control of management and adversely impact the ability to achieve its
business plan. The key risk factors are the Company's financial condition which
is discussed in under "General" above as well as those set forth in "Item 1.
Description of Business and Special Risk Factors" above.
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YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates to avoid system failures
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements.
As of April 23, 1999, the Company completed the process of determining
whether or not its products, its internal systems, computers and software,
and the products and systems of its critical vendors and suppliers are Year
2000 compliant. The cost associated with this review has been minimal,
primarily because the Company has utilized internal personnel to complete the
review, and because the Company's systems are relatively new. System 1.0 was
tested on Windows 95 operating system and it was found to be fully Y2K
compliant. System 2.0 was specifically designed without date dependent code
and will not be affected by Y2K. The CDK-TM- 2.0 product was tested and found
to be Y2K compliant on September 15, 1999.
Given these results of its Year 2000 review, the Company believes that it might
experience some disruptions in certain of its peripheral operating systems or
with certain non-critical vendors but will otherwise be unaffected. The Company
believes that sufficient redundancy exists in its systems and vendor
relationships to minimize any substantial detrimental effects on the Company's
operations and financial position.
Although the Company believes that its Year 2000 review has identified all
material Year 2000 issues, there can be no absolute assurance that the Company
identified and resolved all such issues. If the Company discovers Year 2000
problems in the future, it may not be able to develop, implement, or test
remediation or contingency plans in a timely or cost-effective manner.
ITEM 3. DESCRIPTION OF PROPERTY
The Company's manufacturing, research and development is conducted out of
CDKnet's office located at 250 West 57th Street, New York, New York 10019.
The New York City office consists of approximately 4,825 square feet, which
is subleased from Kelly Music and Entertainment Corp. pursuant to a
month-to-month arrangement that will expire on April 30, 2000. The annual
lease rate is approximately $135,600. The Company offices may be contacted by
telephone at 516-222-2345. All property is insured to industry standards.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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1. SECURITY OWNERSHIP OF CERTAIN NON-MANAGEMENT
BENEFICIAL OWNERS
The following are the Company's non-management, beneficial owners of more than 5
percent of the outstanding shares amount of its common stock as of September 17,
1999:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Beneficial Stockholder of Beneficial Ownership Class (1)(2)
- ---------------------- ----------------------- ------------
<S> <C> <C>
Kelly Music & Entertainment Corp. 1,798,745 12.2%
250 West 57th Street
New York, NY 10019
Alvin Pock 936,727 6.4%
595 Stewart Avenue
Garden City, New York 11530
Gary Segal 913,251 6.2%
6007 Ft. Hamilton Parkway
Brooklyn, New York 11219
Michael Sonnenberg 847,878 5.8%
595 Stewart Avenue
Garden City, New York 11530
Casa di Cura Dr. Pederzoli Spa 1,153,896 7.3%
Beneficial Owners as a group (3) 7,976,778 54.5%
</TABLE>
- --------------------------------------------------------
Notes to table of non-management beneficial shareholders
(1) There were 14,631,157 shares of common stock outstanding as of
September 17, 1999.
(2) Except as described in footnote (3) below, the persons named in the
table have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them, subject to the
information contained in this table and these notes.
(3) As set forth in this table, there are six individuals or entities who
are not members of the Company's management each of whom individually
owns 5% or more of the Company's common stock. In addition to these
individuals, there is a large group of individuals who constitute
beneficial owners of the Company's common stock pursuant to the terms
of the Company's Stockholders Agreement dated May 7, 1998. Under the
Stockholder's Agreement, its 35 signatories are required to vote as a
class under certain circumstances. As a result, the signatories as a
group may constitute beneficial owners of the Company's common stock
although each individually owns less than 5% of the Company's common
stock. The
(4) Consists solely of shares which may be obtained upon the conversions
of 1,500,000 Series A Preferred Stock after November 1, 1999. The
Series A Preferred Shares may be converted into shares of common
stock in accordance with a formula which permits the holders to
convert the shares into common stock at a conversion price which is
to be 75% of the average market price of the Company's common stock
during the 5 day period ending 1 day prior to the date of
conversion. The holders of the Series A Preferred Shares are also
entitled to an additional number of common shares based upon the
date a Registration Statement is filed, which permits them to sell
the shares issuable upon the conversion.
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<PAGE>
voting and certain other provisions of the Shareholders Agreement have
been rescinded by 16 of the signatories to the Shareholders Agreement.
The Company believes it is the position of the signatories to the
Shareholders Agreement that they do not constitute a "group" as such
term is defined under Rule 13(d)(3) promulgated under the Securities
Exchange Act of 1934, as amended.
2. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the share ownership
of the Company's common stock by its officers and directors, both individually
and as a group, and by the record and/or beneficial owners of more than 5
percent of the outstanding amount of such stock as of September 17, 1999:
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<PAGE>
SHARES OF COMMON STOCK OWNED BENEFICIALLY AND OF
RECORD OWNED BY MANAGEMENT
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature Percent of
Class of of Beneficial Owner of Beneficial Ownership Class
------------------- -----------------------------
Stock Owned(1)(2)
- ----- -----------
<S> <C> <C> <C>
Common Steven A. Horowitz 3,344,667(3) 20.7%
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Andrew J. Schenker 73,367(4) *
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Anthony J. Bonomo 50,000(5) *
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Shai Bar-Lavi 750,000(6) 4.9%
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Keith A. Fredericks 10,000(7) *
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Michael W. Jolly 10,000(7) *
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Russell A. Kern 143,333(8) 1.9%
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
All officers and directors 4,381,367(9) 26.2%
as a group (7 persons)
</TABLE>
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- -----------------------------------------
Notes to table of beneficial shareholders
*Denotes less than 1%
(1) There were 14,631,157 shares of common stock outstanding as of
September 17, 1999.
(2) Except for the limitations set forth in the Shareholders Agreement
dated May 7, 1998 (attached hereto as Exhibit 4.3), the persons named
in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to
the information contained in this table and these notes.
(3) Mr. Horowitz also has options to purchase 750,000 shares of the
Company's common stock under the Plan. Mr. Horowitz is the Chairman
of the Board of Directors, CEO, CFO and Secretary of the Company.
The total includes 750,000 stock options granted under the Company's
1998 Equity Incentive Plan (the "Plan"). This figure does not
include 150,000 warrants issued to Horowitz, Mencher, Klosoloski &
Nestler P.C., a law firm controlled by Mr. Horowitz, in connection
with a loan and loan extension.
(4) Mr. Schenker also has options to purchase 50,000 shares of the
Company's common stock under the Plan. Mr. Schenker is a director of
the Company.
(5) Mr. Bonomo has options to purchase 50,000 shares of the Company's
common stock under the Plan.
(6) Mr. Bar-Lavi has warrants to purchase 750,000 shares of the Company's
common stock under the Plan.
(7) Mr. Fredericks and Mr. Jolly each have options to purchase 10,000
shares of the Company's common stock under the Plan.
(8) Mr. Kern has options to purchase 143,333 shares of the Company's common
stock under the Plan.
(9) Includes all stock options (1,013,333 shares of common stock) and
1,500,000 warrants owned by officers and directors.
3. CHANGE IN CONTROL
There are no arrangements known to the Company the operation of which may result
in a change of control of the Company.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
1. DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the directors and executive officers and key employees
of the Company as of September 23, 1999, their respective ages, the year in
which each was first elected or appointed a director, and any other office in
the Company held by each director.
<TABLE>
<CAPTION>
NAME OF DIRECTOR/ AGE POSITION HELD DATE ELECTED
POSITION HELD OR APPOINTED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Steven Horowitz 40 Director, Chairman, May 1998
CEO, CFO and Secretary
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Shai Bar-Lavi 40 COO and President August 1999
Keith A. Fredericks 43 SR. Vice President of October 1998
Software Development and
Chief Technical Officer
Michael W. Jolly 31 SR. Vice President and October 1997
Chief Business
Development Officer
Russell A. Kern 32 Vice President of Marketing April 1998
Andrew J. Schenker 39 Director May 1998
Anthony J. Bonomo 40 Director May 1998
</TABLE>
2. FAMILY RELATIONSHIPS
No family relationship exists between or among any of the directors, executive
officers, and significant employees, as defined below, of the Company or any
person contemplated to become such.
3. BUSINESS EXPERIENCE
STEVEN A. HOROWITZ, ESQ. - Chairman, CEO, CFO and Secretary
Mr. Horowitz has served as Chairman of the Board of Directors, CEO, and
Secretary of the Company since May 1998, has served as CFO since October
1999, and has served as the managing member of Creative Technology and CDKnet
since October, 1998 and November, 1998, respectively. He is the founding
shareholder of Horowitz, Mencher, & Nestler, P.C., a Garden City, New
York-based law firm with offices in Huntington, New York and New York City.
Mr. Horowitz holds a degree from Hofstra University School of Law and a
Master of Business Administration degree in Accounting from Hofstra
University School of Business. Mr. Horowitz is an Adjunct Professor of Law at
Hofstra University School of Law. In 1986 and 1987, Mr. Horowitz was Director
of Taxes for Symbol Technologies, Inc., a New York Stock Exchange
corporation. Mr. Horowitz is a member of the American Bar Association and the
New York State Bar Association.
ANTHONY J. BONOMO - Director
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Mr. Bonomo has served as a director of the Company since June, 1998. He has,
since 1986, served in various executive capacities at Administrators for the
Professions, Inc., the Physicians' Reciprocal Insurers, one of the largest
medical malpractice carriers in New York States, including Executive Vice
President and COO from 1993 to 1995 and President from 1995 to the present. Mr.
Bonomo is a member of the Bar of the State of New York and serves as a board
member of several charitable associations and foundations.
ANDREW J. SCHENKER - Director
Mr. Schenker became a director of the Company in May, 1998. He is the Director
of Finance for North America Sales and Services Division at Symbol Technologies,
Inc. a manufacturer and world leader in bar-code based data transaction systems
based in Holbrook, New York. Since November 1986 he has held several financial
management positions at Symbol Technologies, Inc., most recently at the position
described above. He is also the trustee for several trusts and a public
foundation, as well as an Executive Committee member of the Smithtown School
District Industry Advisory Board.
SHAI BAR-LAVI - President
Having joined CDKnet as its President in August 1999, Mr. Bar-Lavi is directing
the CDKnet's business operations and development plans. Prior to joining CDKnet,
Mr. Bar-Lavi served as Chief Operating Officer of the Hungarian Broadcasting
Corporation, a publicly traded company. Mr. Bar-Lavi's experience with computers
goes back to the early `80s where he ran Sagy Computer Services, a
mainframe-based company providing payroll and accounting services.
KEITH A. FREDERICKS - SVP, Chief Technical Officer
As CTO and Senior Vice President of Software Development, Mr. Fredericks leads
the project planning, project management, design, implementation and testing of
all products. Mr. Fredericks joined the Company in 1998. Additionally, he works
with the marketing team to shape the Company's long term business objectives and
strategies. Prior to CDKnet, Mr. Fredericks served as CTO of Kelly Music and
Entertainment where he led the development of CDK-TM-. Before this, Mr.
Fredericks was a key member of the Networking and Communications group at Cray
Research for 8 years.
MICHAEL W. JOLLY - SVP, Chief Business Development Officer
Mr. Jolly is responsible for identifying and developing business opportunities
and strategic partnering opportunities within the entertainment industry.
Prior to joining CDKnet, Mr. Jolly served as Vice President of Marketing,
Secretary at Kelly Music and Entertainment Corp. (creator of CDK-TM-
Technology), where he developed music and entertainment products and built a
significant amount of music, movie and TV industry contact
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<PAGE>
relationships. Before that, Mr. Jolly held positions in which he developed
programing and packaging products in the network programming and in-flight
entertainment markets as well as serving as a Financial Advisor where he
provided financial, statistical and strategic planning to businesses. Mr. Jolly
has a B.S. in Marketing from Hofstra University.
RUSSELL A. KERN - VP, Director of Marketing
Mr. Kern is responsible for overseeing the CDKnet's daily operations and
identifying strategic alliance/business building opportunities. Further, Russell
works with the Business Development team and the Technical team to ensure
consistent branding is maintained through all communications and product
offerings.
Prior to joining CDKnet, Mr. Kern served three years as Director of Strategic
Planning at Poppe Tyson (now ModemMedia.PoppeTyson), developing successful Web
initiatives for a range of clients including IBM and Minolta. He also served
five years with BBDO Advertising planning for clients such as Visa USA,
Pepsi-Cola and Campbell's. In addition, he has several years experience in
direct-response marketing, developing DRTV, print and direct-mail programs. Mr.
Kern has a B.S. in Marketing from the Wharton School at the University of
Pennsylvania.
4. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
None of the directors or executive officers of the Company have been involved in
any legal proceedings during the past five (5) years that are material to an
evaluation of their ability or integrity as a director or executive officer of
the Company.
ITEM 6. EXECUTIVE COMPENSATION
1. EXECUTIVE OFFICER COMPENSATION
The following table sets forth all compensation paid by the Company as of the
fiscal year ended June 30, 1999 to all executive officers of the Company:
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation (9) Long-Term Compensation
----------------------- ----------------------
Awards Payouts
------ -------
Securities
Other Under- All
Annual Restricted lying Other
Name And Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary Bonus sation Award(s) SARs Payouts sation
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven A. Horowitz(1) FY99 $7,500 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
FY98 $7,500 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Robert Kelly(2) FY99 95,192.38 -- 39,600(7) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
FY98 80,769.30 -- 39,600(7) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ronald Leong(3) FY99 147,534.98 -- 8,400(8) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
FY98 75,000.00 -- 8,400(8) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Michael W. Jolly(4) FY99 69,615.38 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
FY98 54,250.00 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Keith A. Fredericks(5) FY99 57,499.91 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
FY98 27,885.00 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Russell A. Kern(6) FY99 79,999.92 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
FY98 12,923.06 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------
1 Mr. Horowitz is Chairman, CEO, CFO, and Secretary of the Company.
2 Mr. Kelly was formerly President of CDKnet. with the Company. His
tenure ended on March 1999.
3 Mr. Leong as the former President of the Company whose services ended
on May 31, 1999.
4 Mr. Jolly is Senior Vice President and Chief Business Development
Officer of the Company.
5 Mr. Fredericks is Senior Vice Presient and Chief Technical Officer of
the Company.
6 Mr. Kern is Vice President and Director of Marketing of the Company.
7 This figure represents compensation for an apartment for Mr. Kelly.
8 This figure represents compensation for an automobile allowance for Mr.
Leong.
9 In 2000, each of the named officers are to receive 2000 salary
compensation as follows:
-25-
<PAGE>
Steven A. Horowitz $1,500 per week as a consultant
Shai Bar-Lavi $6,250 bi-monthly
Michael W. Jolly $3,541.67 bi-monthly
Keith A. Fredericks $4,791.67 bi-monthly
Russell A. Kern $3,333.333 bi-monthly
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Percent Of
Number Of Total Options/
Securities SARs Granted
Underlying To Employees Exercise Or
Options/SARs In Fiscal Base Price
Name Granted (#) Year ($/Sh) Expiration Date
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Steven A. Horowitz 750,000 $ .60 5/20/08
- --------------------------------------------------------------------------------------------------
Michael W. Jolly 10,000 $1.00 4/18/04
- --------------------------------------------------------------------------------------------------
Russell A. Kern 10,000 $1.00 4/18/04
- --------------------------------------------------------------------------------------------------
Ronald Leong 175,000 $ .80 4/19/01
- --------------------------------------------------------------------------------------------------
Robert Kelly 0 -- --
- --------------------------------------------------------------------------------------------------
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number Of
Securities Value Of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARs Options/SARs
On Value At FY-End (#) At FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Steven A. Horowitz 0 0 750,000/0 $300,000/0
- --------------------------------------------------------------------------------------------------
Michael W. Jolly 0 0 10,000/0 0
- --------------------------------------------------------------------------------------------------
Russell A. Kern 0 0 10,000/0 0
- --------------------------------------------------------------------------------------------------
</TABLE>
-26-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Ronald Leong 0 0 0 $35,000/0
- --------------------------------------------------------------------------------------------------
</TABLE>
2. COMPENSATION OF DIRECTORS
None of the Company's directors were compensated in 1999 for their services.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. TRANSACTIONS WITH MANAGEMENT AND OTHERS; CERTAIN BUSINESS
RELATIONSHIPS; PROMOTERS
- During the year ended June 30, 1999 and the period October 1,
1997 to June 30, 1998, legal services of $168,393 and
$201,039, respectively, were provided by a firm (the "Firm")
in which the Company's Chairman, CEO, CFO, Secretary and
principal stockholder is the managing partner. Further, the
Firm provided office space and accounting services for which
no fees were paid.
- In fiscal 1999, the Company entered into a $150,000 demand
loan with the Firm at an interest rate of 11% and issued
150,000 stock warrants at $.66 exercisable through October 1,
2003. The detachable warrants with a fair value of $42,000
were accounted for as additional interest cost with a credit
to paid-in capital. At June 30, 1999, the outstanding loan
balance is $60,000.
- On May 15, 1998, the Company granted 150,000 stock options
with an exercise price of $.60 to a partner in the aforesaid
mentioned law firm for legal services rendered. The fair value
of such services was $63,000.
- During fiscal 1999, certain stockholders of the Company
provided loans to the Company aggregating $200,000. In
connection with the loans, the Company granted 200,000 stock
warrants with an exercise price of $.66, exercisable through
October 1, 2003. The detachable warrants with fair value of
$42,057 was accounted for as additional interest cost with a
corresponding credit to paid-in capital. The loans were
partially repaid and the outstanding balances were satisfied
through the exercise of stock warrants.
- During the year ended June 30, 1999 and the period October 1,
1997 to June 30, 1998, CDKnet provided noninterest-bearing
advances to KME of $29,033 and $848,541, respectively. Such
advances plus the secured notes from KME of $712,000 (see
Notes
-27-
<PAGE>
to Financials 2(a) and (d)) were extinguished as follows: (1)
$600,000 was deemed consideration in the purchase of KME's
interest in CDKnet, (2) $800,000 was accounted for as
repurchase by CDKnet of a portion of KME's ownership interest
in CDKnet, and (3) the remaining amounts of $29,033 in 1999
and $160,307 in 1998 were deemed uncollectible and recorded as
uncollectible advances.
- In June 1999, the Company entered into a Finder's Agreement
(attached hereto as Exhibit 10.13) with CDKnet's president,
Shai Bar-Lavi, effective as of August 1, 1999, and a third
party whereby the Company issued 100,000 warrants at an
exercise price of $1.00 to the third party upon execution of
the agreement and future fees for identifying financing,
purchase or venture transactions, as defined. During the year
ended June 30, 1999, the Company recorded an expense of
$100,000 representing the fair value of the warrants issued.
- In fiscal 1999, Steven A. Horowitz, a Director and Officer of
the Company, loaned the Company an aggregate of $121,018, at
no interest, all of which has been repaid.
- During the period from March 27, 1998 to March 5, 1999, the
Firm advanced various sums to the Company, at no interest,
totaling an aggregate of $227,000, all of which has been
repaid.
- During fiscal 1999, Steven A. Horowitz deposited the sum of
$145, 000 with Fleet Bank to collateralize a Fleet Bank loan
to the Company. The Company used the loan proceeds to finance
the purchase of manufacturing equipment from Bandai America
Incorporated.
2. INDEBTEDNESS OF MANAGEMENT
No member of management of the Company is or has been indebted to the Company in
an amount in excess of $60,000. No director or executive officer is personally
liable for repayment of amounts advanced any financing received by the Company.
ITEM 8. DESCRIPTION OF THE COMPANY'S SECURITIES
1. GENERAL
The Company is authorized to issue 40,000,000 shares of common stock of $0.0001
par value, per share and 5,000,000 authorized shares of preferred stock. Each
share of common stock of the Company, when fully paid for, will be validly
issued and outstanding, is entitled to one vote on all matters to be voted on by
shareholders, is entitled to equal dividends when and as declared by the board
-28-
<PAGE>
of directors from funds legally available therefor, and is entitled to a pro
rata share of the Company's net assets in the event of dissolution, liquidation
or winding up of the Company.
2. DIVIDEND POLICY
To date, the Company has not paid a cash dividend and is currently contractually
restricted from doing so.
3. REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports of its
operations, containing financial statements. The Company will also file annual
and quarterly reports as required by the Securities Exchange Act of 1934, as
amended.
4. TRANSFER AGENT
The Company's transfer agent is Interwest Transfer Company, 1981 East 4800
South, Suite 100, Salt Lake City, UT 84117, (804) 272-9294.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
1. MARKET INFORMATION
The Company's common stock is currently traded on the OTCBB/Pink Sheets under
the symbol "CDKX." As of September 17, 1999, the Company had 14,631,157 shares
of common stock outstanding; of this amount, 3,661,824 of such shares are
nonrestricted; 11,029,333 of such shares are restricted. As of September 17,
1999, the number of holders of record of the common stock, $0.0001 par value, of
the Company was 69.
The following table sets forth the range of high and low sales prices for the
stock for each full quarterly period within the two most recent fiscal years and
any subsequent interim period covered by the financials. The sales represent
prices between dealers, do not include retail markup, mark down or other fees or
commissions, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Calendar Quarter Bid Prices
Ended Low High
- ----------------------------------------------------------------------
<S> <C> <C>
</TABLE>
-29-
<PAGE>
<TABLE>
<S> <C> <C>
June 30, 1999 .937 3.125
March 31, 1999 .906 2.625
December 31, 1998 .500 1.843
September 30, 1998 .500 3.625
</TABLE>
2. DIVIDEND POLICY
To date, the Company has not paid a cash dividend and is currently contractually
restricted from doing so.
ITEM 2. LEGAL PROCEEDINGS
There is no litigation currently pending and the Company is not aware of any
disputes that may lead to litigation. There is, however, a disputed invoice with
OMNET Technology Corp., a supplier of CDs, for the amount of $67,323.78. The
Company and OMNET Technology Corp. are currently reviewing the matter.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There exists no disagreement between the Company and its accountants on any
matter of accounting principles or practice or financial statement disclosure.
The Company recently changed audit firms because its prior auditors were not
qualified to practice before the SEC.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
As of September 17, 1999, there are issued and outstanding 14,631,157 shares of
common stock which were issued or sold as follows:
- The Company issued 3,205,000 common shares, 600,000
convertible Class A Debentures, 1,500,000 convertible Class B
Debentures for cash of $2,100,000, net of issuance costs of
$248,150, and 1,553,498 Warrants to purchase common shares
during the year ended June 30, 1999 for cash proceeds of
$2,100,000, net of issues costs of $212,581, where 75,000
common shares and 100,000 Warrants were issued to Bandai
America Incorporated for the purchase of equipment used in the
Company's MixFactory.comTM, E-Commerce facility, 1,883,635
common
-30-
<PAGE>
shares were issued to Kelly Music and Entertainment, Inc. for
the purchase of its 26.15% interest in CDKnet thereby securing
for the Company 100% of the equity interests of CDKnet.
- During the period October 1, 1997 (date of inception)
to June 30, 1998, the Company issued 2,999,985 common shares
$224,986 as part of a private placement and 7,300,363 common
shares in connection with the acquisition of 73.85% of the
equity interests in CDKnet.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law sets forth the powers of the Company to indemnify officers,
directors, employees and agents. The Articles of Incorporation for the Company
provide as follows:
"A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the Delaware General corporation law, or (iv) for
any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is amended after the
date of incorporation of the Corporation to authorize corporate action
further eliminating or limiting the personal liability of directors,
then the liability of a director of the Corporation shall be eliminated
or limited to the fullest extent permitted by the Delaware General
Corporation law as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall no adversely affect any right or
protection of a director of the Corporation existing at the time of
such repeal or modification.
The Corporation shall, to the fullest extent permitted by Section 145
(or any other provision) of the Delaware general corporation Law, as
the same may be amended and supplemented, or by any successor thereto,
indemnify any and all officers and directors of the corporation form
and against any and all of the expenses, liabilities or other mattes
referred to in or converted by said Section. Such right to
indemnification provided for herein shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled
under any By-law, agreement, vote of stockholders or disinterested
directors or otherwise."
Except to the extent herein above set forth, there is no charter provision,
bylaw, contract, arrangement or statute pursuant to which any director or
officer of the Company is indemnified in any manner
-31-
<PAGE>
against any liability which he may incur in his capacity as such. The Company
does not maintain director and officer liability policy to fund the Company's
obligations as stated herein above.
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements of the Company are set forth below.
-32-
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountants 34
Financial Statements
Consolidated Balance Sheet 35
Consolidated Statements of Operations 36
Consolidated Statement of Stockholders' Equity 37
Consolidated Statements of Cash Flows 38
Notes to Consolidated Financial Statements 40 - 57
</TABLE>
-33-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
CDKNET.COM, INC.
We have audited the accompanying consolidated balance sheet of CDKNET.COM, INC.
and Subsidiaries (the "Company") as of June 30, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended June 30, 1999 and the period October 1, 1997 (date of inception)
to June 30, 1998. 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. As discussed in Note 11, the Company's
consolidated statements of operations, stockholders' equity and cash flows for
the period October 1, 1997 (date of inception) to June 30, 1998 were reaudited
and restated.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 consolidated financial position of CDKNET.COM, INC.
and Subsidiaries as of June 30, 1999, and the consolidated results of their
operations and their consolidated cash flows for the year ended June 30, 1999
and the period October 1, 1997 (date of inception) to June 30, 1998, in
conformity with generally accepted accounting principles.
As shown in the consolidated financial statements, since inception the Company
has sustained significant losses and used substantial amounts of cash in
operations. The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The
uncertainty as to the Company's ability to raise additional financing and
sustain profitable operations, as discussed in Note 1 to the consolidated
financial statements, raises substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from this uncertainty.
Melville, New York
September 21, 1999, except for Note 12(c) and (d), as to which
the date is October 5, 1999
-34-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEET
June 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 231,347
Accounts receivable 19,000
Due from officer 11,600
Prepaid expenses and other current assets 9,907
-------------
Total current assets 271,854
FURNITURE AND EQUIPMENT - at cost,
less accumulated depreciation and amortization of $152,286 489,053
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED,
less accumulated amortization of $1,472,753 5,668,504
INTANGIBLE ASSETS, less accumulated amortization of $452,467 919,736
OTHER ASSETS
Deferred financing costs, less accumulated amortization of $37,400 210,750
------------
$ 7,559,897
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 220,778
Accrued expenses and other current liabilities 415,334
Due to related party 125,000
Current portion of long-term debt and capitalized lease obligations 67,939
------------
Total current liabilities 829,051
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS,
net of current portion 205,416
SUBORDINATED CONVERTIBLE DEBENTURES 1,671,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.0001 per share; authorized
5,000,000 shares; none issued -
Common stock - par value $.0001, per share; authorized,
40,000,000 shares; 14,046,906, shares issued and outstanding 1,405
Additional paid-in capital 12,185,100
Accumulated deficit (7,332,075)
------------
4,854,430
------------
$ 7,559,897
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
-35-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period
October 1, 1997
(date of
inception) to
Year ended June 30,
June 30, 1998,
1999 as restated
--------- --------------
<S> <C> <C>
Net revenues $ 474,344 $ 616,137
Cost of revenues 288,762 415,769
----------- ------------
Gross profit 185,582 200,368
Selling, general and administrative expenses 3,257,551 1,580,478
Depreciation and amortization 1,981,130 133,776
---------- -----------
Loss from operations (5,053,099) (1,513,886)
Other expense (income)
Interest expense (income) , including interest relating to
beneficial conversion and debt discount of
$1,038,008 in 1999 1,094,501 (461)
Minority interest in loss of subsidiary (328,950)
---------- -----------
NET LOSS $(6,147,600) $(1,184,475)
---------- -----------
---------- -----------
Basic and diluted earnings (loss) per share $(.46)
-----
-----
Weighted-average shares outstanding -
basic and diluted 13,282,176
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-36-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Period October 1, 1997 (date of inception) to June 30, 1998
and year ended June 30, 1999
<TABLE>
<CAPTION>
Additional Total
Common Stock Member paid-in Accumulated stockholders'
Shares Amount Capital Capital Deficit Equity
---------- ------ ----------- ----------- ----------- -----------
Balance, October 1, 1997
<S> <C> <C> <C> <C> <C> <C>
Issuance of membership interest in Creative
Technology, LLC $ 1,735,000 $ 1,735,000
Common stock issued for exchange of member
capital of Creative Technology, LLC 6,000,000 $ 600 (1,735,000) $ 1,734,400
Common stock issued in merger with
International Pizza Group, Inc. 3,999,985 400 222,788 223,188
Common stock issued for purchase of
minority interests 1,300,363 130 3,146,571 3,146,701
Compensation related to stock option plan 147,000 147,000
Net loss, as restated $(1,184,475) (1,184,475)
---------- ------ ----------- ----------- ----------- -----------
Balance, June 30, 1998 11,300,348 1,130 - 5,250,759 (1,184,475) 4,067,414
Common stock and stock warrants issued for
purchase of fixed assets 75,000 8 143,742 143,750
Common stock issued for purchase of minority
interests 1,883,635 188 4,505,934 4,506,122
Debt discount 1,142,008 1,142,008
Conversion of subordinated debentures 476,358 48 324,952 325,000
Common stock and stock warrants issued for
financing costs 16,667 2 50,898 50,900
Exercise of stock options 116,084 12 69,988 70,000
Compensation related to stock option plan 201,000 201,000
Common stock and stock warrants issued for
services 175,000 17 395,698 395,715
Common stock issued in lieu of cash interest 3,814 9,121 9,121
Stock warrants issued for termination agreement 91,000 91,000
Net loss (6,147,600) (6,147,600)
---------- ------ ----------- ----------- ----------- -----------
Balance, June 30, 1999 14,046,906 $1,405 $ - $12,185,100 $(7,332,075) $ 4,854,430
---------- ------ ----------- ----------- ----------- -----------
---------- ------ ----------- ----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
-37-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period
October 1, 1997
(date of
Inception) to
Year Ended June 30,
June 30, 1998,
1999 As Restated
----------- -------------
<S> <C> <C>
Cash flows from operating activities $(6,147,600) $(1,184,475)
Net loss
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 1,981,130 133,776
Amortization of debt discount 1,038,008
Uncollectible advances 29,033 160,307
Compensation related to stock option plan 201,000 147,000
Common stock and stock warrants issued for services 395,715
Common stock issued in lieu of cash interest 9,121
Stock warrants issued for termination agreement 91,000
Minority interest in loss of consolidated subsidiary (328,950)
Changes in assets and liabilities
(Increase) decrease in accounts receivable 86,744 (105,744)
(Increase) decrease in inventory 3,883 (3,883)
(Increase) in due from officer (11,600)
(Increase) decrease in prepaid expenses and other
current assets 16,187 (26,094)
Increase in accounts payable 42,020 171,258
Increase in accrued expenses and other
current liabilities 76,328 344,696
----------- -----------
3,958,569 492,366
----------- -----------
Net cash used in operating activities (2,189,031) (692,109)
----------- -----------
Cash flows from investing activities
Purchase of furniture and equipment (212,407) (43,832)
Advances to related party (29,033) (848,541)
----------- -----------
Net cash used in investing activities (241,440) (892,373)
----------- -----------
Cash flows from financing activities
Proceeds from notes payable 791,938 93,750
Repayment of notes payable (491,465)
Proceeds from subordinated convertible debentures 2,100,000
Deferred financing costs (197,250)
Principal payments on capitalized lease obligations (10,672)
Proceeds from issuance of common stock 1,959,999
----------- -----------
Net cash provided by financing activities 2,192,551 2,053,749
----------- -----------
NET INCREASE (DECREASE) IN CASH (237,920) 469,267
----------- -----------
Cash at beginning of period 469,267 -
----------- -----------
Cash at end of period $ 231,347 $ 469,267
----------- -----------
----------- -----------
</TABLE>
-38-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Period
October 1, 1997
(date of
inception) to
Year Ended June 30,
June 30, 1998,
1999 As Restated
----------- ---------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 36,055 -
Income taxes - -
Noncash investing and financing transactions:
Fixed asset acquisitions financed through capitalized lease
obligations 113,553
Common stock and stock warrants issued for purchase
of fixed assets 143,750
Common stock issued for purchase of minority interest 4,506,122 $3,146,701
Debt discount 1,142,008
Issuance of stock upon conversion of subordinated debentures 325,000
Common stock and stock warrants issued for financing costs 50,900
Exercise of stock options for debt extinguishment 70,000
Purchase of business, net of cash acquired 1,500,000
Contribution of notes for ownership interest 805,516
Exchange of ownership interest for outstanding debt advances (800,000)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-39-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
CDKNET.COM, INC. and Subsidiaries, formerly named Technology Horizons, Inc.
(collectively the "Company"), is a New York-based Internet company that
provides products to its worldwide customers utilizing its internally
developed multimedia technology, CDK-TM-. The technology provides for the
enhanced integration of audio, video and Internet connectivity on a
standard compact disc ("CD").
The Company's consolidated financial statements include the accounts of
CDKNET.COM, INC. ("CDK") and its wholly-owned subsidiaries, Creative
Technology, LLC ("Creative"), a limited liability company, and CDKnet, LLC
("CDKnet"), a limited liability company. CDKnet became a wholly-owned
subsidiary after a series of acquisitions completed through July 1998.
Creative was formed October 1, 1997 with cash capital contributions of
$1,735,000. On November 11, 1997, Creative, Kelly Music & Entertainment,
Inc. ("KME"), and certain stockholders of KME formed CDKnet, which is the
operating entity. Creative acquired a 40% capital interest and voting
control in CDKnet for $1,500,000. On May 21, 1998, CDK, which was formed
to be the corporate owner of Creative, and the members of Creative
exchanged their ownership interest for 6 million shares of CDK's common
stock.
The Company has incurred net losses of $6,147,600 and $1,184,475 during the
year ended June 30, 1999 and the period October 1, 1997 (date of inception)
to June 30, 1998, respectively. Since June 30, 1999, the Company has had no
revenues. For the year ended June 30, 1999, and the period October 1, 1997
(date of inception) to June 30, 1998, net cash used in operating activities
was $2,189,031 and $692,109, respectively. The Company's cash requirements
were primarily financed though the sale of subordinated convertible
debentures and common stock aggregating approximately $4,060,000. The
Company does not maintain a credit facility with any financial institution.
The Company continues to incur expenses with respect to new product
development. As a result of the continued losses, the use of significant
cash in operations and the lack of sufficient funds to execute its business
plan, among other matters, there is substantial doubt about the Company's
ability to continue as a going concern. No adjustments have been made with
respect to the consolidated financial statements to record the results of
the ultimate outcome of this uncertainty.
-40-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 1 (CONTINUED)
Management's plans to remain a going concern require additional financing
until such time as sufficient cash flows are generated from operations.
Financings are anticipated to be in the form of additional debt and equity;
however, there can be no assurances that the Company will be able to obtain
sufficient financing to execute its business model, which is still in an
evolving stage. However, management believes that it will be able to secure
sufficient funding for operations at least for the next twelve months.
Further, management believes that operating expenses could be reduced to
fundable levels, if necessary. Subsequent to June 30, 1999, the Company
focused primarily on new product development and implemented a marketing
plan, including the hiring of marketing and sales personnel. Further, the
Company will need to build its brand name, provide scalable, reliable and
cost-effective services, continue to grow its infrastructure to accommodate
customers and increased use of its products and services, expand its
channels of distribution, and retain and motivate qualified personnel.
Subsequent to June 30, 1999, the Company issued 332,000 shares of common
stock and received net proceeds of $300,000. Further, the Company's CEO
and other parties have committed to invest $200,000.
In addition to the above equity financing, the Company also anticipates the
need to raise additional funds through public or private debt or equity
financing in order to take advantage of unanticipated opportunities,
including more rapid expansion or acquisitions of complementary businesses
or technologies, or to develop new or enhanced services and related
products, or otherwise respond to unanticipated competitive pressures.
There can be no assurance that additional financing will be available on
terms favorable to the Company, or at all. If adequate funds are not
available or are not available on acceptable terms, the Company may not be
able to take advantage of unanticipated opportunities, develop new or
enhanced services and related products, or otherwise respond to
unanticipated competitive pressures and the Company's business, operating
results and financial condition could be materially adversely affected.
NOTE 2 - MERGERS AND ACQUISITIONS
a. On November 11, 1997, CDKnet acquired certain assets of KME in exchange
for issuing to KME a 40% ownership interest in CDKnet valued at
$1,500,000. The assets acquired, including fixed assets and
intellectual property, represented the principal business of KME. No
liabilities were assumed in
-41-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 2 (CONTINUED)
connection with this acquisition. In addition, key employees of KME
became employees of CDKnet. CDKnet accounted for the acquisition as a
purchase. Creative, which controlled CDKnet under the terms of the
operating agreement, accounted for the results of operations from the
date of acquisition. The fair values of the intangible assets
acquired are being amortized on a straight-line basis over five years.
On the above date, certain principals of KME contributed certain
collateralized notes of KME aggregating $712,000 (see Note 2(d)) in
exchange for an equivalent dollar ownership interests in CDKnet. As
substantially all of the assets of KME consisted of membership
interests in CDKnet, the notes were recorded as a reduction of the
equity of CDKnet. Such notes were later used to redeem a portion of the
membership interest of these individuals.
b. On May 21, 1998, International Pizza Group, Inc. ("IPGI"), a
nonoperating public company with net assets (principally cash) of
approximately $225,000, acquired 100% of the outstanding common stock
of CDK (the "Acquisition") and changed its name to CDK. The Acquisition
resulted in the owners and management of CDK having effective control
of the combined entity. Under generally accepted accounting principles,
the Acquisition is considered to be a capital transaction in substance,
rather than a business combination. That is, the Acquisition is
equivalent to the issuance of stock by CDK for the net monetary assets
of IPGI, accompanied by a recapitalization, and accounted for as a
change in capital structure. Accordingly, the accounting for the
Acquisition is identical to that resulting from a reverse acquisition,
except that no goodwill is recorded. Under reverse acquisition
accounting, the post-reverse-acquisition comparative historical
financial statements of the "legal acquirer," IPGI, are those of the
"accounting acquiree," CDK. Accordingly, the financial statements of
CDK for the period from October 1, 1997 (date of inception) to June 30,
1998 are the historical financial statements of CDK for the same
period.
-42-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 2 (CONTINUED)
c. On June 3, 1998, the Company acquired the minority interests of two
members of CDKnet for $3,146,701. The consideration was paid through
the issuance of 1,300,363 shares of common stock. As a result of the
acquisition, the sellers held a reduced percentage ownership interest
in the Company. The Company accounted for the acquisition as a
purchase. The excess of the consideration over the estimated fair value
of the net assets acquired in the amount of $2,670,135 has been
recorded as cost in excess of fair value of net assets acquired and is
being amortized on a straight-line basis over five years.
d. On July 8, 1998, the Company entered into an agreement, subsequently
amended (the "Agreement"), based on terms previously agreed upon with
KME, to acquire the remaining minority interest for $5,171,122. The
consideration was (1) the retirement of $600,000 of notes (2) issuance
of 1,883,635 shares of the Company's common stock and (3) a cash
payment of $65,000. The amendment provided for the waiver of previously
agreed upon registration rights on common stock in excess of 250,000
shares, terminated any and all demand registration rights with certain
stockholders of KME and released the Company from any and all claims,
liabilities, demands and causes of action known or unknown which KME
could assert in the future, as defined.
The Company accounted for the acquisition as a purchase. The excess
consideration over the estimated fair value of the net assets acquired
of $4,471,122 has been recorded as cost in excess of fair value of net
assets acquired and is being amortized on a straight-line basis over
five years.
The following (unaudited) pro forma information has been prepared
assuming that the acquisition of KME and the minority interests had
occurred as of October 1, 1997, after giving effect to certain
adjustments, including amortization of goodwill. The (unaudited) pro
forma information is presented for informational purposes only and is
not necessarily indicative of what would have occurred if the
transactions had been made as of October 1, 1997.
<TABLE>
<S> <C>
Net revenues $ 616,137
Net loss (3,117,078)
</TABLE>
-43-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Company's significant accounting
policies:
REVENUE RECOGNITION
The Company recognizes revenue on the date the product is shipped to the
customer.
During the year ended June 30, 1999, two customers accounted for
approximately 51% and 16% of net revenues, respectively. For the period
October 1, 1997 (date of inception) to June 30, 1998, one customer
accounted for approximately 95% of the Company's net revenues.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs include expenses incurred by the Company to
develop new products and enhance the Company's existing products.
Research and development costs are expensed as incurred. During the year
ended June 30, 1999 and the period October 1, 1997 (date of inception) to
June 30, 1998, such costs aggregated approximately $211,000 and $132,000,
respectively.
INCOME TAXES
CDK files separate Federal, state and city corporate income tax returns.
Creative and CDKnet file separate Federal, state and city (where
applicable) partnership income tax returns. Earnings or losses from these
limited liability companies pass through directly to CDK.
The Company follows the asset and liability method of accounting for income
taxes by applying statutory tax rates in effect at the balance sheet date
to differences among the book and tax bases of asset and liabilities. The
resulting deferred tax liabilities or assets are adjusted to reflect
changes in tax laws or rates by means of charges or credits to income tax
expense. A valuation allowance is recognized to the extent a portion or all
of a deferred tax asset may not be realizable.
USE OF ESTIMATES
The Company uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that the Company uses.
-44-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 3 (CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE
Basic loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted loss per
share is computed using the weighted average number of shares of common
stock, adjusted for the dilutive effect of potential common shares
issued or issuable pursuant to stock options and stock warrants. Loss per
share has not been shown for the period October 1, 1997 (date of inception)
to June 30, 1998, as the Company operated as a limited liability
company/partnership for substantially the entire period. All potential
common shares have been excluded from the computation of diluted loss per
share as their effect would be antidilutive and, accordingly, there is no
reconciliation of basic and diluted loss per share for each of the periods
presented. Potential common shares that were excluded from the computation
of diluted loss per share consisted of stock options and stock warrants
outstanding, aggregating 2,824,914 and 1,200,000 as of June 30, 1999 and
June 30, 1998, respectively (see Note 8).
FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to the substantial doubt as to the Company's ability to continue as a
going concern, it is not practicable to estimate the fair value of the
Company's financial liabilities. Information concerning their terms is
contained in Notes 5 and 6.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost. Maintenance and repairs are
charged to expenses as incurred; major renewals and betterments are
capitalized. When items of furniture or equipment are sold or retired, the
related cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in the results of operations. Furniture and
equipment are depreciated using the straight-line method over their
estimated useful lives, which range from three to seven years. Leasehold
improvements are amortized over the term of the related lease or the useful
life of the improvements, whichever is shorter.
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
The cost in excess of fair value of net assets acquired ("goodwill") is
being amortized on a straight-line basis over five years.
-45-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 3 (CONTINUED)
INTANGIBLE ASSETS
Intangible assets, principally intellectual property acquired in connection
with an acquisition, are being amortized over the estimated useful life of
five years.
On an ongoing basis, management reviews the valuation and amortization of
goodwill and intangible assets to determine the possible impairment by
considering current operating results and comparing the carrying value to
the anticipated undiscounted cash flows of the related assets.
DEFERRED FINANCING COSTS
The costs associated with completed financings are being amortized ratably
over the term of the financing.
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at June 30, 1999:
<TABLE>
<S> <C>
Furniture $ 5,295
Equipment 629,751
Leasehold improvements 6,293
---------
641,339
Less accumulated depreciation and amortization 152,286
---------
$489,053
---------
---------
</TABLE>
Depreciation expense for the year ended June 30, 1999 and the period
October 1, 1997 (date of inception) to June 30, 1998 was $123,999 and
$28,287, respectively.
-46-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 5 - LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
TERM LOAN
In June 1999, the Company entered into a term loan with a lender.
Borrowings aggregating $175,000 under the agreement, which are
collateralized by the equipment and $145,000 in cash collateral provided by
the Company's CEO, are repayable in monthly installments of approximately
$3,500 including interest at 7.86% through March 2004.
CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under leases accounted for as capital
leases. The obligations require the Company to make monthly payments of
approximately $3,000 through May 2002.
The following is a summary of aggregate annual maturities of long-term debt
and capitalized lease obligations as of June 30, 1999.
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
2000 $ 83,418
2001 78,745
2002 75,719
2003 42,440
2004 31,826
--------
312,148
Less amounts representing interest 38,793
--------
273,355
Less current portion 67,939
--------
$205,416
--------
--------
</TABLE>
Interest paid for the year ended June 30, 1999 was approximately $2,500.
NOTE 6 - SUBORDINATED CONVERTIBLE DEBENTURES
6.00% SUBORDINATED CONVERTIBLE DEBENTURES
During the period September 4, 1998 through January 21, 1999, the Company
issued $600,000 in 6% Subordinated Convertible Debentures due September 1,
2003 with detachable five-year warrants (the "Notes") to purchase 60,000
shares of common stock of the Company at an exercise price of $3.00 per
share. The Notes are immediately convertible into common stock of the
Company at an effective
-47-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 6 (CONTINUED)
conversion price of the lower of (i) 70% of the average current market
price of the Company's common stock during the five days preceding the date
of the original issuance, or (ii) 75% of the average current market price
during the five-day trading period ending one trading day preceding the
date the Notes are converted. The agreement contains antidilution
provisions whereby the conversion price is subject to (downward) adjustment
in certain circumstances. The Company may redeem the Notes at any time for
120% of the principal amount of the Notes plus accrued interest. The Notes
are subordinated to the claims and rights of all Senior Debt, as defined by
the underlying agreement. In addition, the agreement contains covenants
limiting the Company's ability to pay dividends, incur new debt, enter into
certain transactions and reacquire common or preferred stock of the
Company. If an event of default occurs beyond a stated cure period the
notes shall become payable at the option of the holder. An event of default
includes, among others, the Company having its common stock suspended from
an exchange or over-the-counter market (see Note 12(d)).
In connection with the agreement, the Company recorded a discount on the
Notes in the aggregate amount of $238,000 resulting from the allocation of
proceeds of $203,000 to a beneficial conversion feature and the fair value
of the underlying warrants of $35,000. Due to the immediate conversion
rights under the agreement, the discount attributed to the beneficial
conversion feature was expensed on the date of issuance. The carrying value
of the Notes is being accreted to the face value of $600,000 using the
interest method over the life of the Notes. The accretion in fiscal 1999
was $20,000.
During the period from issuance to June 30, 1999, $325,000 in debentures
plus accrued interest of $2,500 was converted into 480,172 shares of the
Company's common stock.
In connection with the sale of the Notes, the Company incurred fees of
$60,000 and issued five-year warrants to purchase 30,000 shares of the
Company's common stock at $3.00 per share. The Company computed the
approximate fair value of the warrants issued to be $19,650 using the
Black-Scholes method.
5.75% SUBORDINATED CONVERTIBLE DEBENTURE
On February 2, 1999, the Company issued a $1,500,000, 5.75% Subordinated
Convertible Debenture due February 1, 2009 with detachable four-year
warrants (the "Debenture") to purchase 100,000 shares of common stock of
the Company at an exercise price of $1.75 per share. The Debenture is
immediately convertible into common stock of the Company at an effective
conversion price of the lower of (i) $1.30, or, (ii) subsequent to November
1, 1999, 75% of the average current market price during the five-day
trading period ending one trading day preceding the date the Debenture is
converted (limited to a minimum conversion price of $.60 through July 1,
2000). The agreement contains
-48-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 6 (CONTINUED)
antidilution provisions whereby the conversion price is subject to
(downward) adjustment in certain circumstances. The Company may redeem the
Debenture at any time for 150% of the principal amount of the Debenture
plus accrued interest. In addition, the Company, at its option, may convert
the Debenture into shares of 5.75% Convertible Preferred Stock having the
same rights as the Debenture. The Debenture is subordinated to the claims
and rights of all Senior Debt, as defined by the underlying agreement. In
addition, the agreement contains covenants limiting the Company's ability
to pay dividends, incur new debt, enter into certain transactions and
reacquire common or preferred stock of the Company. If an event of default
occurs beyond a stated cure period the notes shall become payable at the
option of the holder. An event of default includes, among others, the
Company having its common stock suspended from an exchange or
over-the-counter market (see Note 12(d)).
In connection with the agreement, the Company recorded a discount on the
Debenture in the aggregate amount of $756,000, resulting from the
allocation of proceeds of $663,000 to a beneficial conversion feature and
the fair value of the underlying warrants of $93,000. Due to the immediate
conversion rights under the agreement, the discount attributed to the
beneficial conversion feature was expensed on the date of issuance. The
carrying value of the Debenture is being accreted to the fair value of
$1,500,000 using the interest method over the life of the Debenture. The
accretion in fiscal 1999 was $4,000.
In connection with the sale of the Debenture, the Company incurred fees of
$135,000 and issued 16,667 shares of the Company's common stock having a
market value of $31,250.
Under terms of a registration rights agreement, the Company was required to
have an effective registration statement for the shares issuable upon
conversion of the Debentures by July 25, 1999 or incur daily penalties, as
stated. Effective July 26, 1999, the Company is incurring such penalties
payable monthly with the issuance of common stock.
-49-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 7 - INCOME TAXES
Temporary differences which give rise to deferred taxes are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Deferred tax assets
Net operating loss and other carryforwards $ 1,510,000 $ 377,000
---------- --------
Net deferred tax assets before valuation allowance 1,510,000 377,000
Less valuation allowance (1,510,000) (377,000)
---------- --------
Net deferred tax asset $ - $ -
---------- --------
---------- --------
</TABLE>
The Company has recorded a full valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized.
The Company's effective income tax rate differs from the statutory Federal
income tax rate as a result of the following:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Tax benefit at statutory rate $(2,090,000) $(403,000)
Nondeductible expense/nontaxable (income) - net 1,203,000 73,000
State benefit, net of Federal tax effect (246,000) (47,000)
Valuation allowance on net operating loss 1,133,000 377,000
---------- --------
$ - $ -
---------- --------
---------- --------
</TABLE>
The provision for Federal income taxes has been determined on the basis of
a consolidated tax return. At June 30, 1999, the Company had a net
operating loss carryforward for Federal income tax reporting purposes
amounting to approximately $3,975,000, expiring from 2018 through 2019. The
Internal Revenue Code of 1986, as amended, limits the amount of taxable
income the Company may offset with net operating loss carryforwards in any
single year. No Federal taxes were paid in the year ended June 30, 1999 and
the period October 1, 1997 (date of inception) to June 30, 1998.
NOTE 8 - STOCKHOLDERS' EQUITY
On February 2, 1999, the Company's Board of Directors amended the
certificate of incorporation, increasing the number of authorized shares
from 20 million to 45 million, of which 5 million are preferred shares.
-50-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 8 (CONTINUED)
WARRANTS
Warrant activity for the year ended June 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Weighted-
average
exercise
Shares Price
------ ---------
<S> <C> <C>
Outstanding at the beginning of the year - -
Issued 1,328,498 $.96
Exercised (116,084) $.66
---------
Outstanding at the end of the year 1,212,414 $.99
---------
---------
Warrants exercisable at year-end 1,212,414 $.99
---------
---------
Weighted-average fair value of warrants
granted during the year $.59
</TABLE>
Information, at date of issuance, regarding stock warrant grants during the
year ended June 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
average average
exercise fair
Shares Price Value
--------- ---------- ---------
<S> <C> <C> <C>
Exercise price exceeds market price 90,000 $3.00 $.66
Exercise price equals market price 418,498 $ .61 $.35
Exercise price is less than market price 820,000 $ .91 $.70
</TABLE>
-51-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 8 (CONTINUED)
The following table summarizes information about warrants outstanding and
exercisable June 30, 1999:
<TABLE>
<CAPTION>
Outstanding
and exercisable
----------------------------------------------
Weighted-
average Weighted-
remaining average
Number life in exercise
outstanding years price
----------- ------- ------
<S> <C> <C> <C>
Range of exercise prices
$.60 to $.85 877,414 3.69 $ .69
$1.00 to $1.25 145,000 4.33 1.03
$1.75 100,000 4.58 1.75
$3.00 90,000 4.17 3.00
-----------
1,212,414
-----------
-----------
</TABLE>
Certain warrant agreements contain a cashless exercise provision, whereby
the warrants may be exercised solely by the surrender of the warrants, and
without the payment of the exercise price in cash, for that number of
warrant shares determined by dividing the difference of the market price of
the shares of common stock issuable upon exercise of the warrants and the
warrant exercise price by the market price of the common stock on the date
of exercise.
STOCK OPTION PLAN
In 1998, the Company adopted the 1998 Equity Incentive Plan (the "Plan")
for employees, officers, consultants and directors of the Company, pursuant
to which the Company may grant incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock or deferred stock. The
Plan provides for each director to be granted (a) director stock options to
acquire 20,000 shares of common stock upon the initial acceptance to serve
as a member of the Board and (b) director options to acquire additional
shares immediately following the date of each annual meeting of
shareholders ranging from 10,000 shares in year one to 50,000 shares in
year five and thereafter. The total number of shares of the Company's
common stock available for distribution under the Plan is 3,000,000. The
Plan is administered by the stock option committee of the board, whose
members are appointed by the board
-52-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 8 (CONTINUED)
of directors, which has the authority to designate the number of shares to
be covered by each award, the vesting schedule of such award and cashless
exercise rights, among other terms. The option period during which an
option may be exercised shall not exceed ten years from the date of grant
and will be subject to such other terms and conditions of the Plan. In
addition, the Plan contains certain acceleration provisions in the event of
a "change in control," as defined by the underlying agreement. Unless the
stock option committee provides otherwise, option awards terminate when a
participant's employment or services end, except that a participant may
exercise an option to the extent that it was exercisable on the date of
termination for a period of time thereafter if the participant was
involuntarily terminated without cause. The Plan will terminate
automatically on June 30, 2008.
Incentive stock option awards are granted at prices equal to or above the
fair market value of the stock on the date of grant. Nonqualified stock
option awards and director options are granted at prices equal to 80% and
85%, respectively, of the fair market value of the stock on the date of
grant. As of June 30, 1999, 1,387,500 shares were available for granting of
options under the Plan.
The Company's stock option awards granted to employees, consultants and
directors for the year ended June 30, 1999 and the period October 1, 1997
(date of inception) to June 30, 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- --------------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,200,000 $.60 - -
Awards granted 412,500 $.85 1,200,000 $.60
----------- ---------
Outstanding at end of year 1,612,500 $.67 1,200,000 $.60
-----------
Options exercisable at year-end 1,612,500 $.67 1,200,000 $.60
----------- ---------
----------- ---------
Weighted-average fair value
of options granted during
the year $.57 $.42
</TABLE>
-53-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 8 (CONTINUED)
The following information applies to options outstanding and exercisable at
June 30, 1999:
<TABLE>
<CAPTION>
Outstanding
and exercisable
---------------------------------------------
Weighted-
average Weighted-
remaining average
Number life in exercise
outstanding years price
----------- ----------- --------
<S> <C> <C> <C>
$ .60 1,350,000 8.94 $ .60
$1.00 262,500 4.42 $1.00
---------
1,612,500
---------
---------
</TABLE>
At June 30, 1999, there were approximately 5,738,000 shares of common stock
reserved for issuance pursuant to outstanding stock warrants, the stock
option plan and subordinated convertible debentures.
The Company accounts for stock-based compensation under the guidelines of
APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," as allowed by Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation."
Accordingly, no compensation expense was recognized concerning stock
options granted to key employees and to members of the board of directors,
as such stock options were granted to board members in their capacity as
directors. Compensation expense of $450,870 and $147,000 was recognized for
the year ended June 30, 1999 and the period October 1, 1997(date of
inception) to June 30, 1998, respectively, for stock warrants and stock
options granted to consultants.
During the year ended June 30, 1999, the Company issued 175,000 stock
warrants to CDKnet's former president in connection with a termination and
severance agreement. In addition to severance payments, the Company
recorded an expense of $91,000, representing the fair value of the stock
warrants with a credit to paid-in capital.
-54-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 8 (CONTINUED)
If the Company had elected to recognize compensation expense based upon the
fair value at the grant date for options granted to key employees and to
members of the board of directors consistent with the "fair value"
methodology prescribed by SFAS No. 123, the Company's net loss and net loss
per share for the year ended June 30, 1999 and net loss for the period
October 1, 1997 (date of inception) to June 30, 1998 would be reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Net loss
As reported $(6,147,600) $(1,184,475)
Pro forma (6,183,225) (1,541,475)
Net loss per common share - basic and diluted
As reported $(.46)
Pro forma (.46)
</TABLE>
The fair value of each stock warrant or option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions for: dividend yields of zero in 1999
and 1998; risk-free interest rates ranging from 4.30% to 5.40% in 1999 and
5.70% in 1998; expected terms of 1 to 5 years in 1999 and 5 years in 1998;
and expected stock price volatility of 85% in 1999 and 1998.
NOTE 9 - RELATED PARTY TRANSACTIONS
a. During the year ended June 30, 1999 and the period October 1, 1997
(date of inception) to June 30, 1998, legal services of $168,393 and
$201,039, respectively, were provided by a firm (the "Firm") in which
the Company's CEO and principal stockholder is the managing partner.
Further, the Firm provided office space and accounting services for
which no fees were paid.
In fiscal 1999, the Company entered into a $150,000 demand loan with
the Firm at an interest rate of 11% and issued 150,000 stock warrants
at $.66 exercisable through October 1, 2003. The detachable warrants
with a fair value of $42,000 were accounted for as additional interest
cost with a credit to paid-in capital. At June 30, 1999,the outstanding
loan balance is $60,000.
On May 15, 1998, the Company granted 150,000 stock options issued under
the Plan (see Note 8) with an exercise price of $.60 to a partner in
the aforementioned law firm for legal services rendered. The fair value
of such services was $63,000.
-55-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 9 (CONTINUED)
b. During fiscal 1999, certain stockholders of the Company provided loans
to the Company aggregating $200,000. In connection with the loans, the
Company granted 200,000 stock warrants with an exercise price of $.66,
exercisable through October 1, 2003. The detachable warrants with fair
value of $42,057 was accounted for as additional interest cost with a
corresponding credit to paid-in capital. The loans were partially
repaid and the outstanding balances were satisfied through the exercise
of stock warrants.
c. During the year ended June 30, 1999 and the period October 1, 1997(date
of inception) to June 30, 1998, CDKnet provided noninterest-bearing
advances to KME of $29,033 and $848,541, respectively. Such advances
plus the notes from KME of $712,000 (see Note 2(a) and (d)) were
extinguished as follows: 1) $600,000 was deemed consideration in the
purchase of KME's interest in CDKnet, 2) $800,000 was accounted for as
repurchase by CDKnet of a portion of KME's ownership interest in CDKnet
and 3) the remaining amounts of $29,033 in 1999 and $160,307 in 1998
were deemed uncollectible and recorded as uncollectible advances.
d. In June 1999, the Company entered into a finder's agreement with a
consultant, who became CDKnet's president effective as of August 1,
1999, and a third party whereby the Company issued 100,000 stock
warrants at an exercise price of $1.00 to the third party upon
execution of the agreement and agreed to pay both parties future fees
upon consummation of financing, purchase or venture transactions with
entities introduced by them, as defined. During the year ended June 30,
1999, the Company recorded an expense of $100,000 representing the fair
value of the stock warrants issued.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
a. FACILITY AND EQUIPMENT
The Company occupies its New York City office space under a
month-to-month lease with KME. In addition, the Company is leasing
telephone equipment on a month-to-month lease with KME. Rent expenses
for the office space and equipment for the year ended June 30, 1999 and
the period October 1, 1997 (date of inception) to June 30, 1998 were
approximately $145,000 and $124,000, respectively.
b. LITIGATION MATTERS
The Company is involved in claims and disputes which arise in the
normal course of business. Management believes that the resolution of
these matters will not have a material adverse effect of the Company's
financial position or results of operations.
-56-
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
NOTE 11 - RESTATEMENT
The Company engaged Grant Thornton LLP to reaudit the consolidated
financial statements as of June 30, 1998 and for the period October 1, 1997
(date of inception) to June 30, 1998. In connection with the reaudit,
management restated such financial statements to record adjustments
relating to, among others, the accounting for: stock warrants and options
granted, merger and acquisition transactions, and minority interests. The
effect of the adjustments increased the net loss, as previously reported
from $707,527 to $1,184,475, as restated.
NOTE 12 - SUBSEQUENT EVENTS
a. Subsequent to June 30, 1999, the Company issued an aggregate of
1,030,000 stock options to the Company's CEO and an employee at an
exercise price of $1.00. The quoted market price of the Company's stock
at the date of grant was $1.60.
b. Subsequent to June 30, 1999, CDKnet entered into a two-year employment
agreement with its president. The agreement provides for a minimum
annual salary of $150,000 and the issuance of 750,000 stock options
with an exercise price of $1.00 vesting over the term of the agreement
or earlier if a change in control or CDKnet terminates the agreement
without cause. The quoted market value of the Company's stock on the
date of grant was $1.60. The agreement provides for six months of
severance pay. All payments under the agreement are guaranteed by CDK.
c. On October 1, 1999, the Company gave notice to the holders of the 5.75%
Subordinated Convertible Debentures (see Note 6) and exercised its
right to call the outstanding Debentures in exchange for 5.75%
Convertible Preferred Stock. Under the terms of the Debentures, the
Convertible Preferred Stock shall have: (1) liquidation preferences
equal to the principal amount of the Debenture, (2) a 5.75% cumulative
annual dividend payable quarterly, (3) rights to convert into shares of
Common Stock at the same conversion rate as the Debentures and (4) the
same redemption rights at the option of the Company.
d. On October 5, 1999, the Company obtained a sixty-day waiver from the
holders of the 6% and 5.75% Subordinated Convertible Debentures to
waive any event of default relating to the common stock of the Company
being suspended from an exchange or over-the-counter market.
-57-
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C> <C>
3.1 Articles of Incorporation of the Registrant.
3.2 Amendment to the Articles of Incorporation.
3.3 By-Laws of the Registrant.
3.4 Certificate of Merger of the Registrant.
3.5 Amendment to the Articles of Incorporation.
3.6 Designation of Series A Preferred Stock.
4.1 Specimen of common stock certificate.
4.2 Technology Horizons Corp. Stockholders Agreement dated May 7, 1998.
10.1 Technology Horizons Corp. 1998 Equity Incentive Plan.
10.2 Convertible Subordinated Debenture Due February 1, 2009.
10.3 Registration Rights Agreement between Technology Horizons Corp. and
Kelly Music & Entertainment Corp. dated September 4, 1998.
-58-
<PAGE>
10.4 Assignment Agreement between Kelly Music & Entertainment Corp. and
Technology Horizons Corp. dated September 4, 1998.
10.5 Amendment to Registration Rights Agreement between Technology Horizons
Corp. and Alvin Pock dated October 15, 1998.
10.6 Amendment to Registration Rights Agreement between Technology Horizons
Corp. and Robert L. Kelly dated October 15, 1998.
10.7 Registration Rights Agreement between Technology Horizons Corp. and
Robert L. Kelly dated June 3, 1998.
10.8 Registration Rights Agreement between Technology Horizons Corp. and
Alvin Pock dated June 3, 1998.
10.9 Assignment Agreement between Robert L. Kelly and Technology Horizons
Corp. dated June 3, 1998.
10.10 Assignment Agreement between Alvin Pock and Technology Horizons Corp.
dated June 3, 1998.
10.11 Assignment Agreement between Kelly Music & Entertainment Corp. and
CDKnet, LLC, dated June 3, 1998.
10.12 Employment Agreement, dated August 1, 1999, by and between CDKNET.COM,
INC. and Shai Bar-Lavi.
10.13 Finder's Agreement between the Registrant and Shai Bar-Lavi and
Frederick Smithline dated June 1, 1999.
21 Subsidiaries of the Registrant
</TABLE>
-59-
<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, on this ____ day of
October, 1999.
CDKNET.COM, INC.
A Delaware corporation
By: /s/ Steven Horowitz
-------------------
Name: Steven Horowitz
-------------------
[title]
By: /s/ Steven Horowitz
-------------------
Name: Steven Horowitz
-------------------
[Secretary]
-60-
<PAGE>
EXHIBIT 3.1
State of Delaware
Office of the Secretary of State
--------------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THAT THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE
OF INCORPORATION OF "TECHNOLOGY HORIZONS CORP." FILED IN THIS OFFICE ON THE
SEVENTH DAY OF MAY, A.D. 1998 AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
-----------------------------------
Edward J. Freel, Secretary of State
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TECHNOLOGY HORIZONS CORP.
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the Corporation is TECHNOLOGY HORIZONS CORP.
(herein called the "Corporation ")
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Service Company, 1013 Centre
Road, Wilmington, Delaware 19805, County of New Castle. The
name of the registered agent of the Corporation at such
address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporation may be organized under the
Delaware General Corporation Law.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is Twenty Million Shares
(20,000,000), all of which are Common Stock, and each having a
.0001 par value per share.
FIFTH: The name and mailing address of the incorporator is as
follows:
Christine M. James
Horowitz, Mencher, Klosowski, Nestler & Scope, P.C.
595 Stewart Avenue, Suite 710
Garden, New York 11530
SIXTH: The number of directors of the Corporation shall be
such as from time to time shall be fixed in the manner
provided in the By-laws of the Corporation. The election of
directors of the Corporation need not be ballot unless the
By-laws so require.
SEVENTH: A director of the Corporation shall no be personally liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as director, except for liability (i)
for any breach of the directors' duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional
<PAGE>
misconduct or a knowing violation of the law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is
amended after the date of incorporation of the Corporation to
authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law as so
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall no adversely affect
any right or protection of a director of the Corporation existing
at the time of such repeal modification.
The Corporation shall, to the fullest extent permitted by
Section 145 (or any other provision) of the Delaware General
Corporation Law, as the same my be amended and supplemented, or
by any successor thereto, indemnify any and all officers and
directors of the Corporation from and against any and all the
expenses, liabilities or other matters referred to in or
converted by said Section. Such right to indemnification provided
for herein shall not be deemed exclusive of any rights to which
those seeking indemnification may be entitled under any By-law,
agreement, vote of stockholders or disinterested directors or
otherwise.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or an class of them,
any court of equitable jurisdiction within the State of Delaware
may, on the application in a summary way of this Corporation or
any creditor or stockholder thereof or on the application of any
receiver or receivers appointed for this Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on
the application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders
of class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a
majority in number representing three fourths in value of the
creditors or class of creditors, and/or the stockholders of this
Corporation, as the case may be, agree to a compromise or
arrangements and to any reorganization of this Corporation as
consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors,
and/or on all the stockholders or class of stockholders, of this
Corporation, as the case maybe, and also on this Corporation.
<PAGE>
IN WITNESS WHEREOF, I undersigned, being the sole incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, DO HEREBY CERTIFY, under
penalties of perjury, that this is my act and deed and that the facts
hereinabove stated are truly set forth and, accordingly, I have hereunto set my
hand as of the 6th day of May, 1998.
------------------------------------
Christine M. James, Sale Incorporator
<PAGE>
EXHIBIT 3.2
State of Delaware
Office of the Secretary of State
-------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THAT ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "TECHNOLOGY HORIZONS CORP.", CHANGING ITS NAME FROM "TECHNOLOGY
HORIZONS CORP." TO "CDKNET.COM, INC.", FILED IN THIS OFFICE ON THE SIXTEENTH DAY
OF DECEMBER, A.D. 1998, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
-----------------------------------
Edward J. Freel, Secretary of State
<PAGE>
2/16/1998
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
TECHNOLOGY HORIZONS CORP., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify:
FIRST: That a meeting of the Board of Directors of TECHNOLOGY HORIZONS
CORP., a resolution was duly adopted authorizing and directing the amendment of
the Certificate of Incorporation of TECHNOLOGY HORIZONS CORP., declaring said
amendment to be advisable, and directing appropriate officers of the corporation
to procure the adoption, approval and written consent of the shareholders
holding at least a majority of the voting power of said corporation. Pursuant to
said resolutions, the following amendments to the Certificate of Incorporation
of TECHNOLOGY HORIZONS CORP. be amended by changing the article thereof numbered
"FIRST" so that, as amended said article shall read as follows:
"FIRST: The name of this corporation is CDKNET.COM, INC."
SECOND: That thereafter, pursuant to resolution of the Board of
Directors and in accordance with Section 228 of the General Corporation Law of
the State of Delaware, the written consent of shareholders of Technology
Horizons Corp. holding at least a majority of the voting power of the
outstanding shares of Common Stock was received, and notice thereof was duly
given to those shareholders who did not consent in writing.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said TECHNOLOGY HORIZONS CORP. has caused this
certificate to be signed by its duly authorized officer, Steven Horowitz, its
President and Secretary this 1st day of December, 1998.
By:
-----------------------------
Steven Horowitz, President
ATTEST:
- --------------------------
Steven Horowitz, Secretary
<PAGE>
State of Delaware
Office of the Secretary of State
-------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THAT "TECHNOLOGY HORIZONS CORP.," IS DULY INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE, AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE
EXISTENCE NOT HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE RECORDS OF THIS
OFFICE SHOW AND IS DULY AUTHORIZED TO TRANSACT BUSINESS.
THE FOLLOWING DOCUMENTS HAVE BEEN FILED:
CERTIFICATE OF INCORPORATION, FILED THE SEVENTH DAY OF MAY,
A.D. 1998, AT 9 O'CLOCK A.M.
CERTIFICATE OF MERGER, FILED THE TWENTY-FIRST DAY OF MAY,
A.D. 1998, AT 9 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE
ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE NOT BEEN
ASSESSED TO DATE.
-----------------------------------
Edward J. Freel, Secretary of State
<PAGE>
State of Delaware
Office of the Secretary of State
-------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "TECHNOLOGY HORIZONS CORP.," FILED IN THIS OFFICE OF THE
SEVENTH DAY OF MAY, A.D. 1998, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
SEAL
------------------------------------
Edward J. Freel, Secretary of State
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TECHNOLOGY HORIZONS COUP.
I, THE UNDERSIGNED in order to form a corporation for the purpose
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the Corporation is TECHNOLOGY HORIZONS CORP.
(herein called the "Corporation")
SECOND: The address of the registered office of the
corporation in the State of Delaware is corporation Service
Company, 1013 Centre Road, Wilmington, Delaware 19805, County of
New Castle. The name of the registered agent of the Corporation
at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the
Delaware General Corporation Law.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issued is Twenty Million
Shares (20,000,000), all of which are Common Stock, and each
having a .0001 par value per share.
FIFTH: The name and mailing address of the incorporator is as follows:
Christine M. James
Horowitz, Mencher, Klosowski, Nestler & Scope, P.C.
595 Stewart Avenue, Suite 710
Garden City, New York 11530
SIXTH: The number of directors of the Corporation shall be
such as from time to time shall be fixed in the manner
provided in the By-laws of the Corporation. The election of
directors of the Corporation need not be by ballot unless the
Bylaws so require.
<PAGE>
SEVENTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is amended after
the date of incorporation of the Corporation to authorize
corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall no adversely affect any
right or protection of a director of the Corporation existing at
the time of such repeal or modification.
The Corporation shall, to the fullest extent permitted by
Section 145 (or any other provision) of the Delaware General
Corporation Law, as the same may be amended and supplemented, or
by any successor thereto, indemnify any and all officers and
directors of the Corporation from and against any and all of the
expenses, liabilities or other matters referred to in or
converted by said Section. Such right to indemnification provided
for herein shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any
By-law, agreement, vote of stockholders or disinterested
directors or otherwise.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or an class of
them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers
<PAGE>
appointed for the is Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section
279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to
be summoned in such manner as the said court directs. If a
majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be,
agree to a compromise or arrangement and to any reorganization of
this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the
said application has been made, be binding on all the creditors
or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case maybe, and
also on this Corporation.
IN WITNESS WHEREOF, I, the undersigned, being the sole incorporator
herein above named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, DO HEREBY CERTIFY, under
penalties of perjury, that this is my act and deed and that the facts herein
above stated are truly set forth and, accordingly, I have hereunto set my hand
as of the 6th day of May, 1998.
-------------------------------------
Christine M. James, Sole Incorporator
<PAGE>
SOMMER & SCHNEIDER LLP
600 OLD COUNTRY ROAD
GARDEN CITY, NEW YORK 11530
Herbert H. Sommer Telephone (516) 228-8181
Joel C. Schneider Facsimile (516) 228-8211
December 15, 1998
FACSIMILE, ORIGINAL BY MAIL
(203) 385-6381
Mr. James Dunn
The NASDAQ Stock Market
80 Merritt Boulevard
Trumbull, CT 06611
Re: Technology Horizons Corp. ("THCV)
Dear Mr. Dunn:
As counsel for the above referenced Company, we have been authorized to
advise The NASDAQ Stock Market of a corporate change the Company has undertaken.
The Company is changing its name from Technology Horizons Corp. to CDKNET.COM,
Inc. The Company's new Cusip Number is 14983D 10 3.
The Company has chosen the following five proposed symbols for its
Common Stock:
1. CDKX
2. CDKN
3. CDRM
4. CDKZ
5. CDKT
Finally, the Company would like to effectuate these changes on December
18, 1998 and accordingly, I am sending herewith copies of the corporation
resolution authorizing the foregoing and a copy of the Certificate of Amendment
to the Certificate of Incorporation.
If you need anything further, please feel free to contact the
undersigned.
Very truly yours
Joel C. Schneider
JCS/md
Enclosures
cc: Steven Horowitz
<PAGE>
WRITTEN CONSENT OF
BOARD OF DIRECTORS AND STOCKHOLDERS
IN LIEU OF MEETING
The undersigned, being the directors and stockholders holding a
majority of the issued and outstanding shares of Technology Horizons Corp. (the
"Company"), hereby waive notice of and the holding of a meeting of the Board of
Directors and stockholders of said Company, and does hereby consent to and adopt
the following Resolutions this 20th day of November 1998:
RESOLVED, that the Company change its name to CDKNET.COM, INC.;
RESOLVED, that notice be sent to stockholders of said Company, as of
November 30, 1998, the record date;
RESOLVED, that the officers of the Company are hereby authorized to
take such actions had execute such Documents as they deem necessary and proper
to effectuate the foregoing resolutions.
Directors: Stockholders:
- -------------------------- -------------------------------------
Steven Horowitz
- -------------------------- -------------------------------------
Anthony J. Bonomo
Kelly Music & Entertainment Corp.
By:
- -------------------------- ---------------------------------
Andrew J. Schenker Robert Kelly, President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
TECHNOLOGY HORIZONS CORP., a corporation organized and existing under
and by I virtue of the General Corporation Law of the State of Delaware, does
hereby certify:
FIRST: That at a meeting of the Board of Directors of TECHNOLOGY
HORIZONS CORP., a resolution was duly adopted authorizing and directing the
amendment of the Certificate Incorporation of TECHNOLOGY HORIZONS CORP.,
declaring said amendment to be advisable, and directing appropriate officers of
the corporation to procure the adoption, approval and written consent of the
shareholders holding at least a majority of the voting power of said
corporation. Pursuant to said resolutions, the following amendments to the
Certificate of Incorporation of TECHNOLOGY HORIZONS CORP. be amended by changing
the article thereof numbered "FIRST" so that, as amended said article shall read
as follows:
"FIRST: The name of this corporation is CDKNET.COM, INC."
SECOND: That thereafter, pursuant to resolution of the Board of
Directors and in accordance with Section 228 of the General Corporation Law of
the State of Delaware, the written consent of shareholders of Technology
Horizons Corp. holding at least a majority of the voting power of the
outstanding shares of Common Stock was received, and notice thereof was duly
given to those shareholders who did not consent in writing.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH That the capital of said corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said TECHNOLOGY HORIZONS CORP. has caused this
certificate to be signed by its duly authorized officer, Steven Horowitz, its
President and Secretary this 1st day of December, 1998.
By:
--------------------------
Steven Horowitz, President
ATTEST:
- --------------------------
Steven Horowitz, Secretary
<PAGE>
EXHIBIT 3.3
BY-LAWS OF
TECHNOLOGY HORIZONS CORP.
--------------------------------------------
A DELAWARE CORPORATION (THE "CORPORATION")
ARTICLE I - OFFICES
SECTION 1.1. LOCATION. The address of the Corporation's
registered office in the State of Delaware shall be c/o Corporation Service
Company, 1013 Centre Road, Wilmington, Delaware, New Castle County, or such
other address as is designated by resolution of the Board of Directors. The
Corporation may also have other offices at such places within or without the
State of Delaware as the Board of Directors may from time to time designate or
the business of the Corporation may require.
ARTICLE II - MEETING OF STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may properly come before the meeting shall
be held at the principal office of the Corporation in the State of Delaware, or
at such other place within or without the State of Delaware as the Board of
Directors may fix, at 10 o'clock a.m., local time, on the first Monday in May of
each of the Board of Directors then in office directed to the President or the
Secretary. Except as provided below, notice of any special meeting of the Board
of Directors, stating the time and place of such special meeting, shall be given
to each director.
SECTION 3.12. NOTICE OF MEETING; WAIVER OF NOTICE. Notice of
any meeting of the Board of Directors shall be deemed to be duly given to a
director (i) if mailed to such
<PAGE>
director, addressed to him or her at his or her address as it appears upon the
books of the Corporation, or at the address last made known in writing to the
Corporation by such director as the address to which such notices are to be
sent, at least four (4) days before the day on which such meeting is to be held,
or (ii) if sent to him or her at such address by telegraph, cable, radio or
wireless not later than two (2) days before the day on which such meeting is to
be held, or (iii) if delivered to him or her personally or orally, by telephone
or otherwise, not later than the day before the day on which such meeting is to
held. Each such notice shall state the time and place of the meeting.
Notice of any meeting of the Board of Directors need not be
given to any director who submits a signed waiver of notice whether before or
after the holding of such meeting, or who attends such meeting without
protesting, prior thereto or at its commencement, the lack of notice to him or
her.
SECTION 3.13. COMMITTEES OF DIRECTORS. The Board of Directors
may, by resolution or resolutions passed by a majority of the entire Board of
Directors, designate one (1) or more committees, each committee to consist of
two (2) or more of the directors of the Corporation.
Vacancies in membership of any committee shall be filled by
the vote of a majority of the entire Board of Directors. The Board of Directors
may designate one (1) or more directors as alternate members of any committee,
who may replace any absent member at any meeting of the committee. Members of a
committee shall hold office for such period as may be fixed by a resolution
adopted by a majority of the entire Board of Directors, subject, however, to
removal at any time by the vote of the Board of Directors.
2
<PAGE>
SECTION 3.14. POWERS AND DUTIES OF COMMITTEES. Except as
otherwise provided by law, any committee, to the extent provided in the
resolution or resolutions creating such committee, shall have all the authority
of the Board of Directors, except that no such committee shall have authority as
to the following matters: (1) the submission to stockholders of any action that
needs stockholders, approval; (2) the filling of vacancies in the Board of
Directors or in any committee; (3) the fixing of compensation of the directors
for serving on the Board of Directors or on any committee; (4) the amendment or
repeal of the By-Laws, or the adoption of new By-Laws; and (5) the amendment or
repeal of any resolution of the Board of Directors which by its terms shall not
be so amendable or repealable.
Each committee may adopt its own rules of procedure and may
meet at stated times or on such notice as such committee may
[MISSING PAGE (13) OF BY-LAWS DOCUMENT]
Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV - OFFICERS
SECTION 4.1. PRINCIPAL OFFICERS. The principal officers of the
Corporation shall be elected by the Board of Directors and may include a
Chairman of the Board, a President, a Secretary and a Treasurer and may, at the
discretion of the Board of Directors, also include one or more Vice Presidents
and a Controller. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation or these By-Laws.
The officers of the Corporation need not be stockholders of the Corporation nor,
except in the
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case of the Chairman of the Board of Directors, need such officers
be directors of the Corporation.
SECTION 4.2. ELECTION OF PRINCIPAL OFFICERS: TERM OF
OFFICE. The principal officers of the Corporation shall be elected annually
by the Board of Directors at each annual meeting of the Board of Directors.
If the Board of Directors shall fail to fill any principal
office at an annual meeting, or if any vacancy in any principal office shall
occur, or if any principal office shall be newly created, such principal office
may be filled at any regular or special meeting of the Board of Directors.
Each principal officer shall hold office until his or her
successor is duly elected and qualified, or until his or her earlier death,
resignation or removal.
SECTION 4.3. SUBORDINATE OFFICERS, AGENTS AND EMPLOYEES. In
addition to the principal officers, the Corporation may have one or more
Assistant Treasurers, Assistant Secretaries and such other subordinate officers,
agents and employees as the Board of Directors may deem advisable, each of whom
shall hold office for such period and have such authority and perform such
duties as the Board of Directors, the President or any officer designated by the
Board of Directors, may from time to time determine. The Board of Directors at
any time may appoint and remove, or may delegate to any principal officer, the
power to appoint and to remove, any subordinate officer, agent or employee of
the Corporation.
SECTION 4.4. DELEGATION OF DUTIES OF OFFICERS. The Board
of Directors may delegate the duties and powers of any officer of the
Corporation to any other officer or to any
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director for a specified period of time for any reason that the Board of
Directors may deem sufficient.
SECTION 4.5. REMOVAL OF OFFICERS. Any officer of the
Corporation may be removed with or without cause by resolution of the Board of
Directors.
SECTION 4.6. RESIGNATION. Any officer may resign at any time
by giving written notice of his or her resignation to the Board of Directors, to
the President or to the Secretary. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein. Unless otherwise
specified in the notice, the acceptance of a resignation shall not be necessary
to make the resignation effective.
SECTION 4.7. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if one is elected, will preside at all meetings of the stockholders and of the
Board of Directors at which he is present. The Chairman of the Board shall have
such other powers and perform such other duties as may be assigned to him or her
from time to time by the Board of Directors.
SECTION 4.8. CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer, if one shall have been elected, shall except where by law the signature
of the President is required, the Chief Executive Officer shall possess the same
power as the President to sign all contracts, Certificates and other instruments
of the Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President the Chief Executive Officer, shall
exercise all the powers and discharge all the duties of the President. The Chief
Executive Officer shall also perform such other duties and may exercise such
other powers as from time to time may be assigned to him by these By-Laws or by
the Board of Directors.
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SECTION 4.9. PRESIDENT. The President shall be the chief
operating officer of the Corporation, who shall have general supervision over
the business. The President also shall have all powers and duties usually
incident to the office of the President, except as specifically limited by a
resolution of the Board of Directors. The President shall have such other powers
and perform such other duties as may be assigned to him or her from time to time
by the Board of Directors.
SECTION 4.10. VICE PRESIDENT. In the absence or disability of
the President or if the office of President be vacant, the Vice Presidents in
the order determined by the Board of Directors, or if no such determination has
been made, in the order of their seniority, shall perform the duties and
exercise the powers of the President, subject to the right of the Board of
Directors at any time to extend or confine such powers and duties or to assign
them to others. Any Vice President may have such additional designation in his
or her title as the President or the Board of Directors may determine. The Vice
Presidents shall generally assist the President in such manner as the President
shall direct. Each Vice President shall have such other powers and perform such
other duties as may be assigned to him or her from time to time by the Board of
Directors or by the President.
SECTION 4.11. SECRETARY. The Secretary shall act as Secretary
of all meetings of stockholders and of the Board of Directors at which he or she
is present, shall record all the proceedings of all such meetings in a book to
be kept for that purpose, shall have supervision over the giving and service of
notices of the Corporation, and shall have supervision over the care and custody
of the corporate records and the corporate seal of the Corporation. The
Secretary shall be empowered to affix the corporate seal to documents, the
execution of which on
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behalf of the Corporation under its seal, is duly authorized, and when so
affixed may attest the same. The Secretary shall have all powers and duties
usually incident to the office of Secretary, except as specifically limited by a
resolution of the Board of Directors. The Secretary shall have such other powers
and perform such other duties as may be assigned to him or her from time to time
by the Board of Directors or by the President.
SECTION 4.12. TREASURER. The Treasurer shall have general
supervision over the care and custody of the funds and over the receipts and
disbursements of the Corporation and shall cause the funds of the Corporation to
be deposited in the name of the Corporation in such banks or other depositories
as the Board of Directors or the President may designate. The Treasurer shall
have supervision over the care and safekeeping of the securities of the
Corporation. The Treasurer shall have all powers and duties usually incident to
the office of Treasurer, including the duties of Controller if none is elected,
except as specifically limited by a resolution of the Board of Directors. The
Treasurer shall have such other powers and perform such other duties as may be
assigned to him or her from time to time by the Board of Directors or by the
President.
SECTION 4.13. ASSISTANT SECRETARIES. Except as may be
otherwise provided in these By-Laws, Assistant Secretaries, if there by any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there by one, or the Secretary, and in the absence of the Secretary or in the
event of his disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
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SECTION 4.14. ASSISTANT TREASURERS. Assistant Treasurers, it
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in the sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation.
SECTION 4.15. OTHER OFFICERS. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors may delegate to
any other officer of the Corporation the power to choose such other officers and
to prescribe their respective duties and powers.
SECTION 4.16. BOND. The Board of Directors shall have power,
to the extent permitted by law, to require any officer, agent or employee of the
Corporation to give bond for the faithful discharge of his or her duties in such
form and with such surety or securities as the Board of Directors may determine.
ARTICLE V - CAPITAL STOCK
SECTION 5.1. ISSUANCE OF CERTIFICATES FOR STOCK. Each
stockholder of the Corporation shall be entitled to a certificate or
certificates in such form as shall be approved by the Board of Directors,
certifying the number of shares of capital stock of the Corporation owned by
such stockholder.
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SECTION 5.2. SIGNATURES ON STOCK CERTIFICATES. Certificates
for shares of capital stock of the Corporation shall be signed by, or in the
name of the Corporation by the President or a Vice President and by the
Secretary, the Treasurer, an Assistant Secretary or an Assistant Treasurer and
shall bear the corporate seal of the Corporation or a printed or engraved
facsimile thereof.
If any such certificate is countersigned by a transfer agent
or registered by a register, other than the Corporation or its employee, any
other signature on the certificate may be a facsimile. In case any officer who
has signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, such
certificate may be issued by the Corporation with the same effect as if such
signer were such officer at the date of issue.
SECTION 5.3. STOCK LEDGER. A record of all certificates for
capital stock issued by the Corporation shall be kept by the Secretary or any
other officer, employee or agent designated by the Board of Directors. Such
record shall show the name and address of such stockholder, the number and class
of shares held by each and the date when each became the owner of record
thereof, and, in the case of certificates which have been canceled, the dates of
cancellation thereof.
The Corporation shall be entitled to treat the holder of
record of shares of capital stock as shown on the stock ledger as the owner
thereof and as the person entitled to receive dividends thereon, to vote such
shares, to receive notice of meetings, and for all other purposes. Prior to due
presentment for resignation or transfer of any certificate for shares of capital
stock of the Corporation, the Corporation shall not be bound to recognize any
equitable or other claim to
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or interest in any share of capital stock represented by such certificate on
the part of any other person whether or not the Corporation shall have
express or other notice thereof.
SECTION 5.4. REGULATIONS RELATING TO TRANSFER. The Board of
Directors may make such rules and regulations as it may deem expedient, not
inconsistent with law, the Certificate of Incorporation or these By-Laws,
concerning issuance, transfer and registration of certificates for shares of
capital stock of the Corporation. The Board of Directors may appoint, or
authorize any principal officer to appoint, one (1) or more transfer clerks or
one (1) or more transfer agents and one (1) or more registers and may require
all certificates for capital stock to bear the signature or signatures of any of
them.
SECTION 5.5. TRANSFERS. Transfers of capital stock shall be
made on the books of the Corporation only upon delivery to the Corporation or
its transfer agent of (i) a written direction of the registered holder named in
the certificate or such holder's attorney lawfully constituted in writing, (ii)
the certificate for the shares of capital stock being transferred, and (iii) a
written assignment of the shares of capital stock evidenced thereby.
SECTION 5.6. CANCELLATION. Each certificate for capital stock
surrendered to the Corporation for exchange or transfer shall be canceled and no
new certificate or certificates shall be issued in exchange for any existing
certificate (other than pursuant to Section 5.7) until such existing certificate
shall have been canceled.
SECTION 5.7. LOST, DESTROYED, STOLEN AND MUTILATED
CERTIFICATES. I In the event that any certificate for shares of capital stock of
the Corporation shall be mutilated, the Corporation shall issue a new
certificate in place of such mutilated certificate. In -case any such
certificate shall be lost, stolen or destroyed, the Corporation may, in the
discretion of the Board
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of Directors or a committee designated thereby with power so to act, issue a
new certificate for capital stock in the place of any such lost, stolen or
destroyed certificate. The applicant for any substituted certificate or
certificates shall surrender any mutilated certificate or, in the case of any
lost, stolen or destroyed certificate, furnish satisfactory proof of such
loss, theft or destruction of such certificate and of the ownership thereof.
The Board of Directors or such committee may, in its discretion, require the
owner of a lost, stolen or destroyed certificate, or his or her
representatives, to furnish to the Corporation a bond with an acceptable
surety or sureties and in such sum as will be sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
lost, stolen or destroyed certificate or the issuance of such new
certificate. A new certificate may be issued without requiring a bond when,
in the judgment of the Board of Directors, it is proper to do so.
SECTION 5.8. FIXING OF RECORD DATE. (a) The Board of Directors may fix,
in advance, a record date, which shall not be more than fifty (50), nor less
than ten (10), days before the date of any meeting of stockholders, nor more
than fifty (50) days prior to any other action, for the purpose of determining
stockholders entitled to notice of or to vote at such meeting of stockholders
or, any adjournment thereof, or to express consent or dissent to corporate
action in writing without a meeting, or to receive payment of any dividend or
allotment of any rights, or for the purpose of any other action.
(b) If no record date is fixed by the Board of Directors:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the next day preceding the day on which notice is given, or if no
notice is given, the day on which the meeting is held;
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(ii) The record date for determining stockholders for any
purpose other than that specified in subparagraph (i) shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
(c) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, provided that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 5.9. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments to a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except at otherwise provided by
law.
ARTICLE VI - INDEMNIFICATION
Section 6.1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 6.3
below, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was a director or officer of the Corporation, serving
at the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys, fees), judgments, fines
and amounts paid in settlement actually and
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reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she 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, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDRE or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which 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, had reasonable cause to
believe that his or her conduct was unlawful.
Section 6.2. POWER TO INDEMNIFY IN ACTIONS. SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 6.3 below, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding by or in the right of the Corporation to procure a Judgment in its
favor by reason of the fact that he or she is or was a director or officer of
the Corporation serving at the request of the Corporation as a director or
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys, fees), actually and reasonably incurred by him or her in connection
with the defense or settlement of such action, suit or proceeding if he or she
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; except that no
indemnification shall be made with respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such
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action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnify for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 6.3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VI (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 6.1 or Section 6.2 of this Article VI, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection therewith, without the necessity of authorization in
the specific case.
SECTION 6.4. GOOD FAITH DEFINE. For purposes of any determination
under Section 6.3 above, a person shall be deemed 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, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his or her conduct was
unlawful, if his or her action is based on the records or books of account of
the
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Corporation or another enterprise, or on information supplied to him or her
by the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 6.4
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 6.4 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 6.1 or 6.2 of this Article
VI, as the case may be.
SECTION 6.5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 6.3 above, and notwithstanding
the absence of any determination thereunder, any director or officer may apply
to any court of competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 6.1 and 6.2
of this Article VI. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because he or she has met the applicable standards
of conduct set forth in Sections 6.1 or 6.2 of this Article VI, as the case may
be. Neither a contrary determination in the specific case under Section 6.3
above, nor the absence of any determination thereunder, shall be a defense to
such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification
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pursuant to this Section 6.5 shall be given to the Corporation promptly upon
the filing of such application. If successful, in whole or in part, the
director or officer seeking indemnification shall also be entitled to be paid
the expense of prosecuting such application.
SECTION 6.6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation as authorized in this Article VI.
SECTION 6.7. NONEXLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or granted
pursuant to this Article VI shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any By-Law, agreement, contract, vote of stockholders or disinterested
directors or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 6.1 and 6.2 of this Article VI shall be made to the
fullest extent permitted by law. The provisions of this Article VI shall not be
deemed to preclude the indemnification of any person who is not specified in
Sections 6.1 or 6.2 of this Article VI, but whom the Corporation has the power
or obligation to indemnify under the provisions of the General Corporation Law
of the State of Delaware, or otherwise.
SECTION 6.8. INSURANCE. The Corporation may purchase and maintain
insurance on
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behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him or her against such liability under the provisions of this Article
VI.
SECTION 6.9. CERTAIN DEFINITIONS. For purposes of this Article VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VI with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VI, references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in
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good faith and in a manner he or she reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VI.
SECTION 6.10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 6.11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything
contained in this Article VI to the contrary, except for proceedings to enforce
rights to indemnification (which shall be governed by Section 6.5 hereof), the
Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
SECTION 6.12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VI to directors and officers of the Corporation.
ARTICLE VII - MISCELLANEOUS PROVISIONS
SECTION 7.1. CORPORATE SEAL. The seal of the Corporation shall be
circular in form with the name of the Corporation in the circumference and the
words and figures "Technology Horizons Corp. - Corporate Seal - 1998, Delaware"
in the center. The seal may be used by
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causing it to be affixed or impressed, or a facsimile thereof may be reproduced
or otherwise used in such manner as the Board of Directors may determine.
SECTION 7.2. FISCAL YEAR. The fiscal year of the Corporation shall
end on December 31 of each year, or such other twelve (12) consecutive months as
the Board of Directors may designate.
SECTION 7.3. EXECUTION OF INSTRUMENTS, CONTRACTS, ETC. All checks,
drafts, bill so exchange, notes or other obligations or orders for the payment
of money shall be signed in the name of the Corporation by such officer or
officers or person or persons, as the Board of Directors may from time to time
designate.
Except as otherwise provided by law, the Board of Directors, any
committee given specific authority in the premises by the Board of Directors, or
any committee given authority to exercise generally the powers of the Board of
Directors, during the intervals between meetings of the Board of Directors, may
authorize any officer, employee or agent, in the name of and on behalf of the
Corporation, to enter into or execute and deliver deeds, bonds, mortgages,
contracts and other obligations or instruments, and such authority may be
general or confined to specific instances.
All applications, written instruments and papers required by any
department of the United States Government or by any state, county, municipal or
other governmental authority, may be executed in the name of the Corporation by
any principal officer or subordinate officer of the Corporation, or, to the
extent designated for such purpose from time to time by the Board of Directors,
by an employee or agent of the Corporation. Such designation may contain the
powers to substitute, in the discretion of the person named, one (1) or more
other persons.
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ARTICLE VIII - AMENDMENTS
SECTION 8. 1. BY STOCKHOLDERS These By-Laws may be amended or
repealed, or new By-Laws may be adopted, at any meeting of stockholders.
SECTION 8.2. BY DIRECTORS. These By-Laws may be amended or
repealed, or new By-Laws may be adopted, by the Board of Directors.
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Ex. 3.5
State of Delaware
Office of the Secretary of State
-------------------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "CDKNET.COM, INC.", FILED IN THIS OFFICE ON THE TENTH DAY OF
SEPTEMBER, A.D. 1999, AT 4:30 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
-----------------------------------
Edward J. Freel, Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
CDKNET. COM, INC., a corporation organized ans existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That at a meeting of the Board of Directors of CDKNET.COM, INC.,
a resolution was duly adopted authorizing and directing the amendment of the
Certificate of Incorporation of CDKNET.COM, INC., declaring said amendment to be
advising, and directing appropriate officers of the corporation to procure the
adoption, approval and written consent of the shareholders holding at least a
majority of the voting power of said corporation. Pursuant to said resolutions,
the following amendments to the Certificate of Incorporation of CDKNET.COM, INC.
be amended by changing the article thereof numbered "FOURTH" so that, as amended
said article shall read as follows:
"FOURTH" NUMBER OF SHARES. The total number of shares of stock which
the Corporation shall have authority to issue is: forty five million
(45,000,000), of which forty million (40,000,000) shall be shares of Common
Stock, $.0001 par value, and five million (5,000,000) shall be shares of
Preferred Stock, $.0001 par value ("Series Preference Stock").
A statement of the designations and the powers, preferences and rights
of such classes of stock and the qualifications, limitations or restrictions
thereof, the fixing of which by the Certificate of Incorporation is desired, and
the authority of the Board of Directors to fix, by resolution or resolutions,
the designations and the powers, preferences and rights of such classes of stock
or the qualifications, limitations or restrictions thereof, which are not fixed
hereby, are as follows:
4.1 PROVISIONS APPLICABLE TO ALL SERIES OF SERIES PREFERENCE STOCK.
(a) Shares of Series Preference Stock may be issued from time
to time in one or more series. The preferences and relative participating,
optional and other special rights of each series and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series already outstanding; the terms of each series shall be as
specified in this Section 4.1 and in the resolution or resolutions hereinafter
referred to; and the Board of Directors of the Corporation is hereby expressly
granted authority to fix, by resolution or resolutions adopted prior to the
issuance of any shares of a particular series of Series Preference Stock, the
designations, preferences and relative participating, optional and other special
rights, or the qualifications, limitations or restrictions thereof, of such
series, including, but without limiting the generality of the foregoing, the
following:
(i) The rate and times at which, and the terms and
conditions on which, dividends on the Series Preference Stock of such series
shall be paid;
<PAGE>
(ii) The right, if any, of holders of Series
Preference Stock of such series to convert the same into, or exchange the same,
for, other classes of stock of the Corporation and the terms and conditions of
such conversion or exchange;
(iii) The redemption price or prices and the time at
which, and the terms and conditions on which, Series Preference Stock of such
series may be redeemed;
(iv) The rights of the holders of Series Preference
Stock of such series upon the voluntary or involuntary liquidation, distribution
or sale of assets, dissolution or winding of the Corporation;
(v) The voting power, if any, of the Series
Preference Stock of such series; and
(vi) The terms of the sinking fund or redemption or
purchase account, if any, to be provided for the Series Preference stock of such
series.
(b) All shares of each series be identical in all respects to
the other shares of such Series. The rights of the Common Stock of the
Corporation shall be subject to the preferences and relative participating,
optional and other special rights of the Series Preference Stock of each series
as fixed herein and from time to time by the Board of Directors as aforesaid.
4.2 PROVISIONS APPLICABLE TO COMMON STOCK.
(a) After the requirements with respect to preferential
dividends upon the Series Preference Stock of all classes and series thereof
shall have been met and after the Corporation shall have complied with all
requirements, if any, with respect to the setting aside of sums as a sinking
fund or redemption or purchase account for the benefit of any class or series
thereof, then, and not otherwise, the holders of Common Stock shall be entitle
to receive such dividends as may be declared from time to time by the Board of
Directors.
(b) After distribution in full of the preferential amounts to
be distributed to the holders of all classes and series thereof of Series
Preference Stock then outstanding in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and subject to any
additional or special rights of the Series Preference Stock as to the remaining
assets of the Corporation for distribution, the holders of the Common Stock
shall be entitled to receive the remaining assets of the Corporation available
for distribution to its stockholders ratably in proportion to the number of
shares of Common Stock held by them respectively.
(c) Each holder of Common Stock shall have been one vote in
respect of each share of such stock held by him.
SECOND: That thereafter, pursuant to resolution of the Board of
Directors and in accordance with Section 228 of the General Corporation Law of
the State of Delaware, the
<PAGE>
written consent of shareholders of CDKNET.COM, INC. holding at least a majority
of the voting power of the outstanding shares of Common Stock was received, and
notice thereof was duly given to those shareholders who did not consent in
writing.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, said CDKNET.COM, INC. has caused this certificate
to be signed by its duly authorized officer, Steven Horowitz, its President and
Secretary this 10th day of September, 1999.
By:
------------------------
Steven Horowitz, President
ATTEST:
- ------------------------------
Steven Horowitz, President
<PAGE>
CDKNET.COM, INC.
CERTIFICATE OF DESIGNATIONS, RIGHTS AND PREFERENCES
OF A SERIES OF PREFERRED STOCK BY RESOLUTION
OF THE BOARD OF DIRECTORS PROVIDING FOR AN
ISSUE OF 1,500,000 SHARES OF SERIES A PREFERRED
STOCK, $.0001 PAR VALUE, DESIGNATED
AS THE "SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK"
I, Steven Horowitz, President and Secretary, of CDKNET.COM, INC., a
Delaware corporation (hereinafter called the "Corporation"), pursuant to the
provisions of Section 151 of the General Corporation Law of the State of
Delaware ("DGCL"), do hereby make this Certificate of Designation under the
corporate seal of the Corporation and do hereby state and certify that pursuant
to the authority expressly vested in the Board of Directors of the Corporation
by the Certificate of Incorporation, the Board of Directors duly adopted the
following resolutions:
NOW, THEREFORE, BE IT RESOLVED:
1. DESIGNATION AND NUMBER OF SHARES. The designation of a series
of Preferred Stock, par value $.0001 per share to be issued authorized by
this resolution shall be the Series A Cumulative Convertible Preferred Stock
(the "Series A Preferred Stock"). The number of shares of Series A Preferred
Stock authorized hereby shall be 1,500,000 shares and no more except as
provided herein.
2. RANK. The Series A Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up and dissolution, rank
(a) senior to any other series of Preferred Stock except as established by
the Board of Directors, the terms of which shall specifically provide that
such series shall rank prior to the Series A Preferred Stock (any such other
securities are referred to herein collectively as the "Senior Securities"),
(b) on a parity with any other series of Preferred Stock established by the
Board of Directors, the terms of which shall specifically provide that such
series shall rank on a parity with the Series A Preferred Stock (the Series A
Preferred Stock and any such other securities are referred to herein
collectively as the "Parity Securities"), and (c) prior to any other equity
securities of the Corporation, including the Corporation's common stock,
$.0001 par value per share (the "Common Stock") (the Common Stock and all of
such equity securities of the Corporation to which the Series A Preferred
Stock ranks prior are referred to herein collectively as the "Junior
Securities").
3. DIVIDENDS.
(a) The holders of the shares of the Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative dividends at
the annual rate of $0.0575 per share. The dividend on the Series A Preferred
Stock shall be payable in equal quarterly payments of
<PAGE>
$0.014375 per share commencing on February 1, 2000 and each of, May 1, August 1
and November 1 thereafter (each of such dates being a "Dividend Payment Date"),
in preference to dividends on the Junior Securities. Each such dividend shall be
paid to the holders of record at the close of business on the record date, which
shall be not less than ten nor more than 30 days prior to the Dividend Payment
Date. Each such dividend shall be fully cumulative and shall accrue (whether or
not declared), without interest, from the date such dividend is payable as
herein provided.
(b) If at any time the Corporation shall have failed to pay full
dividends which have accrued (whether or not declared) on any Senior Securities,
no dividend shall be declared by the Board of Directors or paid or set apart for
payment by the Corporation on the shares of the Series A Preferred Stock or any
other Parity Securities unless, prior to or concurrently with such declaration,
payment or setting apart for payment, all accrued and unpaid dividends on all
outstanding shares of Senior Securities shall have been or be declared and paid
or set apart for payment, without interest. No dividends shall be declared or
paid or set apart for payment on any Parity or Junior securities for any period
unless full cumulative dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof is set apart for
such payment on the Series A Preferred Stock for all dividend payment periods
terminating on or prior to the date of payment of each full cumulative
dividends. If any dividends are not paid in full, as aforesaid, upon the shares
of the Series A Preferred Stock and any other Parity Securities, all dividends
declared upon shares of the Series A Preferred Stock and any other Parity
Securities shall be declared pro rata so that the amount of dividends declared
per share on the Series A Preferred Stock and such other Parity Securities shall
in all cases bear to each other the same ratio that accrued dividends per share
on the Series A Preferred Stock and such other Parity securities bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series A Preferred Stock or
any other Parity Securities which may be in arrears.
(c) Holders of shares of the Series A Preferred Stock shall be entitled
to receive the dividends provided for in paragraph (3)(a) hereof in preference
to and in priority over any dividends upon any of the Junior Securities.
4. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of the Series A Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders an amount in cash equal to $1.00 for each share outstanding
("Stated Value"), plus an amount in cash equal to all accrued but unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding up,
before any payment shall be made or any assets distributed to the holders of any
of the Junior Securities, provided, however, that the holders of outstanding
shares of the Series A Preferred Stock shall not be entitled to receive such
liquidation payment until the liquidation payments on all outstanding shares of
Senior Securities, if any, shall have been paid in full. If the assets of the
Corporation are not sufficient to pay in full the liquidation payments payable
to the holders of the outstanding shares of the Series A
2
<PAGE>
Preferred Stock or any other Parity Securities, then the holders of all such
shares shall share ratably in such distribution of assets in accordance with the
amount which would be payable on such distribution if the amounts to which the
holders of the outstanding shares of Series A Preferred Stock and the holders of
outstanding shares of such other Parity Securities are entitled were paid in
full.
(b) The liquidation payment with respect to each fractional share of
the Series A Preferred Stock outstanding or accrued but unpaid shall be equal to
a ratably proportionate amount of the liquidation payment with respect to each
outstanding share of Series A Preferred Stock.
(c) For the purposes of this Section 4, neither the voluntary sale,
conveyance, lease, exchange or transfer (for cash, shares of stock, securities
or their consideration) of all or substantially all the property or assets of
the Corporation or the consolidation or merger of the Corporation with one or
more other corporations shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary, unless such voluntary sale, conveyance,
lease, exchange or transfer shall be in connection with a dissolution or winding
up of the business of the Corporation.
5. CONVERSION.
(a) Subject to the Company's right of redemption set forth in Section 8
below, the record holder of shares of Series A Preferred Stock shall be
entitled, at the option of the holder, to convert such shares into the number of
fully-paid and non-assessable shares of Common Stock determined in accordance
with the Conversion Formula as set forth below:
Number of shares issued upon conversion = (Stated Value + accrued but unpaid
dividends)/Conversion Price, where:
"Stated Value" = the Stated Value of the shares of Series A Preferred
Stock to be converted;
"Conversion Price" = the lesser of (A) a fixed conversion price ("Fixed
Conversion Price") equal to $1.30, or (B) a variable
conversion price effective only after November 1,
1999, equal to 0.75 of the average Current Market
Price (defined below) during the five-day trading
period ending one trading day preceding the date of
conversion. The minimum variable conversion price
("Minimum Variable Conversion Price") shall be $.60
until July 1, 2000, at which time there shall no
longer be a minimum conversion price, provided,
however, the minimum conversion price of $.60 shall
continue if the Corporation issues securities for
cash consideration of $2 million or more prior to
July 1, 2000 and such securities have a purchase
price or conversion price, as the case may be, of no
less than $1.30.
For purposes of this Designation, "Current Market Price" of the Common
Stock means:
3
<PAGE>
(i) If traded on a securities exchange, the closing price
of the Common Stock on such exchange;
(ii) If traded over the counter, the high closing bid
price reported by Bloomberg from the NASDAQ OTC
Bulletin Board; or
(iii) In all other events, the market price determined by
the Board of Directors of the Corporation in good
faith.
(b) The holders of shares of Series A Preferred Stock at the close of
business on a Dividend Payment Date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof or the Corporation's default in payment
of the dividend due on such Dividend Payment Date. However, shares of Series A
Preferred Stock surrendered for conversion during the period between the close
of business on any Dividend Payment Date and the opening of business on the
corresponding Dividend Payment Date must be accompanied by payment of an amount
equal to the dividend payable on such shares on such Dividend Payment Date. A
holder of shares of Series A Preferred Stock on a Dividend Payment Date who (or
whose transferee surrenders any of such shares for conversion into shares of
Common Stock on a Dividend Payment Date) will receive the dividend payable by
the Corporation on such shares of Series A Preferred Stock on such date, and the
converting holder need not include payment in the amount of such dividend upon
surrender of shares of Series A Preferred Stock for conversion. Except as
provided above, the Corporation shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for dividends on
the shares of Common Stock issued upon such conversion.
(c) (i) In order to exercise the conversion privilege, the
holders of each share of Series A Preferred Stock to
be converted shall surrender the certificate
representing such share at the office of the transfer
agent for the Series A Preferred Stock, appointed for
such purpose by the Corporation, with the Notice of
Election to Convert on the back of said certificate
completed and signed. Unless the shares of Common
Stock issuable on conversion are to be issued in the
same name in which such share of Series A Preferred
stock is registered, each share surrendered for
conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation,
duly executed by the holder or such holder's duly
authorized attorney and an amount sufficient to pay
any transfer or similar tax.
(ii) Within three business days after the surrender of the
certificates for shares of Series A Preferred Stock
as aforesaid, the Corporation shall issue and shall
deliver at such office to such holder, or on his
written order, a certificate or certificates for the
number of full shares of Common Stock issuable upon
the conversion of such shares in accordance with the
provisions of this Section 5, and any fractional
interest in respect of a
4
<PAGE>
share of Common Stock arising upon such conversion
shall be settled as provided in subsection (d) of
this Section 5.
(iii) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the
date on which the certificates for shares of Series A
Preferred Stock shall have been surrendered and such
notice received by the Corporation as aforesaid, and
the person or persons in whose name or names any
certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record
of the shares represented thereby at such time on
such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which
event such person or persons shall be deemed to have
become such holder or holders of record at the close
of business on the next succeeding day on which such
stock transfer books are open, and such notice
received by the Corporation. All shares of Common
Stock delivered upon conversion of the Series A
Preferred Stock delivered upon conversion of the
Series A Preferred Stock will upon delivery by duly
and validly issued and fully paid and non-assessable,
free of all liens and charges and not subject to any
preemptive rights.
(d) In connection with the conversion of any shares of Series A
Preferred Stock, no fractions of shares of Common Stock shall be issued, but in
lieu thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Current Market Price per share of Common Stock on the trading day on which
such shares of Series A Preferred Stock are deemed to have been converted. If
more than one share of Series A Preferred Stock shall be surrendered for
conversion by the same holder at the same time, the number of full shares of
Common Stock issuable on conversion thereof shall be computed on the basis of
the total number of shares of Series A Preferred Stock so surrendered.
(e) In the event the Conversion Price is reduced below $1.30, the
holder shall only be entitled to convert 1/3 of the shares of Series A Preferred
Stock held by holder on November 1, 1999 in each three month period beginning
with the period from November 1, 1999 to January 31, 2000. Any shares of Series
A Preferred Stock not converted during such period may be converted in
subsequent periods.
6. ADJUSTMENT IN CONVERSION PRICE.
The Conversion Price shall be adjusted from time to time as follows:
(a) In case the Corporation shall (i) pay a dividend or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, (iv) make a distribution on its Common Stock in shares of its capital
stock other than Common Stock, or (v) issue by reclassification of its Common
Stock
5
<PAGE>
other securities of the Corporation, the Conversion Price then in effect
immediately prior thereto shall be adjusted so that the holder shall be entitled
to receive the kind and number of shares of Common Stock and other securities of
the Corporation which it would have owned or would have been entitled to receive
after the happening of any of the events described above, had such share of
Series A Preferred Stock been converted immediately prior to the happening of
such event or any record date with respect thereto. Any adjustment made pursuant
to this paragraph (a) shall become effective immediately after the effective
date of such event retroactive to the record date, if any, for such event.
(b) In case the Corporation shall issue rights, options, warrants or
convertible securities to all holders of its Common stock, without any charge to
such holders, entitling them to subscribe for or to purchase shares of Common
Stock at a price per share which is lower at the record date mentioned below
than the then current Conversion Price, the Conversion Price thereafter shall be
determined by multiplying the then current Conversion Price by a fraction (but
in no event greater than 1), of which the denominator shall be (i) the number of
shares of the common stock outstanding immediately prior to the issuance of such
rights, options, warrants or convertible securities plus (ii) the number of
additional shares of Common Stock offered for subscription or purchase, and of
which the numerator shall be (x) the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options, warrants
or convertible securities plus (y) the number of shares which the aggregate
offering price of the total number of shares offered would convert at the higher
of the then current Market Price, or then current Conversion Price. Such
adjustment shall be made whenever such rights, options, warrants or convertible
securities are issued, and shall become effective immediately and retroactively
after the record date for the determination of stockholders entitled to receive
such rights, options, warrants or convertible securities.
(c) In case the Corporation shall distribute to all holders of its
shares of Common Stock (i) debt securities or other evidences of its
indebtedness which are not convertible into Common Stock or (ii) assets
(excluding cash dividends or distributions out of earnings), then the Conversion
Price shall be determined by dividing the then current Conversion Price by a
fraction, of which the numerator shall be the higher of the then current Market
Price, or the Conversion Price on the date of such distribution, and of which
the denominator shall be such Current Market Price, or such Conversion Price on
such date minus the then fair value of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective on the date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such distribution. The fair
value of such assets shall be determined in good faith by the Board of Directors
of the Corporation.
(d) To the extent not covered by paragraphs (b) or (c) hereof, in case
the Corporation shall sell or issue shares of Common Stock, or rights, options,
warrants or convertible securities containing the right to subscribe for or
purchase shares of Common Stock, at a price per share (determined, in the case
of such rights, options, warrants or convertible securities, by dividing (i) the
total amount received or receivable by the Corporation in consideration of the
sale or issuance of such rights, options, warrants or convertible securities,
plus the total consideration
6
<PAGE>
payable to the Corporation upon exercise or conversion thereof, by (ii) the
total number of shares covered by such rights, options, warrants or convertible
securities) lower than the Conversion Price in effect immediately prior to such
sale or issuance, then the Conversion Price shall be reduced to a price
(calculated to the nearest cent) determined by dividing (I) an amount equal to
the Conversion Price multiplied by the sum of (A) the number of shares of Common
stock outstanding immediately prior to such sale or issuance plus (B) the number
of shares which could have been purchased at the Conversion Price with the
consideration received by the Corporation upon such sale or issuance by (II) the
total number of shares of Common Stock outstanding immediately after such sale
or issuance. For the purposes of such adjustments, the shares of Common Stock,
which the holders of any such rights, options, warrants or convertible
securities shall be entitled to subscribe for or purchase, shall be deemed
issued and outstanding as of the date of such sale or issuance and the
consideration received by the Corporation therefor shall be deemed to be the
consideration received by the Corporation for such rights, options, warrants or
convertible securities, plus the consideration or premiums stated in such
rights, options, warrants or convertible securities to be paid for the shares of
Common Stock covered thereby. In case the Corporation shall sell or issue shares
of Common Stock, or rights, options, warrants or convertible securities
containing the right to subscribe or purchase shares of Common Stock for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then in determining the "price per share" of shares of Common
Stock, any underwriting discounts or commissions shall not be deducted from the
price received by the Corporation for sales of securities registered under the
Act.
(e) No adjustment in the Conversion Price shall be required in the
following events:
(i) If the amount of such adjustment would be less than
$.05 per share; provided, however, that any
adjustment which by reason of this paragraph (e)(i)
is not required to be made immediately shall be
carried forward and taken into account in any
subsequent adjustment; or
(ii) The issuance of options under the Corporation's
existing stock option plans and future stock option
plans approved by the Corporation's shareholders; or
(iii) Securities issuable upon the exercise of options and
warrants outstanding on February 3, 1999.
(f) When the number of shares of Common Stock or the Conversion Price
is adjusted as herein provided, the Corporation shall cause to be promptly
mailed to the Holder by first class mail, postage prepaid, notice of such
adjustment or adjustments and a certificate of a firm of independent public
accountants selected by the Board of Directors of the Corporation (who may be
the regular accountants employed by the Corporation) setting forth the number of
shares of Common Stock and the Conversion Price after such adjustment, a brief
statement of the facts requiring such adjustment and the computation by which
such adjustment was made.
(g) For the purpose of this Section 6, the following shall apply:
7
<PAGE>
(i) The term "Common Stock" shall mean (A) the class of
stock designated as the Common Stock of the
Corporation at the date of this Designation or (B)
any other class of stock resulting from successive
changes or reclassification 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 at any time, as a result
of an adjustment made pursuant to this Section 6, the
Holder shall become entitled to receive any
securities upon conversion of the Corporation other
than shares of Common Stock thereafter the number of
such other securities and the Conversion Price of
such securities shall be subject to adjustment from
time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with
respect to the Common Stock contained in this Section
6.
(ii) If the Common Stock is traded on a securities
exchange or over the counter, the "Current Market
Price" for purposes of this Section 6 shall mean the
average of the Current Market Prices for the five
consecutive trading days immediately prior to the
date of the event which necessitates an adjustment to
the Conversion Price.
(h) Upon the expiration of any unexercised rights, options, warrants or
conversion privileges, the Conversion Price shall be readjusted and shall
thereafter be such as it would have been had it been originally adjusted (or had
the original adjustment not been required, as the case may be) on the basis of
(i) the fact that the only shares of Common Stock so issued were the shares of
Common Stock, if any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion rights and (ii) the fact that such shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Corporation upon such exercise plus the consideration, if any,
actually received by the Corporation for the issuance, sale or grant of all such
rights, options, warrants or conversion rights whether or not exercised;
provided. however, that no such readjustment shall have the effect of increasing
the Conversion Price by an amount in excess of the amount of the adjustment
initially made in respect of the issuance, sale or grant of such rights,
options, warrants or conversion privileges.
(i) In the case of any consolidation of the Corporation with or merger
of the Corporation into another corporation or in the case of any sale or
conveyance to another corporation of all or substantially all of the property,
assets or business of the Corporation, the Corporation or such successor or
purchasing Corporation, as the case may be, shall provide that the Holder shall
have the right thereafter upon payment of the Conversion Price in effect
immediately prior to such action to purchase upon conversion of the Debenture
the kind and amount of shares and other securities and property which the Holder
would have owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had the Debenture been converted
immediately prior to such action. such agreement shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 6. The provisions of this paragraph (i) shall
similarly apply to successive consolidations, mergers, sales or conveyances.
8
<PAGE>
(j) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or its issued shares of Common
Stock held in its treasury, or both, for the purposes of effecting conversions
of the Series A Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding shares of Series A Preferred
Stock not theretofore converted. For purposes of this subsection (j), the number
of shares of Common Stock which shall be deliverable upon the conversion of all
outstanding shares of Series A Preferred Stock shall be computed as if at the
time of computation all such outstanding shares were held by a single holder.
7. VOTING RIGHTS. In addition to any voting rights provided by
law, the holders of shares of Series A Preferred Stock shall have the
following voting rights:
(a) The affirmative vote of the holders of at least a majority of the
outstanding shares of Series A Preferred Stock, voting separately as a single
series, in person or by proxy, at a special or annual meeting of shareholders
called for the purpose, shall be necessary alter, amend or repeal any of the
provisions of this Designation or take any other corporate action, which in any
manner would alter, change or otherwise adversely affect in any way the powers,
preferences or rights of the Series A Preferred Stock.
(b) (i) The rights of holders of shares of Series A Preferred
Stock to take any actions as provided in this Section
7 may be exercised, subject to the DGCL at any annual
meeting of shareholders or at a special meeting of
shareholders held for such purpose as hereinafter
provided or at any adjournment or postponement
thereof, or by the written consent, delivered to the
Secretary of the Corporation, of the holders of the
minimum number of shares required to take such
action.
So long as such right to vote continues (an unless
such right has been exercised by written consent of
the minimum number of shares required to take such
action), the Chairman of the Board of the Corporation
may call, and upon the written request of holders of
record of 20% of the outstanding shares of Series A
Preferred Stock, addressed to the Secretary of the
Corporation at the principal office of the
Corporation, shall call, a special meeting of the
holders of shares entitled to vote as provided
herein. The Corporation shall use its best efforts to
hold such meeting within twenty, but in any event not
later than sixty, days after delivery of such request
to the Secretary of the Corporation, at the place and
upon the notice provided by law and in the By-laws of
the Corporation for the holding of meetings of
shareholders.
(ii) At each meeting of shareholders at which the holders
of shares of Series A Preferred Stock shall have the
right, voting separately as a single series, to vote
as provided in this Section 7 or to take any action,
the presence in
9
<PAGE>
person or by proxy of the holders of record of
one-half of the total number of shares of Series A
Preferred Stock then outstanding and entitled to vote
on the matter shall be necessary and sufficient to
constitute a quorum. At any such meeting or at any
adjournment or postponement thereof:
(A) the absence of a quorum of the holders of
shares of Series A Preferred Stock shall not
prevent the election of directors and the
absence of a quorum of the holders of shares
of any other class or series of capital
stock shall not prevent the taking of any
action as provided in this Section 7; and
(B) in the absence of a quorum of the holders of
shares of Series A Preferred Stock, holders
of a majority of such shares present in
person or by proxy shall have the power to
adjourn the meeting as to the actions to be
taken by the holders of shares of Series A
Preferred Stock from time to time and place
to place without notice other than
announcement at the meeting until a quorum
shall be present.
For the taking of any action as provided in this
Section 7 by the holders of shares of Series A
Preferred Stock each such holder shall have one vote
for each share of Series A Preferred Stock standing
in his name on the transfer books of the Corporation
as of any record date fixed for such purpose or, if
no such date be fixed, at the close of business on
the business day next preceding the day on which
notice is given, or if notice is waived, at the close
of business on the Business Day next preceding the
day on which the meeting is held.
(c) In exercising the voting rights set forth in this Section 7, each
share of Series A Preferred Stock shall have one vote per share.
8. REDEMPTION.
(a) The Corporation shall have the right, at its sole option and
election made in accordance with paragraph (c) of this Section 8, to redeem, out
of funds legally available therefor, shares of Series A Preferred stock, in
whole or in part, in integral multiples having an aggregate Stated Value of at
least $50,000, at any time and form time to time, at a redemption price equal to
150% of the Stated Value, plus an amount per share equal to all accrued and
unpaid dividends payable in cash, whether or not declared, to the date of
redemption (the "Redemption Price").
(b) If less than all shares of Series A Preferred Stock at the time
outstanding are to be redeemed, the shares to be redeemed shall be selected pro
rata.
10
<PAGE>
(c) In the case of each redemption of shares of Series A Preferred
Stock, notice thereof shall be given at least five, but not more than ten,
business days prior to the date fixed in such notice for such redemption or call
(the date fixed for such redemption or call is referred to herein as the
"Redemption Date"). Upon such notice of any redemption or call being so given
there shall become due and payable, at the principal office of the Company on
the Redemption Date, the redemption price (including the premium described in
paragraph 8(a), above) together with interest accrued and unpaid on the shares
of Series A Preferred Stock so prepaid to, but not including, the Redemption
Date or the number of shares of preferred stock into which the shares of Series
A Preferred Stock are called, as the case may be. The shares of Series A
Preferred Stock may not be converted pursuant to Section 5 hereof during the
period of time between the date of the notice of redemption is given to the
holders and the date set therein for payment. Unless the Company shall fail to
pay such redemption price on the Redemption Date, dividends on the shares of
Series A Preferred Stock prepaid shall cease to accrue from and after that date.
9. AMENDMENT OF RESOLUTION. The Board of Directors of the Corporation
reserves the right by subsequent amendment of this resolution from time to time
to decrease the number of shares which constitute the Series A Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided by law, this
resolution and the Certificate of Incorporation of the Corporation, as amended.
IN WITNESS WHEREOF, CDKNET.COM, INC. has caused this certificate to be
signed by its President and attested by its Secretary this 6th day of October,
1999.
CDKNET.COM, INC.
By: /s/ Steven A. Horowitz
----------------------------------
Steven A. Horowitz, President
ATTEST:
/s/ Steven A. Horowitz
- ------------------------------
Steven A. Horowitz, Secretary
11
<PAGE>
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
N/C TO CDKNET.COM, INC.
TECHNOLOGY CUSIP NO. 14983D 10
NUMBER HORIZONS SHARES
CORP.
AUTHORIZED COMMON STOCK: 20,000,000 SHARES - PAR VALUE: $.0001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
N/C CDKNET.COM, INC.
Shares of TECHNOLOGY HORIZONS CORP. Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of the its duly authorized officers.
Dated:
/s/ Steven A. Horowitz [Corporate Seal] /s/ Steven A. Horowitz
-------------------- --------------------
SECRETARY PRESIDENT
[Logo]INTERWEST TRANSFER CO. INC. P.O BOX 17136/SALT LAKE CITY, UTAH 84117
COUNTERSIGNED & REGISTERED
--------------------------------------------------
COUNTERSIGNED Transfer Agent-Authorized Signature
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a
saving bank), or a trust company. The following abbreviations,
when used in the the inscription on the face of this certificate,
shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ....... .Custodian. .......
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act .........................
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
|_____________________________________|
- ------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------ Shares
of the capital stock represented by the within certificate, and do hereby irrevocably con-
stitute and appoint
- ----------------------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated
-----------------------------
----------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
</TABLE>
<PAGE>
EXHIBIT 4.2
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of May 7, 1998 among TECHNOLOGY HORIZONS CORP., A
Delaware corporation (the "Corporation"), and those stockholders of the
Corporation who are signatories of the Agreement (the "Stockholders").
WHEREAS, the authorized capital stock of the Corporation consists of
Twenty Million (20,000,000) shares of Common Stock, par value $.0001 per
share (the "Stock"); and
WHEREAS, the Stockholders further desire that the Stockholders and
the Corporation be bound by the terms of this Agreement; and
NOW THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, and other consideration, receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. DISPOSITION OF STOCK
1.1 GENERAL. Except as set forth in this Agreement, no Stockholder
shall dispose of any portion of the Stock held by such Stockholder on the
date hereof, as set forth on Exhibit A hereto, and any successor shares
thereto (the "Present Stock").
1.1 RESTRICTION ON THE DISPOSITION OF A STOCKHOLDER'S PRESENT STOCK
DURING A STOCKHOLDER'S LIFETIME. (a) Subject to Section 1.7, a Stockholder
desiring to dispose of his Present Stock (the "Selling Stockholder") during
his lifetime must first obtain the written consent of all of the other
Stockholders (the "Non-Selling Stockholders").
(b) In the absence of such consent, the party desiring to
dispose of this Present Stock shall give to the Corporation and the Non-Selling
Stockholders written notice of his intention to dispose of his Present Stock in
the Corporation (the "Notice"). Subject to the provisions of Section 1.6 below,
the Selling Stockholder who intends to dispose of his Present Stock must dispose
of all of his Present Stock.
<PAGE>
(c) Upon the terms and conditions provided for herein, the
Non-Selling Stockholder(s) shall have the right to purchase the Selling
Stockholder's Present Stock (the "Stockholders' Right). Such Present Stock shall
be acquired on a pro rata basis commensurate with the Non-Selling Stockholders'
respective ownership in the Corporation, upon the terms and conditions provided
for herein. The Stockholders' Right may be exercised by the Non-Selling
Stockholder giving written notice to the Selling Stockholders and to the
Corporation within thirty (30) days of the Non-Selling Stockholders' receipt of
the notice required by Section 1.2(b) above. If less than all of the Non-Selling
Stockholders elect to purchase the Present Stock, then all of the Selling
Stockholder's stock shall be offered to those Non-Selling Stockholders who have
elected to purchase in the proportion that each electing Non-Selling
Stockholder's ownership interest bears to all of the electing Non-Selling
Stockholders' interest in the Corporation.
(d) In the event that any portion of the Selling Stockholder's
Present Stock is not being purchased by the Non-Selling Stockholders pursuant to
Section 1.2 (c) above, then the Corporation shall have the right to purchase
that portion of the Present Stock of the Selling Stockholder which is not being
purchased by the Non-Selling Stockholders (the "Corporation's Right"). The
Selling Stockholder shall not participate , in any capacity, in the
Corporation's decision to exercise the Corporation's Right under this or any
other section in this Agreement. The Corporation's Right may be exercised by the
Corporation by giving written notice to the Selling Stockholder and to the
Non-Selling Stockholders within fifteen (15) days of the waiver to the
expiration of the Stockholders' Right, whichever is earlier.
(e) In the event that neither the Non-Selling Stockholders nor
the Corporation elects to purchase all of the Selling Stockholder's Present
Stock in the manner set forth in
2
<PAGE>
Sections 1.2(c) and (d) above, then the Selling Stockholder thereafter may
dispose of all, but not less than all, of his Present Stock to any third
party (an "Outside Party") on the same terms and conditions as in the
Offering Notice (as defined below); provided; however, that no sale of any
Present Stock to an Outside Party shall be consummated until and unless (i)
the Selling Stockholder has offered, in writing, to the Non-Selling
Stockholders and the Corporation the opportunity to purchase all of his
Present Stock upon the same terms and conditions as the bona fide offer of an
Outside Part, contained in a notice written in sufficient detail (the
"Offering Notice") (which offer may be exercised by the Non-Selling
Stockholders and/or the Corporation in the manner and within the same time
periods provided in Section 1.2(c) and (d) above; (ii) the Offering Notice
shall expire unexercised; and (iii) the Outside Party agrees to be bound by
and subject to this Agreement to the fullest extent possible and delivers
such consents and other documents as may be necessary, in the opinion of
counsel to the Corporation, for the Outside Party to become so bound and
subject. If the Selling Stockholder fails to transfer his Present Stock to
the Outside Party within sixty (60) days following the expiration of the
Offering Notice, such Present Stock shall agin become subject to the
restrictions of the Agreement.
(f) Notwithstanding anything to the contrary, each Stockholder
agrees to sell and/or transfer his Present Stock in the event the holder(s) of a
majority of the outstanding Present Stock receive and accept a bona fide third
party offer to acquire not less than a majority of the outstanding Stock of the
Corporation or to merge with such third party. The purchase price per share
payable to each such Stockholder and the others terms of such transaction with
respect to the shares covered by such exercise shall be identical to the
purchase price per share
3
<PAGE>
and the other terms of the transaction between the holder(s) of a majority of
shares and the third party.
(g) The purchase price for the Present Stock being sold under
Sections 1.2(c)-(d) above, the manner of payment thereof and the delivery of the
Present Stock shall be as set forth in Section 1.4 below. The purchase price for
the Present Stock sold under Section 1.2(e) above and the manner of payment
thereof shall be set forth in the Offering Notice.
(h) Notwithstanding anything contained in this Agreement to
the contrary, any Stockholder that is a corporate entity may, without consent,
transfer its Stock to its stockholders or (if the sole asset of the corporate
entity is Stock of the Corporation and such corporate entity has no liabilities)
merge into the Corporation in a share exchange.
1.3 CLOSING. In the event the purchaser of any Stock is any or all of
the non-Selling Stockholders or the Corporation, then the closing shall be held
at the Principal Office of the Corporation, at a meeting of the Stockholders, on
the date which thirty (30) days after the exercise of the Stockholders' Right or
the Corporation's Right, whichever is exercised last or pursuant to the Offering
Notice, as appropriate.
1.4 PURCHASE PRICE AND MANNER OF PAYMENT. (a) For all purpose of this
Agreement, except Section 1.2(e) above, the purchase price of a Stockholder's
Present Stock shall be determined by the following formula: the book value of
the Corporation (determined by the Corporations's accountants in accordance with
generally accepted accounting principles which reflect minimal, if any, value
for the Corporation as a going concern and for any intangibles), multiplied by
the percentage of Present Stock owned by the Selling Stockholder (the "Purchase
Price").
4
<PAGE>
(b) The Purchase Price shall be paid at the closing (as
determined under Section 1.4 above) in the following manner: not less than ten
percent (10%) of the Purchase Price in cash or certified check of a bank or
trust company, which is a member of the New York Clearing House, at the Closing,
and the balance of the Purchase Price by delivery to the Selling Stockholder of
a ten (10) year, self-amortizing, non-negotiable promissory note. The note shall
bear interest at a rate per annum equal to the prime rate publicly announced by
Citibank, N.A. on the date of the Closing at its principal lending office in the
Borough of Manhattan, City and State of New York.
(c) The provisions of this Section 1.4 shall not be applicable
to a sale occurring under Section 1.2(e) above, which shall be governed by the
terms of the Offering Notice.
1.5 NO EFFECT. The Corporation shall not be required to recognize as
valid or give effect to any mortgage, pledge, hypothecation, security interest,
assignment, transfer, sale or other disposition in violation of the provisions
of this Article 1. Any act in compliance with this Agreement shall be void and
of nor effect expect as otherwise required by judicial process of law.
1.6 TRANSFER TO PERMITTED TRANSFEREES. Notwithstanding anything to the
contrary contained in this Article 1, each Stockholder may dispose, by gift
during his lifetime, or by his Last Will and Testament upon his death, any
portion or all of his Present Stock in the Corporation, without the consent of
other Stockholders, to the following permitted transferees ("Permitted
Transferees"): (i) one or more members of his Family Members (as hereinafter
defined), or (ii) one or more trusts for the benefit of one or more Family
Members (collectively,
5
<PAGE>
the "Trusts"); provided, however, that all such Permitted Transferees shall
expressly agree, in writing, to be bound by the terms of this Agreement.
Moreover, the trustees and beneficiaries of all the Trusts (or the legal
representative of any beneficiary) shall expressly agree that any transfer
from such Trust shall be governed by this Agreement. For purposes of this
Agreement, the term "Family Members" shall be defined to consist of that
Stockholder's spouse and issue.
1.7 INITIAL PUBLIC OFFERING. Upon the closing of an initial public
offering of Stock in the Corporation, all restrictions on the transfer of a
Stockholder's Stock pursuant to this Article 1 shall terminate.
2. NOTICES.
2.1 All notices which are provided for under any of the
provisions of this Agreement shall be in writing and shall be delivered by hand
or sent by certified or registered mail, return receipt requested or by a
nationally recognized overnight courier. Any such notice, if sent by hand, shall
be deemed to have been delivered upon receipt; if sent by mail, shall be deemed
to have been sent on and as of the date when the same was deposited for mailing,
properly addressed with postage prepaid, in a United States post office or post
office mailbox, and shall be deemed to have been delivered on the date of
receipt appearing on the return receipt requested or, if refused, on the date of
refusal, or, if undeliverable, on the third business day following the date it
is sent; and if sent by courier, shall be deemed to have been delivered two
business days after providing to the such courier for priority delivery. All
notices provided to be sent or delivered to the Stockholders shall be addressed
to them at their respective addresses appearing on the record of stockholders of
the Corporation, unless any of them shall give to the Corporation written notice
of some other address which shall thereafter be used for the purpose
6
<PAGE>
of this Agreement. All notices provided to be sent or delivered to the
Corporation shall be addressed to it at its principle executive offices to
the attention of the Secretary of the Corporation.
3. TERM.
3.1 This Agreement is effective when signed by all of the
parties hereto and shall terminate on the earliest of:
(a) the date all Stockholders have executed a written
agreement terminating this Agreement,
(b) the date the Corporation liquidates.
(c) the date all the issued and outstanding stock of the
Corporation is registered in the name of one person
or entity, and
(d) the closing date of an initial public offering of the
Corporation's Common Stock.
4. MANAGEMENT.
4.1 At any meeting of the director(s) or Stockholders of the
Corporation at which director(s) of the Corporation are proposed to be elected
or removed, the Stockholders shall cast their votes for Steven A. Horowitz, Esq.
as director unless or until such time as he resigns such position.
5. MISCELLANEOUS.
5.1 Each Stockholder agrees that the certificates representing
shares of Common Stock held by him may have stamped or printed thereon on
appropriate legend referring to the terms and restrictions contained in this
Agreement.
7
<PAGE>
5.2 The terms "Stock", "Present Stock" and "shares" as used
herein shall include all additional securities issued with respect thereto
pursuant to any stock dividend, stock-split, recapitalization, merger or
consolidation.
5.3 This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, legal representative,
successors and/or assigns, including permitted transferees of shares of Stock
originally owned by a Stockholder.
5.4 This Agreement may be executed in several
counterparts, each of which shall be deemed an original.
5.5 This Agreement shall construed in accordance with and
governed by the laws of the State of New York without regard to the choice or
conflict of law provisions thereof, and shall constitute the entire agreement
among the partes hereto with respect to the subject matter hereof. There are
merged herein all prior and collateral representations and agreements in
connection with the subject matter hereof.
5.6 None of the terms or conditions of this Agreement may be
changed, modified, waived or canceled except by a writing signed by all the
parties hereto, specifying such change, modification, waiver or cancellation. A
waiver at any time of compliance with any of the terms and conditions of the
Agreement shall not be considered a modification, cancellation or waiver of such
terms and conditions, of any preceding or succeeding breach thereof, unless
expressly so stated.
5.7 All pronouns used in the Agreement shall include all
genders. This singular shall include the plural and vice versa.
8
<PAGE>
5.8 Each of the Stockholders represents and warrants that he
has (i) carefully read this Agreement, (ii) had an opportunity to consult with
independent legal counsel with respect to this Agreement and (iii) entered into
this Agreement of his won free will.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
TECHNOLOGY HORIZONS CORP.
By: ______________________________
Name:
Title:
STOCKHOLDERS
CREATIVE MUSIC PRODUCTS CORP.
By: ______________________________
Name:
Title:
___________________________________
STEVEN HOROWITZ
___________________________________
GARY SEGAL
___________________________________
DAVID WOLF
9
<PAGE>
___________________________________
ALBERT HOROWITZ
___________________________________
FRED HOROWITZ
___________________________________
JACK ZEMEL
___________________________________
MARC ZEMEL
___________________________________
JANE ZEMEL
___________________________________
RONA ZEMEL
___________________________________
ALEXANDER ZEMEL
___________________________________
EDWARD PAPIER
___________________________________
MICHAEL SONNENBERG
___________________________________
DAN MYERS
___________________________________
CECILE ROSMAN
10
<PAGE>
___________________________________
FINNEGAN/GINDEL
___________________________________
GUADALUPE SOGUERO IRA
___________________________________
DR. ANDREW SIRLIN
___________________________________
LUDWIG SPERLING
___________________________________
MARK SHEFTS
___________________________________
DAN FINNEGAN
___________________________________
IRA GRUNTHER
___________________________________
ANDREW SCHENKER
___________________________________
JERRY SWARTZ
___________________________________
STEPHEN BIRBIGLIA
11
<PAGE>
___________________________________
CRAIG CONVERSANO
___________________________________
BRUCE GOLDBERG
___________________________________
JAMES MESSINA
___________________________________
NEWBRIDGE COVERAGE
___________________________________
LAWRENCE RASKIN
___________________________________
PETERSON CRT
___________________________________
SWARTZ CRT
12
<PAGE>
EXHIBIT A
TECHNOLOGY HORIZONS CORP.
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES
----------- ------------------
<S> <C>
1. CREATIVE MUSIC 1,210,787.48
2. STEVEN HOROWITZ 491,193.43
3. GARY SEGAL 716,743.96
4. DAVID WOLF 411,618.55
5. ALBERT HOROWITZ 71,674.40
6. FRED HOROWITZ 143,379.61
7. JACK ZEMEL 43,357.51
8. MARC ZEMEL 43,357.51
9. JANE ZEMEL 43,357.51
10. RONA & AL ZEMEL 462,266.82
11. EDWARD PAPIER 288,238.68
12. MICHAEL SONNENBERG 285,505.80
13. DAN MYERS 142,157.01
14. CECILE ROSMAN 72,177.82
15. FINNEGAN/GINDEL 42,696.42
16. GUADILOUPE SEGUER 71,592.20
17. DR. SIRLIN 71,623.03
18. LUDWIG SPERLING 71,561.38
19. MARK SHEFTS 142,9788.93
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
20. DAN FINNEGAN 71,160.70
21. IRA GRUNTHER 28,525.92
22. ANDREW SCHENKER 14,201.32
23. JERRY SWARTZ 283,903.06
24. STEVE BIRBIGLIA 71,309.67
25. CRAIG CONVERSANO 71,309.67
26. BRUCE GOLDBERG 142,609.07
27. JAMES MESSINA 71,561.38
28. NEWBRIDGE COV. 71,304.53
29. LAWRENCE RASKIN 71,227.48
30. PETERSON CRT 85,294.21
31. SWARTZ CRT 191,384.91
------------
6,000,000.00
------------
------------
</TABLE>
14
<PAGE>
EXHIBIT 10.1
TECHNOLOGY HORIZONS CORP.
1999 EQUITY INCENTIVE PLAN
1. NAME AND PURPOSE.
The name of this plan is the TECHNOLOGY HORIZONS CORP. 1998 Equity
Incentive Plan (the "Plan"). The purpose of this Plan is to enable TECHNOLOGY
HORIZONS CORP. (the "Company") and its Subsidiaries and Affiliates to attract
and retain employees, consultants and directors who contribute to the Company's
success by their ability, ingenuity and industry, and to enable such employees
and directors to participate in the long-term success and growth of the Company
through an equity interest in the Company.
2. DEFINITIONS.
For purposes of this Plan, the following terms shall be defined as set
forth below:
"Affiliate" means any corporation (other than a subsidiary),
partnership, joint venture or any other entity in which the Company owns,
directly or indirectly, at least a ten percent (10%) beneficial ownership
interest.
"Board" means the Board of Directors of the Company.
"Cause" means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, or a participant's willful or
grossly negligent action which is demonstrably inimical to the interests,
business or reputation of the Company or any Subsidiary or Affiliate.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
"Committee" means the Stock Option Committee of the Board, whose
members shall be appointed from time to time by the Board. If at any time no
Committee shall be in existence, the functions of the Committee specified in
this Plan shall be exercised by the Board.
"Commission" means the Securities and Exchange Commission.
"Company" means TECHNOLOGY HORIZONS CORP., a corporation organized
under the laws of the State of Delaware (or any successor corporation).
"Deferred Stock" means an award made pursuant to Section 10 of the
right to receive Stock at the end of a specified deferral period.
"Director Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 7.
<PAGE>
"Disability" means total and permanent disability as determined under
the Company's long term disability program.
"Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) as promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor thereto.
"Fair Market Value" means, as of any given date, the closing price of
the Stock on such date on the National Association of Securities Dealers
Automated Quotation System (NASDAQ) National Market System, or if not then
traded or listed on that system, on the securities trading system or stock
exchange on which the Stock is then primarily traded or listed; or if the stock
is not traded or listed on an exchange the average of the reported high and low
price on such date.
"Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Code Section
422.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Normal. Retirement," solely for the purpose of this Plan means
retirement from active employment with the Company, any Subsidiary, and any
Affiliate on or after age 65.
"Plan" means this 1998 Equity Stock Incentive Plan.
"Restricted Stock" means an award of shares of Stock that are subject
to restrictions under Section 9.
"Retirement" means Normal Retirement.
"Stock" means the common stock of the Company.
"Stock Appreciation Right" means a right granted under Section 8 to
surrender to the Company all or a portion of a Stock Option in exchange for an
amount equal to the difference between (i) the Fair Market Value, as of the
date such Stock Option or such portion thereof is surrendered, of the shares of
Stock covered by such Stock Option or such portion thereof, and (ii) the
aggregate exercise price of such Stock Option or such portion thereof
"Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 6.
2
<PAGE>
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
3. ADMINISTRATION.
This Plan shall be administered by the Committee which shall at all
times consist of not less than three Disinterested Persons (or, if there are
less than three Disinterested Persons then serving on the Board of Directors,
then all of such Disinterested Persons), each of whom shall be members of the
Board of the Directors. The Committee shall have the power and authority to
grant to eligible employees, pursuant to the terms of this Plan: (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, or (iv)
Deferred Stock. In particular, the Committee shall have the authority to:
3.1 Select the officers, other employees and consultants of the
Company, its Subsidiaries, and its Affiliates to whom Stock Options, Stock
Appreciation Rights, Restricted Stock or Deferred Stock awards, or a
combination of the foregoing from time to time will be granted hereunder;
3.2 Determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock or
Deferred Stock, or a combination of the foregoing are to be granted hereunder;
3.3 Except as set forth in Section 7 hereof, determine the number of
shares of Stock to be covered by each such award granted hereunder;
3.4 Determine the terms and conditions, not inconsistent with the
terms of this Plan, of any award granted hereunder, including, but not
limited to, any restriction on any Stock Option or other award and/or the
shares of Stock relating thereto based on performance and/or such other
factors as the Committee may determine, in its sole discretion, and any
vesting acceleration features based on performance and/or such other factors
as the Committee may determine, in its sole discretion;
3.5 Determine whether, to what extent, and under what circumstances
Stock and other amounts payable with respect to an award under this Plan
shall BE DEFERRED EITHER AUTOMATICALLY or at the election of a participant,
including providing for and determining the amount (if any) of deemed
earnings on any deferred amount during any deferral period;
3.6 Adopt, alter, and repeal such administrative rules, guidelines,
and practices governing this Plan as it shall, from time to time, deem
advisable;
3
<PAGE>
3.7 Interpret the terms and provisions of this Plan and any award
issued under this Plan (and any agreements relating thereto); and
3.8 Otherwise supervise the administration of this Plan.
All decisions made by the Committee pursuant to the provisions of
this Plan shall be final and binding on all persons, including the Company
and participants in this Plan.
4. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
distribution under this Plan shall be 3,000,000. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares. If
any shares of Stock that have been optioned cease to be subject to option, or
if any shares subject to any Restricted Stock or Deferred Stock award granted
hereunder are forfeited or such award otherwise terminates, those shares
shall again be available for distribution in connection with future awards
under this Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in the
aggregate number of shares reserved for issuance under this Plan, in the
number and option price of shares subject to outstanding Stock Options and
Director Stock Options granted under this Plan, and in the number of shares
subject to Restricted Stock or Deferred Stock awards granted under this Plan,
in such manner as may be determined to be appropriate by the Committee, in
its sole discretion, provided that the number of shares subject to any award
shall always be a whole number. Such adjusted option price shall also be used
to determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
5. ELIGIBILITY.
5.1 Officers, other employees and consultants of the Company, its
Subsidiaries or its Affiliates (but excluding members of the Committee and
any person who serves only as a director) who are responsible for or
contribute to the management, growth, and/or profitability of the business of
the Company, its Subsidiaries, or its Affiliates are eligible to be granted
Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock
awards.
5.2 Directors of the Company (other than directors who are also
officers or employees of the Company, its Subsidiaries or its Affiliates) are
eligible to be granted Director Stock Options pursuant to Section 7 of the
Plan.
5.3 Except as set forth in Section 7 of the Plan, the optionees and
participants under this Plan shall be selected from time to time by the
Committee, in its sole discretion, from among
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those eligible, and the Committee shall determine, in its sole discretion,
the number of shares covered by each award or grant to an optionee or
participant.
6. STOCK OPTIONS FOR EMPLOYEES AND CONSULTANTS.
Stock Options may be granted either alone or in addition to other
awards granted under this Plan. Any Stock Option granted under this Plan
shall be in such form as the Committee from time to time approve, and the
provisions of Stock Option awards need not be the same with respect to each
optionee.
The Stock Options granted under this Plan may be of two types: (i)
Incentive Stock Options, or (ii) Non-Qualified Stock Options. The Committee
shall have the authority to grant any optionee Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options (in each case
with or without Stock Appreciation Rights) except that Incentive Stock
Options shall not be granted to employees of an Affiliate. To the extent that
any Stock Option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
Anything in this Plan to the contrary notwithstanding, no term of
this Plan relating to Incentive Stock Options shall be interpreted, amended,
or altered, nor shall any discretion or authority granted under this Plan be
so exercised, so as to disqualify either this Plan or any Incentive Stock
Option under Code Section 422. Notwithstanding the foregoing, in the event an
optionee voluntarily disqualifies an option as an Incentive Stock Option
within the meaning of Code Section 422, the Committee may, but shall not be
obligated to, make such additional grants, awards, or bonuses as the
Committee shall deem appropriate, to reflect the tax savings to the Company
which results from such disqualification.
Stock Options granted under this Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee
shall deem desirable:
6.1 OPTION PRICE. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of
grant but shall not be less than 100% of the Fair Market Value of the Stock
on the date of the grant of the Incentive Stock Option and 80% of the Fair
Market Value on the date of the grant of the Non-Qualified Stock Options.
6.2 OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable later than 10
years. After the date, such Incentive Stock Option is granted and no
Non-Qualified Stock Option shall be exercisable later than 10 years and two
days after the date such Non-Qualified Stock Option is granted.
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6.3 EXERCISABILITY. Subject to Section 6.10 with respect to
Incentive Stock Options, Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at the date of grant; provided, however, that, except as provided
in Sections 6.6, 6.7, and 6.8, unless otherwise determined BY THE COMMITTEE
AT GRANT, no Stock Option shall be exercisable prior to the first anniversary
DATE OF THE GRANTING OF THE option. If the Committee provides, in its
discretion, that any Stock Option is exercisable only in installments, the
Committee may waive such installment exercise provisions at any time in whole
or in part based on performance and/or such other factors as the Committee
may determine in its sole discretion.
6.4 METHOD OF EXERCISE. Stock Options may be exercised in whole or
in part at any time during the option period, by giving written notice of
exercise to the Company specifying the number of shares to be purchased,
accompanied by payment in full of the purchase price, in cash, by check or
such other instrument or mode of payment as may be acceptable to the
Committee. As determined by the Committee, in its sole discretion, at or
after grant, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or, in the case of the
exercise of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock
subject to an award hereunder (based, in each case, on the Fair Market Value
of the Stock on the date the option is exercised, as determined by the
Committee). If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock or
Deferred Stock, the shares received upon the exercise of such Stock Option
shall be restricted or deferred, as the case may be, in accordance with the
original term of the Restricted Stock award or Deferred Stock award in
question, equal to the number of shares of Restricted Stock or Deferred Stock
surrendered upon the exercise of that option. No shares of unrestricted Stock
shall be issued until full payment therefor has been made. An optionee shall
have the right to dividends or other rights of a stockholder with respect to
shares subject to the option when the optionee has given written notice of
exercise and has paid in full for those shares.
6.5 NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
6.6 TERMINATION BY DEATH. Unless otherwise determined by the
Committee at grant, if an optionee's employment with the Company, any
Subsidiary, and any Affiliate terminates by reason of his death, the Stock
Option may thereafter be exercised, to the extent then exercisable (or on
such accelerated basis as the Committee shall determine at or after grant),
by the legal representative of the estate or by the legatee of the optionee
under the will of the optionee or by the heir of the optionee under the laws
of descent and distribution, for a period of one year from the date of such
death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
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6.7 TEN-NINATION BY REASON OF DISABILITY. Unless otherwise
determined by the Committee at grant, if an optionee's employment with the
Company, any Subsidiary and any Affiliate terminates by reason of Disability,
any Stock Option held by such optionee may thereafter be exercised to the
extent it was exercisable at the time of termination due to Disability (or on
such accelerated basis as the Committee shall determine at or after grant),
but may not be exercised after one year from the date of such termination of
employment or the expiration of the stated term or such Stock Option,
whichever period is shorter; provided, however, that, if the optionee dies
within such one-year period, any unexercised Stock Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of three months from the date
of such death or for the stated term of such Stock Option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Code Section 422, such Stock
Option will thereafter be treated as a Non-Qualified Stock Option.
6.8 TERMINATION BY REASON OF RETIREMENT. Unless otherwise determined
by the Committee at grant, if an optionee's employment with the Company, any
Subsidiary and any Affiliate terminates by reason of Normal Retirement, any
Stock Option held by such optionee may thereafter be exercised to the extent
it was exercisable at the time of such Retirement (or on such accelerated
basis as the Committee shall determine at or after grant), but may not be
exercised after one year from the date of such termination of employment or
the expiration of the stated term of such Stock Option, whichever period is
the shorter; provided, however, that, if the optionee dies within such
one-year period any unexercised Stock Option held by such optionee shall
thereafter be exercisable, to the extent to which it was exercisable at the
time of death, for a period of three months from the date of such death or
for the stated term of the Stock Option, whichever period is the shorter.
Notwithstanding the foregoing, the tax treatment available pursuant to
Section 422 of the Internal Revenue Code of 1986 upon the exercise of an
Incentive Stock Option will not be available to an optionee who exercises any
Incentive Stock Options more than (i) 12 months after the date of termination
of employment due to permanent disability or (ii) three months after the date
of termination of employment due to retirement.
6.9 OTHER TERMINATION. Unless otherwise determined by the Committee
at grant, if an optionee's employment with the Company, any Subsidiary and
any Affiliate terminates for any reason other than death, Disability or
Normal Retirement, any Stock Option held by such optionee shall thereupon
terminate, except that such Stock Option may be exercised for the lesser of
three months from the date of termination or the balance of such Stock
Option's term if the optionee's employment with the Company, any Subsidiary
and any Affiliate is involuntarily terminated by the optionee's employer
without Cause.
6.10 LIMIT ON VALUE OF INCENTIVE STOCK OPTION FIRST EXERCISABLE
ANNUALLY. The aggregate Fair Market Value (determined at the time of grant)
of the Stock for which "incentive stock options" within the meaning of Code
Section 422 are exercisable for the first time by an
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optionee during any calendar year under this Plan (and/or any other stock
option plans of the Company, any Subsidiary and any Affiliate) shall not
exceed $100,000.
7. DIRECTOR STOCK OPTIONS.
Director Stock Options granted under this Plan shall be
Non-Qualified Stock Options which are not intended to be "incentive stock
options" within the meaning of Code Section 422. Director Stock Options
granted under this Plan shall be in such FORM AS THE COMMITTEE MAY FROM time
to time approve, and the provisions of Director Stock Options need not be the
same with respect to each optionee. Director Stock Options shall be granted
as follows:
7.1 NUMBER OF OPTIONS GRANTED.
(a) UPON ACCEPTANCE OF APPOINTMENT. Upon acceptance of appointment
as a director, 20,000 Director Stock Options shall be granted
to each director eligible under Section 5.2 of this Plan. One
quarter of such options shall vest and become exercisable at
the end of the third, sixth, ninth and twelfth month of
service as a director, provided such eligible director has
attended at least 75% of the meetings called during the
vesting period.
(b) FOLLOWING INITIAL APPOINTMENT. Each director that is eligible
to receive Director Stock Options pursuant to Section 5.2 of
the Plan shall, on the day following the Company's annual
meeting of stockholders, be granted additional Director Stock
Options, which shall vest and be exercisable immediately upon
grants, as follows:
Years Following Number of
Initial Appointment Director Stock Options
------------------- ----------------------
1 10,000
2 15,000
3 20,000
4 30,000
5 and each year thereafter 50,000_
Director Stock Options granted under the Plan shall be evidenced by
a written agreement in such form as the Committee shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
7.2 OPTION PRICE. The option price per share of Stock purchasable
under a Director Stock Option shall be 85% of the Fair Market Value of the
Stock on the date of the grant of the Director Stock Option.
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7.3 OPTION TERM. Each Director Stock Option shall be exercisable for
10 years and two days after the date such Director Stock Option is granted
(subject to prior termination as hereinafter provided).
7.4 EXERCISABILITY. Director Stock Options shall be exercisable at
such time or times. and subject to such terms and conditions as shall be
determined by the Committee at the date of grant. If the Committee provides,
in its discretion, that any Director Stock Option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time in whole or in part based on performance and/or such other FACTORS
AS THE COMMITTEE MAY determine in its sole discretion; provided, however,
that in the event of a "Change of Control" (as defined in Section 14 below),
the value of all outstanding Director Stock Options that have been
outstanding for at least six months shall be cashed out on the basis of the
"Change of Control Price" (as defined in Section 14 below) as of the date the
Change of Control occurs, and all Director Stock Options that have not been
outstanding for at least six months shall be immediately exercisable.
7.5 METHOD OF EXERCISE. Director Stock Options may be exercised in
whole or in part at any time during the option period, by giving written
notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment in full of the purchase price, in cash, by
check or such other instrument or mode of payment as may, be acceptable to
the Committee. Payment in full or in part may also be made in the form of
Stock already owned by the optionee (based on the Fair Market value of the
Stock on the date the option is exercised). No shares of Stock shall be
issued until full payment therefor has been made. An optionee shall have the
rights to dividends or other rights of a stockholder with respect to shares
subject to the option when the optionee has given written notice of exercise
and has paid in full for such shares.
7.6 NON-TRANSFERABILITY OF OPTIONS. No Director Stock Option shall
be transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Director Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
7.7 TERMINATION BY DISABILITY OR DEATH. Upon an optionee's
termination of service as a director by reason of disability or death, any
Director Stock Options held by such optionee may thereafter be immediately
exercised by the optionee or, in the case of death, by the legal
representative or the estate or by the legatee of the optionee under the will
of the optionee, until the expiration of the stated term of such Director
Stock Options.
7.8 OTHER TERMINATION. Upon an optionee's termination of service as
a director with the Company for any reason other than disability or death,
any Director Stock Options held by such optionee may thereafter be exercised,
to the extent exercisable at termination, until the expiration of the stated
term of such Director Stock Options.
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8. STOCK APPRECIATION RIGHTS.
8.1 GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under this Plan. In
the case of a Non-Qualified Stock Option, such rights may be granted either
at or after the time of the grant of such NonQualified Stock Option. In the
case of an Incentive Stock Option, such rights may be granted only at the
time of the grant of such Incentive Stock Option.
A Stock Appreciation Rig lit or applicable portion thereof
granted with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option,
except that, unless otherwise PROVIDED BY THE COMMITTEE AT THE TIME of grant,
a Stock Appreciation Right granted with respect to LESS THAN THE FULL NUMBER
OF shares covered by a related Stock Option shall only be reduced if and to
the extent that the number of shares covered by the exercise or termination
of the related Stock Option exceeds the number of shares not covered by the
Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with Section 8.2, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive amount determined in the manner prescribed in Section
8.2. Stock Options having been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the related Stock Appreciation Rights
have been exercised.
8.2 TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of this
Plan, as shall be determined from time to time by the Committee, including
the following:
(a) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to
which they relate shall be exercisable in accordance with
the provisions of Section 6 and this Section; provided, however,
that any Stock Appreciation Right granted subsequent to the grant
of the related Stock Option shall not be exercisable during the
first six months of the term of the Stock Appreciation
Right, except that this additional limitation shall not apply in
the event of death or Disability of the optionee prior to the
expiration of the six month period.
(b) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an
amount in cash or shares of Stock equal in value to the excess
of the Fair Market Value of one share of Stock over the option
price per share specified in the related Stock Option
multiplied by the number of shares with respect to which the
Stock Appreciation Right shall have been exercised, with the
Committee having the sole and exclusive right to determine the
form of payment.
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(c) Stock Appreciation Rights shall be transferable only when and
to the extent that the underlying Stock Option would be
transferable under Section 6.5.
(d) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right
is related shall be deemed to have been exercised for the
purpose of the limitation set forth in Section 4 on the number
of shares of Stock to be issued under this Plan.
(e) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the
market price of the Stock subject to the Incentive Stock
Option exceeds the exercise price of such Stock Option.
(f) In its sole discretion, the Committee may provide, at the time
of grant of a Stock Appreciation Right under this Section,
that such Stock Appreciation Right can be exercised only in
the event of a "Change of Control" and/or a "Potential Change
of Control" (as defined in Section 14).
(g) The Committee, in its sole discretion, may also provide that,
in the event of a "Change of Control" and/or a "Potential
Change of Control" (as defined in Section 14), the amount to
be paid upon the exercise of a Stock Appreciation Right shall
be based on the "Change of Control Price" (as defined in
Section 14).
9. RESTRICTED STOCK.
9.1 ADMINISTRATION. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under this Plan. The Committee
shall determine the consultants, officers and key employees of the Company
and its Subsidiaries and Affiliates to whom, and the time or times at which,
grants of Restricted Stock will be made, the number of shares to be awarded,
the price, if any, to be paid by the recipient of Restricted Stock (subject
to Section 9.2, the time or times within which such awards may be subject to
forfeiture, and all other conditions of the awards. The Committee may also
condition the grant of Restricted Stock upon the attainment of specified
performance goals, or such other criteria as the Committee may determine, in
its sole discretion. The provisions of Restricted Stock awards need not be
the same with respect to each recipient.
9.2 AWARDS AND CERTIFICATES. The prospective recipient of an award
of shares of Restricted Stock shall not have any rights with respect to such
award, unless and until such recipient has executed an agreement evidencing
the award (a "Restricted Stock Award Agreement") and has delivered a fully
executed copy thereof to the Company, and has otherwise complied with the
then applicable terms and conditions.
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(a) Awards of Restricted Stock must be accepted within a period of
90 days (or such shorter period as the Committee may specify)
after the award date by executing a Restricted Stock Award
Agreement and paying whatever price, if any, is required.
(b) Each participant who is awarded Restricted Stock shall be
issued a stock certificate with respect to those shares of
Restricted Stock. The certificate shall be registered in the
name of the participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the TECHNOLOGY HORIZONS CORP. 1998
Equity Incentive Plan and a Restricted Stock Award Agreement
entered into between the registered owner and TECHNOLOGY HORIZONS
CORP. Copies of the Plan and the Agreement are on file in the
offices of TECHNOLOGY HORIZONS CORP., 595 Stewart Avenue, Suite
710, Garden City, New York 1153 0."
(c) The Committee shall require that the stock certificates evidencing
such shares will be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition
of any Restricted Stock award, the participant shall have delivered
a stock power to the Company, endorsed in blank, relating to the
Stock covered by such award.
9.3 RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock
awarded pursuant to this Section shall be subject to the following restrictions
and conditions:
(a) Subject to the provisions of this Plan and the Restricted Stock
Award Agreements, during such period as may be set by the
Committee commencing on the grant date (the "Restriction Period"),
the participant shall not be permitted to sell, transfer, pledge
or assign shares of Restricted Stock awarded under this Plan.
With these limits, the Committee may, in its sole discretion,
provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions in whole or in part based on
performance and/or such other factors as the Committee may
determine, in its sole discretion.
(b) Except as provided in Section 9.3(a), the participant shall have,
with respect to the shares of Restricted Stock, all of the rights
of a stockholder of the Company, including the right to receive
any dividends. Dividends paid in stock of the Company or stock
received in connection with a stock split with respect to
Restricted Stock shall be subject to the same restrictions as on
such Restricted Stock. Certificates for shares of unrestricted
Stock shall be delivered to the
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participant promptly after, and only after, the period of
forfeiture shall expire without forfeiture in respect of such
shares of Restricted Stock.
(c) Subject to the provisions of the Restricted Stock Award
Agreement and this Section, upon the participant's termination
of employment for any reason during the Restriction Period,
all shares still subject to restriction shall be forfeited by
the participant, and the participant shall only receive the
amount, if any, paid by the participant for such forfeited
Restricted Stock.
(d) In the event of special hardship circumstances of a
participant whose employment is involuntarily terminated
(other than for Cause), the Committee may, in its sole
discretion, waive in whole or in part any or all remaining
restrictions with respect to such participant's shares of
Restricted Stock.
10. DEFERRED STOCK AWARDS.
10.1 ADMINISTRATION. Deferred Stock may be awarded either alone or
in addition to other awards granted under this Plan. The Committee shall
determine the consultants, officers and key employees of the Company, its
Subsidiaries and Affiliates to whom, and the time or. times at which,
Deferred Stock shall be awarded, the number of shares of Deferred Stock to be
awarded to any participant, the duration of the period (the "Deferral
Period") during which, and the conditions under which, receipt of the Stock
will be deferred and the terms and conditions of the award in addition to
those set forth in Section 10.2. The Committee may also condition the grant
of Deferred Stock upon the attainment of specified performance goals, or such
other criteria as the Committee shall determine, in its sole discretion. The
provisions of Deferred Stock awards need not be the same with respect to each
recipient.
10.2 TERMS AND CONDITIONS. The shares of Deferred Stock awarded
pursuant to this Section shall be subject to the following terms and
conditions:
(a) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned,
transferred, pledged, or otherwise encumbered during the
Deferral Period. At the expiration of the Deferral Period (or
Elective Deferral Period, where applicable), share
certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the
Deferred Stock award.
(b) At the time of the award, the Committee may, in its sole
discretion, determine that amounts equal to any dividends
declared during the Deferral Period with respect to the number
of shares covered by a Deferred Stock award will be: (a) paid
to the participant currently, (b) deferred and deemed to be
reinvested, or (c) forfeited because the participant has no
rights with respect thereto.
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(c) Subject to the provisions of the award agreement and this
Section, upon termination of employment for any reason during
the Deferral Period for a given award, the Deferred Stock in
question including any deferred and reinvested dividends
thereon shall be forfeited by the participant.
(d) Based on performance and/or such other criteria as the
Committee may determine, the Committee may, at or after the
grant, accelerate the vesting of all or any part of any
Deferred Stock award and/or waive the deferral limitations for
all or any part of such award.
(e) In the event of special hardship circumstances of a participant
whose employment is involuntarily terminated (other than for
Cause), the Committee may, in its sole discretion, waive in whole
or in part any or all of the remaining deferral limitations
imposed hereunder with respect to any or all of the participant's
Deferred Stock.
(f) A participant may elect to defer further receipt of the award
for a specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's
approval and to such terms as are determined by the Committee,
all in its sole discretion. Subject to any exceptions adopted by
the Committee, such election must be made at least six months
prior to the completion of the Deferral Period for a Deferred
Stock award (or for an installment of such an award).
(g) Each award shall be confirmed by, and subject to the terms of,
a Deferred Stock award agreement executed by the Company and
the participant.
11. LOAN PROVISIONS.
With the consent of the Committee, the Company may make, guarantee, or
arrange for, a loan or loans to a Plan participant with respect to the exercise
of any Stock Option granted under this Plan and/or with respect to the payment
of the purchase price, if any, of any Restricted Stock awarded hereunder
and/or with respect to the payment by optionee of any or all federal and/or
state income taxes due on account of the granting or exercise of any stock
option or other awards hereunder. The Committee shall have full authority to
decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate
to be charged in respect of any such loan or loans, whether the loan or loans
are to be with or without recourse against the borrower, the terms on which
the loan is to be repaid and the conditions, if any, under which the loan or
loans may be forgiven.
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12. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue this Plan, but no
amendment, alteration, or discontinuation shall be made which would impair
the right of an optionee or participant under a Stock Option, Director Stock
Option, Stock Appreciation Right, Restricted Stock or Deferred Stock award
theretofore granted, without the optionee's or participant's consent, or
which without the approval of the stockholders would:
12.1 Except as expressly provided in this Plan, increase the total
number of shares reserved for the purpose of this Plan;
12.2 Extend the maximum option period under Section 6.2 or 7.3 of the
Plan.
The Committee may amend the terms of any award or option (other than
Director Stock Options) theretofore granted, prospectively or retroactively,
but no such amendment shall impair the rights of any holder without his
consent. The Committee may also substitute new Stock Options for previously
granted Stock Options having higher option prices.
13. UNFUNDED STATUS OF PLAN.
This Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
Participant or optionee by the Company, nothing set forth herein shall give
any such participant or optionee any rights that are greater than those of an
unsecured, general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under this Plan to deliver Stock or payments in lieu
of or with respect to awards hereunder; provided, however, that the existence
of such trusts or other arrangements is consistent with the unfunded status
of this Plan.
14. CHANGE OF CONTROL.
The following acceleration and valuation provisions shall apply in the
event of a "Change of Control" or "Potential Change of Control," as defined in
this Section:
14.1 In the event of a "Change of Control," as defined in Section
14.2, unless otherwise determined by the Committee or the Board in writing at
or after grant, but prior to the occurrence of the Change of Control, or, if
and to the extent so determined by the Committee or the Board in writing at
or after grant (subject to any right of approval expressly reserved by the
Committee or the Board at the time of such determination) in the event of a
"Potential Change of Control," as defined in Section 14(c):
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(a) Any Stock Appreciation Rights outstanding for at least six (6)
months and any Stock Options awarded under this Plan not
previously exercisable and vested shall become fully exercisable
and vested;
(b) The restrictions and deferral limitations applicable to any
Restricted Stock and preferred Stock awards under this Plan
shall lapse and such shares and awards shall be deemed fully
vested; and
(c) All outstanding Stock Options, Stock Appreciation Rights,
Restricted Stock and Deferred Stock awards, shall, to the
extent determined by the Committee at or after grant, be
canceled and the holder thereof shall be paid in cash therefor
on the basis of the "Change of Control Price" (as defined in
Section 14.4) as of the date that the Change of Control occurs
or Potential Change of Control is determined to have occurred,
or such other date as the Committee may determine prior to the
Change of Control or Potential Change of Control.
14.2 For Purposes of Section 14.2, a "Change of Control" means the
happening of any of the following:
a) When any "person" as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, or any
Company employee benefit plan, including its trustee) is or
becomes the "beneficial owner" (as defined in Rule l3d-3 under
the Exchange Act), directly or indirectly of securities of the
Company representing 25 percent or more of the combined voting
power of the Company's then outstanding securities;
(b) The occurrence of any transaction or event relating to the
Company required to be described pursuant to the requirements
of Item 6(e) of Schedule 14A of Regulation 14A of the
Commission under the Exchange Act;
(c) The occurrence of a transaction requiring stockholder approval
for the acquisition of the company by an entity other than the
Company or a Subsidiary, through purchase of assets, or by
merger, or otherwise;
(d) The dissolution of the Company; or
(e) The sale by the Company of substantially all of its assets.
14.3 For purposes of Section 14.1, a "Potential Change of Control"
means the happening of any of the following:
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(a) The entering into an agreement by the Company, the consummation
of which would result in a Change of Control of the Company
as defined in Section 14.2;
(b) The public announcement by any person (including the Company)
of an intention to take or consider taking actions which, if
consummated, would constitute a Change in Control; or
(c) The adoption by the Board of Directors of a resolution to the
effect that a Potential Change of Control of the Company has
occurred for purposes of this Plan.
14.4 For purposes of this Section, "Change of Control Price" means
the highest price based upon the Fair Market Value per share or the price
paid or offered in any transaction related to a potential or actual Change of
Control of the Company at any time during the preceding sixty day period as
determined by the Committee, except that (i) in the case of Incentive Stock
Options and Stock Appreciation Rights relating to Incentive Stock Options,
such price shall be based only on transactions reported for the date on which
the Committee decides to cash out such options, and (ii) in the case of
Director Stock Options, the sixty day period shall be the period immediately
prior to the Change of Control.
15. GENERAL PROVISIONS.
15.1 All certificates for shares of Stock delivered under this Plan
shall be subject to. such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Commission or the National Association of Securities
Dealers, Inc., any stock exchange upon which the Stock is then listed, and
any applicable federal or state securities law, and the Committee may cause a
legend or legends to be placed on any such certificates to make appropriate
reference to such restrictions.
15.2 Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases. The
adoption of this Plan shall not confer upon any EMPLOYEE OF THE COMPANY, ANY
Subsidiary or any Affiliate, any right to continued employment (or, in the
case of a director, continued retention as a director) with the Company, a
Subsidiary or an Affiliate, as the case may be, nor shall it interfere in any
way with the right of the Company, a Subsidiary or an Affiliate to terminate
the employment of any of its employees at any time.
15.3 Each participant shall, no later than the date as of which the
value of an award first becomes includable in the gross income of the
participant for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any federal,
state, or local taxes of any kind required by law to be withheld with respect
to the
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award. The obligations of the Company under this Plan shall be conditioned on
such payment or arrangements and the Company (and, where applicable, its
Subsidiaries and Affiliates) shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
the participant. If permitted by the Committee, a participant may irrevocably
elect to have the withholding tax obligation or, in the case of all awards
hereunder except Stock Options which have related Stock Appreciation Rights,
if the Committee so determines, any additional tax obligation with respect to
awards hereunder by (a) having the Company withhold shares of Stock otherwise
deliverable to the participant with respect to the award, or (b) delivering
to the Company shares of unrestricted Stock; provided, however, that any such
election shall be made either (i) during one of the "window" periods
described in section (e) (3) (iii) of Rule 16b-3 promulgated under the
Exchange Act, or (ii) at least six months prior to the date income is
recognized with respect to the award.
15.4 At the time of grant or purchase, the Committee may provide in
connection with any grant or purchase made under this Plan that the shares of
Stock received as a result of such grant or purchase shall be subject to a
right of first refusal, pursuant to which the participant shall be required
to offer to the Company any shares that the participant wishes to sell, with
the price being the then Fair Market Value of the Stock, subject to the
provisions of Section 14 and to such other terms and conditions as the
Committee may specify at the time of grant.
15.5 No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee, shall
be personally liable for any action, determination, or interpretation taken
or made in good faith with respect to this Plan, and all members of the Board
or the Committee and each and any officer or employee of the Company acting
on their behalf shall, to the extent permitted by law, be fully indemnified
and protected by the Company with respect to any such action, determination
or interpretation.
16. EFFECTIVE DATE OF PLAN.
This Plan shall be effective on the date it is approved by a
majority of the votes of stockholders either in writing or cast at a duly
held stockholders' meeting at which a quorum representing a majority of all
outstanding voting stock is, either in person or by proxy, present and voting
on the Plan.
17. TERM OF PLAN.
No Stock Option, Director Stock Option, Stock Appreciation Right,
Restricted Stock or Deferred Stock award shall be granted pursuant to this
Plan on or after June 30, 2008, but awards theretofore granted may extend
beyond that date.
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EXHIBIT 10.2
THE SECURITIES REPRESENTED BY THIS DEBENTURE CERTIFICATE AND THOSE ISSUABLE
UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY
STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM
REGISTRATION. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE UNITED STATES UNLESS THE SECURITIES ARE REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND
TRANSFERS ARE MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
CDKNET.COM, INC.
5.75% CONVERTIBLE SUBORDINATED DEBENTURE
DUE FEBRUARY 1, 2009
Number: -2-
------------
Principal: $ -1,500,000-
------------------
Original Issue Date: February 3, 1999
--------------------
Registered Holder(s): Casa di Cura Dr. Pederzoli Spa
-------------------------------
(name)
-------------------------------
(name)
CDKNET.COM, INC., a Delaware corporation (the "Company") with
principal offices at 595 Stewart Avenue, Suite 7 10, Garden City, NY 11530,
for value received, hereby promises to pay the registered holder hereof (the
"Holder") the principal sum set forth above on February 1, 2009 (the
"Maturity Date"), in such coin or currency of the United States of America as
at the time of payment shall be the legal tender for the payment of public
and private debts, and to pay interest, less any amounts required by law to
be deducted or withheld, computed on the basis of a 360-day year, on the
unpaid principal balance hereof from the date hereof (the "Original Issue
Date"), at the rate of 5.75% per year, until such principal sum shall have
become due and payable, or has been converted by the Holder pursuant to
Section 5, below.
<PAGE>
Interest shall be paid quarterly on each of May 1, August 1,
November I and February I (unless such day is not a business day, in which
event on the next succeeding business day) commencing May 1, 1999 until the
Maturity Date. Interest may be paid, at the option of the Holder, exercised
by giving written notice to the Company two business days prior to the
payment date, in the number of shares of the Company's common stock, $.0001
par value ("Common Stock") determined by dividing the interest payment then
due by the applicable Conversion Price (defined below). All references herein
to dollar amounts refers to U.S. dollars.
By acceptance and purchase of this Debenture, the registered holder
hereof agrees with the Company that the Debenture shall be subject to the
following terms and conditions:
1. AUTHORIZATION OF DEBENTURES. The Company has authorized the
issue and sale of its 5.75% Convertible Subordinated Debentures due February
1, 2009 (the "Debentures," such term includes any debentures which may be
issued in exchange or in replacement thereof) in the aggregate principal
amount of not more than U.S. $1,500,000, issued in multiples of $50,000 in
principal amount.
2. TRANSFER OR EXCHANGE.
2.1 Prior to due presentation to the Company for
transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Company's Debenture Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes.
2.2 Neither the Debenture nor any part thereof, nor
any Common Stock (defined in Section 5.5(g) below) into which it is
convertible, shall be sold, transferred, assigned, pledged, hypothecated or
otherwise disposed of, and the Company shall not be required to register any
such disposition, unless and until:
(a) The Company shall have received (i)
written notice of the contemplated disposition, setting forth all of the
circumstances and details thereof, and (ii) an opinion of counsel, in the
form and substance satisfactory to the Company and its counsel, stating that
the contemplated disposition is exempt from the registration and prospectus
requirements of the Act and the rules and regulations of the Securities and
Exchange Commission (the "SEC") under the Act and of any applicable state or
foreign securities act; or
(b) The Debenture or shares of Common Stock,
as the case
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might be, are disposed of pursuant to and in strict accordance with a
registration statement which has been filed under the Act with the SEC and a
similar registration statement filed with any state securities administrators
having jurisdiction.
(c) The Company has placed a restrictive
legend on this certificate for the Debenture and may place such a legend on
any future certificates for the Debenture and on the certificates for shares
of Common Stock issued upon conversion thereof reflecting the requirements of
this Section.
3. CURRENT MARKET PRICE.
For purposes of this Debenture, "Current Market Price" of
the Common stock means:
3.1 If traded on a securities exchange, the closing price
of the Common Stock on such exchange;
3.2 If traded over the counter, the high closing bid
price reported by Bloomberg from the NASDAQ OTC
Bulletin Board; or
3.2 In all other events, the market price determined by
the Board of Directors of the Company in good faith.
4. OPTIONAL REDEMPTION OF DEBENTURE; EXCHANGE FOR PREFERRED
STOCK.
4.1 The Company may redeem the Debentures at any time,
in whole or in part, pro rata, upon written notice given not less than five
(5) nor more than ten (10) business days prior to the redemption date for
150% of the principal amount of the Debenture, plus any accrued interest. The
Debenture may not be converted during the period of time between the date the
notice of redemption is given to the Debenture holders and the date set
therein for payment. In the event the Company defaults upon its obligation to
pay the redemption price on the date set for payment, the applicable
conversion rate set forth in Section 5 below shall be reduced by 5%.
4.2 The Company at its sole option may call all
outstanding Debentures in exchange for shares of preferred stock when
authorized. Such preferred stock shall have (i) a liquidation preference
equal to the principal amount of the Debenture called; (ii) a quarterly
cumulative dividend of 5.75%; (iii) rights to convert into shares of Common
Stock at the same conversion rate as set forth in Section 5 of this
Debenture; and (iv) the same redemption rights set forth above.
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4.3 In the case of each redemption or call of the
Debenture, notice thereof shall be given at least five days prior to the date
fixed in such notice for such redemption or call (the date fixed for such
redemption or call is referred to herein as the "Redemption Date"). Upon such
notice of any redemption or call being so given there shall become due and
payable, at the principal office of the Company on the Redemption Date, the
redemption price (including the premium described in Section 4. 1, above)
together with interest accrued and unpaid on the principal amount of the
Debenture so prepaid to, but not including, the Redemption Date or the number
of shares of preferred stock into which the Debentures are called, as the
case may be. Unless the Company shall fail to pay such prepayment price or
issue and deliver preferred shares on the Redemption Date, interest on the
principal amount of the Debenture prepaid shall cease to accrue from and
after that date.
4.4 In case of any prepayment of less than the entire
unpaid principal amount of all outstanding Debentures, the amount to be
prepaid shall be applied pro rata to all outstanding Debentures according to
the respective unpaid principal amounts thereof.
4.5 Upon any partial prepayment of the Debenture, the
Holder thereof shall surrender the same to the Company at its principal
office, in exchange, without cost to such Holder, for one or more new
Debentures in aggregate principal amount equal to the principal amount
remaining unpaid on the Debenture or Debentures surrendered and otherwise
having the same terms and provisions as the Debenture or Debentures
surrendered.
5. CONVERSION OF DEBENTURES.
5.1 RIGHT TO CONVERT THE DEBENTURES. Subject to
Section 4 above, the record holder of this Debenture shall be entitled, on or
after the Date of Original Issuance, at the option of the Holder, to convert
this Debenture, in whole or in part, into the number of fully-paid and
nonassessable shares of Common Stock determined in accordance with the
Conversion Formula as set forth below:
Number of shares issued upon conversion = (Principal + Interest)/Conversion
Price, where:
*Principal = the principal amount of the Debenture(s) to be converted;
*Interest = the principal x (N/360) x .0575 - (Interest paid in cash
and stock prior to the Date of Conversion), where N = the number of days
between (i) the Original Issuance Date and (ii) the applicable Date of
Conversion for the Debenture for which conversion is being elected (including
such date of issuance
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but excluding such date of conversion); and
*Conversion Price = the lesser of (A) a fixed conversion price equal
to $1.30, or (B) a variable conversion price effective only after November 1,
1999, equal to 0.75 of the average Current Market Price during the five-day
trading period ending one trading day preceding the date of conversion. The
minimum variable conversion price shall be $.60 until July 1, 2000, at which
time there shall no longer be a minimum conversion price, provided, however,
the minimum conversion price of $.60 shall continue if the Company issues
securities for cash consideration of $2 million or more prior to July 1, 2000
and such securities have a purchase price or conversion price, as the case
may be, of no less than $1.30.
5.2 EXERCISE OF CONVERSION PRIVILEGE.
(a) In order to exercise the conversion
privilege, the Holder shall surrender such Debenture, together with the
Notice of Conversion annexed hereto as Exhibit I appropriately endorsed to
the Company at its principal office, accompanied by written notice to the
Company (a) stating that the Holder elects to convert the Debenture or a
portion thereof, and if a portion, the amount of such portion in multiples of
$1,000 in principal amount, and (b) setting forth the name or names (with
address) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. Provided the Debenture is
received properly endorsed promptly by the Company and the Notice of
Conversion is received before 5:00 p.m. New York time, the date of conversion
of such Debenture shall be deemed to be the date of receipt of Notice of
Conversion, even if the Company's stock transfer books are at that time
closed, and the converting Holder shall be deemed to have become, on the date
of conversion, the record holder of the shares of Common Stock deliverable
upon such conversion. If the Debenture is not received, properly endorsed by
the fifth business day following the date the Company receives Notice of
Conversion, the date of conversion shall be deemed to be the date the
Debenture is received, provided that such later receipt will not lower the
Conversion Price stated in the Notice of Conversion.
(b) Within three business days after the date
of conversion, the Company shall issue and deliver to such converting Holder
a certificate or certificates for the number of shares of Common Stock due on
such conversion. No adjustments in respect of interest or cash dividends
shall be made upon the conversion of any Debenture or Debentures.
(c) Upon conversion of the Debenture in part,
the Company shall execute and deliver to the Holder thereof, at the expense
of the Company, a
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new Debenture, in aggregate principal amount equal to the unconverted portion
of such Debenture. Such new Debenture shall have the same terms and
provisions other than the principal amount as the Debenture or Debentures
surrendered for conversion.
(d) In the event the Conversion Price is
reduced below $1.30, the Holder shall only be entitled to convert 1/3 of the
principal amount of the Debentures held by Holder on November 1, 1999 in each
three month period beginning with the period from November 1, 1999 to January
31, 2000. Any portion not converted during such period may be converted in
subsequent periods.
5.3 DURATION OF CONVERSION PRIVILEGE. The right to
subscribe for and purchase shares of Common Stock pursuant to the conversion
privilege granted herein shall commence on the Original Issue Date and shall
expire at 5:00 p.m., New York time on February 1, 2009.
5.4 STOCK FULLY PAID. The Company covenants and
agrees that: I
(a) all shares which may be issued upon the
exercise of the conversion privilege granted herein will, upon issuance in
accordance with the terms hereof, be fully paid, nonassessable, and free from
all taxes, liens and charges (except for taxes, if any, upon the income of
the Holder) with respect to the issue thereof, and that the issuance thereof
shall not give rise to any preemptive rights on the part of the stockholders;
(b) the failure of the Company to issue
shares upon the conversion of the Debenture will cause the holder immediate
irreparable harm.
5.5 ANTIDILUTION PROVISIONS. The following provisions
apply to the Debenture:
(a) In case the Company shall (i) pay a
dividend or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock into a greater number of shares of
Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, (iv) make a distribution on its
Common Stock in shares of its capital stock other than Common Stock, or (v)
issue by reclassification of its Common Stock other securities of the
Company, the conversion privilege of the Debenture and the Conversion Price
then in effect immediately prior thereto shall be adjusted so that the Holder
shall be entitled to receive the kind and number of
6
<PAGE>
shares of Common Stock and other securities of the Company which it would
have owned or would have been entitled to receive after the happening of any
of the events described above, had the Debenture been converted immediately
prior to the happening of such event or any record date with respect thereto.
Any adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) In case the Company shall issue rights,
options, warrants or convertible securities to all holders of its Common
stock, without any charge to such holders, entitling them to subscribe for or
to purchase shares of Common Stock at a price per share which is lower at the
record date mentioned below than the then current Conversion Price, the
Conversion Price thereafter shall be determined by multiplying the then
current conversion Price by a fraction (but in no event greater than 1), of
which the denominator shall be (i) the number of shares of the common stock
outstanding immediately prior to the issuance of such rights, options,
warrants or convertible securities plus (ii) the number of additional shares
of Common Stock offered for subscription or purchase, and of which the
numerator shall be (x) the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options, warrants or
convertible securities plus (y) the number of shares which the aggregate
offering price of the total number of shares offered would convert at the
higher of the then current Market Price, or then current Conversion Price.
Such adjustment shall be made whenever such rights, options, warrants or
convertible securities are issued, and shall become effective immediately and
retroactively after the record date for the determination of stockholders
entitled to receive such rights, options, warrants or convertible securities.
(c) In case the Company shall distribute to
all holders of its shares of Common Stock (i) debt securities or other
evidences of its indebtedness which are not convertible into Common Stock or
(ii) assets (excluding cash dividends or distributions out of earnings), then
the Conversion Price shall be determined by dividing the then current
Conversion Price by a fraction, of which the numerator shall be the higher of
the then current Market Price, or the Conversion Price on the date of such
distribution, and of which the denominator shall be such Current Market
Price, or such Conversion Price on such date minus the then fair value of the
portion of the assets or evidences of indebtedness so distributed applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of distribution
retroactive to the record date for the determination of stockholders entitled
to receive such distribution. The fair value of such assets shall be
determined in good faith by the Board of Directors of the Company.
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<PAGE>
(d) To the extent not covered by paragraphs
(b) or (c) hereof, in case the Company shall sell or issue shares of Common
Stock, or rights, options, warrants or convertible securities containing the
right to subscribe for or purchase shares of Common Stock, at a price per
share (determined, in the case of such rights, options, warrants or
convertible securities, by dividing (i) the total amount received or
receivable by the Company in consideration of the sale or issuance of such
rights, options, warrants or convertible securities, plus the total
consideration payable to the Company upon exercise or conversion thereof, by
(ii) the total number of shares covered by such rights, options, warrants or
convertible securities) lower than the Conversion Price in effect immediately
prior to such sale or issuance, then the Conversion Price shall be reduced to
a price (calculated to the nearest cent) determined by dividing (1) an amount
equal to the Conversion Price multiplied by the sum of (A) the number of
shares of Common stock outstanding immediately prior to such sale or issuance
plus (B) the number of shares which could have been purchased at the
Conversion Price with the consideration received by the Company upon such
sale or issuance by (II) the total number of shares of Common Stock
outstanding immediately after such sale or issuance. For the purposes of such
adjustments, the shares of Common Stock, which the holders of any such
rights, options, warrants or convertible securities shall be entitled to
subscribe for or purchase, shall be deemed issued and outstanding as of the
date of such sale or issuance and the consideration received by the Company
therefor shall be deemed to be the consideration received by the Company for
such rights, options, warrants or convertible securities, plus the
consideration or premiums stated in such rights, options, warrants or
convertible securities to be paid for the shares of Common Stock covered
thereby. In case the Company shall sell or issue shares of Common Stock, or
rights, options, warrants or convertible securities containing the right to
subscribe or purchase shares of Common Stock for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then in
determining the "price per share" of shares of Common Stock, any underwriting
discounts or commissions shall not be deducted from the price received by the
Company for sales of securities registered under the Act.
(e) No adjustment in the Conversion Price
shall be required in the following events:
(i) If the amount of such adjustment
would be less than $.05 per share;
provided, however, that any
adjustment which by reason of this
paragraph 5.5(e)(i) is not required
to be made immediately
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shall be carried forward and
taken into account in any
subsequent adjustment; or
(ii) The issuance of options under the
Company's existing stock option
plans and future stock option plans
approved by the Company's
shareholders; or
(iii) Securities issuable upon the
exercise of options and warrants
outstanding on the date of Original
Issuance of this Debenture.
(f) When the number of shares of Common Stock
or the Conversion Price is adjusted as herein provided, the Company shall
cause to be promptly mailed to the Holder by first class mail, postage
prepaid, notice of such adjustment or adjustments and a certificate of a firm
of independent public accountants selected by the Board of Directors of the
Company (who may be the regular accountants employed by the Company) setting
forth the number of shares of Common Stock and the Conversion Price after
such adjustment, a brief statement of the facts requiring such adjustment and
the computation by which such adjustment was made.
(g) For the purpose of this Section 5.5, the
following shall apply:
(i) The term "Common Stock" shall
mean (A) the class of stock
designated as the Common Stock of
the Company at the date of this
Debenture or (B) any other class
of stock resulting from
successive changes or
reclassification 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 at any time, as a
result of an adjustment made
pursuant to this Section 5.5, the
Holder shall become entitled to
receive any securities upon
conversion of the Company other
than shares of Common Stock
thereafter the number of such
other securities and the
Conversion Price of such
securities shall be subject to
adjustment from time to time in a
manner and on terms as nearly
equivalent as practicable to the
provisions with respect to the
Common Stock contained in this
Section 5.5.
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(ii) If the Common Stock is traded on a
securities exchange or over the
counter, the "Current Market Price"
for purposes of this section 5.5
shall mean the average of the
Current Market Prices for the five
consecutive trading days immediately
prior to the date of the event which
necessitates an adjustment to the
Conversion Price.
(h) Upon the expiration of any unexercised
rights, options, warrants or conversion privileges, the Conversion Price
shall be readjusted and shall thereafter be such as it would have been had it
been originally adjusted (or had the original adjustment not been required,
as the case may be) on the basis of (i) the fact that the only shares of
Common Stock so issued were the shares of Common Stock, if any, actually
issued or sold upon the exercise of such rights, options, warrants or
conversion rights and (ii) the fact that such shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company
upon such exercise plus the consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants
or conversion rights whether or not exercised; provided. however, that no
such readjustment shall have the effect of increasing the Conversion Price by
an amount in excess of the amount of the adjustment initially made in respect
of the issuance, sale or grant of such rights, options, warrants or
conversion privileges.
5.6 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
Section 5.5, no adjustment in respect to any dividends paid shall be made
during the term of the Debenture or upon the exercise of the Debenture.
5.7 PRESERVATION OF PURCHASE RIGHTS UPON
RECLASSIFICATION CONSOLIDATION ETC. In the case of any consolidation of the
Company with or merger of the Company
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into another corporation or in the case of any sale or conveyance to another
corporation of all or substantially all of the property, assets or business
of the Company, the Company or such successor or purchasing corporation, as
the case may be, shall provide that the Holder shall have the right
thereafter upon payment of the Conversion Price in effect immediately prior
to such action to purchase upon conversion of the Debenture the kind and
amount of shares and other securities and property which the Holder would
have owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had the Debenture been converted
immediately prior to such action. such agreement shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5. The provisions of this Section
5.7 shall similarly apply to successive consolidations, mergers, sales or
conveyances.
5.8 PAR VALUE OF COMMON STOCK. Before taking any
action which would cause an adjustment reducing the Conversion Price below
the then par value of the shares of Common Stock issuable upon conversion of
the Debenture, the Company will take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
5.9 STATEMENT ON DEBENTURE CERTIFICATES. Irrespective
of any adjustments in the Conversion Price or the number of securities
convertible, this Debenture certificate or any certificates hereafter issued
may continue to express the same price and number of securities as are stated
in this Debenture certificate. However, the Company may at any time in its
sole discretion (which shall be conclusive) make any change in the form of
the Debenture certificate that it may deem appropriate and that does not
affect the substance thereof; and any Debenture certificate thereafter
issued, whether upon registration or transfer of, or in exchange or
substitution for, an outstanding Debenture certificate, may be in the form so
changed.
6. FRACTIONAL SHARES. No fractional shares of Common Stock
will be issued in connection with any subscription hereunder but in lieu of
such fractional shares, the Company shall make a cash payment therefor equal
in amount to the product of the applicable fraction multiplied by the
Conversion Price then in effect.
7. SUBORDINATION. Any right of the Holder to payment of
principal or interest from the Company shall be subordinated to the claims
and rights of the holders of the Senior Debt ("Senior Debt Holders"). "Senior
Debt" means all Indebtedness of the Company other than the Debentures,
whether outstanding
11
<PAGE>
on the date of execution of this Debenture or thereafter created, incurred or
assumed, except (x) any such Indebtedness that by the terms of the instrument
or instruments by which such Indebtedness was created, assumed or incurred
expressly provides that it (i) is junior in right of payment to the
Debentures or (ii) ranks PARI PAS in right of payment with the Debentures and
(y) any amendments, modifications or supplements to, or any renewals,
extensions, deferrals, refinancing and refunding of, any of the foregoing.
Any cash payment of principal or interest to the Holder shall be collected,
enforced or received by the Holder as trustee for the Senior Debt Holders and
paid over to the Senior Debt Holders. The Holder agrees that in the event of
any payment of principal or interest by the Company to the Holder by reason
of any receivership, insolvency or bankruptcy proceeding, or proceeding for
reorganization or readjustment of the Company or its properties, or
otherwise, then, in any such event, the Senior Debt Holders shall be
preferred in the payment of their claims over the claim of the Holder to
payment of principal or interest against the Company or its properties, and
the claims of the Senior Debt Holders shall be first paid and satisfied in
full before any payment or distribution of any kind or character, whether in
cash or property, shall be made to the Holder. Provided, however, that this
Section 7 shall not apply to any payment of principal or interest made to the
Holder while the Company is solvent and not in default with respect to its
Senior Debt.
8. REPLACEMENT OF DEBENTURE CERTIFICATE. Upon receipt of
evidence satisfactory to the Company of the certificate loss, theft,
destruction or mutilation of the Debenture certificate and, in the case of
any such loss, theft or destruction, upon delivery of a bond of indemnity
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of the Debenture certificate, the Company will
issue a new Debenture certificate, of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Debenture certificate.
9. COVENANTS OF THE COMPANY. So long as any of the Debentures
remain outstanding, the Company shall:
(a) At all times keep reserved the total
number of shares of Common Stock necessary for the conversion of all of the
then outstanding Debentures at the then current Conversion Rate;
(b) Not pay any dividends in cash and/or
property or other assets of the Company in respect of its Common Stock or
otherwise or amend its certificate of incorporation to combine the
outstanding shares of Common Stock into a lesser number of shares;
(c) Not issue any debentures of the Company
other than the
12
<PAGE>
Debentures unless the rights of the holders of such debentures are
subordinated to the Debentures, in which event the terms of the subordination
provision shall be similar to the terms set forth in Section 7 of this
Debenture;
(d) Not enter into a loan secured by the
property and/or assets of the Company or any of its subsidiaries with (i) any
director, officer or 5% stockholder of the Company, (ii) any entity in which
a director, officer or 5% stockholder has an interest as an officer,
director, partner, beneficiary of a trust or is a 5% or more equity holder of
such entity, or (iii) any parent, spouse, child or grandchild of an officer,
director or 5% stockholder of the Company upon terms no less favorable to the
Company than those which could be obtained from an "arms-length" lender; and
(e) Not redeem, repurchase or otherwise
acquire any shares of the common or preferred stock of the Company.
10. DEFAULT. If any of the following events (herein called
"Events of Default") shall occur:
(a) if the Company shall default in the
payment or prepayment of any part of the principal of any of the Debentures
after the same shall become due and payable, whether at maturity or at a date
fixed for prepayment or by acceleration or otherwise, and such default shall
continue for more than 30 days after written notice of such Default; or
(b) if the Company shall default in the
payment of any installment of interest on any of the Debentures for more than
30 days after written notice that the same shall become due and payable; or
(c) if the Company shall make an assignment
for the benefit of creditors or shall be unable to pay its debts as they
become due; or
(d) if the Company shall dissolve; terminate
its existence; become insolvent on a balance sheet basis; commence a
voluntary case under the federal bankruptcy laws or under any other federal
or state law relating to insolvency or debtor's relief; permit the entry of a
decree or order for relief against the Company in an involuntary case under
the federal bankruptcy laws or under any other applicable federal or state
law relating to insolvency or debtors relief; permit the appointment or
consent to the appointment of a receiver, trustee, or custodian of the
Company or of any of the Company's property; make an
13
<PAGE>
assignment for the benefit of creditors; or admit in writing to be failing
generally to pay its debts as such debts become due;
(e) if the Company shall default in the
performance of or compliance with any agreement, condition or term contained
in this Debenture or any of the other Debentures and such default shall not
have been cured within 30 days after written notice of such default,
(f) Any of the representations or warranties
made by the Company herein, in the Subscription Agreement, or in any
certificate or financial or other statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the execution and
delivery of this Debenture or the Subscription Agreement shall be false or
misleading in any material respect at the time made; or
(g) Any money judgment, writ or warrant of
attachment, or similar process not covered by insurance in excess of Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate shall be entered
or filed against the Company or any of its properties or other assets and
shall remain unpaid, unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than ten (10) days prior to the date of any
proposed sale thereunder; or
(h) The Company shall have its Common Stock
suspended from an exchange or over-the-counter market, then and in any such
event the Holder of this Debenture shall have the option (unless the default
shall have theretofore been cured) by written notice to the Company to
declare the Debenture to be due and payable, whereupon the Debenture shall
forthwith mature and become due and payable, at the applicable prepayment
price on the date of such notice, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived,
anything contained in this Debenture to the contrary notwithstanding. Upon
the occurrence of an Event of Default, the Company shall promptly notify the
Holder of this Debenture in writing setting out the nature of the default in
reasonable detail.
11. REMEDIES ON DEFAULT, NOTICE TO OTHER HOLDERS. In case any
one or more of the Events of Default shall occur, the Holder may proceed to
protect and enforce his or her rights by a suit in equity, action at law or
other appropriate proceeding, whether, to the extent permitted by law, for
the specific performance
14
<PAGE>
of any agreement of the Company contained herein or in aid of the exercise of
any power granted hereby. If any Holder of one or more of the Debentures
shall declare the same due and payable or take any other action against the
Company in respect of an Event of Default, the Company will forthwith give
written notice to the Holder of this Debenture, specifying such action and
the nature of the default alleged.
12. AMENDMENTS. With the consent of the Holders of more than
50% in aggregate principal amount of the Debentures at the time outstanding,
the Company, when authorized by a resolution of its Board of Directors, may
enter into a supplementary agreement for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Debenture or of any supplemental agreement or modifying in any manner the
rights and obligations of the holders of Debentures or Common Stock issued
upon conversion of the Debentures, and of the Company, provided, however,
that no such supplemental agreement shall (a) extend the fixed maturity of
any Debenture, or reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon, or alter or impair the right
to convert the same into Common Stock at the rates and upon the terms
provided in this Debenture, without the consent of the Holder of each of the
Debentures so affected, or (b) reduce the aforesaid percentage of Debentures,
the Holders of which are required to consent to any supplemental agreement,
without the consent of the Holders of all Debentures then outstanding.
13. CHANGES, WAIVERS. ETC. Neither this Debenture nor any
provisions hereof may be changed, waived, discharged or terminated orally,
but only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, except
to the extent provided in Section 12 of this Debenture.
14. ENTIRE AGREEMENT. This Debenture embodies the entire
agreement and understanding between the Holder and the Company and supersedes
all prior agreements and understandings relating to the subject matter hereof.
15. GOVERNING LAW, JURISDICTION, ETC.
(a) It is the intention of the parties that
the laws of the State of New York shall govern the validity of this
Debenture, the construction of its terms and the interpretation of the rights
and duties of the parties.
(b) In the case of any dispute, question,
controversy or claim
15
<PAGE>
arising among the parties hereto which shall arise out of or in connection
with this Debenture, the same shall be submitted to arbitration before a
panel of three arbitrators in New York, New York, in accordance with the
rules of the American Arbitration Association. One arbitrator shall be
appointed by the party or parties bringing the claims ("Claimant") and one
arbitrator shall be appointed by the party or parties defending the claim
("Respondent"). The arbitrators selected by such parties shall be selected
within thirty (30) days after notification by the Claimant to the Respondent
that it has determined to submit such dispute, question, controversy or claim
to arbitration. The two arbitrators so selected shall select a third
arbitrator within thirty (30) days after the selection of the arbitrator
selected by such parties. Should a party fail to select an arbitrator within
the specified time period, or should the arbitrators selected by the parties
fail to select a third arbitrator, the missing arbitrator or arbitrators
shall be appointed by the New York, New York office of the American
Arbitration Association. The decision of the panel shall be final and binding
on the parties and enforceable in any court of competent jurisdiction. The
costs of the arbitration will be imposed upon the Claimant and Respondent as
determined by the arbitration panel or, failing such determination, will be
borne equally by the Claimant and the Respondent. The successful or
prevailing party or parties shall be entitled to recover reasonable attorneys
fees in addition to any other relief to which it may be entitled.
(c) In the event of any dispute, question,
controversy or claim arising among the parties hereto which shall arise out
of or in connection with this Debenture, the parties shall keep the
proceeding related to such controversy in strict confidence and shall not
disclose the nature of said dispute, the status of the proceeding or any
testimony, documents or information obtained or exchanged in the course of
said proceeding without the express written consent of all parties to such
dispute.
[SIGNATURE PAGE FOLLOWS]
CDKNET.COM, INC.
[Corporate Seat]
By:
----------------------------
Steven A. Horowitz, President
ATTEST:
By:
-----------------------------
Steven A. Horowitz, Secretary
16
<PAGE>
Number: -2-
---------
Name of Holder: Casa di Cura Dr. Pederzoli Spa
--------------------------------
--------------------------------
Principal: $ -1,5001000-
---------------
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $___________ of
the above Debenture No. ________ into ________ shares of Common Stock of
CDKNET.COM, INC. (the"Company") according to the conditions set forth in such
Debenture, as of the date written below.
The undersigned confirms the representations and warranties set
forth in the Subscription Agreement.
-----------------------------------
Date of Conversion*
-----------------------------------
Applicable Conversion Price**
-----------------------------------
Signature
-----------------------------------
Name
17
<PAGE>
-----------------------------------
Address
* The original Debenture and this Notice of Conversion must be received by
the Company within five business days following the date of Conversion.
18
<PAGE>
EXHIBIT 10.3
TECHNOLOGY HORIZONS CORP.
595 Stewart Avenue
Garden City, New York 11530
REGISTRATION RIGHTS AGREEMENT
September 4, 1998
To: Kelly Music & Entertainment Corp.
Reference is made to the Assignment Agreement between you and
Technology Horizons Corp. (the "Company") dated September 4, 1998 (the
"Assignment Agreement"). Pursuant to the Assignment Agreement, you (the
"Holder"), will receive between 1,538,182 and 1,683,637 shares of Common Stock
of the Company ("Common Stock), as set forth in the Assignment Agreement, This
letter sets forth the agreement of the Company to register the shares of Common
Stock (collectively, the "Registrable Securities") under the Securities Act (as
defined below) and your agreement with respect to several matters as set forth
below if you register the Registrable Securities.
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the following
respective meanings:
"COMMISSION " means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act (as defined
below).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"REGISTRATION EXPENSES" means, for purposes of Section 5 below, all
expenses incurred by the Company in complying with this Agreement, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees and disbursements of counsel for the Company, state
securities or Blue Sky fees and expenses for the State of New York, and the
expense of any special audits incident to or required by any such registration,
but excluding underwriting discounts, selling commissions and the fees and
expenses of the Holder's own counsel.
<PAGE>
"REGISTRABLE SECURITIES" means: (i) subject to the provisions of this
Agreement, 20% of the Shares of Common Stock issued to the Holder pursuant to
the Assignment Agreement; and (ii) any other securities of the Company issued in
respect of the foregoing (because of stock splits. stock dividends,
reclassification, recapitalizations, or similar events).
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement covering only securities proposed
to be issued in exchange for securities or assets of another corporation).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may from time to time, be in effect.
2. SECURITIES NOT REGISTERED.
The Holder agrees that, unless the Registrable Securities are
registered, the Holder will not dispose of the Registrable Securities or any
interest therein, unless and until the Registrable Securities have been validly
registered under the Securities Act or the Company has determined that the
intended disposition does not violate the Securities Act or the rules and
regulations of the Commission thereunder (the Company may reasonably rely on an
opinion of its counsel in making such determination).
3. PIGGYBACK REGISTRATION
3.1 (a) Subsequent to nine (9) months after the date hereof, if, at any
time, the Company proposes or is required to register shares of Common Stock of
the Company held by a majority of the holders (on the date hereof) of Common
Stock of the Company, under the Securities Act on a registration statement on
Form S-1, Form S-2 or Form S-3 (or an equivalent general registration form then
in effect), the Company shall give prompt written notice of its intention to do
so to each of the Holders of record of Registrable Securities. Upon the written
request of any Holder, made within 15 days following the receipt of any such
written notice (which request shall specify the maximum number of Registrable
Securities intended to be disposed of by such Holder and the intended method of
distribution thereof), the Company shall
<PAGE>
use its best efforts to cause all such Registrable Securities, the Holders of
which have so requested the registration thereof, to be registered under the
Securities Act (with the securities which the Company at the time proposes to
register) to permit the sale or other disposition by the Holders (in accordance
with the intended method of distribution thereof) of the Registrable Securities
to be so registered. The Holder shall furnish the Company with appropriate
information (relating to the intentions of the Holder), in connection therewith
as the Company shall reasonably request in writing. The Company shall use its
best efforts to keep the registration statement current for a period of six
months or until all Registrable Securities registered thereunder have been sold,
which ever is sooner.
(b) If, at any time after giving written notice of its
intention to register any equity securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay registration
of such equity securities, the Company may, at its election, give written notice
of such determination to all Holders of record of Registrable Securities and (i)
in the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
abandoned registration, and (ii) in the case of a determination to delay such
registration of its equity securities, shall be permitted to delay the
registration of such Registrable Securities for the same period as the delay in
registering such other equity securities of the majority of Holders of Common
Stock of the Company.
3.2 The Holder's rights under Section 3.1 shall be subject of the
limitation that, in the event that the Company files a Registration Statement
for an underwritten public offering the registration of the Registrable
Securities shall be upon the condition that:
(a) if requested by the managing underwriter as a condition of
the offering, they be sold through the underwriters on the same terms and
conditions as are applicable to the Company or all other selling stockholders of
the Company; or
(b) if such condition is imposed by the managing underwriter,
and the Holder does not wish to sell the Registrable Securities upon such terms
and conditions, the Holder will agree not to transfer or otherwise dispose of
any Registrable Securities for a period of time from the effective date of the
Registration Statement (not to exceed one hundred eighty (180) days) specified
by the managing underwriter.
3.3. If a registration of the Company's shares involves an offering by or
<PAGE>
through underwriters, the Company, except as otherwise provided herein, shall
not be required to include Registrable Securities therein if and to the extent
the underwriter managing the offering reasonably believes in good faith and
advises the Company in writing that such inclusion would materially and
adversely affect such offering; provided that any such reduction or elimination
shall be PRO RATA to all other selling stockholders participating in Such
offering, in proportion to the respective number of shares they have requested
to be registered.
3.4. In the event the Company receives private financing in an amount
exceeding $1,000,000 and as a condition of such financing officers, directors
and greater than 5% shareholders are required to agree not to sell, assign, or
otherwise transfer any shares (a "lock-up Agreement"), the Holder agrees to
enter into a lock-up agreement on the same terms as such other holders.
3.5. The registration rights granted hereunder shall expire on earlier
of one (1) year from the date the Company has a class of equity securities
registered under Section 12(b) or 12(g) of the Exchange Act or June, 20, 2000.
4. REGISTRATION PROCEDURES.
If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any of the
Registrable Securities under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Securities and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) as expeditiously as possible, prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for a period of not less than nine months from
the effective date;
(c) as expeditiously as possible, furnish to the Holder such reasonable
numbers of copies of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities owned by the Holder; and
(d) as expeditiously as possible, use its best efforts to register or
<PAGE>
qualify the Registrable Securities covered by the Registration Statement under
the securities or Blue Sky laws of New York, and do any and all other acts and
things that may be necessary or desirable to enable the Holders to consummate
the public sale or other disposition in such states of the Registrable
Securities owned by the Holder; PROVIDE , however, that the Company shall not be
required in connection with this Section 4(d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
Holder and, after having done so, the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify the Holder
and, if requested, the Holder shall immediately cease making offers of
Registrable Securities and return all prospectuses to the Company. The Company
shall promptly provide the Holder with revised prospectuses and, following
receipt of the revised prospectuses, the Holder shall be free to resume making
offers of the Registrable Securities.
5. ALLOCATION OF EXPENSES.
The Company will pay all Registration Expenses of all Registration
Statements under this Agreement.
6. INDEMNIFICATION.
In the event of any registration of any of the Registrable Securities
under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Securities, each
underwriter of such Registrable Securities, and each other person, if any,
who controls such seller or underwriter within the meaning of the Securities
Act or the Exchange Act against any losses, claims, damages or liabilities,
joint or several, to which such seller, underwriter or controlling person may
become subject under the Securities Act, the Exchange Act, state securities
or Blue Sky laws or otherwise, in so far as much losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Registrable
Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or
any amendment or supplement to such Registration Statement, or arise out of
or are based upon the omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and the Company will reimburse such seller,
<PAGE>
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
In the event of any registration of any of the Registrable Securities
under the Securities Act pursuant to this Agreement, each seller of Registrable
Securities, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors, and officers and each underwriter (if any) and
each person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriters or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller, specifically for use in connection with the preparation
of such Registration Statement, prospectus, amendment or supplement: PROVIDED,
HOWEVER, that the obligations of such seller hereunder shall be limited to an
amount equal to the proceeds to each seller of Registrable Securities sold as
contemplated herein.
Each party entitled to Indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, that counsel for the
<PAGE>
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified party (whose approval shall not be
unreasonably withheld); and, PROVIDE , further, ~that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement. The Indemnified
Party may participate in such defense at such party's expense; PROVIDED,
HOWEVER, that the Indemnifying Party shall pay such expense if representation of
such Indemnified Party by the counsel retained by the Indemnifying Party would
be inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation, and no Indemnified Party shallconsent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Indemnifying Party.
7. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN, OFFERING.
In the event that Registrable Securities are sold pursuant to a
Registration Statement in an underwritten offering pursuant to Section 2 or 3,
the Company agrees to enter into an underwriting agreement containing customary
representations and warranties with respect to the business and operations of an
issuer of the securities being registered and customary covenants and agreements
to be performed by such issuer, including, without limitation, customary
provisions with respect to indemnification by the Company of the underwriters of
such offering.
8. INFORMATION BY THE HOLDER
The Holder shall furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this, Agreement.
9. SELECTION OF UNDERWRITER.
In the case of any registration effected pursuant to this agreement,
the Company shall have the exclusive right to designate the managing underwriter
in any underwritten offering.
<PAGE>
10. SUCCESSORS AND ASSIGNS.
The provisions of this Agreement shall be binding upon. and inure to
the benefit of, the respective successors, assigns, heirs, executors and
administrators of the parties hereto.
11. FURTHER ASSURANCES.
From and after the date hereof, all persons subject to or bound by this
Agreement shall from time to time, at the request of any such other person and
without further consideration, do, execute and deliver, or cause to be done,
executed and delivered, all such further acts, things and instruments as may
reasonably be requested or required more effectively to evidence and give effect
to the provisions, intent and purposes of this Agreement (including, without
limitation, certificates to the effect that this Agreement continues operative
and as to any defaults hereunder or modifications hereof).
12. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing, shall be addressed to the receiving party's address set
forth below or to such other address as a party may designate by notice
hereunder, and shall be either (1) delivered by hand, (2) sent by reputable
overnight courier by next day, priority, or (3) sent by registered or certified
mail, return receipt requested, postage prepaid.
If to the Holder: Kelly Music & Entertainment Corp.
250 West 57th Street
New York, New York 10019
Attn: President
If to the Company: Technology Horizons Corp.
595 Stewart Avenue, Suite 710
Garden City, New York 11530
Attn: Steven A. Horowitz
With a copy in each
case to: Horowitz, Mencher, Klosowski, Nestler
& Scope, P.C.
595 Stewart Avenue, Suite 710
Garden City. New York 11530
<PAGE>
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (1) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above, (2)
if sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, or (3) if sent by registered or
certified mail, on the fifth business day following the day such mailing is
made.
13. CERTAIN OTHER AGREEMENTS.
In the event Registrable Securities are included in a Registration
Statement, you agree:
(a) to offer the Registrable Securities only in the manner set
forth on the cover page of the Prospectus included in the Registration
Statement;
(b) not to effect any transaction for the purpose of stabilizing
the price of the Registrable Securities offered or any securities into which
the Registrable Securities are convertible;
(c) to supply to any broker to whom you offer registered
securities a copy of the Prospectus;
(d) to promptly report all sales made to the Company; and
(e) to comply with the provisions of Rule I Ob-6 under the Exchange
Act.
14. APPLICABLE LAW.
This Agreement shall be governed and construed under the laws of the
State of Delaware, without regard to any choice or conflicts of law principles
thereof.
15. PRIORITY.
The registration of the Registrable Securities pursuant to this
Agreement will occur prior to or pari passu with, and not subsequent to, the
registration of any shares of Common Stock presently held by any holder of 5% or
more of the stock of the Company.
Please acknowledge your consent to the terms of this Agreement by
signing and returning a copy of this Agreement to the Company.
TECHNOLOGY HORIZONS CORP.
<PAGE>
By: _______________________________
Accepted and agreed this 4th
day of September, 1998
By: _______________________________
Holder/Purchaser
President, Kelly Music and Entertainment Corp.
<PAGE>
EXHIBIT 10.4
ASSIGNMENT AGREEMENT
This Assignment Agreement (the "Assignment"), dated this 4th day of
September, 1998, is made between Kelly Music & Entertainment Corp. (the
"Assignor"), and Technology Horizons Corp., a Delaware corporation (the
"Assignee").
NOW, THEREFORE, in consideration of the promises, the agreements set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Assignor and the Assignee
hereby agree as follows:
1. The Assignor hereby assigns to the Assignee , its successors and
assigns, to have and, to hold forever, all of the Assignor's right, title and
interest in and to Assignor's 26.15% membership interest in CDKnet, LLC,
which 26.15% represents all of Assignor's interest in and to CDKnet, LLC,
along with all rights and benefits appurtenant thereto (the "Assignment"),
immediately subsequent to which transfer Assignee will own, directly and
indirectly, 100% of the membership interest in CDKnet, LLC. The 26,15%
membership interest is assigned hereby free and clear of any and all liens
and/or encumbrances.
2. The consideration for the Assignment is $5,230,000, payable as
follows:
a. $600,000 of the $911,630 in secured debt owed by
Assignor to CDKnet, LLC (consisting of $883,509 in principal amount and
$28,121 in interest) will be retired by CDKnet, LLC. CDKnet, LLC hereby
agrees to extend the maturity date of the remaining $311,630 to and including
December 31, 2003, and grants to Assignor the right to retire the debt at any
time after December 31, 2000 and prior to maturity (unless earlier by mutual
agreement) by assigning shares of Assignee back to Assignee at the value, for
this purpose, of $5.50 per share.
b. The remaining $4,630,000 will be payable as follows:
Assignee hereby agrees to issue to Assignor 1,538,182 shares of the Common
Stock of Assignee (valued for the purposes of this Assignment at $2.75 per
share), and either $400,000 in cash, provided Assignee completes financings
in which Assignee collects an aggregate of at least $2,500,000 within 12
months from the date hereof (which amount is payable promptly upon such
financings), or $400,000 of the Commnon Stock of Assignor (valued for the
purposes of this Assignment at $2.75 per share) in the event such financings
do not take place, provided, however that the 1,538,182 shares will be issued
on tho earlier of
<PAGE>
such financings or seven months from the date hereof. In the event of a cash
payment, Assignor will provide Assignee with a list of Assignor's creditors
to whom proceeds will be cut.
3. From and after the date hereof, upon request of Assignee,
Assignor shall do, execute, acknowledge and deliver all such further acts,
assurances, deeds, assignments, transfers, conveyances, powers of attorney
and other instruments and papers as may be reasonably required to sell,
assign, transfer, convey and deliver to and vest in Assignee all the rights
and interests hereby assigned and transferred to Assignee or intended so to
be assigned and transferred.
4. Nothing in this Assignment, express or Implied, is intended or
shall be construed to confer upon, or give to, any person or entity other
than die parties hereto and their respective successors and assigns, any
remedy or claim under or by reason of this Assignment or any terms, covenants
or conditions hereof, and all the terms, covenants and conditions, promises
and agreements in this Assignment shall be for the sole and exclusive benefit
of the parties hereto and their respective successors and assigns.
5. Certain of the Shares to be delivered in accordance with this
Agreement are to be registered with the Securities and Exchange Commission
pursuant to the Registration Rights Agreement entered into simultaneous
herewith. Except for such Shares when registered, the Shares shall bu
imprinted with a legend restricting the transfer of the Shares unless the
same is registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, or in the opinion of counsel,
registration is not necessary, Assignor represents and warrants that he is
receiving the Share for investment purposes and not with a view to, or in
connection with, any distribution thereof in violation of any securities laws.
6. This Agreement and the Registration Rights Agreement sets forth
the entire agreement and understanding of the parties hereto in respect of
the subject matter contained herein, and supersedes all prior agreements,
promises, letters of intent, covenants, arrangements, communications,
representations or warranties, whether oral of written, by any party hereto.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment to be executed under seal as of the date first above written.
KELLY MUSIC & ENTERTAINMENT CORP.
By:
-----------------------------
<PAGE>
Robert L. Kelly, President
By:
-----------------------------
Alvin Pock, Director
TECHNOLOGY HORIZONS CORP.
By:
-----------------------------
Name:
-----------------------
Title:
-----------------------
AGREED AND CONSENTED TO:
CDKNET, LLC
By:
-----------------------------
CREATIVE TECHNOLOGY, LLC
By its Managing Member
Creative Music Products Corp.
By:
-----------------------------
<PAGE>
EXHIBIT 10.5
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
WHEREAS, the undersigned entered into a Registration Rights
Agreement dated June 3, 1999 (the "Agreement") in connection with shares of
common stock of Technology Horizons Corp. (the "Company") held by Al Pock
("Pock"); and
WHEREAS, pursuant to the Agreement the Company is obligated to file
a registration statement in connection with certain of such shares within six
months of the date of the Agreement; and
WHEREAS, each of the undersigned recognizes that it is in the
Company's best interest (in light of the present market conditions and need
for additional Financing of the Company) to extend the period within which
such registration statement need be filed; and
WHEREAS, the Company has requested, and Pock has agreed, to extend
such period for an additional nine (9) months;
NOW THEREFORE, in consideration of the premises, the Agreements set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby agree as
follows:
1. Section 3.1 of the Agreement is hereby amended so that the words
"six (6) months" on the second line therein is replaced by the words "fifteen
(15) months.
2. Except as modified above, the Agreement shall remain unmodified
and in full force and effect, including but not limited to Section 15 thereof
which states that the registration of the Registrable Securities (as defined
therein) pursuant to the Agreement will occur prior to or pari passu with,
and not subsequent to, the registration of any shares of common stock of the
Company presently held by any holder of 5% or more of the stock of the
Company.
IN WITNESS WHEREOF, the undersigned have caused this Amendment
Agreement to be executed as of October 15, 1998.
TECHNOLOGY HORIZONS CORP.
By:
-----------------------------------
Steven A. Horowitz, President
- ---------------------------------------
Alvin Pock
<PAGE>
EXHIBIT 10.6
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
WHEREAS, the undersigned entered into a Registration Rights
Agreement dated June 3, 1998 (the "Agreement") in connection with shares of
commons stock of Technology Horizons Corp. (the "Company") held by Robert
Kelly ("Kelly"); and
WHEREAS, pursuant to the Agreement the Company is obligated to file
a registration statement in connection with certain of such shares within six
months of the date of the Agreement; and
WHEREAS, each of the undersigned recognizes that it is in the
Company's best interest (in light of the present market conditions and need
for additional financing of the Company) to extend the period within which
such registratoin statement need be filed; and
WHEREAS, the Company has requested, and Ke1ly has agreed, to extend
such period for an additional nine (9) months;
NOW THEREFORE, in consideration of the premises, the agreement set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby agree as
follows:
1. Section 3.1 of the Agreement is hereby amended so that the words
"six (6) months" on the second line therein is replaced by the words "fifteen
(15) months".
2. Except as modified above, the Agreement shall remain unmodified
and in full force and effect, including but not, limited to Section 15
thereof which states that the registration of the Registrable Securities (as
defined.therein) pursuant to the Agreement will occur prior to or pari passu
with, and not subsequent to, the registration of any shares of common stock
of the Company presently held by any holder of 5% or more of the stock of the
Company.
IN WITNESS WHEREOF, the undersigned have caused this Amendment
Agreement to be executed as of October 15, 1998.
TECHNOLOGY HORIZONS CORP.
By:
-----------------------------
Steven A. Horowitz, President
- --------------------------------
Robert Kelly
<PAGE>
EXHIBIT 10.7
TECHNOLOGY HORIZONS CORP.
595 Stewart Avenue
Garden City, New York 11530
REGISTRATION RIGHTS AGREEMENT
June 3, 1998
To: Robert L. Kelly
Reference is made to the Assignment Agreement between you and
Technology Horizons Corp. (the "Company") dated June 3, 1998 (the "Assignment
Agreement"). Pursuant to the Assignment Agreement, you (the "Holder"), have
received 363,636 shares of Common Stock of the Company ("Common Stock"), as
set forth in the Assignment Agreement. This letter sets forth the agreement
of the Company to register the shares of Common Stock (collectively, the
"Registrable Securities") under the Securities Act (as defined below) and
your agreement with respect to several matters as set forth below if you
register the Registrable Securities.
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"COMMISSION " means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act (as defined
below).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"REGISTRATION EXPENSES" means, for purposes of Section 5 below, all
expenses incurred by the Company in complying with this Agreement, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees and disbursements of counsel for the Company, state
securities or Blue Sky fees and expenses for the State of New York, and the
expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts, selling commissions and
<PAGE>
the fees and expenses of the Holder's own counsel.
"REGISTRABLE SECURITIES" means: (i) subject to the provisions of
this Agreement, 40% of the Shares of Common Stock issued to the Holder
pursuant to the Assignment Agreement; and (ii) any other securities of the
Company issued in respect of the foregoing (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events).
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of
the Company (other than a registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may from time to time, be in effect.
2. SECURITIES NOT REGISTERED.
The Holder agrees that, unless the Registrable Securities are
registered, the Holder will not dispose of the Registrable Securities or any
interest therein, unless and until the Registrable Securities have been
validly registered under the Securities Act or the Company has determined
that the intended disposition does not violate the Securities Act or the
rules and regulations of the Commission thereunder (the Company may
reasonably rely on an opinion of its counsel in making such determination).
3. REGISTRATION
3.1 (a) On one occasion, the Company shall, as soon as
practicable, (but in any event within six (6) months after the date hereof),
file a Registration Statement pursuant to the Securities Act, in order that
the Registrable Securities may be sold under the Securities Act as Promptly
as practicable thereafter, and the Company will use its commercially
reasonable best efforts to cause such registration to become effective,
provided that the Holder shall furnish the Company with appropriate
information (relating to the intentions of the Holder), in connection
therewith as the Company shall reasonably request in writing. The Company
shall use its best efforts to keep the registration statement current for a
period of six months or until all Registrable Securities registered
thereunder have been sold, which ever is sooner,
2
<PAGE>
(b) The Company shall be entitled once to postpone for a
reasonable period of time (but not to exceed 90 days) the filing of any
registration statement required to be prepared and filed by it pursuant to
this Section 3.1 if a nationally recognized investment bank shall advise the
Company in writing that, in its opinion, the Company is unable to effect an
underwritten offering due to then currently prevailing market conditions or
due to circumstances affecting the financial condition, business or
operations of the Company. Promptly (but in no event more than 30 days) after
receipt of such opinion, the Company shall give the Holder written notice of
its determination to postpone the filing of any registration statement, and
an approximation of the anticipated delay.
(c) The rights of Holder to registration pursuant to
Section 3.1(a) are subject to the following limitations: (i) the Company
shall not be obligated to effect a registration within six months after the
effective date of any other registration of securities (other than pursuant
to a registration on Form S-4 or S-8 or any successor or similar form which
is then in effect), and (ii) in no event shall the Company be required to
effect more than one registration pursuant to this Section 3.1.
3.2 The Holder's rights under Section 3.1 shall be subject of
the limitation that, in the event that the Company files a Registration
Statement for an underwritten public offering the registration of the
Registrable Securities shall be upon the condition that:
(a) if requested by managing underwriter as a condition of
the offering, they be sold through the underwriters on the same terms and
conditions as are applicable to the Company or all other selling stockholder
of the Company; or
(b) if such condition is imposed by the managing
underwriter, and the Holder does not wish to sell the Registrable Securities
upon such terms and conditions, the Holder will agree not to transfer or
otherwise dispose of any Registrable Securities for a period of time from the
effective date of the Registration Statement (not to exceed one hundred
eighty (180) days) specified by the managing underwriter.
3.3. If a registration of the Company's shares involves an
offering by or through underwriters, the Company, except as otherwise
provided herein, shall not be required to include Registrable Securities
therein if and to the extent the underwriter managing the offering reasonably
believes in good faith and advises the Company in writing that such inclusion
would materially and
3
<PAGE>
adversely affect such offering; provided that any such reduction or
elimination shall be PRO RATA to all other selling stockholders participating
in such offering, in proportion to the respective number of shares they have
requested to be registered.
3.4. In the event the Company receives private financing in an
amount exceeding $1,000,000 and as a condition of such financing officers,
directors and greater than 5% shareholders arc required to agree not to sell,
assign, or otherwise transfer any shares (a "lock-up Agreement"), the Holder
agrees to enter into a lock-up agreement on the same terms as such other
holders.
3.5. The registration rights granted hereunder shall expire on
earlier of one (1) year from the date the Company has a class of equity
securities registered under Section 12(b) or 12(g) of the Exchange Act or
June, 20, 2000.
3.6. Notwithstanding the provisions of Sections 3 and 4 hereof;
(a) the Company shall have the right to delay or suspend the preparation and
filing of a registration statement for up to 90 days if in the reasonable and
good faith judgment of a majority of the Directors on the Board of Directors
of the Company such preparation or filing would impede, delay or interfere in
any material fashion with any material financing or material business
transaction actively being pursued by the Company at time of receipt of the
request for such registration or with the ability of the Company to conduct
its affairs or would have a material adverse effect on the business,
properties or financial condition of the Company; PROVIDED, HOWEVER, that the
Company shall use its commercially reasonable best efforts to cause the
registration statement to become effective within 180 days, and shall only be
entitled to utilize this clause once in any 12 month period; and (b) if, the
Company is working on an underwritten public offering of Common Stock (a
"Company Initiated Public Offering") and is advised by the managing
underwriter(s) in writing that such offering would in its or their opinion be
adversely affected by such filing, then the Company shall have, the right,
upon notice to the Holder requesting registration within 14 days after
receipt of such request, to delay or suspend the filing of the registration
statement requested by such Holder; PROVIDED that the Company shall use its
best efforts to cause any such registration statement requested by the
Holders to become effective within 180 days (or, if required by the
underwriters for the Company Initiated Public Offering, within 270 days)
after the date on which all securities covered by (the Company Public
Offering have been sold, and that the Company shall use its best efforts to
include any Registrable Securities that are the subject of a notice delivered
by Holders under Section 3 in the registration statement for such Company
Initiated Public Offering.
4
<PAGE>
4. REGISTRATION PROCEDURES.
If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any of the
Registrable Securities under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with
respect to such Registrable Securities and use its best efforts to cause that
Registration Statement to become and remain effective;
(b) as expeditiously as possible, prepare and file with the
commission any amendments and supplements to the Registration Statement and
the prospectus included in the Registration Statement as may be necessary to
keep the Registration Statement effective for a period of not less than nine
months from the effective date;
(c) as expeditiously as possible, use its best efforts to
register or qualify the Registrable Securities covered by the Registration
Statement under the securities or Blue Sky laws of New York, and do any and
all other acts and things that may be necessary or desirable to enable the
Holders to consummate the public sale or other disposition in such states of
the Registrable Securities owned by the Holder, and
(d) as expeditiously as possible, use its best efforts to
register or qualify the Registrable Securities covered by the Registration
Statement under the securities or Blue Sky laws of New York, and do any and
all other acts and things that may be necessary or desirable to enable the
Holders to consummate the public sale or other disposition in such states of
the Registrable Securities owned by the Holder; PROVIDED, HOWEVER, that the
Company shall not be required in connection with this Section 4(d) to qualify
as a foreign corporation or execute a general consent to service of process
in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to
the Holder and, after having done so, the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly
notify the Holder and, if requested, the Holder shall immediately cease
making offers of Registrable Securities and return all prospectuses to the
Company. The Company shall promptly provide the Holder with revised
prospectuses and, following receipt of the revised prospectuses, the Holder
shall be free to resume making offers of the Registrable Securities.
5. ALLOCATION EXPENSES.
5
<PAGE>
The Company will pay all Registration Expenses of all Registration
Statements under this Agreement.
6. INDEMNIFICATION.
In the event of any registration of any of the Registrable
Securities under the Securities Act pursuant to this Agreement, the Company
will indemnify and hold harmless the seller of such Registrable Securities,
each underwriter of such Registrable Securities, and each other person, if
any, who controls such seller or underwriter within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities or Blue Sky laws or otherwise, insofar as much losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
Registrable Securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact, required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such
seller, underwriter and each such controlling person for any legal or any
other expenses reasonably incurred by such seller, underwriter or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission
made in such Registration Statement, preliminary prospectus or prospectus, or
any such amendment or supplement in reliance upon and in conformity with
information furnished to the Company, in writing, by or on behalf of such
seller, underwriter or controlling person specifically for use in the
preparation thereof.
In the event of any registration of any of the Registrable Securities
under the Securities Act pursuant to this Agreement, each seller of Registrable
Securities, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors, and officers and each underwriter (if any) and
each person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers underwriters or controlling person may become subject
6
<PAGE>
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to the
Registration Statement, or arise out of or are based upon any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if the statement or
omission was made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of such seller,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement; PROVIDE, HOWEVER, that the
obligations of such seller hereunder shall be limited to an amount equal to
the proceeds to each seller of Registrable Securities sold as contemplated
herein.
Each party entitled to Indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit, the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom; PROVIDED, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified party (whose approval shall
not be unreasonably withheld); and, PROVIDED, FURTHER, that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement. The indemnified
Part may participate in such defense at such party's expense; PROVIDED,
HOWEVER, that the Indemnifying Party shall pay such expense if representation
of such Indemnified Party by the counsel retained by the Indemnifying Party
would be inappropriate due to actual or potential differing interests between
the Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include
as, an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent
of the Indemnifying Party.
7
<PAGE>
7. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING.
In the event that Registrable Securities are sold pursuant to a
Registration Statement in an underwritten offering pursuant to Section 2 or
3, the company agrees to enter into an underwriting agreement containing
customary representations and warranties with respect to the business and
operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including, without
limitation, customary provisions with respect to indemnification by the
Company of the underwriters of such offering.
8. INFORMATION BY THE HOLDER.
The Holder shall furnish to the Company such information regarding
such Holder and the distribution proposed by such Holder as the Company may
request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
9. SELECTION OF UNDERWRITER.
In the case of any registration effected pursuant to this Agreement,
the Company shall have the exclusive right to designate the managing
underwriter in any underwritten offering.
10. SUCCESSOR AND ASSIGNS.
The provisions of this Agreement shall be binding upon, and inure to
the benefit of, the respective successors, assigns, heirs, executors and
administrators of the parties hereto.
11. FURTHER ASSURANCES.
From and after the date hereof, all persons subject to or bound by
this Agreement shall from time to time, at the request of any such other
person and without further consideration, do execute and deliver, or cause to
be done, executed and delivered, all such further acts, things and
instruments as may reasonably be requested or required more effectively to
evidence and give effect to the provisions, intent and purposes of this
Agreement (including, without limitation, certificates to the effect that
this Agreement continues operative and as to any defaults hereunder or
modifications hereof).
8
<PAGE>
12. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing, shall be addressed to the receiving party's address set
forth below or to such other address as a party may designate by notice
hereunder, and shall be either (1) delivered by hand, (2) sent by reputable
overnight courier by next day, priority, or (3) sent by registered or
certified mail, return receipt requested, postage prepaid,
If to the Holder: Robert L. Kelly
250 West 57th Street
New York. New York 10019
If to the Company: Technology Horizons Corp,
595 Stewart Avenue, Suite 710
Garden City, New York 11530
Attn: Steven A. Horowitz
With a copy in each
case to; Horowitz, Mencher, Klosowski, Nestler & Scope, P.C.
595 Stewart Avenue, Suite 710
Garden City, New York 11530
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (1) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(2) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (3) if sent by registered
or certified mail, on the fifth business day following the day such mailing
is made.
13. CERTAIN OTHER AGREEMENTS.
In the event Registrable Securities are included in a Registration
Statement, you agree:
(a) to offer the Registrable Securities only in the manner set
forth on the cover page of the Prospectus included in the Registration
Statement;
(b) not to effect any transaction for the purpose of
stabilizing the price of the Registrable Securities offered or any securities
into which the Registrable
9
<PAGE>
Securities are convertible;
(c) to supply to any broker to whom you offer registered
securities a copy of the Prospectus;
(d) to promptly report all sales made to the Company; and
(e) to comply with the provisions of Rule lOb-6 under the
Exchange Act.
14. APPLICABLE LAW.
This Agreement shall be governed and construed under the laws of the
State of Delaware, without regard to any choice or conflicts of law
principles thereof.
15. PRIORITY.
The registration of the Registrable Securities pursuant to this
Agreement will occur prior to or pari passu with, and not subsequent to, the
registration of any shares of Common Stock presently held by any holder of 5%
or more of the stock of the Company.
Please acknowledge your consent to the terms of this Agreement by
signing and returning a copy of this Agreement to the Company.
TECHNOLOGY HORIZONS CORP.
By:
-------------------------------
Accepted and agreed this 3rd
day of June 1998
- -------------------------
Holder/Purchaser
10
<PAGE>
EXHIBIT 10.8
TECHNOLOGY HORIZONS CORP.
595 Stewart Avenue
Garden City, New York 11530
REGISTRATION RIGHTS AGREEMENT
June 3, 1998
To: Alvin Pock
Reference is made to the Assignment Agreement between you and
Technology Horizons Corp. (the "Company") dated June 3, 1998 (the "Assignment
Agreement"). Pursuant to the Assignment Agreement, you (the "Holder"), have
received 936,727 shares of Common Stock of the Company ("Common Stock"), as
set forth in the Assignment Agreement. This letter sets forth the agreement
of the Company to register the shares of Common Stock (collectively, the
"Registrable Securities") under the Securities Act (as defined below) and
your agreement with respect to several matters as set forth below if you
register the Registrable Securities.
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"COMMISSION " means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act (as defined
below).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"REGISTRATION EXPENSES" means, for purposes of Section 5 below, all
expenses incurred by the Company in complying with this Agreement, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees and disbursements of counsel for the Company, state
securities or Blue Sky fees and expenses for the State of New York, and the
expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts, selling commissions and
the fees and expenses of the Holder's own counsel.
"REGISTRABLE SECURITIES" means: (i) subject to the provisions of
this Agreement, 40% of the Shares of Common Stock issued to the Holder
pursuant to the Assignment Agreement; and (ii) any in respect of the
foregoing (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events).
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"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of
the Company (other than a registration statement covering only securities
proposed to be issued in exchange. for securities or assets of another
corporation).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may from time to time, be in effect.
2. SECURITIES NOT REGISTERED.
The Holder agrees that, unless the Registrable Securities are
registered, the Holder will not dispose of the Registrable Securities or any
interest therein, unless and until the Registrable Securities have been
validly registered under the Securities Act or file Company has determined
that tile intended disposition does not violate the Securities Act or the
rules and regulations of the Commission thereunder (the Company may
reasonably rely on an opinion of its counsel in making such determination).
3. REGISTRATION
3.1 (a) On one occasion, the Company shall, as soon as
practicable, (but in any event within six (6) months after the date hereof),
file a Registration Statement pursuant to the Securities Act, in order that
the Registrable Securities may be sold under the Securities Act as promptly
as practicable thereafter, and the Company will use its commercially
reasonable best efforts to cause such registration to become effective,
provided that the Holder shall furnish the Company with appropriate
information (relating to the intentions of the Holder), in connection
therewith as the Company shall reasonably request in writing. The Company
shall use its best efforts to keep the registration statement current for a
period of six months or until all Registrable Securities registered
thereunder have been sold, which ever is sooner.
(b) The Company shall be entitled once to postpone for a
reasonable period of time (but not to exceed 90 days) the filing of any
registration statement required to be prepared and filed by it pursuant to
this Section 3.1 if nationally recognized investment bank shall advise the
Company in writing that, in its opinion, the Company is unable to effect an
underwritten offering due to then currently prevailing market conditions or
due to circumstances affecting the financial condition, business or
operations of the Company, Promptly (but in no event more than 30 days) after
receipt of such, opinion, the Company shall give the Holder written notice of
its determination to postpone the filing of any registration statement. and
an approximation of the anticipated delay,
(c) The rights of Holder to the registration pursuant to
Section 3. 1 (a) are subject to the following limitations: (i) the Company
shall not be obligated to effect a registration within six months after the
effective date of any other registration of securities (other than pursuant to
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registration on Forms S-4 or S-8 or any successor or similar form which is
then in effect), and (ii) in no event shall the Company be required to effect
more than one registration pursuant to this Section 3.1
3.2 The Holder's rights under Section 3.1 shall be subject of
the limitation that, in the event that the Company files a Registration
Statement for an underwritten public offering the registration of the
Registrable Securities shall be upon the condition that:
(a) if requested by the managing underwriter as a condition
of the offering, they be sold through the underwriters on the same terms and
conditions as arc applicable to the Company or all other selling stockholders
of the Company; or
(b) if such condition is imposed by the managing
underwriter, and the Holder does not wish to sell the Registrable Securities
upon such terms and conditions, the Holder will agree not to transfer or
otherwise dispose of any Registrable Securities for a period of time from the
effective date of the Registration Statement (not to exceed one hundred
eighty (180) days) specified by the Managing underwriter.
3.3. If it registration of the Company's shares involves an
offering by or through underwriters, the Company, except as otherwise
provided herein, shall not be required to include Registrable Securities
therein if and to the extent the underwriter managing the offering reasonably
believes in good faith and advises the Company in writing that such inclusion
would materially and adversely affect such offering; provided that any such
reduction or elimination shall be PRO RATA to all other selling stockholders
participating in such offering, in proportion to the respective number of
shares they have requested to be registered.
3.4. In the event the Company receives private financing in an
amount exceeding $1,000,000 and as a condition of such financing officers,
directors and greater than 5% shareholders arc required to agree not to sell,
assign, or otherwise transfer any shares (a "lock-up Agreement"), the Holder
agrees to enter into a lock-tip agreement on the same terms as such other,
holders.
3.5. The registration rights granted hereunder shall expire on
earlier of one (1) year from the date the Company has a class of equity
securities registered under Section 12(b) or 12(g) of the Exchange Act or
June, 20, 2000.
3.6. Notwithstanding the provisions of Sections 3 and 4 hereof;
(a) the Company shall have the right to delay or suspend the preparation and
filing of a registration statement for up to 90 days if in the reasonable and
good faith judgment of a majority of the Directors on the Board of Directors
of the Company such preparation or filing would impede, delay or interfere in
any material fashion with any material financing or material business
transaction actively being pursued by the Company at time of receipt of the
request for such registration or with the ability of the Company to conduct
its affairs or would have a material adverse effect on the business,
properties or financial condition of the Company; PROVIDED, HOWEVER, that the
Company shall use its commercially reasonable best efforts to cause the
registration statement to become effective within 180 days, and shall only be
entitled to utilize this clause once in any 12 month period; and (b) if, the
Company is
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working on an underwritten, public offering of Common Stock (a "Company
Initiated Public Offering") and is advised by the managing underwriter(s) in
writing that such offering would in its or their opinion be adversely
affected by such filing, then the Company shall have the right, upon notice
to the Holder requesting registration within 14 days after receipt of such
request, to delay or suspend the filing of the registration statement
requested by such Holder; PROVIDED that the Company shall use its best
efforts to cause any such registration statement requested by the Holders to
become effective within 180 days (or, if required by the underwriters for the
Company Initiated Public Offering, within 270 days) after the date on which
all securities covered by the Company Public Offering have been sold, and
that the Company shall use its best efforts to include any Registrable
Securities that are the subject of a notice delivered by Holders under
Section 3 in the registration statement for such Company Initiated Public
Offering.
4. REGISTRATION PROCEDURES.
If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any of tho
Registrable Securities under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with
respect to such Registrable Securities and use its best efforts to cause that
Registration Statement to become and remain effective;
(b) as expeditiously as possible, prepare and file with the
Commission any amendments and supplements to the Registration Statement and
the prospectus included in the Registration Statement as may be necessary to
keep the Registration Statement effective for a period of not less than nine
months from the effective date;
(c) as expeditiously as possible, furnish to the Holder such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as the Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities
owned by The Holder; and
(d) as expeditiously as possible, use its best efforts to
register or qualify the Registrable Securities covered by the Registration
Statement under the securities or Blue Sky laws of New York, and do any and
all other acts and things that may be necessary or desirable to enable the
Holders to consummate the public sale or other disposition in such states of
the Registrable Securities owned by the Holder; PROVIDED, HOWEVER, that the
Company shall not be required in connection with this Section 4(d) to qualify
as a foreign corporation or execute a general consent to service of process
in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to
the Holder and, after having done so, the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly
notify the Holder and, if requested, the Holder shall immediately cease
making offers of Registrable Securities and return all prospectuses to the
Company. The Company
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shall promptly provide the Holder with revised prospectuses and, following
receipt of the revised prospectuses, the Holder shall be free to resume
making offers of the Registrable Securities.
5. ALLOCATION OF EXPENSES.
The Company will pay all Registration Expenses of all Registration
Statements under this Agreement.
6. INDEMNIFICATION
In the event of any registration of any of the Registrable
Securities tinder the Securities Act pursuant to this Agreement, the Company
will indemnify and hold harmless the seller of such Registrable Securities,
each underwriter of such Registrable Securities, and each other person, if
any, who controls such seller or underwriter within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities or Blue Sky laws or otherwise, in so far as much
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in any Registration Statement wider which such
Registrable Securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or arc based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such
seller, underwriter and each such controlling person for any legal or any
other expenses reasonably incurred by such seller, underwriter or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission
made in such Registration Statement, preliminary prospectus or prospectus, or
any such amendment or supplement, in reliance upon and in conformity with
information furnished to the Company, in writing, by or on behalf of such
seller, underwriter or controlling person specifically for use in the
preparation thereof.
In the event of any registration of any of the Registrable Securities
under the Securities Act pursuant to this Agreement, each seller of Registrable
Securities, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors, and officers and each underwriter (if any) and
each person, if any, who controls (the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers. underwriters or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
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Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such seller, specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement, PROVIDED, HOWEVER, that the obligations of such seller hereunder
shall be limited to an amount equal to the proceeds to each seller of
Registrable Securities sold as contemplated herein.
Each party to Indemnification under this Section 6 (the "Indemnified
Party") shall give notice to the party required to provide indemnification
(the "Indemnifying Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and shall permit
the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified party (whose approval shall not be unreasonably
withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement. The Indemnified Party may participate
in such defense at such party's expense; PROVIDED, HOWEVER, that the
Indemnifying Party shall pay such expense if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent
of the Indemnifying Party.
7. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING
In the event that Registrable Securities are sold pursuant to a
registration statement in an underwritten offering pursuant to section 2 or
3, the Company agrees to enter into an underwriting agreement containing
customary representations and warranties with respect to the business and
operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including, without
limitation, customary provisions with respect to indemnification by the
Company of the underwriters of such offering.
8. INFORMATION BY THE HOLDER.
The Holder shall furnish to the Company such information regarding
such Holder and the distribution proposed by such Holder as the Company may
request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
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9. SELECTION OF UNDERWRITER
In the case of any registration effected pursuant to this Agreement,
the Company shall have the exclusive right to designate the managing
underwriter in any underwritten offering.
10. SUCCESSORS AND ASSIGNS.
The provisions of this Agreement shall be binding upon, and inure to
the benefit of, the respective successors, assigns, heirs, executors and
administrators of the parties hereto.
11. FURTHER ASSURANCES.
From and after the date hereof, all persons subject to or bound by
this Agreement shall from time to time, at the request of any such other
person and without further consideration, do, execute and deliver, or cause
to be done, executed and delivered, all such further acts, things and
instruments as may reasonably be requested or required more effectively to
evidence and give effect to the provisions, intent and purposes of this
Agreement (including, without limitation, certificates to the effect that
this Agreement continues operative and as to any defaults hereunder or
modifications hereof).
12. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing, shall be addressed to the receiving party's address set
forth below or to such other address as a party may designate by notice
hereunder, and shall be either (1) delivered by hand, (2) sent by reputable
overnight courier by next day, priority, or (3) sent by registered or
certified mail, return receipt requested, postage prepaid.
If to the Holder: Alvin Pock
320 Bay Drive
Massapequa, New York 11758
If to the Company: Technology Horizons Corp,
595 Stewart Avenue, Suite 710
Garden City, New York 11530
Attn: Steven A. Horowitz
With a copy in each
case to: Horowitz, Mencher, Klosowski, Nestler & Scope, P.C.
595 Stewart Avenue, Suite 710
Garden City, New York 11530
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (1) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(2) if sent by overnight courier, on the next business day following the
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day such notice is delivered to the courier service, or (3) if sent by
registered or certified mail, on the fifth business day following the day
such mailing is made.
13. CERTAIN OTHER AGREEMENTS.
In the event Registrable Securities are included in a Registration
Statement, you agree;
(a) to offer the Registrable Securities only in the manner set
forth on the cover page of the Prospectus included in the Registration
Statement;
(b) not to effect any transaction for the purpose of
stabilizing the price of the Registrable Securities offered or any securities
into which the Registrable Securities are convertible;
(c) to supply to any broker to whom you offer registered
securities a copy of the Prospectus;
(d) to promptly report all sales made to the Company; and
(e) to comply with the provisions of Rule 10b-6 under the
Exchange Act,
14. APPLICABLE LAW.
This Agreement shall be governed and construed under the laws of the
State of Delaware, without regard to any choice or conflicts of law
principles thereof.
Please acknowledge your consent to terms of this Agreement by
signing and returning a copy of this Agreement to the Company.
TECHNOLOGY HORIZONS CORP.
By:
--------------------------------
Accepted and agreed this 3rd
day of June, 1998
- ---------------------------
Holder/Purchaser
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EXHIBIT 10.9
ASSIGNMENT AGREEMENT
This Assignment Agreement (the "Assignment"), dated this 3rd day of
June, 1998, is made between Robert L. Kelly (the "Assignor"), and Technology
Horizons Corp,, a Delaware corporation (the "Assignee").
NOW, THEREFORE, in consideration of the premises, the agreements set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which arc hereby acknowledged, the Assignor and the Assignee
hereby agree as follows:
1. The Assignor hereby assigns to the Assignee , its successors and
assigns, to have and to hold forever, all of the Assignor's right, title and
interest in and to Assignor's 6.25%-membership interest in CDKnet, LLC, which
6.25% represents all of Assignor's interest in and to CDKnet, LLC, along with
all rights and benefits appurtenant thereto (the "Assignment").
2. In consideration of the Assignment, Assignee hereby agrees to
promptly issue to Assignor 363,636 shares of common stock of Assignee, $.0001
par value per share (the "Shares"),
3. From and after the date hereof, upon request of Assignee, Assignor
shall do, execute, acknowledge and deliver all such further acts, assurances,
deeds, assignments, transfers, conveyances, powers of attorney and other
instruments and papers as may be reasonably required to sell, assign, transfer,
convey and deliver to and vest in Assignee all the rights and interests hereby
assigned and transferred to Assignee or intended so to be assigned arid
transferred.
4. Nothing in this Assignment, express or implied, is intended or shall
be construed to confer upon, or give to, any person or entity other than the
parties hereto and their respective successors and assigns, any remedy or claim
under or by reason of this Assignment or any terms, covenants or conditions
hereof, and all the terms, covenants and conditions, promises and agreements in
this Assignment shall be for the sole arid exclusive benefit of the parties
hereto and their respective successors and assigns.
5. Certain of the Shares to be delivered in accordance with this
Agreement are to be registered with the Securities and Exchange Commission
pursuant to the Registration Rights Agreement entered into simultaneous
herewith. Except for such Shares when registered, the Shares shall be imprinted
with a legend restricting the transfer of the Shares unless the same is
registered with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, or in the opinion of counsel, registration is not
necessary. Assignor represents and warrants that he is receiving the Shares for
investment purposes and not with a view to, or in connection with, any
distribution thereof in violation of any securities laws.
6. This Agreement and the Registration Rights Agreement sets forth the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained
<PAGE>
herein, and supersedes all prior agreements, promises, letters of intent,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any party hereto.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment to be executed under seal as of the date first above written.
______________________________
Robert L. Kelly
TECHNOLOGY HORIZONS CORP.
By: __________________________
Name: ________________________
Title: _______________________
AGREED AND CONSENTED TO:
KELLY MUSIC & ENTERTAINMENT CORP.
By: ________________________________
Michael Jolly, Vice President
____________________________________
Alvin Pock
CDKNET, LLC
By: ________________________________
CREATIVE TECHNOLOGY, LLC
By its Managing Member
Creative Music Products Corp.
By: ________________________________
<PAGE>
EXHIBIT 10.10
ASSIGNMENT AGREEMENT
This Assignment Agreement (the "Assignment"), dated this 3rd day of
June, 1998, is made between Alvin Pock (the "Assignor"), and Technology
Horizons Corp., a Delaware corporation (the "Assignee"),
NOW, THEREFORE, in consideration of the premises, the agreements set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged. the Assignor and the Assignee
hereby agree as follows:
1. The Assignor hereby assigns to the Assignee , its successors and
assigns, to have and to hold forever, all of the Assignor's right, title and
interest in and to Assignor's 16.1%, membership interest in CDKnet, LLC,
which 16.1 % represents all of Assignor's interest in and to CDKnet, LLC,
along with all rights and benefits appurtenant thereto (the "Assignment").
2. In consideration of the Assignment, Assignee hereby agrees to
promptly issue to Assignor 936,727 shares of common stock of Assignee, $.0001
par value per share.
3. From and after the date hereof, upon request of Assignee,
Assignor shall do, execute, acknowledge and deliver all such further acts,
assurances, deeds, assignments, transfers, conveyances, powers of attorney
and other instruments and papers as may be reasonably required to sell,
assign, transfer, convey and deliver to and vest in Assignee all the rights
and interests hereby assigned and transferred to Assignee or intended so to
be assigned and transferred.
4. Nothing in this Assignment, express or implied, is intended or
shall be construed to confer upon, or give to, any person or entity other
than the parties hereto and their respective successors and assigns, any
remedy or claim under or by reason of this Assignment or any terms, covenants
or conditions hereof, and all the terms, covenants and conditions, promises
and agreements in this Assignment shall be for the sole and exclusive benefit
of the parties hereto and their respective successors and assigns.
5. Certain of the Shares to be delivered in accordance with this
Agreement are to be registered with the Securities and Exchange Commission
pursuant to the Registration Rights Agreement entered into simultaneous
herewith. Except for such Shares when registered, the Shares shall be
imprinted with a legend restricting the transfer of the Shares unless the
same is registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, or in the opinion of counsel,
registration is not necessary. Assignor represents and warrants that he is
receiving the Shares for investment purposes and not with a view to, or in
connection with, any ,distribution thereof in violation of any securities
laws.
6. This Agreement and the Registration Rights Agreement sets forth
the entire agreement and understanding of the parties hereto in respect of
the subject matter contained herein, and supersedes all prior agreements,
promises, letters of intent, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any party hereto.
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Agreement to be executed under seal as of the date first above written.
----------------------------------
Alvin Pock
TECHNOLOGY HORIZONS CORP.
By:
-------------------------------
Name:
-------------------------
Title:
-------------------------
AGREED AND CONSENTED TO:
KELLY MUSIC & ENTERTAINMENT CORP.
By:
--------------------------------
Robert L. Kelly, President
--------------------------------
Robert L. Kelly
CDKNET, LLC
By:
--------------------------------
CREATIVE TECHNOLOGY, LLC
By its Managing Member
Creative Music Products Corp.
By:
--------------------------------
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EXHIBIT 10.11
ASSIGNMENT AGREEMENT
This Assignment Agreement, (the "Agreement"), dated this 3rd day of
June 1998, is made between Kelly Music & Entertainment Corp. (the
"Assignor"), and CDKnet, LLC (the "Assignee").
WHEREAS, Assignor owes to Assignee in excess of $1,000,000 in
respect of various advances, loans and other financial accommodations make to
Assignor, all as set forth on the books and records of Assignor, and certain
rights and security in connection therewith including, without limitation,
the security agreement delivered in connection therewith (collectively, the
"Debt");
WHEREAS, each of Assignor and Assignee desires, on the terms and
conditions below, to exchange certain of the Debt in return for certain of
Assignor's interest in Assignee;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Assignor and the Assignee hereby agree as follows.
1. The Assignor hereby assigns to the Assignee, its successors and
assigns, to have and to hold forever, 5% of Assignor's interest in Assignee,
so that, effective upon such assignment, Assignor will hold a 26.15 %
interest in Assignee.
2. The Assignee hereby agrees that, in consideration for the
assignment pursuant to Section I above, $800,000 of the Debt is hereby
retired.
3. From and after the date hereof, upon request of Assignee,
Assignor shall do, execute, acknowledge and deliver all such further acts,
assurances, deeds, assignments, transfers, conveyances, powers of attorney
and other instruments and papers as may be reasonably required to sell,
assign, transfer, convey and deliver to and vest in Assignee all the rights
and interests hereby assigned and transferred to Assignee or intended so to
be assigned and transferred.
4. Nothing in this Agreement, express or implied, is intended or
shall be construed to confer upon, or give to, any person other than the
parties hereto and their respective successors and assigns, any remedy or
claim under or by reason of this Agreement or any terms, covenants or
conditions hereof, and all the terms, covenants and conditions, promises and
agreements in this Agreement shall be for the sole and exclusive benefit of
the parties hereto and their respective successors and assigns.
5. This Agreement sets forth the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein, and
supersedes all prior agreements, promises, letters of intent, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any party hereto.
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Agreement
to be executed under seal as of the date first above written.
KELLY MUSIC & ENTERTAINMENT CORP.
By:
Name:
Title:
CDKnet, LLC
By:
Name:
Title:
AGREED AND CONSENTED TO:
CREATIVE TECHNOLOGY, LLC
by its Managing Member, Creative Music
Products Corp.
By:
-------------------------------
- -----------------------------------
Alvin Pock
- -----------------------------------
Robert L. Kelly
<PAGE>
Ex. 10.12
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, effective as of August 1, 1999 between CDKnet,
LLC, a New York limited liability company, having a place of business at 250
West 57th Street, New York, New York 10019 ("Employer"), and Shai Bar Lavi,
residing at 199 West Shore Road, Kingspoint, NY 11024, ("Employee").
W I T N E S S E T H :
WHEREAS, Employer desires to employ the Employee to serve as the
President of Employer in accordance with the terms of this Agreement, and the
Employee desires to be so employed by Employer;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee
hereby accepts employment with Employer upon the terms and conditions set forth
herein.
2. TERM.
2.1 The term of Employee's employment hereunder shall be for
two years commencing effective as of August 1, 1999 (the "Commencement Date").
2.2 Notwithstanding the foregoing, this Agreement and
employee's employment hereunder shall terminate on the earliest of:
(a) The death of Employee;
(b) The disability of Employee. Disability, for the purposes
of this Section 2.2 (b), shall mean any physical or mental illness or injury as
a result of which Employee remains absent from work or cannot adequately perform
his duties hereunder for one hundred twenty (120) days (whether or not
continuous) or sixty (60) consecutive days during any period of three hundred
sixty (360) consecutive days. The disability shall be deemed to have occurred on
the one hundred twentieth (120th) or sixtieth (60th), as the case may be, day of
Employee's absence or lack of adequate performance;
(c) Upon notice by Employer to Employer of the termination of
Employee's employment for cause. "Cause" shall include, but not be limited to:
(i) Employee's conviction of a felony; (ii) Employee's material breach of any of
this obligations under this Agreement; (iii) Employee's gross negligence with
respect to his duties or gross misfeasance or malfeasance of office; (iv)
employee's termination of this Agreement; (v) employee's commission of a
material act of dishonesty related to Employer's business or its relationships
with any of its employees,
<PAGE>
suppliers, contractors or customers; (vi) Employee's refusal or willful failure
to furnish information concerning Employer's affairs as reasonably requested by
or under the authority of the Management committee, or Employee's willful and
material falsification of such information; (vii) whatever material acts or
material omissions that a court of competent jurisdiction determines to
constitute cause for the dismissal of Employee under the circumstances;
PROVIDED, HOWEVER, that in the event of subsections (ii) or (vii) above,
Employee shall be given notice of such termination and fifteen (15) days to cure
(if curable) such breach prior to the effectiveness of such termination,
provided that no such notice or time to cure will be afforded employee for any
subsequent breach of the same nature of a breach for which notice was given
pursuant hereto; or
(d) upon notice by Employer to Employee of the termination of
Employee's employment without cause.
2.3. Upon termination of this Agreement, Employer's
obligations hereunder shall cease; PROVIDED, HOWEVER, that in the event of
termination pursuant to Section 2.2. (a) or 2.2. (b) Employer shall pay to
Employee or Employee's estate all salary and vacation, leave and holiday
benefits, if any, accrued but unpaid as of the Termination Date; and in the
event of termination pursuant to Section 2.2 (d) Employer shall pay to Employee
an amount equal to six (6) months of salary at the then current rate, such
amount to be paid over a six (6) month period plus the vesting of the
outstanding options pursuant to Section 4.5 (d) (ii) below. Employer shall be
entitled to enforce the terms of Sections 7 and 8 hereof notwithstanding the
termination of Employee's employment pursuant hereto. Payment by Employer to
Employee pursuant to this Section 2.3, and the vesting in options as set forth
in Section 4 below, if any, subsequent to termination of Employee's employment
shall constitute satisfaction of all obligations of Employer to Employee
hereunder.
2.4. The date on which this Agreement terminates pursuant to
any of the provisions above is the Termination Date.
3. BASIC COMPENSATION.
3.1. COMPENSATION.
For all services to be rendered by Employee hereunder and in
consideration of all of the covenants set forth in this Agreement, and subject
to the performance of the services required to be performed by Employee
hereunder, Employer shall pay to Employee a salary at the annual rate of One
Hundred Fifty Thousand Dollars ($150,000.00), which shall be payable in
accordance with the general payroll practices of Employer, but in no event less
frequently than monthly. The salary may be adjusted annually in the sole
discretion of Employer's Management Committee, but the salary shall be no less
than $150,000 per year.
<PAGE>
3.2. BONUS.
Employee shall be entitled to a bonus if any, in an amount
determined annually Employer's Management Committee in its sole discretion;
PROVIDED, HOWEVER, that Employee shall receive such bonus in any year hereunder
so that this combined salary plus bonus will not be exceeded by that of any of
Employer's full time employees (not including any of such full-time employees'
deemed income from stock option exercises or dispositions, if any) (pro-rated
for any partial year of Employee) to a maximum total salary and bonus of
$500,000.
3.3. DEDUCTIONS.
Employer shall be entitled to deduct applicable withholding
and other payroll taxes and the like from all amounts payable to employee under
this Agreement before remitting the same to Employee.
4. BENEFITS.
4.1. Employee will be entitled to four (4) weeks vacation per
contract year, to be taken no more than two (2) week(s) at a time. Employee also
shall be entitled to participate, to the extent of his eligibility therefore, in
family health insurance coverage and other benefit programs generally provided
by Employer to its employees. The foregoing shall not be construed to require
Employer to create or continue any such programs or prevent Employer from
modifying or terminating any such programs. Employer may from time to time make
certain awards under the terms of such benefits that are quantitatively
different between employees, or award different or additional benefits to
certain, but not all, employees in its sole discretion.
4.2. Employer shall furnish Employee with such working
facilities and other services which Employer deems suitable to employee's
position and duties.
4.3. Employer shall reimburse Employee, upon receipt of proper
vouchers or receipts therefor, for all proper business expenses incurred by
Employee in the performance of his duties hereunder; PROVIDED, HOWEVER, that
Employee shall not incur any such expenses in excess of One Thousand Dollars
($1,000) without the prior written consent of Employer.
[SECTION 4.4 INTENTIONALLY OMITTED]
4.5. Employer will grant Employee options to purchase up to
750,000 shares of common stock of employer's parent company (CDKnet.Com, Inc.)
on the following terms:
(a) The options will vest as follows:
-- 25% at each of the six month,
twelve month, eighteen month and
twenty-four month anniversary of the
Commencement Date;
<PAGE>
(b) The options may be exercised in multiples of five
thousand shares. The exercise price for the options is $1.00 per share.
(c) The options will vest immediately if this
Agreement is terminated without cause subsequent to the closing of an initial
public offering of equity interests in Employer or upon the sale of all of
substantially all of the assets of Employer or 50% or more of the equity
interests in Employer or if any third party obtains the right to control the
Management Committee of Employer (collectively, a "Transaction").
(d) The options will terminate upon the fifth
anniversary of the Commencement Date; provided, however, that (i) if Employee
resigns or his employment is terminated for cause, the options terminate 90 days
from the date of such resignation or termination (and all options which were not
vested prior to the date of such resignation or termination will be immediately
cancelled upon such resignation or termination), and (ii) if Employer terminates
Employee's employment without cause or Employee's employment with Employer does
not continue (for any reason other than cause) subsequent to the expiration of
this Agreement, the options terminate two (2) years from the date of such
termination or expiration (but in the case of termination without cause, 75% of
the options which were not vested prior to the date of such termination will
immediately vest on the date of such termination.)
(e) Employee may exercise up to 50% of the options
outstanding at any time (up to an aggregate maximum of 375,000 shares) by
converting such options into common stock of CDKnet.COM, Inc., upon notice of
the Company making specific reference to this Section 4. Any such conversion
shall be effective upon the giving of such notice by Employee. The number of
shares into which such options shall be converted shall equal the number of
options to be converted multiplied by a fraction, the numerator of which is the
difference between the market price of CDKnet.COM, Inc.'s common stock on the
date of conversion minus the exercise price of the options, and the denominator
of which shall equal the market price of CDKnet.COM, Inc.'s common stock on such
date.
(f) CDKnet.COM, Inc. hereby agrees to register the
CDKnet.COM, Inc. shares underlying 50% of the vested warrants held by Employee
pursuant to this Section 4.5 by March 1, 2000; and grants piggy-back
registration rights (pro rata with the other management of Employer and/or
CDKnet.com, Inc.) to Employee for the shares underlying the remaining vested
warrants, all on the terms and conditions of the Registration Rights Agreement
executed the date hereof.
4.6. Employer shall pay directly to an auto leasing company,
on behalf of and as directed by Employee, up to $700 per month, which allowance
will cover all and any expenses incurred by Employee in connection with his
automobile travel and usage for the Employer.
5. DUTIES.
Duties the term of Employee's employment hereunder, Employee
agrees to serve as the President of Employer and shall perform such duties and
services to Employer consistent
<PAGE>
with the position in which Employee is serving and its responsibilities as may
be determined from time to time by Employer (including without limitation a
right to hire and fire Employees). Employee shall report to the Management
Committee of Employer and to such other executive officers of Employer as the
committee shall determine from time to time. Employee agrees that in the
performance of Employee's duties hereunder Employee will act only in good faith
and in the best interest of Employer. Employee further agrees that Employer, in
its sole discretion, may change Employee's title to any other executive title
not inconsistent with the role of an executive vice president or chief operating
officer.
6. EXTENT OF SERVICES. During the period of his employment
hereunder, Employee shall serve Employer faithfully and to the best of his
ability and shall devote his best efforts and entire business time, attention,
energies and skill to the business and affairs of Employer, its parent
corporation and subsidiaries. Employee shall be expected to work during normal
business hours and, when necessary, on additional assignments and projects
consistent with his duties hereunder. Employer acknowledges that the foregoing
does not prohibit Employee's continued work on entities in which (i) Employee
presently has an equity interest, (ii) Employee presently devotes certain time
and attention, and (iii) no products, services or any other business sold,
bought or otherwise transacted by such entities, directly or indirectly are
competitive in any way with that of Employer provided that such continued work
does not interfere with the performance of his duties hereunder (not in
limitation of the generality of the foregoing, employee agrees that his
continued work on such interests will involve no more than five (5) hours per
work week). Schedule G lists the name and description of business of each such
entity.
7. SECRECY AND NONDISCLOSURE.
7.1. Without the prior written consent of Employer in each
instance, and in further consideration of the employment of Employee hereunder,
employee agrees to treat as secret and confidential all of the Trade Secrets (as
hereinafter defined) of Employer, and Employee agrees further not to disclose,
use, publish, or in any other manner reveal, directly or indirectly, at any time
during or after the term of this Agreement, any Trade Secret, except as may be
necessary to perform employee's services hereunder or except as required by law
in which case Employee shall provide Employer with written notice of such
requirements by law no less than five days prior to any such disclosure.
7.2. "Trade Secrets", as used in this Agreement, shall mean
any and all information regarding the business of Employer and any Subsidiary or
Affiliate (as hereinafter defined) of Employer, including, but not limited to,
information regarding operations, systems, technology, services, know-how,
supplier lists, customer lists, customer accounts, financial information,
costing data, and marketing plans, to the extent not generally known in the
computer software industry or not otherwise disclosed by Employer to the public.
7.3 "Affiliates", as used this Agreement, shall mean any
person, firm or entity that, directly or indirectly, is controlled by or is
under common control with Employer. In this definition, the term "control" shall
mean the ownership of 15% or more of the beneficial interest
<PAGE>
in the firm or entity referred to. "Subsidiary" shall mean wholly as well as
partly-owned subsidiaries.
8. COVENANTS.
8.1. NON-COMPETITION.
(a) Employee agrees that during Employee's employment with
Employer, and for the eighteen (18) months (nine (9) months if pursuant to
Section 2.2 (d) above) immediately after the Termination Date, Employee shall
not, directly or indirectly, for his own account or as an Employee, officer,
director, partner, joint venturer, shareholder, investor or otherwise, within
the United States of America, either engage in any phase of any business or
enterprise similar to that of Employer or in competition with Employer or
compete with Employer in any Technology (as defined in Section 8.4 below)
related business in which Employer may be engaged or which it is actively
developing or had developed as of the Termination Date; PROVIDED, HOWEVER, that
nothing in this Section 8.1 (a) shall be construed to prevent the employee from
making any investments in the securities of any business enterprise whether or
not engaged in competition with the employer or any of its Subsidiaries or
Affiliates, to the extent that such securities are actively traded on a national
securities exchange or the NASDAQ system in the United States or on any foreign
exchange and represent, at the time of acquisition, not more than three percent
(3%) of the aggregate equity of such business enterprise.
(b) Employee agrees that during the period of his employment
with Employer, Employee shall not, directly or indirectly, employ or solicit the
employment or engagement by himelf or others of any employees of Employer or of
any independent contractors or suppliers servicing Employer.
(c) Employee agrees that for a period of eighteen (18) months
immediately following the termination of his employment with Employer, Employee
shall not, directly or indirectly, employ or solicit the employment or
engagement by himself or others of any employees of Employer or of any
independent contractors or suppliers servicing Employer; PROVIDED, HOWEVER, that
this Section 8.1 (c) shall apply only with respect to such employment or
solicitation of employment in a business or venture related to the Technology
industry (as defined in Section 8.4 below).
(d) The existence of any claim or cause of action by Employee
against Employer shall not constitute a defense to the enforcement by Employer
of the covenants contained in this section, but such claim or cause of action
shall be litigated separately.
8.2. SOLICITATION OF CUSTOMERS OF EMPLOYER.
(a) Employee agrees that during the period of his employment
with Employer, Employee shall not, directly or indirectly, for himself, or as an
agent, Employee or consultant of another person, firm or corporation, knowingly
canvass or solicit business from any of Employer's customers.
<PAGE>
(b) Employee agrees that for a period of eighteen (18) months
immediately following his employment with Employer, Employee shall not, directly
or indirectly, for himself, or as agent, Employee or consultant of another
person, firm or corporation, knowingly canvass or solicit business from any of
Employer's customers; PROVIDED, HOWEVER, that this Section 8.2 (b) shall apply
only with respect to such canvassing or solicitation of business which business
involves the Technology industry.
8.3 INVENTIONS AND DISCOVERIES.
(a) Employee shall promptly and fully disclose to the
Employer, and with all necessary detail for a complete understanding of the
same, all developments, know-how, discoveries, inventions, improvement,
concepts, ideas, writings, formulae, processes and methods (whether
copyrightable, patentable or otherwise) made, received, conceived, acquired or
written by Employee (whether or not at the request or upon the suggestion of the
Employer) during the period of his employment with the Employer or any if its
subsidiaries, solely or jointly with others, in or relating to any activities of
the Employer or any of its subsidiaries (collectively the "Subject Matter").
(b) Employee hereby assigns and transfers, and agrees to
assign and transfer, to the Employer, all his rights, title and interest in and
to the Subject Matter, and further agrees to deliver to the Employer any and all
drawings, notes, software, code, specifications and data relating to the Subject
Matter. Employee shall assist the Employer in obtaining such copyrights or
patents during the term of this agreement, and to testify in any prosecution or
litigation involving any of the Subject Matter.
8.4. DEFINITIONS. For purposes of this Section 8, (i)
businesses or enterprises "similar to" or "in competition with" Employer shall
mean those engaged, in whole or in part, in the business of developing and
producing proprietary programming technologies for use in multiple industries
interested in the enhanced integration of sound, video and text, and/or one-
button push to an Internet site (the "CDK Technology") and/or the Game Player
and screen saver technology (the "Game Player Technology") and/or custom
compilation of video and audio content on a CD or DVD medium ("CD Live
Technology") (the CDK technology and Game Player technology and CD Live
Technology are collectively referred to as the "Technology"), and (ii) Employer
shall mean Employer and any subsidiaries and affiliates of Employer.
8.5. REASONABLENESS OF RESTRICTION. Employee acknowledges that
the restrictions specified under Section 8 hereof are reasonable, in view of the
nature of the business in which Employer is engaged and Employee's special and
unique skills, reputation and knowledge of Employer's operations. Employee
further acknowledges that his service, if used by a competitor, could cause
significant harm to Employer.
8.6. MODIFICATION OF RESTRICTIONS. Notwithstanding anything
contained in Section 8 to the contrary, if the restrictions specified under
Section 8 to the contrary, if the restrictions specified under Section 8 hereof
should be determined to be unreasonable in any judicial proceeding, then the
period of time and area of the restriction shall be reduced so that
<PAGE>
this agreement may be enforced in such area and during such period of time as
shall be determined to be reasonable.
9. CONSENT TO EQUITABLE RELIEF. Employee consents and agrees that if
Employee violates or threatens to violate any of the provisions contained in
Sections 7 or 8 of this Agreement, Employer shall, in addition to such other
remedies as it may have at law or shall, in addition to such other remedies as
it may have at law or in equity, be entitled to an injunction to be issued by a
court or arbitrator of competent jurisdiction restraining and prohibiting
Employee from committing or continuing any violation of such provisions. If the
scope of any restriction contained in this Agreement is too broad to permit
enforcement to its fullest extent, then such restriction shall be enforced to
the maximum extent permitted by law.
10. REPRESENTATIONS OF EMPLOYEE. Employee hereby represents and
warrants to Employer that he is not subject to any contract or restriction with
any person or entity that would be violated by his execution of this Agreement,
the performance of his obligations hereunder or the carrying out of his duties
hereunder.
11. NOTICE. For the purposes of this agreement, notices and all other
communications provided for in this agreement shall be in writing and shall be
deemed to have been duly given when delivered, two (2) business days after
delivery to a nationally recognized overnight courier service for next day
priority delivery or three (3) business day s after having been deposited in the
mails by United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Employee: Shai Bar Lavi
199 West Shore Road
Kingspoint, NY 11024
With a copy in
each case to: Frederick Smithline, Esq.
Epstein, Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
If to Employer: CDKnet, LLC
595 Stewart Avenue
Suite 710
Garden City, New York 11530
Att: Steven A. Horwitz, Esq.
<PAGE>
With a copy
in each case to: Horowitz, Mencher, Klosowski
& Nestler, P.C.
595 Stewart Avenue, Suite 710
Garden City, New York 11530
Att: Steven A. Horowitz, Esq.
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. WAIVER OF BREACH. The waiver by either party of a breach of
any provision hereof shall not operate or be construed to operate as a waiver by
such party of any subsequent breach by the other party of any provision hereof.
13. BENEFITS AND BURDENS. The rights and obligations of Employer
hereunder shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer. The rights of Employee hereunder shall inure to the
benefit of his heirs and his personal representatives.
14. ENTIRE AGREEMENT, MODIFICATION AND CONSTRUCTION.
14.1 This Agreement contains the entire Employment Agreement
between Employer and Employee, and supersedes and replaces any and all prior
agreements between the parties concerning the subject matter hereof.
14.2 The terms and conditions hereof may be change only by an
agreement in writing signed by Employer and Employee.
14.3 This Employment Agreement shall be governed by, construed
and enforced under the laws of the State of New York without giving effect to
the conflicts or choice of law provisions thereof.
15. SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. PARAGRAPH HEADINGS. The paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
<PAGE>
17. COUNTERPARTS. This agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
18. EMPLOYEE'S REVIEW OF THIS AGREEMENT. Employee acknowledges
that he had (i) carefully read this Agreement, (ii) had an opportunity to
consult with independent counsel with respect to this Agreement, and (iii)
entered into this Agreement of his own free will.
IN WITNESS WHEREOF, Employer and Employee have executed this Employment
Agreement as of August 1, 1999.
EMPLOYEE: EMPLOYER:
CDKNET, LLC
BY:
- ----------------------------- ---------------------------
SHAI BAR LAVI NAME:
------------------
TITLE:
------------------
THE UNDERSIGNED HEREBY GUARANTEES THE OBLIGATIONS OF CDKNET,
LLC SET FORTH ABOVE.
CDKNET.COM, INC.
By:
---------------------------
Name:
------------------
Title:
------------------
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
1. CDKnet, LLC, a limited liability company incorporated under the laws of
the State of New York.
2. Creative Technology, LLC, a limited liability company incorporated under
the laws of the State of New York.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 OCT-01-1997
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 231,347 0<F1>
<SECURITIES> 0 0<F1>
<RECEIVABLES> 19,000 0<F1>
<ALLOWANCES> 0 0<F1>
<INVENTORY> 0 0<F1>
<CURRENT-ASSETS> 271,854 0<F1>
<PP&E> 641,339 0<F1>
<DEPRECIATION> 152,286 0<F1>
<TOTAL-ASSETS> 7,559,897 0<F1>
<CURRENT-LIABILITIES> 829,051 0<F1>
<BONDS> 1,876,416 0<F1>
0 0<F1>
0 0<F1>
<COMMON> 1,405 0<F1>
<OTHER-SE> 4,853,025 0<F1>
<TOTAL-LIABILITY-AND-EQUITY> 7,559,897 0<F1>
<SALES> 474,344 616,137
<TOTAL-REVENUES> 474,344 616,137
<CGS> 288,762 415,769
<TOTAL-COSTS> 228,762 415,769
<OTHER-EXPENSES> 5,238,681 1,714,254
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,094,501 (461)
<INCOME-PRETAX> (6,147,600) (1,184,475)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,147,600) (1,184,475)
<EPS-BASIC> (.46) 0
<EPS-DILUTED> 0 0
<FN>
<F1>Balance Sheet not presented.
</FN>
</TABLE>
