<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1996.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ARISTO INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7273 11-2706304
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
152 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 586-2400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SHMUEL COHEN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARISTO INTERNATIONAL CORPORATION
152 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 586-2400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
HENRY I. ROTHMAN, ESQ. ROBERT H. WERBEL, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP WERBEL & CARNELUTTI
1211 AVENUE OF THE AMERICAS A PROFESSIONAL CORPORATION
NEW YORK, NEW YORK 10036 711 FIFTH AVENUE
TELEPHONE: (212) 704-6000 NEW YORK, NEW YORK 10022-3194
FACSIMILE: (212) 704-6288 TELEPHONE: (212) 832-8300
FACSIMILE: (212) 832-3353
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462 under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE FEE
- -------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per
share 2,300,000 shares(2) $9.125 $20,987,500 $6,359.85
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 300,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED OCTOBER 16, 1996
PROSPECTUS
LOGO
2,000,000 SHARES
ARISTO INTERNATIONAL CORPORATION
COMMON STOCK
All of the 2,000,000 shares of Common Stock, par value $.001 per share (the
"Common Stock"), offered hereby are being offered by Aristo International
Corporation ("Aristo" or the "Company"). The Common Stock is currently included
on the Nasdaq SmallCap Market under the symbol "ATSP." The Company has applied
for the listing of its Common Stock on the Nasdaq National Market. The last
reported sales price for the Common Stock on the Nasdaq SmallCap Market was
$9.125 per share. See "Price Range of Common Stock."
INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION WHICH
SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE
INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Per Share................. $ $ $
- ------------------------------------------------------------------------------------------------
Total(3).................. $ $ $
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to reimburse the Underwriters for all of their
itemized out-of-pocket expenses, up to $150,000, and to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses, estimated to be $ , payable by the
Company.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock on the same terms as set forth above, solely for the
purpose of covering over-allotments, if any. If such over-allotment option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
their right to reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates for the Common
Stock will be made at the offices of Allen & Company Incorporated, 711 Fifth
Avenue, New York, New York on or about , 1996.
ALLEN & COMPANY
INCORPORATED
The date of this Prospectus is , 1996
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
The Company has applied for registration of the following trademarks:
PlayNet Technologies(TM), PlayNet(TM), PlayNet Music(TM), TeamNet(TM),
TouchNet(TM) and Pay-per-Play(TM). This Prospectus also includes other product
names of the Company and trademarks, service marks and other product names of
other persons.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, all share and
per share data and information in this Prospectus relating to the number of
shares outstanding assume no exercise of the Underwriters' over-allotment option
to purchase 300,000 additional shares from the Company. See "Underwriting."
THE COMPANY
The Company designs and develops location-based, pay-per-play electronic
game and entertainment units and music juke boxes which are networked through
the Internet. The Company's products utilize the Internet to enhance traditional
video game products and juke boxes through innovations such as linking multiple
players in remote locations and offering competitive tournament prize play. The
Company intends to initially market these products to location-based venues such
as sports bars and "theme" restaurants. The Company plans to introduce three
products in the next six months: the PlayNet Music juke box and the TeamNet and
TouchNet electronic game systems.
The Company's products are designed to utilize the Internet as a
communications network and an entertainment medium in a social setting, allowing
users to play networked games, compete in local or national tournaments and
contests, browse the World Wide Web, participate in chat room discussions and
use credit cards to purchase merchandise. The Company's business reflects the
growing trend to connect people via computer networks and, as a result, to
create new forms of interactive entertainment in a social setting. According to
the Vending Times 1996 Census, total coin-drop revenue in the U.S. in 1995 for
all amusements was $6.3 billion, and the U.S. electronic pay per play video game
business (which excludes pinball and redemption machines) generated $2.0 billion
of that revenue.
The Company has designed an open, PC-based system architecture which blends
proprietary game development, secure communications protocol, and operations
software in a client/server environment. Communications take place over the
Internet utilizing standard Internet protocols. This integrated system allows
the Company to offer networked, location-based entertainment that can be
remotely updated with the latest games or entertainment content.
The Company's initial product line is expected to consist of the following
location-based entertainment systems:
PlayNet Music -- A juke box which will provide access to thousands of
music titles via an Internet connection to the Company's music database
servers, thereby providing significantly greater choices than a standard
juke box. In addition to providing the ability to select songs from an
extensive library, PlayNet Music will allow customers to purchase
merchandise from their favorite bands.
TouchNet -- A compact game system engineered to sit on a counter top
and accommodate 8 to 12 different games, including trivia, parlor, strategy
and action games. Touch Net allows users to choose which game to play and
then to choose whether to play against the computer or against other
players through an Internet connection. In addition to playing games and
participating in contests and prize events, customers can choose to browse
the Internet, use e-mail and participate in chat room discussions using
attached telephone handsets.
TeamNet -- An interactive system which allows two teams of up to four
players each to compete against each other in sports simulations and other
games. Both teams may be physically present in the same location, competing
on the same game system, or may be in separate locations competing through
an Internet connection. The TeamNet system has been specifically designed
to support tournament play.
The Company plans to distribute its location-based entertainment systems
through a well-established network of third-party national and local
distributors for resale to operators that install, operate and maintain the
products, primarily in hospitality locations, including restaurants, bars and
hotels, and secondarily in arcades and malls. Certain members of the Company's
management have long-standing relationships with many of the major distributors
in the United States and internationally. The Company anticipates that
tournament play and certain other revenues will be shared among the Company, the
distributor and the
3
<PAGE> 5
operator. The Company also intends to distribute its entire product line in
international markets through a variety of distribution arrangements. It is
contemplated that products will be localized for each territory as appropriate.
Aristo is currently in the process of acquiring the rights to the libraries
of various music publishers and record labels for use on its PlayNet Music
system. Concurrently, the Company is negotiating to enter into sponsorship and
advertising programs for its sports games, tournaments and prize contests with
high-profile consumer goods and beverage companies. The Company also intends to
establish various contractual arrangements, joint ventures and other mutually
advantageous programs with technology providers, equipment manufacturers,
distributors, major hospitality chains, consumer products companies,
music-related companies, content providers and others, to develop broader, more
efficient, more profitable and higher-profile products and services.
STRATEGY
The Company's primary strategic objective is to establish and rapidly grow
an installed customer base of its location-based Internet-enabled entertainment
units. The Company believes that its products and system architecture will
enable it to expand the variety of content and services available beyond that
which is available in existing products, as well as to increase the range of
locations at which such networked entertainment units can be profitably located.
The Company believes that the breadth of entertainment choices which its
products will deliver, coupled with a highly diverse range of public locations,
will extend the demographic universe of its potential users beyond that of
adolescent males who currently dominate the coin-operated video game market. The
Company's primary strategies can be summarized as follows:
Enhancement of the Location-Based Entertainment Experience -- The
Company intends to offer networked entertainment content with multi-player,
multi-location and tournament prize play which it believes will result in
significantly more compelling entertainment experiences than are possible
with existing stand-alone location-based, pay-per-play machines. Unlike
most competing entertainment systems, which are primarily based on
proprietary hardware platforms, the Company's entertainment units will
offer touch screen-operated access to a wide variety of video games
including parlor, trivia, strategy and action games and prize tournament
play. Additional features will include access to Internet content and
thousands of music titles, the ability to purchase general entertainment
and music-related merchandise, and ancillary features such as e-mail and
"real-time chat" with other users of the system.
Hospitality Focus and Penetration Beyond Traditional Locations -- The
Company intends to focus its efforts on the hospitality sector which,
according to the 1996 Vending Times Census of the Industry comprises 60% of
the location-based entertainment industry. This sector primarily includes
bars, restaurants and hotels and is distinguished from the remainder of the
industry, which is made up of specialized game arcades and locations such
as movie theaters. The Company believes that the greater variety of
entertainment content offered on its products could significantly expand
the number of potential locations in the hospitality sector and allow it to
enter non-traditional locations such as airports, railroad stations and
shopping malls. The Company intends to accelerate the distribution of its
products by forming strategic alliances with major hospitality companies,
both in the United States and internationally.
Expansion of Potential User Base -- The Company intends to offer a
range of entertainment products, including parlor, trivia, strategy and
action games, expected to appeal to a broader user base than existing
arcade offerings which are increasingly targeting the adolescent male
demographic segment. The Company will initially target hospitality
locations, especially bars and chain restaurants, for distribution of its
products. Networked and prize tournaments and promotions will be aimed at a
broad array of consumers who are interested in social interactive
entertainment and competitive tournament prize play. The Company believes
that its broad-based strategy will allow it to increase average revenue per
unit and the number of potential locations for its networked machines.
Product Innovation and Improvement -- The Company believes that its
flexible system architecture will allow it to update and continually
improve its game and entertainment offerings on a cost effective
4
<PAGE> 6
basis through remote downloads from central servers, based on customer
feedback and demand. The Company expects to be able to regularly update its
musical offerings on PlayNet Music based on the popularity of songs in each
location. The Company also expects to augment and improve its game content
and add new features on both TouchNet and TeamNet based on customer
feedback. Downloading will permit TouchNet games to be updated and new
games to be added to optimize choice at each unit. TeamNet sports offerings
will be changed based on sport seasons and game popularity. The Company
also intends to support usage through tournament prize offerings and
promotions.
Recurring Revenue Streams -- The Company believes that location-based
entertainment product manufacturers only receive revenue from the sale of
machines. The Company believes that it will be able to demonstrate that its
products will result in increased coin-drop from location-based
entertainment units and expects that it will be able to share in
incremental revenues, thus creating recurring revenue streams for the
Company. The Company intends to promote, arrange sponsorship for, and
organize national and local game tournaments with cash and other prizes.
The Company believes that the limited tournament features of certain
existing location-based entertainment units have demonstrated an increase
in machine usage and revenues, especially since such tournaments require
higher game fees.
Ancillary Revenue Opportunities -- Sponsorship and advertising revenue
will be generated from on-screen advertisements and tournaments. The
Company also expects to collect fees on merchandise sales made through its
Internet-enabled entertainment units. The Company plans to re-market data
collected from user polls, music selections and other similar usage to
content providers, advertisers and product and service vendors.
The Company's principal executive office is located at 152 West 57 Street,
New York, New York 10019-3310, and its telephone number is (212) 586-2400. The
Company is a Delaware corporation which is the surviving corporation of its
merger with a New York corporation (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview"). References herein
to the "Company" or "Aristo" are to the Company (including, for periods prior to
the merger, the predecessor New York corporation) and, unless the context
otherwise requires, its subsidiaries.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered......................... 2,000,000 shares
Common Stock to be outstanding after the
offering................................... 16,966,661 shares(1)
Use of Proceeds.............................. The Company intends to use the net proceeds of
this offering for system and product
development, capital expenditures, product
launches, software licensing and general
corporate purposes. See "Use of Proceeds."
Risk Factors................................. The shares offered hereby involve a high
degree of risk. See "Risk Factors."
Nasdaq SmallCap Market Symbol................ ATSP
Proposed Nasdaq National Market Symbol.......
</TABLE>
- ---------------
(1) Does not include (i) an aggregate of 500,000 shares of Common Stock reserved
for issuance pursuant to options available for grant under the Company's
1994 Stock Option Plan, of which options to purchase 395,000 shares have
been granted as of the date of this Prospectus; (ii) an aggregate of
1,000,000 shares of Common Stock reserved for issuance pursuant to options
available for grant under the Company's 1995 Stock Option Plan, of which
options to purchase 1,000,000 shares have been granted as of the date of
this Prospectus; (iii) an aggregate of 1,500,000 shares of Common Stock
reserved for issuance pursuant to options available for grant under the
Company's 1996 Stock Option Plan, of which options to purchase 1,425,067
shares have been granted as of the date of this Prospectus; (iv) 433,728
shares of Common Stock issuable in accordance with the terms of certain of
the Company's convertible promissory notes; (v) 60,000 shares of Common
Stock issuable upon exercise of certain options granted to certain lenders;
and (vi) 448,101 shares of Common Stock issuable upon exercise of the
Company's outstanding warrants.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial information has been derived
from and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
The summary consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein. The consolidated statements of operations
data set forth below with respect to the three years ended October 31, 1995 are
derived from the consolidated financial statements included elsewhere in this
Prospectus, which consolidated financial statements have been audited by Coopers
& Lybrand L.L.P. The data as of July 31, 1996 and for the nine month periods
ended July 31, 1995 and 1996 was derived from unaudited consolidated financial
statements that have been prepared on the same basis as the audited financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such period. The historical
results are not necessarily indicative of the results to be expected in the
future.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED OCTOBER 31, ENDED JULY 31,
------------------------------------------------------------------- --------------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
DATA:
Total Revenue.......... $ -- $ 33,333 $ 58,334 $ 16,005 $ 157,627 $ 4,749 $ 198,349
Total Operating
Expenses............. 1,462,158 1,487,728 1,659,837 2,188,605 4,281,956 2,246,438 7,499,101
Net Loss............... (1,478,158) (1,480,812) (1,636,310) (2,228,644) (4,116,457) (2,210,086 ) (7,429,529)
Net Loss per Share..... $ (0.29) $ (0.23) $ (0.21) $ (0.24) $ (0.40) $ (0.23 ) $ (0.55)
Weighted Average
Outstanding Common
Shares............... 5,122,222 6,450,298 7,723,767 9,244,593 10,388,926 9,714,981 13,554,091
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1996
----------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash......................................................................... $ 544,104 $ 6,104,749 $22,104,749
Working Capital (Deficit).................................................... (2,152,225) 3,728,420 19,728,420
Total Assets................................................................. 10,478,933 16,039,578 32,039,578
Total Liabilities............................................................ 5,685,191 5,365,191 5,365,191
Stockholders' Equity (Deficit)............................................... 4,793,742 10,924,337 26,924,337
</TABLE>
- ---------------
(1) Reflects on a pro forma basis as at July 31, 1996 the private placements of
1,256,400 shares of Common Stock, the repayment of a $450,000 promissory
note of the Company, the issuance of a $130,000 convertible promissory note
and the payment in Common Stock of $250,000 of compensation to a senior
executive. Assumes full conversion of shares of Astro-Stream Corporation
into shares of Common Stock.
(2) Also reflects on an as adjusted basis as at July 31, 1996 the sale of the
2,000,000 shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom.
7
<PAGE> 9
RISK FACTORS
The shares offered hereby involve a high degree of risk. Each prospective
investor should carefully consider, among other things, the following risk
factors in addition to the other information presented in this Prospectus before
making an investment decision. Certain statements contained under "Management's
Discussion and Analysis of Financial Condition and Results of Operations," such
as those concerning the adequacy of cash flows to fund future operations, and
under "Business," such as statements concerning the development and introduction
of new products and related customer support services, proposed marketing and
distribution channels and manufacturing arrangements, and elsewhere in this
Prospectus regarding matters that are not historical facts are forward-looking
statements (as such term is defined in the rules promulgated pursuant to the
Securities Act of 1933, as amended (the "Securities Act")). Because such
forward-looking statements include risks and uncertainties, actual results may
differ materially from those expressed in or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those herein under "Risk Factors." The Company
undertakes no obligation to release publicly the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
History of Net Losses; Accumulated Deficit. The Company is a development
stage company which has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. Since its inception,
the Company has been engaged primarily in product development. As the Company's
networked entertainment products are still being developed and have not yet been
marketed by the Company, no significant revenues have been generated by the
Company. The Company has incurred net losses since inception and, as of July 31,
1996, the Company had an accumulated deficit of $19,185,119. In fact, existing
revenues are attributable solely to services and products other than the
networked entertainment products currently focused upon by the Company. The
Company expects that its initial three networked entertainment products will be
commercially available within the next six months. In the transition from the
development stage to the manufacturing stage, the Company's losses are expected
to increase as a result of expenditures required to commence product
manufacturing and increased levels of spending on marketing and sales. In
addition, as a new business in an emerging industry, the Company may encounter
unforseen difficulties, some of which may be beyond the Company's ability to
control, related to marketing, product development, manufacturing, regulation
and proprietary technology. There can be no assurance, therefore, that the
Company will be able to manufacture and market its networked entertainment
products or any other product successfully or achieve or sustain profitability
in the near future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
New Business Focus. The Company's future financial performance will depend
in large part upon the successful development, introduction and customer
acceptance of its networked entertainment products. There can be no assurance
that the Company will be successful in attracting and retaining new customers
for such entertainment products. The Company's prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their development stage, particularly companies in new and rapidly
evolving markets. To address these risks, the Company must, among other things,
respond to competitive developments, continue to attract, retain and motivate
qualified persons, and continue to upgrade its technologies and commercialize
products and services incorporating such technologies. There can be no assurance
that the Company will be successful in addressing such risks. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Developing Market; New Entrants; Unproven Acceptance of the Company's
Products and Revenue Model; Uncertain Adoption of Internet as a Medium of
Commerce and Communications. The market for the Company's entertainment
hardware, software and services has not yet been tested, is rapidly evolving and
may see an increasing number of market entrants. As is typical in the case of a
new and rapidly evolving industry, demand and market acceptance for recently
introduced products and services are subject to a high level of uncertainty.
Critical issues concerning the commercial use of the Internet (including
security, reliability, cost, ease of use and access, and quality of service)
remain unresolved and may impact the growth of Internet use. While the Company
believes that its entertainment units offer significant advantages for
networked, location-based, pay-per-play entertainment using the Internet, there
can be no assurance that entertainment over the
8
<PAGE> 10
Internet will become widespread, or that the Company's entertainment units will
become widely adopted for these purposes.
Because the market for the Company's products and services is new and
evolving, it is difficult to predict the future growth rate, if any, and size of
this market. There can be no assurance that the market for the Company's
products and services will develop, that the Company's products or services will
be adopted by targeted hospitality and other public venues, or that individual
personal computer users at home will use the Internet for entertainment,
commerce and communication. In addition, there can be no assurance that the
Company's proposed revenue sharing model, which is an innovation in the
industry, will be accepted. If the market fails to develop, develops more slowly
than expected or becomes saturated with competitors, or if the Company's
products do not achieve market acceptance, the Company's business, operating
results and financial condition will be materially adversely affected. See
"Business."
New Product Development and Technological Change. The Company's future
revenues are expected to be derived from the sale of location-based
entertainment hardware and the provision of network services, including
tournaments, competitions and networked game software. Accordingly, broad
acceptance of the Company's products and services by customers is critical to
the Company's future success, as is the Company's ability to design, develop,
test and support new products and enhancements on a timely basis that meet
changing customer needs and respond to technological developments and emerging
industry standards. In addition, there can be no assurance that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products and enhancements, or
that its new products and enhancements will adequately meet the requirements of
the marketplace and achieve market acceptance. The Company will be substantially
dependent in the near future upon its server and integrated applications
software products that are still being developed. In particular, the Company has
not yet commercially released the Aristo location-based products. There can be
no assurance that errors will not be found in the Company's products, or, if
discovered, successfully corrected in a timely manner. If the Company is unable
to develop on a timely basis new entertainment products, enhancements to
existing products or make error corrections, or if such new products or
enhancements do not achieve market acceptance, the Company's business, operating
results and financial condition will be materially adversely affected. See
"Business."
Evolving Distribution Channels. The Company's distribution strategies
include the traditional location-based game distribution channels. There can be
no assurance that this community will enthusiastically embrace the Company's
products. There can be no assurance that the Company will be able to attract or
retain distributors or that these distributors will be able to market the
Company's products effectively and will be qualified to provide timely and
cost-effective customer support and service, or that the Company will be able to
manage conflicts among its distributors. In addition, the Company's agreements
with distributors typically do not restrict them from distributing competing
products, and in many cases may be terminated by either party without cause.
Further, in some cases the Company intends to grant exclusive distribution
rights that are limited by territory and in duration. Consequently, the Company
may be adversely affected should any distributor fail to adequately penetrate
its market segment. The inability to recruit, manage or retain important
distributors, or their inability to penetrate their respective market segments,
could materially adversely affect the Company's business, operating results and
financial condition. See "Business."
The Company anticipates that it will distribute its consumer networked game
software and other electronic content over the Internet. Distributing the
Company's products over the Internet may make the Company's software more
susceptible than other software to unauthorized copying and use. If, as a result
of changing legal interpretations of liability for unauthorized use of the
Company's software or otherwise, users were to become less sensitive to avoiding
copyright infringement, the Company's business, operating results and financial
condition would be materially adversely affected.
Competition. The markets served by the Company are extremely competitive.
The Company expects competition to persist, intensify and increase in the
future. Because there are no substantial barriers to entry, an influx of new
market entrants is expected to continue in response to the growing demand for
digital entertainment, information and data communication technology products
and services. Many of the Com-
9
<PAGE> 11
pany's current and potential competitors enjoy a greater market presence and
possess substantially greater technical, financial and marketing resources than
the Company.
The market for Internet-enabled, location-based entertainment products is
new, and subject to rapid technological change. The Company expects competition
to intensify and increase in the future. Almost all of the Company's potential
competitors have longer operating histories, greater name recognition, larger
installed customer bases and significantly greater financial, technical and
marketing resources than the Company. Such competition could materially
adversely affect the Company's business, operating results or financial
condition. The Company is aware that other attempts are being undertaken to
develop networked juke boxes and Internet-enabled products for the
location-based entertainment marketplace. The Company believes that it competes
for discretionary spending in the overall entertainment business which includes
(i) home-based entertainment, such as television and home video, pre-recorded
music, books and magazines, and personal computer and console based
entertainment, and (ii) location-based entertainment, such as live events,
theatrical exhibitions, video games, billiards, pinball machines and movies.
Increased competition could result in significant price competition, which
in turn could result in significant reductions in the average selling price of
the Company's products. In addition, competition could result in increased
selling and marketing expenses, which could adversely affect the Company's
profitability. There can be no assurance that the Company will be able to offset
the effects of any such price reductions through an increase in the sales of its
entertainment units, higher revenue from enhanced services, cost reductions or
otherwise. Increased competition, price or otherwise, could result in erosion of
the Company's market share and adversely affect the Company's operating results.
There can be no assurance that the Company will have the financial resources,
technical expertise or marketing and support capabilities to continue to compete
successfully in the media market. See "Business -- Competition."
Dependence Upon Suppliers, Manufacturers, Licensors and Third-Party
Financing Sources; Limited Sources of Supply; Dependence Upon Network
Infrastructure. The Company relies on other companies to supply certain key
components of its network infrastructure, including telecommunications services
and networking equipment, which, in the quantities and quality demanded by the
Company, are available only from sole or limited sources. The Company is also
dependent upon local exchange carriers ("LECs") to provide telecommunications
services to, and Internet service providers ("ISPs") to provide Internet
connection for, the Company and its customers. There can be no assurance that
the Company will be able to obtain such services on the scale and within the
time frames required by the Company at an acceptable cost or at all. Any failure
to obtain such services on a timely basis at an acceptable cost would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is also dependent on its suppliers' ability to provide
necessary products and components that comply with various Internet and
telecommunications standards and that operate with products and components from
other vendors. Any failure of the Company's sole or limited source suppliers to
provide products or components that comply with Internet standards or that are
compatible with other products or components used by the Company in its network
infrastructure could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company currently outsources the manufacturing of a significant portion
of its hardware for sale. See "Business." Any failure or delay by manufacturers
to deliver such hardware, or any defect in, or non-conforming production of,
such hardware would disrupt the Company's operations.
Management of Growth; Dependence on Key Personnel. The Company is
currently experiencing rapid growth that could strain the Company's managerial
and other resources. From July 31, 1995 through September 30, 1996, the number
of the Company's full-time employees increased from 22 to 70, and further
significant increases are anticipated during the balance of 1996. Many of the
key employees have worked together only for a short time. The Company's ability
to manage its growth effectively will require it to continue to improve its
operational, financial and other internal systems, and to train, motivate,
manage and retain its current employees and attract equivalent new employees.
Competition for highly qualified personnel is intense. If the Company's
management is unable to manage growth effectively and employees are unable to
achieve anticipated performance levels, the Company's results of operations
could be adversely affected.
10
<PAGE> 12
Additionally, the Company depends on the services of certain of its key
employees, including Shmuel Cohen, Paul C. Meyer, Glenn P. Sblendorio, Nolan K.
Bushnell, Patrick O. Nunally and William R. Cravens, and the loss of any such
services could have a material adverse effect on the Company. See "Management."
Risk of System Failure; Security Risks. The Company's operations are
dependent upon its ability, and the ability of its suppliers, to protect its
network infrastructure against damage from fire, earthquakes, power loss,
telecommunications failures and similar events. Despite precautions taken by the
Company and the industry in general, the occurrence of a natural disaster or
other unanticipated problems at the Company's network operations center or nodes
in the future could cause interruptions in the services furnished by the
Company. In addition, failure of the Company's telecommunications and Internet
service providers to supply the data communications capacity required by the
Company as a result of a natural disaster, operational disruption or for any
other reason could cause interruptions in the services provided by the Company.
Any damage or failure that causes interruptions in the Company's operations
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Despite the implementation of security measures, the core of the Company's
network infrastructure is vulnerable to computer viruses and disruptive
problems. Internet access providers have in the past experienced, and may in the
future experience, interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
Unauthorized use could also potentially jeopardize the security of confidential
information stored in the Company's computer systems, which may result in
liability of the Company to its customers. Although the Company intends to
continue to implement industry-standard security measures, such measures have
been circumvented in the past, and there can be no assurance that measures
implemented by the Company will not be circumvented in the future. Eliminating
computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service to the Company's customers which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's success will depend upon the capacity, reliability and
security of its network infrastructure. The Company must continue to expand and
adapt its network infrastructure as the number of users and the amount of
information they wish to transfer increases, and to meet changing customer
requirements. The expansion and adaptation of the Company's network
infrastructure will require substantial financial, operational and management
resources. There can be no assurance that the Company will be able to expand or
adapt its network infrastructure to meet additional demand or its customers'
changing requirements on a timely basis, at a commercially reasonable cost, or
at all. Any failure of the Company to expand its network infrastructure on a
timely basis or adapt it either to changing customer requirements or to evolving
industry standards could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company is aware
that significant delays exist for the installation of integrated services
digital network ("ISDN") lines in certain parts of the United States and that
such service is not available in all areas.
A significant barrier to the widespread acceptance of Internet commerce is
uncertainty over the secure exchange of value over public networks. The Company
relies on encryption and authentication technology necessary to provide the
security to effectuate the secure exchange of value, including credit card
transactions. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other events or developments
will not result in a compromise or breach of the algorithms used by the Company
to protect customer transaction data. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
Governmental Regulation. In the United States and many other countries,
games of chance must be expressly authorized by law. Once authorized, such games
are subject to extensive and evolving domestic and foreign governmental
regulation, including federal, state and local regulation. There can be no
assurance that the operation of all of the Company's games, including prize
tournament games, will be approved by all of the jurisdictions in which the
Company intends to market and operate its game and prize tournament game
products or that those jurisdictions in which these games and prize tournament
game products are currently permitted will continue to permit such activities.
In addition, future government regulation could be
11
<PAGE> 13
burdensome to the Company, its personnel and its stockholders. Moreover,
material increases in taxes or fees on the games' operations could adversely
affect the Company.
The Company is not currently subject to direct regulation by the Federal
Communications Commission or any other agency, other than regulations applicable
to businesses generally. Changes in the regulatory environment relating to the
Internet access industry, including regulatory changes which directly or
indirectly affect telecommunication costs or the likelihood or scope of
competition, could have a material adverse effect on the Company's business,
financial condition and results of operations. Due to the increase in Internet
use and publicity, it is possible that laws and regulations may be adopted with
respect to the Internet, including privacy, pricing and characteristics of
products or services. The Company cannot predict the impact, if any, that future
laws and regulations or legal or regulatory changes may have on its business.
The law relating to the liability of on-line services companies and ISPs
for information carried on or disseminated through their systems is currently
unsettled. Several private lawsuits seeking to impose such liability upon
on-line services companies and ISPs are currently pending. In addition,
legislation has been proposed which would impose liability for or prohibit the
transmission on the Internet of certain types of information and content. The
imposition upon the Company or ISPs of potential liability for information
carried on or disseminated through their systems could require the Company to
implement measures to reduce its exposure to such liability, which may require
the expenditure of substantial resources, or to discontinue certain product
features. The increased attention focused upon liability issues as a result of
these lawsuits and legislative proposals could impact the growth of Internet
use. While the Company maintains certain insurance, such insurance may not be
adequate to compensate the Company in the event the Company becomes liable for
information carried on or disseminated through its systems. Any costs not
covered by insurance incurred as a result of such liability or asserted
liability could have a material adverse effect on the Company's business,
financial condition and results of operations.
Fluctuations in Quarterly Results. As a result of the Company's limited
operating history, the Company does not have historical financial data for a
significant number of periods on which to base planned operating expenses. The
Company's expense levels are based in part on its expectations as to future
revenues and are expected to increase. Quarterly sales and operating results
generally depend on the volume and timing of, and ability to fulfill, orders
received within the quarter, which are difficult to forecast. The Company may be
unable to adjust spending in a timely manner to compensate for any unexpected
revenues shortfall. Accordingly, any significant shortfall of demand for the
Company's products and services in relation to the Company's expectations would
have an immediate adverse impact on the Company's business, operating results
and financial condition. In addition, the Company plans to increase its
operating expenses to fund greater levels of research and development, increase
its sales and marketing operations, develop new distribution channels and
broaden its customer support capabilities. To the extent that such expenses
precede, or are not subsequently followed by, increased revenues, the Company's
business, operating results and financial condition will be materially adversely
affected.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including demand
for the Company's products, introduction or enhancement of products by the
Company and its competitors, market acceptance of new products, mix of
distribution channels through which products are sold, mix of products and
services sold, mix of international and North American revenues, and general
economic conditions. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any indication of future performance. Due to all of
the foregoing factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence on Proceeds to Complete Development of Products; Uncertainty of
Additional Financing. The Company is dependent on and intends to use the
proceeds of this offering to complete the development of its networked
entertainment products. The Company anticipates, based on currently proposed
plans and assumptions relating to its operations (including the costs associated
with, and the timetable for, development
12
<PAGE> 14
of the networked entertainment products), that the proceeds of this offering,
together with projected cash flow from operations, will be sufficient to satisfy
its contemplated cash requirements for at least twelve months following the
consummation of this offering. In the event that the Company's plans change, its
assumptions change or prove to be inaccurate or if the proceeds of this offering
or expected cash flow prove to be insufficient, the Company may be required to
seek additional financing. There can be no assurance that the proceeds of this
offering will be sufficient to permit the Company to complete the development
and launch of its networked entertainment products and to achieve the expected
growth of the Company. The Company may need to raise additional funds through
public or private debt or equity financings in order to take advantage of
unanticipated opportunities, including more rapid international expansion or
acquisitions of complementary businesses or technologies, or to develop new
products or otherwise respond to unanticipated competitive pressures. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the current stockholders of the Company may be reduced
and such equity securities may have rights, preferences or privileges senior to
those of the holders of the Company's Common Stock. 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 products or otherwise respond to unanticipated
competitive pressures. Such inability could have a material adverse effect on
the Company's business, financial condition and results of operations.
Possible Future Payments to Third Parties; Uncertain Protection of
Intellectual Property. The Company's success and ability to compete is
dependent in part upon its proprietary technology. While the Company relies on
patent, trademark, trade secret and copyright law to protect its technology, the
Company believes that factors such as the technological and creative skills of
its personnel, new product developments, frequent product enhancements, name
recognition and reliable product maintenance are more essential to establishing
and maintaining a technology leadership position. The Company presently has no
patents or pending patent applications relating to its location-based
entertainment business. There can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology. The
source code for the Company's proprietary software is protected both as a trade
secret and as a copyrighted work. The Company generally enters into
confidentiality or license agreements with its employees, consultants and
vendors, and generally controls access to and distribution of its software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's proprietary or licensed content, products or technology without
authorization, or to develop similar technology independently. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries, and the global nature of the Internet makes it
virtually impossible to control the ultimate destination of the Company's
products. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology or that such agreements will be enforceable. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company also relies on certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability to maintain any of these technology licenses could result in delays or
reductions in product shipments which could materially adversely affect the
Company's business, operating results and financial condition.
Risks Associated with International Expansion. A long-term component of
the Company's strategy is its planned expansion into international markets. To
date, the Company has no experience in developing localized versions of its
products and marketing and distributing its products internationally. There can
be no
13
<PAGE> 15
assurance that the Company will be able to successfully market, sell and deliver
its products in these markets. In addition to the uncertainty as to the
Company's ability to expand its international presence, there are certain risks
inherent in doing business on an international level which could adversely
impact the success of the Company's international operations. These risks
include changes in regulatory requirements, export restrictions, export controls
relating to encryption technology, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates, seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world and potentially
adverse tax consequences. In some cases, the prohibitive costs of telephones,
telephone lines, high speed links and Internet access may exclude whole
countries. There can be no assurance that one or more of such factors will not
have a material adverse effect on the Company's future international operations
and, consequently, on the Company's business, operating results and financial
condition. See "Business."
Concentration of Stock Ownership. Upon completion of this offering, the
present directors, executive officers and their respective affiliates will
beneficially own approximately 26.93% of the outstanding Common Stock assuming
no exercise of the Underwriters' over-allotment option and 26.47% of the
outstanding Common Stock assuming full exercise of the Underwriters'
over-allotment option. As a result, these stockholders will be able to exercise
significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
Such concentration of ownership may also have the effect of delaying or
preventing a change in control of the Company. See "Principal Stockholders."
Possible Volatility of Stock Price. Prior to this offering, there has been
a limited public market for the Company's Common Stock, and there can be no
assurance that an active public market for the Common Stock will develop or be
sustained after the offering. The market price of the Company's Common Stock is
likely to be highly volatile and could be subject to wide fluctuations in
response to quarterly variations in operating results, announcements of
technological innovations or new products by the Company or its competitors,
changes in financial estimates by securities analysts, or other events or
factors. In addition, the stock market has experienced significant price and
volume fluctuations that have particularly affected the market prices of equity
securities of many technology and entertainment companies and that often have
been unrelated to the operating performance of such companies. In the past,
following periods of volatility in the market price of a company's securities,
class action litigation has often been instituted against such a company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business, operating results and financial condition. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. See "Underwriting."
Shares Eligible for Future Sale. Sales of a substantial number of shares
of Common Stock in the public market following this offering could adversely
affect the market price for the Common Stock and could impair the Company's
future ability to raise additional capital through an offering of its equity
securities. See "Description of Capital Stock" and "Shares Eligible for Future
Sale."
Immediate, Substantial Dilution. Purchasers of shares of Common Stock in
this offering will incur immediate and substantial dilution in net tangible book
value per share. Additional dilution may occur upon exercise of outstanding
stock options or warrants or the conversion of certain of the Company's
convertible promissory notes, or in connection with possible future financings
to meet the Company's future capital requirements.
No Dividends. The Company has never paid dividends on its Common Stock and
does not anticipate paying dividends on its Common Stock in the foreseeable
future. The Company plans to retain any earnings to finance the development and
expansion of its business. See "Dividend Policy."
Anti-Takeover Effects of Preferred Stock. The Company's Restated
Certificate of Incorporation authorizes the issuance of "blank check" Preferred
Stock with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board is empowered,
without stockholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other
14
<PAGE> 16
rights which could adversely affect the relative voting power or other rights of
the holders of the Company's Common Stock. In the event of issuance, the
Preferred Stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of Preferred
Stock, there can be no assurance that the Company will not do so in the future.
If the Company issues shares of Preferred Stock, the issuance may have a
dilutive effect upon the holders of the Company's Common Stock, including the
purchasers of the shares being offered hereby. See "Description of Capital
Stock."
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby (after deducting underwriting discounts and
commissions and estimated expenses of the offering) are estimated to be
$16,000,000 ($18,524,500 if the Underwriters' over-allotment option is exercised
in full). The Company anticipates that it will use such net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DOLLAR
APPLICATION OF PROCEEDS AMOUNT
---------------------------------------------------------------- -----------
<S> <C>
Networking, Hardware and Software Systems and
Product Development(1)........................................ $ 7,000,000
Capital Expenditures(2)......................................... 2,000,000
Content/Software Licensing(3)................................... 2,000,000
Product Launches(4)............................................. 1,000,000
General Corporate Purposes...................................... 4,000,000
-----------
$16,000,000
===========
</TABLE>
- ---------------
(1) Represents anticipated costs associated with the continued refinement and
completion of the Company's location-based games and entertainment products,
including software development, final product engineering and networking
systems integration. See "Business -- Location-based Entertainment."
(2) Represents anticipated required capital expenditures, including the purchase
of computer hardware such as network servers, computer terminals, rendering
and scanning machines, all associated licensed development software and
software tools and, in addition, all testing and prototype equipment. See
"Business -- Research and Development."
(3) Represents costs associated with licensed content and game software.
(4) Represents anticipated costs associated with the introduction and promotion
of new products, including public events, print and electronic advertising,
public relations campaigns, as well as training programs provided for
location-based product distributors and operators. See "Business -- Sales
and Marketing."
The Company may, but has no firm intent to, elect to use up to $250,000 of
the net proceeds to reduce the uncollateralized outstanding borrowings under its
existing revolving credit facility with The Merchants Bank of New York. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company believes that the net proceeds from this offering, together
with available funds and cash flows expected to be generated by operations, will
be sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. In the event that the
Company's plans change, its assumptions change or prove to be inaccurate or if
the proceeds of this offering or cash flow prove to be insufficient to fund
operations, the Company may find it necessary or desirable to reallocate a
portion of the proceeds within the above described categories, seek additional
financing or curtail its activities. 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 products or otherwise respond to unanticipated competitive
pressures. Such inability could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Dependence on Proceeds to Complete Development of Products;
Uncertainty of Additional Financing" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Pending utilization, the Company intends to invest the net proceeds of this
offering in short-term bank certificates of deposit, interest bearing savings
accounts, United States government obligations or other short-term interest
bearing investments.
16
<PAGE> 18
PRICE RANGE OF COMMON STOCK
The Company's Common Stock commenced trading on October 4, 1995 on the
Nasdaq SmallCap Market under the symbol ATSP. Prior to October 4, 1995, the
Company's shares were quoted in the so called "pink sheets" in the
over-the-counter market, and a market price for the shares could not be
identified. The following table sets forth for the periods indicated the high
and low sales prices for the Common Stock as reported on the Nasdaq SmallCap
Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1995
Fourth Quarter (from October 4, 1995).................... $10 1/2 $ 7
Fiscal 1996
First Quarter............................................ 9 1/4 6 3/4
Second Quarter........................................... 11 3/4 6 3/4
Third Quarter............................................ 11 4
Fourth Quarter (through October 15, 1996)................ 10 6 3/4
</TABLE>
On October 15, 1996, the last reported sales price of the Common Stock on
the Nasdaq SmallCap Market was $9 1/8 per share. On October 1, 1996, there were
802 holders of record and the Company believes its Common Stock is beneficially
owned by approximately 1,357 holders.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
anticipate paying dividends on its Common Stock in the foreseeable future. The
Company plans to retain any earnings to finance the development and expansion of
its business.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
July 31, 1996, and reflects, on a pro forma basis as at July 31, 1996, the
private placements of 1,256,400 shares of Common Stock at prices between $5.00
and $5.50 per share and, on an as adjusted basis, the sale of 2,000,000 shares
of Common Stock offered hereby and the application of the estimated net proceeds
therefrom.
<TABLE>
<CAPTION>
JULY 31, 1996 JULY 31, 1996
PRO FORMA AS ADJUSTED
JULY 31, 1996 ------------- -------------
ACTUAL (UNAUDITED) (UNAUDITED)
-------------
(UNAUDITED)
<S> <C> <C> <C>
Convertible term loans -- stockholder.......... $ 1,976,500 $ 1,656,500(1) $ 1,656,500(1)
---------- ----------- -----------
Capital leases-long term....................... 164,233 164,233 164,233
---------- ----------- -----------
Stockholders' equity:
Common Stock -- $.001 par value,
authorized -- 40,000,000 shares; issued
and outstanding 13,632,044 shares; pro
forma 14,966,661 shares (2); as adjusted
16,966,661 shares
(3)(4).................................... 13,632 14,967(2) 16,967(3)
Additional paid-in capital..................... 23,965,229 30,094,489(2) 46,092,489(3)
Deficit accumulated during the development
stage........................................ (19,185,119) (19,185,119) (19,185,119)
---------- ----------- -----------
Total stockholders' equity..................... 4,793,742 10,924,337 26,924,337
---------- ----------- -----------
Total capitalization........................... $ 6,934,475 $ 12,745,070 $ 28,745,070
========== =========== ===========
</TABLE>
- ---------------
(1) Reflects the repayment of a $450,000 promissory note of the Company and the
issuance of a $130,000 convertible promissory note.
(2) Reflects the issuance of 1,256,400 shares of Common Stock in connection with
private placements netting $5,880,645 in cash proceeds and the payment in
Common Stock of $250,000 of compensation to a senior executive. Assumes full
conversion of shares of Astro-Stream Corporation into shares of Common
Stock.
(3) Reflects the issuance of the shares in Note (2) above and the net proceeds
of $16,000,000 from the issuance of the 2,000,000 shares of stock being
registered herein.
(4) Does not include (i) an aggregate of 500,000 shares of Common Stock reserved
for issuance pursuant to options available for grant under the Company's
1994 Stock Option Plan, of which options to purchase 395,000 shares have
been granted as of the date of this Prospectus; (ii) an aggregate of
1,000,000 shares of Common Stock reserved for issuance pursuant to options
available for grant under the Company's 1995 Stock Option Plan, of which
options to purchase 1,000,000 shares have been granted as of the date of
this Prospectus; (iii) an aggregate of 1,500,000 shares of Common Stock
reserved for issuance pursuant to options available for grant under the
Company's 1996 Stock Option Plan, of which 1,425,067 options to purchase
shares have been granted as of the date of this Prospectus; (iv) 433,728
shares of Common Stock issuable in accordance with the terms of certain of
the Company's convertible promissory notes; (v) 60,000 shares of Common
Stock issuable upon exercise of the Company's certain options granted to
certain lenders; and (vi) 448,101 shares of Common Stock issuable upon the
exercise of the Company's outstanding warrants. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management -- Executive Compensation" and "-- Stock Option
Plans," "Certain Transactions," "Underwriting" and Note 9 of Notes to
Consolidated Financial Statements.
18
<PAGE> 20
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data set forth below should
be read in conjunction with the Consolidated Financial Statements and the Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein. The consolidated statements of
operations data set forth below with respect to the three years ended October
31, 1995, and the consolidated balance sheet data at October 31, 1994 and 1995,
are derived from the consolidated financial statements included elsewhere in
this Prospectus, which consolidated financial statements have been audited by
Coopers & Lybrand L.L.P. The consolidated balance sheet data as of October 31,
1991, 1992 and 1993 have been derived from audited financial statements not
included in this Prospectus. The data as of July 31, 1995 and 1996 and for the
nine month periods ended July 31, 1995 and 1996 and the period from inception to
July 31, 1996 was derived from unaudited consolidated financial statements that
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such period. The historical results are not necessarily
indicative of the results to be expected in the future.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
CUMULATIVE
NINE MONTHS ENDED SINCE JUNE 4,
YEARS ENDED OCTOBER 31, JULY 31, 1990 (INCEPTION)
------------------------------------------------------------------- ------------------------- TO JULY 31,
1991 1992 1993 1994 1995 1995 1996 1996(1)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Royalty
revenue..... $ -- $ 33,333 $ 58,334 $ 16,005 $ 9,327 $ 4,749 $ 6,002 $ 123,001
Production
revenue..... -- -- -- -- 148,300 -- 192,347 340,647
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
Total
revenue... -- 33,333 58,334 16,005 157,627 4,749 198,349 463,648
Selling,
general and
administrative
expenses.... (723,171) (1,336,225) (1,577,812) (2,141,400) (3,678,823) (2,246,117) (4,718,082) (14,175,513)
Research and
development
expenses.... (738,987) (151,503) (82,025) (47,205) (603,133) (321) (2,781,019) (4,403,872)
Interest
expense..... (16,000) (29,000) (41,383) (46,525) (101,237) (59,029) (167,738) (401,883)
Interest and
other
income...... 2,583 6,576 (9,519) 109,109 90,632 38,961 147,710
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
Net
loss.... (1,478,158) (1,480,812) (1,636,310) (2,228,644) (4,116,457) (2,210,086) (7,429,529) (18,369,910)
Dividends on
Preferred
Stock....... -- -- -- -- (4,585) -- (15,219) (19,804)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
Net loss
applicable
to
common
stockholders... $(1,478,158) $(1,480,812) $(1,636,310) $(2,228,644) $(4,121,042) $(2,210,086) $(7,444,748) $(18,389,714)
=========== =========== =========== =========== =========== =========== =========== ============
Weighted
average
number of
common
shares
outstanding... 5,122,222 6,450,298 7,723,767 9,244,593 10,388,926 9,714,981 13,554,091
=========== =========== =========== =========== =========== =========== ===========
Net loss per
share....... $ (0.29) $ (0.23) $ (0.21) $ (0.24) $ (0.40) $ (0.23) $ (0.55)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
- ---------------
(1) See Note 1(b) of Notes to Consolidated Financial Statements.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
------------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash.......... $ 44,018 $ 295,501 $ 691,284 $ 502,993 $ 540,297 $ 183,146 $ 544,104
Working
capital
(deficit)... (420,106) (188,906) (438,031) 248,074 (746,812) (614,156) (2,152,225)
Total
assets...... 131,254 520,948 1,193,566 1,339,598 11,048,329 10,819,352 10,478,933
Total
liabilities... 489,122 634,628 1,613,556 1,876,168 2,750,458 2,313,504 5,685,191
Stockholders'
equity
(deficit)... (357,868) (113,680) (419,990) (536,570) 8,297,871 8,505,848 4,793,742
</TABLE>
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Summary
Consolidated Financial data, the Consolidated Financial Statements and the Notes
thereto, along with the other financial information appearing elsewhere in this
Prospectus.
OVERVIEW
The Company designs and develops location-based, pay-per-play electronic
game and entertainment units and music juke boxes which are networked through
the Internet. The Company's products utilize the Internet to enhance traditional
video game products and juke boxes through innovations such as linking multiple
players in remote locations and offering cash-prize tournament play.
The Company intends to initially target location-based venues such as
sports bars and "theme" restaurants. The Company plans to introduce three
products in the next six months: the PlayNet Music juke box and the TeamNet and
TouchNet electronic game systems.
The Company's products are designed to utilize the Internet as a
communications network and an entertainment medium in a social setting, allowing
users to play networked games, compete in local or national tournaments and
contests, browse the World Wide Web, participate in chat room discussions and
use credit cards to purchase merchandise.
On May 3, 1995, Aristo International Corporation, a New York corporation
(the "Predecessor"), was merged (the "Merger") with and into the Company, which
was previously known as "The Astro-Stream Corporation." The Company was the
surviving corporation in the Merger and, pursuant to the Merger, the name of the
Company was changed to "Aristo International Corporation." Prior to the Merger,
the Company had no operations. The Predecessor was incorporated in 1990 to
invest in licensable and patentable consumer products for the mass market. From
late 1994 until the effective date of the Merger, the Predecessor (and since the
Merger, the Company) has focused on the business described in detail in this
Prospectus. On July 31, 1995, the Company acquired 100% of the stock of Borta,
Inc., an entertainment software engineering and development company (the
"Acquisition"). See "Business."
The Company's revenues historically have been comprised of software
development fees. Salaries of the software programmers, networking specialists,
engineers and graphic artists, as well as depreciation of the fixed assets used
in the development of hardware and software, are included in research and
development. During the next twelve months, the Company expects to continue the
development of hardware and software for its networked, location-based
entertainment products. The Company intends to sell its products through a
network of over one hundred third party distributors. The Company's financial
statements do not contain a provision for income tax expense from its inception
through July 31, 1996 as the Company has incurred operating losses since
inception. As of October 31, 1995, the Company had available unused net
operating loss carry forwards of approximately $9,797,000, which may provide
future tax benefits, expiring in various years from 2006 to 2010. The Company
has fully reserved these potential future tax benefits.
COMPARISON OF THE NINE MONTHS ENDED JULY 31, 1996 VS. JULY 31, 1995
Consolidated revenues for the nine months ended July 31, 1996 were
$198,349, an increase of $193,600 as compared to the same period in 1995.
Revenues from the development of software represented 97% of the 1996 revenues.
Royalties on the Company's consumer products represented 3% of revenues in 1996
compared to 100% of revenues in 1995.
Selling, general and administrative expenses for the nine months ended July
31, 1996 increased to $4,718,082 as compared to $2,246,117 for the nine months
ended July 31, 1995. Approximately 22% or $1,042,979 of the total selling,
general and administrative expenses for 1996 related to salaries and benefits as
compared to $623,000 for the prior period, an increase of $419,979. This
resulted from an increase in personnel of 42 to 64 as of July 31, 1996 from 22
as of July 31, 1995. The increase in headcount is primarily a result of
20
<PAGE> 22
the development of the infrastructure necessary to permit the Company to achieve
its business objectives in product development and marketing.
Occupancy expense for the current period amounted to $271,538 as compared
to $181,597 for the same period in 1995. This increase is related to nine months
of expense for the Borta facility as compared to one month for the same period
in 1995 and another engineering and design facility, which was occupied
beginning in April 1996. Of the total selling, general and administrative
expenses, occupancy expense represents 6% and 8% for the nine months period in
1996 and 1995, respectively.
Amortization and depreciation expenses totaled $74,674 and $16,911,
respectively, for the nine months ended July 31, 1996 and 1995. The increase of
$57,763 resulted from the capital expenditures in fiscal year 1996 related to
equipment and leasehold improvements.
Other selling, general and administrative expenses for the 1996 period
total $3,159,654 (67% of the total expenses) as compared to $1,734,574 for the
prior period (77% of the total expenses). The increase of $1,425,080 is
primarily attributable to increased travel expenditures ($585,800), the purchase
of certain licenses related to a discontinued product development ($754,728),
and an increase in certain other expenses, such as bank fees, stationary and
supplies, and telephone, related to the increased headcount and corporate
activity.
Research and development costs for the nine months ended July 31, 1996
increased to $2,781,019 as compared to $321 in 1995. These costs are comprised
of salaries and related expenses of $1,374,301 (49%), depreciation and
amortization expenses of $1,019,806 (37%) related to the goodwill realized from
the Borta acquisition and software related thereto, and computer and related
expenses of approximately $205,100 (7%). This increase is attributable to the
design and development of hardware and software systems to support the Company's
products. Expenses related to prototypes and final test products are also
included in this increase.
Interest expense for the nine months ended July 31, 1996 was $167,738, an
increase of $108,709 as compared to the same period in the prior year. This
increase was primarily attributable to interest paid in connection with
convertible notes.
COMPARISON OF YEAR ENDED OCTOBER 31, 1995 VS. OCTOBER 31, 1994
Consolidated revenues for 1995 were $157,627, an increase of $141,622 as
compared to 1994. Revenues from the development of software represented 94% of
revenues in 1995. Royalties on the Company's consumer products represented 6% of
revenues in 1995 compared to 100% of revenues in 1994.
Selling, general and administrative expenses for the period ended October
31, 1995 increased to $3,678,823 from $2,141,400 for the period ended October
31, 1994. Approximately 13%, or $194,339, of the increase in selling, general
and administrative expense was due to an increase in travel and entertainment
expenses. This increase was the result of visits to potential digital
entertainment acquisition targets. An additional 43% of the increase was due to
professional and consulting fees. Accounting expenses increased $131,644,
primarily due to services relating to the Merger, including an audit for the
three fiscal years ended October 31, 1994. Consulting expenses increased
$365,505 primarily due to costs associated with designing and developing a
strategic plan for the digital entertainment market. Legal fees increased
$160,710 primarily due to services relating to the Merger as well as increased
legal services relating to transactions in the digital entertainment
marketplace. Selling, general and administrative expenses increased $99,325 and
deferred compensation expense increased $117,857 as a result of the Acquisition.
Salaries and benefits increased $219,238 as a result of hiring additional staff.
Research and development expenses increased to $603,133 for the year ended
October 31, 1995 from $47,205 for the year ended October 31, 1994. The increase
is attributable to the development of networked game technology and design of
multiplayer games.
Interest and other income (expense) -- net increased to $7,872 from
($56,044) in 1994 due to the gain on the settlement of a lawsuit recorded in
1995, in the amount of $76,466 offset by an increase in interest expense on
convertible term loans. The gain on the lawsuit represents the judgment by the
Supreme Court of
21
<PAGE> 23
the State of New York, County of New York on January 30, 1995 in favor of the
Company and further provides that the Company be paid interest from February 6,
1992. Additionally, interest accrued through the date of the judgment of $21,425
has been recorded.
COMPARISON OF YEAR ENDED OCTOBER 31, 1994 VS. OCTOBER 31, 1993
Consolidated revenues for 1994 were $16,005, a decrease of $42,329 as
compared to 1993. The decrease is attributable to the decline in sales of an
Aristo consumer product.
Selling, general and administrative expenses for the period ended October
31, 1994 increased to $2,141,400 from $1,577,812 for the period ended October
31, 1993. Approximately 68% of the increase was due to an increase in
professional and consulting fees. Accounting expense increased $108,765 and
legal fees increased $89,959, primarily due to potential acquisitions. There was
a $297,963 increase in consulting expenses during 1994, primarily due to an
increase in consulting fees paid to another company for the services of the
Company's President. Other increases included $203,131 for salaries and wages
related to additional personnel.
Research and development expenses decreased to $47,205 in the year ended
October 31, 1994 from $82,025 for the year ended October 31, 1993. This decrease
is attributable to the completion of existing research and development projects
related to low-technology consumer products and no initiation of additional
development projects.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a revolving credit facility with The Merchants Bank of New
York in an amount up to $500,000. The facility expires on May 15, 1997. As of
July 31, 1996, $406,000 had been drawn upon, of which $250,000 is collateralized
by a certificate of deposit.
As of September 30, 1996, the Company had outstanding notes, issued between
December 29, 1995 and June 27, 1996, in the aggregate principal amount of
$1,590,000 of which $330,000 is due on October 31, 1996 and the balance is due
on various dates between December 12, 1996 and January 1, 1997. One promissory
note, in the principal amount of $260,000, requires four quarterly payments of
interest each in the amount of $13,000 beginning on April 1, 1996; two
promissory notes, each in the principal amount of $500,000, bear interest at a
rate of 10% per annum and 12% per annum, respectively; and the remaining
promissory note, in the principal amount of $330,000, bears interest at the
prime rate. The holder of one promissory note is also entitled to receive a
12.5% participation in certain license royalties (but, to date, no amount has
been paid or accrued with respect thereto), subject to the Company's right to
terminate such participation and, in lieu thereof, issue warrants to purchase
shares of Common Stock. The Company has agreed, if a holder of any of the
forgoing notes so elects, to issue shares of Common Stock in full payment (in
lieu of cash) of the principal amount of each of these notes (based on a price
of $5.50 per share). Each of such holders has given notice to the Company of its
intention to receive shares of Common Stock in payment of the entire principal
amount of the promissory note held by it, although no such holder is legally
obligated to do so by reason of such notice. The holder of one promissory note
was also granted an option to purchase 60,000 additional shares of Common Stock
at a price of $5.50. In addition, the Company has borrowed $516,500 from certain
lenders, each of whom has the right to receive shares of Common Stock in payment
of the principal amount of the loan (based on a price of $6.50 per share or, as
to $55,000 principal amount of one note, $5.50 per share). Accordingly, the
Company expects to issue 370,091 shares of Common Stock with respect to such
promissory notes and loans, although no such holders or lenders is legally
obligated to receive such shares.
Between August and October 1996, the Company sold in private placements
1,256,400 shares of Common Stock, of which 1,180,000 were sold at a price of
$5.00 per share and 76,400 were sold at a price of $5.50 per share, from which
the Company received aggregate net proceeds (after deduction of related selling
expenses, including agency commissions) of approximately $5,880,645.
The Company believes that the net proceeds from this offering, together
with available funds and cash flows expected to be generated by operations, will
be sufficient to meet its anticipated cash needs for working
22
<PAGE> 24
capital and capital expenditures for at least the next twelve months. In the
event that the Company's plans change, its assumptions change or prove to be
inaccurate or if the proceeds of this offering or cash flow prove to be
insufficient to fund operations, the Company may find it necessary or desirable
to reallocate a portion of the proceeds within the above described categories,
seek additional financing or curtail its activities. 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 products or otherwise respond to unanticipated
competitive pressures. Such inability could have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Proceeds to Complete Development of Products;
Uncertainty of Additional Financing."
23
<PAGE> 25
BUSINESS
The Company designs and develops location-based, pay-per-play electronic
game and entertainment units and music juke boxes which are networked through
the Internet. The Company's products utilize the Internet to enhance traditional
video game products and juke boxes through innovations such as linking multiple
players in remote locations and offering competitive tournament prize play. The
Company intends to initially market these products to location-based venues such
as sports bars and "theme" restaurants. The Company plans to introduce three
products in the next six months: the PlayNet Music juke box and the TeamNet and
TouchNet electronic game systems.
The Company's products are designed to utilize the Internet as a
communications network and an entertainment medium in a social setting, allowing
users to play networked games, compete in local or national tournaments and
contests, browse the World Wide Web, participate in chat room discussions and
use credit cards to purchase merchandise. The Company's business reflects the
growing trend to connect people via computer networks and, as a result, to
create new forms of interactive entertainment in a social setting. According to
the Vending Times 1996 Census, total coin-drop revenue in the U.S. in 1995 for
all amusements was $6.3 billion, and the U.S. electronic pay per play video game
business (which excludes pinball and redemption machines) generated $2.0 billion
of that revenue.
The Company has designed an open, PC-based system architecture which blends
proprietary game development, secure communications protocol, and operations
software in a client/server environment. Communications take place over the
Internet utilizing standard Internet protocols. This integrated system allows
the Company to offer networked, location-based entertainment that can be
remotely updated with the latest games or entertainment content.
The Company's initial product line is expected to consist of the following
location-based entertainment systems:
PlayNet Music -- A juke box which will provide access to thousands of
music titles via an Internet connection to the Company's music database
servers, thereby providing significantly greater choices than a standard
juke box. In addition to providing the ability to select songs from an
extensive library, PlayNet Music will allow customers to purchase
merchandise from their favorite bands.
TouchNet -- A compact game system engineered to sit on a counter top
and accommodate 8 to 12 different games, including trivia, parlor, strategy
and action games. TouchNet allows users to choose which game to play and
then to choose whether to play against the computer or against other
players through an Internet connection. In addition to playing games and
participating in contests and prize events, customers can choose to browse
the Internet, use e-mail and participate in chat room discussions using
attached telephone handsets.
TeamNet -- An interactive system which allows two teams of up to four
players each to compete against each other in sports simulations and other
games. Both teams may be physically present in the same location, competing
on the same game system, or may be in separate locations competing through
an Internet connection. The TeamNet system has been specifically designed
to support tournament play.
The Company plans to distribute its location-based entertainment systems
through a well-established network of third-party national and local
distributors for resale to operators that install, operate and maintain the
products, primarily in hospitality locations, including restaurants, bars and
hotels, and secondarily in arcades and malls. Certain members of the Company's
management have long-standing relationships with many of the major distributors
in the United States and internationally. The Company anticipates that
tournament play and certain other revenues will be shared among the Company, the
distributor and the operator. The Company also intends to distribute its entire
product line in international marketsthrough a variety of distribution
arrangements. It is contemplated that products will be localized for each
territory as appropriate.
Aristo is currently in the process of acquiring the rights to the libraries
of various music publishers and record labels for use on its PlayNet Music
system. Concurrently, the Company is negotiating to enter into
24
<PAGE> 26
sponsorship and advertising programs for its sports games, tournaments and prize
contests with high-profile consumer goods and beverage companies. The Company
also intends to establish various contractual arrangements, joint ventures and
other mutually advantageous programs with technology providers, equipment
manufacturers, distributors, major hospitality chains, consumer products
companies, music-related companies, content providers and others, to develop
broader, more efficient, more profitable and higher-profile products and
services.
STRATEGY
The Company's primary strategic objective is to establish and rapidly grow
an installed customer base of its location-based Internet-enabled entertainment
units. The Company believes that its products and system architecture will
enable it to expand the variety of content and services available beyond that
which is available in existing products, as well as to increase the range of
locations at which such networked entertainment units can be profitably located.
The Company believes that the breadth of entertainment choices which its
products will deliver, coupled with a highly diverse range of public locations,
will extend the demographic universe of its potential users beyond that of
adolescent males who currently dominate the coin-operated video game market. The
Company's primary strategies can be summarized as follows:
Enhancement of the Location-Based Entertainment Experience -- The
Company intends to offer networked entertainment content with multi-player,
multi-location and tournament prize play which it believes will result in
significantly more compelling entertainment experiences than are possible
with existing stand-alone location-based, pay-per-play machines. Unlike
most competing entertainment systems, which are primarily based on
proprietary hardware platforms, the Company's entertainment units will
offer touch screen-operated access to a wide variety of video games
including parlor, trivia, strategy and action games and prize tournament
play. Additional features will include access to Internet content and
thousands of music titles, the ability to purchase general entertainment
and music-related merchandise, and ancillary features such as e-mail and
"real-time chat" with other users of the system.
Hospitality Focus and Penetration Beyond Traditional Locations -- The
Company intends to focus its efforts on the hospitality sector which,
according to the 1996 Vending Times Census of the Industry, comprises 60%
of the location-based entertainment industry. This sector primarily
includes bars, restaurants and hotels and is distinguished from the
remainder of the industry, which is made up of specialized game arcades and
locations such as movie theaters. The Company believes that the greater
variety of entertainment content offered on its products could
significantly expand the number of potential locations in the hospitality
sector and allow it to enter non-traditional locations such as airports,
railroad stations and shopping malls. The Company intends to accelerate the
distribution of its products by forming strategic alliances with major
hospitality companies, both in the United States and internationally.
Expansion of Potential User Base -- The Company intends to offer a
range of entertainment products, including parlor, trivia, strategy and
action games, appeal to a broader user base than existing arcade offerings
which are increasingly targeting the adolescent male demographic segment.
The Company will initially target hospitality locations, especially bars
and chain restaurants, for distribution of its products. Networked and
prize tournaments and promotions will be aimed at a broad array of
consumers who are interested in social interactive entertainment and
competitive tournament prize play. The Company believes that its
broad-based strategy will allow it to increase average revenue per unit and
the number of potential locations for its networked machines.
Product Innovation and Improvement -- The Company believes that its
flexible system architecture will allow it to update and continually
improve its game and entertainment offerings on a cost effective basis
through remote downloads from central servers, based on customer feedback
and demand. The Company expects to be able to regularly update its musical
offerings on PlayNet Music based on the popularity of songs in each
location. The Company also expects to augment and improve its game content
and add new features on both TouchNet and TeamNet based on customer
feedback. Downloading will permit TouchNet games to be updated and new
games to be added to optimize choice at each unit.
25
<PAGE> 27
TeamNet sports offerings will be changed based on sport seasons and game
popularity. The Company also intends to support usage through tournament
prize offerings and promotions.
Recurring Revenue Streams -- The Company believes that location-based
entertainment product manufacturers only receive revenue from the sale of
machines. The Company believes that it will be able to demonstrate that its
products will result in increased coin-drop from location-based
entertainment units and expects that it will be able to share in
incremental revenues, thus creating recurring revenue streams for the
Company. The Company intends to promote, arrange sponsorship for, and
organize national and local game tournaments with cash and other prizes.
The Company believes that limited tournament play has demonstrated an
increase in machine usage and revenues, especially since such tournaments
require higher game fees.
Ancillary Revenue Opportunities -- Sponsorship and advertising revenue
will be generated from on-screen advertisements and tournaments. The
Company also expects to collect fees on merchandise sales made through its
Internet-enabled entertainment units. The Company plans to re-market data
collected from user polls, music selections and other similar usage to
content providers, advertisers and product and service vendors.
INDUSTRY OVERVIEW
The Company's business is primarily categorized as the location-based,
pay-per-play entertainment
industry. The location-based entertainment industry has historically operated in
two segments: the hospitality sector, which includes restaurants, bars and
hotels, and a sector which includes properties such as arcades, malls and game
rooms. The Company's primary focus is the hospitality sector, which accounts for
almost 60% of the location-based entertainment market, according to the Vending
Times 1996 Census of the Industry. Entertainment units deployed in these two
sectors consist of coin-operated video games, pinball machines, juke boxes and
other forms of entertainment such as pool tables.
Few reliable statistics exist regarding the location-based entertainment
industry, in which almost all of the owner-operators and distributors are
privately held companies. According to the Vending Times 1996 Census of the
Industry, the location-based pay-per-play entertainment industry, consisting of
coin-operated video games, pinball machines, juke boxes and other varieties of
amusement, generated coin-drop revenue of $6.3 billion in 1995. According to the
latest available survey from the Vending Times 1995 Census of the Industry, in
1994 there were 860,000 coin-operated video game units in operation in the
United States. Video game aggregate coin-drop revenues have declined
dramatically from the 1970's, and had only remained stable at $2.3 billion to
$2.5 billion between 1985 and 1994, without allowing for any inflation
adjustment, which would in fact reflect significant real decline. In 1995
coin-drop revenues from video games dropped by approximately 16% to $2.0
billion, according to the Vending Times 1996 Census of the Industry. Based upon
its research and ASCAP data, the Company believes that 125,000 juke boxes
currently pay the $60 annual ASCAP licensing fee. It is widely held in the
industry that a significant additional amount of juke boxes are in operation
that are not currently paying licensing fees. According to the Vending Times
1996 Census of the Industry, only approximately 30% of the juke boxes in
operation play CDs as opposed to vinyl records. The Company believes that
approximately 20,000 to 25,000 juke boxes are sold in the United States each
year.
Location-based entertainment units are generally sold through third party
distributors to operators who own, operate and maintain the products and install
them under revenue sharing agreements with location owners in restaurants, bars,
movie theaters, convenience stores, shopping malls, amusement arcades and other
locations. In certain cases, the location owner is also an owner-operator of the
machines. Most amusement arcades own and operate their own machines and will
often purchase multiple games units of the most popular games. Amusement arcades
generally purchase games with more advanced video platforms which are
increasingly graphically intensive and appeal primarily to adolescent males.
More advanced, dedicated units have continued to escalate in cost over the last
decade, reflecting the industry movement toward faster, more graphically rich
games and experiences, without necessarily generating commensurate increases in
coin-drop revenues.
26
<PAGE> 28
The Company believes that competitive pressures from the overall
entertainment market are increasingly impacting the location-based entertainment
industry. Providers of at-home entertainment have continued to offer
increasingly innovative consumer electronics products and associated content
through the VHS player, the compact disc player, the home video game console,
increased cable channel capacity, and, more recently, the multimedia PC. The
Company believes that advances in PC and console game processing power have
brought PC and console platforms closer in performance to even the more advanced
dedicated location-based video game units. PC game publishers have introduced an
increasing variety of modem enabled games with remote and head-to-head play
capabilities. A number of PC on-line game communities such as Mpath and Total
Entertainment Network have emerged in response to this interest.
The Company is aware of basic prize tournament offerings currently being
introduced to the location-based, pay-per-play industry which, it believes, are
resulting in significantly increased player utilization and revenues. The
Company believes that its improvements in interactive, networked prize
tournaments will create still more compelling entertainment experiences for the
location-based industry, representing a significant opportunity for future
growth and revenues. Touch screen operated entertainment units with multiple
choices of parlor, trivia or simple action games are becoming increasingly
popular, reflecting the desire on the part of hospitality location patrons for a
greater variety of accessible, immediately gratifying content. The Company
believes that Internet-enabled entertainment units offering diverse content with
interactive elements and prize tournament play would have significant potential
appeal within the hospitality sector.
SYSTEM ARCHITECTURE
The Company's client/server based system architecture has been designed to
deliver a highly interactive and continuously updated location-based
entertainment experience. The Company believes that this system architecture
will enable it to deliver a significantly higher amount and greater variety of
content than is available today in location-based entertainment units, update
and deliver content on a real-time basis and improve the tracking and accounting
of location-based units.
The Company believes that its use of the Internet as the communications
network interconnecting the Company's entertainment units provides the Company
with a number of competitive advantages such as: (i) minimizing the maintenance
and repair costs associated with the Company's units, (ii) facilitating and
lowering the cost of software and content updates, (iii) enabling the Company to
leverage the wide variety of free entertainment and information resources on the
Internet, and (iv) providing the Company with cost effective data transport in
combination with ubiquitous network access.
System Overview
The Company's system design is based on a client/server architecture in
which the Company's entertainment units are the principal clients. The Company's
system is comprised of three layers: (i) server-based content and system
management, (ii) transport layer and associated security and compression
protocols and (iii) networked Pentium based entertainment client units.
Server-Based Content and System Management
The Company anticipates that its operations and financial management system
will be deployed in its Foster City, CA facility. This system is designed to
reside on Windows NT based servers and will be mirrored in a remote backup
facility. The Company's principal operations systems include transaction
processing and reporting, credit card clearing, and accounting and financial
reporting. These systems are highly scaleable and the Company believes that they
will allow it to monitor and manage a large number of geographically dispersed
entertainment units. The Company's Foster City facility also houses software,
game and content development operations. Updates of entertainment unit software,
multimedia effects and graphics and content are expected to be developed both in
Foster City, CA and in Sterling, VA and delivered from these central systems. In
addition, remote diagnostics and software repairs will be available.
Entertainment features such as the music database, Internet access, chat
function, game database and multi-unit tournament play will be maintained on
dedicated servers. The Company believes that this structure will allow it to
minimize latency and improve its ability to quickly and economically scale the
system as demand increases. The Company
27
<PAGE> 29
believes that it may eventually have to co-locate music servers at several of
its ISP regional switching centers as PlayNet usage builds in order to provide
rapid downloading of music which is relatively data intensive.
Transport Layer and Associated Security and Compression
Protocols -- The Company intends to utilize the Internet to maintain
communications between its operations and content servers and its
entertainment units. This structure will allow the Company to minimize its
communications costs and will allow it to maintain communications with
entertainment units both in the United States and internationally. The
Company intends to use industry standard compression methods in order to
reduce the volume of its transmissions. In addition, it has developed
proprietary temporal decryption technology that it believes will allow it
to safely utilize the Internet for the transmission of credit card and
transaction information, game software and music content. See
"Business -- System Security; Encryption/Decryption Technology".
The Company's systems have been optimized to deliver content, including
music, over standard telephone lines and modems at data transmission rates of up
to 28.8 kilobits per second (Kbps). The Company will be responsible for securing
telephone access for its entertainment units and for installation charges. In
order to facilitate the management of its communications, the Company intends to
contract with an ISP with national coverage and points-of-presence. If multiple
entertainment units are located in one facility, the Company may provide for the
installation of an ISDN or other high capacity connection for sharing among the
units.
Networked Pentium Based Entertainment Units -- The Company's game and
music units are based upon a common PC platform utilizing Pentium
processors and hard drive storage. The computing and graphics capabilities
of the entertainment units will allow the Company to offer a sophisticated,
visually attractive user interface and games with performance approaching
that of dedicated game units. Multiple units within a location will be
networkable allowing the Company to use a common telephone line. The
utilization of these open-system PC platforms should allow the Company to
benefit from continued improvements in processing power and storage
capacity as well as from continued reductions in cost per unit of
processing power and storage capacity. The use of common processing and
storage units should also materially simplify the Company's maintenance and
network design needs.
The Company anticipates that each of its entertainment products will
utilize a user interface appropriate to the entertainment being offered. For
instance, the PlayNet Music juke box is designed to feature touch-screens, phone
handsets for the chat function and headsets to listen to alternate music
selections. Since ease of use is essential and may ultimately determine a
product's success or failure, the Company has designed user interfaces utilizing
simple, intuitive touchscreen controls. The Company's entertainment units will
also be customizeable for placement in previously unserved locations such as
service stations or airline frequent flyer lounges.
System Benefits
The Company believes that the combination of the features of the Company's
system architecture will allow the Company to offer a highly interactive and
continuously updated entertainment experience and improve the economics to the
providers of location-based entertainment. The following summarizes the system's
planned benefits:
Entertainment Unit Users
- Access to thousands of music titles.
- Exciting, real-time tournaments offering cash and other prizes.
- Highly interactive content, continuously renewed to reflect changing
tastes and interests.
- New methods of social interaction through remote chat and Internet
access.
- Access to a broad spectrum of Internet information, content and services.
- Access to entertainment in a wider variety of locations.
28
<PAGE> 30
Operators and Distributors
- Elimination of music CD inventory -- estimated at over $1,000 per initial
loading of a 100 CD juke box.
- Route and personnel cost savings due to elimination of CD changeovers and
reduced maintenance requirements.
- Ability to introduce entertainment units to a wider universe of
locations.
- Increased revenues from new offerings such as tournaments and
merchandise.
Advertisers, Merchants and Content Providers
- New venue to reach demographically attractive audience.
- Targeted advertising and sponsorship opportunities.
- Valuable information regarding entertainment tastes and expenditures.
PRODUCTS
The Company's location-based products utilize the unique features of the
Company's system architecture to enhance traditional video game units and juke
boxes. The first three product systems to be launched will be the PlayNet Music
juke box, the TouchNet counter-top game and entertainment unit, and the TeamNet
multi-player game unit. The products are intended to be launched in the next six
months.
PlayNet Music
PlayNet Music is a juke box designed to provide real-time access to
thousands of songs via an Internet connection to the Company's central server
database. Through the same Internet connection, it is anticipated that customers
will be able to access information about specific bands and order merchandise
and other related ancillary products. PlayNet Music looks like a standard juke
box, but with the addition of two touch screens to facilitate navigation through
multiple song playing and merchandise options. Customers will be able to access
songs organized by format, e.g., country & western, jazz, rock or search for and
select a particular song in the music database by name or by artist. PlayNet
Music will also have a telephone handset through which customers can listen to
phone messages from their favorite artists for an additional charge.
Whereas in the past juke boxes have typically been limited to the
approximately 100 CDs physically present in the box, PlayNet Music will be
linked to a large database of readily accessible music, so customers will have
significantly greater choice of titles and artists. The Company expects its most
popular selections will be stored locally and will be augmented by a large
database of music stored at remote server sites. The Company will be able to
easily update the database of songs available at each location from remote
servers in order to keep song choices from becoming old or stale. In addition,
Aristo will be able to customize song listings as desirable according to
location and through research data collected in the field.
PlayNet Music does not require any mechanical movements to replace and play
CDs, which the Company expects will reduce breakdowns and maintenance costs and
allow machines to play selections continuously without any pauses between songs
or even start a queued selection before the end of the previous selection. In
this way, Aristo can increase the number of songs played during peak hours;
increase coin-drop in a location, and eliminate the six second pause between
selections customarily present in even the most current juke boxes. The Company
also anticipates being able to play specified music selections in locales during
periods that the juke box is not being used by paying customers. PlayNet Music
is designed to be able to display the name of the artist and song being played
along with promotional information while the music is playing. In this way,
record companies can promote their new or established bands in attractive,
targeted demographic locales (e.g. country music songs in country music bars).
29
<PAGE> 31
TouchNet
TouchNet is intended as a compact multi-purpose unit designed to sit on a
counter top and accommodate a number of games and entertainment-related
activities. Users will be able to interact with the system through its
easy-to-use touch screen interface, and select an activity from a menu of
options, including:
- Games: Users will be able to select from a menu of eight to twelve
games including parlor, trivia, puzzle and action games. User scores will
be compared to players in the same location as well as players across the
nation.
- Tournaments: Users may play a number of games competing against
other users of the Aristo system for cash and other prizes. The Company
believes that the limited local tournament play offered in existing
location-based games has demonstrated significant increases in game
utilization and coin-drop.
- Chat: Users will be able to engage in "real-time chat" with other
participants in remote locations through attached handsets. The "real-time
chat" bulletin boards will be similar to those on America Online or Prodigy
with moderators and special interest groups; however, users will be able to
leave audio as well as text messages for retrieval by other participants.
- Internet: TouchNet will offer standard Internet access and e-mail
for users. Aristo has designed a touch-screen interface with the most
popular sites likely to appeal to a location's clientele (i.e. ESPN
Sportzone in sports bars) prominently positioned. Particularly popular
sites will be loaded into the TouchNet terminal's memory periodically for
high speed retrieval upon use.
- Other: Users will be able to order a variety of merchandise and to
access and post classified and personal advertisements.
TouchNet machines will also be networked with any PlayNet Music machines in
the same location, allowing users to choose and play music on PlayNet Music
through the TouchNet terminal. Software will be updated as necessary from
Aristo's central server location, allowing the Company to introduce new games
and improve game features as necessary to maintain end-user interest in the
terminal's entertainment features.
TouchNet is designed to accept $1, $5, $10 and $20 bills, credit cards and
affinity cards. Aristo will be able to broadcast promotional messages on the
terminal while it is not being used and is exploring promotional opportunities
and tie-ins with potential sponsors.
TeamNet
TeamNet is an interactive game system which will allow two teams of up to
four players each to compete against each other in sports games such as tennis,
football, soccer and baseball. Each unit is the size of a small billiards table
and will accommodate up to eight players, each with a trackball controller. The
Company plans to change the sports games available on TeamNet in accordance with
the relevant sports seasons, offering both variety and topicality for the users.
The Company plans to eventually introduce other non-sports games, although
sports games will at first dominate TeamNet system's offerings since one of the
Company's initial objectives is to penetrate upscale sports bars. Games are
expected to change about once per quarter, and are expected to provide not only
challenging game play, but also highly charged competition. Game updates will be
downloaded from the Company's central servers.
TeamNet has been specifically designed to support head-to-head and
tournament play. Teams or individuals will be able to compete against a computer
opponent, or against teams in either the same location or other venues through
an Internet connection. Aristo plans to promote head-to-head play, matching up
opponents and allowing teams in one venue to challenge teams in other venues or
cities. The Company intends to set up weekly tournaments with cash and other
prizes to spark interest and spur competition. Teams will be able to customize
uniform colors, team member names and numbers. Team statistics will be available
and displayed on a national basis. Aristo is already in discussions with several
major companies to sponsor TeamNet teams and tournaments.
TeamNet is designed to accept $1, $5, $10 and $20 bills, credit cards and
affinity cards through affinity programs which the Company plans to pursue.
Aristo will be able to broadcast promotional messages on the terminal while it
is being used and is exploring promotional tie-ins with potential sponsors.
30
<PAGE> 32
Other
The Company plans to aggressively apply data collected from field use to
constantly improve upon its existing games and entertainment services and
develop new games and entertainment services for its entertainment units. The
Company believes that such data will provide valuable information to its content
providers, advertisers and sponsors as well as to companies marketing to
consumers with demographics similar to those utilizing the Company's
entertainment units.
The Company may develop at-home versions of the most successful TeamNet and
TouchNet games. The Company anticipates that these products, which would be
distributed on CD-ROM, would allow networked game play through users' personal
computers equipped with Internet connections.
SOFTWARE AND CONTENT DEVELOPMENT, MERCHANDISING
The Company's in-house software engineers and graphic artists are
developing games, user interfaces and product improvements utilizing both
standard and proprietary development tools and game engines. The Company's
in-house hardware engineers and designers intend to continue to improve the
"look and feel" of its entertainment units in order to maintain customer
interest. In addition, Aristo plans to match improvements and product
introductions made by competitors. Management believes that the development and
constant release of new games and other content is important to the Company's
success and, as such, expects to make significant investments in software and
game development.
The Company also plans to license additional entertainment content to
augment its internal development efforts and music titles to increase its
database of available titles. Advertisers or sponsors may provide the Company
with entertainment such as video clips or free game segments in order to
advertise their products or enhance their image. The Company may also
selectively acquire specific content such as graphic or video images.
The Company expects that advertisers and sponsors will be the first to
promote merchandise through its entertainment units. Management also believes
that as the performance and draw of its units is proven, additional companies
will seek to directly sell merchandise through its network providing the Company
with additional recurring agency fee-based revenues.
MANUFACTURING
The Company plans to contract with third parties experienced in relevant
hardware manufacturing for the manufacture of its location-based, networked
entertainment products. The Company has identified the manufacturers for the
various components of its entertainment units and will directly negotiate and
manage the purchase of such components. The primary components utilized in the
manufacture of its entertainment units are video monitors, Pentium PC units,
electronic subassemblies, wood cabinets and coin-drop, bill collection and
credit card swipe mechanisms. These components are readily accessible from a
variety of suppliers. The Company intends to contract with assembly firms to
assemble and test its entertainment units. The Company is currently negotiating
agreements with Streak Technologies, Inc. to manufacture the TeamNet game
systems and the PlayNet Music juke boxes and with Mac Cal Co., Inc. to
manufacture the TouchNet game systems. The Company is also in discussions with
additional manufacturers to expand capacity and is exploring licensed overseas
manufacturing.
The Company's server systems and its communications systems are all based
on widely available standard platforms such as Windows NT capable Pentium PCs
and servers. The Company believes that its server system components will be
readily available from a wide variety of sources.
CUSTOMER AND NETWORK SUPPORT
The Company believes that location-based game and juke box distributors,
operators and location owners today lack significant experience in computer
networks and communications systems. Accordingly, the Company intends to
implement various support and training programs, including a 24-hour,
7-days-per-week telephone help hotline concurrent with product launches.
31
<PAGE> 33
MARKETING AND DISTRIBUTION
The Company anticipates that its location-based networked games and juke
boxes will be distributed through a network of national and local distributors.
The distributors are expected to sell the Company's products to operators who
will own, operate and maintain the products and install them in restaurants,
bars, amusement arcades and other locations under revenue sharing agreements.
There are usually two or more distributors serving each geographic area.
Generally, distributors represent video game, juke box, vending equipment and
other product lines on an exclusive basis within a given geographic area.
Distributors generally provide replacement parts and service and in some cases
arrange for financing for the operators. The operators are the owners of the
machines and collect coin-drop, maintain machines and source new locations for
machines. Some location owners are also owner-operators of the machines. The
Company expects that distributors who sell and maintain its entertainment units
will also sell a variety of machines from other manufacturers.
In the course of their prior business activities, certain members of the
Company's management have established long-standing relationships with many of
the major distributors in the United States and internationally. The Company
expects to enter into resale agreements with various distributors which will
also specify the division of coin-drop revenues between the Company, the
distributor and the site owner or operator. New games are intended to be
downloaded from the Company's central server database under arrangement with the
distribution channel. The operators will be expected to facilitate the
installation of new games on the systems.
The Company is actively negotiating with major sports bars and theme
restaurant chains for multi-product, multi-location arrangements. The Company is
also in discussions with Firestone Financial Corporation and Deutsche Financial
Services to establish standardized finance packages for purchasers of its
entertainment units. The Company believes that such industry standard financing
will be readily available to those of its customers who meet reasonable credit
requirements.
The Company plans to include advertisements in the major trade magazines
and to conduct other marketing and public relations campaigns, including news
releases and editorial meetings with major print and electronic magazines and
services. The Company may utilize mass advertisement channels such as television
to increase awareness and to drive usage of its products. The Company intends to
appear regularly and present its products and services at major music, film,
hardware and software trade shows, exhibitions and conferences. Members of the
Company's management have appeared, and are expected to appear in the future, as
speakers by invitation at many of these conferences.
RESEARCH AND DEVELOPMENT
The focus of the Company's research and development efforts has been
finalizing the hardware specifications for the PlayNet Music, TeamNet and
TouchNet game systems; refining networking protocols, data compression and
encryption, and securing associated patent and trademark protection; and
ensuring the availability of music and game content compelling enough to sustain
each of these three entirely new product lines. All three product lines are
expected to be commercially available in the next six months, with the launch of
TeamNet likely to follow shortly after the introduction of TouchNet and PlayNet
Music.
The Company believes significant on-going research and development are
required to establish new entertainment categories in the location-based,
pay-per-play market and to remain competitive in response to changing consumer,
technological and competitive demands. Accordingly, the Company intends to
increase its efforts and the amount of funds devoted to research and development
activities.
COMPETITION
The Company competes with all other providers in the entertainment and
media industries for consumers' attention and dollars. Within the location-based
game and juke box distribution market, the Company faces competition from a
number of large and small companies, including entertainment producers and
distributors, computer hardware and software companies, and equipment companies.
Many of the
32
<PAGE> 34
Company's current and potential competitors in the business such as SEGA of
America, Midway Games, Inc. (a subsidiary of WMS Industries), NAMCO and NTN,
Inc. have a greater market presence, an inhouse inventory of products or greater
access to licensable products for distribution, and possess substantially
greater technical, financial and marketing resources than the Company. The
Company believes that none of these or any other company has introduced
Internet-enabled or networked products to the industry. However, Midway Games,
Inc. has recently indicated that it is developing networked, multi-player games.
Additionally, NTN, Inc. has introduced entertainment units with limited
communications capability to hospitality locations, and Incredible Technologies,
Inc. has launched a prize tournament game system in certain states in the United
States.
Given its networked, multiple-player strategy, the Company is peripherally
part of the new on-line game market. In contrast to other companies currently
dedicated to providing subscribers with online networked games, such as Total
Entertainment Network, Inc., Mpath Interactive, Inc., DWANGO and the Imagination
Network, Inc. (a subsidiary of America Online, Inc.), the Company is focused on
location-based pay-per-play products.
The Company believes that the primary competitive factors affecting its
market include price, core technology, communications infrastructure, the
ability to attract or create content with superior end-user appeal, product
quality and features, marketing and distribution resources and high-quality
continuous customer service support. The Company believes that its creative,
technical and production expertise, innovative product features, fully
integrated communications network, focus on the hospitality market, and
established relationships with prospective distributors and operators are
important elements in its ability to compete effectively within its market.
PROPRIETARY RIGHTS
The Company relies on trademark, copyright, patent and trade-secret law as
well as contractual rights to protect its proprietary technologies. The Company
has applied to register the names PlayNet Technologies, Pay-per-Play and PlayNet
and the Company's logo design, PlayNet Music, TeamNet and TouchNet as
trademarks. The source codes for the Company's proprietary software are
protected as trade secrets. In accordance with the Company's policy, the
Company's employees and consultants have entered, and all future employee and
consultants are expected to enter, into agreements containing confidentiality,
nondisclosure and nonsolicitation covenants. Similarly, the Company's agreements
with customers and suppliers include provisions prohibiting or restricting the
disclosure of proprietary information and products, the use of software in
source code form and the sublicensing of licensed software.
SYSTEM SECURITY; ENCRYPTION/DECRYPTION TECHNOLOGY
Minimizing uncertainty relating to the secure transmission of data over the
Internet is of primary importance to the Company. Digital information can be
copied easily, quickly and perfectly thereby causing major dilemmas for content
owners who wish to distribute their products in digital form without losing
proprietary rights to piracy. Traditionally, the industry has used
encryption/decryption methods to create a barrier to data transmission access or
to limit piracy. The Company has developed a proprietary technology for secure
delivery of data and temporal restriction of its use, which provides a practical
and economic means by which the Company's data can be distributed and remotely
reproduced while minimizing the opportunity for unauthorized capture or
diversion. This new technology is intended to form the basis for reducing the
risk of transfer of data (i.e. music, video, games and tournaments) through the
Internet channel.
The Company's hybrid cryptosystem combines a new temporal restriction
translation (asymmetric) process, with a conventional private key (symmetric)
algorithm to give de-encryption combining the speed of conventional cryptography
with the considerable advantages of temporal restriction translation
cryptography. As far as the user is concerned, the Company 's cryptography
behaves as a transparent layer of execution. In the system a key pair is
mathematically generated, consisting of a private key and release key. A message
may be encrypted with one key and decrypted with another (either key can be used
for encryption). The message cannot be decrypted using the same key that was
used to encrypt it. Generally, the Company ensconces the
33
<PAGE> 35
private key in shrouded dynamic memory, making it unavailable to anyone who
wants the access key data. The server/broadcaster encrypts their data with the
release key. The encrypted message cannot then be decrypted other than by the
receiving Company unit which has the private key that goes with the release key.
The private key must be kept secret by its owner. The great advantage of this
kind of cryptography is that, unlike conventional cryptosystems, it is not
necessary to find a secure means of transmitting the encryption key to the
intended recipient of a message. Another useful feature of such new
cryptosystems is the ability to protect encrypted data by forcing the decryption
process to only be applicable to analog data, irreversibly corrupting the data
such that it cannot be copied or transported faithfully. The Company uses
modular exponentiation to encrypt and decrypt messages based on video/audio data
converted to numerical form. The Company currently has a patent pending for its
security system methodology.
MUSIC RIGHTS
The Company is negotiating with both major music publishers and record
labels to establish the rights and related scales and rates associated with
digitally transmitting music, video and ancillary content through the PlayNet
Music juke box system. The Company believes that its proprietary
encryption/decryption technology is critical to securing the right to transmit
music over the Internet. The Company also believes that its ability to track the
actual songs played by its juke boxes will be attractive to music publishers and
record labels, as they will, for the first time, be able to identify numerically
the popularity of the actual songs played on juke boxes.
GOVERNMENTAL REGULATIONS
In the United States and many other countries games of chance must be
expressly authorized by law. Once authorized, such games may be subject to
extensive and evolving federal, state, local and foreign governmental
regulation. While the Company believes that its games are based on skill and
thus are exempt from such regulation, there can be no assurance that the
operation of the Company's games will be approved by any jurisdictions. In
addition, future government regulation could be burdensome to the Company, its
personnel and its stockholders. Moreover, material increases in taxes or fees on
the games' operations could adversely affect the Company.
In light of the increasing use and commercial importance of the Internet
and other wide-area information networks, various issues, including pricing and
competitive practices, service quality, user privacy and content, are drawing
the attention of Congress, regulators, and industry and consumer groups. The
adoption of any such laws or regulations could inhibit the continued growth of
the Internet or other wide-area information networks, impose additional costs on
the Company, expose the Company to greater potential liability from regulatory
actions or private legal proceedings or otherwise adversely affect the Company's
business operations or performance. However, at present, the Company is unable
to predict whether any laws or regulations specifically applicable to the
Company or its businesses will be adopted, or, if any such laws or regulations
are adopted, the nature or extent of their impact on the information technology
industry or the Company's business operations or performance.
LEGAL PROCEEDINGS
An action entitled Orbach, Inc. v. Aristo International Corp. was commenced
in the Supreme Court of the State of New York on October 10, 1996 against the
Company by Orbach, Inc. seeking monetary damages of $232,500 based on the
alleged breach of a finder's fee agreement. The Company intends vigorously to
defend all aspects of such claim. Except for the foregoing, the Company is not a
party to, and its property is not subject to, any material pending legal
proceedings.
EMPLOYEES
As of September 30, 1996, the Company had seventy employees, all of whom
were full-time and based in the United States. Of these, fifty were principally
engaged in engineering, eight were principally engaged in sales, marketing and
customer support and twelve were principally engaged in administration and
finance.
34
<PAGE> 36
None of the Company's employees are represented by a labor union. The Company
has not experienced any strikes or labor disputes and considers its relations
with its employees to be good.
PROPERTIES
The Company's executive offices occupy approximately 8,600 square feet in a
modern office building at 152 West 57th Street, New York, New York 10019-3310 at
an annual rent of $358,693 under a lease expiring on March 31, 2002. The
Company's engineering and design facility at the Loudon Technology Center in
Sterling, Virginia occupies approximately 7,000 square feet at an annual rent of
$99,354 under a lease expiring on August 31, 1998. The Company is negotiating to
lease a new engineering and design facility in San Francisco, California
consisting of approximately 20,000 square feet, and in the interim will continue
to occupy a temporary space in Foster City, California, under which the Company
pays $6,288 monthly for approximately 6,000 square feet under a month-to-month
lease.
35
<PAGE> 37
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
The Directors, Executive Officers and Key Personnel of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- ------------------------------------------------
<S> <C> <C>
Shmuel Cohen....................... 38 President, Chief Executive Officer and Director
Paul C. Meyer...................... 49 Chief Operating Officer
Glenn P. Sblendorio................ 40 Chief Financial Officer
Nolan K. Bushnell.................. 53 Director of Strategic Planning
Patrick O. Nunally................. 33 Chief Engineer
Izzy Schiller...................... 44 Chief Information Officer
Rita Zimmerer...................... 40 Executive Vice President -- Software
William R. Cravens................. 54 Senior Vice President -- Sales
David Albert....................... 42 Vice President -- Internal Game Development
Scott Folcarelli................... 31 Vice President -- Hardware
Amy R. Gurvey...................... 42 Director of Legal and Business Affairs
Joseph Ettinger.................... 57 Director
Yael Cohen......................... 36 Secretary and Director
</TABLE>
All directors hold office until their respective successors are elected, or
until death, resignation or removal. Officers hold office until the meeting of
the Board of Directors following each annual meeting of stockholders and until
their successors have been chosen and qualified.
SHMUEL COHEN, age 38, founded the Company in June 1990 and has been
President, Chief Executive Officer and a Director of the Company since the
Company's inception. From December 1987 to June 1990, Mr. Cohen served as Chief
Executive Officer of Lamia Enterprises Ltd., a corporation that developed
patented design application processes. From April 1984 to December 1987, Mr.
Cohen served as Chief Executive Officer of Arts, Ltd., a company that
researched, patented and produced Soft application technology.
PAUL C. MEYER, age 49, joined the Company as Chief Operating Officer in
October 1996. From January 1994 to September 1996, Mr. Meyer served in various
executive positions at Viacom New Media, a publisher and distributor of
multimedia products and a division of Viacom International, Inc., and his last
position was Executive Vice President and General Manager-New York. From October
1991 through October 1994, Mr. Meyer served as President of Paul C. Meyer &
Associates, Inc., a financial consulting firm. Mr. Meyer has also served as a
financial consultant to Automotive Industries, Inc. since September 1989. From
February 1990 to September 1991, Mr. Meyer served as President of Superior Toy &
Manufacturing Company. From December 1974 to August 1988, Mr. Meyer served in
various executive positions with Coleco Industries, Inc., the toy company, his
last position being Chief Financial Officer.
GLENN P. SBLENDORIO, age 40, joined the Company in September 1996 as Senior
Vice President and Chief Financial Officer. From July 1993 to August 1996, Mr.
Sblendorio served as Chief Financial Officer of Sony Interactive Entertainment,
Inc., New York, an international, interactive hardware and software company.
From October 1981 to July 1993, Mr. Sblendorio served in various positions with
the international drug and bio-technology conglomerate, F. Hoffmann La Roche.
From March 1992 to July 1993, Mr. Sblendorio served as Vice President of Finance
of Roche Molecular Systems, Inc., New Jersey, a biotechnology subsidiary. From
January 1990 to March 1992, Mr. Sblendorio served as Controller Europe for F.
Hoffmann La Roche, Basel. From July 1988 to January 1990, Mr. Sblendorio served
as Vice President of Finance and MIS for Medi Physics, Inc., a radio
pharmaceutical imaging product subsidiary of Hoffmann La Roche, Inc.
NOLAN K. BUSHNELL, age 53, joined the Company as Director of Strategic
Planning in June 1996. Mr. Bushnell has served as a consultant to the Company
since July 1995. From June, 1981, Mr. Bushnell has served as sole proprietor of
Catalyst Technologies, a source of technical advice and venture capital for
Silicon
36
<PAGE> 38
Valley entrepreneurial ventures. From July 1977 to January 1983, Mr. Bushnell
served as Chief Executive Officer of Chuck E. Cheese, a restaurant chain
featuring electronic entertainment. From November 1972 to February 1979, Mr.
Bushnell served as Chief Executive Officer of Atari Corporation, a manufacturer
of video games.
PATRICK O. NUNALLY, age 33, joined the Company as Chief Engineer in April
1996. From January to April 1996, Mr. Nunally served as Vice President of Wave
Interactive Network, an interactive entertainment technology enterprise. From
January to December 1994, Mr. Nunally served as Fellow of VLSI Technology, a
multimedia technology development company. From September 1992 to December 1993,
Mr. Nunally served as Chief Executive Officer of Intellisys Automation, Inc., a
manufacturer of media survey devices. From December 1990 to September 1992, Mr.
Nunally served as Chief Executive Officer of E-Metrics, Inc., a multimedia
signals processing systems company. From February 1989 to December 1990, Mr.
Nunally served as Chief Operating Officer of Cognitive Systems, Inc., a
multimedia signals processing systems company. From August 1986 to February
1989, Mr. Nunally served as Director of Technology Application for General
Dynamics Air Defense Systems.
IZZY SCHILLER, age 44, joined the Company as Chief Information Officer in
July 1996. From April 1983 to present, Mr. Schiller has served as the President
of ComStar Systems, Inc., a computer systems planning and design company, and
its wholly owned imaging applications subsidiary, Image Star International, Ltd.
From April 1994 to present, Mr. Schiller has also served as President of
Internet Services, Inc., the wholly owned connectivity tools and programming
subsidiary of ComStar Systems, Inc.
RITA ZIMMERER, age 40, joined the Company as Executive Vice
President -- Software in August 1996. From September 1995 to August 1996, Ms.
Zimmerer served as Vice President and Senior Manager at Tiger Electronics, an
interactive software company. From January 1994 to August 1995, Ms. Zimmerer
served as Vice President of Sales, Marketing and Publishing at Terraglyph
Interactive Studios, a developer and publisher of interactive entertainment.
From September 1989 to July 1992, Ms. Zimmerer served as Vice President of Sales
and Marketing and from July 1992 to January 1994, Executive Vice President and
General Manager of Sunsoft USA, a developer and publisher of interactive
entertainment. From August 1988 to August 1989, Ms. Zimmerer served as Central
Regional manager of Enesco Imports, a giftware design company. From July 1985 to
August 1988, Ms. Zimmerer served as North Central Manager of Tonka Toys, Inc.
WILLIAM R. CRAVENS, age 54, joined the Company as Senior Vice
President -- Sales in July 1996. From August 1991 to present, Mr. Cravens has
served as President of Bulldog Amusements, Inc., a location-based video games
distribution organization. From August 1987 to August 1991, Mr. Cravens served
as Vice President of Sales and Marketing at CapCom USA, a location-based video
game company. From August 1984 to August 1987, Mr. Cravens served as Director of
Sales for Nintendo of America, a video game manufacturing corporation.
DAVID ALBERT, age 42, joined the Company as Vice President -- Internal Game
Development in August 1996. From January 1993 to August 1996, Mr. Albert served
as Group Director, Creative Support for SEGA of America, a video games
manufacturing corporation. From September 1990 to January 1993, Mr. Albert
served as a consultant to clients including contract design for Looking Glass
Technologies. From March 1987 to June 1990, Mr. Albert served as Producer for
Electronic Arts, a video game development company. From September 1984 to
February 1987, Mr. Albert served as Vice President of Development and Marketing
at Origin Systems, Inc., a video game manufacturing corporation.
SCOTT FOLCARELLI, age 31, joined the Company as Vice President -- Hardware
in April 1996. From February 1995 to March 1996, Mr. Folcarelli served as
Director of MIS at Digital Pictures, an interactive multimedia entertainment
development company. From October 1993 to February 1995, Mr. Folcarelli served
as Publishing Systems Senior Editor of the San Francisco Examiner. From
September 1986 to September 1993, Mr. Folcarelli served as Digital Lab Manager
at The Sacramento Bee.
AMY R. GURVEY, age 42, joined the Company as Director of Legal and Business
Affairs in September 1996. From January 1992 to September 1996, Ms. Gurvey
served as Senior Attorney, Law and Business
37
<PAGE> 39
Affairs for Newland Raynor/Cameo Productions in New York and Los Angeles, a
television, motion picture and interactive software production company. From
November 1990 to September 1991, Ms. Gurvey served as Senior Associate,
Intellectual Property, Computer and Entertainment Law for Weil Gotshal & Manges
in New York. Ms. Gurvey is admitted to practice law in California and New York.
JOSEPH ETTINGER, age 57, joined the Company as a Director in October 1992.
From August 1974 to June 1993, Mr. Ettinger served in various capacities for
CLAL Industries Ltd., a non-U.S., industrial, multinational conglomerate,
including Senior Vice President and General Manager (USA and Canada) from August
1986.
YAEL COHEN, age 36, who is the wife of Shmuel Cohen, has been a Director
and Secretary of the Company since May 1990.
BOARD MEETINGS AND COMMITTEES
The Board of Directors is responsible for the management of the Company.
During the fiscal year ended October 31, 1995, the Board of Directors held
eleven meetings and each director attended all meetings of the Board.
The Company does not presently have a compensation, audit or nominating
committee or any committees performing similar functions. However, the Company
anticipates creating within 90 days of the date of this Prospectus a
compensation committee which will have power and authority with respect to all
matters pertaining to compensation payable by the Company and the administration
of employee benefits, deferred compensation and the Company's stock option
plans, and an audit committee, which will interact with the Company's
accountants and review accounting policies of the Company. No executive officer
of the Company serves as a member of the Board of Directors or compensation
committee of any entity which has one or more executive officers serving as a
member of the Company's Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long
term compensation during the Company's last three fiscal years of Shmuel Cohen,
the Company's Chief Executive Officer for services rendered in all capacities to
the Company and its subsidiaries.
<TABLE>
<CAPTION>
LONG-TERM AWARDS
ANNUAL COMPENSATION -------------------------
------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING RESTRICTED
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS STOCK AWARDS
- -------------------------------------- ----- ------- ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shmuel Cohen,......................... 1995 $29,167 -- $456,700(1) 200,000(2) --
President and Chief 1994 -- -- 626,000(1) -- --
Executive Officer 1993 -- -- 327,000(1) -- --
of the Company
</TABLE>
- ---------------
(1) Represents amounts paid to Artmedia Ltd., a corporation controlled by Mr.
Cohen, in consideration of the provision by Artmedia of the services of Mr.
Cohen, the Chief Executive Officer of Artmedia, as Chief Executive Officer
of the Company. Mr. Cohen is currently under contract solely to the Company.
See "Employment Agreements".
(2) 120,000 of these options are currently exercisable.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the details of options granted to the
individual listed in the Summary Compensation Table who received options during
fiscal 1995.
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
NUMBER OF GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE
NAME GRANTED FISCAL YEAR PER SHARE EXPIRATION DATE
- -------------------------------- --------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C>
Shmuel Cohen.................... 200,000(1) 23.9% $ 2.44 December 9, 2005
</TABLE>
- ---------------
(1) 120,000 of these options are currently exercisable.
38
<PAGE> 40
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
No options were exercised by any named executive officers during fiscal
1995. The following table contains information at October 31, 1995 concerning
the number and value of unexercised options held by Mr. Cohen.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS HELD AT
HELD AT FISCAL YEAR-END FISCAL YEAR-END
NAME (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(1)
- ----------------------------------------- ----------------------------- ------------------------------
<S> <C> <C>
Shmuel Cohen............................. 120,000/80,000 $ 636,000/$424,000
</TABLE>
- ---------------
(1) Based on the fair market value of the underlying securities (the closing bid
price of Common Stock on the National Association of Securities Dealers
Automated Quotation System -- SmallCap Market) at fiscal year end (October
31, 1995), minus the exercise price.
EMPLOYMENT AGREEMENTS
Mr. Cohen and the Company have entered into an employment agreement that
provides that Mr. Cohen will serve as Chief Executive Officer and President of
the Company for a term beginning on May 3, 1995 and ending five years
thereafter. Mr. Cohen's compensation under his employment agreement includes a
salary of $350,000 per annum and options to purchase 200,000 shares of Common
Stock. 120,000 of these options have vested on or before May 3, 1996 and are
currently exercisable. The remaining 80,000 options will vest on May 3, 1997.
The exercise price of each option is $2.44. The employment agreement includes
non-solicitation, non-compete and confidentiality provisions. Mr. Cohen and the
Company have also entered into a separate agreement that provides contractual
protections against changes in or loss of employment in case of a "change of
control" (as such term is defined in such agreement) of the Company. Such
agreement provides for a lump sum payment equal to 2.99 times Mr. Cohen's "base
amount" (as such term is defined in such agreement), if a change of control
occurs.
Mr. Meyer and the Company have entered into an employment agreement
pursuant to which the Company has employed Mr. Meyer as Chief Operating Officer
effective as of October 14, 1996. Mr. Meyer's annual base salary is $230,000.
The Company also granted to Mr. Meyer options to purchase up to 250,000 shares
of Common Stock. 83,333 options will vest upon completion of the first year of
employment, 83,333 options will vest upon completion of the second year of
employment, and 83,334 options will vest upon completion of the third year of
employment. The exercise price of each option is $8.00. Once vested, such
options must be exercised on or before December 31, 2005. Under the employment
agreement, Mr. Meyer will also receive a $25,000 bonus upon completion of six
months of employment, and an additional $25,000 bonus upon completion of one
year of employment. Under the employment agreement, Mr. Meyer will also received
a bonus of 2,564 shares of Common Stock of the Company upon commencement of
employment. Mr. Meyer's employment is terminable at will by either party.
Mr. Sblendorio and the Company have entered into an employment agreement
that provides that Mr. Sblendorio will serve as Chief Financial Officer of the
Company effective on September 3, 1996. Mr. Sblendorio's compensation under his
employment agreement includes a salary of $200,000 per annum and options to
purchase 180,000 shares of Common Stock at an exercise price of $8.00 per share.
Provided Mr. Sblendorio remains employed by the Company, 60,000 options will
vest on September 3, 1997, 60,000 options will vest on September 3, 1998 and
60,000 options will vest on September 2, 1998. Once vested, such options must be
exercised on or before December 31, 2005. Mr. Sblendorio's employment is
terminable at will by either party. Under the agreement, Mr. Sblendorio can also
receive a bonus of $50,000 at completion of one year of employment, payable at
the discretion of the President of the Company.
Mr. Nolan Bushnell is employed as the Company's Director of Strategic
Planning pursuant to an employment agreement dated April 19, 1996, for a two
year term ending on October 31, 1998. The agreement provides for Mr. Bushnell to
be paid a salary at the rate of $300,000 per annum, and thereafter an annual
salary determined by the Company's Board of Directors at a rate not less than
the initial rate. The Company also granted to Mr. Bushnell options to purchase
up to 1,000,000 shares of stock at an exercise price of $8.00
39
<PAGE> 41
per share, which will vest at 100,000 options per annum over a period of 10
years. Such vesting options may be accelerated by an additional 400,000 options
in each of the next two fiscal years, in the event the Company achieves gross
revenues from the sale and operation of location based, "PlayNet" products of
$35,000,000 in the fiscal year ended October 31, 1997 and $95,000,000 in the
fiscal year ended October 31, 1998. Under the employment agreement, Mr. Bushnell
also received a one-time bonus of $30,000 and was granted 50,000 shares of
Common Stock as an additional sign-on bonus.
Mr. Schiller and the Company have entered into an employment agreement
pursuant to which the Company has employed Mr. Schiller as Chief Information
Officer of the Company effective as of July 15, 1996. Mr. Schiller's base salary
during the first six months of his employment is at the rate of $160,00 per
annum, increasing to the rate of $180,000 per annum on January 15, 1997, and
further increasing to $200,000 during the second and third year of his
employment. The Company also granted to Mr. Schiller options to purchase up to
200,000 shares of Common Stock at an exercise price of $5.50 per share. 33,333
options vested on October 14, 1996, 16,667 options will vest on January 14,
1997, 50,000 options will vest on July 14, 1997, 50,000 options will vest on
July 14, 1998 and 50,000 will vest on July 14, 1999. Once vested, such options
must be exercised on or before June 30, 2006. Under the employment agreement,
Mr. Schiller can also receive a bonus of up to $40,000 at completion of one year
of employment, payable at the discretion of the President of the Company. Mr.
Schiller's employment is terminable at will by either party.
Ms. Zimmerer and the Company have entered into an employment agreement that
provides that Ms. Zimmerer will serve as Executive Vice President of Software of
the Company, effective on August 6, 1996. Ms. Zimmerer's compensation under her
employment agreement includes a salary of $175,000 per annum and options to
purchase 100,000 shares of Common Stock. 33,333 options will vest upon
completion of the first year of employment, 33,333 options will vest upon
completion of the second year of employment and 33,334 options will vest upon
completion of the third year of employment. The exercise price of each option is
$8.00. Once vested, such options must be exercised on or before December 31,
2005. Under the employment agreement, Ms. Zimmerer can also receive a bonus of
$25,000 at completion of one year of employment, based on specific performance
goals to be determined. Ms. Zimmerer's employment is terminable at will by
either party.
Mr. Cravens and the Company have entered into an employment agreement
pursuant to which the Company has employed Mr. Cravens as Vice President of
Sales of Aristo Games, Inc. effective as of July 24, 1996 for a term of three
years. Mr. Cravens' annual base salary during the three year term of his
employment is $160,000. The Company also granted to Mr. Cravens options to
purchase up to 70,000 shares of Common Stock. 6,000 of these options have vested
on July 24, 1996 and are currently exercisable at an exercise price of $5.50 per
share, 6,000 options will vest on January 24, 1997 at an exercise price of $5.50
per share, 18,000 options will vest on July 24, 1997 at an exercise price of
$8.00 per share, 20,000 options will vest on July 24, 1998 at an exercise price
of $8.00 per share and 20,000 options will vest on July 24, 1999 at an exercise
price of $8.00 per share. Once vested, these options must be exercised on or
before December 31, 2005. Mr. Cravens' employment is terminable by either party
upon ninety (90) days prior written notice.
Mr. Albert and the Company have entered into an employment agreement that
provides that Mr. Albert will serve as Vice President of Internal Game
Development of the Company effective on August 12, 1996. Mr. Albert's
compensation under his employment agreement includes a salary of $150,000 per
annum and options to purchase 75,000 shares of Common Stock. 25,000 options will
vest upon completion of the first year of employment, 25,000 options will vest
upon completion of the second year of employment and 25,000 options will vest
upon completion of the third year of employment. The exercise price of each
option is $8.00. Once vested, such options must be exercised on or or before
December 31, 2005. Mr. Albert's employment is terminable at will by either
party.
Ms. Gurvey and the Company have entered into an employment agreement that
provides that Ms. Gurvey will serve as Director of Legal and Business Affairs of
the Company, effective on September 24, 1996. Ms. Gurvey's annual base salary is
$140,000. The Company has also granted to Ms. Gurvey options to purchase up to
30,000 shares of Common Stock at an exercise price of $9.00 per share. 10,000
options will vest upon the completion of the first year of employment, 10,000
options will vest upon the completion of the
40
<PAGE> 42
second year of employment, and 10,000 options will vest upon the completion of
the third year of employment. Once vested, such options must be exercised on or
before December 31, 2005.
Mr. Nunally and the Company have entered into an employment agreement
pursuant to which the Company has employed Mr. Nunally as Chief Engineer
effective as of March 25, 1996. Mr. Nunally's annual base salary is $120,000.
The Company also granted to Mr. Nunally options to purchase up to 25,000 shares
of Common Stock at an exercise price of $8.00. 12,500 options will vest upon
completion of the first year of employment and 12,500 options will vest upon
completion of the second year of employment. Once vested, such options must be
exercised on or before December 31, 2005. Mr. Nunally's employment is terminable
at will by either party.
Mr. Folcarelli and the Company have entered into an employment agreement
pursuant to which the Company has employed Mr. Folcarelli as Vice
President -- Hardware effective as of March 26, 1996. Mr. Folcarelli's annual
base salary was $90,000, is currently $120,000, and under the amended employment
agreement, Mr. Folcarelli's base salary will be increased to $150,000 starting
November 1, 1996. The Company also granted to Mr. Folcarelli options to purchase
up to 75,000 shares of Common Stock at an exercise price of $9.00. 15,000
options will vest on March 26, 1997, 30,000 options will vest on March 26, 1998
and 30,000 options will vest on March 26, 1999. Once vested, such options must
be exercised on or before December 31, 2005. Under the agreement, Mr. Folcarelli
also received a one-time bonus of $15,000. Mr. Folcarelli's employment is
terminable at will by either party.
No executive officer of the Company serves as a member of the Board of
Directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors.
STOCK OPTION PLANS
The Company currently maintains three stock option plans that provide for
the granting of options to key employees (including directors and officers who
are key employees), and consultants and directors who are not employees, of the
Company and its subsidiaries (the "Plans"). The Company may grant options to
purchase up to 500,000 shares under its 1994 Stock Option Plan (the "1994
Plan"), grant options to purchase up to 1,000,000 shares under its 1995 Stock
Option Plan (the "1995 Plan") and award shares or grant options to purchase up
to 1,500,000 shares under its 1996 Stock Option Plan (the "1996 Plan"). Options
granted under the Plans may either be incentive stock options ("ISOs"), within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
(the "Code"), or non-qualified options ("NQSOs"). ISOs, however, may only be
granted to employees of the Company and its subsidiaries. The 1996 Plan has been
submitted for stockholder approval. If the stockholders fail to approve the 1996
Plan before September 5, 1997, the Plan will be abandoned and any options
granted thereunder will be rescinded.
The Plans are currently administered by the Board of Directors, but it is
intended that administration of the Plans will in the near future be delegated
to a committee of the Board of Directors (such committee, or until its
appointment the entire Board of Directors, the "Committee"), consisting of at
least two directors who are outside directors within the meaning of Section
162(m) of the Code, complying with the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended.
To the extent provided in the Plans, the Committee is authorized to
determine, among other things, to whom and the time or times at which options
are to be granted, the type of options to be granted, the number of shares which
will be subject to any option, the term of each option, the exercise price of
each option, the time or times and conditions under which options may be
exercised, and such other terms not inconsistent with the Plans as the Committee
may deem appropriate.
The exercise price of each option is determined by the Committee; provided,
however, that the exercise price of an ISO may not be less than the fair market
value of the Common Stock on the date of grant (110% of such fair market value
if the optionee owns more than 10% of the voting power of the Company or is an
outside director). The maximum number of shares of Common Stock for which
options may be granted to an employee in any calendar year is 100,000 under the
1994 Plan and 1995 Plan and 250,000 under the 1996
41
<PAGE> 43
Plan. Each option is payable in full upon exercise or, if the applicable
contract permits, in installments. Payment of the exercise price of an option
may be made in cash, or, if the applicable contract permits, in shares of Common
Stock or any combination thereof.
No option may be granted pursuant to the 1994 Plan after December 9, 2004,
pursuant to the 1995 Plan after July 27, 2000, and pursuant to the 1996 Plan
after September 5, 2006. The Committee may at any time terminate or amend any
Plan; provided, however, that, without the approval of the Company's
stockholders, no amendment may be made which would (i) increase the maximum
number of shares available for the grant of options (except as a result of the
antidilution adjustments described above), (ii) materially increase the benefits
accruing to participants under the Plans, or (iii) change the eligibility
requirements for individuals who may receive options. No termination or
amendment may adversely affect the rights of an optionee with respect to an
outstanding option without his or her consent.
As of September 30, 1996, options to purchase 395,000 shares of Common
Stock have been granted under the 1994 Plan, options to purchase 1,000,000
shares of Common Stock have been granted under the 1995 Plan, and options to
purchase 1,425,067 shares of Common Stock have been granted under the 1996 Plan.
None of such options has been exercised and all such options are outstanding.
42
<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of October 11, 1996
and as adjusted to reflect the sale of the Common Stock offered hereby,
regarding the beneficial ownership of the Common Stock by (i) each person known
by the Company to own more than five percent (5%) of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) each of the executive
officers named in the Summary Compensation Table herein under "Executive
Compensation," and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
SHARES OWNED
---------------------
NAME AND ADDRESS AMOUNT AND NATURE BEFORE AFTER
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OFFERING OFFERING
- ------------------------------------------------------ ----------------------- -------- --------
<S> <C> <C> <C>
Shmuel Cohen(1)....................................... 2,342,631(2) 15.53% 13.71%
c/o Aristo International Corporation
152 West 57th Street
New York, New York 10019
Mrs. Yael Cohen....................................... 0(3) 0.00% 0.00%
5 Cove Lane
Kings Point, New York 11024-1722
Castellon Limited(1)(4)............................... 2,271,421(5) 15.13% 13.35%
Russell Court
St. Stephens Green
Dublin, Ireland
Joseph Ettinger(1)(4)................................. 2,271,421(5) 15.13% 13.35%
c/o Castellon Limited
Russell Court
St. Stephens Green
Dublin, Ireland
Ron Borta............................................. 1,127,273(6) 7.53% 6.64%
14 Oak Lane
Sterling, Virginia 20165
N.Y. Holdings, Ltd.(1)................................ 895,336(7) 5.93% 5.24%
c/o Herzog, Fox & Neeman
4 Weizman Street
Tel Aviv 64239, Israel
All directors and executive officers as a group (5
persons)............................................ 4,614,052(2)(8) 30.49% 26.93%
</TABLE>
- ---------------
(1) Pursuant to a ten year proxy agreement dated June 30, 1992, Mr. Cohen,
Castellon Limited and N.Y. Holdings, Ltd. have agreed that for so long as
each party is a stockholder of the Company, each party will vote his or
their shares of Common Stock, currently constituting approximately 36.12% of
the outstanding Common Stock (31.93% of the Common Stock outstanding after
the offering), for the election of up to three directors to be designated by
Mr. Cohen, up to two directors to be designated by Castellon Limited and up
to one director to be designated by N.Y. Holdings, Ltd. The sole beneficial
owner of Castellon Limited is Mr. Joseph Ettinger.
(2) Includes 120,000 shares issuable upon exercise of currently exercisable
stock options.
(3) Shmuel Cohen and Yael Cohen are husband and wife and each may be deemed to
be the beneficial owner of the shares owned by Mr. Cohen. Mrs. Cohen
disclaims beneficial ownership of such shares.
(4) Mr. Ettinger is the President and sole beneficial owner of Castellon Limited
and may therefore be deemed to be the beneficial owner of all of the shares
of Common Stock owned by Castellon Limited.
(5) Includes 47,273 shares issuable in payment, at the option of the holder, of
a $260,000 convertible promissory note.
(6) Includes 181,818 shares owned by Leslie Davis, Mr. Borta's wife.
(7) Includes 120,000 shares issuable upon exercise of a currently exercisable
stock option.
(8) Includes 167,273 shares issuable upon the exercise of currently exercisable
stock options or in payment of a convertible promissory note held by a
corporation controlled by a director.
43
<PAGE> 45
CERTAIN TRANSACTIONS
On May 13, 1996, the Company, Ron Borta and Leslie Davis entered into a
binding agreement which provides for, among other things, the resignation of Ron
Borta and Leslie Davis as officers and/or directors of Borta, Inc., a company
which was acquired by Aristo on July 31, 1995. In connection therewith, Mr.
Borta and Ms. Davis surrendered all options to purchase Common Stock previously
granted to either of them, and Mr. Borta surrendered 357,143 restricted shares
of Common Stock previously granted to him, together with any other options,
incentive payments or rights related thereto. In connection with their
severance, the Company will pay them $180,000 in the aggregate over the period
ending on January 15, 1997. In addition, of the $425,000 remaining to be paid to
Ron Borta pursuant to his signing bonus with the Company, $5,000 was paid upon
the execution of definitive agreements relating to the resignations, $150,000
was paid on August 30, 1996, and the balance is payable on December 31, 1996.
On July 1, 1995, the Company entered into a consulting agreement with
Castellon Limited, a stockholder of the Company which presently owns
approximately 15.13% of the Company's Common Stock. Pursuant to this consulting
agreement, Castellon Limited is paid a cash fee of $10,000 per month for
consulting services rendered to the Company relating to joint ventures,
strategic partnerships and investor relations outside the United States. Prior
to July 1, 1995, Castellon Limited provided consulting services to the Company
pursuant to other written agreements. During the years ended October 31, 1995
and 1994 and during the cumulative period from June 4, 1990 (inception) to
October 31, 1995, the Company paid to Castellon Limited fees totaling
approximately $70,000, $75,000 and $228,000, respectively, in consideration of
such consulting services. Mr. Joseph Ettinger, a director of the Company, is the
President of Castellon Limited.
On December 29, 1995, the Company issued to Castellon Limited a promissory
note in the principal amount of $260,000, in exchange for, and in full payment
of, the principal and accrued interest on a promissory note originally issued to
Castellon Limited on August 1, 1995. Under the terms of this promissory note,
the principal amount thereof is due on January 1, 1997, and interest is due and
payable in four quarterly installments, each in the amount of $13,000, beginning
on April 1, 1996. The Company has agreed to issue, at the option of the holder
of the promissory note, up to 47,273 shares of Common Stock, in lieu of cash, in
payment of the principal amount of the note (at a price of $5.50 per share).
Castellon has given written notice to the Company that it intends to receive
payment of the entire principal amount in shares of Common Stock, although
Castellon is not, by reason of this notice, legally obligated to do so.
In May 1995, the Company sold to Castellon Limited 33,350 shares of
Preferred Stock in consideration of the payment by Castellon of $100,050 in
cash. The terms of this Preferred Stock provided for cumulative monthly
dividends at a rate per annum equal to 11% of the amount paid by Castellon
Limited in consideration of such Preferred Stock, commencing June 15, 1995. So
long as any shares of Preferred Stock were outstanding, the Company could not
declare, pay, or set apart for payment any dividend or make any other payment on
account of any of the shares of Common Stock, unless and until all accrued and
unpaid dividends on the shares of Preferred Stock had been paid in full. The
shares of Preferred Stock were redeemable at any time at the option of the
Company. On May 15, 1996, all of such outstanding shares of Preferred Stock were
converted to 18,191 shares of Common Stock at a conversion price of $5.50 per
share.
On September 30, 1994, the Company issued 159,236 shares of Common Stock to
Castellon Limited as a result of the conversion of a $200,000 promissory note.
In addition, on May 3, 1995, as a result of the Merger, the Company issued to
Castellon 38,350 shares of Common Stock pursuant to an anti-dilution provision
of this promissory note.
On June 27, 1996, the Company issued to N.Y. Holdings, Ltd. a promissory
note in the principal amount of $330,000, bearing interest at the prime rate,
due on October 31, 1996. In connection therewith, the Company granted an option
to N.Y. Holdings, Ltd. to purchase, at any time before December 31, 1996,
120,000 shares of Common Stock for an aggregate price of $660,000. N.Y. Holdings
Ltd. has given written notice to the Company that it intends to exercise the
option with respect to 60,000 shares of Common Stock by applying the principal
amount of the note to the purchase price therefore (in lieu of any cash payment
thereof by the Company), although N.Y. Holdings, Ltd. is not, by reason of this
notice, legally obligated to do so.
44
<PAGE> 46
During March 1995, the Company issued 115,050 shares of Common Stock to
Shmuel Cohen in exchange for original graphic images produced by contemporary
artists beneficially owned by Mr. Cohen together with the rights for digital
reproduction.
From June 4, 1990 through September 30, 1995, the Company obtained the
services of Shmuel Cohen, its President and Chief Executive Officer, from
another company of which Mr. Cohen is the sole stockholder. Fees paid to this
company for the services of Mr. Cohen during the fiscal years ended October 31,
1995 and 1994 and for the cumulative period from June 4, 1990 (inception) to
October 31, 1995 were approximately $456,700, $626,000 and $2,084,700,
respectively. On February 1, 1995, the Company entered into an employment
agreement with Shmuel Cohen, its President and Chief Executive Officer. See
"Executive Compensation -- Employment Agreements." Commencing October 1995, the
Company began compensating Mr. Cohen as President and Chief Executive Officer
pursuant to this employment agreement, and since such date has not paid fees to
any other person in connection with the services of Mr. Cohen, and does not
intend to do so in the future.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 40,000,000 shares of Common Stock, par
value $.001 per share, and 1,000,000 shares of preferred stock, par value $.001
per share. As of the date of this Prospectus, the Company had 14,966,661 shares
of Common Stock outstanding held of record by approximately 800 holders. No
shares of Preferred Stock are currently outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of Preferred Stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive dividends when, as, and if
declared by the Board of Directors out of funds legally available therefor and,
upon the liquidation, dissolution or winding up of the Company, are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of accrued dividends and liquidation preferences on the Preferred Stock, if any.
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities. All outstanding shares of Common
Stock are, and the shares of Common Stock offered hereby upon issuance and when
paid for, will be, duly authorized, validly issued, fully paid and
nonassessable.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Following the consummation of this offering, the Company will be subject to
the provisions of Section 203 of the Delaware General Corporation Law ("DGCL").
In general, this statute prohibits a publicly held Delaware corporation from
engaging, under certain circumstances, in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless (i)
prior to the date at which the stockholder became an interested stockholder, the
board of directors approved either the business combination or the transaction
in which the person becomes an interested stockholder; (ii) the stockholder
acquires more than 85% of the outstanding voting stock of the corporation
(excluding shares held by directors who are officers or held in certain employee
stock plans) upon consummation of the transaction in which the stockholder
becomes an interested stockholder; or (iii) the business combination is approved
by the board of directors and by at least 66 2/3% of the outstanding voting
stock of the corporation (excluding shares held by the interested stockholder)
at a meeting of stockholders (and not by written consent) held on or subsequent
to the date such stockholder became an interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
at any time within the prior three years did own) 15% or more of the
corporation's voting stock. Section 203 defines a "business combination" to
include, without limitation, mergers, consolidations,
45
<PAGE> 47
stock sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
LIMITATION ON DIRECTORS' LIABILITY
In accordance with the DGCL, the Company's Certificate of Incorporation
provides that the directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach duty as a director
except (i) for any breach of the director's duty of loyalty to the Company and
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct, or knowing violation of law, (iii) under Section 174 of
the DGCL, which relates to unlawful payments of dividends and unlawful stock
repurchases and redemptions or (iv) for any transaction from which the director
derived an improper personal benefit. This provision does not eliminate a
director's fiduciary duties; it merely eliminates the possibility of damage
awards against a director personally which may be occasioned by certain
unintentional breaches (including situations that may involve grossly negligent
business decisions) by the director of those duties. The provision has no effect
on the availability of equitable remedies, such as injunctive relief or
rescission, which might be necessitated by a director's breach of his or her
fiduciary duties. However, equitable remedies may not be available as a
practical matter where transactions (such as merger transactions) have already
been consummated. The inclusion of this provision in the Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefited
the Company and its stockholders.
INDEMNIFICATION
The Company's Certificate of Incorporation provides that the Company shall
indemnify its officers, directors, employees and agents to the fullest extent
permitted by the DGCL. Section 145 of the DGCL provides that the Company may
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 a "derivative"
action by or in the right of the Company) by reason of the fact that such person
is or was a director, officer, employee or agent of the Company, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe was unlawful.
A similar standard of care is applicable in the case of derivative actions,
except that no indemnification shall be made where the person is adjudged to be
liable to the Company, unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action was brought
determines that such person is fairly and reasonably entitled to such indemnity
and such expenses.
TRANSFER AGENT
Continental Stock Transfer & Trust Company, New York, New York is the
transfer agent for the Common Stock.
46
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
16,966,661 shares of Common Stock, of which the 2,000,000 shares sold in this
offering and the 1,098,810 shares of Common Stock outstanding prior to the
merger of the Company and the Predecessor in May 1995 will be freely tradeable
without restriction or further registration under the Securities Act, except for
those shares held by "affiliates" (as defined in the Securities Act) of the
Company. The remaining 13,867,851 shares are "restricted securities" within the
meaning of Rule 144 adopted under the Securities Act and will be eligible for
public sale under Rule 144 from time to time after May 3, 1997, subject to the
manner of sale, volume, notice and information requirements of Rule 144 and to
the 180-day and 90-day lock up arrangements described below. With respect to
certain stockholders subject to the 90-day lock-up arrangement, the Company
intends to file a registration statement with the Commission approximately three
months after the date of this Prospectus to register, of the 13,867,851 shares
which are "restricted securities", approximately 1,180,000 shares of Common
Stock sold by the Company in private placements between August and October 1996,
thereby increasing the number of freely tradeable securities to 4,878,810 shares
of Common Stock.
In addition, 500,000 shares of Common Stock are reserved for issuance under
the Company's 1994 Stock Option Plan, 1,000,000 shares of Common Stock are
reserved for issuance under the Company's 1995 Stock Option Plan and 1,500,000
shares of Common Stock are reserved for issuance under the Company's 1996 Stock
Option Plan. Of these shares, 2,820,067 shares are issuable upon the exercise of
outstanding stock options granted by the Company. The Company intends to file a
registration statement on Form S-8 with the Commission to register the shares of
Common Stock that may be issued under these plans.
The Company, each of its directors and officers and certain other
stockholders of the Company have agreed not to sell, offer for sale, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable for shares of Common Stock or any right to
acquire Common Stock for a period of 180 days (and with respect to certain other
stockholders of the Company, 90 days) following the date of this Prospectus,
without the prior written consent of the Representative. See "Underwriting."
Sales of substantial amounts of shares of Common Stock in the public market, or
the availability of such shares for future sale, could adversely affect the
market price of the Common Stock and could impair the Company's future ability
to raise additional capital through an offering of its equity securities.
47
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representative
Allen & Company Incorporated (the "Representative"), have severally agreed to
purchase from the Company the following respective numbers of shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF
UNDERWRITER COMMON STOCK
--------------------------------------------------------------------- ----------------
<S> <C>
Allen & Company Incorporated.........................................
---------
Total...................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of Common Stock offered hereby (other than
shares that may be purchased under the over-allotment option) if any of such
shares are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the public offering, the offering
price, concessions and other selling terms may be changed by the Representative.
The Company has agreed to reimburse the Representative amounts up to
$150,000 towards it's out-of-pocket expenses incurred in connection with this
Offering.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of the Underwriting Agreement, to purchase up
to 300,000 additional shares of Common Stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to the total number
of shares of Common Stock initially offered hereby, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those shares
initially offered hereby.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
The Company, each of its directors and officers and certain other
stockholders of the Company have agreed not to sell, offer for sale, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable for shares of Common Stock or any rights to
acquire Common Stock for a period of 180 days (and with respect to certain other
stockholders of the Company, 90 days) following the date of this Prospectus
without the prior written consent of the Representative. See "Shares Eligible
for Future Sale."
The Representative has acted as financial advisor to the Company in the
past and may act as its financial advisor and/or investment banker in the
future. In consideration for advisory services rendered by the Representative in
February, 1996, the Company has agreed to pay to the Representatives a fee of
$100,000
48
<PAGE> 50
payable monthly in arrears over a twelve month period commencing in February
1996 and issued to Allen warrants exercisable by the Representatives from time
to time after the first anniversary of the date of issuance and prior to the
fifth anniversary thereof to purchase 448,101 shares of the Company's Common
Stock. The Representative has also acted as placement agent for the Company in
connection with the private placement of 1,180,000 shares of its Common Stock
which was consummated in August 1996. In consideration for services rendered by
the Representatives for such private placement, the Company paid to the
Representative a fee of $413,000 representing 7% of the gross proceeds raised in
such financing.
The Underwriters may engage in passive market making transactions in the
Common Stock, in accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A
generally allows Nasdaq market makers participating in the distribution of the
Common Stock to conduct passive market making activities in the two business day
"cooling off period" prior to commencement of the distribution if, among other
things, (I) bids offered for the Common Stock during such period by any such
market maker are at prices no greater than the independent bid prices offered
for the Common Stock by other market makers not participating in such
distribution, and (ii) purchases of the Common Stock during such period by any
such market maker do not exceed the volume and other limitations established by
Rule 10b-6A.
The Underwriters have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Parker Chapin Flattau & Klimpl,
LLP, New York, New York. Werbel & Carnelutti, A Professional Corporation, New
York, New York, will act as counsel for the Underwriters in connection with the
offering.
EXPERTS
The financial statements of the Company as at October 31, 1995 and 1994 and
for each of the three years ended October 31, 1995 included in this Prospectus
have been audited by Coopers & Lybrand, L.L.P., independent auditors, as
indicated in their reports with respect thereto, and are included herein in
reliance upon such reports given upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and the rules and regulations promulgated thereunder, and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at prescribed rates
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following regional offices of the Commission: 7 World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Upon written or oral request, the Company will
provide, without charge, to each person who receives a copy of this Prospectus,
a copy of any of the information that is incorporated by reference herein. Any
such request should be made to the attention of Glenn P. Sblendorio at Aristo
International Corporation, 152 West 57th Street, New York, New York 10019,
telephone no. (212) 586-2400.
The Company has filed with the Commission, 450 Fifth Street, N.W.
Washington, D.C. 20549, a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act , as amended, with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits thereto. For further
information regarding the Company and the securities offered hereby, reference
is made to the Registration Statement and to the exhibits filed as a part
thereof, which may be inspected at the offices of the Commission at 450 Fifth
Street, N.W., Washington, D.C.
49
<PAGE> 51
20549 without charge or copied upon request to the Public Reference Section of
the Commission and payment of the prescribed fee. This Registration Statement
has been filed electronically through the Electronic Data Gathering Analysis and
Retrieval system (EDGAR) and is publicly available through the Commission's web
site (http://www.sec.gov). Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
50
<PAGE> 52
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Accountants................................................... F-2
Consolidated Balance Sheets as of October 31, 1994 and 1995 and July 31, 1996
(unaudited)....................................................................... F-3
Consolidated Statements of Operations for the years ended October 31, 1993, 1994 and
1995; the unaudited nine months ended July 31, 1995 and 1996; the cumulative
periods from June 4, 1990 (inception) to October 31, 1995 and to July 31, 1996
(unaudited)....................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended October 31,
1991, 1992, 1993, 1994 and 1995 and for the period from June 4, 1990 (inception)
to July 31, 1996 (unaudited)...................................................... F-5
Consolidated Statements of Cash Flows for the years ended October 31, 1993, 1994 and
1995; the unaudited nine months ended July 31, 1995 and 1996; the cumulative
periods from June 4, 1990 (inception) to October 31, 1995 and to July 31, 1996
(unaudited)....................................................................... F-8
Notes to Consolidated Financial Statements.......................................... F-12
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Aristo International Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of ARISTO
INTERNATIONAL CORPORATION and SUBSIDIARIES (a development stage enterprise) as
of October 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the fiscal years
then ended and the cumulative period from June 4, 1990 (inception) to October
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Aristo
International Corporation and Subsidiaries as of October 31, 1994 and 1995, and
the consolidated results of their operations and their consolidated cash flows
for the fiscal years then ended and the cumulative period from June 4, 1990
(inception) to October 31, 1995, in conformity with generally accepted
accounting principles.
New York, New York
December 21, 1995, except as to Notes 5(b) and 12,
for which the date is January 5, 1996
F-2
<PAGE> 54
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1994 AND 1995 AND JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1994 1995
----------- ------------ JULY 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents........................... $ 502,993 $ 540,297 $ 544,104
Restricted cash..................................... 336,831 442,430 446,168
Marketable securities............................... 66,000 1,500 --
Prepaid expenses and other current assets........... 20,713 236,319 253,431
----------- ------------ ------------
Total current assets........................ 926,537 1,220,546 1,243,703
Fixed assets -- at cost, net.......................... 76,088 252,456 646,250
Patents, net.......................................... 82,762 77,034 72,738
Capitalized software, net............................. -- 7,907,937 7,041,498
Goodwill, net......................................... -- 1,164,161 1,034,813
Other assets.......................................... 254,211 426,195 439,931
----------- ------------ ------------
Total assets................................ $ 1,339,598 $ 11,048,329 $ 10,478,933
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Accounts payable and accrued expenses............... $ 272,463 $ 661,045 $ 2,054,345
Notes payable -- bank............................... 406,000 406,000 406,000
Convertible term loans -- stockholders.............. -- 375,000 450,000
Payable to stockholder.............................. -- 500,000 420,000
Capital leases -- current........................... -- 25,313 65,583
----------- ------------ ------------
Total current liabilities................... 678,463 1,967,358 3,395,928
Convertible term loans -- stockholders................ 1,025,000 565,000 1,976,500
Capital leases -- long term........................... -- 59,209 164,233
Deferred rent......................................... 172,705 158,891 148,530
----------- ------------ ------------
Total liabilities........................... 1,876,168 2,750,458 5,685,191
Stockholder's equity (deficit):
Preferred stock, $.001 par value; authorized
1,000,000 shares; issued and outstanding 0;
33,350 and 0 (unaudited), respectively........... -- 33 --
Common stock, $.001 par value; authorized 19,000,000
shares; issued and outstanding 7,955,951;
13,199,945 and 13,632,044 (unaudited),
respectively..................................... 7,956 13,200 13,632
Additional paid in-capital.......................... 6,279,398 21,871,438 23,965,229
Deferred compensation expense....................... -- (1,846,429) --
Deficit accumulated during the development stage.... (6,823,924) (11,740,371) (19,185,119)
----------- ------------ ------------
Total stockholders' equity (deficit)........ (536,570) 8,297,871 4,793,742
----------- ------------ ------------
Total liabilities and stockholders' equity
(deficit)................................. $ 1,339,598 $ 11,048,329 $ 10,478,933
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 55
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995; THE UNAUDITED NINE MONTHS
ENDED
JULY 31, 1995 AND 1996; THE CUMULATIVE PERIODS FROM JUNE 4, 1990
(INCEPTION) TO OCTOBER 31, 1995 AND TO JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM SINCE
JUNE 4, 1990 NINE MONTHS ENDED JUNE 4, 1990
YEARS ENDED OCTOBER 31, (INCEPTION) TO JULY 31, (INCEPTION) TO
--------------------------------------- OCTOBER 31, 1995 ------------------------- JULY 31, 1996
1993 1994 1995 (SEE NOTE 1(B)) 1995 1996 (SEE NOTE 1(B))
----------- ----------- ----------- ---------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Royalty revenue........ $ 58,334 $ 16,005 $ 9,327 $ 116,999 $ 4,749 $ 6,002 $ 123,001
Production revenue..... -- -- 148,300 148,300 -- 192,347 340,647
----------- ----------- ----------- ------------ ----------- ----------- ------------
Total revenue...... 58,334 16,005 157,627 265,299 4,749 198,349 463,648
Selling, general
and administrative
expenses............. (1,577,812) (2,141,400) (3,678,823) (9,457,431) (2,246,117) (4,718,082) (14,175,513)
Research and
development
expenses............. (82,025) (47,205) (603,133) (1,622,853) (321) (2,781,019) (4,403,872)
Interest expense....... (41,383) (46,525) (101,237) (234,145) (59,029) (167,738) (401,883)
Interest and other
income............... 6,576 (9,519) 109,109 108,749 90,632 38,961 147,710
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net loss........... (1,636,310) (2,228,644) (4,116,457) (10,940,381) (2,210,086) (7,429,529) (18,369,910)
Dividends on preferred
stock................ -- -- (4,585) (4,585) -- (15,219) (19,804)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net loss applicable
to common
shareholders......... $(1,636,310) $(2,228,644) $(4,121,042) $(10,944,966) $(2,210,086) $(7,444,748) $ (18,389,714)
=========== =========== =========== ============ =========== =========== ============
Weighted average number
of common shares
outstanding.......... 7,723,767 9,244,593 10,388,926 9,714,981 13,554,091
=========== =========== =========== =========== ===========
Net loss per share..... $ (0.21) $ (0.24) $ (0.40) $ (0.23) $ (0.55)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 56
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1991, 1992, 1993, 1994 AND 1995 AND FOR THE
PERIOD FROM JUNE 4, 1990 (INCEPTION) TO JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK(1) ADDITIONAL DURING THE DEFERRED
---------------- -------------------- PAID IN DEVELOPMENT COMPENSATION
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE EXPENSE
------- ------ ---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for initial
capitalization ($0.18 per share)... 3,334,780 $3,335 $ 596,665
Issuance of common stock during
November for cash ($0.12 per
share)............................. 1,764,099 1,764 218,526
Sale of common stock during October
for cash ($1.29 per share)......... 155,067 155 199,845
Exchange of common stock during
October for services at estimated
value ($1.28 per share)............ 78,367 78 99,922
Net loss for the year ended October
31, 1991........................... $(1,478,158 )
------ --- --------- ------- ---------- ------------ -----------
Balance, October 31, 1991............ 5,332,313 5,332 1,114,958 (1,478,158 )
Sale of common stock during the year
for cash ($0.85 per share)......... 1,589,023 1,589 1,348,411
Sale of common stock during the year
for cash ($1.17 per share)......... 235,102 235 274,765
Exchange of common stock during
August for services at estimated
value ($1.28 per share)............ 78,367 79 99,921
Net loss for the year ended October
31, 1992........................... (1,480,812 )
------ --- --------- ------- ---------- ------------ -----------
Balance, October 31, 1992............ 7,234,805 7,235 2,838,055 (2,958,970 )
Sale of common stock during the year
for cash ($1.63 per share)......... 611,932 612 999,388
Sale of common stock during the year
for cash ($1.28 per share)......... 195,085 195 249,805
<CAPTION>
COMMON STOCK HELD
IN TREASURY STOCK
---------------------- SUBSCRIPTION
SHARES AMOUNT RECEIVABLE TOTAL
----------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Issuance of common stock for initial
capitalization ($0.18 per share)... $ 600,000
Issuance of common stock during
November for cash ($0.12 per
share)............................. 220,290
Sale of common stock during October
for cash ($1.29 per share)......... 200,000
Exchange of common stock during
October for services at estimated
value ($1.28 per share)............ 100,000
Net loss for the year ended October
31, 1991........................... (1,478,158)
----------- -------- -------- -----------
Balance, October 31, 1991............ (357,868)
Sale of common stock during the year
for cash ($0.85 per share)......... 1,350,000
Sale of common stock during the year
for cash ($1.17 per share)......... 275,000
Exchange of common stock during
August for services at estimated
value ($1.28 per share)............ 100,000
Net loss for the year ended October
31, 1992........................... (1,480,812)
----------- -------- -------- -----------
Balance, October 31, 1992............ (113,680)
Sale of common stock during the year
for cash ($1.63 per share)......... $(80,000) 920,000
Sale of common stock during the year
for cash ($1.28 per share)......... 250,000
Exchange of common stock during May
for services at estimated value
($1.29 per share).................. 116,717 117 149,883
Exchange of common stock during
October for services at estimated
value ($1.33 per share)............ 15,006 15 19,985
Exchange of common stock during
October for patent rights at
estimated value ($1.28 per
share)............................. 39,184 39 49,961
Purchase of treasury stock for cash
($0.04 per share)..................
Net loss for the year ended October
31, 1993........................... (1,636,310 )
------ --- --------- ------- ---------- ------------ -----------
Balance, October 31, 1993............ 8,212,729 8,213 4,307,077 (4,595,280 )
Sale of common stock during the year
for cash ($1.46 per share)......... 1,030,447 1,030 1,498,970
Exchange of common stock during
January for services at estimated
value ($1.33 per share)............ 15,007 15 19,985
Exchange of common stock during
January for services at estimated
value ($1.46 per share)............ 34,181 34 49,966
<CAPTION>
Exchange of common stock during May
($1.29 per share).................. 150,000
Exchange of common stock during
October for services at estimated
value ($1.33 per share)............ 20,000
Exchange of common stock during
October for patent rights at
estimated value ($1.28 per
share)............................. 50,000
Purchase of treasury stock for cash
($0.04 per share).................. (1,667,390) $(60,000) (60,000)
Net loss for the year ended October
31, 1993........................... (1,636,310)
----------- -------- -------- -----------
Balance, October 31, 1993............ (1,667,390) (60,000) (80,000) (419,990)
Sale of common stock during the year
for cash ($1.46 per share)......... 1,500,000
Exchange of common stock during
January for services at estimated
value ($1.33 per share)............ 20,000
Exchange of common stock during
January for services at estimated
value ($1.46 per share)............ 50,000
<CAPTION>
for services at estimated value
</TABLE>
F-5
<PAGE> 57
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK(1) ADDITIONAL DURING THE DEFERRED
---------------- -------------------- PAID IN DEVELOPMENT COMPENSATION
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE EXPENSE
------- ------ ---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Conversion of note payable and
accrued interest into common stock
($1.53 per share).................. 171,741 172 261,892
Conversion of note payable into
common stock ($1.26 per share)..... 159,236 159 199,841
<CAPTION>
COMMON STOCK HELD
IN TREASURY STOCK
---------------------- SUBSCRIPTION
SHARES AMOUNT RECEIVABLE TOTAL
----------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Conversion of note payable and
accrued interest into common stock
($1.53 per share).................. 262,064
Conversion of note payable into
common stock ($1.26 per share)..... 200,000
Repayment of stock subscription
receivable.........................
Retirement of treasury stock during
October............................ (1,667,390) (1,667 ) (58,333)
Net loss for the year ended October
31, 1994........................... (2,228,644 )
------- ------ ---------- ------- ----------- ------------ ------------
Balance, October 31, 1994............ 7,955,951 7,956 6,279,398 (6,823,924 )
Conversion of notes payable into
common stock ($1.23 per share)..... 834,529 835 1,024,165
Sale of common stock during November
for cash ($1.53 per share)......... 235,936 236 359,764
Sale of common stock during March for
cash ($2.22 per share)............. 450,195 450 999,550
Exchange of common stock in March for
graphic illustrations ($2.22 per
share)............................. 115,050 115 255,440
Issuance of common stock per anti-
dilution provision................. 38,350 38 (38)
Sale of preferred stock in May for
cash ($3.00 per share)............. 33,350 $ 33 -- -- 100,017
Equity acquired from the reverse
acquisition with Astro-Stream...... 1,098,997 1,099 806,205 (795,405 )
Issuance of common stock as a result
of the acquisition of Borta, Inc.
($4.67 per share).................. 1,818,182 1,818 8,498,182
Grant of common stock ($5.50 per
share)............................. 357,143 357 1,963,929 $(1,964,286)
Sale of common stock during August
for cash ($4.50 per share)......... 66,666 67 299,933
Sale of common stock during August
for cash ($5.50 per share)......... 93,500 94 514,156
Exchange of common stock in August
for consulting services ($6.50 per
share)............................. 25,000 25 162,475
Exchange of common stock in August
for consulting services ($5.75 per
share)............................. 3,687 4 21,196
Exchange of common stock in August
for consulting services ($5.50 per
share)............................. 395 -- 2,172
Sale of common stock during September
for cash ($5.50 per share)......... 96,364 96 529,904
Sale of common stock during October
for cash ($5.50 per share)......... 10,000 10 54,990
Amortization of deferred compensation
expense............................ 117,857
Dividend on preferred stock.......... (4,585 )
Net loss for the year ended October
31, 1995........................... (4,116,457 )
------- ------ ---------- ------- ----------- ------------ ------------
<CAPTION>
Repayment of stock subscription
Retirement of treasury stock during
October............................ 1,667,390 60,000
Net loss for the year ended October
31, 1994........................... (2,228,644)
----------- -------- ------------ -----------
Balance, October 31, 1994............ (536,570)
Conversion of notes payable into
common stock ($1.23 per share)..... 1,025,000
Sale of common stock during November
for cash ($1.53 per share)......... 360,000
Sale of common stock during March for
cash ($2.22 per share)............. 1,000,000
Exchange of common stock in March for
graphic illustrations ($2.22 per
share)............................. 255,555
Issuance of common stock per anti-
dilution provision................. --
Sale of preferred stock in May for
cash ($3.00 per share)............. 100,050
Equity acquired from the reverse
acquisition with Astro-Stream...... 11,899
Issuance of common stock as a result
of the acquisition of Borta, Inc.
($4.67 per share).................. 8,500,000
Grant of common stock ($5.50 per
share)............................. --
Sale of common stock during August
for cash ($4.50 per share)......... 300,000
Sale of common stock during August
for cash ($5.50 per share)......... 514,250
Exchange of common stock in August
for consulting services ($6.50 per
share)............................. 162,500
Exchange of common stock in August
for consulting services ($5.75 per
share)............................. 21,200
Exchange of common stock in August
for consulting services ($5.50 per
share)............................. 2,172
Sale of common stock during September
for cash ($5.50 per share)......... 530,000
Sale of common stock during October
for cash ($5.50 per share)......... 55,000
Amortization of deferred compensation
expense............................ 117,857
Dividend on preferred stock.......... (4,585)
Net loss for the year ended October
31, 1995........................... (4,116,457)
----------- -------- ------------ -----------
<CAPTION>
receivable......................... 80,000 80,000
</TABLE>
F-6
<PAGE> 58
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK(1) ADDITIONAL DURING THE DEFERRED
---------------- -------------------- PAID IN DEVELOPMENT COMPENSATION
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE EXPENSE
------- ------ ---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1995............ 33,350 33 13,199,945 13,200 21,871,438 (11,740,371 ) (1,846,429)
<CAPTION>
COMMON STOCK HELD
IN TREASURY STOCK
---------------------- SUBSCRIPTION
SHARES AMOUNT RECEIVABLE TOTAL
----------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, October 31, 1995............ 8,297,871
Sale of common stock during November
for cash ($5.50 per share)......... 60,000 60 329,940
Sale of common stock during December
for cash ($5.50 per share)......... 164,000 164 901,836
Conversion of notes payable into
common stock in December ($3.00 per
share)............................. 66,667 67 199,933
Sale of preferred stock during
January for cash ($5.50 per
share)............................. 40,000 40 219,960
Exchange of common stock in January
for consulting services ($5.50 per
share)............................. 500 1 2,749
Sale of common stock during February
for cash ($5.50 per share)......... 10,000 10 54,990
Sale of common stock during March for
cash ($5.50 per share)............. 60,000 60 329,940
Sale of common stock during April for
cash ($5.50 per share)............. 56,363 56 309,944
Reversal of prior year deferred
compensation expense............... (117,857)
Write-off of deferred compensation
expense............................ (357,143) (357 ) (1,963,929) 1,964,286
Sale of common stock during May for
cash ($5.50 per share)............. 59,362 59 326,432
Exchange of common stock in May for
consulting services ($5.76 per
share)............................. 421 -- 2,423
Exchange of common stock in May for
consulting services ($4.82 per
share)............................. 1,100 1 5,302
Conversion of preferred stock into
common stock in May................ (73,350) (73) 58,191 58 15
Sale of common stock during June for
cash ($5.50 per share)............. 57,638 58 316,951
Exchange of common stock in June for
consulting services ($5.50 per
share)............................. 1,000 1 5,499
Sale of common stock during July for
cash ($5.50 per share)............. 152,000 152 835,848
Exchange of common stock in July for
consulting services ($5.50 per
share)............................. 12,000 12 65,988
Exchange of common stock in August
for product rights ($5.00 per
share)............................. 30,000 30 149,970
Dividend on preferred stock.......... (15,219 )
Net loss for the nine months ended
July 31, 1996...................... (7,429,529 )
------- ------ ---------- ------- ----------- ------------ ------------
Balance, July 31, 1996 (unaudited)... -- $ -- 13,632,044 $13,632 $23,965,229 $(19,185,119) $
======= ======= ========= ======= ========== =========== ============
<CAPTION>
Sale of common stock during November
Sale of common stock during December
for cash ($5.50 per share)......... 902,000
Conversion of notes payable into
common stock in December ($3.00 per
share)............................. 200,000
Sale of preferred stock during
January for cash ($5.50 per
share)............................. 220,000
Exchange of common stock in January
for consulting services ($5.50 per
share)............................. 2,750
Sale of common stock during February
for cash ($5.50 per share)......... 55,000
Sale of common stock during March for
cash ($5.50 per share)............. 330,000
Sale of common stock during April for
cash ($5.50 per share)............. 310,000
Reversal of prior year deferred
compensation expense............... (117,857)
Write-off of deferred compensation
expense............................ --
Sale of common stock during May for
cash ($5.50 per share)............. 326,491
Exchange of common stock in May for
consulting services ($5.76 per
share)............................. 2,423
Exchange of common stock in May for
consulting services ($4.82 per
share)............................. 5,303
Conversion of preferred stock into
common stock in May................ --
Sale of common stock during June for
cash ($5.50 per share)............. 317,009
Exchange of common stock in June for
consulting services ($5.50 per
share)............................. 5,500
Sale of common stock during July for
cash ($5.50 per share)............. 836,000
Exchange of common stock in July for
consulting services ($5.50 per
share)............................. 66,000
Exchange of common stock in August
for product rights ($5.00 per
share)............................. 150,000
Dividend on preferred stock.......... (15,219)
Net loss for the nine months ended
July 31, 1996...................... (7,429,529)
----------- -------- ------------ -----------
Balance, July 31, 1996 (unaudited)... -- $ -- $ -- $ 4,793,742
========== ======== =========== ==========
<CAPTION>
for cash ($5.50 per share)......... 330,000
</TABLE>
- ---------------
(1) All common shares information has been restated since inception to reflect
conversion of the outstanding shares of Aristo's common stock into 90% of
the common stock of Astro-Stream pursuant to the Merger Agreement.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 59
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995; THE UNAUDITED NINE MONTHS
ENDED
JULY 31, 1995 AND 1996; THE CUMULATIVE PERIODS FROM
JUNE 4, 1990 (INCEPTION) TO OCTOBER 31, 1995 AND TO JULY 31, 1996 (UNAUDITED).
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
JUNE 4, 1990
YEARS ENDED OCTOBER 31, (INCEPTION) TO NINE MONTHS ENDED CUMULATIVE
--------------------------------------- OCTOBER 31, 1995 JULY 31, SINCE
1993 1994 1995 (SEE NOTE 1(B)) ------------------------- JUNE 4, 1990
----------- ----------- ----------- ---------------- 1995 1996 (SEE NOTE 1(B))
----------- ----------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss during
development
stage.............. $(1,636,310) $(2,228,644) $(4,116,457) $(10,940,381) $(2,210,086) $(7,429,529) $ (18,369,910)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and
amortization..... 17,692 21,407 363,960 422,745 16,911 1,094,480 1,517,225
Expenses paid by
issuance of
common stock..... 170,000 70,000 185,873 1,225,873 -- 231,976 1,457,849
Deferred
compensation
expense.......... -- -- 117,857 117,857 -- (117,857 ) --
Deferred royalty
income........... (8,334) (8,333) --
Deferred rent...... 90,382 29,600 (13,814) 158,891 (10,361 ) (10,361 ) 148,530
Loss on disposal of
fixed asset...... 19,200 -- -- 19,200 6,208 -- 19,200
Net realized loss
on sale of
marketable
securities....... -- 31,092 20,753 51,845 -- 38 51,883
Net unrealized gain
on marketable
securities....... -- (6,713) (1,000) (7,713) -- -- (7,713)
Changes in assets
and liabilities:
Decrease
(increase) in
prepaid
expenses and
other current
assets......... 5,045 (16,408) (159,573) (180,286) (145,495 ) (17,112 ) (197,398)
Increase
(decrease) in
accounts
payable and
accrued
expenses....... 125,380 (122,091) 232,427 516,954 85,224 1,393,300 1,910,254
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net cash used
in operating
activities... (1,216,945) (2,230,090) (3,369,974) (8,615,015) (2,257,599 ) (4,855,065 ) (13,470,080)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Cash flows from
investing activities:
Investment in Borta,
Inc., net of cash
acquired........... -- -- (238,615) (238,615) (222,000 ) -- (238,615)
Expenditures for
equipment,
leasehold
improvements,
patents and
organization
costs.............. (19,061) (41,203) (71,920) (261,725) (22,724 ) (342,896 ) (604,621)
Purchase of
marketable
securities......... -- (414,516) (1,103,085) (1,517,601) (892,733 ) -- (1,517,601)
Sales of marketable
securities......... -- 324,137 1,147,832 1,471,969 926,706 1,462 1,473,431
Purchase of computer
software........... -- -- (110,000) (110,000) -- -- (110,000)
(Increase) decrease
in other assets.... (1,028) (232,119) 80,602 (170,639) (19,919 ) (13,737 ) (184,376)
Increase in
restricted cash.... (248,683) -- (105,599) (442,430) (100,000 ) (3,738 ) (446,168)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net cash used
in investing
activities... (268,772) (363,701) (400,785) (1,269,041) (330,670 ) (358,909 ) (1,627,950)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Cash flows from
financing activities:
Net proceeds
(repayments) from
notes
payable -- bank.... 445,500 (39,500) (46,143) 359,857 -- -- 359,857
Proceeds from notes
payable --
stockholders....... 389,000 -- -- 793,500 700,000 -- 793,500
Repayments of notes
payable --
stockholders....... (63,000) (160,000) -- (343,500) -- (80,000 ) (423,500)
Increase in book
overdraft.......... -- -- -- -- 48,878 -- --
Proceeds acquired in
connection with the
Astro-Stream
merger............. -- -- 59,494 59,494 59,494 -- 59,494
Proceeds from
issuance of
preferred stock.... -- -- 100,050 100,050 -- 220,000 320,050
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 60
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds from
issuance of common
stock.............. 1,170,000 1,580,000 2,759,247 7,554,537 1,460,050 3,406,500 10,961,037
Proceeds from
issuance of
convertible term
loans.............. -- 1,025,000 940,000 1,965,000 -- 1,686,500 3,651,500
Purchase of treasury
stock.............. (60,000) -- -- (60,000) -- -- (60,000)
Dividends on
preferred stock.... -- -- (4,585) (4,585 ) -- (15,219)
----------- ----------- ----------- ---------------- ----------- ----------- ---------------
Net cash
provided by
financing
activities... 1,881,500 2,405,500 3,808,063 10,424,353 2,268,422 5,217,781 15,642,134
----------- ----------- ----------- ---------------- ----------- ----------- ---------------
Net increase
(decrease) in
cash and cash
equivalents... 395,783 (188,291) 37,304 540,297 (319,847 ) 3,807 544,104
Cash and cash
equivalents,
beginning of
period............... 295,501 691,284 502,993 -- 502,993 540,297 --
----------- ----------- ----------- ---------------- ----------- ----------- ---------------
Cash and cash
equivalents,
end of
period....... $ 691,284 $ 502,993 $ 540,297 $ 540,297 $ 183,146 $ 544,104 $ 544,104
========== ========== ========== =============== =========== =========== ===============
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for:
Interest........... $ 6,883 $ 63,629 $ 101,237 $ 171,749
========== ========== ========== ===============
Income taxes....... $ 3,999 $ 6,031 $ 5,178 $ 19,626
========== ========== ========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 61
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company, on June 4, 1990, issued 3,334,780 shares of common stock in
exchange for technical know-how and patents valued at $600,000.
During October 1993, the Company issued 39,184 shares of common stock in
exchange for the rights to a patent valued at $50,000.
During 1994, notes payable of $250,000 and $12,064 of accrued interest
thereon were converted into 171,741 shares of common stock.
During 1994, a note payable of $200,000 was converted into 159,236 shares
of common stock.
During 1994, the Company retired 1,667,390 shares of treasury stock valued
at $60,000.
During 1995, convertible term loans of $1,025,000 were converted into
834,529 shares of common stock.
During 1995, the Company issued 115,050 shares of common stock in exchange
for original graphic illustrations valued at $255,555.
In connection with the Merger with Astro-Stream, the Company assumed
liabilities of $47,595 and acquired cash of $59,494.
The Company purchased all of the capital stock of Borta, Inc. The details
of the business acquired are as follows:
<TABLE>
<S> <C>
Fair value of current assets acquired........................... $ 67,418
Fair value of fixed assets acquired............................. 43,258
Intangible assets of business acquired:
Capitalized software.......................................... 8,086,750
Excess of cost over net assets acquired (goodwill)............ 5,008,049
Deferred tax liability.......................................... (3,800,772)
Liabilities assumed............................................. (104,703)
Intercompany payable to the Company............................. (50,000)
-----------
Total purchase price consideration.................... 9,250,000
Common stock issued............................................. 8,500,000
-----------
Total cash to be paid to sellers...................... 750,000
Liabilities to former stockholder............................... 500,000
-----------
Cash paid to sellers at closing of the acquisition.... 250,000
Less, cash acquired............................................. 11,385
-----------
Net cash payment at closing of the acquisition........ $ 238,615
===========
</TABLE>
In connection with the purchase of Borta, the Company issued 357,143 shares
of restricted common stock valued at $1,964,286 to the President of Borta as
deferred compensation. These shares are subject to forfeiture (see note 10).
During 1995, the Company issued 25,000 shares of common stock in exchange
for consulting services valued at $162,500.
During 1995, the Company issued 4,082 shares of common stock in exchange
for consulting services valued at $23,372.
F-10
<PAGE> 62
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
During December 1995, convertible term loans of $200,000 were converted
into 66,667 shares of common stock.
During 1996, the Company issued 14,921 shares of common stock in exchange
for consulting services valued at $81,976.
During 1996, the Company issued 58,191 shares of common stock in exchange
for the 73,350 outstanding shares of preferred stock.
During 1996, the Company issued 30,000 shares of common stock in exchange
for product rights valued at $150,000.
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 63
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
1. ORGANIZATION, MERGER AND ACQUISITION
(A) ORGANIZATION
Aristo International Corporation ("Aristo") was incorporated in New York on
June 4, 1990. The Company was formed to invest in innovative consumer products.
Since 1994, management has focused on entertainment software for the consumer
market. The consolidated financial statements include the accounts of Aristo and
its wholly-owned subsidiaries (collectively, the "Company"). As a development
stage enterprise, the Company has devoted all of its efforts through July 31,
1996 to research and development, raising capital, acquiring equipment,
financial planning, opening new markets and finding strategic partners.
From inception through October 31, 1995, the Company has financed its
operations through the private sale of stock and convertible notes for cash
amounting to approximately $10,082,000 and with the exchange of stock for
approximately $931,000 in products and services. The Company intends to continue
to use its best efforts to finance or obtain financing sufficient for the
Company's requirements.
(B) MERGER
On May 3, 1995, The Astro-Stream Corporation ("Astro-Stream") acquired all
of the outstanding common stock of the Company through the issuance of 9,889,477
shares of Astro-Stream's common stock, par value $.001, constituting 90% of
Astro-Stream's issued and outstanding common stock immediately following the
merger of the Company into Astro-Stream (the "Merger"). Before the Merger,
Astro-Stream was an inactive company, engaged in seeking out a suitable business
for acquisition or merger. After the Merger, Astro-Stream changed its name to
Aristo International Corporation.
For accounting purposes, the Merger was treated as a recapitalization of
the Company with the Company as the acquirer (reverse acquisition). All common
stock of the Company was retroactively restated to reflect the equivalent number
of Astro-Stream shares that were deemed to be issued by the Company in the
transaction. The cumulative loss of Astro-Stream at the time of the merger
amounted to $795,405 and is included in the deficit accumulated during the
development stage of the Company.
Pursuant to the Merger, the Company committed to obtain NASDAQ SmallCap
Listing for the surviving corporation. In order to secure that commitment, the
Company deposited $100,000 in an escrow account which was to be distributed to
the former Astro-Stream shareholders if the listing was not obtained or released
to the Company upon achieving the listing. The listing was obtained as of
September 29, 1995. The parties have contested as to whether the performance by
the Company was timely and whether there was failure on the part of the former
Astro-Stream shareholders in the effort to obtain the listing. The Company is
vigorously contesting the claim of the former Astro-Stream shareholders to the
funds and believes the deposit will be returned to the Company. The deposit is
included in restricted cash on the balance sheet at October 31, 1995 and July
31, 1996 (see note 13(c)).
(C) ACQUISITION
On July 31, 1995, the Company, through its newly formed wholly-owned
subsidiary BAIC Acquisition Corp., purchased all of the outstanding stock of
Borta, Inc. ("Borta") for consideration aggregating $9,250,000 (the
"Acquisition"). The consideration consisted of $8,500,000 (1,818,182 shares) of
newly issued common stock and $750,000 in cash. Of the $750,000 in cash
payments, $325,000 has been paid and the remaining $425,000 will be paid in
installments through December 31, 1996 (see note 13(b)). Borta is involved in
the creation and development of new multimedia digital entertainment and is
engaged in original game development, cross-platform conversions, software tools
and techniques and enabling technologies for game platforms.
F-12
<PAGE> 64
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
The Acquisition was accounted for using the purchase method of accounting
and, accordingly, the results of operations are included in these financial
statements from the effective date of the Acquisition. The Acquisition cost has
been allocated to the assets acquired and liabilities assumed, based upon their
fair value at the acquisition date, including $87,285 to net current
liabilities, $43,258 to fixed assets, $8,086,750 to capitalized software and
$1,207,277 to excess of cost over net assets acquired (goodwill). The value
assigned to the capitalized software was determined based upon the anticipated
discounted after-tax cash flows for the period estimated to encompass the
remaining life of the technology existing at the Acquisition date.
Following are pro forma results of operations for the year ended October
31, 1995, as if the Acquisition had occurred as of the beginning of the year.
The unaudited pro forma consolidated results of operations do not purport to
represent what the Company's results of operations would actually have been if
the Acquisition, in fact, had occurred on that date. The pro forma consolidated
results of operations for the twelve months ended October 31, 1994 are not
material to the financial statements and are therefore not presented.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1995
----------------
<S> <C>
Revenue....................................................... $ 352,391
Operating expenses............................................ 4,605,914
-----------
Net loss...................................................... $ (4,253,523)
===========
Loss per share................................................ $ (0.41)
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Fixed assets
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Amortization of leasehold improvements is computed
by the straight-line method over the shorter of their estimated useful lives or
the term of the lease. Maintenance and repairs are charged to income as
incurred, whereas the cost of significant improvements is capitalized (see Note
4).
Capitalized leases
Capitalized leases are amortized by the straight-line method over the
estimated useful lives of the depreciable assets. Accumulated amortization as of
October 31, 1995 and July 31, 1996 (unaudited) is $2,888 and $28,991,
respectively.
Research and development
Research and development costs are charged to operations in the periods in
which they are incurred.
Patents
As a result of research and development programs conducted, the Company has
applied for, or has received, a number of patents to protect proprietary
inventions of significant importance to the Company. Costs, principally legal
fees, directly associated with the application of the respective patents, are
being amortized on a straight-line basis over their estimated useful lives or
seventeen years, whichever is shorter.
F-13
<PAGE> 65
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
Accumulated amortization as of October 31, 1994 and 1995 and July 31, 1996 was
$14,624; $20,352, and $24,648 (unaudited), respectively.
Organization costs
Organization costs are amortized by the straight-line method over their
estimated useful lives of five years. Accumulated amortization as of October 31,
1994 and 1995 was $11,859 and $14,826, respectively. Organization costs were
fully amortized as of October 31, 1995.
Goodwill
The excess of acquisition cost over amounts assigned to the identifiable
assets acquired (goodwill) is being amortized on a straight-line basis over
seven years. Accumulated amortization as of October 31, 1995 and July 31, 1996
is $43,116 and $172,464 (unaudited), respectively (see note 1(c)).
Software development costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Marketed" ("SFAS 86"). SFAS 86 requires
that certain software product development costs ("Capitalized Costs"), incurred
after technological feasibility has been established, be capitalized and
amortized, commencing upon the general release of the software product to the
Company's customers, over the economic life of the software product.
The Company's policy is to amortize capitalized software costs by the
greater of (a) the ratio that current gross revenues for a product bear to the
total of current and anticipated future gross revenues for that product or (b)
the straight-line method over the remaining estimated economic life of the
product including the period being reported on (seven years). Accumulated
amortization as of October 31, 1995 and July 31, 1996 is $288,813 and $1,155,252
(unaudited), respectively. It is reasonably possible that those estimates of
anticipated future gross revenues, the remaining estimated economic life of the
product, or both will be reduced significantly in the near term due to
competitive pressures. As a result, the carrying amount of the capitalized
software costs may be reduced materially in the near term.
Software development costs incurred prior to reaching technological
feasibility are expensed as incurred and included in research and development
costs.
Estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results could differ from those estimates.
Royalty income
Royalty income is accrued on the basis of reported transactions of
licensees or the minimum requirements of license agreements.
F-14
<PAGE> 66
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents. The Company
manages its credit risk by depositing its cash with three commercial banks.
Income taxes
Deferred tax liabilities and assets are determined on the basis of the
differences between the tax bases of assets and liabilities and their respective
financial-reporting amounts ("temporary differences") at enacted tax rates in
effect for the years in which the temporary differences are expected to reverse.
Loss per share
Net loss per share is computed on the basis of the loss for the period
divided by the weighted average number of shares of common stock outstanding
during the period. The loss per share for all periods presented excludes the
number of common shares issuable upon conversion of convertible notes since such
inclusion would be anti-dilutive.
Impact of the future adoption of recently issued accounting standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121") in March 1995. SFAS
121 requires companies to review their long-lived assets and certain
identifiable intangibles (collectively, "Long-Lived Assets") for impairment
whenever events or changes in circumstances indicate that the carrying value of
a Long-Lived Asset may not be recoverable. Impairment is measured using the
lower of a Long-Lived Assets' book value or fair value, as defined. The Company
will be required to adopt the provisions of SFAS 121 at the beginning of the
year ending October 31, 1997. The Company believes that, based upon current
operations and prospects, the future adoption of SFAS 121 is not expected to
have a material impact on the Company's financial position or results of
operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") in October 1995. The Company will be required to adopt the provisions of
SFAS 123 at the beginning of the year ending October 31, 1997. SFAS 123 requires
companies to estimate the fair value of common stock, stock options, or other
equity instruments ("Equity Instruments") issued to employees using pricing
models which take into account various factors such as current price of the
common stock, volatility and expected life of the Equity Instruments. SFAS 123
permits companies to either provide pro forma note disclosure, or adjust
operating results, for the amortization of the estimated value of the Equity
Instrument, as compensation expense, over the vesting period of the Equity
Instrument. The Company has not fully evaluated the impact the adoption of SFAS
123 will have on its financial position or results of operations at this time.
Reclassifications
Certain reclassifications were made to prior period amounts to conform to
current period classifications.
3. MARKETABLE SECURITIES
The Company considers its marketable equity securities to be "available for
sale" as defined by Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", and,
accordingly, unrealized gains and losses are reported as a net amount in a
separate
F-15
<PAGE> 67
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
component of stockholders' equity until realized. The cost of securities held at
October 31, 1994 and 1995 approximates fair value. For the years ended October
31, 1994 and 1995 and the nine months ended July 31, 1996, net realized losses
were $31,092; $20,753 and $38 (unaudited), respectively.
4. FIXED ASSETS
As of October 31, 1994 and 1995, and July 31, 1996 fixed assets consist of:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1994 1995
-------- --------
JULY 31, 1996
-------------
(UNAUDITED)
-------------
<S> <C> <C> <C>
Furniture and fixtures............................ $ 32,966 $ 82,888 $ 93,923
Office equipment.................................. 47,556 210,399 696,167
Leasehold improvements............................ 22,632 22,632 22,632
--------- --------- ---------
103,154 315,919 812,722
Less, Accumulated depreciation and amortization... (27,066) (63,463) (166,472)
--------- --------- ---------
$ 76,088 $252,456 $ 646,250
========= ========= =========
</TABLE>
Depreciation expense for the years ended October 31, 1994 and 1995 and the
nine months ended July 31, 1996 was $12,713; $29,692 and $94,396 (unaudited),
respectively.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1994 1995
-------- -------- JULY 31, 1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable................................. $272,463 $649,045 $ 1,489,717
Accrued payroll.................................. -- -- 262,656
Accrued expenses................................. -- -- 202,574
Interest payable................................. -- 12,000 59,398
Deferred revenue................................. -- -- 40,000
-------- -------- ----------
$272,463 $661,045 $ 2,054,345
======== ======== ==========
</TABLE>
6. FINANCING (SEE NOTE 13(D))
(A) LINE OF CREDIT
The Company has borrowed $406,000 under a revolving line of credit with a
commercial bank, due on demand, which provides for short-term financing up to a
maximum amount of $500,000. Interest is payable at a rate of 7.35% for
borrowings up to $250,000 and 1 1/2% above the bank's prime lending rate (8.75%
at October 31, 1995 and 9.75% at July 31, 1996) for borrowings in excess of
$250,000. This line is collateralized by a $250,000 certificate of deposit with
the bank which is included in restricted cash on the balance sheet.
F-16
<PAGE> 68
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
(B) CONVERTIBLE TERM LOANS
On December 29, 1994, the Company issued a promissory note for cash, to a
stockholder for $500,000, and on December 29, 1995 the Company issued a new note
which replaces and supersedes the note dated December 29, 1994. Under the terms
of the new note, the note is payable in eight monthly installments, beginning on
May 1, 1996. The note bears interest at a rate equal to 10% per annum, payable
on the last day of each month. The stockholder shall have the option, until May
1, 1996, to convert the note into 90,909 shares of common stock of the Company
at an exercise price of $5.50 per share, in lieu of payment of principal (see
note 13(d)).
On March 29, 1995, the Company issued a promissory note for cash, due on
April 30, 1996 to a stockholder for $200,000 collateralized by certain of the
Company's patents, bearing interest at 10% payable quarterly. On December 29,
1995, the stockholder exercised its right to convert the note into 66,667 common
shares of the Company.
On July 31, 1995, the Company issued a $240,000 note ("Original Note")
maturing on December 31, 1995 plus interest of $20,000. On December 29, 1995,
the Company issued a new note ("New Note") for $260,000 which represents the
principal and accrued interest on the Original Note. The New Note replaces and
supersedes the Original Note. Under the terms of the New Note, the principal is
payable on January 1, 1997 with quarterly interest payments of $13,000 payable
on April 1, 1996; July 1, 1996; October 1, 1996 and January 1, 1997. On December
29, 1995 the holder of the New Note indicated its intent to convert the New Note
into 47,273 shares of common stock at a conversion price of $5.50 per share
effective January 1, 1997.
7. COMMITMENTS
(A) LEASES
The Company leases office space under a lease agreement expiring March 31,
2002. The lease includes scheduled base rent increases over the term of the
lease. The total amount of the base rent payments is being charged to expense by
the straight-line method over the term of the lease. The Company has recorded a
deferred credit to reflect the excess of accrued rent expense over total cash
payments since inception of the lease.
The Company is obligated under an unconditional, irrevocable letter of
credit in the amount of $86,831 as collateral for the office space. The letter
of credit is collateralized by an escrow cash account of equal amount included
in restricted cash on the balance sheet.
In addition, in connection with the Borta Acquisition, the Company has
entered into an agreement, expiring August 31, 1998, to lease office space. The
Company has the right to terminate this lease at the end of the first year, with
120 days written notice, provided that the Company has not defaulted on any of
the terms and conditions of the lease.
F-17
<PAGE> 69
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
Future minimum rental payments under these lease agreements as of October
31, 1995:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------
<S> <C>
1996..................................................... $ 308,250
1997..................................................... 319,437
1998..................................................... 310,283
1999..................................................... 222,443
2000..................................................... 222,443
Thereafter............................................... 315,127
----------
$ 1,697,983
==========
</TABLE>
Rent expense for the fiscal years ended October 31, 1993, 1994 and 1995,
the nine months ended July 31, 1995 and 1996 and the cumulative period from June
4, 1990 (inception) to October 31, 1995 was $197,166; $198,450; $213,638;
$97,290 (unaudited); $247,813 (unaudited), and $1,053,971, respectively.
(B) EQUIPMENT LEASES
The Company is committed under various capital leases for computer
equipment and office furniture expiring at various dates through 2000. Future
minimum rental payments under these lease agreements as of October 31, 1995 are:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------
<S> <C>
1996...................................................... $ 42,820
1997...................................................... 51,083
1998...................................................... 49,075
1999...................................................... --
2000...................................................... --
Total minimum lease payments.............................. 142,978
Less: amount representing interest........................ 58,456
-----------
Present value of net minimum lease payments............... $ 84,522
========
</TABLE>
The cost of leased equipment included as a component of fixed assets was
approximately $86,992 at October 31, 1995.
(C) EMPLOYMENT AGREEMENTS
In connection with the Borta acquisition, the Company entered into two
employment agreements, one with Borta's president and the other with Borta's
chief operating officer. Both agreements expire on July 31, 1998. The aggregate
commitment for future salaries under the employment agreements is $270,000. In
addition, Borta's president is entitled to receive an annual bonus equal to
7 1/2% of Borta's earnings before interest and taxes, as defined (see note
13(b)).
The Company has entered into an employment agreement with its chief
executive officer and president for $350,000 per annum effective May 3, 1995
through May 2, 2000. In addition, the employment agreement includes the option
to purchase 200,000 shares of common stock of the Company. These options shall
vest in equal amounts on each May 3 during the term of the employment agreement
in accordance with the provisions of the 1994 Plan (see note 10 and 13(f)).
F-18
<PAGE> 70
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
(D) FUNDING OF BORTA
In connection with the Borta acquisition, the Company has committed to fund
the ongoing operations of Borta based upon a plan pre-approved by the Company.
8. INCOME TAXES
There is no provision for federal, state or local income taxes for all
periods presented, since the Company has incurred operating losses since
inception. The Company has paid minimum state and local taxes during the years,
as required. In addition, the Company has fully reserved for the potential
future tax benefits resulting from the utilization of net operating loss
carry-forwards and the realization of deferred rent.
Deferred tax assets, as of October 31, 1995, consists of the following:
<TABLE>
<S> <C>
Net operating loss carry-forwards............................... $ 4,604,765
Capitalized software............................................ (3,665,030)
Other........................................................... 67,158
------------
Total deferred tax assets............................. 1,006,893
Less, Valuation allowance..................................... (1,006,893)
------------
Net deferred tax assets......................................... $ --
============
</TABLE>
As of October 31, 1995, the Company has available unused net operating loss
carry-forwards of approximately $9,797,000 which may provide future tax
benefits, expiring in various years from 2006 to 2010.
9. CAPITAL STRUCTURE (SEE NOTE 13(E))
At its inception (June 4, 1990), the Company issued 3,334,780 shares of
common stock in exchange for technical know-how and patents related to certain
consumer products which were to be developed further by the Company. These
shares were assigned a value of $600,000, which represents the historical cost
incurred by the Company's president and chief executive officer. During the year
ended October 31, 1991, this amount was charged to operations as research and
development costs.
The valuation of all common stock issued in exchange for services, products
and patents approximates the value of common stock sold to third parties for
cash, at the time of issuance.
On April 20, 1994, the Company issued 171,741 shares of common stock to a
stockholder as a result of a conversion of a note payable for $250,000 plus
$12,064 in accrued interest. On September 30, 1994, the Company issued 159,236
shares of common stock to a corporate stockholder as a result of a conversion of
a $200,000 note payable. In addition, at the effective date of the Merger, the
Company issued this stockholder an additional 38,350 shares of common stock
pursuant to an anti-dilutive provision of the convertible note payable.
On December 12, 1994, the Company issued 834,529 shares of common stock to
stockholders as a result of a conversion of convertible term loans for
$1,025,000.
During March 1995, the Company issued 115,050 shares of common stock to its
chief executive officer in exchange for original graphic illustrations. These
illustrations are to be used for a screen saver project being developed by the
Company.
During May 1995, the Company issued 33,350 shares of preferred stock for
$100,050 in cash. The preferred stock provides for cumulative monthly dividends,
in arrears, amounting to 11% per annum, starting
F-19
<PAGE> 71
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
June 15, 1995. No dividends can be declared or paid on the common stock until
any dividends accrued and unpaid on the preferred stock have been paid. The
preferred shares were converted into 18,191 shares of the Company's common stock
on May 15, 1996.
In connection with the Borta acquisition, the Company issued 1,818,182
shares of common stock to the former shareholders of Borta. Additionally, the
Company issued 357,143 shares of common stock, valued at $1,964,286, as deferred
compensation which are restricted and subject to forfeiture (see notes 1(c),
10(b) and 13(b)).
During August 1995, the Company issued 25,000 shares of common stock valued
at $162,000 as a commission on the Borta Acquisition.
During August 1995, the Company issued 4,082 shares of common stock in
exchange for consulting services valued at $23,372.
10. STOCK OPTIONS (SEE NOTE 13(F))
(A) 1994 PLAN
On December 9, 1994, the Board of Directors adopted the Company's 1994
Stock Option Plan (the "1994 Plan") which provides for the granting of options
for the purchase of up to an aggregate of 500,000 shares of common stock to key
employees, and to consultants, advisors and directors who are not employees.
Options may be either incentive stock options ("ISO") or non-qualified options.
Under the 1994 Plan, the option price shall be established by a
compensation committee of the Board of Directors. The exercise price of the ISOs
granted shall not be less than the fair market value of the shares on the
effective date of the grant or not less than 110% of the fair market value of
the shares on the effective date of the grant if the optionee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company.
300,000 options have been granted under the 1994 Plan, as of October 31,
1995, of which 40,000 options are exercisable at $2.44 per share. The remaining
260,000 options are exercisable at varying times through fiscal 1999 at prices
ranging from $2.44 per share to $8.00 per share. All options expire 5 years from
the date of grant.
(B) 1995 PLAN
On July 28, 1995, the Board of Directors adopted the Company's 1995 Stock
Option Plan (the "1995 Plan") which provides for the granting of options for the
purchase of up to an aggregate of 1,000,000 shares of common stock to employees
and non-employees.
Under the 1995 Plan, the option price shall be established by a
compensation committee of the Board of Directors. Under the 1995 Plan, either
ISOs or non-qualified options may be granted; ISO's can only be granted to
employees. With respect to ISOs, the exercise price shall not be less than the
fair market value of the shares on the effective date of the grant or not less
than 110% of the fair market value of the shares on the effective date of the
grant if the optionee owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company.
All options granted, other than those discussed below, vest over a
five-year period and expire ten years from the date of grant.
F-20
<PAGE> 72
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
The following transactions took place in connection with the Borta
acquisition:
400,000 stock options were granted under the 1995 plan to the former
shareholders of Borta at an exercise price of $5.50 per share and become
exercisable on October 31, 2000 and may become exercisable earlier if
certain earning performance milestones are achieved (the "Milestones") for
the 1996, 1997 and 1998 fiscal years, defined as earnings before interest
and taxes as detailed below:
<TABLE>
<S> <C>
1996*................................................... $ 4,856,766
1997.................................................... $ 9,653,562
1998.................................................... $14,786,497
</TABLE>
- ---------------
* Includes activity from July 31, 1995 to October 31, 1996.
242,859 stock options at an exercise price of $1.00 per share were
granted to the former shareholders of Borta. These options become
exercisable on the January 31, following the fiscal years ending October
31, 1996, 1997 and 1998 provided that Borta achieves the Milestones for
each Fiscal year, as defined. The right to purchase shares of common stock
shall not be cumulative, so that if Borta does not achieve the Milestones,
as defined, the options exercisable with respect to the applicable fiscal
year of Borta shall terminate and shall not be exercisable in subsequent
years. In accounting for these options, the Company will recognize noncash
compensation expense as the Milestones are achieved or upon the probable
attainment of the Milestone. Compensation expense will be measured as the
difference between the aggregate fair value of the Company's common stock
that can be acquired upon the exercise price of the vested options. As of
October 31, 1995, none of the Milestones have been achieved nor was it
probable that the Milestones would be attained and accordingly, no
compensation expense has been recognized to date.
357,143 shares of common stock were awarded to the president of Borta.
These shares are restricted and are subject to forfeiture until October 31,
2000, provided, however, that the risk of forfeiture shall lapse on January
31, 1997, 1998 and 1999 with respect to 30%, 30% and 40% of such shares,
respectively, if Borta achieves certain Milestones for the fiscal years
ending 1996, 1997 and 1998, respectively, as defined. The Company has
recorded deferred stock compensation expense, representing the fair market
value at the date of the grant, as a separate component of stockholders'
equity for the non-vested portion of stock granted. As of October 31, 1995
the Company has amortized $117,857 of the deferred stock compensation
expense.
11. RELATED PARTIES
The Company has entered into an agreement with a corporate stockholder to
provide consulting services. In consideration for these services, such corporate
stockholder received fees totaling approximately $60,000; $70,000; $75,000 and
$228,000 during the years ended October 31, 1993, 1994 and 1995 and the
cumulative period from June 4, 1990 (inception) to October 31, 1995,
respectively. For the nine months ended July 31, 1995 (unaudited) and 1996
(unaudited) the corporate stockholder received fees totaling $45,000 (unaudited)
and $100,000 (unaudited), respectively. In addition, the Company has issued to
this corporate stockholder 273,451 shares of common stock in exchange for
$350,000 of services during the three fiscal years ended October 31, 1993. No
additional stock has been issued to this stockholder in exchange for services.
In addition, the Company obtained the services of its chief executive
officer from another company of which the Company's CEO is the principal
stockholder. Fees paid to this company during the years ended October 31, 1993,
1994 and 1995 and the cumulative period from June 4, 1990 (inception) to October
31, 1995, total approximately $327,000; $626,000; $456,700 and $2,084,700,
respectively.
F-21
<PAGE> 73
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of all financial instruments approximate their carrying
values based on the interest rates for similar instruments.
13. NOTE TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(A) BASIS OF PRESENTATION
The interim unaudited financial statements reflect adjustments, consisting
only of normal recurring accruals, which are, in the opinion of the Company's
management, necessary for the fair presentation of the financial position and
results of operations for the periods presented. Sales and the net loss for any
interim period are not necessarily indicative of the results for a full year.
The financial statements have been prepared on a going-concern basis, which
contemplates realization of assets and liquidation of liabilities in the
ordinary course of business. The Company, as of July 31, 1996, has a working
capital deficiency of $2,152,225. The Company expects to incur substantial costs
and expenses during the ensuing twelve months as the Company continues to
develop new products and executes its new business strategy. The Company
believes that the net proceeds from this offering, together with available funds
and cash flows expected to be generated by operations, will be sufficient to
meet its anticipated cash needs for working capital expenditures for at least
the next twelve months. Thereafter, if cash generated by operations is
insufficient to satisfy the Company's liquidity requirements, the Company may
need to raise additional funds through public or private debt financing. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of then current stockholders of the Company may be reduced
and such equity securities may have rights, preferences or privileges senior to
those of the holders of the Company's common stock. There can be no assurance
that additional financing will be available on terms favorable to the Company,
or at all.
(B) DEFERRED COMPENSATION
On May 13, 1996 the Company, Borta's president ("President") and Borta's
chief operating officer ("COO") completed an agreement which provides for, among
other things, the resignation of the President and COO as officers and directors
of Borta, Inc. In connection therewith, the President and COO have surrendered
all options to purchase common stock previously granted to either of them, and
the President has surrendered 357,143 restricted shares of common stock
previously granted, together with any options, incentive payments or rights
related thereto. In connection with severance benefits the Company is paying to
the President and COO $180,000 in the aggregate over the period ending on
January 15, 1997. In addition, of $425,000 remaining to be paid to the President
pursuant to his signing bonus with the Company $5,000 was paid upon the
execution of definitive agreements relating to the resignations, $150,000 was
paid on August 30, 1996, and the balance is payable on December 31, 1996.
In the current period, the Company reversed the charge to Compensation
Expense of $117,857 recorded in a prior period relating to the 357,143 shares of
common stock previously granted to the President.
(C) DISPOSITION OF CERTAIN RESTRICTED CASH
Included in restricted cash at July 31, 1996 is $100,000 held in escrow in
connection with a law suit between the former stockholders of Astro-Stream and
the Company. Subsequent to July 31, 1996, the parties entered into a Stipulation
of Discontinuance pursuant to which the Company waived its rights to receive any
funds out of the $100,000 escrow. The Company has accrued for this amount.
F-22
<PAGE> 74
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
(D) FINANCING
The $500,000 promissory note issued on December 29, 1995 has been replaced
and superseded on April 30, 1996 and again on July 31, 1996. The new note is
payable in one installment of $500,000 on December 31, 1996 and bears interest
at a rate equal to 10% per annum, payable on the last day of the month. The
holder shall have the option, until December 31, 1996, to convert the note into
90,909 shares of common stock of the Company at an exercise price of $5.50 per
share, in lieu of payment of principal. On March 6, 1996 the holder of the note
indicated its interest to convert the note into 90,909 shares of the Company's
common stock.
On February 12, 1996 the Company executed a $500,000 promissory note, as
amended, bearing interest at 12% per annum, payable on August 12, 1996, the
maturity date of the note. The holder of the note, until the maturity date, has
the right and option to convert the note into 90,909 shares of restricted common
stock. The holder also has a continuing contractual right to receive 12.5% of
the earnings before interest and taxes from licensing of music and video CD's.
As of July 31, 1996 no amounts have accrued with respect to the contractual
rights. In certain circumstances this contractual right is terminable by the
Company and convertible into warrants to purchase additional shares of the
Company's common stock. On June 12, 1996 the holder of the note indicated its
intent to convert the note into 90,909 shares of the Company's common stock.
On April 12, 1996 the Company executed a $450,000 promissory note, as
amended, bearing interest at twelve percent per annum, payable on August 15,
1996. The holder of the note shall have the right to convert the note into
81,818 shares of common stock at any time after the date of the note and prior
to December 31, 1996. On August 22, 1996 principal and accrued interest were
paid in full.
On June 27, 1996, the Company issued a promissory note, to a stockholder
for $330,000 in cash, bearing interest at the prime lending rate, as published
in the Wall Street Journal, and payable at maturity. The Company shall have the
right to prepay the aggregate principal amount of the note, together with
accrued interest through the date of the prepayment without penalty or premium.
The stockholder shall have the option to acquire, until December 31, 1996,
120,000 shares of common stock of the Company for $660,000.
(E) CAPITAL TRANSACTIONS
From November 1, 1995 through July 31, 1996, the Company has financed its
operations through the private sale of stock and convertible notes for cash
amounting to approximately $8,445,000 and with the exchange of stock for
approximately $232,000 in products and services. The Company intends to continue
to use its best efforts to obtain financing sufficient for the Company's
requirements.
On December 29, 1995, the Company issued 66,667 shares of common stock to
stockholders as a result of a conversion of convertible term loans in the amount
$200,000.
During January 1996, the Company issued 500 shares of common stock in
exchange for consulting services valued at $2,750.
During May, 1996, the Company issued 1,521 shares of common stock in
exchange for consulting services valued at $7,726.
During June 1996, the Company issued 1,100 shares of common stock in
exchange for consulting services valued at $5,500.
During July 1996, the Company issued 12,000 shares of common stock in
exchange for services valued at $66,000.
F-23
<PAGE> 75
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
During May 1996, holders of all issued and outstanding shares of the
Company's preferred stock converted their shares of preferred stock into common
stock, at a conversion price of $5.50 per share. The 73,350 preferred shares
have been converted into 58,191 shares of common stock.
(F) STOCK OPTIONS
Transactions involving stock option awards during the nine months ended
July 31, 1996 are summarized below. The total number of options exercisable on
July 31, 1996 was 201,000. As of July 31, 1996, shares available for future
grants under the 1994 Plan and 1995 Plan amounted to 105,000 and 839,285,
respectively.
<TABLE>
<CAPTION>
1994 1995 PRICE PER
PLAN PLAN SHARE
------- ------- ------------
<S> <C> <C> <C>
Options outstanding at October 31, 1995............ 300,000 642,859 $1.00-$8.00
Options granted.................................... 95,000 -- $5.50
Options cancelled.................................. -- 482,144 $1.00-$5.50
------- -------
Options outstanding at July 31, 1996............... 395,000 160,715
======= =======
</TABLE>
The Board of Directors of the Company approved, subject to stockholder
approval, the adoption of the 1996 Stock Option Plan (the "1996 Plan"). The 1996
Plan provides for a maximum of 1,500,000 shares of the Company's common stock to
be issued in connection with stock option grants. As of the date of this
Prospectus, 675,000 options have been granted under the 1996 Plan at prices
ranging from $5.50 to $8.25 per share, of which, 11,000 are currently
exercisable.
(G) SUBSEQUENT EVENTS
Private Placements -- Between August and October 1996, the Company sold in
private placements 1,256,400 shares of Common Stock, of which 1,180,000 were
sold at a price of $5.00 per share and 76,400 were sold at a price of $5.50 per
share, from which the Company received aggregate net proceeds (after deductions
of related selling expenses, including agency commissions) of approximately
$5,880,645.
Additionally, the Company has borrowed $130,000 from a lender, who has the
right to receive shares of Common Stock in payment of the principal amount of
the loan (based on a price of $6.50 per share). Accordingly, the Company may
issue 20,000 shares of Common Stock with respect to such a note.
Stock Subscriptions -- Between May 16, 1996 and May 29, 1996, the Company issued
to four parties options to purchase an aggregate of 61,000 shares of common
stock at an exercise price between $5.50 and $6.50 for total cash consideration
of $386,500. The options, which were originally exercisable from the date of
issuance to dates ranging from September 16, 1996 through September 29, 1996,
were extended to December 31, 1996. In the event the options are not exercised
within that period the parties may call for the return of the consideration at
any time during the period beginning 45 days from the issuance date to the
expiration date of the options. The Company has classified this obligation as
noncurrent "Convertible term loans -- stockholders" on its balance sheet.
1996 Stock Option Plan -- On September 6, 1996 the Board of Directors adopted,
subject to shareholder approval at the annual meeting to be held on October 29,
1996, the Company's 1996 Stock Option Plan. The 1996 Plan is designed to provide
an incentive to key employees (including directors and officers who are
employees), and to consultants and directors who are not employees, of the
Company, or any of its subsidiaries, and to offer an additional inducement in
obtaining the services of such persons. The 1996 Plan authorizes the issuance of
stock awards and the grant of options to purchase a maximum of 1,500,000 shares
of
F-24
<PAGE> 76
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE PERIODS ENDED JULY 31, 1996 IS UNAUDITED)
the Company's common stock. The 1996 Plan will be administered by the Board of
Directors or a committee of the Board of Directors consisting of at least two
outside Directors. Subject to shareholder approval, an aggregate of 1,425,067
options will be granted pursuant to the 1996 Stock Option Plan.
Cancellation of Stock Options -- The Company has cancelled 160,715 options
issued to three individuals pursuant to the 1995 Stock Option Plan; in one case,
due to the termination of an employee prior to vesting of the options granted,
and, as to the balance, pursuant to agreements with the optionees to exchange
such options for new options granted under 1995 and 1996 Stock Option Plans.
Amendment to Employment Agreement -- On September 18, 1996, the Company and a
key employee amended the employee's employment agreement dated April 19, 1996.
The term of the agreement was extended from June 30, 1997 to October 31, 1999.
Additionally, the Company granted 50,000 shares of its common stock, which
contain a restrictive legend, as a signing bonus. The amendment also provides
for the issuance of the 1,000,000 stock options available under the 1995 Stock
Option Plan, to vest at the rate of 100,000 options per year at the end of each
fiscal year beginning October 31, 1997 until all such options have vested. The
vesting schedule is subject to acceleration upon attaining certain gross revenue
targets.
F-25
<PAGE> 77
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 16
Price Range of Common Stock........... 17
Dividend Policy....................... 17
Capitalization........................ 18
Selected Consolidated Financial
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 24
Management............................ 36
Principal Stockholders................ 43
Certain Transactions.................. 44
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 47
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Available Information................. 49
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES
ARISTO
INTERNATIONAL
CORPORATION
COMMON STOCK
------------------------
PROSPECTUS
------------------------
ALLEN & COMPANY
INCORPORATED
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than
underwriting discounts and commissions) which will be paid by the registrant in
connection with the issuance and distribution of the securities being
registered. With the exception of the registration fee and the NASD filing fee,
all amounts shown are estimates.
<TABLE>
<S> <C>
Registration fee.................................................. $ 6,360
NASD filing fee................................................... 2,599
Nasdaq listing expenses........................................... 7,500
Blue sky fees and expenses (including legal and filing fees)...... *
Legal fees and expenses (other than Blue Sky)..................... *
Accounting fees and expenses...................................... *
Transfer agent fees and expenses.................................. *
Printing and engraving expenses................................... *
Miscellaneous expenses............................................ *
--------
Total................................................... $830,000
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's Certificate of Incorporation provides that the registrant
shall indemnify its officers, directors, employees and agents to the fullest
extent permitted by the DGCL. Section 145 of the DGCL provides that a
corporation may 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
is or was a director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding if he acted in good faith and in a manner
he 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 conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent, shall not, in and of itself, create a
presumption that his conduct was unlawful.
Section 145 also provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation and except that no
indemnification shall be made in 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 action or suit was brought shall determine upon adjudication that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
II-1
<PAGE> 79
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue
or matter therein, such person shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by such person in connection
therewith.
Any such indemnification (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, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth above. Such determination shall be made:
(1) 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
(2) 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
(3) by the stockholders.
Section 145 permits a Delaware business corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by him in such capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify such person. The registrant intends to purchase directors and
officers liability insurance in the amount of $1,000,000.
In accordance with the DGCL, the registrant's Certificate of Incorporation
provides that the directors of the registrant shall not be personally liable to
the registrant or its stockholders for monetary damages for breach of duty as a
director except (I) for any breach of the director's duty of loyalty to the
registrant and its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct, or knowing violation of law; (iii) under
Section 174 of the DGCL, which relates to unlawful payments of dividends and
unlawful stock repurchases and redemptions; or (iv) for any transaction from
which the director derived an improper personal benefit. This provision does not
eliminate a director's fiduciary duties; it merely eliminates the possibility of
damage awards against a director personally which may be occasioned by certain
unintentional breaches (including situations that may involve grossly negligent
business decisions) by the director of those duties. The provision has no effect
on the availability of equitable remedies, such as injunctive relief or
rescission, which might be necessitated by a director's breach of his or her
fiduciary duties. However, equitable remedies may not be available as a
practical matter where transactions (such as merger transactions) have already
been consummated. The inclusion of this provision in the Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefited
the registrant and its stockholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During 1993 the Company issued 15,006 shares, valued at $20,000, and 39,184
shares valued at $50,000, to individuals for services and a patent right,
respectively.
During the period November 1, 1993 through October 1994 the Company had the
following transactions:
- Exchanged 49,188 common shares valued at $70,000, to individuals for
services.
- Issued 1,030,447 common shares, valued at $1,500,000, to several
individuals for cash.
- Converted notes payables and accrued interest into 330,977 shares of
common, valued at $462,064.
- Retired 1,667,390 shares of Treasury Stock.
II-2
<PAGE> 80
During the period November 1, 1994 through October 1995 the Company had the
following transactions:
- Exchanged 29,082 common shares valued at $185,872 for consulting
services.
- Issued 952,661 common shares, valued at $2,759,250, to several
individuals for cash.
- Converted notes payable into 834,529 shares of common, valued at
$1,025,000.
- Exchanged 115,050 common shares valued at $255,555 for graphic
illustrations.
- Issued 38,350 common shares pursuant to an anti-dilution provision.
- Issued 1,818,182 common shares valued at $8,500,000 as a result of the
acquisition of Borta Inc.
- Acquired equity from the reverse acquisition with Astro Stream
Corporation 1,098,997 common shares issued.
- Issued 33,500 shares of preferred stock valued at $100,050 to one
individual for cash.
During the period November 1, 1995 through October 14, 1996 the Company had
the following transactions:
- Exchanged 15,021 common shares valued at $81,976 for consulting services.
- Issued 819,232 common shares valued at $4,505,776 to several individuals
for cash.
- Issued 40,000 shares of preferred stock valued at $220,000 to an
individual for cash.
- Converted 73,500 shares of preferred stock to 58,191 common shares.
- Issued 30,000 common shares valued at $150,000 for product rights.
- Converted Notes payable into 66,667 shares of common shares valued at
$200,000.
During 1996, 50,000 shares of Common Stock were paid in compensation to a
senior executive.
Between December 29, 1995 and June 30, 1996, the Company issued convertible
promissory notes in the aggregate principal amount of $1,590,000 to four
investors. These notes mature between December 12, 1996 and January 1, 1997. The
holders of the notes may elect (but are not obligated) to receive payment on
shares of Common Stock (in lieu of cash) based on a price of $5.50 share. If the
holders elect to receive shares of Common Stock in full payment of these notes,
the Company would be required to issue 289,091 shares. One of these note holders
also has an option to purchase an additional 50,000 shares of Common Stock at a
price of $5.50 per share.
Between August and October, 1996, the Company borrowed $516,500 from
certain lenders who may elect (but are not obligated) to receive payment in
shares of Common Stock (in lieu of cash) based on price ranging from $5.50 to
$6.50 per share. If such lenders elect to receive shares of Common Stock in full
payment of the loans, the Company would be required to issue 81,000 shares.
Between August and October 1996, the Company sold in private placements,
1,256,400 shares of Common Stock of which 1,180,000 were sold at a price of
$5.00 per share and 76,400 were sold at a price of $5.50 per share for aggregate
proceeds of $6,320,200.
- During the calendar years 1995 and 1996, 395,000 options to purchase
Common Stock were granted to several individuals under the Company's 1994
Stock Option Plan.
- During September 1996, 1,000,000 options to purchase Common Stock were
granted to an individual under the Company's 1995 Stock Option Plan.
- During the calendar year 1996, 1,425,067 options to purchase Common Stock
were granted to several individuals under the Company's 1996 Stock Option
Plan.
- During March 1996, 448,101 Warrants to purchase Common Stock were issued
to an entity under a services agreement.
II-3
<PAGE> 81
The foregoing sales of securities by the Company were exempt from
registration under the Act by reason of Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT METHOD OF FILING
------ -------------------------------------- --------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement. Filed herewith.
2.1 Merger Agreement between the Incorporated by reference to an
registrant and Aristo International Exhibit to the Registrant's Current
Corporation, dated October 28, 1994. Report on Form 8-K, File No.
33-1260-NY, filed on November 16,
1994.
2.2 Agreement and Plan of Merger among the Incorporated by reference to an
registrant, BAIC Acquisition Corp., Exhibit to the Registrant's Current
Borta, Inc. and the shareholders of Report on Form 8-K, File No.
Borta, Inc., dated July 28, 1995. 33-1260-NY, filed on August 15, 1995.
3.1 Restated and Amended Certificate of Incorporated by reference to Exhibit
Incorporation of the Registrant. 3.1 to the Registrant's Annual Report
on Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
3.2 By-Laws of the Registrant. Incorporated by reference to Exhibit
3.2 to the Registrant's Annual Report
on Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
5.1 Opinion of Parker Chapin Flattau & To be filed by amendment.
Klimpl, LLP.
10.1 1994 Stock Option Plan of the Incorporated by reference to Exhibit
Registrant.* 10.1 to the Registrant's Annual Report
on Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
10.2 1995 Stock Option Plan of the Incorporated by reference to Exhibit
Registrant.* 10.2 to the Registrant's Annual Report
on Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
10.3 1996 Stock Option Plan of the Filed herewith.
Registrant and Form of Stock Option
Contract.*
10.4 Employment Agreement between the Incorporated by reference to Exhibit
Registrant and Shmuel Cohen dated 10.3 to the Registrant's Annual Report
February 1, 1995.* on Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
10.5 Change in Control Agreement, dated Incorporated by reference to Exhibit
February 1, 1995, between the 10.6 to the Registrant's Annual Report
registrant and Shmuel Cohen.* on Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
10.6 Consulting Agreement, dated July 1, Incorporated by reference to Exhibit
1995, between the registrant and 10.7 to the Registrant's Annual Report
Castellon Limited.* on Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
10.7 Warrant Certificate Filed herewith
10.8 Form of Purchase Agreement Filed herewith
</TABLE>
II-4
<PAGE> 82
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT METHOD OF FILING
------ -------------------------------------- --------------------------------------
<C> <S> <C>
10.9 Engagement Letter Agreement, dated Filed herewith
February 22, 1996, between the
registrant and Allen & Company
Incorporated.
10.10 Placement Agency Agreement, dated July Filed herewith
31, 1996, between the registrant and
Allen & Company Incorporated.
10.11 Form of Subscription Agreement Filed herewith
10.12 Form of Option Agreement/Convertible Filed herewith
Note
10.13 Employment Agreement, dated April 19, Filed herewith
1996, between the registrant and Nolan
Bushnell, as amended on September ,
1996.*
10.14 Termination Agreement, dated May 13, Filed herewith
1996, among Ron Borta and Leslie Davis
and the registrant.
10.15 Services Letter Agreement, dated Filed herewith
August 17, 1995, between the
registrant and Michael Katz.
10.16 Form of Financial Consulting Contract. Filed herewith
10.17 Letter Agreement, dated June 10, 1996, Filed herewith
between the registrant and P.S.G.S.
International Real Estate, Ltd.
10.18 Option Agreement, dated June 10, 1996, Filed herewith
between the registrant and P.S.G.S.
International Real Estate, Ltd.
10.19 Services Agreement, dated August 1, Filed herewith
1996, between the registrant and Owens
& Associates Inc.
10.20 Services Letter Agreement, dated Filed herewith
August 20, 1996, between the
registrant and Copyright
Clearinghouse, Inc.
10.21 Amendment, dated June 28, 1996, to the Filed herewith
Consulting Agreement, dated July 1,
1995, between the registrant and
Castellon Limited.
10.22 AFMA International Disc Distribution Filed herewith
Agreement, dated August 22, 1996,
between Film Ventures International,
Inc. and Aristo Entertainment, Inc.
21.1 Subsidiaries of the Registrant. Incorporated by reference to Exhibit
22.1 to the Registrant's Annual Report
on Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
23.1 Consent of Coopers & Lybrand, L.L.P. Filed herewith.
23.2 Consent of Parker Chapin Flattau & To be filed by amendment.
Klimpl, LLP (included in their
opinion).
24.1 Powers of Attorney of Certain Included on page II-7.
Directors and Officers.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
II-5
<PAGE> 83
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 16th day of October, 1996.
ARISTO INTERNATIONAL CORPORATION
By: /s/ SHMUEL COHEN
------------------------------------
Shmuel Cohen
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Shmuel Cohen, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in or about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -----------------
<C> <S> <C>
/s/ SHMUEL COHEN President and Chief Executive October 16, 1996
- ------------------------------------------ Officer (Principal Executive
Shmuel Cohen Officer)
and Director
/s/ GLENN P. SBLENDORIO Chief Financial Officer October 16, 1996
- ------------------------------------------ (Principal Financial Officer and
Glenn P. Sblendorio Principal Accounting Officer)
/s/ YAEL COHEN Director October 16, 1996
- ------------------------------------------
Yael Cohen
/s/ JOSEPH ETTINGER Director October 16, 1996
- ------------------------------------------
Joseph Ettinger
</TABLE>
II-7
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement. ........................................
5.1* Opinion of Parker Chapin Flattau & Klimpl, LLP..........................
10.3 1996 Stock Option Plan of the registrant and Form of Stock Option
Contract................................................................
10.7 Warrant Certificate.....................................................
10.8 Form of Purchase Agreement..............................................
10.9 Engagement Letter Agreement, dated February 22, 1996, between the
registrant and Allen & Company Incorporated.............................
10.10 Placement Agency Agreement, dated July 31, 1996, between the registrant
and Allen & Company Incorporated........................................
10.11 Form of Subscription Agreement..........................................
10.12 Form of Option Agreement/Convertible Note...............................
10.13 Employment Agreement, dated April 19, 1996, between the registrant and
Nolan Bushnell, as amended on September , 1996........................
10.14 Termination Agreement, dated May 13, 1996, among Ron Borta and Leslie
Davis and the registrant................................................
10.15 Services Letter Agreement, dated August 17, 1995, between the registrant
and Michael Katz........................................................
10.16 Form of Financial Consulting Contract...................................
10.17 Letter Agreement, dated June 10, 1996, between the registrant and
P.S.G.S. International Real Estate, Ltd.................................
10.18 Option Agreement, dated June 10, 1996, between the registrant and
P.S.G.S. International Real Estate, Ltd.................................
10.19 Services Agreement, dated August 1, 1996, between the registrant and
Owens & Associates Inc..................................................
10.20 Services Letter Agreement, dated August 20, 1996, between the registrant
and Copyright Clearinghouse, Inc........................................
10.21 Amendment, dated June 28, 1996, to the Consulting Agreement, dated July
1, 1995, between the registrant and Castellon Limited...................
10.22 AFMA International Disc Distribution Agreement, dated August 22, 1996,
between Film Ventures International, Inc. and Aristo Entertainment,
Inc.....................................................................
23.1 Consent of Coopers & Lybrand, L.L.P.....................................
23.2* Consent of Parker Chapin Flattau & Klimpl, LLP (included in their
opinion). ..............................................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
W&C DRAFT
Oct. 16, 1996
===============================================================================
2,000,000 SHARES
ARISTO INTERNATIONAL CORPORATION
COMMON STOCK
---------------
UNDERWRITING AGREEMENT
SELECTED DEALER AGREEMENT
---------------
October __, 1996
===============================================================================
<PAGE> 2
2,000,000 SHARES
ARISTO INTERNATIONAL CORPORATION
COMMON STOCK
----------------------
UNDERWRITING AGREEMENT
----------------------
October __, 1996
ALLEN & COMPANY INCORPORATED
As Representative of the Several
Underwriters
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Dear Sirs:
ARISTO INTERNATIONAL CORPORATION, a Delaware corporation (the
"Company"), hereby confirms its agreement with the several Underwriters named in
schedule A hereto (the "Underwriters"), for which you are acting as
representative (the "Representative"), as follows:
1. DESCRIPTION OF SECURITIES. The Company has authorized by
appropriate corporate action and proposes to issue and sell to the Underwriters
its shares of Common Stock, $0.001 par value. As further described in Section 3
hereof, 2,000,000 of such shares (the "Purchased Shares") are being sold by the
Company to the Underwriters and the Company is granting to the Underwriters an
option to purchase up to 300,000 additional shares (the "Option Shares"). The
Purchased Shares and Option Shares are herein collectively referred to as the
"Shares".
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to and agrees with each Underwriter that:
<PAGE> 3
(a) A registration statement on Form S-1 (File
No. 33-________) with respect to the Shares, including
a preliminary form of prospectus, copies of which have
heretofore been delivered to you, has been prepared by the
Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Act, and
has been filed with the Commission under the Act; such
amendment or amendments to such registration statement, copies
of which have heretofore been delivered to you, as may have
been made prior to the date of this Agreement have been so
prepared and filed; and the Company has so prepared and
proposes so to file in a timely manner after the effective
date of such registration statement the final form of
prospectus. Such registration statement (including all
exhibits thereto), as finally amended and revised as of the
time the Underwriters first offer the Shares for sale to the
public together with information, if any, which is permitted
to be, and is, subsequently filed pursuant to Rule 430A of the
Rules and Regulations, is herein referred to as the
"Registration Statement". Such prospectus in the form filed
pursuant to Rule 424(b) of the Rules and Regulations, or, if
no final prospectus is filed with the Commission pursuant to
Rule 424(b), in such form as such final prospectus is included
in the Registration Statement, is herein referred to as the
"Prospectus". Each preliminary form of prospectus is herein
referred to as a "Preliminary Prospectus".
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary
Prospectus. At the time of filing of each Preliminary
Prospectus, such prospectus did not include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading. When the Registration
Statement becomes effective and at all times subsequent
thereto up to and at each Closing Date (hereinafter defined)
(i) the Registration Statement and Prospectus and any
amendments or supplements thereto will contain as of their
respective dates all material statements and information which
are required to be included therein in accordance with the Act
and Rules and Regulations and will in all material respects
conform to the requirements of the Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will
include as of their respective dates any untrue
2
<PAGE> 4
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the
foregoing representations and warranties shall not apply to
information contained in or omitted from the Registration
Statement or the Prospectus or any such amendment or
supplement in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter
through you specifically for use in the preparation thereof.
(c) Set forth on Schedule B hereto is the name of
each subsidiary of the Company which holds assets or conducts
operations which are material to the condition (financial or
otherwise), results of operations, business or prospects of
the Company and each such subsidiary taken as a whole and,
unless otherwise indicated thereon, the Company holds all
right, title and interest in and to the entire equity interest
in each such subsidiary. Except as described in the
Prospectus, subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, neither the Company, nor any entity which is
either identified in the Prospectus as a subsidiary of the
Company or listed on Schedule B hereto (each individually a
"Subsidiary" and collectively the "Subsidiaries"), taken as a
whole, has incurred any direct or, to the best of the
Company's knowledge, contingent material liabilities or
material obligations, or entered into any material
transactions or contracts not in the ordinary course of
business, and there has not been any change in its capital
shares, options or warrants, nor any material increase or
decrease in the amount thereof outstanding or in any of its
long-term debt outstanding, except pursuant to the terms of
the instruments governing the same, or any material adverse
change in the condition (financial or otherwise), results of
operations, business or prospects of the Company and the
Subsidiaries taken as a whole.
(d) Except as set forth in the Prospectus, there is
not now pending or, to the knowledge of the Company,
threatened, any action, suit or proceeding to which the
Company or any Subsidiary is a party before any court or
governmental agency or body which might result in any material
adverse change in the condition (financial or otherwise),
results of operations, business or prospects of the Company
and the Subsidiaries taken as a whole, or might materially and
adversely affect the properties, assets or ability to do
business as
3
<PAGE> 5
contemplated in the Prospectus of the Company and the
Subsidiaries taken as a whole; and there are no contracts or
documents required to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which
have not been filed as exhibits to the Registration Statement.
(e) This Agreement has been duly authorized, executed
and delivered on behalf of the Company and constitutes a valid
and binding agreement of the Company, enforceable in
accordance with its terms, except (1) that such enforcement
may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, (2) that the remedy of specific
performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought
and (3) as rights to indemnity or contribution hereunder may
be limited by federal or state securities laws; the execution,
delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not
result in a breach or violation of any term or provision of,
or constitute a default under, any currently existing statute,
any indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which the Company or any
Subsidiary is a party or by which it or its property is bound,
the charter or by-laws of the Company or any Subsidiary or any
order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or over their
properties; no consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part
herein contemplated, except such as may be required under the
Act or as may be required under state or other securities or
blue sky laws in connection with the purchase and distribution
of the Shares by the Underwriters; and neither the Company nor
any of the Subsidiaries is now in default, and no event has
occurred which with the giving of notice or lapse of time or
both would be a default, under any contract, agreement,
indenture, mortgage or other undertaking to which such entity
is a party and which is material to the condition (financial
or otherwise), results of operations, business or prospects of
the Company and the Subsidiaries taken as a whole.
(f) Each of the Company and the Subsidiaries has been
duly incorporated and is validly existing as a
4
<PAGE> 6
corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and
authority, corporate or otherwise, to own its properties and
conduct is business as described and contemplated in the
Registration Statement, and is duly qualified to do business
as a foreign corporation in good standing in all other
jurisdictions where its operations or ownership of property
requires such qualifications and where failure so to qualify
would impair title to any material properties of the Company
or its rights to enforce contracts against others or expose it
to liabilities material to the Company and the Subsidiaries
taken as a whole in such jurisdictions.
(g) The Company has the authorized and outstanding
capital stock set forth in the Prospectus; the outstanding
capital stock of the Company conforms, and the Shares when
issued and sold as herein contemplated will conform, in all
material respects, to all statements in relation thereto
contained in the Registration Statement and the Prospectus and
all such stock has been duly authorized and the outstanding
capital stock has been and the Shares, when issued and
delivered against payment therefor as provided herein, will be
validly issued, fully-paid and nonassessable; except as stated
in the Prospectus, the stockholders of the Company have no
preemptive rights with respect to the Shares and there are no
outstanding rights, options or warrants to acquire any
securities of the Company; to the extent that any rights,
options or warrants to acquire any securities of the Company
are outstanding, except as otherwise set forth in the
Prospectus, the issuance of the Shares as described in the
Prospectus will not result in an adjustment of the exercise
price or number of shares issuable upon the exercise in
respect of any such rights, options or warrants; and, except
as otherwise set forth in the Prospectus, the Company owns
(directly or indirectly) under valid title the respective
outstanding shares of capital stock of the Subsidiaries, free
and clear of any material liens, encumbrances or claims.
(h) Except as otherwise set forth in the Prospectus,
to the best of its knowledge, each of the Company and the
Subsidiaries owns or possesses, or can acquire on reasonable
terms, adequate patents, patent licenses, trademarks, service
marks and trade names necessary to carry on its business as
presently conducted, and except as set forth in the
Prospectus, neither the Company nor any of the Subsidiaries
has received any notice of infringement of or conflict with
5
<PAGE> 7
asserted rights of others with respect to any patents, patent
licenses, trademarks, service marks or trade names which,
singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could materially and adversely
affect the condition (financial or otherwise), earnings,
affairs, business or prospects of the Company and the
Subsidiaries taken as a whole.
(i) Except as stated in the Prospectus, the Company
holds in good standing or has applied for all licenses,
permits, authorizations, franchises, consents and orders of
all federal, state, local, and foreign governmental bodies
necessary to carry on its business as reflected or
contemplated in the Prospectus; except as stated in the
Prospectus the Company has good and marketable title in fee
simple to all real property and good and marketable title to
all personal property owned by it, in each case free and clear
of all liens, encumbrances and defects with such exceptions as
are not material to the Company and the Subsidiaries taken as
a whole; and the real property and personal property referred
to in the Prospectus as held under lease by the Company is
held by it under valid, subsisting and enforceable leases with
only such exceptions as in the aggregate are not material and
do not materially interfere with the conduct of the business
of the Company and the Subsidiaries taken as a whole as
contemplated by the Prospectus.
(j) To the best of its knowledge, the Company is
conducting and proposes to conduct its business so as to
comply in all material respects with all applicable federal,
state, local and foreign governmental statutes, rules and
regulations; and except as set forth in the Prospectus,
neither the Company nor any Subsidiary is charged with, or, to
the best of the knowledge of the Company, is under
investigation with respect to, any violation of any of such
statutes, rules or regulations or is the subject of any
pending or threatened proceeding by an governmental body or
regulatory authority relating to any such violation.
(k) The Company and each of the Subsidiaries are
insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are
prudent and customary in the business in which they are
engaged; and neither the Company nor any of the Subsidiaries
has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as
may
6
<PAGE> 8
be necessary to continue its business at a cost that would not
materially and adversely affect the business or financial
condition of the Company and the Subsidiaries taken as a
whole, except as described or contemplated in the Prospectus.
(l) Coopers & Lybrand, LLP, which has examined and
expressed its opinion on certain of the financial statements
of the Company filed with the Commission as a part of the
Registration Statement, are, to the Company's best knowledge,
independent accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations; the
financial statements, together with the related notes, forming
part of the Registration Statement and Prospectus fairly
present the financial condition of the Company and its results
of operations as of the dates and for the periods described in
such opinion in the Prospectus; and such financial statements
have been prepared in accordance with the requirements of the
Commission.
(m) The Company and each of the Subsidiaries maintain
a system of internal accounting controls sufficient to provide
reasonable assurances that transactions are executed in
accordance with management's general or specific
authorizations and are recorded as necessary to permit
preparation of financial statements in conformity with
generally accepted accounting principles.
(n) Except as stated in the Prospectus, the Company
knows of no outstanding claims for services, either in the
nature of a finder's fee or origination fee, with respect to
the transactions contemplated hereby, and the Company agrees
to indemnify and hold the Underwriters harmless from any such
claim for any such services of such nature arising from the
act of any person other than any Underwriter.
(o) No person holds a right to require or participate
in the registration under the Act of the Common Stock of the
Company to be effected by the Registration Statement, which
right has not been effectively waived by the holder thereof as
of the date hereof.
(p) The Company has obtained from each of its
officers and directors, from each of its shareholders owning
in excess of 5% of the shares of the Company's Common Stock
outstanding as of the date hereof, and from [friends and
affiliates of Mouli Cohen -- to be
7
<PAGE> 9
discussed] an executed agreement that they will not, without
the prior written consent of Allen & Company Incorporated on
behalf of the Underwriters, sell, offer for sale, contract to
sell or otherwise dispose of any shares of the Company's
Common Stock or any securities exercisable for or convertible
into its Common Stock for a period of 180 days from the date
of the final Prospectus.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the
basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter and each
Underwriter agrees, severally and not jointly, to purchase from
the Company, at a purchase price of $______ per Share, the number
of Shares set forth opposite the name of such Underwriter in
Schedule A hereto.
The Company will deliver the Purchased Shares to you for the
accounts of the several Underwriters at the office of Allen & Company
Incorporated, 711 Fifth Avenue, New York, New York, against payment of the
purchase price therefor by certified or official bank check or checks in New
York Clearing House funds, payable to the order of Aristo International
Corporation, at 10:00 A.M., New York Time, on ____________________, 1996, or at
such other time and date not later than five full business days thereafter as
you and the Company may determine, such time and date of delivery and payment
being herein called the "First Closing Date". The certificates for the Purchased
Shares to be so delivered will be made available to you at such office for
checking at least one full business day prior to such Closing Date and will be
in such names and denominations as you may request not less than two full
business days prior to such Closing Date.
On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company grants to the Underwriters an option to purchase up to 300,000 Option
Shares at the same price per share as the Underwriters shall pay for the
Purchased Shares. Such option may be exercised only to cover over-allotments
arising in connection with the sale of Purchased Shares by the Underwriters,
such exercise to be upon written notice by you to the Company within 30 days of
the date hereof setting forth the number of Options Shares as to which the
Underwriters are exercising the option, the denominations and names in which
certificates for such Shares should be registered and the time and place at
which such certificates are to be delivered. Such time and place (unless such
time is the First Closing Date), herein referred to as the "Second Closing
Date", shall be determined by you but shall not be earlier than the First
Closing Date, nor earlier than three full business days or
8
<PAGE> 10
later than ten full business days after the exercise of such option. The Company
will deliver Option Shares to you for the accounts of the several Underwriters
against payment of the purchase price therefor by certified or official bank
check or checks in New York Clearing House funds payable to the order of Aristo
International Corporation. The number of Option Shares to be purchased by each
Underwriter shall be in the same proportion to the aggregate number of Option
Shares purchased as the number of Purchased Shares set forth opposite the name
of such Underwriter in Schedule A hereto bears to 2,000,000.
It is understood that you, individually and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for Shares to be
purchased by such Underwriter or Underwriters. Any such payment by you shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder.
After the Registration Statement becomes effective, the
several Underwriters propose to offer the Shares to the public as set forth in
the Prospectus.
4. COVENANTS OF THE COMPANY. The Company covenants
and agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause
the Registration Statement and any subsequent amendment
thereto to become effective as promptly as possible; it will
notify you, promptly after it shall receive notice thereof, of
the time when the Registration Statement or any subsequent
amendment to the Registration Statement has become effective
or any supplement to the Prospectus has been filed; it will
notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or
Prospectus or for additional information; it will prepare and
file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or
Prospectus which, in your reasonable opinion, may be necessary
or advisable in connection with the distribution of the Shares
by the Underwriters; it will promptly prepare and file with
the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or
omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event
shall have occurred as a result of which the Prospectus or any
other prospectus relating to the Shares as then in effect
would include an untrue statement of a material
9
<PAGE> 11
fact or omit to state any material fact necessary to make the
statements therein not misleading; in case any Underwriter is
required to deliver a prospectus after the nine-month period
referred to in Section 10(a)(3) of the Act in connection with
sales of the Shares, it will prepare promptly upon request,
but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus
or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement
or Prospectus that shall not previously have been submitted to
you in writing a reasonable time prior to the proposed filing
thereof or to which you shall reasonably object in writing.
(b) The Company will advise you, promptly after it
shall receive notice or obtain knowledge thereof, of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order
suspending trading in the Shares or other of the Company's
securities or of the initiation or threat of any proceeding
for that purpose; and it will use promptly its best efforts to
prevent the issuance of any stop order or to obtain its
withdrawal if such a stop order should be issued.
(c) The Company will use its best efforts to qualify
the Shares for sale under the blue sky or securities laws of
such jurisdictions as you may reasonably designate and to
continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection
therewith or as a condition thereof to qualify as a foreign
corporation or to execute a general consent to service of
process in any state.
(d) The Company will furnish to you, as soon as
available, copies of the Registration Statement (two of which
will be signed and will include all exhibits), each
Preliminary Prospectus, the Prospectus, and any amendments or
supplements to such documents, including any prospectus
prepared to permit compliance with Section 10(a)(3) of the
Act, all in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, a financial statement
(which will be in reasonable detail but need not be audited)
covering a 12-month period beginning after the effective date
of the Registration Statement
10
<PAGE> 12
which shall satisfy the provisions of Section 11(a) of the
Act.
(f) The Company agrees, during each fiscal year for a
period of five years from the date hereof, to furnish to its
stockholders as promptly as may be practicable an annual
report (including financial statements audited by independent
public accountants) and to furnish quarterly financial
statements (which need not be audited) for each of the first
three quarters of each fiscal year, and to furnish, upon
request, to each Underwriter hereunder (i) as soon as
practicable after the end of each of the first three quarters
of each fiscal year, statements of operations and surplus of
the Company for such quarter in reasonable detail and
certified by the Company's principal financial or accounting
officer or the Company's quarterly report on Form 10-Q; (ii)
as soon as practicable after the end of each fiscal year,
financial statements of the Company as at the end of such
fiscal year, including statements of operations, retained
earnings and changes in financial position of the Company for
such fiscal year, all in reasonable detail and accompanied by
a copy of the report thereon of independent public accountants
or the Company's annual report on Form 10-K; and (iii) as soon
as they are available, copies of all reports and financial
statements furnished to or filed with the Commission. During
such period, if and so long as the Company shall have active
subsidiaries, the foregoing financial statements shall be on a
combined or consolidated basis to the extent that the accounts
of the Company and its subsidiaries are combined or
consolidated.
(g) The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the
following: (i) the fees, disbursements, and expenses of the
Company's counsel and accountants in connection with the
registration of the Shares under the Act; (ii) all other
expenses in connection with the preparation, printing, and
filing of the Registration Statement, each Preliminary
Prospectus, and the Prospectus and amendments and supplements
thereto, and the mailing and delivering of copies thereof to
the Underwriters and dealers; (iii) the cost of printing this
Agreement, the Selected Dealer Agreement, the Blue Sky
Memorandum, and any other documents in connection with the
offering, purchase, sale and delivery of the Shares; (iv) all
costs and expenses in connection with the issuance and
delivery of the Shares hereunder to the Underwriters,
including related transfer taxes, if any; (v) all expenses in
connection with the
11
<PAGE> 13
qualification of the Shares for offering and sale under the
securities laws of various jurisdictions, including the fees
and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the
Blue Sky Survey; (vi) the filing fees incident to securing any
required review by the National Association of Securities
Dealers, Inc. of the terms of the sale of the Shares; (vii)
the costs of preparing stock certificates; (viii) the cost and
charges of any transfer agent or registrar; and (ix) all other
costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically
provided for in this Section 4. In addition, the Company shall
bear the legal, travel, roadshow and syndicate expenses of the
Underwriters up to a maximum of $150,000, except that the
Company shall reimburse the Underwriters for all of their
itemized out-of-pocket expenses, including their legal fees
and expenses, if the Company determines not to proceed with
the offering for any reason, other than the Underwriters'
unwillingness to proceed on the terms and conditions set forth
in this Agreement, or if the Representative exercises its
right to terminate this Agreement pursuant to Section 10(b)(i)
hereof.
(h) The Company agrees that it will not, without the
prior written consent of Allen & Company Incorporated on
behalf of the Underwriters, sell, offer for sale, contract to
sell or otherwise dispose of any shares of its Common Stock or
any securities exercisable for or convertible into shares of
its Common Stock, other than shares issuable pursuant to
currently outstanding rights, options and warrants, for a
period of 180 days after the date of the final Prospectus. In
addition, the Company also agrees to obtain the written
agreement of each officer and director of the Company, and
each of its shareholders owning in excess of 5% of the shares
of the Company's Common Stock outstanding as of the date
hereof [and of each of the friends and affiliates of Mouli
Cohen -- to be discussed] that such person will not, without
such prior written consent, sell, offer for sale, contract to
sell or otherwise dispose of any of such Common Stock held by
such holder for a period of ___ days after the date of the
final Prospectus.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Purchased Shares on the
First Closing Date and the Option Shares on the Second Closing Date, as provided
herein shall be subject to the accuracy, as of the date hereof and such Closing
Date (as if made on and as of such Closing Date), of the
12
<PAGE> 14
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M., New York City Time, on the
date of this Agreement, or such later date as shall be
consented to in writing by you; if required, the Prospectus
and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period
required by Rule 424(b) under the Act; and no stop order
suspending the effectiveness thereof shall have been issued
and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the
Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall
have been complied with to your satisfaction.
(b) Prior to such Closing Date, except as
contemplated in the Prospectus, there shall not have been any
change in the capital shares, nor the issuance of any rights,
options, or warrants to purchase any capital shares, nor any
material increase or decrease in any long-term debt of the
Company or any of the Subsidiaries or any material adverse
change in the condition (financial or otherwise), results of
operations, business or prospects of the Company or any of the
Subsidiaries which in your reasonable judgment renders it
inadvisable to proceed with the offering and sale of the
Shares.
(c) You shall have received the opinion of Parker
Chapin Flattau & Kimpl, LLP, counsel for the Company, in form
and substance satisfactory to you and dated such Closing Date,
to the effect that:
(i) each of the Company and its Subsidiaries
has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its
jurisdiction of incorporation with full corporate or
other power and authority to own its properties and
to conduct its business as described in the
Registration Statement and is duly qualified to do
business as a foreign corporation in each state or
jurisdiction where its operations and the ownership
of its properties requires such qualification, except
with respect to qualification as a foreign
corporation in such jurisdictions in which the
failure to so qualify
13
<PAGE> 15
has not had and will not have a material adverse
effect on the business of the Company and the
Subsidiaries taken as a whole;
(ii) the Company has authorized capital stock as
set forth in the Prospectus; all shares of Common
Stock, including the Shares, conform as to legal
matters in all material respects to the appropriate
descriptions thereof under the heading "Description
of Capital Stock" in the Prospectus; all outstanding
shares of Company capital stock have been duly
authorized and are validly issued, fully paid and
non-assessable; and the issuance of the Shares has
been duly authorized and, when issued and delivered
in accordance with this Agreement, the Shares will be
validly issued, fully paid and non-assessable; and,
except as described in the Prospectus, the issuance
of the Shares as described in the Prospectus will not
result in any adjustment of the exercise price or
number of shares issuable upon exercise in respect of
any outstanding options or warrants of the Company;
and, except as otherwise set forth in the
Registration Statement, the Company owns (directly or
indirectly) under valid title all of the respective
outstanding shares of capital stock of each of the
Subsidiaries, to the best of the knowledge of such
counsel, free and clear of any material liens,
encumbrances or claims;
(iii) this Agreement has been duly authorized,
executed and delivered by the Company and constitutes
a valid and binding agreement of the Company,
enforceable in accordance with its terms, except that
(1) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to
creditors' rights, (2) the remedy of specific
performance and injunctive and other forms of
equitable relief may be subject to equitable defenses
and to the discretion of the court before which any
proceeding therefor may be brought, and (3) rights to
indemnity or contribution hereunder may be limited by
federal or state securities laws; the sale of the
Shares under this Agreement and the consummation of
the transactions herein contemplated do not result in
a breach or violation of any terms or provisions of,
or constitute a default under, any presently existing
statute, or to the best of such counsel's knowledge,
any indenture, mortgage, deed of trust, note
agreement or other agreement or instrument
14
<PAGE> 16
known to such counsel to which the Company is a party
or by which it or its properties are bound or
affected, or to which any of the material property or
assets of the Company or the Subsidiaries is subject,
the Company's certificate of incorporation or
by-laws, or, to the best of such counsel's knowledge,
any order, rule or regulation of any court or
governmental agency or body having jurisdiction over
the Company or the Subsidiary or over their
respective properties;
(iv) no consent, approval, authorization or order
of any court or governmental agency or body is
required for the consummation by the Company of the
transactions contemplated by this Agreement, except
such as may be required under the Act or as may be
required under state securities or blue sky laws in
connection with the purchase and distribution of the
Shares by the Underwriters;
(v) the Registration Statement has become
effective under the Act and to the best of such
counsel's knowledge no stop order suspending the
effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the
Act;
(vi) except as stated in the Prospectus, to the
best of such counsel's knowledge, the Company and the
Subsidiaries hold all material licenses, permits,
authorizations, franchises, consents and orders, in
each case valid and in good standing, of Federal,
State or local, and foreign governmental bodies
necessary to carry on their respective businesses as
reflected in the Registration Statement;
(vii) the provisions of the agreements to which
the Company or the Subsidiaries are a party which are
summarized in the Prospectus conform in all material
respects to such summaries;
(viii) to the best of such counsel's knowledge,
there are no legal or governmental proceedings
pending or threatened to which the Company or any
Subsidiary is a party or to which any properties of
the Company or the Subsidiaries are subject which is
required to be described in the Registration
Statement or the Prospectus and is not so described;
15
<PAGE> 17
(ix) the Registration Statement and the
Prospectus, and each amendment or supplement thereto,
as of their respective effective or issue dates,
comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations
(except that such counsel need express no opinion as
to the financial statements, notes to financial
statements, related schedules or other financial data
contained in the Registration Statement or the
Prospectus);
(x) to the best of such counsel's knowledge, all
contracts and documents pertaining to the Company
required to be filed as Exhibits to the Registration
Statement have been filed as required or have been
appropriately incorporated by reference and all
contracts and documents required to be described in
the Prospectus have been accurately described therein
in all material respects;
(xi) nothing has come to the attention of such
counsel which caused them to believe that either the
Registration Statement or the Prospectus, or any
amendment or supplement thereto, as of their
respective effective or issue dates, contained any
untrue statement of a material fact or omitted to
state a material fact required to be stated therein
or necessary to make the statements therein not
misleading.
In rendering the foregoing opinions, such counsel may
rely as to factual matters on certificates of officers and
representatives of the Company or any Subsidiary and of public
officials, and will not be required to independently verify
the accuracy or completeness of information or documents
furnished to it in respect to the Registration Statement or
the Prospectus. To the extent that such counsel's opinion
relates to the laws of jurisdictions other than New York and
Delaware, such counsel shall be permitted to rely on the
opinion of local counsel reasonably satisfactory to counsel
for the several Underwriters.
(d) You shall have received from Werbel & Carnelutti,
A Professional Corporation, counsel for the several
Underwriters, an opinion or opinions, dated such Closing Date,
in form and substance satisfactory to you, with respect to the
sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions
contemplated hereby as you may reasonably require, and the
Company
16
<PAGE> 18
shall have furnished to such counsel such documents as they
may have requested for the purpose of enabling them to pass
upon such matters.
(e) You shall have received, at the time of execution
of this Agreement and on such Closing Date from Coopers &
Lybrand, LLP, independent public accountants, a letter or
letters, dated the date of delivery thereof, substantially in
the form and substance heretofore approved by you.
(f) You shall have received a certificate, dated such
Closing Date, of each of the President and Chief Executive
Officer and the Chief Financial Officer of the Company,
delivered on behalf of the Company, to the
effect that:
(i) the representations and warranties of
the Company in this Agreement are true and correct as
if made on and as of such Closing Date; and the
Company has complied with all the agreements and
satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing
Date;
(ii) no stop order suspending the effectiveness
of the Registration Statement has been issued, and no
proceedings for that purpose have been instituted or,
to their knowledge, are contemplated by the
Commission; and
(iii) except as contemplated in the Prospectus,
neither the Company nor any Subsidiary taken as a
whole has incurred any direct or, to the best of the
Company's knowledge, contingent material liabilities
or obligations, or entered into any material
transactions or contracts not in the ordinary course
of business, and there has not been any change in its
capital shares, nor the issuance of any rights,
options, or warrants to purchase any capital shares,
nor any material increase or decrease in any thereof
or in any long-term debt or any material adverse
change in the condition (financial or otherwise)
results of operations, business or prospects of the
Company and the Subsidiaries taken as a whole.
(g) The Company shall have furnished to you such
certificates, in addition to those specifically mentioned
herein, as you may have reasonably requested, as to the
accuracy and completeness at such Closing Date of any
statement in the Registration Statement or
17
<PAGE> 19
Prospectus, as to the accuracy at such Closing Date of the
representations and warranties of the Company herein, as to
the performance by the Company of its obligations hereunder,
and as to the fulfillment of the conditions concurrent and
precedent to the obligations of the Underwriters hereunder.
(h) The Company shall have furnished to you the
agreements described in Section 2(p) of this Agreement.
6. INDEMNIFICATION. (a) The Company will
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject, under the Act 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 any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending against 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 alleged untrue statement or omission or alleged omission
made in the Registration Statement, such Preliminary Prospectus, the Prospectus
or such amendment or such supplement in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through you
specifically for use therein; and provided further, that the foregoing indemnity
with respect to Preliminary Prospectuses shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) if
such untrue statement or omission or alleged untrue statement or omission made
in any Preliminary Prospectus is eliminated or remedied in the Prospectus and a
copy of the Prospectus has not been furnished to the person asserting any such
losses, claims, damages, or liabilities at or prior to the written confirmation
of the sale of such Shares to such person. Such indemnity obligation will be in
addition to any liability which the Company may otherwise have. The indemnity
agreement of the Company contained in this paragraph (a) and the representations
and warranties of the Company contained in Section 2 hereof shall remain
operative and in full force and effect regardless of any
18
<PAGE> 20
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Shares.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer or controlling person may become subject, under the Act 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 any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through you specifically
for use therein; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending against any such loss, claim, damage,
liability or action. Such indemnity obligation will be in addition to any
liability which such Underwriter may otherwise have. The indemnity agreement of
each Underwriter contained in this paragraph (b) shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the delivery of and payment for the
Shares.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section , notify the indemnifying party of the commencement thereof.
Indemnification shall not be available to any party who shall fail so to give
notice, if the party to whom notice was required to be given was unaware of the
action, suit, investigation, inquiry or proceeding to which the notice would
have related, to the extent that such party was prejudiced by the failure to
give notice; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section . In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish jointly with any other
19
<PAGE> 21
indemnifying party similarly notified, to assume the defense thereof, with
counsel chosen by such indemnifying party which is reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that (i) if the indemnified party
reasonably determines that there may be a conflict between the positions of the
indemnifying party and of the indemnified party in conducting the defense of
such action, suit, investigation, inquiry or proceeding or that there may be
legal defenses available to such indemnified party different from or in addition
to those available to the indemnifying party, then counsel for the indemnified
party shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party and (ii) in any event, the indemnified party shall be entitled
to have counsel chosen by such indemnified party participate in, but not
conduct, the defense. No indemnifying party shall be liable to any indemnified
party in respect to any settlement effected without its prior written consent,
which consent shall not be unreasonably withheld. In addition, the indemnifying
party will not, without the prior written consent of an indemnified party,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not such indemnified party is a party to
such claim, action or suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of such indemnified party from all
liability arising out of such claim, action, suit or proceeding.
7. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 6(a) or 6(b)
hereof is for any reason, other than the first proviso to Section 6(a), held to
be unavailable, the Company and the Underwriters shall contribute to the
aggregate losses, claims, damages and liabilities of the nature contemplated by
such indemnification provisions (including any investigation, legal and other
expenses incurred in connection with, any amount paid in settlement of, any
action, suit or proceeding or any claims asserted, but after deducting any
contribution received by the Company from persons other than the Underwriters,
such as persons who control the Company within the meaning of Section 15 of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who may also be liable for contribution) to which the Company
and one or more of the Underwriters may be subject, in such proportions so that
the Underwriters are responsible for that
20
<PAGE> 22
portion in each case represented by the percentage that the respective
underwriting discounts appearing on the cover page of the Prospectus bear to the
public offering price of the Shares, and the Company is responsible for the
remaining portion; provided, however, that (i) except as may be provided in its
Master Agreement Among Underwriters provided to Allen & Company Incorporated, in
no case shall any Underwriter be responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder and (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 7, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act shall have the same rights to contribution as
such Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same right to contribution as the Company, subject in each case to clauses
(i) and (ii) of this Section 7. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 7, notify such party
or parties from whom contribution may be sought, but the omission to so notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 7. No party shall be liable for
contribution with respect to any action or claim settled without its consent,
which consent shall not be unreasonably withheld.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements of the Company or of the Underwriters
herein or in certificates delivered pursuant hereto shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any controlling person, the Company, or any of its officers,
directors, or controlling persons, and shall survive delivery of the Shares to
the several Underwriters hereunder.
9. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Shares to be
purchased by such Underwriter or Underwriters hereunder upon tender of such
Shares in accordance with the terms hereof, and if the aggregate number of
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Shares, the remaining Underwriters shall be
obligated severally in proportion to their respective commitments hereunder to
take up and pay for the Shares of such defaulting Underwriter or Underwriters.
If one or
21
<PAGE> 23
more of the Underwriters shall fail or refuse (other than for a reason
sufficient to justify the termination of this Agreement) to purchase on any
Closing Date the aggregate number of Shares agreed to be purchased by such
Underwriter or Underwriters and the aggregate number of Shares agreed to be
purchased by such Underwriter or Underwriters shall exceed 10% of the aggregate
number of Shares to be sold on any Closing Date hereunder by the Company to the
Underwriters, then the other Underwriters shall have the right to purchase or
procure one or more other underwriters to purchase, in such proportions as they
may agree upon and upon the terms herein set forth, the Shares which such
defaulting Underwriter or Underwriters agreed to purchase, and this Agreement
shall be carried out accordingly. If such other Underwriters do not exercise
such right within thirty-six hours after receiving notice of any such default,
which notice the Representative shall have also promptly delivered to the
Company, then the Company shall have the right to procure another party or
parties reasonably satisfactory to the Representative to purchase or agree to
purchase such Shares on the terms herein set forth. If the Company is unable to
procure another such party, the Company may notify the Representatives that the
non-defaulting Underwriters are, by the giving of such notice, released from
their obligations to purchase such number of Shares being sold hereunder by the
Company as are indicated in such notice as, when subtracted from the total
number of Shares originally agreed to be purchased by all of the Underwriters
hereunder, shall leave a reduced number of Shares to be purchased by the
non-defaulting Underwriters not in excess of 110% of the aggregate number of
Shares originally contracted to be purchased hereunder by the non-defaulting
Underwriters, and each of them, in which event such non-defaulting Underwriters
shall purchase such reduced number of Shares. In any such case, either the
Representative or the Company shall have the right to postpone any Closing Date
for a period of not more than seven business days in order that necessary
changes and arrangements may be effected by the Representative and the Company.
If neither the non-defaulting Underwriters nor the Company shall make
arrangements within the period stated for the purchase of the Shares which such
defaulting Underwriter or Underwriters agreed to purchase, including such
arrangements for the purchase of a reduced number of Shares as are provided for
in this Section 9, then this Agreement shall terminate without liability on the
part of any non-defaulting Underwriters to the Company and without liability on
the part of the Company to the Underwriters.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section , the Company shall not be under any
liability to any Underwriter (except as provided in Section 4(g) and 6 hereof)
nor shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
number of Shares to be purchased by such Underwriter hereunder,
22
<PAGE> 24
which Underwriter shall remain liable to the Company and the other Underwriters
for damages resulting from such default) be under any liability to the Company
(except as provided in Section 6 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 9.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION. (a) This
Agreement shall become effective at such time after the declaration by the
Commission of the effectiveness of the Registration Statement as you in your
discretion shall first release the Shares for sale to the public. For the
purposes of this Section the Shares shall be deemed to have been released for
sale to the public upon release by you for publication of a newspaper
advertisement relating to the Shares or upon release by you of letters or
telegrams offering the Shares for sale to securities dealers, whichever shall
first occur. By giving notice as hereinafter specified before the time this
Agreement becomes effective, you, as Representative of the several Underwriters,
or the Company may prevent this Agreement from becoming effective without
liability on the part of the Company to any Underwriter or of any Underwriter to
the Company, other than as provided in Sections 4(g) and 6 hereof.
(b) You, as Representative of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the First Closing Date if (i) the Company
shall have failed, refused or been unable, at or prior to the First Closing
Date, to perform any material agreement on its part to be performed, or because
any other material condition of the Underwriters' obligations hereunder required
to be fulfilled by the Company is not fulfilled; (ii) trading on the New York
Stock Exchange shall have been suspended, or minimum or maximum prices for
trading shall have been fixed, or maximum ranges for prices for securities shall
have been required, on the New York Stock Exchange by the New York Stock
Exchange or by order of the Commission or any other governmental authority
having jurisdiction, since the execution of this Agreement; (iii) a banking
moratorium shall have been declared by Federal or New York authorities since the
execution of this Agreement; or (iv) an outbreak of major hostilities or other
national calamity shall have occurred. Any such termination shall be without
liability on the part of the Company to any Underwriter or of any Underwriter to
the Company other than as provided in Sections 4(g) and 6 hereof.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section , the
Company shall be notified promptly by you by telephone or telegram, confirmed by
letter. If the Company shall
23
<PAGE> 25
elect to prevent this Agreement from becoming effective, you shall be notified
promptly by the Company by telephone or telegram, confirmed by letter.
11. NOTICES. All notices or communications hereunder, except
as herein otherwise specifically provided, shall be in writing and if sent to
you shall be mailed, delivered or telecopied and confirmed to you c/o Allen &
Company Incorporated, 711 Fifth Avenue, New York, New York 10022, with copy to
Werbel McMillin & Carnelutti, a Professional Corporation, 711 Fifth Avenue, New
York, New York 10022, Attention: Robert H. Werbel, Esq., or if sent to the
Company shall be mailed, delivered or telecopied and confirmed to the Company at
152 West 57th Street, New York, New York 10019, with a copy to Parker Chapin
Flattau & Kimpl, LLP, 1211 Avenue of the Americas, New York, New York 10036,
Attention: Henry I. Rothman, Esq. Notice to any Underwriter pursuant to Section
6 shall be mailed, delivered or telecopied and confirmed to such Underwriter's
address as set forth in its Master Agreement Among Underwriters furnished to
Allen & Company Incorporated.
12. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the several Underwriters and the Company and their respective
successors and assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person or corporation, other than the
parties hereto and their respective successors and assigns and the controlling
persons, officers and directors referred to in Section 6, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective successors and assigns and said controlling persons
and said officers and directors, and for the benefit of no other person or
corporation. No purchaser of any of the Shares from any Underwriter shall be
construed a successor or assign merely by reason of such purchase.
In all dealings with the Company under this Agreement, you
shall be and are authorized to act on behalf of each of the several
Underwriters, and the Company shall be entitled to act and rely upon any
statement request, notice or agreement on behalf of each of the several
Underwriters if the same shall have been made or given in writing by you.
13. APPLICABLE LAW. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of New York applicable to agreements made, and to be fully
performed, therein.
If the foregoing correctly sets forth the understanding
between the Company and the several Underwriters, please so
24
<PAGE> 26
indicate in the space provided below for that purpose whereupon this letter
shall constitute a binding agreement between the Company and the several
Underwriters.
Very truly yours,
ARISTO INTERNATIONAL CORPORATION,
By:___________________________
President
Accepted as of the date
first above written:
ALLEN & COMPANY INCORPORATED
By: Allen & Company Incorporated
By: ______________________________
Vice President
On behalf of each of the several
Underwriters named in Schedule A hereto.
25
<PAGE> 27
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER
NAME AND ADDRESS OF UNDERWRITER OF SHARES
<S> <C>
Allen & Company Incorporated . . . . . . . . . . . . .
711 Fifth Avenue, New York, NY 10022
----------
Total . . . . . . . . . . . . . . . ==========
</TABLE>
26
<PAGE> 28
SCHEDULE B
SUBSIDIARIES OF THE COMPANY
Borta, Inc.
27
<PAGE> 29
2,000,000 SHARES
ARISTO INTERNATIONAL CORPORATION
COMMON STOCK
-----------------------
SELECTED DEALER AGREEMENT
October __, 1996
Dear Sirs:
1. PURCHASE OF SECURITIES BY THE SEVERAL UNDERWRITERS. The several
Underwriters named in the enclosed Prospectus, on whose behalf we are acting as
Representative, have severally agreed to purchase from Aristo International
Corporation (the "Company") an offering of 2,000,000 Shares of the Company's
Common Stock (the "Shares"), as set forth in the Prospectus and subject to the
terms of the Underwriting Agreement between the several Underwriters and the
Company. The Shares are described in the Prospectus, additional copies of which
will be supplied in reasonable quantities upon request to us.
2. OFFERING TO SELECTED DEALERS. One or more of the several
Underwriters acting through us are severally offering a portion of the Shares to
certain dealers ("Selected Dealers") as principals, subject to the terms and
conditions of their purchase, to the terms and conditions hereof, and to the
modification or cancellation of the offering without notice, at the public
offering price set forth in the Prospectus, less a concession not in excess of
$____ per Share. Shares purchased by the several Underwriters, and not sold to
the Selected Dealers as aforesaid, may be sold by the several Underwriters. Any
of the several Underwriters may be included among the Selected Dealers.
The offering of a portion of the Shares to Selected Dealers may be made
on the basis of reservations or allotments against subscription. We are advising
you by telegram of the method and terms of the offering. Acceptance of any
reserved Shares received by us at the office of Allen & Company Incorporated,
711 Fifth Avenue, New York, New York 10022, after the time specified therefor in
the telegrams, and any subscriptions for additional Shares, will be subject to
prior sale and allotment. Subscription books may be closed by us at any time
without notice, and the right is reserved to reject any subscriptions in whole
or in part.
3. OFFERING TO PUBLIC BY SELECTED DEALERS. Upon receipt of the
aforementioned telegram, the Shares purchased by you hereunder may be re-offered
to the public in conformity with the
1
<PAGE> 30
terms of offering set forth in the Prospectus. You may, in accordance with the
rules of the National Association of Securities Dealers, Inc., reallow a
concession of $_____ per Share sold by you to any other dealer or broker who is
a member of the National Association of Securities Dealers, Inc., provided such
discount is retained.
Neither you nor any other person is or has been authorized by the
Company, any of the several Underwriters or us to give information or make any
representations in connection with the sale of the Shares other than those
contained in the Prospectus.
In the event that during the term of this agreement we, as
Representative for the account of the several Underwriters, shall purchase or
contract to purchase, at or below the original public offering price set forth
in the Prospectus, any of the Shares purchased by you hereunder (which Shares
theretofore were not effectively placed for investment by you, including Shares
represented by transfers), we may, at our election, either (a) require you to
repurchase such Shares at a price equal to the total cost of such Shares
purchased by us, including brokerage commissions, if any, and transfer taxes on
the redelivery, or (b) charge you with and collect from you an amount equal to
the selling concession with respect to the Shares so purchased by us.
4. PAYMENT AND DELIVERY. Payment for the Shares which you have agreed
to purchase hereunder shall be made by you on _________, 1996, or such later
date as we may advise you, at 9:00 a.m., New York Time, at Allen & Company
Incorporated's office at 711 Fifth Avenue, New York, New York 10022, by
certified or bank cashier's check payable in New York Clearing House funds to
the order of Allen & Company Incorporated, against delivery of such Shares.
Delivery instructions must be in our hands at said address as such time as we
request.
Additional Shares confirmed to you shall be delivered on such date or
dates as we shall advise you.
5. BLUE SKY MATTERS. Neither we nor any of the several Underwriters
shall have any obligation or responsibility with respect to the right of any
dealer to sell the Shares in any jurisdiction, notwithstanding any information
which may be furnished as to the states under the securities laws of which it is
believed the Shares may be sold.
6. TERMINATION. This agreement shall terminate 20 full days after the
First Closing Date (as defined in the Underwriting Agreement) but may be
extended for a period or periods not exceeding in the aggregate 20 days as we
may determine. We may terminate this Agreement at any time without prior notice.
Notwithstanding the termination of this agreement, you shall remain liable for
your portion of any transfer tax or other
2
<PAGE> 31
liability which may be asserted or assessed against us or any one or more of the
several Underwriters or Selected Dealers based upon the claim that the Selected
Dealers or any of them constitute a partnership, an association, an
unincorporated business or other separate entity.
7. OBLIGATIONS OF SELECTED DEALERS. Your acceptance hereof will
constitute an obligation on your part to purchase, upon the terms and conditions
hereof, the aggregate amount of the Shares reserved for and accepted by you and
to perform and observe all the terms and conditions hereof.
You are not authorized to act as agent for any of the several
Underwriters in offering Shares to the public or otherwise. Nothing contained
herein shall constitute the Selected Dealers an association, or partners with
the several Underwriters, with us, or with each other.
8. POSITION OF THE REPRESENTATIVE. We shall have full authority to take
such action as we may deem advisable in respect of all matters pertaining to the
offering or arising hereunder, but shall act only as Representatives of the
several Underwriters. Neither we nor any of the several Underwriters shall be
under any liability to you, except for our own want of good faith, obligations
assumed in this agreement, or any liabilities arising under the Securities Act
of 1933. No obligation not expressly assumed by us in this agreement shall be
implied hereby or inferred herefrom.
9. NOTICES. All communications from you should be addressed to us, c/o
Allen & Company Incorporated, 711 Fifth Avenue, New York, New York 10022. Any
notice from us to you shall be deemed to have been duly given if mailed or
telegraphed to you at the address to which this letter is mailed.
3
<PAGE> 32
Please confirm the foregoing by signing the duplicate copy of this
agreement enclosed herewith and returning it to us at the address in Section 9
above.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: Allen & Company Incorporated
By: ______________________________
Vice President
4
<PAGE> 33
ALLEN & COMPANY INCORPORATED
As Representative of the several Underwriters
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Sirs:
We hereby confirm our agreement to purchase _____ Shares of
Aristo International Corporation (the "Shares"), subject to your acceptance or
rejection in whole or in part in the case of a subscription subject to allotment
or in excess of any reservation, and subject to all the other terms and
conditions stated in the foregoing letter.
We hereby acknowledge receipt of the prospectus relating to
the above described Shares (the "Prospectus") and we further state that in
purchasing the Shares confirmed to us we have relied upon such Prospectus and on
no other statements whatsoever, written or oral.
We hereby represent that we are a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD") and agree to
comply with the provisions of Article III, Section 24 of the NASD's Rules of
Fair Practice (the "NASD Rules"), or, if we are not such a member, we are a
foreign dealer or institution that is not registered under Section 15(b) of the
Securities Exchange Act of 1934 and that hereby agrees (i) to make no sales
within the United States, its territories or its possessions or to persons who
are citizens thereof or residents therein, (ii) if the offering of the Shares is
one within the scope of the NASD's Interpretation with Respect to Free-Riding
and Withholding, not to make other sales of Shares to persons enumerated in
paragraphs "1" through "5" of such Interpretation or in a manner inconsistent
with paragraph "6" thereof and (iii) to comply with the provisions of Article
III, Sections 8, 24, 25 (as applicable to a non-member broker/dealer in a
foreign country) and 36 of the NASD Rules.
Name of Selected Dealer
----------------------------------
----------------------------------
(Authorized Signature)
Dated: ______________, 1996
<PAGE> 1
Exhibit 10.3
1996 STOCK OPTION PLAN
OF
ARISTO INTERNATIONAL CORPORATION
1. PURPOSES OF THE PLAN. This stock incentive plan (the
"Plan") is designed to provide an incentive to key employees (including
directors and officers who are key employees) and to consultants and directors
who are not employees of ARISTO INTERNATIONAL CORPORATION, a Delaware
corporation (the "Company"), or any of its Subsidiaries (as defined in Paragraph
19), and to offer an additional inducement in obtaining the services of such
persons. The Plan provides for the grant of "incentive stock options" ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and nonqualified stock options which do not qualify as ISOs
("NQSOs"). The Company makes no representation or warranty, express or implied,
as to the qualification of any option as an "incentive stock option" under the
Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of Common Stock, $.001 par value
per share, of the Company ("Common Stock") for which options may be granted
under the Plan shall not exceed 1,500,000. Such shares of Common Stock may, in
the discretion of the Board of Directors of the Company (the "Board of
Directors"), consist either in whole or in part of authorized but unissued
shares of Common Stock or shares of Common Stock held in the treasury of the
Company. Subject to the provisions of Paragraph 13, any shares of Common Stock
subject to an option which for any reason expires, is canceled or is terminated
unexercised or which ceases for any reason to be exercisable, shall again become
available for the granting of options under the Plan. The Company shall at all
times during the term of the Plan reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of the
Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be
administered by the Board of Directors or a committee (the "Committee") of the
Board of Directors consisting of not less than two directors (those
administering the Plan are the "Administrators") within the requirements of Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended (as the
same may be in effect and interpreted from time to time, "Rule 16b-3"). A
majority of the members of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, and any acts approved in writing by all of the members of the Committee
without a meeting, shall be the acts of the Committee.
Subject to the express provisions of the Plan, the
Administrators shall have the authority, in their sole discretion, to determine:
the key employees, consultants and Non-Employee
<PAGE> 2
Directors who shall be granted options; the type of option to be granted to a
key employee; the times when an option shall be granted; the number of shares of
Common Stock to be subject to each option; the term of each option; the date
each option shall become exercisable; whether an option shall be exercisable in
whole, in part or in installments and, if in installments, the number of shares
of Common Stock to be subject to each installment, whether the installments
shall be cumulative, the date each installment shall become exercisable and the
term of each installment; whether to accelerate the date of exercise of any
option or installment; whether shares of Common Stock may be issued upon the
exercise of an option as partly paid and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such
installments; the exercise price of each option; the form of payment of the
exercise price; whether to restrict the sale or other disposition of the shares
of Common Stock acquired upon the exercise of an option and, if so, whether and
under what conditions to waive any such restriction; whether and under what
conditions to subject all or a portion of the grant or exercise of an option or
the shares acquired pursuant to the exercise of an option to the fulfillment of
certain restrictions or contingencies as specified in the contract referred to
in Paragraph 11 hereof (the "Contract"), including without limitation,
restrictions or contingencies relating to entering into a covenant not to
compete with the Company, any of its Subsidiaries or a Parent (as defined in
Paragraph 19), to financial objectives for the Company, any of its Subsidiaries
or a Parent, a division of any of the foregoing, a product line or other
category, and/or to the period of continued employment of the optionee with the
Company, any of its Subsidiaries or a Parent, and to determine whether such
restrictions or contingencies have been met; whether an optionee is Disabled (as
defined in Paragraph 19); the amount, if any, necessary to satisfy the
obligation of the Company, a Subsidiary or Parent to withhold taxes or other
amounts; the fair market value of a share of Common Stock; to construe the
respective Contracts and the Plan; with the consent of the optionee, to cancel
or modify an option, provided, that the modified provision is permitted to be
included in an option granted under the Plan on the date of the modification,
and further, provided, that in the case of a modification (within the meaning of
Section 424(h) of the Code) of an ISO, such option as modified would be
permitted to be granted on the date of such modification under the terms of the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to approve any provision of the Plan or any option granted under the Plan,
or any amendment to either, which under Rule 16b-3 requires the approval of the
Board of Directors, a committee of non-employee directors or the stockholders to
be exempt (unless otherwise specifically provided herein); and to make all other
determinations necessary or advisable for administering the Plan. Any
controversy or claim arising out of or relating to the Plan, any option granted
under the Plan or any Contract shall be determined unilaterally by the
Administrators in their sole discretion. The determinations of the
Administrators on the matters referred to in this Paragraph 3 shall be
conclusive and binding on the parties. No Administrator or former Administrator
shall be liable for any action, failure to act or determination made in good
faith with respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Administrators may from time to time,
in their sole discretion, consistent with the purposes of the Plan, grant
options to (a) key employees (including officers and directors who are key
employees) of the Company or any of its Subsidiaries, (b)
-2-
<PAGE> 3
consultants to the Company or any of its Subsidiaries and (c) Non-Employee
Directors. Such options granted shall cover such number of shares of Common
Stock as the Administrators may determine, in their sole discretion, as set
forth in the applicable Contract; provided, however, that the maximum number of
shares subject to options that may be granted to any employee during any
calendar year under the Plan (the "162(m) Maximum") shall be 250,000 shares; and
further, provided, that the aggregate market value (determined at the time the
option is granted in accordance with Paragraph 5) of the shares of Common Stock
for which any eligible employee may be granted ISOs under the Plan or any other
plan of the Company, or of a Parent or a Subsidiary of the Company, which are
exercisable for the first time by such optionee during any calendar year shall
not exceed $100,000. Such ISO limitation shall be applied by taking ISOs into
account in the order in which they were granted. Any option granted in excess of
such ISO limitation amount shall be treated as a NQSO to the extent of such
excess.
5. EXERCISE PRICE. The exercise price of the shares of
Common Stock under each option shall be determined by the Administrators, in
their sole discretion, as set forth in the applicable Contract; provided,
however, that the exercise price of an ISO shall not be less than the fair
market value of the Common Stock subject to such option on the date of grant;
and further, provided, that if, at the time an ISO is granted, the optionee owns
(or is deemed to own under Section 424(d) of the Code) stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, of any of its Subsidiaries or of a Parent, the exercise price of such
ISO shall not be less than 110% of the fair market value of the Common Stock
subject to such ISO on the date of grant.
The fair market value of a share of Common Stock on any
day shall be (a) if the principal market for the Common Stock is a national
securities exchange, the average of the highest and lowest sales prices per
share of Common Stock on such day as reported by such exchange or on a composite
tape reflecting transactions on such exchange, (b) if the principal market for
the Common Stock is not a national securities exchange and the Common Stock is
quoted on The Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price
information is available with respect to the Common Stock, the average of the
highest and lowest sales prices per share of Common Stock on such day on Nasdaq,
or (ii) if such information is not available, the average of the highest bid and
lowest asked prices per share of Common Stock on such day on Nasdaq, or (c) if
the principal market for the Common Stock is not a national securities exchange
and the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; provided, however, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Common Stock shall be
determined by the Board of Directors by any method consistent with applicable
regulations adopted by the Treasury Department relating to stock options.
-3-
<PAGE> 4
6. TERM. The term of each option granted pursuant to the
Plan shall be such term as is established by the Administrators, in their sole
discretion, as set forth in the applicable Contract; provided, however, that the
term of each ISO granted pursuant to the Plan shall be for a period not
exceeding 10 years from the date of grant thereof; and further, provided, that
if, at the time an ISO is granted, the optionee owns (or is deemed to own under
Section 424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, of any of its Subsidiaries
or of a Parent, the term of the ISO shall be for a period not exceeding five
years from the date of grant. Options shall be subject to earlier termination as
hereinafter provided.
7. EXERCISE. An option (or any part or installment
thereof), to the extent then exercisable, shall be exercised by giving written
notice to the Company at its principal office stating which option is being
exercised, specifying the number of shares of Common Stock as to which such
option is being exercised and accompanied by payment in full of the aggregate
exercise price therefor (or the amount due on exercise if the applicable
Contract permits installment payments) (a) in cash or by certified check or (b)
if the applicable Contract permits, with previously acquired shares of Common
Stock having an aggregate fair market value on the date of exercise (determined
in accordance with Paragraph 5) equal to the aggregate exercise price of all
options being exercised, or with any combination of cash, certified check or
shares of Common Stock having such value. The Company shall not be required to
issue any shares of Common Stock pursuant to any such option until all required
payments, including any required withholding, have been made.
The Administrators may, in their sole discretion, permit
payment of the exercise price of an option by delivery by the optionee of a
properly executed notice, together with a copy of his irrevocable instructions
to a broker acceptable to the Administrators to deliver promptly to the Company
the amount of sale or loan proceeds sufficient to pay such exercise price. In
connection therewith, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
A person entitled to receive Common Stock upon the
exercise of an option shall not have the rights of a stockholder with respect to
such shares of Common Stock until the date of issuance of a stock certificate
for such shares or in the case of uncertificated shares, an entry is made on the
books of the Company's transfer agent representing such shares; provided,
however, that until such stock certificate is issued or book entry is made, any
optionee using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be
purchased or issued under the Plan.
-4-
<PAGE> 5
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, an optionee whose relationship
with the Company, its Parent and Subsidiaries as an employee or a consultant has
terminated for any reason (other than as a result of the death or Disability of
the optionee) may exercise the options granted to him as an employee or
consultant, to the extent exercisable on the date of such termination, at any
time within three months after the date of termination, but not thereafter and
in no event after the date the option would otherwise have expired; provided,
however, that if such relationship is terminated either (a) for Cause (as
defined in Paragraph 19), or (b) without the consent of the Company, such option
shall terminate immediately. Except as may otherwise be expressly provided in
the applicable Contract, options granted under the Plan to an employee or
consultant shall not be affected by any change in the status of the optionee so
long as the optionee continues to be an employee of, or a consultant to, the
Company, or any of the Subsidiaries or a Parent (regardless of having changed
from one to the other or having been transferred from one corporation to
another).
For the purposes of the Plan, an employment relationship
shall be deemed to exist between an individual and the Company, any of its
Subsidiaries or a Parent if, at the time of the determination, the individual
was an employee of such corporation for purposes of Section 422(a) of the Code.
As a result, an individual on military, sick leave or other bona fide leave of
absence shall continue to be considered an employee for purposes of the Plan
during such leave if the period of the leave does not exceed 90 days, or, if
longer, so long as the individual's right to reemployment with the Company, any
of its Subsidiaries or a Parent is guaranteed either by statute or by contract.
If the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
Except as may otherwise be expressly provided in the
applicable Contract, an optionee whose relationship with the Company as a
Non-Employee Director ceases for any reason (other than as a result of his death
or Disability) may exercise the options granted to him as a Non- Employee
Director, to the extent exercisable on the date of such termination, at any time
within three months after the date of termination, but not thereafter and in no
event after the date the option would otherwise have expired; provided, however,
that if such relationship is terminated for Cause, such option shall terminate
immediately. Except as may otherwise be expressly provided in the applicable
Contract, options granted to a Non-Employee Director shall not be affected by
the optionee becoming an employee of the Company, any of its Subsidiaries or a
Parent.
Nothing in the Plan or in any option granted under the
Plan shall confer on any optionee any right to continue in the employ of, or as
a consultant to, the Company, any of its Subsidiaries or a Parent, or as a
director of the Company, or interfere in any way with any right of the Company,
any of its Subsidiaries or a Parent to terminate the optionee's relationship at
any time for any reason whatsoever without liability to the Company, any of its
Subsidiaries or a Parent.
-5-
<PAGE> 6
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may
otherwise be expressly provided in the applicable Contract, if an optionee dies
(a) while he is an employee of, or consultant to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for Cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of his Disability, the options that were granted to him
as an employee or consultant may be exercised, to the extent exercisable on the
date of his death, by his Legal Representative (as defined in Paragraph 19) at
any time within one year after death, but not thereafter and in no event after
the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the
applicable Contract, any optionee whose relationship as an employee of, or
consultant to, the Company, its Parent and Subsidiaries has terminated by reason
of such optionee's Disability may exercise the options that were granted to him
as an employee or consultant, to the extent exercisable upon the effective date
of such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
Except as may otherwise be expressly provided in the
applicable Contract, any optionee whose relationship as a Non-Employee Director
ceases as a result of his death or Disability may exercise the options that were
granted to him as a Non-Employee Director, to the extent exercisable on the date
of such termination, at any time within one year after the date of termination,
but not thereafter and in no event after the date the option would otherwise
have expired. In the case of the death of the Non-Employee Director, the option
may be exercised by his Legal Representative.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to
the exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there is an exemption from registration
under the Securities Act for the issuance of the shares of Common Stock upon
such exercise. Nothing herein shall be construed as requiring the Company to
register shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
The Administrators may require, in their sole discretion,
as a condition to the receipt of an option or the exercise of any option that
the optionee execute and deliver to the Company his representations and
warranties, in form, substance and scope satisfactory to the Administrators,
which the Administrators determines are necessary or convenient to facilitate
the perfection of an exemption from the registration requirements of the
Securities Act, applicable state securities laws or other legal requirement,
including without limitation that (a) the shares of Common Stock to be issued
upon the exercise of the option are being acquired by the optionee for his own
account, for investment only and not with a view to the resale or distribution
thereof, and (b) any subsequent resale or distribution of shares of Common Stock
by such optionee will be made
-6-
<PAGE> 7
only pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Administrators shall
determine, in their sole discretion, that the listing or qualification of the
shares of Common Stock subject to any option on any securities exchange, Nasdaq
or under any applicable law, or the consent or approval of any governmental
agency or regulatory body, is necessary or desirable as a condition to, or in
connection with, the granting of an option or the issuing of shares of Common
Stock thereunder, such option may not be granted and such option may not be
exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
11. CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Administrators. The terms of
each option and Contract need not be identical.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Not
withstanding any other provision of the Plan, in the event of a stock dividend,
recapitalization, merger in which the Company is the surviving corporation,
spin-off, split-up, combination or exchange of shares or the like which results
in a change in the number or kind of shares of Common Stock which is outstanding
immediately prior to such event, the aggregate number and kind of shares subject
to the Plan, the aggregate number and kind of shares subject to each outstanding
option and the exercise price thereof, and the 162(m) Maximum shall be
appropriately adjusted by the Board of Directors, whose determination shall be
conclusive and binding on all parties. Such adjustment may provide for the
elimination of fractional shares which might otherwise be subject to options
without payment therefor.
In the event of (a) the liquidation or dissolution of the
Company, or (b) a merger in which the Company is not the surviving corporation
or a consolidation, any outstanding options or unvested stock shall terminate
upon the earliest of any such event, unless other provision is made therefor in
the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on September 6, 1996. No ISO may be granted
under the Plan after September 5, 2006. The Board of Directors, without further
approval of the Company's stockholders, may at any time suspend or terminate the
Plan, in whole or in part, or amend it from
-7-
<PAGE> 8
time to time in such respects as it may deem advisable, including, without
limitation, in order that ISOs granted hereunder meet the requirements for
"incentive stock options" under the Code, to comply with the provisions of Rule
16b-3, Section 162(m) of the Code, or any change in applicable law, regulations,
rulings or interpretations of administrative agencies; provided, however, that
no amendment shall be effective without the requisite prior or subsequent
stockholder approval which would (a) except as contemplated in Paragraph 12,
increase the maximum number of shares of Common Stock for which options may be
granted under the Plan or the 162(m) Maximum, (b) change the eligibility
requirements to receive options hereunder or (c) make any change for which
applicable law requires stockholder approval. No termination, suspension or
amendment of the Plan shall, without the consent of the optionee, adversely
affect his rights under any option granted under the Plan. The power of the
Administrators to construe and administer any option granted under the Plan
prior to the termination or suspension of the Plan nevertheless shall continue
after such termination or during such suspension.
14. NON-TRANSFERABILITY. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
15. WITHHOLDING TAXES. The Company, a Subsidiary or Parent
may withhold (a) cash or (b) with the consent of the Administrators, shares of
Common Stock to be issued upon exercise of an option having an aggregate fair
market value on the relevant date (determined in accordance with Paragraph 5) or
a combination of cash and shares, in an amount equal to the amount which the
Company, a Subsidiary or Parent determines is necessary to satisfy its
obligation to withhold Federal, state and local income taxes or other amounts
incurred by reason of the grant, vesting, exercise or disposition of an option,
or the disposition of the underlying shares of Common Stock. Alternatively, the
Company, a Subsidiary or Parent may require the holder to pay to it such amount,
in cash, promptly upon demand.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse
such legend or legends upon the certificates for shares of Common Stock issued
upon exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws, (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock, or (c) permit the Company to determine the
occurrence of a "disqualifying disposition," as described in Section 421(b) of
the Code, of the shares of Common Stock issued or transferred upon the exercise
of an ISO granted under the Plan.
-8-
<PAGE> 9
The Company shall pay all issuance taxes with respect to
the issuance of shares of Common Stock upon the exercise of an option granted
under the Plan, as well as all fees and expenses incurred by the Company in
connection with such issuance.
17. USE OF PROCEEDS. The cash proceeds received upon the
exercise of an option under the Plan shall be added to the general funds of the
Company and used for such corporate purposes as the Board of Directors may
determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of Directors may, without further approval by the stockholders,
substitute new options for prior options or restricted stock of a Constituent
Corporation (as defined in Paragraph 19) or assume the prior options or
restricted stock of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following
terms shall be defined as set forth below:
(a) "Cause" shall mean (i) in the case of an
employee or consultant, if there is a written employment or consulting agreement
between the optionee and the Company, any of its Subsidiaries or a Parent which
defines termination of such relationship for cause, cause as defined in such
agreement, and (ii) in all other cases, cause as defined by applicable state
law.
(b) "Constituent Corporation" shall mean any
corporation which engages with the Company, any of its Subsidiaries or a Parent
in a transaction to which Section 424(a) of the Code applies (or would apply if
the option assumed or substituted were an ISO), or any Parent or any Subsidiary
of such corporation.
(c) "Disability" shall mean a permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
(d) "Legal Representative" shall mean the
executor, administrator or other person who at the time is entitled by law to
exercise the rights of a deceased or incapacitated optionee with respect to an
option granted under the Plan.
(e) "Non-Employee Director" shall mean a person
who is a director of the Company, but is not an employee of the Company, any of
its Subsidiaries or a Parent.
(f) "Parent" shall have the same definition as
"parent corporation" in Section 424(e) of the Code.
(g) "Subsidiary" shall have the same definition as
"subsidiary corporation" in Section 424(f) of the Code.
-9-
<PAGE> 10
20. GOVERNING LAW; CONSTRUCTION. The Plan, the options and
Contracts hereunder and all related matters shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to
conflict of law provisions.
Neither the Plan nor any Contract shall be construed or
interpreted with any presumption against the Company by reason of the Company
causing the Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan, any option or Contract shall not
affect the validity, legality or enforceability of any other provision, all of
which shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to
approval by a majority of the votes present in person or by proxy and entitled
to vote hereon at the next duly held meeting of the Company's stockholders at
which a quorum is present. No options granted hereunder may be exercised prior
to such approval; provided, however, that the date of grant of any option shall
be determined as if the Plan had not been subject to such approval. Notwith
standing the foregoing, if the Plan is not approved by a vote of the
stockholders of the Company on or before September 5, 1997, the Plan and any
options granted hereunder shall terminate.
-10-
<PAGE> 11
1996 STOCK OPTION PLAN OF
ARISTO INTERNATIONAL CORPORATION
STOCK OPTION CONTRACT
THIS STOCK OPTION CONTRACT entered as of the ___ day of ____, 1996,
between ARISTO INTERNATIONAL CORPORATION, a Delaware corporation (the "Company")
and ____________________________, an employee of the Company (the "Optionee"),
all on the terms and subject to the conditions hereinafter set forth.
W I T N E S S E T H:
1. Grant of Option. This contract evidences the grant by the Company on the date
hereof to the Optionee of a non-qualified stock option to purchase, in whole or
in part, on the terms herein provided, a total of _________ shares (the
"Shares") of the common stock of the Company, par value $.001 per share (the
"Common Stock"), at an exercise price of $____ per share, and to exercise all
other rights, powers and privileges hereinafter provided (the "Option"). Such
Shares may be either authorized but unissued shares, or issued shares which have
been reacquired by the Company. This Option shall vest and become exercisable in
installments of _____ Shares each on the first and second anniversaries of the
date of grant and shall continue to be exercisable, subject to Section 6 below,
until the Final Exercise Date (the "Exercise Period"). Notwithstanding, any
other provisions of this Contract, the latest date on which an option may be
exercised hereunder (the "Final Exercise Date") is _________________.
2. Exercise of Option. When electing to exercise the Option, the Optionee shall
give written notice signed by the Optionee or by his executor or administrator
or the person or persons to whom this Option is transferred by will or the
applicable laws of descent and distribution, or if the Optionee is
incapacitated, by the person or persons legally appointed to act on the
Optionee's behalf (in each such case, the "Legal Representative") to the Company
at its principal office of such election and of the number of shares subject to
such exercise and accompanied by a copy of this contract and payment in full.
Payment shall be made to the Company either (a) in cash (including certified
check, personal check or money order, or (b) previously acquired shares of
Common Stock having an aggregate fair market value on the date of exercise equal
to the aggregate exercise price of all options being exercised, or (c) with any
combination of cash, certified check or shares of Common Stock, or (d) by
delivery by the Optionee of a properly executed notice together with a copy of
his irrevocable instructions to a broker acceptable to the Administrator to
deliver promptly to the Company the amount of sale or loan proceeds sufficient
to pay such exercise price.
3. Effectiveness of Exercise. This Option shall be deemed to have been exercised
and such Shares shall be deemed to have been issued, and the Optionee or his
Legal Representatives shall be deemed to have become the holder of record of
such Shares for all purposes, as of the close of business on the date the notice
of exercise, together with the payment of the purchase price in full and a copy
of this contract, is received by the Company.
<PAGE> 12
4. Withholding.
4.1. No shares will be transferred pursuant to the exercise of this
Option unless and until the Optionee remits to the Company an amount sufficient
to satisfy any federal, state or local withholding tax requirement, or makes
other arrangements satisfactory to the Company with regard to such taxes.
4.2. At any time when the Optionee is required to pay the Company an
amount required to be withheld under applicable income tax laws in connection
with the exercise of the Option, the Optionee may elect to have the Company
retain from the distribution Shares of Common Stock to satisfy this obligation
in whole or in part, or withhold cash, or a combination thereof (an "Election"),
in amount determined by the Administrators as necessary to satisfy the
obligation of the Company to so withhold. The Shares to be withheld shall be
valued at 100% of the fair market value of the Shares on the date that the
amount of tax required to be paid shall be determined. (the "Tax Date").
Alternatively, the Administrators may require the Optionee to pay to the Company
such amount, in cash, promptly upon demand.
4.3. Each Election must be made prior to the Tax Date. The Company may
disapprove of any Election, may suspend or terminate the right to make
Elections, and limit the amount of any Election or may make rules concerning the
required information to be included in any Election. An Election is irrevocable.
4.4. The Election may be made in an amount equal to the amount of tax
required by law to be withheld with respect to the Option exercise. Any
fractional share withholding amount must be paid in cash.
4.5. If at the time of the Election the Optionee is an "officer" or
"director" of the Company, as those terms are used in Section 16 (b) of the
Securities Exchange Act of 1934, as amended ("Section 16 (b)"), the Optionee may
only make an Election in compliance with the rules established by the Company to
comply with Section 16 (b).
5. Nontransferability of Option. This Option is not transferable by the Optionee
otherwise than by will or the laws of descent and distribution as provided in
Section 6.3 hereof, and is exercisable during the Optionee's lifetime only by
the Optionee.
6. Effect of Termination of Employment.
6.1. In the event that the Optionee's employment is terminated by the
Company for any reason other than his death or disability, or his gross and
willful misconduct, the Optionee shall have the right to exercise any previously
vested but unexercised Options subject to this provision within ninety (90) days
of such termination date, but not thereafter.
2
<PAGE> 13
6.2. In the event that the Optionee shall cease to be an employee of
the Company by reason of his gross and willful misconduct during the term of his
employment with the Company, including but not limited to wrongful appropriation
of funds of the Company or the commission of a gross misdemeanor or felony, this
Contract and all Options granted pursuant hereto shall be terminated as of the
date of the misconduct with no further consideration due to the Optionee.
6.3. If the Optionee shall die while an employee of the Company or
within three months after termination of his employment with the Company for any
reason other than voluntary resignation or gross and willful misconduct, or
shall become disabled (within the meaning of Section 22(e) (3) of the Internal
Revenue Code of 1986, as amended) while an employee of the Company and the
Optionee shall not have fully exercised the Option, the Option may be exercised
at any time within twelve (12) months after his death or such disability by the
Legal Representative of the Optionee or by any person or persons to whom the
Option is transferred by will or the applicable laws of descent and
distribution, in accordance with its terms.
6.4. Nothing contained herein shall confer on the Optionee any right to
continue as an employee of the Company, or affect, in any way, the right of the
Board of Directors of the Company to terminate his employment with the Company
in accordance with the Company's bylaws.
7. Dilution or Other Adjustments. If there shall be any change in the
Common Stock through merger, spin-off, split-up,consolidation, reorganization,
recapitalization, stock dividend (of whatever amount), stock split or other
change in the corporate structure, appropriate adjustments in the Option shall
be made by the Company. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number of shares and the
price per share subject to the Option, in order to prevent dilution of rights
under the Option. Such adjustment may provide for the elimination of fractional
shares which might otherwise be subject to options without payment therefor.
Furthermore, should the Company be acquired prior to the vesting dates provided
in Section 1, all unvested Shares shall automatically vest on the acquisition
date.
8. Securities Law Covenant. If the Optionee or his Legal Representative
exercises the Option, the Optionee or the Legal Representative, as the case may
be, will prior to and upon any sale or disposition of any Shares purchased
pursuant to the exercise of the Option, comply with all applicable securities
laws and all applicable regulations related thereto and will not offer, sell or
deliver any of such Shares, directly or indirectly, unless the Shares are
registered under the Securities Act of 1933 (the "Act") or are sold in either a
transaction that is exempt from registration or a transaction where registration
if not required in accordance with the provisions of the Act.
3
<PAGE> 14
9. Subject to Plan. The Option shall be deemed to be granted pursuant
to the Company's 1996 Stock Option Plan (the "Plan"). The administration of the
Option, including the exercise thereof and issuance of Shares pursuant thereto,
shall be in compliance with the Plan and pursuant to the terms and provisions
contained therein.
IN WITNESS WHEREOF, the Company has caused this Option to be executed
by its duly authorized officer.
ARISTO INTERNATIONAL CORPORATION
By:
----------------------------------------
Shmuel Cohen
Chairman and Chief Executive Officer
-------------------------------------------
Optionee
4
<PAGE> 1
EXHIBIT 10.7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE LAWS OF ANY STATE. THEY MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
448,101 Warrants
ARISTO INTERNATIONAL CORPORATION
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies
that for value received Allen & Company Incorporated or registered assigns (the
"Holder") is the owner of the number of warrants ("Warrants") specified above,
each of which entitles the Holder thereof to purchase, at any time after one
year from the date hereof through and including the Expiration Date (hereinafter
defined), one fully paid and non-assessable share of Common Stock, $.01 par
value ("Common Stock"), of Aristo International Corporation, a Delaware
corporation (the "Company"), at a purchase price of $8.25 per share of Common
Stock in lawful money of the United States of America in cash or by certified or
cashier's check or a combination of cash and certified or cashier's check
(subject to adjustment as hereinafter provided).
1. Warrant; Purchase Price
Each Warrant shall entitle the Holder initially to purchase
one share of Common Stock of the Company and the purchase price payable upon
exercise of the Warrants (the "Purchase Price") shall initially be $8.25 per
share of Common Stock payable in cash. The Purchase Price and number of shares
of Common Stock issuable upon exercise of each Warrant are subject to adjustment
as provided in Article 6. The shares of Common Stock issuable upon exercise of
the Warrants (and/or other shares of common stock so issuable by reason of any
adjustments pursuant to Article 6) are sometimes referred to herein as the
"Warrant Shares."
2. Exercise; Expiration Date
2.1 The Warrants are exercisable, at the option of the Holder,
in whole or in part at any time and from time to time after the date which is
one year from the date hereof through and
<PAGE> 2
including the Expiration Date (the "Exercise Period"), upon surrender of this
Warrant Certificate to the Company together with a duly completed Notice of
Exercise, in the form attached hereto as Exhibit A, and payment of an amount
equal to the Purchase Price times the number of Warrants to be exercised. In the
case of exercise of less than all the Warrants represented by this Warrant
Certificate, the Company shall cancel the Warrant Certificate upon the surrender
thereof and shall execute and deliver a new Warrant Certificate for the balance
of such Warrants.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on March __, 2001, or if such day shall in the State of New York be a
holiday or a day on which banks are authorized to close, then 5:00 p.m. local
time in the State of New York the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and
transfer of the Warrants and the registration and transfer of the Warrant
Shares.
3.2 Prior to due presentment for registration of transfer of
this Warrant Certificate, or the Warrant Shares, the Company may deem and treat
the registered Holder as the absolute owner thereof.
3.3 The Company shall register upon its books any transfer of
a Warrant Certificate, upon surrender of same to the Company with a written
instrument of transfer duly executed by the registered Holder or by a duly
authorized attorney. Upon any such registration of transfer, new Warrant
Certificate(s) shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled by the Company. A Warrant Certificate may also be
exchanged, at the option of the Holder, for new Warrant Certificates of
different denominations representing in the aggregate the number of Warrants
evidenced by the Warrant Certificate surrendered.
4. Reservation of Shares
The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of the Warrants, such number of shares as shall then be
issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of capital stock which shall be issuable upon exercise of the
Warrants shall be duly and validly issued and fully paid and non-assessable and
free from all taxes, liens and charges with respect to the issue thereof, and
that upon issuance such shares
- 2 -
<PAGE> 3
shall be listed on each national securities exchange, if any, on which the other
shares of such outstanding series of capital stock of the Company are then
listed.
5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate representing
an equal number of Warrants.
6. Adjustment of Purchase Price and Number of
Shares Deliverable
6.1 The number of Warrant Shares purchasable upon the exercise
of each Warrant and the Purchase Price with respect to the Warrant Shares shall
be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, or (v) in case of a consolidation or merger of the Company
with or into another corporation or in case of the sale or transfer of
all or substantially all of the assets of the Company (hereinafter, a
"Reorganization Transaction"), the number and/or nature of Warrant
Shares purchasable upon exercise of each Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to
receive the kind and number of Warrant Shares or other securities of
the Company (or of any successor company) which he would have owned or
have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
retroactively as of the record date of such event.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends
- 3 -
<PAGE> 4
or distributions on its Common Stock referred to in paragraph (a)
above), evidences of its indebtedness or rights, options, warrants or
convertible securities providing the right to subscribe for or purchase
any shares of the Company's capital stock or evidences of its
indebtedness, then in each case the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon
the exercise of each Warrant, by a fraction, of which the numerator
shall be the then Market Price Per Share of the Warrant Shares (as
determined pursuant to Section 9.2) on the record date mentioned below
in this paragraph (b), and of which the denominator shall be the then
Market Price Per Share of the Warrant Shares on such record date, less
the then fair value (as determined by the Board of Directors of the
Company, in good faith) of the portion of the shares of the Company's
capital stock other than Common Stock, evidences of indebtedness, or of
such rights, options, warrants or convertible securities, distributable
with respect to each Warrant Share. Such adjustment shall be made
whenever any such distribution is made, and shall become effective
retroactively as of the record date for the determination of
shareholders entitled to receive such distribution.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as provided in this Section 6.1,
the Purchase Price with respect to the Warrant Shares shall be adjusted
by multiplying such Purchase Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of Warrant
Shares purchasable upon the exercise of each Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of
Warrant Shares so purchasable immediately thereafter.
6.2 No adjustment in the number of Warrant Shares purchasable
under the Warrants, or in the Purchase Price with respect to the Warrant Shares,
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the number of Warrant Shares issuable upon the exercise of
such Warrant, or in the Purchase Price thereof; provided, however, that any
adjustments which by reason of this Section 6.3 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All final results of adjustments to the number of Warrant Shares and the
Purchase Price thereof shall be rounded to the nearest one thousandth of a share
or the nearest cent, as the case may be. Anything in this Section 6 to the
contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the number of Warrant Shares purchasable upon
the exercise of each Warrant, or in the Purchase Price thereof, in addition to
those
- 4 -
<PAGE> 5
required by such Section, as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of shares of Common Stock, issuance
of rights, warrants or options to purchase Common Stock, or distribution of
shares of stock other than Common Stock, evidences of indebtedness or assets
(other than distributions of cash out of retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of its
Common Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
6.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Purchase Price of such Warrant Shares is
adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Purchase Price of such
Warrant Shares after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
6.4 In the event that at any time prior to the expiration of
the Warrants and prior to their exercise:
(a) the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with
respect to the Common Stock); or
(b) the Company shall offer for subscription to all the
holders of the Common Stock any additional shares of stock of any class
or any other securities convertible into Common Stock or any rights to
subscribe thereto; or
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock that shall affect the outstanding number of shares of
Common Stock; or
(d) the Company shall declare a dividend, other than a
dividenden payable in shares of the Company's own Common
Stock; or
(e) there shall be any capital change in the Company as set
forth in Section 6.1(a)(v); or
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection
with a consolidation, merger, or
- 5 -
<PAGE> 6
sale of all or substantially all of its property, assets and business
as an entity);
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (provided,
however, that if there is no record date, 20 days prior to the effective date,
or in either case if 20 days prior notice is impracticable, as soon as
practicable) written notice specifying the nature of such event and the
effective date of, or the date on which the books of the Company shall close or
a record shall be taken with respect to, such event. Such notice shall also set
forth facts indicating the effect of such action (to the extent such effect may
be known at the date of such notice) on the Purchase Price and the kind and
amount of the shares of stock or other securities or property deliverable upon
exercise of the Warrants.
6.5 The form of Warrant Certificate need not be changed
because of any change in the Purchase Price, the number of Warrant Shares
issuable upon the exercise of a Warrant or the number of Warrants outstanding
pursuant to this Section 6, and Warrant Certificates issued before or after such
change may state the same Purchase Price, the same number of Warrants, and the
same number of Warrant Shares issuable upon exercise of Warrants as are stated
in the Warrant Certificates theretofore issued pursuant to this Agreement. The
Company may, however, at any time, in its sole discretion, make any change in
the form of Warrant Certificate that it may deem appropriate and that does not
affect the substance thereof, and any Warrant Certificates thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
7. Conversion Rights
7.1 After the occurrence of any Reorganization Transaction (as
such term is defined in Section 6.1(a)(v)), in lieu of exercise of any portion
of the Warrants as provided in Section 2.1 hereof, the Warrants represented by
this Warrant Certificate (or any portion thereof) may, at the election of the
Holder, be converted into the nearest whole number of shares of Common Stock of
the Company (or other securities of the Company or any successor Company
underlying the Warrants) equal to: (1) the product of (a) the number of shares
of Common Stock (or such other securities) then issuable upon the exercise of
each Warrant to be so converted and (b) the excess, if any, of (i) the Market
Price Per Share (as determined pursuant to Section 9.2) with respect to the date
of conversion over (ii) the Purchase Price in effect on the business day next
preceding the date of conversion, divided by (2) the Market Price Per Share with
respect to the date of conversion.
- 6 -
<PAGE> 7
7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while any
Warrants remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company (or any successor company), at its
offices, this Warrant Certificate accompanied by a duly completed Notice of
Conversion in the form attached hereto as Exhibit B. The Warrants (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant Certificate for conversion in accordance with the
foregoing provisions. As promptly as practicable on or after the conversion
date, the Company (or the successor company) shall issue and shall deliver to
the Holder (i) a certificate or certificates representing the number of shares
of Common Stock (or such other securities) to which the Holder shall be entitled
as a result of the conversion, and (ii) if the Warrant Certificate is being
converted in part only, a new certificate of like tenor and date for the balance
of the unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of
the Warrants, reduce the then current Purchase Price to any amount deemed
appropriate by the Board of Directors of the Company and/or extend the date of
the expiration of the Warrants.
9. Fractional Shares and Warrants; Determination of Market
Price Per Share
9.1 Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a share of Common
Stock in connection with the exercise of Warrants. Warrants may not be exercised
in such number as would result (except for the provisions of this paragraph) in
the issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Purchase Price for all of such Warrants and pay a sum in cash
equal to the remaining fraction of a share of Common Stock, multiplied by its
Market Price Per Share (as determined pursuant to Section 9.2 below) as of the
last business day preceding the date on which the Warrants are presented for
exercise.
9.2 As used herein, the "Market Price Per Share" with respect
to any class or series of Common Stock of the Company (or any other securities
of the Company or of any successor company) on any date shall mean the closing
price per share of such class
- 7 -
<PAGE> 8
or series of securities for the trading day immediately preceding such date. The
closing price for each such day shall be the last sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case on the principal securities exchange on
which the shares of such Common Stock of the Company (or other securities of the
Company or of such successor company) are listed or admitted to trading or, if
applicable, the last sale price, or in case no sale takes place on such day, the
average of the closing bid and asked prices of such securities on NASDAQ or any
comparable system, or if such securities are not reported on NASDAQ, or a
comparable system, the average of the closing bid and asked prices as furnished
by two members of the National Association of Securities Dealers, Inc. selected
from time to time by the Company for that purpose. If such bid and asked prices
are not available, then "Market Price Per Share" shall be equal to the fair
market value of the such securities as determined in good faith by the Board of
Directors of the Company (or of such successor company).
10. Restrictions on Transfer; Registration Rights
10.1 No sale, transfer, assignment, hypothecation or other
disposition of the Warrant or Warrant Shares shall be made unless any such
transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Securities Act of 1933, as amended (the "Act"),
including such shares is currently in effect, or (ii) in the opinion of counsel
a current Registration Statement is not required for such disposition of the
shares.
10.2 In the event of a proposed sale or transfer of the
Warrant or Warrant Shares in a transaction other than a sale pursuant to a
public offering registered under the Act, a Holder shall deliver to the Company
an opinion of counsel addressed to the Company (which shall be rendered by
counsel reasonably acceptable to the Company) to the effect that the proposed
transfer may be effected without registration or qualification under any Federal
or state securities or blue sky law. Such counsel rendering the opinion shall,
as promptly as practicable, notify the Company and the Holder of such opinion
and of the terms and conditions, if any, to be observed in such transfer,
whereupon the Holder shall be entitled to transfer this Warrant or the Warrant
shares (or a portion thereof).
10.3 The Company agrees that, at any time or times hereafter,
until the second anniversary of the Expiration Date of the Warrants, as and when
it intends to register any of its securities under the Act, whether for its own
account and/or on behalf of selling stockholders (except in connection with an
offering solely to its employees, an offering pursuant to an
- 8 -
<PAGE> 9
employee benefit plan, a dividend or interest reinvestment plan, or an offering
solely related to an acquisition on a Form S-4 or any subsequent similar form)
permitting a secondary offering or distribution the Company will notify the
Holder of such intention and, upon request from the Holder, will use its best
efforts to cause the Warrant Shares designated by the Holder to be registered
under the Securities Act. The number of Warrant Shares to be included in such
offering may be reduced if and to the extent that the underwriter of securities
included in the registration statement and offered by the Company shall be of
the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that the
percentage of the reduction of such Warrant Shares shall be no greater than the
percentage reduction of securities of other selling stockholders, as such
percentage reductions are determined in the good faith judgment of the Company.
The Company will use its best efforts to keep each such Registration Statement
current for such period of time as is not otherwise burdensome to the Company.
10.4 Any registration statement referred to in subsection 10.3
hereof shall be prepared and processed in accordance with the following terms
and conditions:
(i) the Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company in
connection with the preparation, filing and processing of such
registration statement.
(ii) To the extent requested by an underwriter of securities
included in the registration statement and offered by the Company, the
Holder will defer the sale of Warrant Shares for a period commencing
twenty (20) days prior and terminating sixty (60) days after the
effective date of the registration statement, provided that any
principal shareholders of the Company who also have shares included in
the registration statement will also defer their sales for a similar
period, except for sales pursuant to registrations on Form S-8 or S-4
or any similar or successor forms thereto.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
(iv) The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or
- 9 -
<PAGE> 10
actions in respect thereof) to which they may become subject under the
Securities Act or otherwise, arising out of or based upon any untrue
or alleged untrue statement of any material facts contained in any
registration statement filed pursuant hereto, or any document relating
thereto, including all amendments and supplements, or arising out of or
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein contained not misleading, and will reimburse the Holder (or
such other aforementioned parties) or such underwriters for any legal
and all other expenses reasonably incurred in accordance with
investigating or defending any such claim, loss, damage, liability or
action; provided, however, that the Company will not be liable where
the untrue or alleged untrue statement or omission or alleged omission
is based upon information furnished in writing to the Company by the
Holder or any underwriter obtained by the Holder expressly for use
therein, or as a result of the Holder's or any such underwriter's
failure to furnish to the Company information duly requested in writing
by counsel for the Company specifically for use therein; provided that
with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, the indemnity
agreement contained in this paragraph shall not inure to the benefit of
any underwriter from whom the person asserting such losses, claims,
damages or liability purchased the securities concerned, to the extent
that any such loss, claim, damage or liability of such underwriter
results from the fact that a copy of the prospectus was not sent or
given to such person at or prior to the written confirmation of the
sale of such securities to such person. This indemnity agreement shall
be in addition to any other liability the Company may have. The
indemnity agreement of the Company contained in this paragraph (iv)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Warrant Shares.
(v) The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement filed pursuant
hereto, or any document relating thereto, including all amendments, and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and,
- 10 -
<PAGE> 11
will reimburse the Company (or such other aforementioned parties) or
such underwriters for any legal and other expenses reasonably incurred
in connection with investigating or defending any such claim, loss,
damage, liability, or action; provided, however, that the Holder will
be liable as aforesaid only to the extent that such untrue or alleged
untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph (v) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Warrant
Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party, promptly notify the indemnifying party
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this subsection
10.4. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the
extent that it may wish jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this subsection 10.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation or
out-of-pocket expenses or losses or cost incurred in collaborating in
the defense.
(vii) Except as set forth in subsection 10.4(viii), the
Company shall bear all costs and expenses incident to any registration
pursuant to this Section 10.
(viii) The Holder shall pay any and all underwriters'
discounts, brokerage fees and transfer taxes incident to the sale of
any securities sold by such Holder pursuant to this Section 10, and
shall pay the fees and expenses of any special attorneys or accountants
retained by it.
- 11 -
<PAGE> 12
(ix) If the filing of any registration statement pursuant to
subsection 10.4 would require the Company to obtain audited financial
statements other than its normal year end audit required for the filing
of its reports required under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company may defer the filing of such registration
statement until the necessary audited financial statements are
available, unless the Holder arranges for the payment of the expense of
such audit to the extent that such expense would exceed the amount
which the Company would otherwise be required to bear in connection
with its normal audit schedule for reporting under the Exchange Act.
10.5 If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses or actions in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and the seller of such Warrant Shares, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required hereunder. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or the
sellers of such Warrant Shares, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the holder hereof agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if all of the sellers of such Warrant
Shares were treated as one entity for such purpose) or by any other method of
allocation which did not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or actions in respect thereof referred to
above shall be deemed to include any legal or other expenses which reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the contribution provisions of this
Section, in no event shall the amount contributed by any seller from the sale of
Warrant Shares to which such contribution claim relates. No person guilty of
fraudulent misrepresentations (within the meaning of section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. Each Holder of this Warrant and each Holder
- 12 -
<PAGE> 13
of Warrant Shares bearing the legend required by Section 10.6, by acceptance
hereof or thereof, as the case may be, agrees to the indemnification and
contribution provisions of this Section 10.5.
10.6 Legend on Warrants and Certificates. Each Warrant
shall bear a legend in substantially the following form:
"This Warrant and any shares of Common Stock issuable upon the
exercise of this Warrant have not been registered under the Securities
Act of 1933, as amended, and neither this Warrant nor any such shares
may be transferred in the absence of such registration or an exemption
therefrom under such Act."
In case any shares are issued upon the exercise in whole or in
part of this Warrant or are thereafter transferred, in either case under such
circumstances that no registration under the Act is required or effective, each
certificate representing such shares shall bear on the face thereof the
following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and any
transfer thereof is subject to the conditions specified in the Warrant
dated as of _____ originally issued by Aristo International Corporation
(the "Company") to Allen & Company Incorporated to purchase shares of
Common Stock, $.001 par value, of the Company. A copy of the form of
such Warrant is on file with the Secretary of the Company in New York,
New York, and will be furnished without charge by the Company to the
holder of this certificate upon written request to the Secretary of the
Company at such address."
11. Miscellaneous
11.1 Governing Law. This Warrant Certificate shall be governed
by and construed in accordance with the laws of the State of New York.
11.2 Holder Not a Stockholder. Prior to the exercise of this
Warrant, the holder hereof shall not be entitled to any of the rights of a
stockholder of the Company including, without limitation, the right as a
stockholder to (a) vote on or consent to any proposed action of the Company or
(b) receive (i) dividends or any distributions made to stockholders, (ii) notice
of or attend any meetings of stockholders of the Company or (iii) notice of any
other proceedings of the Company.
11.3 Notices. Any notice, demand or delivery to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if sent by first class mail, postage
- 13 -
<PAGE> 14
prepaid, addressed to (a) the holder of this Warrant or issued Warrant Shares at
its last known address appearing on the books at the Company maintained for such
purposes or (b) the Company at its principal offices at 152 West 57th Street,
New York, New York 10019, Attention: General Counsel. The Holder of this Warrant
and the Company may each designate a different address by notice to the other
pursuant to this Section 11.3.
11.4 Investment Representation. The Holder represents that it
is purchasing the Warrant and all shares issuable upon exercise of this Warrant
for its own account and not as nominee or agent for any other person and not
with a view to, or for offer or sale in connection with any distribution thereof
(within the meaning of the Act) that would be in violation of the applicable
securities laws; provided, however, that subject to the restrictions contained
in Section 10, that the disposition of all or any part of such shares shall at
all times be within the Holder's exclusive control.
11.5 Confidentiality of Information. The Holder of this
Warrant (and any affiliates of the Holder) and any permitted transferee of this
Warrant will treat all documents, financial statements, reports and other
information delivered pursuant to this Warrant and that certain engagement
letter agreement between the Company and Allen & Company Incorporated dated
February 22, 1996 on a confidential basis with the same degree of care it treats
similar information of other companies of which it holds securities and has
investment banking relationships.
- 14 -
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this ____ day of March, 1996.
ARISTO INTERNATIONAL CORPORATION
By:
-------------------------------------
Name: Mouli Cohen
Title: Chief Executive Officer
- 15 -
<PAGE> 16
EXHIBIT A
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of Aristo International Corporation (the "Company") and herewith makes
payment therefor in the amount of $_________, all at the price and on the terms
and conditions specified in the within Warrant, and requests that a certificate
(or ______ certificates in denominations of ______ shares) for the shares of
Common Stock of Aristo International Corporation hereby purchased be issued in
the name of and delivered to (choose one) (a) the undersigned or (b) ________,
whose address is _______________ and, if such shares of Common Stock shall not
include all the shares of Common Stock issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of shares of Common
Stock of the Company not being purchased hereunder be issued in the name of and
delivered to (choose one) (a) the undersigned or (b) ______________, whose
address is _______________________.
The undersigned represents that it is purchasing the
securities described above for its own account and not as a nominee or agent for
any other person and not with a view to, or for offer of sale in connection
with, any distribution thereof (within the meaning of the Securities Act of
1933) that would be in violation of the applicable securities laws; provided,
however, that subject to the restrictions contained in Section 10 of the Warrant
that the disposition of all or any part of such shares shall at all times be
within the undersigned's exclusive control.
Dated:
------------------ By:
-------------------------------
(signature of Registered Holder)
Signature Guaranteed:
- ------------------------
By:
---------------------
Title:
NOTICE: The signature to this Notice must correspond with the name as
written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Notice must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
- 16 -
<PAGE> 17
EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant to Section 7 of
the Warrant Certificate accompanying this Notice of Conversion, Warrants
of the total number of Warrants owned by the undersigned pursuant to the
accompanying Warrant Certificate into shares of the Common Stock of the Company
(the "Shares").
The number of Shares to be received by the undersigned shall be calculated in
accordance with the provisions of Section 7.1 of the accompanying Warrant
Certificate.
Dated:
-------------------- ----------------------------
Name of Holder
----------------------------
Signature
Address:
----------------------------
----------------------------
----------------------------
Signature Guaranteed:
- ------------------------
By:
---------------------
Title:
- 17 -
<PAGE> 18
ASSIGNMENT FORM
(To be executed only upon the
assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the
within Warrant hereby sells, assigns and transfers unto _____________________,
whose address is ________________________, all of the rights of the undersigned
under the within Warrant, with respect to _______________ shares of Common Stock
of Aristo International Corporation (the "Company") and, if such shares of
Common stock shall not include all the shares of Common Stock issuable as
provided in the within Warrant, that a new Warrant of like tenor for the number
of shares of Common Stock of the Company not being transferred hereunder be
issued in the name of and delivered to the undersigned, and does hereby
irrevocably constitute and appoint ______________ Attorney to register such
transfer on the books of the Company maintained for the purpose, with full power
of substitution in the premises.
Dated: _____________, 19__.
By:________________________________
(Signature of Registered Holder)
Signature Guaranteed:
______________________________
By:_______________________
Title:
NOTICE: The signature to this Assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Assignment must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
- 18 -
<PAGE> 1
EXHIBIT 10.8
PURCHASE AGREEMENT
PURCHASE AGREEMENT made as of October __, 1996 by and between
Aristo International Corporation, a Delaware corporation (hereinafter referred
to as "Seller") and the buyer listed on the signature page hereto (hereinafter
referred to as "Buyer").
WHEREAS, Seller desires to sell and Buyer desires to purchase
the Securities (as hereinafter defined) of Seller subject to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements and conditions hereinafter set forth, the parties
hereto hereby agree as follows:
SECTION 1. PURCHASE AND SALE OF SECURITIES.
1.1 Purchase and Sale of Securities. In reliance upon the
representations and warranties made herein and subject to the terms and
conditions hereof, Seller agrees to issue and sell to Buyer, and Buyer agrees to
purchase at the Closing (as herein defined) that number of shares of Seller's
Common Stock, par value $.001 per share (the "Common Stock"), specified on the
signature page hereto, subject to acceptance and the other conditions set forth
herein.
The shares of Common Stock of Seller to be sold and purchased
at the Closing under this Agreement are hereinafter sometimes referred to as the
"Securities."
1.2 Purchase Price and Payment for the Securities. In
consideration of the sale of the Securities, Buyer agrees that at the Closing,
assuming the conditions specified in Section 6.1 are satisfied or waived, it
will pay to Seller by certified or bank cashier's check or by wire transfer
pursuant to the instructions attached hereto as Exhibit A the aggregate purchase
price for the Securities specified on the signature page hereto at a price of
$5.00 per share of Common Stock.
1.3 Time and Place Closing. The Securities will be sold in one
or more closings at such places, dates and times as may be fixed by mutual
agreement of Buyer and Seller (each such closing herein called "Closing" and
each such closing date herein called the "Closing Date"). The initial Closing
shall be held on August 18, 1996, at the offices of Allen & Company
Incorporated, 711 Fifth Avenue, New York, New York 10022 or at such other place,
date or time as may be fixed by mutual agreement of Buyer and Seller.
1.4 Transfer of the Securities. At the Closing, Seller shall
deliver or cause to be delivered to Buyer free and
<PAGE> 2
clear of all liens, claims and encumbrances a certificate or certificates
representing the Securities duly registered in the name of Buyer.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
2.1 Making of Representations and Warranties. Seller hereby
makes the following representations and warranties contained in this Section 2.
2.2 Organization and Qualification of Seller. Each of Seller
and the subsidiaries (as herein after defined) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation with full power and authority to own or lease its properties and
to conduct the business heretofore conducted by it in the manner and in the
places where such properties are owned or leased or such business is conducted
by it. The copies of Seller's corporate charter and of Seller's By-laws as
amended to date made available to Buyer are complete and correct. Seller's
subsidiaries are duly registered or qualified to do business as a foreign
corporation in the States of New York, Virginia and California, as applicable
and neither the character or location of the properties owned or leased by
Seller or the subsidiaries nor the nature of the business transacted by Seller
and the subsidiaries makes registration or qualification in any other
jurisdiction necessary, except where failure to so qualify would not have a
material adverse effect on Seller. Unless the context otherwise requires,
Seller, as used in this Agreement includes each of its subsidiaries. Seller's
subsidiaries, all of which are wholly-owned, are Aristo Games, Inc., Aristo
Entertainment, Inc. and Borta, Inc.
2.3 Authority of Seller; No Conflicts. (a) Seller has full
power and authority to enter into and perform this Agreement, issue the
Securities, and consummate the transactions contemplated hereby. When issued in
accordance with this Agreement, the Securities will be validly issued, fully
paid and nonassessable. All necessary action, corporate or otherwise, has been
taken by Seller to authorize the execution, delivery, and performance of this
Agreement, and the same is the valid and binding obligation of Seller
enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement by
Seller does not, and the issuance of the Securities and the performance of the
terms hereof by Seller will not, constitute a default or event of default under,
or violate, conflict with, or result in any breach of the terms, conditions, or
provisions of: (i) the corporate charter or By-laws of Seller; (ii) the laws or
regulations of any jurisdiction or any other governmental requirements; or (iii)
any material mortgage, lien, lease,
- 2 -
<PAGE> 3
agreement, contract, instrument, order, arbitration award, injunction, judgment
or decision to which Seller is a party or by which it or its property is bound
or materially affected. Except for registering of the Securities and filings
with the Securities and Exchange Commission (the "Commission") and applicable
state securities administrators, no approval, authorization, license, permit or
other action by, or filing with, any federal, state, or municipal commission,
board, agency or other governmental authority is required in connection with the
execution and delivery by Seller of this Agreement, the issuance of the
Securities, or the consummation of the transactions contemplated hereby.
(c) Unless otherwise indicated in the Disclosure
Documents, Seller holds all right, title and interest in and to the entire
equity interest in each subsidiary, which is referred to in the Disclosure
Documents or which holds assets or conducts operations which are material to the
business of Seller, free and clear of any liens, claims and encumbrances.
2.4 Capital Stock of Seller. (a) The authorized capital of
Seller consists of 19,000,000 shares of Common Stock, par value $.001 per share.
As of July 31, 1996, 13,959,188 shares of Common Stock were outstanding.
(b) Except for: (i) warrants to acquire 648,101
shares of Common Stock at a price of $8.25 per share described in the Disclosure
Documents; and (ii) 1,088,287 shares issuable upon exercise of outstanding stock
options, at prices ranging from $1.00 to $8.00, granted to employees, directors
and consultants, Seller does not have outstanding any securities convertible or
exchangeable into shares of any class of its capital stock and Seller is not
party to or bound by any outstanding subscriptions, warrants, calls, options,
rights, commitments, or agreements of any kind calling for the issuance of
shares of any class of its capital stock or for the issuance of any securities
convertible or exchangeable, actually or contingently, into shares of any class
of its capital stock. Except as set forth in the Disclosure Documents, the
issuance and sale of the Securities will not result in the issuance of, or give
rise to any obligation of Seller to issue any additional shares of capital stock
pursuant to any such subscriptions, warrants, calls, options, rights,
commitments or agreements.
(c) Except as otherwise stated in the Disclosure
Documents: (i) there are not preemptive or similar rights to purchase or
otherwise acquire shares of any class of the capital stock or other securities
of Seller pursuant to any provision of law, Seller's corporate charter or by
laws, or any agreement to which Seller is party or by which it is bound; (ii)
there are no agreements, restrictions or encumbrances binding upon Seller with
respect to the sale or voting of any shares of any class of
- 3 -
<PAGE> 4
capital stock of Seller (whether outstanding or issuable upon conversion or
exercise of outstanding securities), other than restrictions on transfer imposed
by state and federal securities laws; and (iii) Seller is not party to or bound
by any agreement or arrangement requiring it to repurchase, redeem, or retire
any shares of any class of its capital stock.
(d) All shares of any class of capital stock and all
other securities heretofore issued by Seller have been issued either: (i)
pursuant to an effective registration under the Securities Act of 1933, as
amended (the "1933 Act"), and qualification under applicable state securities
laws; or (ii) in transactions exempt from such registration and qualification.
To the best of Seller's knowledge, Seller has not violated the 1933 Act in
connection with the issuance of any shares of any class of capital stock or
other securities prior hereto.
(e) Except for the registration rights granted
pursuant to this Purchase Agreement, or except as otherwise stated in the
Disclosure Documents, no person has any right to cause Seller to effect the
registration under the 1933 Act of any shares of Common Stock or any other
securities (including debt securities) of Seller.
(f) All of Seller's stock option plans, and the
number of shares of Common Stock or other securities authorized and reserved for
issuance thereunder, are described in the Disclosure Documents.
2.5 Disclosure Documents. (a) Seller previously furnished to
Buyer a Confidential Private Placement Memorandum dated as of July 15, 1996 (the
"Private Placement Memorandum"), and copies of its Annual Report on Form 10-K
(excluding exhibits) for the year ended October 31, 1995 and a copy of its
Quarterly Reports on Form 10-Q for the quarterly periods ended January 31, 1996
and April 30, 1996 filed with the Commission and any other reports filed by
Seller with the Commission under the Securities Exchange Act of 1934 ("1934
Act") subsequent to April 30, 1996 and prior to the date hereof (collectively
the "SEC Reports"). Seller previously furnished to representatives of Allen &
Company Incorporated copies of the exhibits to Seller's Annual Report on Form
10-K for the year ended October 31, 1995 (the Private Placement Memorandum, the
SEC Reports and the material listed on Schedule A are sometimes hereinafter
collectively referred to as the "Disclosure Documents"). None of the information
contained in the Disclosure Documents contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading, which misstatement or omission was not thereafter
corrected in a subsequent Disclosure Document.
- 4 -
<PAGE> 5
(b) Each of the balance sheets included in the SEC
Reports (including any related notes and schedules) fairly presents the
consolidated financial position of Seller as of its date, and the other
financial statements included in the SEC Reports (including related notes and
schedules), fairly present the consolidated results of operation or other
information included therein of Seller for the periods or as of the dates
therein set forth in accordance with generally accepted accounting principles
consistently applied during the periods involved (except that the interim
reports are subject to normal recurring adjustments which might be required as
result of year end audit, and except as otherwise stated therein). The unaudited
balance sheet of Seller at October 31, 1995 included in Seller's Quarterly
Report on Form 10-Q for the period then ended is hereinafter sometimes referred
to as the "Balance Sheet".
2.6 Title to Properties; Liens; Conditions of Properties. (a)
Except as disclosed in the Disclosure Documents, the Seller has good and
marketable title to all of its assets and properties, and all of its leases of
real or personal property are valid and subsisting, and no default exists under
any provision thereof, the existence of which gives rise to a right of
termination by the lessor; and none of Seller's assets and property is subject
to any mortgage, pledge, lien, conditional sale agreement, security interest,
title restriction, encumbrance or other charge.
(b) All machinery and equipment used in Seller's
business are in working order and have been properly maintained, and to the best
of Seller's knowledge are free from material defects in construction or design,
properly functioning, usable and not obsolete. To the best of Seller's
knowledge, its use of the premises occupied by it is in compliance in all
material respects with all ordinances, rules, regulations, zoning, business and
fire codes, and all other laws and requirements of governmental authorities.
(c) To the best of Seller's knowledge, Seller's use
of the properties occupied by Seller is not in material violation of any law,
and no notice from any governmental body has been served upon Seller or upon any
property occupied by Seller claiming any material violation of any such law,
ordinance, code or regulation or requiring, or calling attention to the need
for, any material work, repairs, constructions, alterations, or installation on
or in connection with said properties which has not been complied with. To the
best of Seller's knowledge, it has the right to use such properties occupied by
it for the operations presently therein conducted.
(d) Seller has not to its knowledge illegally
released or disposed of any hazardous or toxic waste, substance, or materials on
any property occupied by it, and Seller does not
- 5 -
<PAGE> 6
know of any such release or disposal by any other party on any such property.
2.7 Payment of Taxes. Seller has filed, or obtained extension
of the time to file all federal, state and to the best of Seller's knowledge all
local income, withholding, excise or franchise tax returns, real estate and
personal property tax returns, sales and use tax returns and other tax returns
required to be filed by it and has paid all taxes shown on such reports owing by
it, except taxes which have not yet accrued or otherwise become due or which are
being contested diligently and in good faith.
2.8 Absence of Undisclosed Liabilities. As of the date hereof,
Seller has no material liabilities of any nature, whether accrued, absolute,
contingent or otherwise (including without limitation liabilities as guarantor
or otherwise with respect to obligations of others, or liabilities or taxes due
or then accrued or to become due) except liabilities fully reflected or reserved
against in the Balance Sheet, disclosed in the Disclosure Documents or specified
in any mortgage, contract, agreement, lease, or other arrangement described in
the Disclosure Documents. To the best of Seller's knowledge, there is no
threatened material claim, debt, liability or obligation (including unpaid
federal, state, or local taxes) of any nature or in any amount not fully
reflected or reserved against in the Balance Sheet or Disclosure Documents.
Except as disclosed in the Disclosure Documents, Seller does
not have notes or accounts payable to any person, firm, or corporation which is
affiliated with Seller or to any director, officer, or principal stockholder of
Seller.
2.9 Changes. Except as set forth in the Disclosure Documents,
since October 31, 1995:
(a) except for continuing operating losses through
the date hereof, there has been no material adverse change in the business,
property, financial condition or results of operations of Seller taken as a
whole;
(b) there has not been any direct or indirect
redemption, purchase or other acquisition of any shares of Seller's capital
stock by Seller, or any declaration, setting aside or payment of any dividend or
other distribution by Seller in respect of its capital stock;
(c) except for the transactions contemplated hereby,
Seller has not incurred any material obligation or liability other than in the
ordinary course of its business, has not incurred any contingent liability (as
guarantor or otherwise) with respect to the obligations of others, has not
transferred or
- 6 -
<PAGE> 7
otherwise disposed of any material assets other than in the ordinary course of
business, and has in all other respects conducted its business in the ordinary
course;
(d) there has been no damage, destruction or casualty
loss (whether or not covered by insurance) materially and adversely affecting
the business, property, financial condition or results of operations of Seller
taken as a whole; and
(e) except for the transactions described in Section
2.9(b) and except for the granting of options and warrants to purchase shares of
Common Stock, Seller has not incurred any obligation or liability to any
stockholder, director, or officer of Seller other than in the ordinary course of
Seller's business and Seller has not made any loans or advances to any of its
stockholders, directors, or officers, except for normal advances for
reimbursable expenses.
2.10 Patents, Trade Names, Trademarks and Copyrights. All
patents, patent applications, service marks, registered trademarks, trademark
applications and copyrights of Seller referred to in the Disclosure Documents
have been duly registered in, filed in or issued by the United States Patent
Office, the United States Register of Copyrights or the corresponding offices of
the other countries indicated, and have been properly maintained and renewed in
accordance with all applicable provisions of law and administrative regulations
in the United States and each such country and are either owned by Seller or
licensed to Seller under license agreements, copies of which will be supplied to
Buyer upon request. Seller represents and warrants that, except as set forth in
the Disclosure Documents:
(a) to the best of Seller's knowledge, no other
person has an interest in or right or license to use, or the right to license
others to use, any of said patents, patent applications, trade names, service
marks, registered trademarks, trademark applications, or copyrights;
(b) there are no material claims or demands of any
other person pertaining thereto, and no proceedings have been instituted, or are
pending or, to the best of its knowledge, threatened, which challenge the rights
of Seller in respect thereof;
(c) to the best of Seller's knowledge, none of the
said patents, trade names, service marks, trademarks or copyrights is being
infringed by others, or is subject to any outstanding order, decree, judgment or
stipulation;
(d) no proceeding charging Seller with infringement
of any adversely held patent, trade name, service
- 7 -
<PAGE> 8
mark trademark or copyright has been filed or to the best of Seller's knowledge,
is threatened to be filed; and
(e) Seller does not, as is not required to, pay any
license fee or royalty to any person for the use of any such patent, trade name,
service mark, trademark, or copyright.
2.11 Trade Secrets and Customer Lists. Except as otherwise
stated in the Disclosure Documents, Seller owns or has the exclusive right to
use, all trade secrets, proprietary information, customer lists, formulas,
engineering drawings, research, engineering, marketing and other data, and
engineering, manufacturing, and production methods, processes, technology, and
know-how (collectively, the "Proprietary Information") required for or
incidental to the business of Seller. Seller has taken all steps necessary or
desirable to keep confidential any information or trade secrets of any third
party, including, without limitations, a former employer or any present or past
employee of Seller. Seller represents and warrants that, except as set forth in
the Disclosure Documents:
(a) to the best of Seller's knowledge, no other
person has an interest in or right or license to use, or the right to license
others to use, any of the Proprietary Information;
(b) there are no material claims or demands of any
other person pertaining thereto, and no proceedings have been instituted, or are
pending, or are, to the best of Seller's knowledge, threatened, which challenge
the rights of Seller in respect thereto;
(c) to the best of Seller's knowledge, none of the
Proprietary Information is being infringed by others, or is subject to any
outstanding order, decree, judgment or stipulation;
(d) no proceeding charging Seller with infringement
of any adversely held Proprietary Information has been filed, or to the best of
Seller's knowledge, is threatened to be filed; and
(e) Seller does not, and is not required to, pay any
license fee or royalty to any person for the use of any Proprietary Information.
2.12 Contracts. Except as set forth in the Disclosure
Documents, Seller is not in material default under any contract, commitment,
plan, agreement, instrument, license or lease or under any purchase order or
sales order, which default would have a materially adverse effect on the
business or financial condition of Seller.
- 8 -
<PAGE> 9
2.13 Unions. The employees of Seller are not now, and never
have been, in their capacity as employees of Sellers, represented by any labor
union for collective bargaining or any other purpose. To the best of Seller's
knowledge, there is no union organizational activity involving Seller or its
employees.
2.14 Employee Benefit Plans. Except as set forth in the
Disclosure Documents, Seller does not have, and has never had, any pension or
profit sharing, savings, thrift or other retirement plans (including
multi-employer plans).
2.15 Litigation. Except as described in the Disclosure
Documents, there is no suit, action, or legal, administrative or other
proceeding or governmental investigation pending, or, to the best of Seller's
knowledge, threatened, anticipated or contemplated against Seller or any of its
properties, which, in any single case or in the aggregate, challenges or
questions in any respect the validity of, or would prevent or hinder the
consummation of, the transactions contemplated by this Agreement or which, if
adversely determined, would have a material adverse effect on the properties,
assets, condition (financial or otherwise), and business of Seller, and there
are no unsatisfied or outstanding judgments, orders, decrees or stipulations
which would have any material adverse effect on the properties, assets,
condition (financial or otherwise), and business of Seller or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
There are no claims or proceedings against Seller pending, or,
to the best of Seller's knowledge, threatened, anticipated or contemplated
which, if valid, would constitute or result in a material breach of any
representation, warranty or agreement set forth herein.
2.16 Compliance with Laws. To the best of its knowledge,
except as otherwise stated in the Disclosure Documents, Seller is in compliance
in all material respects with all laws, ordinances, rules, regulations and other
governmental requirements which apply to the conduct of its business, including,
without limitation, all laws and regulations relating to (i) employment and
labor relations (including all provisions thereof relating to wages, hours,
equal opportunity, discrimination, collective bargaining, and the withholding
and payment of social security and all other taxes), (ii) the pollution of the
environment and the use or disposal of hazardous or toxic wastes, substances or
materials, and (iii) government contracts.
Based upon the representations and warranties of Buyer
contained in Section 3 of this Agreement and the representations of Allen &
Company Incorporated ("Allen") in the Placement Agency Agreement dated July 31,
1996 between Seller and Allen, the offer
- 9 -
<PAGE> 10
and sale of the Securities pursuant to this Agreement are exempt from the
registration requirements of the 1933 Act.
2.17 Insurance. With respect to its properties and assets,
Seller has in full force and effect insurance against such risks in such amounts
as is customary for similar businesses. Except as described in the Disclosure
Documents, to the best of Seller's knowledge, all sales of products and
performance of services by Seller at all times heretofore were in compliance in
all material respects with all of Seller's representations, warranties and
agreements, express or implied, and laws, rules, regulations, and requirements
of governmental authorities.
2.18 Warranty or Other Claim. Except as described in the
Disclosure Documents, there are no existing, or to the best of Seller's
knowledge, threatened, anticipated or contemplated material claims against
Seller, for products which are defective or fail to meet any product warranties.
2.19 Licenses and Permits. Except as stated in the Disclosure
Documents, Seller holds in good standing, or has applied for, all licenses,
permits, authorizations, franchises, consents and orders of all federal, state,
local, and foreign governmental bodies necessary to carry on its business as
reflected or contemplated in the Disclosure Documents and, to the best of
Seller's knowledge, no such licenses, permits, authorizations, franchises,
consents or orders will be revoked, terminated or suspended, subject to normal
expiration, renewal or reapplication.
2.20 Burdensome Agreements. Seller is not subject to or bound
by any consent decree, agreement, judgment, decree or order, and, except as
otherwise stated in the Disclosure Documents, does not know of or have grounds
to know of any basis for any action or governmental proceedings, which may
materially and adversely affect the properties, assets, business, prospects or
condition, financial or otherwise, of Seller, or will result in the revocation
or limitation of any license, permit or franchise held by Seller.
2.21 Transactions with Interested Persons. Except as described
in the Disclosure Documents, no officer or director of Seller owns directly or
indirectly, on an individual or joint basis, any interest (other than a stock or
other equity interest of less than 5%) in, or serves as an officer of director
of, any customer, competitor or supplier of Seller or any organization which has
a material contract or arrangement with Seller.
2.22 Misstatements and Omissions. Seller has not made any
material misstatements of fact or omitted to state any material fact necessary
to make complete, accurate and not
- 10 -
<PAGE> 11
misleading in all material respects every representation, warranty and agreement
set forth herein.
2.23 Changes in Business Relationships. Except as otherwise
stated in the Disclosure Documents, Seller does not know of any changes or
threatened changes in the customer or supplier relationships of Seller,
including, without limitation, any discontinuance of contractual relationships.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
3.1 Making of Representations and Warranties. Buyer
hereby makes the representations and warranties contained in this
Section 3.
3.2 Accredited Investor. Buyer is an "accredited
investor" within the definition set forth in Rule 501 (a)
promulgated under the 1933 Act. Buyer understands that Seller is
relying on all such information.
3.3 Securities Not Registered. (i) Buyer understands that the
Securities have not been registered for sale under federal or state securities
laws and that the Securities are being offered and sold to Buyer pursuant to one
or more exemptions from the registration requirements of such securities laws;
(ii) Buyer understands that in order to satisfy such requirements, Buyer is
acquiring the Securities for its own account for investment and not with a view
to distribution thereof except in accordance with applicable securities laws and
that the representations and warranties contained in this Section 3 are given
with the intention that Seller may rely thereon for purposes of claiming such
exemption; and (iii) Buyer understands that the Securities cannot be sold by
Buyer unless subsequently registered under such laws or unless an exemption from
such registration is available.
3.4 Securities Acquired for Investment; Limitations on
Disposition. Buyer agrees that the Securities will not be sold or otherwise
transferred unless (i) a registration statement with respect thereto has become
effective under the 1933 Act and state securities laws are complied with; or
(ii) there is presented to Seller an opinion of counsel reasonably satisfactory
to Seller that registration under federal and state securities laws is not
required; or (iii) pursuant to the provisions of Rule 144 promulgated under the
1933 Act. Buyer consents that any transfer agent of Seller may be instructed not
to transfer any Securities, unless it receives satisfactory evidence of
compliance with the foregoing provisions, and that there may be endorsed upon
any certificate or other instrument representing the Securities (and any
certificates or instruments issued in substitution therefor), a legend calling
attention to the foregoing restrictions on transferability of such shares
stating in substance:
- 11 -
<PAGE> 12
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION
OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE
SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT TO THE EFFECT THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
3.5 Access to Information. Buyer acknowledges receipt from
Seller of the Private Placement Memorandum and the SEC Reports and has had
access to information if requested.
3.6 Knowledge and Experience. Buyer has the knowledge and
experience with investment in securities of issues similar to the Shares in
order to enable Buyer to make its own competent evaluation of the merits and
risks of the offering and the purchase of the Shares.
SECTION 4. COVENANTS OF SELLER.
4.1 Making of Covenants and Agreements. Seller makes the
covenants and agreements set forth in this Section 4.
4.2 Consummation of Agreement. Seller shall perform and
fulfill all conditions and obligations on its part to be performed and fulfilled
under this Agreement. To this end, Seller will obtain all necessary
authorizations or approvals of its Board of Directors to the execution and
performance of this Agreement, which shall include as integral parts thereof the
issuance to Buyer of the Securities upon the terms and conditions set forth in
this Agreement.
4.3 Current Public Information. Seller will file all reports
required to be filed by it under the 1933 Act or the 1934 Act and the rules and
regulations adopted by the Commission thereunder, and will take such further
action, upon Buyer's request, as may be reasonably required to enable each such
Buyer to sell the Securities pursuant to (i) Rule 144 adopted by the Commission
under the 1933 Act, as such rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the Commission.
SECTION 5. COVENANTS OF BUYER.
5.1 Making of Covenants and Agreements. Buyer makes the
covenants and agreements set forth in this Section 5.
- 12 -
<PAGE> 13
5.2 Consummation of Agreement. Buyer shall perform and fulfill
all conditions and obligations on its part to be performed and fulfilled under
this Agreement.
5.3 Current Public Information. Buyer shall file all reports
required to be filed by it under the 1934 Act and the rules and regulations
adopted by the Commission thereunder, including without limitation, as
applicable, Schedules 13G, 13D, Form 3, Form 4, and Form 5.
5.4 Furnishing of Information. Buyer shall furnish to Seller
all information, questionnaires and statements reasonably requested by Seller in
connection with Seller's preparation of reports, the Disclosure Documents, proxy
materials and other filings under the 1933 Act and the 1934 Act. Buyer shall
further furnish to Seller all written information and statements reasonably
requested in order for Seller to more fully comply with its commitment under
Section 7 hereof.
SECTION 6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
6.1 Conditions. The obligations of Buyer to consummate this
Agreement and the transactions contemplated hereby are subject to the
satisfaction of the following conditions on or prior to the Closing Date except
to the extent that any such condition can be and is waived by Buyer:
(a) Board of Director Authorization. This Agreement
and the transactions contemplated hereby shall have been duly approved by a
majority vote of Seller's Board of Directors.
(b) Representations; Warranties; Covenants. Each of
the representations and warranties of Seller contained in Section 2 hereof shall
be true and correct in all material respects as though made at the time of and
as of the Closing; Seller shall, at or before the Closing, have performed all of
its obligations hereunder which by the terms hereof are to be performed on or
before the Closing, and Seller shall have delivered to Buyer a Certificate of
its President or Vice President dated as of the Closing Date to the foregoing
effect.
(c) Opinion of Counsel. At the Closing, Buyer shall
have received from Parker Chapin Flattau & Klimpl, LLP, counsel for Seller, an
opinion as to this transaction's compliance with or exemption from federal and
applicable state securities laws and as to such other matters as are customarily
included in opinions relating to transactions of this kind in form reasonably
satisfactory to Buyer.
(d) Subscription Complete. Seller shall have received
executed agreements, substantially identical to this
- 13 -
<PAGE> 14
Agreement for the purchase of an aggregate of at least shares of Seller's
Common Stock (inclusive of the shares purchased hereunder) on the same terms and
conditions as provided for the purchase of the Securities hereunder
(collectively, the "Purchase Agreements").
(e) Expense of Counsel. At the Closing, the Seller
shall pay the reasonable fees and expenses of Werbel & Carnelutti, counsel to
Allen & Company Incorporated and special counsel to the Buyers for its services
in connection therewith.
SECTION 7. REGISTRATION.
7.1 Definitions. As used herein:
(a) The terms "register," "registered" and
"registration" referred to a registration effected by preparing and filing a
registration statement in compliance with the 1933 Act and the declaration or
ordering of the effectiveness of such registration statement.
(b) For the purposes hereof, the term "Registrable
Securities" means: (i) the Securities, (ii) stock issued in lieu thereof in any
reorganization and (iii) stock issued in respect of the stock referred to in (i)
and (ii) as a result of a stock split, stock dividend, recapitalization or
combination. As to any particular Registrable Securities, such securities shall
cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
1933 Act and such securities shall have been transferred in accordance with such
registration statement, (b) they shall have been sold as permitted by Rule 144
(or any successor provision) under the 1933 Act, or provided that at the time
such securities are proposed to be sold, they may be sold under Rule 144 without
any limitation on the amount of such securities which may be sold or (c) they
shall have ceased to be outstanding.
(c) The terms "Holder" or "Holders" mean any person
or persons to whom Registrable Securities were originally issued or qualifying
transferees under Section 3.4 hereof who hold Registrable Securities.
7.2 Optional Registrations. If at any time or times after the
date hereof Seller shall determine to register any shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of the
Common Stock under the 1933 Act (whether in connection with a public offering of
securities by the Company (a "primary offering"), a public offering of
securities by shareholders (a "secondary offering"), or both, but not in
connection with a registration effected solely to implement an employee benefit
plan or a transaction to
- 14 -
<PAGE> 15
which Rule 145 or any other similar rule of the Commission under the 1933 Act is
applicable, Seller will promptly give written notice thereof to the Holders of
Registrable Securities then outstanding. In connection with any such
registration, if within 30 days after their receipt of such notice any one or
more of the Holders of Registrable Securities request the inclusion of some or
all of the Registrable Securities owned by them in such registration, Seller
will notify all of the Holders of its receipt of such request, and will use its
best efforts to effect the registration under the 1933 Act of all Registrable
Securities which such Holders may request in a writing delivered to Seller
within 15 days after the notice given by Seller with respect to its receipt of
such request; provided, however, that in the case of the registration of shares
of the Common Stock by Seller in connection with an underwritten public
offering, if the underwriter determines that the registration of securities in
excess of any amount to be registered by Seller would adversely affect such
offering then Seller may (subject to the allocation priority set forth below)
exclude from such registration and underwriting some or all of the Registrable
Securities which would otherwise be underwritten pursuant to the notice
described herein. Seller shall advise all Holders of Registrable Securities
promptly after such determination by the underwriter, and the number of shares
of securities that are entitled to be included in the registration and
underwriting shall be allocated in the following manner: the securities to be
sold by Seller shall be included in such registration and underwriting and the
number of additional shares that may be included in the registration and
underwriting shall be allocated among all Holders of Registrable Securities in
proportion, as nearly as practicable, to their respective holdings of
Registrable Securities. All expenses of the registration and offering and the
reasonable fees and expenses of one independent counsel for the Holders shall be
borne by Seller, except that the Holders shall bear underwriting and selling
discounts and commissions attributable to their Registrable Securities being
registered and transfer taxes on shares being sold by such Holders. Without in
any way limiting the types of registrations to which this Section 7.2 shall
apply, in the event that Seller shall effect a "shelf registration" under Rule
415 of the 1933 Act or any other similar rule or regulation, Seller shall take
all necessary action, including, without limitation, the filing of
post-effective amendments, to permit the Holders to include their shares in such
registration in accordance with the terms of this Section 7.2.
7.3 Required Registrations. After January 15, 1997 one or more
of the Holders of Registrable Securities then outstanding may notify Seller in
writing that he or they (i) intend to offer or cause to be offered for public
sale all or any portion of his or their Registrable Securities having an
aggregate proposed offering price of not less than $500,000 (such request shall
be in writing and shall state the number of shares
- 15 -
<PAGE> 16
of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Holder or Holders) and (ii) request that
Seller cause such Registrable Securities to be registered under the 1933 Act;
provided, however, that only three requests for registration may be made under
this Section 7.3 and no request may be made within 180 days of a preceding
request hereunder. Upon receipt of such notification, Seller will notify all of
the Holders of Registrable Securities who would be entitled to notice of a
proposed registration under Section 7.3 above of its receipt of such
notification. Upon the written request of any such Holder delivered to Seller
within 20 days after Seller giving such notification, Seller will use its best
efforts to cause such of the Registrable Securities as may be requested by any
Holders (including the Holder or Holders giving the initial notice of intent to
register hereunder) to be registered under the 1933 Act as promptly as
practicable in accordance with the terms of this Section 7.3; provided, however,
that unless such registration becomes effective, such registration shall not be
counted as one of the three requests for registration that may be made under
this Section 7.3. If requested in writing by Seller, the Holders participating
in a registration under this Section 7.3 shall negotiate in good faith with one
or more underwriters selected by Seller with regard to the underwriting of such
registration. All expenses of such registration and offerings and the reasonable
fees and expenses of one independent counsel for the Holders shall be borne by
Seller; provided, however, that (i) Seller shall have no liability for such
expenses if such registration does not become effective due solely to the action
or failure to act of any Holder requiring such registration and (ii) the Holders
shall bear underwriting and selling discounts and commissions attributable to
their Registrable Securities being registered and transfer taxes on shares being
sold by such Holders. Seller may postpone the filing of any registration
statement required hereunder for a reasonable period of time, not to exceed 180
days during any 12 month period, if Seller has been advised by legal counsel,
which counsel shall be reasonably acceptable to the Holders of Registrable
Securities, that such filing would require the disclosure of a material
transaction or other matter and Seller determines reasonably and in good faith
that such disclosure would have a material adverse effect on Seller.
7.4 Form S-3. Seller shall use its reasonable best efforts to
continue to qualify at all times for registration of its capital stock on Form
S-3 or a comparable successor form. After January 15, 1997 and so long as Seller
is eligible to use Form S-3 under the 1933 Act or such successor form, one or
more of the Holders of Registrable Securities shall have the right to request
and have effected up to three registrations of Registrable Securities on Form
S-3 or such successor form for a public offering of shares of Registrable
Securities having an aggregate proposed offering price of not less than $250,000
(such
- 16 -
<PAGE> 17
requests shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of such
shares by such Holder or Holders). Seller shall give notice to all of the
Holders of Registrable Securities of the receipt of a request for registration
pursuant to this Section 7.4 and shall provide a reasonable opportunity for such
Holders to participate in such a registration. Subject to the foregoing and the
provisions of applicable law, Seller will use its best efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 or
such successor form to the extent requested by the Holder or Holders thereof. If
so requested by any Holder in connection with a registration under this Section
7.4, Seller shall take such steps as are required to register such Holder's
Registrable Securities for sale on a delayed or continuous basis under Rule 415,
and to keep such registration effective until all of such Holder's Registrable
Securities registered thereunder are sold. All expenses in connection with a
registration requested pursuant to this Section 7.4 and the reasonable fees and
expenses of one independent counsel for the Holders shall be borne by Seller;
provided, however, that (i) Seller shall have no liability for such expenses if
such registration does not become effective due solely to the action or failure
to act of any Holder requiring such registration and (ii) the Holders shall bear
underwriting and selling discounts and commissions attributable to their
Registrable Securities being registered and transfer taxes on shares being sold
by such Holders. Seller may postpone the filing of any registration statement
required hereunder for a reasonable period of time, not to exceed 180 days, if
Seller has been advised by legal counsel, which counsel shall be reasonably
acceptable to the Holders of Registrable Securities, that such filing would
require the disclosure of a material transaction or other factor and Seller
determines reasonably and in good faith that such disclosure would have a
material adverse effect on Seller with respect to the registration of the
Registrable Shares. Holders of Registrable Securities will not be permitted to
require Seller to file a Registration Statement pursuant to this Section 7.4
more frequently than once every 6 months.
7.5 "Market Stand-Off Agreement. Each Holder agrees, if
requested by Seller and an underwriter of Common Stock of Seller, not to sell or
otherwise transfer or dispose of any Common Stock held by it during the 90-day
period following the effective date of a registration statement of Seller filed
under the 1933 Act, provided that:
(a) Such agreement only applies to the first such
registration statement of Seller filed after the date hereof including
securities to be sold on its behalf to the public in an underwritten offering;
and
- 17 -
<PAGE> 18
(b) All executive officers and directors of Seller
enter into similar agreements.
Such agreement shall be in writing in a form reasonably
satisfactory to the Holder, Seller and such underwriter. Seller may impose stop
transfer instructions with respect to the Securities subject to the foregoing
restriction until the end of the 90-day period.
7.6 Further Obligations of Seller. Whenever Seller is required
under this Section 7 to register any Registrable Securities, it agrees that it
shall also do the following:
(a) Use its best efforts to diligently prepare and
file with the Commission a registration statement and such amendments and
supplements to said registration statement and the prospectus used in connection
therewith as may be necessary to keep said registration statement effective
(but, in the case of registration under Section 7.2, for no more than 180 days
after the initial effective date of the registration statement) and to comply
with the provisions of the 1933 Act with respect to the sale of securities
covered by said registration statement for the period necessary to complete the
proposed public offering;
(b) Furnish to each selling Holder such copies of
each preliminary and final prospectus and such other documents as such Holder
may reasonably request to facilitate the public offering of his or its
Registrable Securities;
(c) Enter into any reasonable underwriting agreement
required by the proposed underwriter for the selling Holders, if any;
(d) Use its best efforts to register or qualify the
securities covered by said registration statement under the securities or
"blue-sky" laws of such jurisdictions as any selling Holder may reasonably
request, provided that Seller shall not be required to register or qualify the
securities in any jurisdictions which require it to qualify to do business or
subject itself to taxation or general service of process therein;
(e) Immediately notify each selling Holder, at any
time when a prospectus relating to his or its Registrable Securities is required
to be delivered under the 1933 Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statement therein not misleading, and,
at the request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement
- 18 -
<PAGE> 19
of a material fact or omit to state any material fact necessary
to make the statements therein not misleading;
(f) Cause all such Registrable Securities to be
listed on or included in each securities exchange or quotation system (other
than PORTAL) on which the Common Stock is then listed;
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make generally available
to its security holders, in each case as soon as practicable after the close of
the period covered thereby an earnings statement of Seller which will satisfy
the provisions of Section 11(a) of the 1933 Act;
(h) Obtain and furnish to each selling Holder,
immediately prior to the effectiveness of the registration statement (and, in
the case of an underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), a cold comfort letter from Seller's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the holders of a
majority of the Registrable Securities being sold reasonably request; and
(i) Choose the underwriters, auditors, Company legal
counsel and financial printer to be engaged by Seller in any such registration.
7.7 Expenses of Registration. All expenses incurred in
connection with any registration pursuant to this Section 7, including without
limitation, all registration, filing and qualification fees (including those
attributable to the Registrable Securities), printing expenses, fees and
disbursements of counsel for the Seller and expenses of any comfort letters or
special audits of the Seller's financial statements incidental to or required by
such registration (excluding discounts and commissions and fees of the Buyers'
counsel), shall be borne by the Seller.
SECTION 8. INDEMNIFICATION.
8.1 Indemnification of Buyer. Seller agrees to indemnify and
hold harmless, to the extent permitted by law, Buyer its directors, officers,
employees and the persons who control Buyer (within the meaning of the 1933 Act)
against any and all losses, claims, damages, liabilities and expenses caused by
(i) any breach of the representations, warranties, covenants and agreements of
Seller contained in this Agreement; or (ii) any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus,
preliminary prospectus or
- 19 -
<PAGE> 20
any amendment thereof or supplement or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to Seller by Buyer expressly
for use in such registration statement or prospectus, or by Buyer's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto (it being acknowledged that Seller has agreed to furnish
Buyer with a sufficient number of copies of the same).
8.2 Indemnification of Seller. Buyer agrees to furnish to
Seller in writing such information and affidavits as Seller reasonably requests
for use in connection with any registration statement or prospectus and agrees
to indemnify and hold harmless, to the extent permitted by law, Seller, its
directors and officers and each person who controls Seller (within the meaning
of the 1933 Act) against any and all losses, claims, damages, liabilities and
expenses caused by (i) any breach of the representations, warranties, covenants,
and agreements of Buyer contained in this Agreement; (ii) any untrue or alleged
untrue statement of material fact or any omission of a material fact required to
be stated in the registration statement or prospectus or any amendment thereof
or supplement thereto or necessary to make the statements therein not
misleading, but only to the extent that such untrue or alleged untrue statement
or omission is contained or omitted in any information or affidavit so furnished
in writing by such Buyer, and in no event will Buyer be obligated to indemnify
Seller, its directors, officers or any person who controls Seller in an amount
in excess of the proceeds to be derived from the sale of Securities being
purchased by Buyer under this Agreement in the offering giving rise to a claim
for indemnification; or (iii) Buyer's failure to comply with the prospectus
delivery requirements under the 1933 Act.
8.3 Defense of Action. Any person entitled to indemnification
hereunder will (i) give prompt notice to the indemnifying party of any claim
with respect to which it seeks indemnification; and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit the indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed by
the indemnifying party, the indemnified party will not be subject to any
liability for any settlement made without its consent (but such consent will not
be unreasonably withheld). If for any reason the indemnification provided above
is unavailable to an indemnified party or insufficient to hold such person
harmless as contemplated above, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage, liability or expense in such
- 20 -
<PAGE> 21
proportion as is appropriate to reflect the relative fault of the indemnifying
party and the indemnified party and any other relevant equitable considerations.
If such defense is not assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the opinion of counsel
to the Buyers or Seller, as the case may be, a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
SECTION 9. TERMINATION OF AGREEMENT.
9.1 Termination. At any time prior to the Closing, this
Agreement may be terminated (i) by mutual consent of the parties; (ii) by either
party, upon written notice to the other, if there has been a material
misrepresentation, breach of warranty or breach of covenant by the other party
in its representations, warranties and covenants set forth herein; or (iii) by
Buyer, if the conditions stated in Section 6.1 have not been satisfied or waived
at or prior to the Closing.
9.2 Effect of Termination. If this Agreement is terminated as
above provided, all obligations of the parties to be performed on or subsequent
to the effective date of termination as above provided shall terminate without
further liability of either party to the other. In the event that this Agreement
is terminated, each party will return all papers, documents, financial
statements and other data furnished to it by or with respect to each other party
to such party (including any copies thereof made by the first party).
SECTION 10. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
10.1 Survival of Warranties. All representations, warranties,
agreements, covenants and obligations herein or in any schedule, exhibit,
certificate or financial statement delivered by Seller to Buyer incidental to
the transactions contemplated hereby shall be deemed to have been relied upon by
the other party hereto, and with respect to representations and warranties,
shall survive for a period of one (1) year following the Closing. All
agreements, covenants and obligations shall survive the Closing regardless of
any investigation made by or on behalf of either party hereto and shall not
merge in the performance of any obligation by either party hereto.
- 21 -
<PAGE> 22
SECTION 11. MISCELLANEOUS.
11.1 Law Governing. This Agreement shall be construed under
and governed by the laws of the State of New York.
11.2 Finder's Fees.
(a) The Seller (i) represents and warrants that,
except for the engagement by Seller of Allen & Company Incorporated as placement
agent, it has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and hold
harmless the Buyers of and from any liability for commission or compensation in
the nature of a finder's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which the Seller, or any of its employees or representatives, are
responsible.
(b) Each Buyer (i) represents and warrants that it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and to hold
harmless the Seller and the other Buyers of and from any liability for any
commission or compensation in the nature of a finder's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which Buyer, or any of Buyers' employees or
representatives, are responsible.
11.3 Notices. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if delivered or
mailed by certified or registered mail:
To Seller:
Aristo International Corporation
152 West 57th Street
New York, New York 10019
Attention: President
with a copy to:
Parker Chapin Flattau & Klimpl
1211 Avenue of the Americas
New York, New York 10036
Attention: Harry I Rothman, Esq.
- 22 -
<PAGE> 23
To Buyer:
At the address specified on
the signature page hereto
with a copy to:
Werbel & Carnelutti
711 Fifth Avenue
New York, New York 10022
Attention: Valerie A. Price
or to such other address of which either party may notify the
other party.
11.4 Entire Agreement. This Agreement, including the Exhibits
and Schedules referred to herein, is complete and all promises, representations,
understandings, warranties and agreements with reference to the subject matter
hereof, and all inducements to the making of this Agreement relied upon by
either party hereto, have been expressed herein or in such Exhibits or
Schedules.
11.5 Assignability. This Agreement may not be assigned by
either Buyer or Seller without the prior written consent of the other party.
Notwithstanding the foregoing, the Buyer may assign its rights under the
Agreement in connection with the transfer of its interest in the underlying
Securities provided that with respect to any such assignment by Buyer (a) the
buyer is an "accredited investor" as defined in Section 501(a) of Regulation D
under the 1933 Act; (b) such buyer acquires such Securities from Buyer in a
privately negotiated, non-market transaction pursuant to the so called 4(1 1/2)
exemption under the 1933 Act; and (c) such buyer executes and delivers to Seller
a writing evidencing such buyer's agreement to be bound by the terms of this
Agreement and such questionnaires as Seller may reasonably request documenting
such buyer's status as an accredited investor. In addition, Buyer may assign his
rights under this Agreement to members of his immediate family or trusts for
their own benefit or to other entities which own or control, or are owned or
controlled by Buyer; provided that such transfers meet the conditions of clauses
(b) and (c) of the immediately preceding sentence. Assignees to which assignment
is made in accordance with this Section are hereinafter referred to as
"Permitted Assignees". This Agreement shall be enforceable by and shall inure to
the benefit of and be binding upon the parties hereto and their successors and
Permitted Assignees and no others.
11.6 Fees and Expenses. Except for the fees and disbursements
of special counsel to the Buyers of the Securities as provided in Section 6.1(e)
hereof, each of the parties will bear its own expenses in connection with the
negotiation and consummation of the transactions contemplated by this Agreement.
- 23 -
<PAGE> 24
11.7 Publicity and Disclosure. Except as may be required by
federal securities laws, no press release or public disclosure, either written
or oral, of the transactions contemplated by this Agreement, shall be made by
either party hereto without the prior approval of the other party hereto.
11.8 Counterparts. This Agreement may be executed
simultaneously in multiple counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same document.
11.9 Amendments and Waivers. Except as otherwise provided
herein, any provision in any of the Purchase Agreements may be amended or waived
only if the Seller shall obtain the written consent of the holders of a majority
in interest of the Securities purchased form Seller pursuant to the Purchase
Agreements.
11.10 Limitation of Trustee, Officer and Shareholder
Liability. The undersigned is a series of a Massachusetts business trust (the
"Trust"). Seller hereby acknowledges that this Subscription Agreement and the
agreements, documents and instruments executed in connection herewith
(collectively, the "Documents") relate solely to the undersigned and not to any
other series of the Trust. Seller hereby agrees that, in seeking to enforce any
of its rights under any of the Documents, it will look solely to the
undersigned, and not to any other series of the Trust, and that all such other
series shall have no liabilities or obligations under the Documents.
Additionally, notice is hereby given that the Documents are executed on behalf
of the trustees of the Trust as trustees and not individually and that the
obligations of the Buyer under the Documents are not binding upon any of the
trustees, officers or shareholders of the Trust individually, but are binding
only upon the assets and property of the undersigned.
- 24 -
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date set forth above.
SELLER: ARISTO INTERNATIONAL CORPORATION
-----------------------------
Name:
Title:
BUYER: If an individual: If an entity:
--------------------- -------------------------
Print name of entity above
By:
--------------------------
Name:
Title:
NUMBER OF SHARES
PURCHASED: _______________
THE FOLLOWING INFORMATION MUST BE COMPLETED BY ANY BUYER:
(a) Name of Buyer:____________________
(b) Address:___________________________________________________
Attention:_________________________________________
(c) Social Security Number or Federal Identification Number of
individual or entity specified in (a):_____________________
(d) Nominee Name for Stock Certificate, if different than
specified in (a):___________________________________________
(e) Name and Address of Contact to forward correspondence and
documentation if different than as specified in (b):
Address:___________________________________________________
Attention:_________________________________________
(f) Name and Address of Contact to forward Stock Certificate if
different than as specified in (b):
Address:___________________________________________________
Attention:_________________________________________
Special Instructions,
if any: ___________________________________________________
- 25 -
<PAGE> 26
EXHIBIT A
Allen & Company Incorporated, ("Allen") acting as placement agent for Aristo
International Corporation (the "Company") requests that you use the following
wire transfer instructions to forward payment for shares purchased in the
Private Placement. Allen will wire funds to the Company against delivery of
certificates upon satisfactory completion of documentary requirements.
Chase Manhattan Bank Wire Instructions:
Chase Manhattan Bank
1 Chase Manhattan Plaza
ABA#: 021000021
A/C Name: Allen & Company Incorporated
A/C#: 610-661-566
Attn: Terry McCarthy
Re: Aristo [--Insert Name of Investor--]
Any questions in this connection may be directed as follows:
Contact at Allen regarding the investments are:
Dara Khosrowshahi (212) 339-2266
Contact at Werbel & Carnelutti, counsel to the placement agent:
Valerie Price (212) 906-8751
- 26 -
<PAGE> 1
EXHIBIT 10.9
February 22, 1996
Aristo International Corporation
152 West 57th Street
29th Floor
New York, 10019-3301
Attn: Mr. Mouli Cohen
President and CEO
Dear Mr. Cohen:
We are pleased to confirm our mutual understanding concerning the
retention by Aristo International Corporation (collectively with its
subsidiaries and affiliates, the "Company") of Allen & Company Incorporated
("Allen") to act as the Company's financial advisor on the terms set forth
herein.
1. SCOPE OF ENGAGEMENT. (a) In connection with this engagement, Allen
will familiarize itself with the Company's business, as well as its historical
financial results and its future prospects, with a view to assisting the Company
in formulating an overall plan for its corporate and financial development.
Allen will also assist the Company with specific transaction proposals which
merit consideration by you. Initially, Allen will advise the Company regarding a
possible acquisition of, or investment in, Time Warner Interactive or any of its
divisions or affiliates ("TWi"), which transaction may take the form of a merger
or consolidation, stock or asset purchase, joint venture, strategic alliance or
otherwise (a "TWi Transaction"). In connection therewith, Allen will review and
evaluate TWi's business and financial condition, its historical and projected
results of operations, and the current condition of the arcade, personal
computer and console game industries as well as any recent trends, all with a
view to advising the Company regarding the relative benefits of any proposed TWi
Transaction. Allen will further provide advice on the structuring and financing
of any proposed TWi Transaction and will assist in negotiating with TWi on
behalf of the Company.
(b) In addition, if during the term of this engagement the
Company proposes to participate in any transaction which would generally require
the services of an investment banker or financial advisor, as the case may be,
on a fee paying basis, including matters relating to (i) the raising of debt or
equity capital, both public and private, (ii) possible mergers or stock or asset
acquisitions, (iii) sales or other dispositions of businesses or assets, (iv)
stock repurchases,
<PAGE> 2
Aristo International Corporation
February 22, 1996
Page 2
recapitalizations or restructurings, (v) joint ventures, strategic alliances or
corporate partnering arrangements and (vi) other financial or corporate matters
with which the Company may from time to time require assistance, Allen shall
have the right, subject to the provisions of paragraph 2(b) below, to act as the
Company's investment banker or financial advisor in connection with such
transaction. Allen shall also have the right, subject to the provisions of
paragraph 2(b) below, to act as the Company's managing underwriter or placement
agent with respect to any public or private offering of the Company's securities
in excess of $5 million in market value initiated during the two-year period
commencing on the date hereof.
2. ADVISORY FEES AND EXPENSES. (a) In consideration for the services
described in paragraph 1(a) above, the Company shall pay to Allen an initial fee
of $100,000 payable monthly in arrears during the term hereof and shall issue to
Allen, as soon as practicable after the signing hereof, the Warrants (defined
below) (the "Initial Fee"). The total fee payable by the Company with respect to
any TWi Transaction shall be equal to the amount of the Initial Fee.
(b) In addition, before commencing any specific assignment on
the Company's behalf as referred to in paragraph 1(b) hereof, other than a TWi
Transaction, the Company and Allen will discuss and mutually determine a
reasonable and customary fee or fee scale to be paid to Allen in connection
therewith (a "Transaction Fee"), and it is understood that if the Company
determines not to pursue a TWi Transaction, the Company shall be entitled to a
credit of $500,000 against the next Transaction Fee, if any, due to Allen. If
Allen and the Company do not mutually agree to a reasonable Transaction Fee for
a specific assignment as referred to in paragraph 1(b) hereof, other than a TWi
Transaction, then the Company shall have the right to pursue such assignment
with another investment banker or financial advisor without fee payments to
Allen for such transaction and without reducing the aforementioned credit of
$500,000 available to us against another Transaction Fee should the Company not
pursue a TWi Transaction.
(c) As used herein, the "Warrants" shall mean warrants,
exercisable by the holder thereof from time to time after the first anniversary
of the date of issuance and prior to the fifth anniversary of the date of
issuance, to purchase 448,101 shares of the Company's Common Stock at an
exercise price of $8.25 per share. The Warrants will be evidenced by a warrant
certificate (the "Warrant Certificate") which shall contain other customary
terms, as well as provisions for registration rights and conversion rights.
(d) No fee payable to any other financial advisor, by the
Company or any other person or entity in connection with the subject matter of
this engagement, shall reduce or otherwise affect any fee payable hereunder.
<PAGE> 3
Aristo International Corporation
February 22, 1996
Page 3
(e) In addition to any fees described above, whether or not
any transaction is consummated, the Company shall reimburse Allen, upon request
from time to time, for all reasonable out-of-pocket expenses incurred pursuant
to our engagement hereunder, including any consultants and advisors retained by
us with your consent.
3. TERM AND TERMINATION. The initial term of this engagement shall be
for a period of twelve months from the date hereof and may be extended as the
parties shall mutually agree, subject to the establishment of arrangements for
additional compensation and other appropriate terms for such extension.
Notwithstanding termination of this engagement or completion
of any assignment hereunder, however, Allen shall be entitled to the payment of
a fee for any transaction as established pursuant to paragraph 2 hereof, whether
or not such transaction relates to an entity introduced or identified by Allen,
if such transaction is consummated, or if any agreement or arrangement
respecting such transaction is made, prior to the expiration of the term or the
termination of this engagement. Allen shall also be entitled to the payment of
such fee if after the date of expiration or termination, but prior to the first
anniversary of such date, the Company or any of its securityholders or
affiliates consummates a transaction with any entity identified by or introduced
to the Company through Allen or with which Allen had contact on behalf of the
Company.
Any termination of this engagement pursuant to this paragraph
3 shall otherwise be without liability or continuing obligation for either
party, except for fees or other compensation earned or expenses incurred by
Allen up to the date of termination, or fees which may be earned after such date
as provided above. Furthermore, the provisions of paragraph 6 hereof relating to
indemnification and contribution shall remain operative and in full force and
effect, notwithstanding the termination of this engagement or the completion of
any or all assignments hereunder.
4. PUBLIC ANNOUNCEMENTS. Prior to any press release or other public
disclosure relating to our services hereunder, the Company and Allen shall
confer and reach an agreement upon the contents of any such disclosure.
Notwithstanding the foregoing, except as required by any applicable law, rule or
regulation, no party shall make any public announcement regarding this
engagement or our relationship with the Company thereunder without the prior
consent of the other party.
5. RESPONSIBILITY FOR DISCLOSURE. The Company shall provide Allen all
information material to its business and operations as well as any other
relevant information which Allen reasonably requests in connection with the
performance of its services hereunder. The Company represents and warrants to
Allen that, to the best of its knowledge, all such information, and all
<PAGE> 4
Aristo International Corporation
February 22, 1996
Page 4
information released to the public or filed by the Company with any relevant
government agency or regulatory body, will be accurate and complete at the time
it is furnished or filed, and the Company agrees to keep Allen advised of all
material developments affecting the Company through the later of the term of our
engagement or completion of any transaction in which Allen is involved. The
Company understands that Allen will, in coordination with the Company, be
providing such information to prospective purchasers or investors and other
appropriate parties, and shall be entitled to rely on the accuracy or
completeness of any and all such information. In addition, the Company
acknowledges that, in rendering its services hereunder, Allen will be using and
relying on information provided by the Company and the other parties to any
proposed transaction, as well as information available from public sources and
other sources deemed reliable by Allen, without independent verification by
Allen. Allen does not assume responsibility for the accuracy or completeness of
any such information.
6. INDEMNIFICATION AND CONTRIBUTION. The Company agrees that in the
event Allen or any of Allen's officers, employees, agents, affiliates or
controlling persons, if any (each of the foregoing, including Allen, an
"Indemnified Person"), become involved in any capacity (whether or not as a
party) in any action, claim, proceeding or investigation (including any security
holder action or claim or any action brought by or in the right of the Company)
related to or arising out of our engagement, including any related services
already performed and any modifications or future additions to such engagement,
the Company will promptly reimburse each such Indemnified Person for its legal
and other expenses (including the cost of any investigation and preparation) as
and when they are incurred in connection therewith.
In addition, the Company will indemnify and hold harmless each
Indemnified Person from and against, and no Indemnified Person shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company or its security holders or creditors for, any losses, claims, damages,
liabilities or expenses related to or arising out of our engagement, any
services provided thereunder or any transactions or proposed transactions
related thereto, including any related services already performed and any
modifications or future additions to such engagement, whether or not any pending
or threatened action, claim, proceeding or investigation giving rise to such
losses, claims, damages, liabilities or expenses is initiated or brought by or
on behalf of the Company and whether or not in connection with any action,
claim, proceeding or investigation in which the Company or any Indemnified
Person is a party, except to the extent that any such loss, claim, damage,
liability or expense is found by a court of competent jurisdiction in a judgment
that has become final in that it is no longer subject to appeal or review to
have resulted directly and primarily from such Indemnified Person's bad faith or
gross negligence.
If for any reason the foregoing indemnification is held
unenforceable, then the Company shall contribute to the loss, claim, damage,
liability or expense for which such
<PAGE> 5
Aristo International Corporation
February 22, 1996
Page 5
indemnification is held unenforceable in such proportion as is appropriate to
reflect the relative benefits received, or sought to be received, by the Company
and its security holders on the one hand and the party entitled to contribution
on the other hand in the matters contemplated by this engagement, as well as the
relative fault of the Company and such party with respect to such loss, claim,
damage, liability or expense and any other relevant equitable considerations.
The Company agrees that, to the extent permitted by applicable law, in no event
shall the Indemnified Persons be responsible for or be required to contribute
amounts which in the aggregate exceed the fees actually paid to Allen for such
financial advisory and investment banking services.
The Company's reimbursement, indemnity and contribution
obligations under this letter shall be in addition to any liability which the
Company may otherwise have and shall not be limited by any rights Allen or any
other Indemnified Person may otherwise have. The Company agrees that, without
Allen's prior written consent, which will not be unreasonably withheld, the
Company will not settle, compromise or consent to the entry of any judgment in
any pending or threatened claim, action, proceeding or investigation in respect
of which indemnification or contribution could be sought hereunder (whether or
not Allen or any other Indemnified Person is an actual or potential party to
such claim, action, proceeding or investigation), unless such settlement,
compromise or consent includes an unconditional release of each Indemnified
Person from all liability arising out of such claim, action, proceeding or
investigation.
The provisions of this paragraph 6 shall remain in effect
indefinitely, notwithstanding the completion of this assignment, the expiration
of the term hereof or any other termination of this engagement.
7. MISCELLANEOUS. No waiver, amendment or other modification of this
agreement shall be effective unless in writing and signed by each party to be
bound hereby. This agreement, and any claim related directly or indirectly to
this agreement, shall be governed by, and construed in accordance with, the laws
of the State of New York applicable to agreements executed and to be fully
performed therein. No such claim shall be commenced, prosecuted or continued in
any court other than the courts of the State of New York located in the City and
County of New York or in the United States District Court for the Southern
District of New York. Allen and the Company (on the Company's own behalf and, to
the extent permitted by applicable law, on behalf of its stockholders and
creditors) waive all right to trial by jury in any action, proceeding or
counterclaim (whether based upon contract, tort or otherwise) related to or
arising out of our engagement. The obligations of this agreement shall be
binding upon and shall inure to the benefit of the parties hereto, the
Indemnified Persons hereunder and any of their successors, assigns, heirs and
personal representatives.
<PAGE> 6
Aristo International Corporation
February 22, 1996
Page 6
Please confirm that the foregoing is in accordance with your
understanding of the terms of our engagement by signing and returning to us the
enclosed duplicate of this letter, which shall thereupon constitute a binding
agreement between us.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: _______________________________
Robert H. Cosgriff
Managing Director
Accepted and agreed to as of the date first above written:
ARISTO INTERNATIONAL CORPORATION
By: _________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.10
ARISTO INTERNATIONAL CORPORATION
PLACEMENT AGENCY AGREEMENT
July 31, 1996
Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Gentlemen:
Aristo International Corporation, a Delaware corporation (the
"Company"), hereby confirms its agreement with you as follows:
1. The Offering. The Company is offering to persons who
qualify as "accredited investors", as that term is defined in Regulation D under
the Securities Act of 1933, as amended (the "Act"), up to 1,500,000 shares of
the Company's Common Stock, par value $.001 (the "Shares") at a price of $5.00
per Share. Such private offering will not be consummated unless subscriptions
for at least 500,000 Shares are received and accepted by the Company on or
before August 23, 1996, unless extended by the mutual agreement of the Company
and you. The foregoing offer and sale of the Shares is hereinafter referred to
as the "Offering".
2. Appointment of Placement Agent. You are hereby appointed
the exclusive placement agent of the Company (the "Placement Agent") during the
Offering Period (as defined herein) for the purpose of assisting the Company in
identifying qualified subscribers as described in the Offering Materials (the
"Subscribers"). The "Offering Period" shall commence on the date the Offering
Materials are first made available to you by the Company for delivery in
connection with the Offering and shall terminate on or before the close of
business on August 23, 1996 unless extended by agreement between you and the
Company. You hereby accept such agency and agree to assist the Company in
identifying qualified Subscribers on a "best efforts" basis. Your agency
hereunder may not be terminated by the Company, except upon termination of the
Offering. It is understood that the offering and sale of the Shares is intended
by all parties to be exempt from the registration requirements of the Act
pursuant to Section 4(2) thereof and the rules and regulations of the Securities
and Exchange Commission thereunder (the "Rules and Regulations").
3. Offering Materials. The Company has prepared and delivered
to the Placement Agent a reasonable number of copies of a Confidential Private
Placement Memorandum dated July 15, 1996 and the disclosure documents referred
to therein relating to,
<PAGE> 2
among other things, the Company and the Offering. The public disclosure
documents include recent periodic reports filed by the Company with the
Securities and Exchange Commission. Such Confidential Private Placement
Memorandum, including all documents delivered in connection therewith, is
referred to herein as the "Offering Materials," except that if the Offering
Materials shall be supplemented or amended, the term "Offering Materials" shall
refer to the Offering Materials as so supplemented or amended from and after the
time of delivery to you of such supplement or amendment.
4. Closing; Delivery; Placement Fees.
(a) It is anticipated that the closing of the
purchase and sale of the Shares will take place in one or more closings (each, a
"Closing") at the offices of Allen & Company Incorporated, 711 Fifth Avenue, New
York, New York 10022 at 10:00 a.m. on such dates as shall be agreed upon by you
and the Company (the "Closing Date").
(b) At the Closing there shall be delivered to the
Company on behalf of each Subscriber two executed copies of the Purchase
Agreement to be entered into by the Company and each of the Subscribers
purchasing Shares (the "Purchasers") substantially in the form delivered to the
Placement Agent (the "Purchase Agreement"), and there shall also be delivered on
behalf of each Purchaser the full purchase price of the Shares which such
Purchaser is to purchase. At the Closing, the Company will deliver to the
Purchasers certificates representing the Shares purchased by them and other
documents as set forth in the Purchase Agreements.
(c) Simultaneous with the Closing, as provided in
paragraph (b) above, the Company shall pay or cause to be paid to the Placement
Agent a placement fee equal to 7% of the gross proceeds raised in the Offering
and shall reimburse the Placement Agent for its out-of-pocket expenses as
provided in Section 6(c) hereof, against the presentation of bills therefor.
5. Representations and Warranties of the Company. The Company
hereby confirms for the benefit of the Placement Agent the representations and
warranties made by it to the Subscribers in Section 2 of the Purchase Agreement,
and hereby further represents and warrants that this Agreement has been duly
authorized, executed and delivered on behalf of the Company, and constitutes a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as rights to indemnity or contribution hereunder may be limited by
Federal or state securities laws.
6. Covenants of the Company. The Company covenants and agrees
with the Placement Agent that:
- 2 -
<PAGE> 3
(a) The Company will notify you of any event of
which it is aware and as a result of which the Offering Materials would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading; and it will not use any
amendment or supplement to the Offering Materials until you have given your
consent to such amendment or supplement. The Company will conduct the Offering
in compliance with Section 4(2) of the Act and the Rules and Regulations and all
applicable state securities laws and regulations.
(b) The Company will use its best efforts to qualify
the Shares for offer and sale under the Blue Sky or securities laws of such
jurisdictions as you may designate and to continue such qualifications in effect
for so long as may be required for purposes of the private placement of the
Shares, except that the Company shall not be required in connection therewith or
as a condition thereof to qualify as a foreign corporation or to execute a
general consent to service of process in any State.
(c) The Company covenants and agrees with you that
the Company will pay all expenses, fees and taxes in connection with (i) the
preparation of the Offering Materials and all other documents delivered to
prospective investors, (ii) the furnishing of the opinions of counsel for the
Company and other closing documents and (iii) the qualification of the Shares
for offer or sale under the securities laws of such jurisdictions as you may
reasonably designate. The Company also agrees that it will reimburse you for
your out-of-pocket expenses in connection with the Offering, and will pay the
reasonable fees and expenses of Werbel McMillin & Carnelutti, special counsel to
the Purchasers pursuant to the Purchase Agreements.
(d) The Company agrees to cooperate with the
Placement Agent and special counsel to the Purchasers with respect to their due
diligence investigation.
7. Representations, Warranties and Covenants of the Placement
Agent. The Placement Agent represents, warrants and covenants as follows:
(a) This Agreement has been duly executed and
delivered by the Placement Agent and constitutes a valid and binding obligation
of the Placement Agent, enforceable against it in accordance with its terms,
except as rights to indemnity or contribution hereunder may be limited by
Federal or state securities laws.
(b) The Placement Agent will not make an offer of
Shares by any form of general solicitation or general advertising in violation
of Rule 502(c) of Regulation D.
- 3 -
<PAGE> 4
(c) The Placement Agent shall deliver copies of the
Offering Materials, together with any amendments or supplements, to each
Subscriber prior to investment. The Placement Agent shall not deliver to any
offeree without the consent of the Company any information concerning the
Offering other than the documents contemplated to be delivered hereby.
8. Conditions of Placement Agent's Performance. The purchase
and sale of the Shares and the obligations of the Placement Agent as provided
herein shall be subject to the accuracy in all material respects, as of the date
hereof and the Closing Date (as if made on and as of such Closing Date), of the
representations and warranties of the Company herein, to the performance in all
material respects by the Company of its obligations hereunder, and to the
following additional conditions:
(a) You shall have received the opinion of Parker
Chapin Flattau & Klimpl, counsel for the Company, in the form attached hereto as
Exhibit B.
(b) You shall have received a certificate, dated such
Closing Date, of the President of the Company to the effect that:
(i) The representations and warranties of
the Company in this Agreement are true and correct in
all material respects as if made on and as of such
Closing Date; and the Company has complied with all
the agreements and satisfied all the conditions in
all material respects on its part to be performed or
satisfied at or prior to such Closing Date; and
(ii) Except as set forth in the Offering
Materials or in the Purchase Agreement and subsequent
to the date of the most recent financial statements
included with the Offering Materials, there has not
been any material adverse change in the condition
(financial or otherwise), business or results of
operations of the Company and its subsidiaries taken
as a whole.
(c) The Company shall have furnished to you such
certificates, in addition to those specifically mentioned herein, as you or your
counsel may have reasonably requested, as to the accuracy and completeness at
such Closing Date (and as of the date of any accepted subscriptions subsequent
to the Closing Date) of any statement in the Offering Materials, as to the
accuracy at such Closing Date of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder, and as to the fulfillment
- 4 -
<PAGE> 5
of the conditions concurrent and precedent to the obligations of
the Placement Agent hereunder.
9. Indemnification. (a) The Company will indemnify and hold
harmless the Placement Agent, the directors and officers of the Placement Agent
and each person, if any, who controls the Placement Agent within the meaning of
the Act against any losses, claims, damages or liabilities, joint or several, to
which the Placement Agent or any such directors, officers or controlling persons
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in the Offering Materials, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(ii) the Company's engagement of Allen & Company Incorporated as Placement Agent
or any service the Placement Agent performs for the Company or on its behalf
pursuant to the Engagement Letter dated February 22, 1996 between the Company
and the Placement Agent or this Agreement, except to the extent that any such
loss, claim, damage or liability is found by a court of competent jurisdiction
in a judgment that has become final (in that it is no longer subject to appeal
or review) to have resulted directly and primarily from such Indemnified
Person's violation or breach of such Engagement Letter or this Agreement, gross
negligence or willful misconduct. Subject to subsection (c) below, the Company
will reimburse the Placement Agent or any such directors, officers or
controlling persons for any reasonable legal or other expenses reasonably
incurred by the Placement Agent or any such directors, officers or controlling
persons 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 case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Offering Materials in
reliance upon and in conformity with written information furnished by and with
respect to the Placement Agent specifically for use in the preparation thereof.
The Company shall not be required to indemnify the Placement Agent or any such
directors, officers or controlling persons for any payment made to any claimant
in settlement of any suit or claim unless such payment is approved by the
Company, which approval shall not be unreasonably withheld or delayed. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have, but in no event shall an indemnified party receive more than the
amount of his claim.
(b) The Placement Agent will indemnify and hold harmless the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of the Act
- 5 -
<PAGE> 6
against any losses, claims, damages or liabilities, joint or several, to which
the Company, or any such directors, officers or controlling persons may be or
become subject, under the Act 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 any material fact
contained in the Offering Materials or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Offering Materials in reliance upon and in conformity with written information
furnished by and with respect to the Placement Agent specifically for use in the
preparation thereof; and (subject to subsection (c) below) will reimburse the
Company or any such directors, officers or controlling persons for any legal or
other expenses reasonably incurred by the Company or any such director, officer
or controlling person in connection with investigating or defending any such
loss, claim, damage, liability or actions. The Placement Agent shall not be
required to indemnify the Company or any such directors, officers or controlling
persons for any payment made to any claimant in settlement of any suit or claim
unless payment is approved by the Placement Agent, which approval shall not be
unreasonably withheld or delayed. This indemnity agreement will be in addition
to any liability the Placement Agent may otherwise have, but in no event shall
an indemnified party receive more than the amount of his claim.
(c) Promptly after receipt by an indemnified party under
subparagraphs 9(a) or (b) of notice of the commencement of any action or other
proceeding (including governmental investigations) in respect of which indemnity
may be sought, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under such subparagraphs, promptly notify
the indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under such subparagraph. In
case any such action shall be brought against any indemnified party, and it
shall promptly notify the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, assume and control the defense thereof with counsel chosen by it
and after notice from the indemnifying party to such indemnified party of its
election so to assume and control such defense with counsel chosen by it, it
shall bear all expenses of such defense. Any such indemnified party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless:
- 6 -
<PAGE> 7
(i) the indemnifying party has agreed to pay such fees and
expenses; or
(ii) the indemnifying party shall have failed to assume the defense
of such action or proceeding and employ counsel reasonably satisfactory
to such indemnified party in any such action or proceeding; or
(iii) the named parties to any such action or proceeding (including
any impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been advised
by counsel that there may be one or more legal defenses available to
such party which are different from or additional to those available to
the indemnifying party (in which case, if such indemnified party
notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of
such action or proceeding on behalf of such indemnified party).
The indemnifying party shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for the indemnified party, which firm
shall be designated in writing by the indemnified party.
10. Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 9(a) or 9(b)
hereof is for any reason held to be unavailable to any party entitled to such
indemnification, each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of losses, claims, damages and
liabilities of the nature contemplated by such indemnification provisions
(including any investigation, legal and other expenses incurred in connection
with, and amounts paid in settlement of, any action, suit or proceeding or any
claims asserted) to which the Company and the Placement Agent may be subject, in
such proportions so that the Placement Agent is responsible for that portion in
each case represented by the percentage that the respective placement fee
appearing in Section 4(c) of this Agreement [(including the value of the
warrants issued to the Placement Agent pursuant to such Section )] bears to the
offering price of the Shares, and the Company is responsible for the remaining
portion; provided, however, that no person guilty of fraudulent
misrepresentation shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purpose of this Section 10,
each person, if any, who controls the Placement Agent
- 7 -
<PAGE> 8
within the meaning of Section 15 of the Act shall have the same rights to
contribution as the Placement Agent, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act, each officer of the Company
and each director of the Company shall have the same right to contribution as
the Company, subject in each case to the prior sentence. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which claim for
contribution may be sought, promptly notify the other party or parties in
writing of the commencement thereof, but the omission to so notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise than
under this Section 8. No party shall be liable for contribution with respect to
any action or claim settled without its consent.
11. Representations and Agreements to Survive Delivery. All
representations, warranties or agreements of the Company or of the Placement
Agent herein or in certificates delivered pursuant hereto shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Placement Agent or any controlling person, the Company, or any of
its officers, directors or controlling persons, and shall survive delivery of
the Shares.
12. Termination. The Placement Agent's obligation to proceed
hereunder is conditioned upon its continuing judgment that market conditions in
general, and as they relate to the Company's securities in particular, are such
as to continue to make appropriate the offering and sale of the Shares in the
manner provided for herein. Notwithstanding the foregoing, this Agreement shall
terminate if the Closing of the sale of the Shares does not take place on or
before [September __,] 1996, unless extended by the Company and the Placement
Agent. Upon any such termination, (i) the Company shall reimburse the Placement
Agent for its out-of-pocket expenses, and pay the reasonable fees and expenses
of special counsel to the Purchasers, in each case as provided in section 6(b)
hereof, and (ii) the obligations of the parties set forth in Sections 9 and 10
shall survive termination of this Agreement.
13. Notice. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered or telegraphed and confirmed to you c/o Allen &
Company Incorporated, 711 Fifth Avenue, New York, NY 10022, Attention: James W.
Quinn, with a copy to Werbel McMillin & Carnelutti, 711 Fifth Avenue, New York,
NY 10022, Attn: Valerie A. Price or, if sent to the Company, at 152 West 57th
Street, New York, NY 10019, Attn: President, with a copy to Parker Chapin
Flattau & Klimpl,
- 8 -
<PAGE> 9
LLP, 1211 Avenue of the Americas, New York, NY 10036, Attn: Henry
I. Rothman.
14. Benefits of the Agreement. This Agreement shall inure to
the benefit of and be binding upon the Company and the Placement Agent and their
respective successors and assigns.
15. Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of New York.
16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Very truly yours,
ARISTO INTERNATIONAL CORPORATION
By: ____________________________
Name:
Title:
ALLEN & COMPANY INCORPORATED
By: ___________________________________
Name:
Title:
- 9 -
<PAGE> 1
EXHIBIT 10.11
Purchaser: _________________
SUBSCRIPTION AGREEMENT
ARISTO INTERNATIONAL CORPORATION
Aristo International Corporation
152 West 57 Street
New York, New York 10019
Gentlemen:
1. Subscription. The undersigned hereby subscribes for and agrees to
purchase from Aristo International Corporation, a Delaware corporation (the
"Company"), an aggregate of __________ shares of the common stock, par value
$.001 per share (the "Shares"), of the Company, at a purchase price of $_______
per Share. Upon execution of this Agreement by both the undersigned and the
Company, this Agreement will be binding between the undersigned and the Company
with respect to the terms and conditions described below.
2. Amount and Method of Payment. The undersigned understands and
acknowledges that the aggregate purchase price to be remitted to the Company in
exchange for the Shares shall be $_____________. The undersigned agrees to pay
for the Shares simultaneously with the execution hereof, against delivery of
certificates representing the number of Shares subscribed for.
3. Representations and Warranties of the Purchaser. The undersigned
acknowledges, represents, warrants and agrees as follows:
(a) Accredited Investor. The undersigned is aware of what
constitutes an "Accredited Investor" as that term is defined under Regulation D
promulgated under the Securities Act of 1933, as amended (the "Act"), and under
the laws, if any, of each state governing the undersigned, and the undersigned
is an Accredited Investor for purposes of Regulation D and the laws, if any, of
the state governing the undersigned. The undersigned is able to bear the
economic risks of this investment and, consequently, without limiting the
generality of the foregoing, the undersigned is able to hold the Shares for an
indefinite period of time and has a sufficient net worth to sustain a loss of
its entire investment in the Company in the event such loss should occur.
(b) Evaluation of Risks. The undersigned has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of, and bearing the
<PAGE> 2
economic risks entailed by, an investment in the Company and of protecting the
undersigned's interests in connection with this transaction. The undersigned
recognizes that the undersigned's investment in the Company involves a high
degree of risk.
(c) Due Diligence. The undersigned and/or the undersigned's
advisor(s) has received such documents from the Company as requested by the
undersigned, has carefully reviewed such documents, has had the opportunity to
obtain any additional information necessary to verify the accuracy of the
information contained in such documents and has been given the opportunity to
meet with representatives of the Company and to have them answer any questions
and provide any additional information regarding the terms and conditions of
this particular investment deemed relevant by the undersigned, and all questions
have been answered and requested information provided to the undersigned's full
satisfaction. In making his decision to purchase the Shares, the undersigned has
relied solely upon his review of the documents referred to above and this
Agreement and independent investigations made by it or its representatives.
(d) Independent Counsel. The undersigned acknowledges that he
has been advised to consult with his own attorney regarding legal matters
concerning the Company and to consult with his tax advisor regarding the tax
consequences of acquiring the Shares.
(e) No Distribution. The undersigned is acquiring the Shares
for his own account for investment and not with a view to or for resale in
connection with any distribution of the Shares. The undersigned has not offered
or sold any portion of the Shares and has no present intention of dividing the
Shares with others or of selling, distributing or otherwise disposing of any
portion of the Shares either concurrently or after the passage of a fixed or
determinable period of time or upon the occurance or non-occurance of any
predetermined event or circumstance.
(f) No Registration. The undersigned understands that the sale
of the shares has not been registered under the Act in reliance upon an
exemption therefrom for non-public or limited offerings. The undersigned
understands that the Shares must be held indefinitely unless the sale or other
transfer is subsequently registered under the Act or an exemption from such
registration is available at that time.
(g) Transfer Restrictions. The undersigned understands and
agrees that in addition to the restrictions set forth in this Agreement, the
following restrictions and limitations are applicable to his purchase and any
resales, pledges, hypothecations or other transfers of the Shares:
(i) The following legend reflecting all applicable
restrictions will be placed on any certificate(s) or
other document(s) evidencing the Shares and the
undersigned must comply with the terms and conditions
set forth in such legend prior to any resales,
pledges, hypothecations or other transfers of the
Shares:
2
<PAGE> 3
"The securities represented by this certificate have
not been registered and may not be transferred unless
(A) the stockholder wishing to transfer such
securities provides an opinion of counsel reasonably
concurred in by counsel for Aristo International
Corporation (the "Company") stating that the proposed
transfer of the Company's securities is exempt from
the registration provisions of all applicable federal
and state laws; or (B) said securities have been
registered pursuant to the Securities Act of 1933, as
amended."
(ii) Stop transfer instructions have been or will be
placed on any certificates or other documents
evidencing the securities so as to restrict the
resale, pledge, hypothecation or other transfer
thereof in accordance with the provisions hereof.
(h) No Advertisements. The undersigned is not subscribing for
the Shares as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
(i) Capacity of Undersigned. The undersigned has full power
and authority to enter into this Agreement and this Agreement constitutes a
valid and legally binding obligation of the undersigned. The undersigned has
adequate means of providing for his current financial needs and contingencies,
is able to bear the substantial economic risks of an investment in the Shares
for an indefinite period of time, has no need for liquidity in such investment,
and, at the present time, could afford a complete loss of such investment.
(j) Indemnity. The undersigned shall indemnify and hold
harmless the Company and each officer, director or control person of the
Company, who is or may be a party or is or may be threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of or arising from
any actual or alleged misrepresentation or misstatement of facts or omission to
represent or state facts made or alleged to have been made by the undersigned to
the Company, or omitted or alleged to have been omitted by the undersigned,
concerning the undersigned, or his authority to invest or financial position in
connection with the offering or sale of the Shares, including, without
limitation, any such misrepresentation, misstatement or omission contained
herein or any other document submitted by the undersigned, against losses,
liabilities and expenses for which the Company, or any officer, director or
control person of the Company has not otherwise been reimbursed (including
attorneys' fees, judgments, fines, and amounts paid in settlement) actually and
reasonably incurred by the Company or such officer, director or control person
in connection with such action, suit or proceeding.
3
<PAGE> 4
(k) IN MAKING AN INVESTMENT DECISION THE UNDERSIGNED MUST RELY
ON HIS OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING
THE MERITS AND RISKS INVOLVED. THE SHARES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(l) THE SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED FOR
SALE TO THE PUBLIC UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY OTHER SECURITIES LAWS, AND WILL BE OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. CONSEQUENTLY, THE
SHARES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED OR DELIVERED BY ANY
INVESTOR EXCEPT, IN THE OPINION OF COUNSEL, FOR OR SATISFACTORY TO THE COMPANY,
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IN
ACCORDANCE WITH APPLICABLE STATE OR OTHER SECURITIES LAWS. THE SHARES WILL BEAR
A RESTRICTIVE LEGEND TO THE FOREGOING EFFECT, AND EACH INVESTOR MUST SIGN AN
INVESTMENT REPRESENTATION CONSISTENT WITH THE FOREGOING.
4. Representations and Warranties of the Company. The Company
acknowledges, represents, warrants and agrees as follows:
(a) Organization and Authorization. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware and has all requisite corporate power and authority to
own and operate its properties and assets and to carry on its business as
currently conducted. The Company is not in default or violation of any term or
provision of its Certificate of Incorporation or Bylaws nor will the
consummation of the transactions contemplated by this Agreement cause any such
default or violation. The Company has all requisite corporate power and
authority to enter into this Agreement, to sell Shares hereunder and to carry
out and perform its obligations under the terms of this Agreement. This
Agreement is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
(b) Capitalization. The authorized capital stock of the
Company consists of 19,000,000 shares of common stock, par value $.001 per
share, and 1,000,000 shares of preferred stock, par value $.001 per share. Upon
issuance of the Shares pursuant to the terms of this Agreement and payment
therefor, the Shares will be duly authorized, validly issued, fully paid and
nonassessable. Upon issuance, the Shares will not be subject to any preemptive
or other preferential rights or similar statutory or contractual rights.
4
<PAGE> 5
5. Registration Rights.
5.1 If the Company proposes to register any securities of the
Company under the Securities Act of 1933 on any registration form (other than
for the registration of securities to be offered and sold by the Company
pursuant to (a) an employee benefit plan, (b) a dividend or interest
reinvestment plan, (c) other similar plans or (d) reclassifications of
securities, mergers, consolidations and acquisitions of assets) permitting a
secondary offering or distribution, not less than forty-five (45) days prior to
each such registration the Company shall give to the shareholder (the "Holder")
written notice of such proposal which shall describe in detail the proposed
registration and distribution (including those jurisdictions where registration
or qualification under the securities or Blue Sky laws is intended) and, upon
the written request of the Holder furnished within thirty (30) days after the
date of any such notice, proceed to include in such registration any shares
requested to be registered, referred to as the "Piggy-Back Shares," as have been
requested by any such Holder to be included in such registration. The Holder
shall in its request describe briefly the proposed disposition of such shares of
stock. The Company will in each instance use its best efforts to cause all such
Piggy-Back Shares to be registered under the Securities Act of 1933 and
qualified under the securities or Blue Sky laws of any jurisdiction requested by
a prospective seller, all to the extent necessary to permit the sale or other
disposition thereof (in the manner stated in such request) by a prospective
seller of the securities so registered.
5.2 If the managing underwriter, who shall be selected by the
Company, advises the Company in writing that, in its opinion, the inclusion of
the Piggy-Back Shares with the securities being registered by the Company or
other prospective sellers would exceed the amount of securities that can be
successfully offered then there shall be included in such offering the number of
such securities which the underwriter believes will not jeopardize the success
of the offering.
5.3 The Holder who has requested shares of stock to be
included in a registration pursuant to this Section 5, by acceptance hereof or
thereof, agrees to (a) the selection by the Company or such other security
holder of the underwriter to manage such registration and (b) execute an
underwriting agreement with such underwriter that is (i) reasonably satisfactory
to such holder and (ii) in customary form.
6. Miscellaneous.
(a) The undersigned agrees not to transfer or assign this
Agreement, or any of the undersigned's interest herein.
(b) This Agreement, together with all other documents referred
to herein, constitutes the entire agreement between the undersigned and the
Company with respect to the subject matter hereof. This Agreement may be amended
only by a writing executed by both of them.
5
<PAGE> 6
(c) This Agreement shall be enforced and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of laws thereof.
(d) This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the undersigned has executed this Agreement at
, this day of , 199 .
- --------- ----------- ----------- -
------------------------------
Name of Purchaser
------------------------------
Signature of Purchaser
------------------------------
Address
SUBSCRIPTION ACCEPTED:
ARISTO INTERNATIONAL CORPORATION
By:
----------------------------------
Mouli Cohen, President
Date: , 199
--------------- --
6
<PAGE> 1
EXHIBIT 10.12
___________, 1996
Re: Option to Purchase Common Stock in
Aristo International Corporation ("Aristo")
Dear _____________:
This letter will confirm that _________ has an option to purchase
______ shares of Aristo common stock, $.001 par value per share, at an exercise
price of $____ per share. The option exercise period shall be from the date
hereof until __________________. As consideration for granting this option,
_____________ shall pay Aristo $__________.
In the event the option will not be exercised, __________________ may
call for the option consideration to be returned at any time during the period
beginning _____ days after the date hereof and ending on __________________.
If the foregoing conforms to your understanding of our agreement,
please sign one copy of this letter and return it to the undersigned. Retain the
other copy for your records.
Very truly yours,
Mouli Cohen
President and Chief Executive Officer
ACCEPTED AND AGREED TO:
By: ________________________
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 19th day of April, 1996 by and between Aristo
International Corporation, a Delaware corporation, (the "Corporation"), and
Nolan Bushnell (the "Employee").
W I T N E S S E T H :
WHEREAS, the Corporation desires to employ the Employee to engage in
such activities and to render such services under the terms and conditions
hereof and has authorized and approved the execution of this Agreement;
WHEREAS, the Employee desires to be employed by the Corporation and to
render the services related thereto;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings made herein, the Corporation and the Employee agree to the terms
and conditions of this Agreement, mutually intending and agreeing further to be
legally bound thereby.
1. Employment. The Corporation hereby employs the Employee and the
Employee accepts such employment upon the terms and conditions herein set forth.
During the Initial Term of Employment (as hereinafter defined), Employee may
perform Employee's duties at the principal office of the Corporation in New York
and at an office to be established in Northern California. In no event, however,
except in the event of disability, shall the Employee spend less than five (5)
days a month in New York conducting business on behalf of the Corporation.
2. Term of Employment. Subject to the provisions for termination as
hereinafter provided, the term of this Agreement shall commence on July 1, 1996
and shall continue for a period of one (1) year thereafter (the "Initial Term of
Employment"). Thereafter, this Agreement shall continue for successive one (1)
year periods (each one year period hereinafter referred to as the "Extended Term
of Employment") unless the Corporation or the Employee elects to terminate this
Agreement as provided below. If either Corporation or the Employee elects to
terminate this Agreement upon the expiration of the Initial Term of Employment,
or the Extended Term of Employment, such party shall provide the other party
with written notice of election to terminate at least forty-five (45) days prior
to the last day of the Initial Term of Employment or the Extended Term of
Employment, as the case may be. (Unless otherwise indicated, the phrase "Term of
Employment" shall include the "Initial Term of Employment" and the "Extended
Term of Employment").
3. Duties. The Corporation hereby employs Employee and Employee hereby
agrees to serve as President of a newly formed or acquired subsidiary to be
engaged in the video game and Internet game business. Employee shall also serve
as Director of Strategic Planning for the Corporation. Employee agrees to
perform such services consistent with Employee's position as shall, from time to
time, be assigned to employee by the Board of Directors of the Corporation and
its Chief Executive Officer and such services customary to such offices as are
necessary to the
<PAGE> 2
operations of the Corporation and its subsidiaries. The Employee agrees that
he will devote substantially all of his time and attention during regular
business hours to the business and affairs of the Corporation.
4. Compensation.
(a) Salary: Effective July 1, 1996 and during the remainder of
the Initial Term of Employment, the Corporation agrees to pay the Employee as
compensation a salary at the rate of $300,000 per annum. During the Extended
Term of Employment, if applicable, the Employee shall be compensated for his
services at a rate determined by the Board of Directors; provided, however, that
unless agreed to by the Employee, such rate of compensation shall not be less
than the Employee's salary during the Initial Term of Employment. The aforesaid
compensation shall be paid to the Employee in accordance with the payroll
policies of the Corporation to which other executive employees of the
Corporation are subject. The Board of Directors of the Corporation may review
the Employee's compensation on each anniversary date during the Extended Term of
Employment hereunder, and shall adjust the compensation by such amount, if any,
as it shall deem appropriate; provided, however, that unless agreed to by the
Employee, such compensation shall be at least equal to the Employee's
compensation during the Initial Term of Employment.
(b) Bonuses: During the Term of Employment, the Corporation
agrees to pay the Employee an annual discretionary bonus, if such bonus is
authorized and declared by the Board of Directors of the Corporation. The
Employee shall also receive a one-time bonus of $30,000 upon the closing of a
public offering of the Corporation.
(c) Expenses: In addition to the remuneration described in
paragraph (a) of this Section 4, the Corporation shall reimburse the Employee
upon the submission of the proper documentation in accordance with the standard
procedures of the Corporation for all ordinary and necessary business expenses
incurred by him in the performance of his duties hereunder, including, but not
limited to, the Employee's entertainment, travel, lodging, meals, telephone,
automobile and transportation expenses.
(d) Taxes: All payments under this Agreement shall be subject
to reduction by the amount of any applicable federal, state and local income,
withholding, social security and other taxes, state disability insurance, and
any other items which may be required by or authorized to be deducted by law.
5. Benefits. During the Initial and Extended Terms of Employment, the
Employee shall be included in such health, vacation, disability, life insurance
and pension plans (to the extent he is eligible under such plans) which may from
time to time be available to executive employees of comparable experience and
responsibility of the Corporation which are approved by the Board of Directors
of the Corporation in its sole and absolute discretion.
2
<PAGE> 3
6. Covenants of Employee. The Employee covenants and agrees as follows:
(a) Any business which he conducts during the Term of
Employment hereunder will be only in and through the offices of the Corporation
and in the name of and for the benefit of the Corporation, and its subsidiaries.
(b) He will fully and promptly disclose to the Corporation in
writing, if requested, information regarding all business transacted,
negotiations entered into or prospective business developed on behalf of and for
the benefit of the Corporation.
(c) All trade which he has solicited for the Corporation and
all systems and methods used or devised by him during the Term of Employment
shall be the exclusive property of the Corporation.
(d) He will safely guard, maintain and keep confidential all
documents, records and instruments (and all copies thereof) of the Corporation
which are given into his custody or control and will deliver up all or any such
documents or instruments, whether in written or electronic form, at the request
of the Corporation.
(e) He will not use or disclose, either during or after the
Term of Employment, trade secrets, commercial methods, lists of customers or
other confidential information concerning the business of the Corporation which
he will have access to by virtue of his employment hereunder.
7. Termination of Employment.
(a) Death: If, at any time during the Term of Employment, the
Employee dies, this Agreement and the Employee's employment shall terminate and
the Corporation's obligation to pay any compensation, and provide any benefits
hereunder shall cease as of the date of death. However, any compensation earned
by the Employee prior to his death which remains unpaid at his death and a
pro-rata portion of his bonus compensation shall be paid to the executor or
legal representative of the Employee's estate no later than thirty (30) days
after the date of death.
(b) Termination for Good Cause: The Corporation may at any
time during the Term of Employment, by written notice, terminate this Agreement
and discharge the Employee upon a finding by the Board of Directors of "good
cause" (as defined below) for such termination, whereupon the Corporation's
obligation to pay any compensation, and provide any benefits hereunder shall
cease as of the date of termination. As used herein, termination for "good
cause" shall mean termination of employment by reason of (i) the Employee's
habitual alcoholism, drug abuse or addiction; (ii) the conviction of the
Employee of a felony or fraud; (iii) misappropriation by the Employee of any
amount of money or other assets or properties of the Corporation or its
affiliates; (iv) the failure by the Employee to substantially perform the
reasonable and attainable directions received from the Board of Directors of the
Corporation; (v) the willful and
3
<PAGE> 4
unauthorized disclosure by the Employee of any Corporation trade secrets or
financial information or data which has resulted, or is likely to result, in
damage to the Corporation; (vi) the engaging by the Employee in misconduct
(including, without limitation, a breach of stated corporate policy (as
delivered to the Employee) applicable to employees generally or a violation of
law relative to the Corporation or its business), which is determined by the
Board of Directors to be injurious to the Corporation, monetarily or otherwise;
or (vii) a breach of any of the provisions of this Agreement.
The written notice of termination provided above shall mean a
notice delivered to the Employee in accordance with Section 15 hereof.
(c) Termination Other Than for Good Cause: The corporation
may, at any time during the Term of Employment, by written notice, terminate
this agreement. If, during the Term of Employment, the Corporation terminates
the Employee's employment other than for good cause, as defined in Section 7(b),
the Employee shall be entitled to collect his salary as set forth in Section
4(a) for the months remaining in the Initial or any Extended Term following such
termination.
(d) Permanent Disability: In the event the Employee becomes
permanently disabled (as defined herein) during the Term of Employment, this
Agreement and the Employee's employment shall terminate as of the date of such
permanent disability and the Corporation's obligation to pay any compensation,
and provide any benefits hereunder shall cease as of the date of such disability
provided, however, any compensation earned by or due to the Employee prior to
the date of disability which remains unpaid and a pro-rata portion of his bonus
compensation shall be paid to the Employee no later than thirty (30) days after
the date of Employee's permanent disability. Employee shall be considered
"permanently disabled" if he is unable to perform his duties for the Corporation
as determined by the Board of Directors in good faith on the basis of two (2)
medical opinions received by the Board from two (2) physicians licensed to
practice medicine in the State of New York. The Board of Directors'
determination regarding permanent disability shall be binding and conclusive on
the Employee.
(e) Voluntary Resignation and Cessation of Services: If the
Employee voluntarily terminates his employment (other than due to physical or
mental disability) with the Corporation or otherwise voluntarily ceases to
render services for the Corporation as required by this Agreement, this
Agreement and the Employee's employment shall terminate and the Corporation's
obligation to pay any compensation and bonus compensation and provide any
benefits hereunder shall cease as of the date of such termination provided,
however, any compensation earned by or due to the Employee prior to the date of
termination and a pro-rata portion of his bonus compensation shall be paid to
the Employee no later than thirty (30) days after the date of such termination.
The Corporation shall reserve whatever rights, if any, it may have against the
Employee under this Agreement or otherwise for such termination.
8. Books and Records. Upon the termination or cessation of the
Employee's
4
<PAGE> 5
employment or expiration of this Agreement, all books, papers and other personal
property used by the Employee in connection with his employment hereunder and in
furtherance of this Agreement, including without limitation, any computer
programs and data stored in electronic form, shall be surrendered forthwith to
the Corporation.
9. Covenant Not to Compete; Solicitation.
(a) Employee agrees that during the Term of Employment
hereunder and for a period of one (1) year after the termination or cessation of
Employee's employment with the Corporation for any reason whatsoever, Employee
shall not, without the prior written consent of the Corporation, accept
employment or render services to any person, firm or corporation, in competition
with the Corporation or any of its affiliates in the United States of America or
any of its territories or possessions, or enter into or in any manner take part
in or lend his name, counsel or assistance to any venture, enterprise, business
or endeavor either as a proprietor, principal, shareholder, employee, officer,
partner, independent contractor, owner, investor, agent, consultant or in any
other capacity whatsoever for any purpose which would in any respect be
competitive with the business of the Corporation in existence during the Term of
Employment hereunder or at the time of his termination or cessation of
employment.
(b) For a period of one (1) year after termination or
cessation of Employee's employment with the Corporation for any reason
whatsoever, Employee shall not, without the prior written consent of the
Corporation, solicit for employment any person who is employed by the
Corporation during the Term of Employment or during the 180 days following the
employee's termination or cessation of employment.
10. Protection of Confidential Information. In view of the fact that
Employee's work for the Corporation will bring him into close contact with
confidential affairs thereof, as well as plans for future development, Employee
agrees, both during and after his Term of Employment, to the following:
(a) Secrets. To keep secret and retain in the strictest
confidence all confidential or specialized data or information of the
Corporation, including, without limitation, trade "know how" and trade secrets,
customer lists, pricing policies, production methods, technical processes,
construction designs and processes, manufacturing processes and inventions and
research projects and other business affairs of the Corporation, acquired or
learned by him heretofore or hereafter, and not to use or disclose any such
confidential or specialized data or information for his own benefit and further
not to disclose it to any person, firm or corporation, except in the course of
performing his duties hereunder or with the Corporation's prior express written
consent and except for matters that are within the common knowledge of the
industry or its customers. The Employee will not submit for publication in any
manner any information with respect to products, operations, inventions,
discoveries, improvements or business methods
5
<PAGE> 6
relating to the business of the Corporation as acquired by him during his Term
of Employment or thereafter, except as authorized in writing by the Company.
(b) Return Memoranda, etc. To deliver promptly to the
Corporation on any termination of his employment, or at any other time the
Corporation may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints and other documents (and all copies thereof) relating to
the Corporation's business and all property associated therewith, which he may
then possess or have under his control, and whether generated by him or by
others.
11. Solicitation of Customers. In the event Employee's employment with
the Corporation is terminated for any reason, the Employee shall not, for a
period of three (3) years following such termination, communicate with or
contact any customers of the Corporation in the United States, or any of its
territories or possessions, for the purpose of soliciting their business in
competition with the Corporation without the prior written consent of the
Corporation.
12. Specific Enforcement. Employee acknowledges and agrees that the
services to be rendered by him to the Corporation are of a special and unique
character, that the Corporation has made a substantial investment in the
business with which Employee will be involved, that the restrictions on
Employee's activities as contained in this Agreement are required for the
Corporation's reasonable protection, and that any breach of this Agreement will
result in irreparable and continuing damage to the Corporation for which there
will be no adequate remedy at law. Employee further acknowledges and agrees
that, because of the unique and extraordinary nature of his services, any breach
or threatened breach of the provisions of this Agreement will cause irreparable
injury and incalculable harm to the Corporation, and the Corporation shall,
accordingly, be entitled to injunctive relief, specific performance and other
equitable relief for such breach or threatened breach and that resort by the
Corporation to any such equitable relief shall not be deemed to waive or to
limit in any respect any right or remedy which the Corporation may have with
respect to such breach or threatened breach.
13. Expense of Enforcement of Covenants. In the event that any action,
suit or proceeding at law or in equity by either party to this Agreement to
enforce the covenants contained in this Agreement or to obtain money damages for
the breach thereof, each party shall pay his or its own expenses (including,
without limitation, reasonable attorneys' fees and disbursements) incurred in
connection therewith.
14. Waiver of Breach. A waiver of breach by any party hereto of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party.
15. Notices. All notices, requests, demands, applications, services of
process, and other communications which are required to be or may be given under
this Agreement shall be deemed to have been duly given if sent by confirmed
telex, telecopy or facsimile transmission or delivered or mailed, certified
first class mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
6
<PAGE> 7
To Employee: To Corporation:
Nolan Bushnell Mouli Cohen
3860 Woodside Road President and Chief Executive Officer
Woodside, California 94062 Aristo International Corporation
152 West 57th Street
New York, New York 10019
or to such other address as any party shall furnish to the other by notice given
in accordance with this Section.
16. Governing Law. The validity, performance and enforcement of this
Agreement, shall be governed by the Laws of the State of New York without giving
effect to the principles of conflicts of law thereof.
17. Consent of Jurisdiction. Each of the parties hereto (a) consents
and submits to the jurisdiction of the Courts of the State of New York and of
the Courts of the United States for the Southern District of New York for all
purposes of this Agreement, including, without limitation, any action or
proceeding instituted for the enforcement of any right, remedy, obligation or
liability arising under or by reason hereof and thereof; (b) consents and
submits to the venue of such action or proceeding in the City of New York,
County of New York (or such judicial district of a Court of the United States as
shall include the same.)
18. Successors; Binding Agreement; Assignment. This Agreement shall be
binding upon and shall inure to the benefit of the Corporation and any successor
or successors in interest of the Corporation through consolidation, merger or
sale of its business. This Agreement is a personal employment contract and may
not be assigned, pledged or otherwise transferred by Employee or the
Corporation, except by the Corporation to a successor or successors in interest
of the Corporation through consolidation, merger or sale of its business.
19. Entire Agreement; Amendments. This Agreement embodies the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, oral and written, with
respect thereof. This Agreement may not be changed orally, but only by an
agreement in writing signed by the party or parties against whom any waiver,
change, amendment, modification or discharge may be sought.
20. Severability. Any term or provision of this Agreement which is
invalid or unenforceable shall be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement.
21. Paragraph Headings. The titles of each paragraph are inserted for
reference purposes only, and shall not affect in any way the meaning or
interpretation of this Agreement.
7
<PAGE> 8
22. No Conflict. Employee represents and warrants to the Corporation
that he is not now under any obligation of a contractual or quasi-contractual
nature to any person, firm, corporation or other organization which is
inconsistent or in conflict with this Agreement or which would prevent, or
substantially limit or impair the performance of his obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this 19th day of April, 1996.
Attest:
ARISTO INTERNATIONAL CORPORATION
Witness:
By:
-----------------------------------
Name: Mouli Cohen
Title: President
--------------------------------------
Nolan Bushnell
8
<PAGE> 9
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT , made this ___ date of September, 1996,
by and between Aristo International Corporation, a Delaware corporation (the
"Corporation") and Nolan Bushnell (the "Employee").
W I T N E S S E T H :
WHEREAS, The Corporation and the Employee entered into an agreement on the 19th
day of April, 1996 (the "Employment Agreement"); and
WHEREAS, the Corporation and the Employee now desire to amend the Employment
Agreement;
NOW THEREFORE, in consideration of the mutual covenants and undertakings made
herein, the Corporation and the Employee agree to the terms and conditions of
this Amendment to Employment Agreement, mutually intending to be legally bound
thereby:
1. Extension of Term. The parties hereby agree to amend Section 2 of
the Employment Agreement to extend the Initial Term of Employment from June 30,
1997 to October 31, 1999; provided, however, that at any time after June 30,
1997, the Corporation shall have the option to terminate, for any reason, and/or
renegotiate the Employment Agreement in the event the Corporation shall fail to
have completed a public offering of at least 2 million shares of its capital
stock on or before June 30, 1997.
2. Grant Of Options. The Corporation hereby agrees to amend Section 4
of the Employment Agreement to grant Employee all of the available options now
remaining or hereinafter becoming available under the Corporation's 1995 Stock
Option Plan, which originally had 1,000,000 authorized shares, and which now has
_____ options available, which will vest at the rate of 100,000 options at the
end of fiscal year of the Corporation, beginning October 31, 1997, until all
options available under the plan are vested; provided, however, that the vesting
of such options may be accelerated as hereinafter provided. In the event the
Corporation shall achieve gross revenues from the sale and operation of location
based, coin operated products as contemplated by the group of products called
"PlayNet" of $35 million for the Corporation's fiscal year ending October 31,
1997, then the vesting of an additional 400,000 options shall be accelerated to
October 31, 1997 upon verification that such level of gross revenues have been
achieved. In the event the Corporation shall achieve gross revenues from the
sale and operation of location based, coin operated products as contemplated by
the group of products called "PlayNet" of $99 million for the Corporation's
fiscal year ending October 31, 1998, then the vesting of an additional 400,000
options (or so many as shall then remain available for vesting) shall be
accelerated to October 31, 1998 upon verification that such level of gross
revenues have been achieved. Such gross revenues shall be determined by the
Corporation's independent
<PAGE> 10
auditors, and it is hereby understood and acknowledged that it may require up to
an addition 90 days following the close of the said fiscal year for the
determination to be made.
3. Signing Bonus. In consideration for the execution of this Agreement,
the Corporation shall immediately issue the Employee the amount of 50,000 shares
of the Corporation's fully paid and non-assessable Common Stock par value $.001
per share, which shares the Employee hereby acknowledges shall not have been
registered and shall contain a restrictive (144) legend.
4. Ratification. Except as expressly set forth above, the terms and
conditions of the Employment Agreement are hereby ratified and confirmed, and
the Employment Agreement is incorporated herein by this reference as if
re-written at length.
5. Entire Agreement. This document contains the entire agreement of the
parties hereto regarding the relationship originally described in the Employment
Agreement and supersedes any prior written or oral agreements between them
concerning the same. This Employment Agreement may not be further amended or
modified except by an instrument in writing signed by the parties.
6. Successors and Assigns. This agreement shall be binding upon and
inure to the benefit of their respective successors and assigns.
IN WITNESS WHEREOF, the parties have caused this agreement to be signed
as of the year first above written.
Aristo International Corporation
by: /s/ Mouli Cohen
-----------------------------
/s/ Nolan Bushnell
-----------------------------
Nolan Bushnell
<PAGE> 1
EXHIBIT 10.14
AGREEMENT
AMONG
BORTA, INC.
AND
RON BORTA AND LESLIE DAVIS
AND
ARISTO INTERNATIONAL CORPORATION
May 13, 1996
This Agreement is intended to set forth the basic conditions and economic terms
for an amicable resolution of issues between and among Borta, Inc. (herein the
"Company"), Ron Borta (herein "RB") and Leslie Davis (herein "LD"), (RB and LD
herein collectively the "Individuals"), and Aristo International Corporation
("Aristo"), which joins in this Agreement for the sole purpose of evidencing
its commitment to its guarantee and other matters hereinafter described.
1. The Individuals will immediately tender their resignations (copies
attached) as officers and directors of the Company. Subsequent to their
resignation, the Individuals will only visit the Company's offices upon the
request or invitation of the Company.
2. The Individuals will each be released from their respective covenant not to
compete on July 31, 1996.
3. The Individuals will each also receive all COBRA and accrued vacation
rights to which they are entitled by law.
4. The Individuals will surrender all of their options to purchase stock in
Aristo granted pursuant to Aristo's 1995 Stock Option Plan, or otherwise, and
RB will forfeit the 357,143 restricted shares of Aristo Common Stock covered by
the letter dated July 28, 1995 (the TARSAP letter), and any other options,
incentive payments or rights from the Company or Aristo which are related
thereto.
5. The Individuals will each be granted a severance of 8 months salary, based
on their current rate of pay, payable monthly, in arrears, under the current
employee instructions regarding direct deposit, beginning on the last day of
May, 1996, and continuing on the last day of each of the next succeeding 6
months, and with any remaining balance due and payable on December 31, 1996.
6. The remaining $425,000 of RB's signing bonus will be payable as follows:
a. $5,000 concurrently with the execution of the agreements described
in Paragraph 13 below.
b. $150,000 on the earlier of 30 days following the proposed public
offering or August 10, 1996.
c. the balance on December 31, 1996.
<PAGE> 2
All payments made pursuant to Paragraph 6 will be in immediately available
federal funds. In the case of each payment made hereunder, the Company may
deduct from the payment the withholding required to be made by the payor for
signing bonus payments under applicable federal and state income tax laws. All
such withholding shall be paid to the relevant taxing authority for the account
of RB, as required by law.
7. RB will agree to continue serving the Company in a consulting capacity as
may be requested by the Company, at no additional cost, for up to 15 hours per
month (which shall not carry over) until the later of the completion of the
Arena Football Game prototype or July 31, 1996; provided, however, that he will
be reimbursed for pre-approved out-of-pocket expenses.
8. The payments described in Paragraphs 5 and 6 will be guaranteed by Aristo
and a separate Guarantee will be executed and delivered by Aristo to the
Individuals not later than the delivery of the agreements described in
Paragraph 13.
9. Aristo will not seek to influence the decision of Allen & Company regarding
the election of any existing shareholder of Aristo to request piggyback
registration of their shares if and when an underwriting occurs. Aristo will
use all reasonable efforts to allow counsel to the electing shareholders to be
permitted to have access to Allen & Company with regard to any such election,
and, if the any of the shares owned by the Individuals become part of the
securities included within the offering, to allow the Individuals, and their
counsel, to review and comment on any disclosures made about them personally in
the prospectus.
10. The terms of this Agreement will be binding and will be effective
immediately and the agreements described in Paragraph 13 shall be effective
upon their execution and delivery.
11. The Individuals have been represented by counsel in connection with the
negotiation and execution of this Agreement.
12. The Individuals will take all reasonable steps to effectuate the purposes
of this Agreement to protect the trade secrets of the Company and do nothing to
interfere the operations or personnel of the Company and Aristo. The parties
agree to issue a joint "positive" press release regarding this matter.
13. As soon as practical after the date hereof and in any event not later than
May 20, 1996, the Individuals will execute such additional documents and take
such additional actions as may be reasonably requested by counsel for the
Company, such as termination of the Individuals' Employment Agreements, the
reaffirmation and survival of their confidentiality and non-disclosure
agreements, and the return of stock certificates. The parties will also execute
and deliver mutual general releases pursuant to which the Individuals will
release the Company, Aristo, and their officers, directors, employees and
agents from all claims and demands of whatever kind or nature (other than the
Company's and Aristo's obligations hereunder and under the other agreements
contemplated in this Paragraph 13) and pursuant to which the Company and Aristo
will release the Individuals from all claims and demands of whatever kind or
nature (except for the Individuals' obligations hereunder and under the other
agreements contemplated in the Paragraph 13). The Individuals agree to
specifically release their right to exercise any rescission rights of their
stock sale agreement with Aristo, whether statutory or otherwise, and the
Company and Aristo specifically agree not to take any action to assert any
rights, by set-off or otherwise, regarding the shares of stock of Aristo owned
by the Individuals. The releases will provide that if a party shall default in
any material respect (with the default in any payment being deemed material) in
any of its obligations hereunder or the agreements described in this Paragraph
13, the
<PAGE> 3
release shall thereupon lapse in all regards. Time is of the essence in
implementing this Agreement. In the event the Company or Aristo breach this
Agreement by failing to deliver the agreements described in this Paragraph 13,
within the times herein contemplated, the Individuals shall retain the rights
to elect to assert a termination for good reason under their respective
Employment Agreements of July 27, 1995.
14. The Individuals and Aristo will enter into an agreement pursuant to which
the Individuals will agree to vote their shares of stock in Aristo for the
election of Mouli Cohen as a Director of Aristo for so long as he is nominated
by the Board of Directors of Aristo to so serve.
Borta, Inc. Aristo International
Corporation
by:/s/ Mouli Cohen /s/ Ronald Borta /s/ Leslie Davis by:/s/ Mouli Cohen
----------- ---------------- ---------------- ---------------
Mouli Cohen Ron Borta Leslie Davis Mouli Cohen
<PAGE> 1
EXHIBIT 10.15
[ARISTO LETTERHEAD]
August 17, 1995
Mr. Michael Katz
Michael Katz and Associates
1 San Rafael Avenue
Tiburon, California 94920
Dear Mr. Katz:
The following letter confirms the terms of the agreement, between Michael Katz
at Michael Katz and Associates, 1 San Rafael Avenue, Tiburon, California 94920
("Katz") and Aristo International Corporation at 152 West 57th Street, New
York, New York 10019 ("Aristo") concerning Katz's providing certain advisory
and marketing services to Aristo.
Whereas, Aristo is a public company in the business amongst other things of
acquiring, and managing companies in the interactive entertainment and
entertainment business, and whereas, Aristo has recently acquired Borta, Inc. a
developer of software and hardware technology and tools in the digital
entertainment business with a special emphasis on games; and
Whereas, Aristo desires to have Michael Katz provide certain advisory services
to Aristo and to Borta, Inc. and to be involved in selling and licensing Borta,
Inc.'s software and technology tools; and whereas, Katz desires to provide
Aristo with such services;
Therefore Aristo and Katz agree that Katz will provide the advisory and
marketing services, and be compensated under the following terms and conditions:
1. Services
Katz agrees to (a) serve on the Aristo/Borta, Inc. Advisory Board, (b)
be involved and available and give advice concerning strategic planning
and business implementation for both Aristo and Borta, Inc. when
requested, and diligently and aggressively attempt to sell and license
Borta, Inc. software and hardware tools to significant, targeted third
party companies. It is agreed, that all Aristo or Borta press releases
or business plans referring
<PAGE> 2
Mr. Michael Katz
August 17, 1995
Page 2
to Katz's affiliation with Aristo and Borta shall be pre-approved by Katz,
which approval shall not be unreasonably withheld. Katz's failure to respond
within five business days after Katz's receipt of the press releases or
business plan will be deemed to be an approval of use of Katz's name in the
specific business plan or press releases.
2. Compensation
In exchange for performance of the above services Katz shall be paid a (a)
consulting fee of $1,500.00 per day, plus pre-approved out of pocket expenses
to be reimbursed according to Aristo policy, with the intention of targeting
approximately ten days per calendar quarter. (For the purposes of this
agreement a "day" is defined as eight hours of services); and (b) a sales
commission in an amount equal to 7 1/2% of 100% payable to Katz for all
revenues up to $3 million generated by sales or licenses of Borta, Inc.'s
technologies made through direct introductions of Katz to Borta, Inc. or
Aristo, and a commission of 10% of 100% of all such sales for revenues over
$3 million during the term of this agreement. For purposes of this paragraph
"revenues" is defined as net dollars paid and irrevocably available to
Aristo, or Borta, Inc., or their successors and assignees from such sales or
licenses. And for purposes of this paragraph "sales or licenses" are defined
as consummated sales or licenses and any extensions or renewals of such sales
or licenses provided that such extensions or renewals occur within three
months of the prior last sale or license; and (c) 100,000 options for Aristo
common stock exercisable at current market value on the grant date, which is
the date of execution of this agreement, with the understanding that 33,000
shares of the 100,000 shares will vest one year from the date of signature
hereof, provided Katz will have been retained as a consultant by Aristo for a
minimum of nine months in said first year; the next 33,000 shares will vest
16,250 shares on July 1, 1997, and 16,250 shares on December 31, 1997
provided that Katz is being retained as a consultant by Aristo on each such
date; and the final 34,000 will vest 8,500 shares apiece on April 1, 1998,
July 1, 1998, October 1, 1998, and December 31, 1998 provided Katz is still
then being retained as a consultant by Aristo on each such date. However,
should Aristo be acquired then all the shares shall automatically vest on the
date of acquisition.
3. Exclusivity
It is agreed and understood that Borta, Inc. and Aristo have the absolute
right to approve or disapprove of any sales or advice tendered by Katz. Katz
shall have for a period of 120 days from the completion of the Borta, Inc.
prototype/sample, the exclusive right to sell or license Borta, Inc.'s
technologies to the list of companies attached hereto and incorporated herein
as Exhibit A. However the sales services to be provided by Katz hereunder do
not preclude Borta, Inc. nor Aristo in any fashion from pursuing and
concluding themselves,
<PAGE> 3
Mr. Michael Katz
August 17, 1995
Page 3
or through others, sales related to Borta, Inc.'s and Aristo's assets and
properties to any person or entity not listed in Exhibit A. However, Katz
may amend the list in Exhibit A to include additional persons or entities,
provided that Aristo has not previously contacted such additional persons or
entities for the purpose of selling or licensing Borta's software and
technology tools.
4. Effective Date and Termination. This agreement may be terminated at any time
by any party hereto by written notice to the other party given at least 15
days prior to the effective date of such termination, provided that (a)
Aristo shall have paid all outstanding amounts due to Katz at the time of
effectiveness of termination, (b) Paragraph 2(b) shall survive any lawful
termination of this agreement provided that the sales or licenses for which
Katz is owed the commission defined in Paragraph 2(b) are concluded during
the 120 days from the date of prototype/sample completion.
5. Miscellaneous. (a) If any part of this agreement shall be found violative of
any law or legally invalid in any respect, this agreement shall be construed
and interpreted without reference to such unlawful or invalid part. (b)
Katz agrees and understands that any information, whether oral or
documented, concerning the business of Aristo which is not generally known
to the public is proprietary information, and Katz may not disclose such
proprietary information to any person or entity without Aristo's express
permission, and Aristo shall instruct Katz in that regard as to the steps
Katz will take to protect such proprietary information. (c) This agreement
is the entire understanding of the parties hereto and supersedes any prior
agreements, oral or written between the parties regarding the subject matter
of this agreement and cannot be changed or modified unless in writing signed
by the parties hereto. No term or provision hereof shall be deemed waived
and no breach hereof excused unless such waiver or consent shall be in
writing and signed by the party alleged to have waived or consented thereto.
(d) Both parties represent that they have the authority to enter this
agreement, and that there are no prior or concurrent obligations which
conflict with their ability to perform their obligations hereunder. (e) All
notices shall be in writing to the parties at the addresses first given
above, by personal delivery with a signed receipt; by U.S. Mail certified
return receipt requested, or by fax transmissions with a hard copy sent by
U.S. Mail within 3 business days after such fax transmission. Date of notice
shall be the date of signature on any receipt, or the date of fax
transmission. This agreement does not create a partnership, nor joint
venture, nor agency agreement between the parties.
This agreement shall be construed (both as to validity and performance) and
enforced in accordance with, and governed by the laws of the State of New
York. In that regard, both parties agree to the personal jurisdiction of
the Federal and State courts located in the County and City of New York.
Please indicate your agreement to the terms of this
<PAGE> 4
Mr. Michael Katz
August 17, 1995
Page 4
agreement by signing below. This letter will then become a binding
agreement upon the parties hereto, their heirs, executors, successors,
representatives, affiliates, employees and assigns.
Sincerely,
ARISTO INTERNATIONAL CORPORATION
by: /s/ Mouli Cohen
----------------------------
Mouli Cohen, President & CEO
AGREED TO AS OF THIS 18TH DAY OF AUGUST, 1995
MICHAEL KATZ AND ASSOCIATES
by: /s/ Michael Katz
----------------------------
Michael Katz
<PAGE> 5
EXHIBIT "A"
LIST OF TARGET COMPANIES
TimeWarner
Dreamworks
Turner
Disney
FOX
Viacom
BMG
Mattel
Hasbro
Electronic Arts
Spectrum Hollobyte
Crystal Dynamics
Microsoft
IBM
Apple
Compaq
MCI
Acclaim
Sierra-on-line
GTI (Good Time Interactive)
ABC
NBC
TeleTV
PSI
UUNET
AOL
Prodigy
Broderbund
MCA/Universal
CBS
<PAGE> 1
EXHIBIT 10.16
FINANCIAL CONSULTING CONTRACT
This Agreement made ____________, by and between Aristo International
Corporation, a Delaware corporation, having its business address at 152 West
57th Street, New York, New York (hereinafter the "Company") and ____________
________ (hereinafter "Consultant").
In consideration of the mutual promises contained herein and on the
terms and conditions hereinafter set forth, the Company and Consultant agree as
follows:
1. Provision of Services. Consultant agrees, to the extent reasonably
required in the conduct of the business of the Company, to place at the
disposal of the Company his judgment and experience and to provide business
development services to the Company including the following:
(i) evaluate the Company's managerial and financial
requirements;
(ii) assist when requested by the Company in screening,
evaluating and recommending, directors, commercial and investment
bankers, underwriters, and other professional consultants;
(iii) assist in preparation of business plans; and
(iv) evaluate financial requirements and assist in arranging
financing sources.
2. Compensation. In consideration of Consultant's services, the Company
agrees to grant the Consultant a warrant, exercisable by the Consultant from
time to time after the first anniversary of the date of issuance and prior to
the fifth anniversary of the date of issuance, to purchase 100,000 shares of
the Company's Common Stock at an exercise price of $8.25 per share (the
"Warrant"). The Warrant will be evidenced by a warrant certificate which shall
contain customary terms, including provisions for "piggy-back" registration
rights, anti-dilution and conversion rights.
Consultant hereby accepts such compensation. The Company agrees to
reimburse Consultant for reasonable expenses incurred by the Consultant in
connection with services hereunder. All expenses in excess of $500.00 shall be
approved in advance by the Company in writing.
3. Liability of Consultant. In furnishing the Company with management
advice and other services as herein provided, the Consultant shall not be
liable to the Company or its creditors for errors of judgment or for anything
except willful malfeasance, bad faith or gross negligence in the performance of
its duties or reckless disregard of its obligations and duties under the terms
of this Agreement.
<PAGE> 2
It is further understood and agreed that Consultant may rely upon
information furnished to him reasonably believed to be accurate and reliable
and that, except as herein provided, Consultant shall not be accountable for
any loss suffered by the Company by reason of the Company's action or
non-action on the basis of any advice, recommendation or approval of the
Consultant.
4. Status of Consultant. Consultant shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this Agreement,
shall have no authority to act or represent the Company.
5. Other Activities of Consultant. The Company recognizes that Consultant
now renders and may continue to render management and financial consulting and
other services to other companies which may or may not have policies and
conduct activities similar to those of the Company. Consultant shall be free to
render such advice and other services and the Company hereby consents thereto.
Consultant shall not be required to devote his full time and attention to the
performance of his duties under this Agreement, but shall devote only so much
of his time and attention as he deems reasonable or necessary for such
purposes.
6. Control. Nothing contained herein shall be deemed to require the
Company to take any action contrary to its Certificate of Incorporation or
By-Laws, or any applicable statute or regulation, or to deprive its Board of
Directors of their responsibility for any control of the conduct or the affairs
of the Company.
7. Term. Consultant's retention hereunder shall be for a term of two
years commencing _________________.
8. Assignment. Consultant may not assign this Agreement without the prior
written consent of the Company.
9. Confidentiality. Consultant shall treat all documents, financial
statements, reports and other information delivered pursuant to this agreement
on a confidential basis, with the same degree of care he treats similar
information of other companies with which he has financial consulting
relationships.
10. Miscellaneous. This Agreement sets forth the entire agreement and
understanding between the parties and supersedes all prior discussions,
agreements and understanding of every and any nature between them. This
Agreement is executed in and shall be construed and interpreted according to
the laws of the State of New York.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
on the day and year first above written.
ARISTO INTERNATIONAL CORPORATION
By:
-----------------------------
Name: Mouli Cohen
Title: President & C.E.O.
----------------------------------
[Consultant]
<PAGE> 1
EXHIBIT 10.17
June 10, 1996
P.S.G.S International Real Estate, Ltd.
Re: Common Stock in Aristo International
Corporation ("Aristo") to be issued for Consulting Services
-----------------------------------------------------------
Gentlemen:
this letter confirms that P.S.G.S. International Real Estate, Ltd. ("P.S.G.S.")
shall be issued 13,000 shares of common stock in Aristo pursuant to that certain
Financial Consulting Contract between P.S.G.S. and Aristo dated June 10, 1996.
The above-referenced shares, bearing restrictive securities legend, shall be
issued within a commercially reasonable time after the date of exercise and
funding of these certain options granted to J. Herman (20,000), M. Berkowitz
(20,000), N. Henefeld (20,000) and A. Fitterman (11,000) by letter agreements
dated May __, 1996 (the "Option Holders"). Should the Option Holders wish to
exercise only a portion of their options, the Aristo shares to be issued to
P.S.G.S. pursuant to this letter shall be adjusted pro rata.
If the foregoing conforms to your understanding of the terms of our agreement,
please sign and return one copy of this letter to the undersigned.
Very truly yours,
/s/ Mouli Cohen
-------------------------------------
Mouli Cohen
President and Chief Executive Officer
ACCEPTED AND AGREED TO:
- -------------------------
Name:
<PAGE> 1
EXHIBIT 10.18
June 10, 1996
P.S.G.S. International Real Estate, Ltd.
Re: Option to Purchase Stock in Aristo
International Corporation ("Aristo")
Gentlemen:
This letter confirms that P.S.G.S. International Real Estate, Ltd.
("P.S.G.S.") has an option to purchase 20,000 shares of common stock in
Aristo from the date hereof until December 31, 1996 at an exercise price of
5.50 per share.
This option is being granted in conjunction with, and as consideration for
entering into that certain Financial Consulting Agreement between P.S.G.S.
and Aristo dated June 10, 1996.
Very truly yours,
ARISTO INTERNATIONAL CORPORATION
By: /s/ Shmuel Cohen
--------------------------------
Name: Shmuel Cohen
------------------------------
Title: President & C.E.O.
----------------------------
<PAGE> 1
EXHIBIT 10.19
OWENS & ASSOCIATES INC.
SERVICES AGREEMENT
This Services Agreement is entered into this 1st day of August, 1996 by and
between Owens & Associates Inc., a California Corporation with its principal
offices at 1900 S. Norfolk St. Suite 238, San Mateo CA 94403 (hereinafter
"Agency") and Aristo International Corporation, 152 West 57th St. New York NY
10019-3310 (hereinafter "Company").
In consideration of their mutual representations, warranties, and covenants
contained hereinafter, the parties hereby agree as follows:
1. Work Scope
The Agency shall render services on a non-exclusive basis to Company and shall
be responsible for the tasks and duties which are described in Attachment (A)
hereto. Agency shall obtain Company's prior written consent prior to executing
each of such services, and prior to disseminating any items concerning the
Company or presenting such items for publication. Any and all creations, works,
projects, products and resultant work product performed by or for Agency under
this Agreement shall be and hereby is assigned to Company. The parties also
agree that all rights, title, and interests in and to such property shall be
exclusively owned by Company or its assignee(s).
2. Term
This Agreement shall be effective from the date above, and shall continue for a
period of twelve months to terminate on July 31st, 1997 or sooner as provided
for in Section 4 below.
3. Compensation
Company will pay the Agency as defined in Attachment (A).
In performing services hereunder, the Agency shall operate and have the status
of an independent contractor. Agency shall have no authority to bind Company.
All of the Agency's activities will be at its own risk and liability and the
Agency shall not be entitled to Workman's Compensation or other insurance
protection or benefits from the Company. The Agency agrees that all taxes are
its sole liability and indemnifies Company in any such matters. The Agency shall
have no right or authority to assume or create any obligations of any kind on
behalf of Company, whether express or implied, to bind Company in any respect
whatsoever.
It is understood and agreed that the terms of any sponsorship offer received by
Agency shall be transmitted to Company and Company reserves the sole and
exclusive right to accept or reject such offer(s), which will be done within a
reasonable time after receipt thereof.
<PAGE> 2
Owens & Associates Inc.
Services Agreement
page two
As to any such sponsorship agreement accepted by Company, Company shall issue
appropriate invoices to such sponsor, collect all funds advanced, loaned, paid
or otherwise payable to Company deduct Agency's commission and remit such
commission to Agency within ten (10) days of Company's receipt of same. With
each such payment Company shall render a statement in sufficient detail to show
all funds received and the computation of commissions due Agency.
In the event Agency successfully negotiates a sponsorship agreement, Company
shall pay to Agency a commission equal to a percentage of the gross
compensation paid and/or to Company or on Company's behalf arising from or
otherwise related to each such sponsorship agreement as defined in Attachment A
for the entire term of such sponsorship agreement and any renewals, extensions,
amendments, modifications or substitutions thereof, which take place during the
term of this Agreement plus a period of six months after its termination.
4. Termination
Company may at its option terminate this agreement for any reason or no reason
upon fourteen days (14) written notice to Agency. At that time all outstanding
invoices become immediately due and payable. Upon termination Agency shall
immediately turn over all work completed or in process to Company. Company shall
be under no further obligation or liability to Agency whatsoever arising after
the date of termination.
The Agency acknowledges and agrees that Company shall be under no obligation to
extend or renew this agreement or extend any employment offer, notwithstanding
any work performed by the Agency or other actions taken by the parties prior to
the expiration or earlier termination of this Agreement.
5. Assignment
Because Company has entered into this Agreement upon the basis of the particular
abilities of the Agency, the Agency shall only be entitled to assign or delegate
its rights or obligations hereunder with the express prior written consent of
Company.
6. Amendments
This Agreement, including Attachments, may from time to time, be amended by the
mutual consent of the parties by a signed addendum to be attached to this
Agreement.
<PAGE> 3
Owens & Associates Inc.
Services Agreement
page three
7. Indemnification
In the event that Agency incurs any loss or expense (including reasonable
attorneys' fees and/or costs) as the result of any claim, suit or proceeding
made or brought against Agency based upon or relating to any promotion which
the Agency has negotiated for Company, which promotion is either approved by
Company or was based on materials, statements, artwork, ideas, information, or
instructions from Company, Company agrees to hold Agency harmless from and
against any such loss or expense. The obligation to indemnify Agency hereunder
shall not be deemed terminated upon cancellation.
This indemnification shall not apply with respect to Agency's negligent acts or
omissions, or acts of willful misconduct.
All sponsorship contracts will be directly between Company and sponsor. Company
hereby agrees that it will be solely responsible for fulfillment of all
obligations to sponsor contained in the sponsorship contract and hereby
indemnifies Agency from any claim made against Agency relating to any
obligations contained in the sponsorship contract which Agency has negotiated
on behalf of Company.
8. Use of Name
Agency shall not use Company's name in any of its self-promotion or advertising
activities unless it first obtains Company's written approval, except that
Agency may state that it has been retained as Company's Promotion Consultants.
9. Delivery of Documents
Agency shall, at the request of Company, execute and deliver or cause to be
delivered, all such assignments, consent, documents of further instruments of
transfer, and otherwise take such actions, as Company may reasonably deem
necessary or desirable in order for Company to obtain the full benefits of its
ownership set forth in Section 1.
10. Compensation
Agency shall provide Company with a monthly invoice for services. Such invoice
shall be accompanied by expense reports and receipts for all out-of-pocket
expenses.
<PAGE> 4
Owens & Associates Inc.
Services Agreement
page four
11. Confidentiality
An authorized representative of the Agency is also required to sign a non-use,
non-disclosure and Confidentiality Agreement on behalf of the Agency as part of
this Agreement.
12. Governing Law
This Agreement shall be construed and governed under and in accordance with the
laws of the State of California.
13. Notices
Notices by any party to the other hereunder shall be given by certified or
registered mail, return receipt requested, or by telegram with proof of
delivery or by personal delivery, all prepaid. All statements, payments and
notices shall be given at the respective addresses of Agency and organizer
hereunder as set forth in the first page of this Agreement unless written
notice of change of address is given pursuant to the terms of this paragraph.
Notice shall be deemed effective forty-eight (48) hours after posting of mailed
notices and sending of telegrams or upon hand receipt thereof, except that
notices of change of address shall be effective when received.
Signed and agreed to:
Owens & Associates Inc. Aristo International
Corporation
/s/ Joseph T. Owens /s/ Edward Hughes
- ------------------------------ ------------------------------
Joseph T. Owens, President Authorized Signing Officer
Chief Financial Officer
<PAGE> 5
Owens & Associates Inc.
Services Agreement
page five
OWENS & ASSOCIATES INC.
SERVICES AGREEMENT
ATTACHMENT A
Work Scope:
The Agency shall render services on a non-exclusive basis and shall be
responsible for the following tasks and duties:
Marketing Consultation:
- Development of strategic marketing concepts and tactics to bring
new products to market
- Artistic consultation regarding advertising, display
graphic treatments and materials
- Development of "big picture" strategies to integrate
advertising, public relations, promotion and sponsorship
tactics
- Develop strategies to create excitement and awareness at coin-op
industry trade shows and events
On Line Sales:
- Develop lines of music and sports related premium items for sale
online
- create artwork and designs
- source goods and manufacturers
- obtain all required rights and clearances
- Create strategic alliances with companies with an interest in the
sale of appropriate merchandise online
- Ticketmaster for online sale of concert tickets
- Record companies for online sale of pre-recorded music
- Sports teams and leagues for online sale of clothing,
premiums and event tickets
Sponsorship and Promotions:
- Identification of potential sponsors, promotional partners and
opportunities
- develop POV and rationale for Aristo participation
- gather information, samples, market analysis
- Source prizes, premiums and other trade and consumer incentives to
drive awareness and sales
<PAGE> 6
Owens & Associates Inc.
Services Agreement
page six
- Cross promotional tie-in and sponsorship negotiations
- develop program top-line, cost benefit analysis and
recommendation
- liaison with promotional partners (leg work, day-to-day
contact in all partner needs)
- Promotional Partner, Sponsorship and Advertising Sales presentations
- conceptual on-site presentations with partners
- relationship development
Project Implementation and Fulfillment:
- Implementation of projects
- oversee production of creative materials, POS, television,
radio and print ads
- Coordinate aspects of promotions including awarding of
prizes, details of trips for travel prize winners etc.
- Provide mail order fulfillment services for online merchandise sales
- process orders, and forward merchandise to consumers
- provide detailed accounting on a monthly basis of sales
generated
Special Events:
- Provide Event Marketing Services
- develop top line, cost benefit analysis, budget and
implementation plan
- provide staff, services, facilities for implementation of
Special Events, Tournaments, Demonstrations
Other:
- Analysis of competitive activity
- Provide post analysis of all major promotions
- Provide bi-weekly status reports
- Attend brainstorming and strategy sessions as required
<PAGE> 7
Owens & Associates Inc.
Services Agreement
page seven
Compensation:
Company shall compensate Agency for its performance as follows:
1. A monthly retainer of $10,000 payable in advance on the first of each month
of the Agreement.
2. Commissions on the sale of sponsorships and advertising on the following
basis:
3.5% up to $2 million of gross sponsorship funds
5% from $2 to 4 million of gross sponsorship funds
7.5% over $4 million of gross sponsorship funds
Commissions are payable on the above schedule on a per deal, not cumulative,
basis.
3. A special incentive of 10% of gross sponsorship funds for all sponsorship or
advertising sales contracts negotiated and signed or agreed to by letter of
intent prior to October 1, 1996.
4. Reimbursement of all pre-approved expenses upon presentation of expense
report invoices with original copies of receipts where required.
<PAGE> 1
Exhibit 10.20
[COPYRIGHT CLEARINGHOUSE, INC. LETTERHEAD]
August 20, 1996
Mr. Mouli Cohen
President and CEO
Aristo International Corporation
152 W. 57th Street
New York, NY 10019
Re: "PLAYNET" Service Agreement
Dear Mouli:
The following is the agreement between us pursuant to which we ("we" or "us")
will provide music licensing and consulting services to you or any companies
through which you now or in the future do business.
1. Services. We shall provide music licensing and consulting services in
matters relating to the system currently to be called "Playnet", which is an
on-line "virtual" jukebox. These services will include the key activities set
forth in Phase One and Phase Two on Exhibit A attached hereto. It is understood
that we will contact ASCAP, BMI, RIAA and such individual record labels and
publishers if and as we deem appropriate, with regard to blanket and per play
license fees for the performance of selections through the Playnet system. We
will attempt to negotiate an accounting standard with licensors for payment of
blanket and per play fees that may be due as a result of the installation of
the Playnet system. At such time as you are required to begin the continuing
distribution of per play royalties to licensors, we agree to negotiate in good
faith, a fee for providing such services to you. We will provide you with a
bi-weekly written report (due every other Friday) of the progress being made,
and the companies and societies being contacted.
2. Compensation. You shall pay us a minimum, non-cumulative, non-returnable,
monthly retainer against hourly fees. Hourly fees are $300 for Ron Gertz, $250
for Doug Brainin, $250 for an additional attorney designated by us as
necessary, and $150 for associates. For the first three months of the
agreement, the retainer shall be $25,000 per month. Thereafter, the retainer
shall be $20,000 per month. Retainer fees are due on the first of each month.
We shall inform you when monthly billings are about to exceed the retainer. You
shall reimburse us for our
<PAGE> 2
Mr. Mouli Cohen
August 20, 1996
Page 2
reasonable expenses incurred in connection with rendering services, provided
such expenses receive your prior approval. Invoices for approved overages and
expenses will be billed monthly, and are due and payable upon receipt. All
statements will be prepared with sufficient detail to permit you to identify
the person performing the work, the specific task performed and the
amount of time spent.
a. Additional compensation:
i. At the end of the first full year of operation, you will also
pay to us a minimum floor of one (1)% of 100% of your gross
receipts, or 10% of your net revenues for the year, whichever is
greater.
ii. At the end of each three-month period, if this agreement has
not been terminated by you, we shall receive options to purchase
25,000 shares of your stock at $5.50 per share (i.e., a total of
100,000 shares at the end of the first year), which options shall
be exercisable only between September 1, 1997 (and not before) and
December 31, 2005, after which time such options shall expire if
not previously exercised.
3. Term of agreement. The term of this agreement is one year from the date
hereof. This agreement is terminable by either party on fifteen days prior
written notice. However, the additional compensation provided for in paragraph
2 a (i) above, shall become fully vested and payable if this agreement has not
been terminated by you prior to the beginning of the tenth month hereof.
4. Confidentiality. We agree that information regarding the number of individual
"plays" of recordings on the Playnet system (the "Confidential Play
Information") will not be used for any purpose other than rendering the
services provided for herein, without your prior written approval. We further
agree to keep the Confidential Play Information confidential, to safeguard it,
and not to disclose it, to any person, firm or corporation other than those
directly involved in providing our services and the licensors that require such
information, and that the obligation of confidentiality shall survive the
expiration or termination of this agreement. We acknowledge your ownership of
the Playnet system and concept, and we will not challenge that ownership or
attempt to incorporate or otherwise use it for our commercial gain. You
acknowledge that we may provide music licensing and consulting services to
others. You agree that information regarding the composers, publishers,
administrators, society affiliation, and percentage of ownership of individual
musical compositions and recordings contained in your proprietary music
ownership database, SONGDEX, (the Confidential Ownership Information) which may
be used by us in rendering services hereunder, is our property. To the extent
that the Confidential Ownership Information is disclosed to you, you agree to
keep the Confidential Ownership Information confidential, to safeguard it, and
not to disclose it, to any person, firm or corporation, other than those in your
company directly involved in the execution of license agreements and the
<PAGE> 3
Mr. Mouli Cohen
August 20, 1996
Page 3
payment of per play royalties, and that the obligation of confidentiality shall
survive the expiration or termination of this agreement.
5. License agreements and initial license fee payments. You will promptly
review, sign and return to us all license agreements negotiated by us on your
behalf, together with any initial payments required thereby, made payable to
the content licensors. We will forward agreements and license fee payments to
the content licensors and will use best efforts to complete all documentation
required to establish your initial relationship with such content licensors.
These agreements and payments will be required to establish the initial
relationship between you and the content licensors, but this section will not
obligate us to administer any of the ongoing collection and distribution of
royalties and/or fees unless and until a separate compensation relationship is
agreed upon between us as described in section 1 herein.
6. Warranties and representations. Our services shall be performed in
accordance with our customary business practices. We represent that ownership
and/or licensing information regarding composers, publishers or record masters
comes from generally available music industry sources and not from a search of
the records of the United States Copyright Office. We shall undertake searches
of the Copyright Office only upon your request, and shall have no obligation or
liability to you in relying upon information secured from generally available
music industry sources. You agree to indemnify and hold us harmless from and
against any and all claims, damages, liability, cost and expense, including
reasonable attorneys' fees, arising out of your use of any copyright or
property right unless such claims, damages, liability, cost and expense are a
direct result of our negligence action or omission. In the event you obtain an
errors and omissions insurance policy in connection with your activities, we
shall be carried as an additional insured on said policy.
If the foregoing reflects your understanding of our agreement, please indicate
your acceptance by signing below and returning this letter to us along with a
check in the amount of $25,000.00 for the first month retainer. A duplicate
original is enclosed for your files.
Sincerely,
/s/ Ronald H. Gertz
Ronald H. Gertz, Esq.
President
Agreed and accepted:
/s/ Mouli Cohen
Mr. Mouli Cohen
Chief Executive Officer
<PAGE> 4
EXHIBIT A
I. Phase One: Planning, Consulting and SEC Filing
A. Time Line: 30 days
B. Key Activities
1. Recruit one or more major record companies to participate in the
MusicPlus program prior to the SEC filing. Seek exclusive relationships
and public relations cooperation where possible.
2. Develop negotiation strategies with publishers and the performing
rights societies to include blanket fees, per-use fees and an
appropriate carve-out. (Note: A blanket license fee allows a licensee to
perform any and all compositions from a performing rights society's
repertoire at any time in exchange for an annual fee. Per-use fees allow
a licensee to account and pay for performances, directly to the
copyright proprietor, on a per use basis. A Carve-out is the methodology
by which blanket fees are reduced when per-use fees are employed.
Carve-out licenses are complicated and require extensive negotiations
with publishers, the performing rights societies, record companies and
the RIAA.)
3. Develop strategies with record companies and the RIAA to include
blanket fees, per-use fees and an appropriate came-out.
II. Phase II: Negotiations, Clearance and License Administration
A. Time line: Ongoing after Phase I
B. Activities: Negotiate with publishers and/or the performing rights
societies and otherwise implement the agreed upon negotiating strategy;
Negotiate with record companies and/or the RIAA and otherwise implement
the agreed upon negotiating strategy; Draft and negotiate license forms;
Arrange for the payment of any required advances/guarantees and/or
initial license fees.
<PAGE> 1
Exhibit 10.21
June 28, 1996
Castellon Limited
Russell Court Street
Steven Green
Dublin 2
Ireland
Gentlemen:
Reference is hereby made to the Agreement dated July 1, 1995 (the
"Agreement") by and between Aristo International Corporation (the "Company")
and Castellon Limited ("Castellon") and will evidence the intention of the
Company and Castellon to amend the terms thereof as is hereinafter set forth.
The term of the Agreement shall be extended for a period of one (1)
year, from July 1, 1996 to June 30, 1997.
The minimum amount of capital to be raised by Castellon during the
balance of calendar 1996 shall be increased from $750,000 to $1,000,000.
Except as expressly set forth above, the Agreement shall remain and
continue in full force and effect, including the designation of Mr. Joseph
Ettinger to be the person that will perform the duties of Castellon thereunder,
and the parties hereby ratify and confirm the terms thereof as though set
forth herein in their entirety.
Please indicate your agreement to the above by executing this letter
agreement in the space provided below.
Artisto International Corporation
by /s/ Shmuel Cohen
---------------------------------
Shmuel Cohen
President and CEO
Consented and Agreed to by
Castellon Limited
by /s/ Joseph Ettinger
--------------------------------
Joseph Ettinger, President
<PAGE> 1
EXHIBIT 10.22
Aristo Entertainment, Inc.
152 West 57th Street
29th Floor
New York, New York 10019
August 22, 1996
Mr. Michael Ricci
President
Film Ventures International, Inc.
11845 Olympic Boulevard
Suite 11845, West Tower
Los Angeles, California 90064
Re: AFMA(R) International Disc Distribution Agreement
Dear Mr. Ricci:
This letter sets forth the terms of amendment to the AFMA(R)
International Disc Distribution Agreement, dated March 18, 1996, between Film
Ventures International, Inc. (the "Licensor") and Aristo Entertainment, Inc.
(the "Distributor").
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to them in the Distribution Agreement.
1. Royalty Payments Distributor shall:
(a) pay Licensor, upon the execution hereof, the sum of $25,000, and
shall pay $25,000 on the 15th of each month thereafter through January 15, 1997
(the "Amendment Term"). Aristo International Corporation, the parent company of
the Distributor, hereby undertakes to pay the Licensor, on behalf of the
Distributor, the amount due Licensor under this Section 1(a) in the event that
Distributor is unable to meet its obligation hereunder; and
(b) deliver to the Licensor copies of each sales agreement pertaining
to the sale of the Picture and shall pay Licensor, within five business days
after the receipt thereof of a sum equal to 80% of its Gross Receipts less
direct and actual Recoupable Distribution Costs derived from sale of the
Picture. Such payment shall be accompanied by a detailed statement setting
forth the Distributor's costs that were deducted from the remittance.
2. Issuance of Shares Distributor shall transfer to the Licensor,
within five business days of the execution hereof, 30,000 shares of Common
Stock (the "Shares") of Aristo International Corporation (the "Issuer"), the
value of which shall be calculated pursuant to
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Aristo International Corporation on Form S-1 (No. 333- ) of our
report dated December 21, 1995, except as to Notes 5(b) and 12, for which the
date is January 5, 1996, on our audits of the consolidated financial
statements of Aristo International Corporation and Subsidiaries as of
October 31, 1995 and 1994, and for the three years in the period ended
October 31, 1995 and the cumulative period from June 4, 1990 (inception)
to October 31, 1995. We also consent to the reference to our firm under the
caption "Experts."
New York, New York
October 16, 1996.
