U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
Amendment #1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended October 31, 1998
--------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number 0-15362
--------------------------------------------
COMPUFLIGHT, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 11-2883366
- --------------------------------------------------------------------------------
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification Number)
125 Mineola Avenue, Roslyn Heights, NY 11577
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (516) 625-0202
--------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
- --------------------------------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No X
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year (1997): $ 3,849,746
The aggregate market value of the voting stock held by non-affiliates based
upon the average bid and asked prices of such stock as of September 30, 1999 was
$ 122,689
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the issuer's common stock, as of
September 30, 1999 was 2,001,980 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
COMPUFLIGHT, INC.
1998 FORM 10-KSB/A
Amendment #1
TABLE OF CONTENTS
PART II
Item 7. Financial Statements
PART III
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
PART IV
Item 13. Exhibits, List and Reports on Form 8-K
INDEX TO EXHIBITS
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheet as of October 31, 1998 F-3
Consolidated Statements of Operations for the Years Ended
October 31, 1998 and 1997 F-4
Consolidated Statement of Shareholders' Deficit for the
Years Ended October 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
October 31, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 to F-26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Compuflight, Inc.
We have audited the accompanying consolidated balance sheet of Compuflight, Inc.
and Subsidiaries (the "Company") as of October 31, 1998 and the related
consolidated statements of operations, shareholders' deficit and cash flows for
each of the two years then ended. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Compuflight, Inc. and Subsidiaries as of October 31, 1998, and the results of
its consolidated operations and its cash flows for each of the two years then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, as of October 31, 1998, the Company has a deficiency in working
capital and shareholders equity of $1,222,816 and $762,603, respectively, and
has incurred a net loss of $538,773 for the year ended October 31, 1998. This
factor, among others, as described in Note B to the consolidated financial
statements, raises substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note B. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GRANT THORNTON LLP
Melville, New York
October 15, 1999
F-2
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<TABLE>
<S> <C>
Compuflight, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
October 31, 1998
ASSETS
CURRENT ASSETS
Accounts receivable, net of allowance for doubtful accounts
of $301,512 $ 478,013
Prepaid expenses and other 20,509
-----------
Total current assets 498,522
INVESTMENT TAX CREDITS RECEIVABLE, NET OF ALLOWANCE 438,689
FIXED ASSETS, NET 309,626
DUE FROM RELATED PARTY 259,763
RESTRICTED CASH 50,000
OTHER ASSETS 21,054
$1,577,654
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 62,328
Bank revolving demand loans 74,530
Accounts payable 536,505
Accrued and other liabilities 775,929
Due to related parties - current portion 139,207
Current portion of long-term debt 118,748
Current portion of deferred lease inducements 14,091
----------
1,721,338
DUE TO RELATED PARTIES 115,440
LONG-TERM DEBT 172,700
DEFERRED LEASE INDUCEMENTS 98,633
MINORITY INTERESTS 232,146
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
Common stock, par value $.001 per share; authorized
2,500,000 shares; issued and outstanding,
2,001,980 shares 2,002
Additional paid-in capital 1,680,445
Accumulated other comprehensive income 57,450
Accumulated deficit (2,502,500)
----------
(762,603)
$1,577,654
The accompanying notes are an integral part of this statement.
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C> <C>
Compuflight, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended October 31,
1998 1997
------------- -----------
Revenue
Service fees $3,339,818 $2,665,337
Hardware, software and license sales 509,928 125,030
---------- ----------
3,849,746 2,790,367
--------- ---------
Costs and expenses
Operating 2,758,518 2,398,086
Research and development, net 24,413 35,334
Selling, general and administrative 926,761 1,532,665
Allowance for reduction in scientific research and
experimental development credits 296,029
Restructuring costs 90,948
Office relocation costs 67,678
Depreciation and amortization 133,833 162,448
---------- ----------
3,843,525 4,583,188
--------- ---------
Operating income (loss) 6,221 (1,792,821)
Other income (expense)
Interest income 52,501 54,590
Interest expense - related parties (46,126) (35,680)
Interest expense - other (155,121) (68,834)
Realized foreign exchange loss (1,795) (7,690)
Provision for bad debt - related party (394,453)
Other 30,783
-------------- -----------
NET LOSS $(538,773) $(1,819,652)
======== ==========
Net loss per share - basic and diluted $(0.30) $(1.07)
===== =====
Weighted average number of common shares outstanding 1,801,980 1,701,980
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Compuflight, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
Years ended October 31, 1998 and 1997
Notes Accumulated
Additional Receivable- other
Common stock paid -in Former comprehensive Accumulated Comprehensive
Shares Amount capital Chairmen income deficit Total income
Balance at November 1, 1996 1,701,980 $1,702 $1,545,745 $(962,508) $65,159 $ (144,075) $506,023
Write off of notes receivable -
former chairman 599,456 599,456
Repayments from NARI - net 84,727 84,727
Foreign translation adjustment (22,089) (22,089) $ (22,089)
Net loss (1,819,652) (1,819,652) (1,819,652)
---------- --------- ----------- ------------- --------- ---------- ---------- ----------
Comprehensive loss $(1,841,741)
Balance at October 31, 1997 1,701,980 1,702 1,545,745 (278,325) 43,070 (1,963,727) (651,535)
Issuance of shares to NARI 300,000 300 134,700 135,000
Reclassification - NARI note 278,325 278,325
receivable
Foreign translation adjustment 14,380 14,380 14,380
Net loss (538,773) (538,773) (538,773)
----------- -------- ------------- ------------- --------- ---------- ---------- ---------
Comprehensive loss $(524,393)
Balance at October 31, 1998 2,001,980 $2,002 $1,680,445 $ - $57,450 $(2,502,500) $(762,603)
========= ===== ========= =========== ====== ========== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
<TABLE>
<S> <C> <C>
Compuflight, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended October 31,
1998 1997
---------- -------
Cash flows from operating activities
Net loss $(538,773) $(1,819,652)
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities
Depreciation and amortization 133,833 162,448
Provision for uncollectible accounts 147,064 106,731
Allowance for reduction in investment tax credits 296,029
Write off of note receivable - former chairmen 394,453 599,456
Other (14,841)
(Increase) decrease in operating assets
Accounts receivable (398,404) 237,336
Scientific research and experimental development credits 7,262 (61,827)
License fees receivable 104,502
Prepaid expenses and other (4,720) 9,164
Increase (decrease) in operating liabilities
Accounts payable and accrued liabilities 440,428 144,239
--------- --------
Net cash provided by (used in) operating activities 166,302 (221,574)
--------- ----------
Cash flows from investing activities
Purchase of fixed assets (62,477) (330,225)
Proceeds from lease inducements 141,023
Advances to parent company, net (279,151)
Payments from NARI 66,223
----------- ---------
Net cash used in investing activities (341,628) (122,979)
-------- --------
Cash flows from financing activities
Cash overdraft 81,995
Proceeds from bank revolving demand loans 81,616
Restricted cash (50,000)
Proceeds from issuance of common shares 300
Proceeds (repayments) on bank loan, net (41,961) 158,752
Proceeds from loan 180,087 13,948
Proceeds from note 26,905 47,215
Payment of notes (18,311) (40,031)
------- ---------
Net cash provided by financing activities 147,020 293,495
-------- --------
Effect of foreign translations on cash 28,306 13,696
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (37,362)
Cash and cash equivalents at beginning of year 37,362
---------------- ---------
Cash and cash equivalents at end of year $ $
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
F-6
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998 and 1997
NOTE A - DESCRIPTION OF BUSINESS AND ORGANIZATION
Compuflight, Inc. ("Compuflight") and Subsidiaries, Navtech Systems Support
Inc. ("Support") and Efficient Aviation Systems Inc. ("EAS") (herein
referred to collectively as the "Company") are engaged in the business of
(1) providing computerized flight planning services to all segments of the
aviation industry, but principally to commercial airlines and corporate
aircraft users and (2) selling customized versions of their proprietary
software to end users mainly throughout the United States and Canada.
NOTE B - LIQUIDITY AND CAPITAL RESOURCES
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. However, as of October 31, 1998,
the Company has a deficiency in working capital and shareholders' equity of
$1,222,816 and $762,603, respectively, and has a net loss of $538,773 for
the year ended October 31, 1998. This raises substantial doubt about the
Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that may result should
the Company be unable to continue in existence.
The Company and its senior management group have focused on three specific
areas to address both the strategic direction required and the daily
operational issues to position the Company for profitability. First, the
Company has continued to increase its marketing endeavors to obtain new
customers and will be introducing a number of complementary products to
address marketplace demands. Secondly, the Company believes it has been
building an effective management structure. Thirdly, the Company has
continued its pursuit of financing.
The Company's operation is dependent upon its ability to obtain new
customers, to maintain profitable levels of service and to maintain
existing financial arrangements or obtain new financing. There can be no
assurance that sufficient cash flows will be generated by the Company to
avoid the further depletion of its working capital. Additionally, there can
be no assurance that additional debt or equity financing will be available,
if and when needed, or that if available, such financing could be completed
on commercially favorable terms. Furthermore, no assurances can be given
the above plans will enable the Company to continue in existence.
F-7
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the consolidated financial statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of
Compuflight and its 100%-owned subsidiaries, Support and EAS. All
material intercompany balances and transactions have been eliminated in
consolidation. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translations," assets and
liabilities of foreign operations are translated at current rates of
exchange, while results of operations are translated at average rates
in effect for the period. Unrealized translation gains or losses are
shown as a separate component of shareholders' deficit and
comprehensive income.
2. Fixed Assets
Fixed assets are recorded at cost. Depreciation and amortization is
provided using the straight-line and declining balance methods over the
estimated useful lives of the related assets.
3. Goodwill
Goodwill is recorded at cost and is included as a component of other
assets. Amortization is computed on the straight-line method over ten
years.
4. Software Development Costs
The Company capitalizes expenditures incurred for the development of
existing software which has already reached technological feasibility
and expenses all other costs. Amortization is computed by the
straight-line method over the estimated useful life of the software.
F-8
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE C (continued)
5. Minority Interests
Effective November 24, 1995, the Company issued 125,000 shares of its
common stock in exchange for 500,000 shares of Support, which
represented the common shares of Support held by the one remaining
common shareholder of Support, Innovation Ontario Corporation, a
provincial government agency, and, accordingly, the Company now owns
100% of the outstanding common shares of Support. The excess of the
fair market value of the Company's common stock on the date of the
exchange ($101,563) over the Company's minority interest ($78,411) has
been recorded as goodwill (included in other assets) in the
accompanying consolidated balance sheet.
Minority interests at October 31, 1998 consist of 3,600 shares of Class
B, nonvoting shares of Support. Such shares, issued for $358,200
Canadian ($232,146 U.S. at October 31, 1998), are entitled to
noncumulative dividends of $8 per share and are redeemable at the
option of the Company for $540,000 Canadian ($349,968 U.S.). To date,
no dividends have been declared or paid with respect to such shares.
6. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
7. Income Taxes
Deferred income taxes are recognized for the tax consequences of
temporary differences by employing enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. A
valuation allowance has been established to offset the deferred tax
assets as it is more likely than not that such deferred tax assets will
not be realized.
F-9
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE C (continued)
8. Stock-based Compensation
During fiscal 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted under this standard, the
Company elected to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation expense for stock
options is measured as the excess, if any, of the fair value of the
Company's stock at the date of grant over the amount an employee must
pay to acquire the stock. Pro forma disclosures of net income and
income per common share for fiscal 1996, as if the fair value-based
method prescribed by SFAS No. 123 had been applied in measuring
compensation expense, are presented in Note I.
9. Net Loss Per Share
In fiscal 1998, the Company adopted the provisions of SFAS No. 128,
"Earnings Per Share." SFAS No. 128 replaces the calculation of primary
and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible
securities. Diluted earning per share is very similar to the previously
reported fully diluted earnings per share. Potential common stock
equivalents from outstanding stock options are excluded in computing
net loss per share for fiscal 1998 and 1997 as their effects would be
antidilutive.
10. Revenue Recognition
Revenue from license fees is recognized at the later of delivery of
software master copy or, if applicable, fulfillment of all other
significant obligations under terms of license agreements. The Company
has no significant expenditures relating either to warranties or
post-contract customer support bundled with the initial sale of the
license and, therefore, no provision is included in the consolidated
financial statements. For those agreements where there is uncertainty
as to ultimate collection, revenue is recognized only as cash is
received. Systems consulting and implementation fees and hardware
commissions are recognized upon rendering of services. Custom
programming, communication and database income, and service bureau and
support revenue are recognized ratably over applicable contractual
periods or as services are performed. Amounts billed but not yet earned
and payments received prior to the earnings of the revenue are recorded
as deferred revenue.
F-10
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE C (continued)
11. Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents. The Company paid interest
of approximately $218,975 and $57,800 during the years ended October
31, 1998 and 1997, respectively. Non-cash investing and financing
activities consisted of the issuance of 300,000 shares of the Company's
common stock in exchange for a promissory note of $134,700 during
fiscal 1998.
12. Comprehensive Income
In fiscal 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of SFAS No. 130 had no impact on the Company's
net loss or stockholders' deficit. SFAS No. 130 requires cumulative
translation adjustments, which prior to adoption were reported
separately in stockholders' deficit, to be included in accumulated
other comprehensive income (loss). Prior year financial statements have
been reclassified to conform to the requirements of SFAS No. 130. The
cumulative foreign currency translation adjustment was $57,450 and
$43,070 as of October 31, 1998 and 1997, respectively.
F-11
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE C (continued)
13. Accounting Pronouncements Not Yet Adopted
In October 1997, the Accounting Standards Executive Committee ("AcSEC")
of the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 97-2, "Software Revenue Recognition". SOP
97-2 provides guidance on the timing and amount of revenue recognition
when licensing, selling, leasing or otherwise marketing computer
software and is effective for transactions entered into during fiscal
years beginning after December 15, 1997. On March 18, 1998, the
Financial Accounting Standards Board issued a new SOP that provides for
the one-year deferral of certain provisions of SOP 97-2 pertaining to
its requirements for what constitutes vendor specific evidence of the
fair value of multiple elements included in an arrangement. It is
AcSEC's intention to immediately begin a project to consider whether
guidance is needed on any restrictions that should be placed on what
constitutes evidence of fair value and, if so, what the guidance should
be. Because of the uncertainties with respect to the outcome of any
such project, the Company believes that the impact of the deferred
provisions of SOP 97-2 on its financial position or results of
operations upon expiration of the one-year deferral period is not
currently determinable. However, the Company believes that those
provisions of SOP 97-2 that have not been deferred, and therefore are
applicable commencing January 1, 1998, will not materially affect its
consolidated financial position or results of operations.
In February 1998, AcSEC issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" which is
effective for years beginning after December 15, 1998. SOP 98-1
establishes the accounting for costs of software products developed or
purchased for internal use, including when such costs should be
capitalized. The Company does not expect SOP 98-1 to have a significant
impact on the Company's consolidated financial condition or results of
operations.
14. Reclassifications
For comparative purposes, certain prior year amounts have been
reclassified to conform to the current year presentation.
F-12
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE D - INVESTMENT TAX CREDITS RECEIVABLE
The Company has filed claims for Canadian investment tax credits
aggregating $912,297 for fiscal years ended October 31, 1992 through
October 31, 1998. These scientific research and experimental development
investment tax credits are available to certain entities located in Canada
for qualified scientific research expenditures. The rate of credit for
qualified research and development expenditures varies according to the
status of the company and, in certain instances, the company's taxable
income for the prior year. Credits aggregating approximately $53,000 and
$64,000, in 1998 and 1997, respectively, have been recorded as a reduction
in research and development expense.
In September 1998, Revenue Canada, the Canadian taxing authority, issued an
assessment to the Company with respect to its claims for fiscal years ended
October 31, 1992 through October 31, 1995 and an assessment for the
Company's claim related to fiscal 1996 followed in January 1999. The
assessments resulted from the completion of both financial and scientific
audits.
All of the Company's claims were subjected, by Revenue Canada, to
reductions based on Revenue Canada's disallowance of certain expenses
related to projects deemed non-qualifying. In addition, Revenue Canada also
denied the Company's claims for the enhanced refundable credit for the
fiscal years ended October 31, 1994 through October 31, 1996 on the basis
that the Company did not qualify as a Canadian-controlled private
corporation ("CCPC").
The Company challenged these assessments through the filing of Notices of
Objection for each of the claim years. Accordingly, after a review of the
file by Revenue Canada Appeals, CCPC status was conferred on the Company
and the local appeals officer was ordered to reassess.
The Company continues to object to the reductions resulting from the
scientific audits. At this time, the Company cannot reasonably determine
the likelihood of success in appealing the reductions resulting from the
scientific audits and has therefore recorded an allowance in fiscal 1997 of
$296,029 against its scientific research and experimental development
investment tax credits receivable. Due to continued delays in the
processing of such appeals at Revenue Canada, it is estimated that a result
may take over one year to obtain. To date, the Company has received
approximately $319,000 of such credits, which have been applied to
outstanding payroll taxes and other government liabilities (see Note J).
F-13
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE E - FIXED ASSETS
Fixed assets consist of the following:
Useful
life 1998
Computer software 5-10 years $ 422,292
Computer equipment 5-10 years 370,750
Furniture and fixtures 5-20 years 40,129
Leasehold improvements 5-10 years 130,091
Office equipment 5 years 100,271
------------
1,063,533
Less accumulated depreciation and amortization (753,907)
$ 309,626
Amortization expense for capitalized software totaled approximately $52,100
and $65,500 in 1998 and 1997, respectively. Accumulated amortization
approximated $424,000 at October 31, 1998.
NOTE F - TRANSACTIONS WITH RELATED PARTIES
Notes Receivable - Parent Company
Navtech Applied Research Inc. ("NARI"), the parent company of the
Company, is the continuing Canadian corporation resulting from the
merger of Ray English and Associates Inc. ("RE&A") and NARI (the
"Merger"). NARI is owned by an executive vice-president and director of
the Company. Prior to the Merger, RE&A had been owned by a former
chairman of the Company (for the period from December 1, 1993 through
October 31, 1994) who resigned from that position on October 31, 1994.
F-14
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE F (continued)
The balance owing from NARI as at October 31, 1998 is composed of the
following amounts:
Promissory Note # 1 $ 532,203
Promissory Note # 2 109,763
Intercompany advances receivable 206,676
--------
848,642
Less: Allowance (588,879)
$ 259,763
Promissory Note # 1 ("Note # 1")
In 1993, Support charged its then parent company, RE&A, a management
and marketing fee in connection with the management of certain software
owned by EAS, formerly a subsidiary of RE&A. Effective July 15, 1995,
RE&A executed and delivered to Support a promissory note in the
principal amount of $750,000 Canadian to evidence certain obligations
to Support as of such date. Note # 1 is payable on July 15, 2005 (or
sooner, as described below) and provides for interest at the rate of 5%
per annum payable annually.
Further, pursuant to a consulting and marketing agreement between RE&A
and Support, RE&A would provide software marketing services to the
Company. Support shall have the right to offset $3,500 Canadian per
month ($2,625 U.S. at October 31, 1996) against compensation otherwise
payable to RE&A thereunder as a payment of amounts due under the RE&A
Note. The consulting and marketing agreement also provides for finder's
fees and commissions of 2% and 10%, respectively, for the introduction
of potential clients and for the licensing of software. The Company has
the right to apply 10% to 25%, as defined, of the finder's fees and
commissions against amounts outstanding on Note # 1. Effective with the
Merger, this agreement was cancelled.
Promissory Note # 2 (Note # 2)
In July 1998, NARI purchased 300,000 shares of the Company in
consideration for $300 cash and a promissory note in the principal
amount of $134,700. Note # 2 is payable in forty eight monthly
installments of principal and interest of $4,375 and provides for an
interest rate of 10% per annum. Additional payments of principal are
permitted based on amounts due to NARI under a royalty agreement as
discussed below.
F-15
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE F (continued)
Effective July 15, 1999, NARI and the Company entered into a royalty
agreement (the "Royalty Agreement") that provides the Company with a
non-exclusive license to use the weather and NOTAMs software owned by
NARI. The royalty is calculated as 10% of a Gross Revenue Base as
defined in the Royalty Agreement. NARI is applying the excess of the
monthly royalty amount over its required payments on Note # 2 as
additional payments of principal.
Intercompany Advances Receivable
NARI has used the common stock purchased and the majority of the
advances made during 1998 to purchase the weather and NOTAMs software
licensed to the Company. As a result of the above fiscal 1998
transactions by and amongst NARI and the Company, management has
revised its estimate of the ultimate amount presently collectible from
NARI and provided for an additional allowance of approximately
$394,000. Such estimate is based principally on the estimated net worth
of NARI, and the historical cost o the software assets owned by NARI.
The Company has made additional advances to its parent company which
carry no repayment terms.
Due to Related Parties
Due to related parties at October 31, 1998 consists of the following:
Demand loans - related party (i) $ 18,518
Loans payable - related parties (ii) 64,682
Other note payable - related parties (iii) 171,447
-------
$254,647
(i) The demand loans bear interest at 9.18% per annum,
compounded monthly. The amount is due to a company
controlled by an officer of the Company
F-16
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE F (continued)
(ii) Loan payable - related party consists of a chattel mortgage
on specific computer equipment in the original amount of
$120,000 Canadian due to a company owned by the brother of a
shareholder of the Company. The loan was originally due May
10, 1997 and bears interest at 15% per annum payable
monthly. Under an agreement dated August 1, 1998, the
balance of $95,982 Canadian remaining at that time, plus
accrued interest through July 31, 1998, was payable in six
monthly payments of $5,000 Canadian each and then continuing
monthly payments of $10,000 Canadian until the loan and
interest have been paid off.
(iii)Other notes payable - related parties bear interest form 5%
- 18% and require monthly payments of interest and principal
through May 2005. Maturities of related party debts as of
October 31, 1998 are as follows:
October 31,
1999 139,789
2000 88,310
2001 26,548
---------
$ 254,647
NOTE G - BANK REVOLVING DEMAND LOANS AND LONG TERM DEBT
The Company has a revolving bank demand loan facility which provides for
borrowings of up to $115,000 Canadian which are payable on demand. These
demand loans bear interest at the bank's prime rate plus 1.25%.
<TABLE>
<S> <C>
Long-term debt is as follows as of October 31, 1998:
Small business bank loan payable, interest at the bank's prime rate plus
1.75%, payable in monthly principal payments of $5,123 Canadian plus
interest based on a 48 month amortization period
$102,918
Term loan, interest at 9.18%, payable in monthly payments of principal
and interest of $7,351 through September 30, 2000 166,473
Equipment note, payable in monthly payments of principal and interest of
$598 through August 2003 22,057
------
291,448
Less current portion (118,748)
Long-term portion $172,700
</TABLE>
F-17
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE G (continued)
Substantially all of the Company's assets are pledged as collateral for
revolving demand loans and long term debt. In addition, the revolving
demand loans are hypothecated by a U.S. term deposit in the amount of
$50,000 (U.S.) which is presented as "restricted cash" in the accompanying
balance sheet.
As of October 31, 1998, a wholly owned subsidiary of the Company had
factored certain trade receivables, with full recourse to the subsidiary,
resulting in net advances of approximately $145,000.
Maturities of long-term debt as of October 31, 1998 are as follows:
October 31,
1999 $ 118,728
2000 126,787
2001 35,007
2002 5,462
2003 5,464
----------
$ 291,488
NOTE H - INCOME TAXES
The Company's fiscal 1998 and 1997 effective income tax rate differs from
the statutory U.S. Federal income tax rate as a result of the following:
1998 1997
--------- --------
Statutory U.S. Federal tax rate (34.0)% (34.0)%
Increase in valuation allowance 34.0 34.0
---- ----
- % - %
====== ======
The temporary differences which give rise to deferred tax assets and
liabilities at October 31, 1998 are summarized as follows:
F-18
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE H (continued)
Deferred tax assets
Net operating loss carryforwards $ 327,000
Deferred salaries and other compensation 341,000
Allowance for doubtful accounts 415,000
Fixed assets 24,000
---------
Total deferred tax assets 1,107,000
Deferred tax liabilities
License fees receivable (31,000)
Scientific research and experimental development
credits, net (201,000)
Total deferred tax liabilities (232,000)
Net deferred tax assets $ 875,000
========
Valuation allowance $(875,000)
During fiscal 1998, the Company increased its allowance by $317,000
principally due to an increase in the Company's deferred tax assets. The
Company, for United States purposes, has available to offset future taxable
income net operating loss carryforwards approximating $797,000 at October
31, 1998, which expire through 2018. For Canadian tax purposes, the Company
has fully utilized its available net operating loss carryforwards. The
Company has available scientific research and experimental development
credits of $674,000 Canadian ($437,000 U.S.) expiring through 2000 and
2005, respectively. The Company has established a valuation allowance with
respect to its net deferred tax assets, as it cannot presently assess the
utilization of such deferred tax assets as more likely than not.
NOTE I - STOCK OPTIONS
The Company has adopted an incentive stock option plan which, as amended,
reserved 125,000 unissued shares of common stock for the plan. The plan
requires that all options be granted at exercise prices not less than the
fair market value of the stock on the date of grant. In September 1987, the
Company adopted a nonqualified stock option plan which reserved 62,500
unissued shares of common stock for the plan. The Company's subsidiary,
Support, has outstanding options to purchase 300,000 shares of its common
stock at exercise prices ranging from $.20 to $.50 Canadian per share.
F-19
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE I (continued)
Further, in 1995, the Company adopted the 1995 Key Advisor Stock Option
Plan (the "1995 Advisor Plan"), which provides for the granting to key
employees and advisors of the Company of nonqualified stock options for the
purchase of a maximum, as amended in 1996, of 700,000 shares of the
Company's common stock. Under the terms of the 1995 Advisor Plan, the
options, which expire no later than ten years after grant, are exercisable
at a price determined by the Board of Directors, and become exercisable in
accordance with terms established at the time of the grant.
<TABLE>
<S> <C> <C> <C> <C>
Summary information with respect to the stock option plans follows:
Weighted
Range of Outstanding Average Outstanding
Exercise options Exercise Options
Prices granted Price Exercisable
Balance at November 1, 1996 0.625 - 3.24 653,377 0.687 653,127
Expired 0.625 - 3.24 (27,001) 0.77 (26,751)
---------- --------
Balance at October 31, 1997 0.625 - 1.88 626,376 0.684 626,376
========== =======
Balance at October 31, 1998 0.625 - 1.88 626,376 0.684 626,376
========== =======
</TABLE>
During fiscal 1998, no options were granted or terminated. On July 15,
1998, an option holder agreed to not exercise 200,000 options until such
time as the Company's authorized capital has been increased.
The following table summarizes information concerning currently outstanding
and exercisable nonqualified stock options:
<TABLE>
<S> <C> <C> <C>
Weighted-average
Number outstanding remaining Weighted-average
and contractual life exercise
exercisable (months) Price
Range of exercise prices
$0.00 to $0.99 550,000 21 $.625
$1.00 to $1.88 76,376 56 $1.11
There were no options issued by the Company in fiscal 1998 and 1997,
therefore there is no pro forma effect presented.
</TABLE>
F-20
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE J - COMMITMENTS AND CONTINGENCIES
1. Failure to File Timely Reports
By letter dated March 2, 1998, the Securities and Exchange Commission
(the "Commission") advised the Company that it had failed to file its
Annual Report on Form 10-KSB for the fiscal year ended October 31,
1997. In such letter, the Company was advised by the Commission that it
reserved the right to bring an enforcement action, as appropriate, at
any time.
This failure to file on a timely basis could expose the Company to
enforcement actions by the Securities and Exchange Commission, which
could include civil penalties against the Company for violations of the
reporting requirements of Section 13(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules thereunder.
Pursuant to the Exchange Act, the amount of the penalty shall be
determined by the court in light of the facts and circumstances;
however, for each violation, the amount of the penalty, with regard to
a company, cannot exceed the greater of $50,000 or the gross amount of
pecuniary gain to the Company as a result of any violation. The
Exchange Act provides for substantially greater maximum penalties in
the event the violation involved fraud, deceit, manipulation, or
deliberate or reckless disregard of a regulatory requirement and/or
such violation directly or indirectly resulted in substantial losses or
created a significant risk of substantial losses to other persons.
The Company has also failed to file its Annual Report on Form 10-KSB
for the fiscal year ended October 31, 1998 and Quarterly Reports on
Form 10-QSB for the fiscal quarters ended January 31, 1998, April 30,
1998, July 31, 1998, January 31, 1999, April 30, 1999 and July 31,
1999.
The Company intends to file its Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1997; its Annual Report on Form 10-KSB
for the fiscal year ended October 31, 1998; and its Quarterly Reports
on Form 10-QSB for the fiscal quarters ended January 31, 1998, April
30, 1998, July 31, 1998, January 31, 1999, April 30, 1999 and July 31,
1999 all on or before October 20, 1999. No assurances can be given
that, notwithstanding the Company's filing of the aforementioned
documents on or before the date set forth above, the Commission will
not seek to recover civil penalties from the Company. Any such action
taken by the Commission could have a material adverse effect on the
Company's financial position, liquidity and results of operations. As
the Company cannot presently predict, with any certainty, the ultimate
outcome of this matter, no amounts have been provided for in the
accompanying consolidated financial statements.
F-21
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE J (continued)
2. Operating Lease Commitments
The Company leases equipment and office space pursuant to various lease
agreements which expire through fiscal 2006. The annual rent of office
space consists of minimum rent, real estate taxes, maintenance and
other expenses. The Company also leases certain computer equipment from
a company controlled by the spouse of an Officer and Director of the
Company pursuant to an agreement which expires in fiscal 2004.
Future minimum annual rental payments pursuant to these leasing
agreements as of October 31, 1998 are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
Related
Office Party
Space Equipment Equipment Total
1999 $ 79,276 $ 49,682 $11,282 $140,240
2000 61,571 46,173 11,321 119,065
2001 57,444 31,996 10,110 99,550
2002 57,444 7,903 10,110 75,457
2003 57,444 1,685 10,110 69,239
-------- --------- ------- --------
$313,179 $137,439 $52,933 $503,551
======= ======= ====== =======
</TABLE>
Rental costs for fiscal 1998 and 1997 were $205,668 and $199,207,
respectively. Rental cost incurred in 1998 and 1997 in connection with
the equipment lease with the related party was $4,310 and $21,049,
respectively.
3. Employment Contracts
The Company has entered into employment agreement with its chairman.
Effective August 1999, the Company entered into a retirement agreement
with the chairman, which effectively superseded the employment contract
as of that date. Both these agreements provide for minimum monthly
compensation. The Company's obligations under the retirement agreement
expires November 2003.
F-22
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE J (continued)
Approximate aggregate minimum compensation obligations under the
agreements with the Company's chairman at October 31, 1998 are
summarized as follows:
Year Amount
1999 $ 156,457
2000 150,000
2001 150,000
2002 150,000
2003 150,000
----------
$ 756,457
The Company has entered into employment and consulting agreements with
its chairman, Chief Executive Officer, former Chairmen and a director
of the Company, which provide for minimum monthly compensation. The
Company's obligations under such agreements expire at various times
during the period from September 1997 through March 31, 2004. Further,
the Company has entered into a retirement agreement with its chairman
dated August 5, 1999, which provides for, among other things, the
payment of 96 consecutive monthly payments of $6,250 commencing
November 25, 1999 for services rendered for the period from November
1996 through October 1998. The Company has provided for approximately
$300,000 relating to the net present value of the services provided by
the chairman during fiscal 1998 and 1997. Concurrent with the term of
this retirement agreement, the Company has also agreed to reimburse the
Chairman for expenses incurred in the amount of $60,594 (payable over
the period August 1999 to May 2000) and to obtain a declining balance
life insurance policy on the Chairman commencing with coverage at
$600,000 and declining at a rate of $150,000 per year. The proceeds of
which are payable in full settlement of any remaining obligation at the
time of the former Chairman's demise. All amounts due by promissory
notes contain acceleration provisions, in the event, among other
things, default in payment.
4. Nonremittance of Payroll Taxes
During and as of the year ended October 31, 1997, the Company has not
timely remitted to the respective tax collecting jurisdictions payroll
taxes withheld from employees' earnings. At October 31, 1998, the
unremitted balance aggregated approximately $164,000 (included in
accrued and other liabilities) which is subject to additional penalty
and interest charges until paid.
5. Legal Proceedings
The Company is subject to various legal proceedings, claims and
liabilities which arise in the ordinary course of its business. In the
opinion of management, the amount of any ultimate liability with
respect to these actions will not have a material adverse effect on the
Company's consolidated results of operations, cash flow or financial
position.
F-23
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS AND BUSINESS CONCENTRATIONS
The carrying amounts of cash, accounts receivable, and investment tax
credits receivable are estimated to approximate their fair values. The
Company believes that the carrying amount of its bank revolving demand
loans and long-term debt approximates the fair value as the variable
interest rate approximates the current prevailing interest rate. The
Company believes that it is not practicable to estimate the fair value of
its other liabilities due to its current financial condition.
In fiscal 1998, one customer accounted for 10% of the Company's
consolidated revenues, and, in 1997, one customer accounted for 11% of the
Company's consolidated revenues.
NOTE L - OFFICE RELOCATION COSTS AND RESTRUCTURING CHARGES
During fiscal 1997, the Company moved its Canadian facility to a new
facility in Waterloo, Ontario. Costs associated with this relocation are
recorded in the accompanying Statements of Operations as "office relocation
costs" and aggregated $67,678 during fiscal 1997.
In addition, as a result of the Company's consolidation of its New York
facility into the new Waterloo, Ontario facility, which was also completed
in fiscal 1997, the Company has recorded $90,948 of pre-tax restructuring
charges. The restructuring charges include costs incurred for moving from
the New York facility to the recently acquired Canadian facility. As of
October 31, 1997, all expenses have been incurred pertaining to the above
mentioned charges.
NOTE M - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 1997, the Company wrote off a note
receivable from its former Chairman against earnings aggregating $599,456,
established an allowance of $296,029 against its investment tax credits
receivable and increased the allowance for doubtful accounts by
approximately $106,297.
NOTE N - INDUSTRY SEGMENT INFORMATION AND GEOGRAPHIC AREA
OPERATIONS
The Company operates in one business segment, providing computerized flight
planning services and software to commercial airlines and corporate
aircraft users in the aviation industry.
A summary of the Company's operations by geographic area for the fiscal
years ended October 31, 1998 and 1997 is as follows:
F-24
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE N (continued)
<TABLE>
<S> <C> <C>
1998 1997
------------- -------------
Net sales
United States $3,092,291 $2,052,518
Canada 527,706 523,556
Other 229,749 214,293
----------- -----------
Total net sales $ 3,849,746 $ 2,790,367
---------- ----------
Operating (loss) profit
United States $ (20,660) $ (1,165,939)
Canada 26,881 (626,882)
--------- -----------
Total operating income (loss) $6,221 $(1,792,821)
===== ==========
Identifiable assets
United States $1,274,007 $1,040,648
Canada 1,350,778 995,610
Eliminations (1,047,131) (851,131)
------------ ----------
Total identifiable assets $1,577,654 $1,185,127
========= =========
</TABLE>
NOTE O - SUBSEQUENT EVENTS
On October 1, 1999, Support entered into an agreement to purchase all of
the outstanding shares of Skyplan Services (UK) Limited ("Skyplan") from
Skyplan Services Ltd. Skyplan, incorporated in the United Kingdom,
provides flight planning and overflight permit assistance through a
service bureau located near Gatwick Airport. Currently, there are eight
full time staff members employed at this location. Skyplan's customer base
is primarily located throughout Europe, Africa and the Middle East.
The Company will be accounting for this acquisition by the purchase
method. Accordingly, the Company will only include results of operations
of Skyplan in its books from October 1, 1999. Furthermore, under the
purchase method, the Company will determine the fair market value of the
assets in order to properly allocate the purchase price and separate out
the goodwill component, if any. Goodwill, if any, will be amortized
straight line over a ten year basis.
F-25
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1998 and 1997
NOTE O (continued)
In consideration for the shares of Skyplan, Support has agreed to pay to
Skyplan Services Ltd. Canadian $180,000 in two installments. The first
installment of $125,000 was payable upon closing. The second installment of
$55,000 is payable on October 22, 1999. No shares of the common stock of
the Company were issued.
The information required to provide supplemental pro forma data is
currently not available
F-26
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The total number of Common Shares outstanding as November 30, 1999 was
2,001,980. The Common Shares are the only class of securities outstanding. Each
share is entitled to one vote. The following table sets forth certain
information regarding the Company's outstanding Common Shares beneficially owned
as of November 30, 1999 by (i) each person who is known by the Company to own
beneficially or exercise voting or dispositive control over more than 5% of the
Company's Common Shares, (ii) each present Director, (iii) each person named in
the Summary Compensation Table above, and (iv) all of the Company's present
executive officers and directors as a group: <TABLE> <S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Approximate
Name and Address of Beneficial Percentage of
Owner Number of Shares Beneficially Owned Outstanding Shares
- ----------------------------------------------------------------------------------------------------------
Dorothy A. English 1,007,766(1)(2) 50.3%
175 Columbia Street West
Waterloo, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
Navtech Applied Research Inc. 802,766(2)(3) 40.1%
175 Columbia Street West
Waterloo, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
Kenneth M. Snyder 350,000(4) 14.9%
1751 Westwood Drive
Minden, Nevada
- ----------------------------------------------------------------------------------------------------------
Global Weather Dynamics, Inc 250,000 12.5%
2400 Garden Road
Monterey, California
- ----------------------------------------------------------------------------------------------------------
Innovation Ontario Corporation 125,000 6.2%
56 Wellesley Street West
Toronto, Ontario, Canada
- ----------------------------------------------------------------------------------------------------------
Russell K. Thal 93,813(5) 4.5%
125 Mineola Avenue
Roslyn Heights, New York
- ----------------------------------------------------------------------------------------------------------
Denis L. Metherell 6,000 *
175 Columbia Street West
Waterloo, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
Duncan Macdonald - (6) *
275 Slater Street
Ottawa, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
All executive officers and
directors as a group (7 persons) 1,457,579(1)(4)(5) 60.0%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents 802,766 shares beneficially owned by Navtech Applied
Research Inc. ("NARI") (see footnote (3) below) and 205,000 shares
beneficially owned by Ms. English.
(2) Such persons may be deemed parents of the Company.
(3) Represents shares beneficially owned by NARI, of which, the Company has
been advised, Ms. English is the Chairman, Chief Executive Officer and
sole shareholder. Furthermore, the Company has been advised that these
shares have been pledged to Raymond English as collateral for certain
amounts due to Mr. English under an agreement between Mr. English and
NARI. NARI has maintained voting control over these shares. See
"Certain Relationships and Related Transactions."
(4) Represents shares issuable upon exercise of options that are currently
exercisable.
(5) Includes 75,938 shares issuable pursuant to currently exercisable
options and 312 shares owned by Mr. Thal's wife. This shall not be
deemed an admission that Mr. Thal is the beneficial owner of the shares
owned by his wife.
(6) Mr. Macdonald has voluntarily agreed not to exercise currently
exercisable options held by him for the purchase of 200,000 Common
Shares until such time as the authorized share capital of the Company
has been sufficiently increased. In addition, as discussed under
"Certain Relationships and Related Transactions - Duncan Macdonald,"
in the event of such increase in authorized share capital of the
Company, a maximum of 343,546 Common Shares will be issuable to an
entity controlled by Mr. Macdonald pursuant to the terms of a
convertible loan made by such entity to the Company.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED PARTIES
1. Navtech Applied Research Inc.
General
Ray English and Associates Inc. ("RE&A") was a corporation incorporated in
Ontario, Canada. Until June 29, 1998, RE&A was controlled by Raymond English, a
former Chairman of the Company. As of that date, pursuant to a share transfer
agreement, the ownership of RE&A was transferred to Mr. English's former spouse,
Dorothy A. English. Dorothy A. English is an Executive Vice President and
Director of the Company. As of July 2, 1998, RE&A was merged with Navtech
Applied Research Inc. ("NARI") and continued operations under the latter name.
NARI was incorporated in Ontario, Canada on December 31, 1997 and during
all material times has been wholly owned by Dorothy A. English, who serves as
its Chairman and Chief Executive Officer.
References to RE&A below will pertain strictly to the company as it existed
prior to the merger with NARI.
Share Ownership
NARI owns 802,766 Common Shares of the Company. On or about July 15, 1995,
RE&A had transferred all of its Common Shares of the Company to Dorothy A.
English, as voting trustee pursuant to a voting trust agreement between them.
When control of RE&A was transferred to Dorothy A. English as discussed above
and RE&A and NARI merged, the voting trust agreement was terminated and the
shares returned to NARI. At that time, the share certificate was placed in
escrow as security for amounts payable by NARI to Mr. English pursuant to the
share transfer agreement discussed above.
RE&A/Navtech Transactions
In 1993, Navtech charged RE&A, its then parent company, a management,
consulting and marketing fee in connection with the management of certain
software owned by EAS, formerly a subsidiary of RE&A. Navtech also advanced
funds to RE&A in order to assist RE&A in meeting its continuing obligations.
Effective July 15, 1995, RE&A executed and delivered to Navtech a promissory
note in the principal amount of $750,000 Canadian (the "RE&A Note") to evidence
certain obligations to Navtech as of such date. The RE&A Note is payable on July
15, 2005 (or sooner, as described below) and provides for interest at the rate
of 5% per annum payable annually. Effective with the merger of RE&A and NARI,
NARI, by operation of law, assumed the obligation represented by the RE&A Note.
Further, pursuant to a consulting and marketing agreement between RE&A and
Navtech, RE&A agreed to provide software marketing services to the Company.
Navtech had the right to offset $3,500 Canadian per month against compensation
otherwise payable to RE&A thereunder as payment of amounts due under the RE&A
Note. Effective July 15, 1998, this agreement was terminated by NARI and
Navtech.
<PAGE>
2. Global Weather Dynamics, Inc.
On July 15, 1998, NARI acquired from Global Weather Dynamics, Inc. ("GWDI")
all of the assets of the GWDI's Weather Services Division ("WSD") for a
consideration consisting of $250,000 in cash, the delivery of 250,000 Common
Shares of the Company to GWDI and the delivery of 50,000 Common Shares of the
Company to an unrelated third party as a finder's fee. The primary assets
acquired included the weather and certain other software that had been developed
by GWDI. In addition, NARI obtained an assignment of the WSD customer contracts.
Following the WSD acquisition by NARI, NARI and Compuflight entered into a
non-exclusive, non-transferable software license agreement (the "License
Agreement") for a term commencing August 1, 1998 and expiring initially on
October 31, 1999, pursuant to which Compuflight has been granted the right to
install, configure, modify and use in its business the software acquired by
NARI. Pursuant to the License Agreement, the term automatically renews for
additional one year periods unless either party gives at least 60 days prior
written notice of its desire not to renew. Since no notice was given at least 60
days prior to October 31, 1999, the current term of the License Agreement has
been extended to October 31, 2000. In addition, pursuant to the License
Agreement, Compuflight is obligated to pay royalties in an amount equal to 10%
of certain revenues derived from the sale of data processed using the licensed
software. Concurrently with the execution of the License Agreement, NARI also
assigned to Compuflight the rights it had obtained from GWDI with respect to the
WSD customer contracts.
In order to effect NARI's acquisition of WSD, certain transactions were
undertaken between the Company and NARI to provide the necessary financing as
follows:
1. NARI purchased from Compuflight 300,000 Common Shares of the Company in
consideration of $300 in cash and the delivery of a promissory note in
the amount of $134,700, payable in 36 monthly installments and bearing
interest at the rate of 10% per annum. The note provides that payments
are to be made by offsetting royalties due under the License Agreement.
2. Compuflight borrowed $210,000 from a Canadian financial institution,
which loan is repayable over a 28-month term bearing interest at the
rate of 9.18% per annum. Dorothy A. English personally guaranteed the
repayment of this loan.
3. The proceeds from the loan were transferred to Navtech which, in turn,
loaned $150,000 to NARI. This loan bears interest commencing November
1, 1998 at the rate of 10% per annum and is repayable in 36 monthly
installments commencing November 1, 1999.
4. Subsequent to October 31, 1998, the Company advanced an additional
$100,000 to NARI. The additional advance is repayable commencing with
the payment in full of the promissory note in Item 1 above. It is
repayable at the same monthly rates outlined above. The weather and
other software acquired by NARI and licensed to the Company was of
critical importance to the Company in order for it to maintain a
competitive advantage in the delivery of its products to the
marketplace. The Company had determined that the internal development
of this software would require at least 10 man-years to complete at a
cost estimated to be in excess of $700,000. Furthermore, the Company
was paying third party weather suppliers approximately $4,000 per
month for weather and related data it had determined was below the
standards required by the Company's customers.
3. Russell K. Thal
Reference is made to "Employment Contracts; Termination of Employment and
Change-in-Control Arrangements" for a discussion of a certain retirement
agreement entered into between the Company and Mr. Thal.
4. AVCON Associates Inc. ("AVCON")
AVCON, an entity of which Denis L. Metherell, Secretary and a Director of
the Company, is a Vice President and a Director, leased certain computer
equipment to Navtech. Effective January 31, 1996, the leases were terminated. On
October 1, 1996, the Company entered into two new lease agreements for certain
computer equipment. These agreements were replaced on June 1, 1999 with amended
lease agreements. Under the present agreements, the Company is required to make
varying payments until November 2004. The Company believes that the lease
payments, which commenced July 1999 at $1,952 Canadian per month, are no higher
than would be payable to a nonaffiliated third party.
<PAGE>
On October 31, 1996, the Company executed and delivered to AVCON a
promissory note in the principal amount of $53,000 Canadian (the "AVCON Note")
to evidence amounts due under the terminated lease agreement noted above and
outstanding as of such date. On June 1, 1999, the Company amended the note (the
"Amended AVCON Note") to include additional arrears that had accumulated on the
two leases. The Amended AVCON Note is in the principal amount of $90,000
Canadian, provides for interest at the rate of 18% per annum and is payable as
follows:
1. interest only of $1,350 Canadian per month from July 1999 to September
2000;
2. interest and principal of $2,400 Canadian per month from October 2000
to April 2005; and
3. a residual payment of principal and interest of $1,263 in May 2005.
5. Duncan Macdonald
Effective as of June 1, 1996, Navtech entered into a two year Key Advisor
Agreement (the "Macdonald Key Advisor Agreement") with Duncan Macdonald pursuant
to which Mr. Macdonald was retained to serve as Chief Executive Officer of the
Company. Pursuant to the Macdonald Key Advisor Agreement, as amended in January
1997, Mr. Macdonald was entitled to receive a base weekly fee of $3,000
Canadian. In addition, a bonus of $5,000 Canadian per fiscal quarter was payable
during the term of the Macdonald Key Advisor Agreement. Mr. Macdonald agreed to
expend at least 75% of his working time in the fulfillment of his duties under
the Macdonald Key Advisor Agreement. Mr. Macdonald has waived his entitlement to
the bonus amounts related to each of the fiscal quarters of 1997 and 1998. The
Macdonald Key Advisor Agreement expired in 1998, although Mr. Macdonald
continued to serve as Chief Executive Officer until December 1998 under the same
terms.
Effective December 1, 1998, the Company entered into a twenty month
Employment Agreement (the "Macdonald Employment Agreement") engaging Mr.
Macdonald as Chief Executive Officer of the Company. Mr. Macdonald is entitled
to receive a base quarterly fee of $1,250 commencing with the fiscal quarter
ended January 31, 1999. Mr. Macdonald has agreed to make 30% of his working time
available to the Company.
Effective January 1, 1999, Navtech entered into a two year Services
Agreement (the "Kintyre-Navtech Agreement") with Kintyre & Company Limited
("Kintyre"), a company owned by Mr. Macdonald. Under the Kintyre-Navtech
Agreement, Kintyre has agreed to provide the services of Mr. Macdonald and Mr.
Vietze, as well as other Kintyre staff as needed, to assist Navtech in it
stategic corporate structuring and corporate finance and accounting activities.
Kintyre is entitled to receive a base monthly fee of $23,250 Canadian, plus an
annual bonus of $8,700 Canadian.
In April 1999, St. Andrews Capital Limited Partnership ("St. Andrews LP")
advanced $90,000 to the Company for working capital purposes. Mr. Macdonald
serves as the President of the general partner of St. Andrews LP and is the
controlling stockholder of such general partner. The advance from St. Andrews LP
is repayable, together with interest at the rate of 18% per annum, in 22 monthly
installments.
On October 1, 1999, St. Andrews LP advanced $128,830 to the Company to
finance the Company's acquisition of Skyplan Services (UK) Limited. At the time
of the loan, the Company had sufficient working capital to undertake the
transaction, but determined that it was prudent to obtain outside financing. As
provided for in a term sheet (which calls for the completion of definitive loan
documents), the loan bears interest at the rate of 10% per annum and is
repayable in 24 equal monthly payments of approximately $5,945 commencing
November 1, 1999. The term sheet provides that the principal amount of the loan
is convertible into Common Shares of the Company at a conversion price of $0.375
per share effective on the first day of the month following the approval of an
increase in the authorized share capital of the Company sufficient for such
purpose.
6. Rainer Vietze
On November 1, 1998, Mr. Vietze ceased his employment with Navtech and
commenced employment with Kintyre. Effective December 1, 1998, the Company
entered into a twenty month Employment Agreement (the "Vietze Employment
Agreement") engaging Mr. Vietze as Chief Financial Officer of the Company. Mr.
Vietze is entitled to receive a base quarterly fee of $625 commencing with the
fiscal quarter ended January 31, 1999. Mr. Vietze has agreed to make 30% of his
working time available to the Company.
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
3(A) Certificate of Incorporation and amendments thereto including
Certificate of Ownership and Merger (5)
3(B) By-Laws (3)
10(A)Employment Agreement dated as of December 1, 1993 between the Company
and Russell K. Thal (4) Amendment #1 thereto dated March 14, 1996 (5),
and amendment thereto dated January 8, 1997 (6)
10(B) Incentive Stock Option Plan (3)
10(C) Non-Qualified Stock Option Plan (2)
10(D)Consulting Agreement dated as of November 1, 1993 between Compuflight,
Inc. and Bert E. Brodsky, together with amendment thereto dated
December 2, 1993 (1)
10(E)Promissory Note dated as of November 1, 1993 payable by Bert E.
Brodsky to the order of Compuflight, Inc. in the principal amount of
$804,000 (1)
10(F)Lease dated October 8, 1996 between Ferdi Investments Company Limited
and Navtech Systems Support Inc. with respect to Waterloo, Ontario
premises (7)
10(G) 1995 Key Employees and Advisors Stock Option Plan as amended (6)
10(H)Consulting and Marketing Agreement dated as of January 1, 1995
between Navtech Systems Support Inc. and Ray English and Associates
Inc. (5)
10(I)Promissory Note dated as of July 15, 1995 payable by Ray English and
Associates Inc. to Navtech Systems Support, Inc., in the principal
amount of $750,000 (5)
10(J)Amendment to the Promissory Note payable by Ray English and
Associates Inc. in the principal amount of $750,000 dated as of June
12, 1996 (6)
10(K)Key Advisor Agreement dated as of October 1, 1995 between
Compuflight, Inc. and Kenneth M. Snyder (5)
10(L)Amended and Restated Stock Option Agreement dated as of August 9,
1995 between Compuflight, Inc. and Kenneth M. Snyder (5)
10(M)Stock Option Agreement dated as of August 9, 1995 between
Compuflight, Inc. and Duncan Macdonald (5)
10(N)Key Advisor Agreement dated as of June 1, 1996 between Navtech
Systems Support Inc. and Duncan Macdonald (6)
10(O)Retirement Agreement dated as of August 5, 1999, between Russell K.
Thal and Compuflight, Inc. (8)
10(P)Promissory Note dated as of August 5, 1999 payable by Compuflight,
Inc., to the order of Russell K. Thal in the principal amount of
$600,000. (8)
10(Q)Promissory Note dated as of August 5, 1999 payable by Compuflight,
Inc., to the order of Russell K. Thal in the principal amount of
$60,594. (8)
10(R)Sale Purchase Agreement dated as of October 1, 1999 between Navtech
Systems Support, Inc., and Skyplan Services Limited for the shares of
Skyplan Services (UK) Limited. (8)
10(S)Forbearance and Continued Service Agreement dated as of October 1,
1999 between Navtech Systems Support and Skyplan Services Limited. (8)
10(T)Software License Agreement dated as of August 1, 1998 between Navtech
Applied Research Inc. and Compuflight, Inc. (8)
10(U)Promissory Note dated as of July 15, 1998 payable by Navtech Applied
Research Inc., to the order of Compuflight, Inc., in the principal
amount of $134,700. (8)
10(V)Promissory Note dated as of July 15, 1998 payable by Navtech Applied
Research Inc., to the order of Compuflight, Inc., in the principal
amount of $150,000. (8)
10(W)Duncan Macdonald Employment Agreement dated as of December 1, 1998
between Duncan Macdonald and Compuflight, Inc.
10(X)Rainer Vietze Employment Agreement dated as of December 1, 1998
between Rainer Vietze and Compuflight, Inc.
10(Y)Contract for Services Agreement between Navtech and Kintyre dated as
of January 1, 1999.
21 Subsidiaries(4)
27 Financial Data Schedules
(1) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Current Report on Form 8-K for an event dated December 1, 1993.
(2) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1992.
(3) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Registration Statement on Form S-18 as Registration No.
2-93714-NY.
(4) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1993.
(5) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1994.
(6) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1995.
(7) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1996.
(8) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1997.
b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended October 31, 1998.
<PAGE>
EXHIBIT 10(W)
EMPLOYMENT AGREEMENT, dated as of December 1, 1998, by and
between COMPUFLIGHT, INC., a Delaware corporation (the "Company"), and DUNCAN
MACDONALD (the "Employee").
RECITALS
WHEREAS, the Company and the Employee desire to enter into an
employment agreement which will set forth the terms and conditions upon which
the Employee shall be employed by the Company and upon which the Company shall
compensate the Employee.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants hereinafter set forth, the parties hereto have agreed, and do
hereby agree, as follows:
1. EMPLOYMENT: TERM
1.1 The Company will employ the Employee in its business, and
the Employee will work for the Company therein, as its Chief Executive Officer,
for a term commencing as of the date hereof and terminating on July 31, 2000
(the "Employment Period"). Such employment may be terminated by the Company at
any time for "cause". As used in this Agreement, "cause" shall include, but not
necessarily be limited to, the Employee's commission of any act in the
performance of his duties constituting common law fraud, a felony or other gross
malfeasance of duty, any material misrepresentation or breach of any material
covenant on the Employee's part herein set forth, or the Employee's engagement
in misconduct which is materially injurious to the Company or its subsidiaries.
2. DUTIES
2.1 During the Employment Period, the Employee shall serve as
the Company's Chief Executive Officer, and shall perform duties of an executive
character consisting of administrative and managerial responsibilities on behalf
of the Company and such further duties of an executive character as shall, from
time to time, be delegated or assigned to him by the Board of Directors of the
Company consistent with the Employee's position.
3. DEVOTION OF TIME: PLACE OF PERFORMANCE
3.1 During the Employment Period, the Employee shall expend at
least thirty percent (30%) of his working time for the Company; shall devote his
best efforts, energy and skill to the services of the Company and the promotion
of its interests; and shall not take part in activities detrimental to the best
interests of the Company.
<PAGE>
3.2 The Company acknowledges and agrees that the Employee
shall perform his services from his residence in Ottawa, Canada; provided,
however, that the Employee shall periodically travel on behalf of the Company as
reasonably required by his position.
4. COMPENSATION
4.1 For all services to be rendered by the Employee during the
Employment Period and in consideration of the Employee's representations and
covenants set forth in this Agreement, the Employee shall be entitled to the
compensation set forth in Paragraph 4.2.
4.2 The Employee shall be entitled to receive from the Company
during the Employment Period minimum compensation at the rate of five thousand
dollars ($5,000) per annum. The Employee shall be entitled to such additional
increments as shall be determined from time to time by the Board of Directors of
the Company. The amounts due hereunder shall be payable on a quarterly basis to
the extent of one thousand two hundred fifty dollars ($1,250) on the last day of
each fiscal quarter of the Company during the Employment Period.
5. REIMBURSEMENT OF EXPENSES
5.1 The Company shall pay directly, or reimburse the Employee
for, all reasonable and necessary expenses and disbursements incurred by the
Employee for and on behalf of the Company in the performance of his duties
during the Employment Period, including, without limitation, all reasonable
expenses incurred by the Employee for food, lodging and transportation, if he is
required to perform any of his duties away from his primary place of residence.
For such purposes, the Employee shall submit to the Company, not less than once
in each calendar month, reports of such expenses and other disbursements in form
normally used by the Company.
<PAGE>
6. DISABILITY
6.1 If, during the Employment Period, the Employee shall, in
the opinion of a majority of the members of the Board of Directors of the
Company (excluding the Employee), as confirmed by competent medical evidence,
become physically or mentally incapacitated to perform his duties for the
Company hereunder ("Disabled") for a continuous period, then for the first three
(3) months of such period he shall receive his full salary, and for the next
three (3) months he shall receive fifty percent (50%) of his salary. In no event
shall the Employee be entitled to receive any payments under this Paragraph 6.1
beyond the expiration or termination date of this Agreement. Effective with the
date of his resumption of full employment, the Employee shall be re-entitled to
receive his full salary. If such illness or other incapacity shall endure for a
continuous period of at least six (6) months or for at least one hundred fifty
(150) business days during any nine (9) month period, the Company shall have the
right, by written notice, to terminate the Employee's employment hereunder as of
a date (not less than five (5) days after the date of the sending of such
notice) to be specified in such notice. The Employee agrees to submit himself
for appropriate medical examination to a physician of the Company's designation
as necessary for purposes of this Paragraph 6.1.
6.2 The obligations of the Company under this Paragraph 6 may
be satisfied, in whole or in part, by payments to the Employee under disability
insurance provided by the Company.
7. RESTRICTIVE COVENANT
7.1 The services of the Employee are unique and extraordinary
and essential to the business of the Company, especially since the Employee
shall have access to the Company's customer lists, trade secrets and other
privileged and confidential information essential to the Company's business.
Therefore, the Employee agrees that, if the term of his employment hereunder
shall expire or his employment shall at any time terminate for any reason
whatsoever, with or without cause, the Employee will not at any time within
thirty (30) days after such expiration or termination, without the prior written
approval of the Company, directly or indirectly, anywhere in the United States
of America, whether individually or as a principal, officer, employee, partner,
director, agent of or consultant for any entity, (i) engage or participate in a
business which, as of such expiration or termination date, is similar to or
competitive with, directly or indirectly, that of the Company and shall not make
any investments in any such similar or competitive entity; (ii) cause or seek to
persuade any director, officer, employee, customer, agent, licensee or supplier
of the Company to discontinue the status, employment or relationship of such
person or entity with the Company, or to become employed in any activity similar
to or competitive with the activities of the Company; (iii) cause or seek to
persuade any prospective customer, licensee or supplier of the Company (which at
the date of cessation of the Employee's employment with the Company was then
actively being solicited by the Company) to determine not to enter into a
business relationship with Company; (iv) hire or retain any director, officer or
employee of the Company; or (v) solicit or cause or authorize to be solicited,
for or on behalf of him or any third party, any business which is competitive,
directly or indirectly, with the Company from (a) others who are, or were within
one (l) year prior to the cessation of his employment with the Company,
customers or licensees of the Company, or (b) any prospective customer or
licensee of the Company which at the date of such cessation was then actively
being solicited by the Company. The foregoing restrictions set forth in this
Paragraph 7.1 shall apply likewise during the Employment Period.
<PAGE>
7.2 (a) The Employee agrees to promptly disclose in writing to
the Board of Directors of the Company all ideas, processes, methods, devices,
business concepts, inventions, improvements, discoveries, know-how and other
creative achievements (hereinafter referred to collectively as "discoveries"),
whether or not the same or any part thereof is capable of being patented,
trademarked, copyrighted, or otherwise protected, which the Employee, while
employed by the Company, conceives, makes, develops, acquires or reduces to
practice, whether acting alone or with others and whether during or after usual
working hours, and which are related to the Company's business or interests, or
are used or usable by the Company, or arise out of or in connection with the
duties performed by the Employee. The Employee hereby transfers and assigns to
the Company all right, title and interest in and to such discoveries (whether
conceived, made, developed, acquired or reduced to practice on or prior to the
date hereof or hereafter), including any and all domestic and foreign copyrights
and patent and trademark rights therein and any renewals thereof. On request of
the Company, the Employee will, without any additional compensation, from time
to time during, and after the expiration or termination of, the Employment
Period, execute such further instruments (including, without limitation,
applications for copyrights, letters patent, trademarks and assignments thereof)
and do all such other acts and things as may be deemed necessary or desirable by
the Company to protect and/or enforce its right in respect of such discoveries.
All expenses of filing or prosecuting any patent, trademark or copyright
application shall be borne by the Company, but the Employee shall cooperate in
filing and/or prosecuting any such application.
(b) The Employee acknowledges and agrees that, prior to
his employment by the Company, he did not conceive, make, develop, acquire or
reduce to practice any discovery which is related to the Company's business or
interests or is used or usable by the Company.
7.3 (a) The Employee represents that he has been informed that
it is the policy of the Company to maintain as secret all confidential
information relating to the Company, including, without limitation, any and all
knowledge or information with respect to secret or confidential methods,
processes, plans, materials, customer lists or data, or with respect to any
other confidential or secret aspect of the Company's activities, and further
acknowledges that such confidential information is of great value to the
Company. The Employee recognizes that, by reason of his employment with the
Company, he has acquired and will acquire confidential information as aforesaid.
The Employee confirms that it is reasonably necessary to protect the Company's
goodwill, and, accordingly, hereby agrees that he will not, directly or
indirectly (except where authorized by the Board of Directors of the Company for
the benefit of the Company), at any time during the term of this Agreement or
thereafter divulge to any person, or use, or cause or authorize any person, firm
or other entity to use, any such confidential information.
(b) The Employee agrees that he will not, at any
time, remove from the Company's premises any drawings, notebooks, software, data
or other confidential information relating to the business and procedures
heretofore or hereafter acquired, developed and/or used by the Company, except
where necessary in the fulfillment of his duties hereunder.
(c) The Employee agrees that, upon the expiration or
termination of this Agreement for any reason whatsoever, he shall promptly
deliver to the Company any and all drawings, notebooks, software, data and other
documents and material, including all copies thereof, in his possession or under
his control relating to any confidential information or discoveries, or which is
otherwise the property of the Company.
<PAGE>
(d) For purposes hereof, the term "confidential
information" shall mean all information given to the Employee, directly or
indirectly, by the Company and all other information relating to the Company
otherwise acquired by the Employee during the course of his employment with the
Company, other than information which (i) was in the public domain at the time
furnished to, or acquired by, the Employee, or (ii)thereafter enters the public
domain other than through disclosure, directly or indirectly, by the Employee or
others in violation of an agreement of confidentiality or nondisclosure.
7.4 For purposes of this Paragraph 7, the term "Company" shall
mean and include any and all subsidiaries, parents and affiliated entities of
the Company in existence from time to time.
8. VACATIONS
8.1 The Employee shall be entitled to reasonable vacations
during the Employment Period, the time and duration thereof to be determined by
mutual agreement between the Employee and the Company.
9. PARTICIPATION IN EMPLOYEE BENEFIT PLANS
9.1 The Employee and any beneficiary of the Employee shall be
accorded the right to participate in and receive benefits under and in
accordance with the provisions of any pension, profit sharing, insurance, bonus,
deferred compensation, medical and dental insurance or reimbursement or other
plan or program of the Company either in existence as of the date hereof or
hereafter adopted for the benefit of its executive employees.
10. SERVICE AS DIRECTOR; LIABILITY INSURANCE.
10.1 During the Employment Period, the Employee shall, if
elected or appointed, serve as a director of the Company and/or any subsidiaries
of the Company in existence or hereafter created, in each case without any
additional compensation for such services.
10.2 The Company agrees that, no later than the 10th of
December 1999, it shall obtain a director and officer liability policy in the
minimum amount of one million dollars ($1,000,000) and shall maintain such
coverage during the Employment Period.
11. EARLIER TERMINATION
11.1 The Employee's employment hereunder shall automatically
terminate upon his death and may terminate at the option of the Company upon:
(a) the Employee's incapacity in accordance with the
provisions set forth in Paragraph 6.l hereof;
(b) one (1) day's prior written notice to the
Employee in the event the Company terminates his employment hereunder for cause
as set forth in Paragraph 1.1 hereof.
<PAGE>
Upon the termination of the Employee's employment, the Employment Period shall
be considered to have ended.
12. INJUNCTIVE RELIEF
12.1 The Employee acknowledges and agrees that, in the event
he shall violate any of the restrictions of Paragraph 3 or 7 hereof, the Company
will be without an adequate remedy at law and will therefore be entitled to
enforce such restrictions by temporary or permanent injunctive or mandatory
relief in any court of competent jurisdiction without the necessity of proving
damages and without prejudice to any other remedies which it may have at law or
in equity. The Employee acknowledges and agrees that, in addition to any other
state having proper jurisdiction, any such relief may be sought in, and for such
purpose the Employee consents to the jurisdiction of, the courts of the State of
New York.
13. NO RESTRICTIONS
13.l The Employee hereby represents that neither the execution
of this Agreement nor his performance hereunder will (a) violate, conflict with
or result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under
the terms, conditions or provisions of any contract, agreement or other
instrument or obligation to which the Employee is a party, or by which he may be
bound, or (b) violate any order, judgment, writ, injunction or decree applicable
to the Employee. In the event of a breach hereof, in addition to the Company's
right to terminate this Agreement, the Employee shall indemnify the Company and
hold it harmless from and against any and all claims, losses, liabilities and
expenses (including reasonable attorneys' fees) incurred or suffered in
connection with or as a result of the Company's entering into this Agreement or
employing the Employee hereunder.
14. ARBITRATION
14.1 Except with regard to Paragraph 12.1 hereof and any other
matters that are not a proper subject of arbitration, all disputes between the
parties hereto concerning the performance, breach, construction or
interpretation of this Agreement or any portion thereof, or in any manner
arising out of this Agreement or the performance thereof, shall be submitted to
binding arbitration, in accordance with the rules of the American Arbitration
Association. The arbitration proceeding shall take place in Nassau County or
such other location as is agreed to by the parties.
14.2 The award rendered by the arbitrators shall be final,
binding and conclusive, and judgment may be entered upon it in accordance with
applicable law in the appropriate court in the State of New York, with no right
of appeal therefrom.
<PAGE>
14.3 Each party shall pay its or his own expenses of
arbitration, and the expenses of the arbitrators and the arbitration proceeding
shall be equally shared; provided, however, that, if, in the opinion of the
arbitrator, or a majority of the arbitrators (if more than one), any claim or
defense was unreasonable, the arbitrator(s) may assess, as part of their award,
all or any part of the arbitration expenses of the other party (including
reasonable attorneys' fees) and of the arbitrator(s) and the arbitration
proceeding against the party raising such unreasonable claim or defense.
15. ASSIGNMENT
15.1 This Agreement, as it relates to the employment of the
Employee, is a personal contract and the rights and interests of the Employee
hereunder may not be sold, transferred, assigned, pledged or hypothecated.
16. NOTICES
16.1 Any notice required or permitted to be given pursuant to
this Agreement shall be deemed to have been duly given when delivered by hand or
sent by certified or registered mail, return receipt requested and postage
prepaid, overnight mail or courier, or facsimile transmission as follows:
If to the Employee:
Duncan Macdonald
275 Slater Street, Suite 2002
Ottawa, ON K1P 5HP
Telecopier Number: (613) 230-2939
If to the Company:
Compuflight, Inc
2400 Garden Road
Monterey, CA 93940
Attention: David Strucke
Telecopier Number: (831) 649-8655
with a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York ll554
Attention: Fred S. Skolnik, Esq.
Telecopier Number: (516) 296-7111
or at such other address as any party shall designate by notice to the other
party given in accordance with this Paragraph 16.1.
<PAGE>
17. GOVERNING LAW
17.1 This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, excluding choice
of law principles thereof.
18. WAIVER OF BREACH; PARTIAL INVALIDITY
18.1 The waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach. If any provision, or part thereof, of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
attach only to such provision and not in any way affect or render invalid or
unenforceable any other provisions of this Agreement, and this Agreement shall
be carried out as if such invalid or unenforceable provision, or part thereof,
had been reformed, and any court of competent jurisdiction or arbitrator(s), as
the case may be, are authorized to so reform such invalid or unenforceable
provision, or part thereof, so that it would be valid, legal and enforceable to
the fullest extent permitted by applicable law.
19. ENTIRE AGREEMENT
19.1 This Agreement constitutes the entire agreement between
the parties and there are no representations, warranties or commitments except
as set forth herein. This Agreement supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, of the
parties hereto relating to the transactions contemplated by this Agreement. This
Agreement may be amended only by a writing executed by the parties hereto.
20. COUNTERPARTS
20.1 This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
21. FACSIMILE SIGNATURES
21.1 Signatures hereon which are transmitted via facsimile
shall be deemed original signatures.
22. REPRESENTATION BY COUNSEL; INTERPRETATION
<PAGE>
22.1 The Employee acknowledges that he has been represented by
counsel, or has been afforded the opportunity to be represented by counsel, in
connection with this Agreement. Accordingly, any rule or law or any legal
decision that would require the interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived by the Employee. The provisions of this Agreement shall be
interpreted in a reasonable manner to give effect to the intent of the parties
hereto.
23. HEADINGS
23.1 The headings and captions under sections and paragraphs
of this Agreement are for convenience of reference only and do not in any way
modify, interpret or construe the intent of the parties or affect any of the
provisions of this Agreement.
24. UNITED STATES DOLLARS
24.1 All dollar amounts expressed herein are United States
dollars.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year above written.
COMPUFLIGHT, INC.
By: /s/ Duncan Macdonald
--------------------
Duncan Macdonald
<PAGE>
EXHIBIT 10(X)
EMPLOYMENT AGREEMENT, dated as of December 1, 1998, by and
between COMPUFLIGHT, INC., a Delaware corporation (the "Company"), and RAINER
VIETZE (the "Employee").
RECITALS
WHEREAS, the Company and the Employee desire to enter into an
employment agreement which will set forth the terms and conditions upon which
the Employee shall be employed by the Company and upon which the Company shall
compensate the Employee.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants hereinafter set forth, the parties hereto have agreed, and do
hereby agree, as follows:
1. EMPLOYMENT; TERM
1.1 The Company will employ the Employee in its business, and
the Employee will work for the Company therein, as its Chief Financial Officer,
for a term commencing as of the date hereof and terminating on July 31, 2000
(the "Employment Period"). Such employment may be terminated by the Company at
any time for "cause". As used in this Agreement, "cause" shall include, but not
necessarily be limited to, the Employee's commission of any act in the
performance of his duties constituting common law fraud, a felony or other gross
malfeasance of duty, any material misrepresentation or breach of any material
covenant on the Employee's part herein set forth, or the Employee's engagement
in misconduct which is materially injurious to the Company or its subsidiaries.
2. DUTIES
2.1 During the Employment Period, the Employee shall serve as
the Company's Chief Financial Officer, and shall perform duties of an executive
character consisting of administrative and managerial responsibilities on behalf
of the Company and such further duties of an executive character as shall, from
time to time, be delegated or assigned to him by the Board of Directors of the
Company consistent with the Employee's position.
3. DEVOTION OF TIME; PLACE OF PERFORMANCE
3.1 During the Employment Period, the Employee shall expend at
least thirty percent (30%) of his working time for the Company; shall devote his
best efforts, energy and skill to the services of the Company and the promotion
of its interests; and shall not take part in activities detrimental to the best
interests of the Company.
<PAGE>
3.2 The Company acknowledges and agrees that the Employee
shall perform his services from his residence in Toronto, Canada; provided,
however, that the Employee shall periodically travel on behalf of the Company as
reasonably required by his position.
4. COMPENSATION
4.1 For all services to be rendered by the Employee during the
Employment Period and in consideration of the Employee's representations and
covenants set forth in this Agreement, the Employee shall be entitled to the
compensation set forth in Paragraph 4.2.
4.2 The Employee shall be entitled to receive from the Company
during the Employment Period minimum compensation at the rate of two thousand
five hundred dollars ($2,500) per annum. The Employee shall be entitled to such
additional increments as shall be determined from time to time by the Board of
Directors of the Company. The amounts due hereunder shall be payable on a
quarterly basis to the extent of six hundred twenty five dollars ($625) on the
last day of each fiscal quarter of the Company during the Employment Period.
5. REIMBURSEMENT OF EXPENSES
5.1 The Company shall pay directly, or reimburse the Employee
for, all reasonable and necessary expenses and disbursements incurred by the
Employee for and on behalf of the Company in the performance of his duties
during the Employment Period, including, without limitation, all reasonable
expenses incurred by the Employee for food, lodging and transportation, if he is
required to perform any of his duties away from his primary place of residence.
For such purposes, the Employee shall submit to the Company, not less than once
in each calendar month, reports of such expenses and other disbursements in form
normally used by the Company.
<PAGE>
6. DISABILITY
6.1 If, during the Employment Period, the Employee shall, in
the opinion of a majority of the members of the Board of Directors of the
Company (excluding the Employee), as confirmed by competent medical evidence,
become physically or mentally incapacitated to perform his duties for the
Company hereunder ("Disabled") for a continuous period, then for the first three
(3) months of such period he shall receive his full salary, and for the next
three (3) months he shall receive fifty percent (50%) of his salary. In no event
shall the Employee be entitled to receive any payments under this Paragraph 6.1
beyond the expiration or termination date of this Agreement. Effective with the
date of his resumption of full employment, the Employee shall be re-entitled to
receive his full salary. If such illness or other incapacity shall endure for a
continuous period of at least six (6) months or for at least one hundred fifty
(150) business days during any nine (9) month period, the Company shall have the
right, by written notice, to terminate the Employee's employment hereunder as of
a date (not less than five (5) days after the date of the sending of such
notice) to be specified in such notice. The Employee agrees to submit himself
for appropriate medical examination to a physician of the Company's designation
as necessary for purposes of this Paragraph 6.1.
6.2 The obligations of the Company under this Paragraph 6 may
be satisfied, in whole or in part, by payments to the Employee under disability
insurance provided by the Company.
7. RESTRICTIVE COVENANT
7.1 The services of the Employee are unique and extraordinary
and essential to the business of the Company, especially since the Employee
shall have access to the Company's customer lists, trade secrets and other
privileged and confidential information essential to the Company's business.
Therefore, the Employee agrees that, if the term of his employment hereunder
shall expire or his employment shall at any time terminate for any reason
whatsoever, with or without cause, the Employee will not at any time within
thirty (30) days after such expiration or termination, without the prior written
approval of the Company, directly or indirectly, anywhere in the United States
of America, whether individually or as a principal, officer, employee, partner,
director, agent of or consultant for any entity, (i) engage or participate in a
business which, as of such expiration or termination date, is similar to or
competitive with, directly or indirectly, that of the Company and shall not make
any investments in any such similar or competitive entity; (ii) cause or seek to
persuade any director, officer, employee, customer, agent, licensee or supplier
of the Company to discontinue the status, employment or relationship of such
person or entity with the Company, or to become employed in any activity similar
to or competitive with the activities of the Company; (iii) cause or seek to
persuade any prospective customer, licensee or supplier of the Company (which at
the date of cessation of the Employee's employment with the Company was then
actively being solicited by the Company) to determine not to enter into a
business relationship with Company; (iv) hire or retain any director, officer or
employee of the Company; or (v) solicit or cause or authorize to be solicited,
for or on behalf of him or any third party, any business which is competitive,
directly or indirectly, with the Company from (a) others who are, or were within
one (l) year prior to the cessation of his employment with the Company,
customers or licensees of the Company, or (b) any prospective customer or
licensee of the Company which at the date of such cessation was then actively
being solicited by the Company. The foregoing restrictions set forth in this
Paragraph 7.1 shall apply likewise during the Employment Period.
<PAGE>
7.2 (a) The Employee agrees to promptly disclose in writing to
the Board of Directors of the Company all ideas, processes, methods, devices,
business concepts, inventions, improvements, discoveries, know-how and other
creative achievements (hereinafter referred to collectively as "discoveries"),
whether or not the same or any part thereof is capable of being patented,
trademarked, copyrighted, or otherwise protected, which the Employee, while
employed by the Company, conceives, makes, develops, acquires or reduces to
practice, whether acting alone or with others and whether during or after usual
working hours, and which are related to the Company's business or interests, or
are used or usable by the Company, or arise out of or in connection with the
duties performed by the Employee. The Employee hereby transfers and assigns to
the Company all right, title and interest in and to such discoveries (whether
conceived, made, developed, acquired or reduced to practice on or prior to the
date hereof or hereafter), including any and all domestic and foreign copyrights
and patent and trademark rights therein and any renewals thereof. On request of
the Company, the Employee will, without any additional compensation, from time
to time during, and after the expiration or termination of, the Employment
Period, execute such further instruments (including, without limitation,
applications for copyrights, letters patent, trademarks and assignments thereof)
and do all such other acts and things as may be deemed necessary or desirable by
the Company to protect and/or enforce its right in respect of such discoveries.
All expenses of filing or prosecuting any patent, trademark or copyright
application shall be borne by the Company, but the Employee shall cooperate in
filing and/or prosecuting any such application.
(b) The Employee acknowledges and agrees that, prior to
his employment by the Company, he did not conceive, make, develop, acquire or
reduce to practice any discovery which is related to the Company's business or
interests or is used or usable by the Company.
7.3 (a) The Employee represents that he has been informed that
it is the policy of the Company to maintain as secret all confidential
information relating to the Company, including, without limitation, any and all
knowledge or information with respect to secret or confidential methods,
processes, plans, materials, customer lists or data, or with respect to any
other confidential or secret aspect of the Company's activities, and further
acknowledges that such confidential information is of great value to the
Company. The Employee recognizes that, by reason of his employment with the
Company, he has acquired and will acquire confidential information as aforesaid.
The Employee confirms that it is reasonably necessary to protect the Company's
goodwill, and, accordingly, hereby agrees that he will not, directly or
indirectly (except where authorized by the Board of Directors of the Company for
the benefit of the Company), at any time during the term of this Agreement or
thereafter divulge to any person, or use, or cause or authorize any person, firm
or other entity to use, any such confidential information.
(b) The Employee agrees that he will not, at any
time, remove from the Company's premises any drawings, notebooks, software, data
or other confidential information relating to the business and procedures
heretofore or hereafter acquired, developed and/or used by the Company, except
where necessary in the fulfillment of his duties hereunder.
(c) The Employee agrees that, upon the expiration or
termination of this Agreement for any reason whatsoever, he shall promptly
deliver to the Company any and all drawings, notebooks, software, data and other
documents and material, including all copies thereof, in his possession or under
his control relating to any confidential information or discoveries, or which is
otherwise the property of the Company.
<PAGE>
(d) For purposes hereof, the term "confidential
information" shall mean all information given to the Employee, directly or
indirectly, by the Company and all other information relating to the Company
otherwise acquired by the Employee during the course of his employment with the
Company, other than information which (i) was in the public domain at the time
furnished to, or acquired by, the Employee, or (ii)thereafter enters the public
domain other than through disclosure, directly or indirectly, by the Employee or
others in violation of an agreement of confidentiality or nondisclosure.
7.4 For purposes of this Paragraph 7, the term "Company" shall
mean and include any and all subsidiaries, parents and affiliated entities of
the Company in existence from time to time.
8. VACATIONS
8.1 The Employee shall be entitled to reasonable vacations
during the Employment Period, the time and duration thereof to be determined by
mutual agreement between the Employee and the Company.
9. PARTICIPATION IN EMPLOYEE BENEFIT PLANS
9.1 The Employee and any beneficiary of the Employee shall be
accorded the right to participate in and receive benefits under and in
accordance with the provisions of any pension, profit sharing, insurance, bonus,
deferred compensation, medical and dental insurance or reimbursement or other
plan or program of the Company either in existence as of the date hereof or
hereafter adopted for the benefit of its executive employees.
10. SERVICE AS DIRECTOR; LIABILITY INSURANCE.
10.1 During the Employment Period, the Employee shall, if
elected or appointed, serve as a director of the Company and/or any subsidiaries
of the Company in existence or hereafter created, in each case without any
additional compensation for such services.
10.2 The Company agrees that, no later than the 10th of
December 1999, it shall obtain a director and officer liability policy in the
minimum amount of one million dollars ($1,000,000) and shall maintain such
coverage during the Employment Period.
11. EARLIER TERMINATION
11.1 The Employee's employment hereunder shall automatically
terminate upon his death and may terminate at the option of the Company upon:
(a) the Employee's incapacity in accordance with
the provisions set forth in Paragraph 6.l hereof;
(b) one (1) day's prior written notice to the
Employee in the event the Company terminates his employment hereunder for cause
as set forth in Paragraph 1.1 hereof.
<PAGE>
Upon the termination of the Employee's employment, the Employment Period shall
be considered to have ended.
12. INJUNCTIVE RELIEF
12.1 The Employee acknowledges and agrees that, in the event
he shall violate any of the restrictions of Paragraph 3 or 7 hereof, the Company
will be without an adequate remedy at law and will therefore be entitled to
enforce such restrictions by temporary or permanent injunctive or mandatory
relief in any court of competent jurisdiction without the necessity of proving
damages and without prejudice to any other remedies which it may have at law or
in equity. The Employee acknowledges and agrees that, in addition to any other
state having proper jurisdiction, any such relief may be sought in, and for such
purpose the Employee consents to the jurisdiction of, the courts of the State of
New York.
13. NO RESTRICTIONS
13.l The Employee hereby represents that neither the execution
of this Agreement nor his performance hereunder will (a) violate, conflict with
or result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under
the terms, conditions or provisions of any contract, agreement or other
instrument or obligation to which the Employee is a party, or by which he may be
bound, or (b) violate any order, judgment, writ, injunction or decree applicable
to the Employee. In the event of a breach hereof, in addition to the Company's
right to terminate this Agreement, the Employee shall indemnify the Company and
hold it harmless from and against any and all claims, losses, liabilities and
expenses (including reasonable attorneys' fees) incurred or suffered in
connection with or as a result of the Company's entering into this Agreement or
employing the Employee hereunder.
14. ARBITRATION
14.1 Except with regard to Paragraph 12.1 hereof and any other
matters that are not a proper subject of arbitration, all disputes between the
parties hereto concerning the performance, breach, construction or
interpretation of this Agreement or any portion thereof, or in any manner
arising out of this Agreement or the performance thereof, shall be submitted to
binding arbitration, in accordance with the rules of the American Arbitration
Association. The arbitration proceeding shall take place in Nassau County or
such other location as is agreed to by the parties.
14.2 The award rendered by the arbitrators shall be final,
binding and conclusive, and judgment may be entered upon it in accordance with
applicable law in the appropriate court in the State of New York, with no right
of appeal therefrom.
<PAGE>
14.3 Each party shall pay its or his own expenses of
arbitration, and the expenses of the arbitrators and the arbitration proceeding
shall be equally shared; provided, however, that, if, in the opinion of the
arbitrator, or a majority of the arbitrators (if more than one), any claim or
defense was unreasonable, the arbitrator(s) may assess, as part of their award,
all or any part of the arbitration expenses of the other party (including
reasonable attorneys' fees) and of the arbitrator(s) and the arbitration
proceeding against the party raising such unreasonable claim or defense.
15. ASSIGNMENT
15.1 This Agreement, as it relates to the employment of the
Employee, is a personal contract and the rights and interests of the Employee
hereunder may not be sold, transferred, assigned, pledged or hypothecated.
16. NOTICES
16.1 Any notice required or permitted to be given pursuant to
this Agreement shall be deemed to have been duly given when delivered by hand or
sent by certified or registered mail, return receipt requested and postage
prepaid, overnight mail or courier, or facsimile transmission as follows:
If to the Employee:
Rainer Vietze
275 Slater Street, Suite 2002
Ottawa, ON K1P 5HP
Telecopier Number: (613) 230-2939
If to the Company:
Compuflight, Inc
2400 Garden Road
Monterey, CA 93940
Attention: David Strucke
Telecopier Number: (831) 649-8655
with a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York ll554
Attention: Fred S. Skolnik, Esq.
Telecopier Number: (516) 296-7111
or at such other address as any party shall designate by notice to the other
party given in accordance with this Paragraph 16.1.
<PAGE>
8
17. GOVERNING LAW
17.1 This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, excluding choice
of law principles thereof.
18. WAIVER OF BREACH; PARTIAL INVALIDITY
18.1 The waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach. If any provision, or part thereof, of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
attach only to such provision and not in any way affect or render invalid or
unenforceable any other provisions of this Agreement, and this Agreement shall
be carried out as if such invalid or unenforceable provision, or part thereof,
had been reformed, and any court of competent jurisdiction or arbitrator(s), as
the case may be, are authorized to so reform such invalid or unenforceable
provision, or part thereof, so that it would be valid, legal and enforceable to
the fullest extent permitted by applicable law.
19. ENTIRE AGREEMENT
19.1 This Agreement constitutes the entire agreement between
the parties and there are no representations, warranties or commitments except
as set forth herein. This Agreement supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, of the
parties hereto relating to the transactions contemplated by this Agreement. This
Agreement may be amended only by a writing executed by the parties hereto.
20. COUNTERPARTS
20.1 This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
21. FACSIMILE SIGNATURES
21.1 Signatures hereon which are transmitted via facsimile
shall be deemed original signatures.
22. REPRESENTATION BY COUNSEL; INTERPRETATION
<PAGE>
22.1 The Employee acknowledges that he has been represented by
counsel, or has been afforded the opportunity to be represented by counsel, in
connection with this Agreement. Accordingly, any rule or law or any legal
decision that would require the interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived by the Employee. The provisions of this Agreement shall be
interpreted in a reasonable manner to give effect to the intent of the parties
hereto.
23. HEADINGS
23.1 The headings and captions under sections and paragraphs
of this Agreement are for convenience of reference only and do not in any way
modify, interpret or construe the intent of the parties or affect any of the
provisions of this Agreement.
24. UNITED STATES DOLLARS
24.1 All dollar amounts expressed herein are United States
dollars.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year above written.
COMPUFLIGHT, INC.
By: /s/ Rainer Vietze
------------------
Rainer Vietze
<PAGE>
10(Y)
CONTRACT FOR SERVICES AGREEMENT
DRAFT
B E T W E E N:
NAVTECH SYSTEMS SUPPORT INC.
(Hereinafter "the Client")
- and -
KINTYRE & COMPANY LIMITED
(Hereinafter "the Contractor")
WHEREAS the Client wishes to engage the Contractor to provide certain
advisory and corporate finance services to the Client;
AND WHEREAS the Contractor desires to provide such services to the
Client;
NOW THEREFORE, in consideration of the mutual covenants set forth
below, the parties agree as follows:
<PAGE>
I. Description of Services
1. The Contractor shall provide the services as set forth in Schedule A of this
agreement (the "Services"). Schedule A is attached hereto and is incorporated
into the terms of this agreement.
2. Any person performing the Services shall be the employee of the Contractor,
responsible to and controlled solely by the Contractor and not by the Client.
The Contractor shall be solely responsible for determining all the terms and
conditions of employment of its employees, for making all arrangements for
relief, substitution, hiring, supervising, disciplining, and terminating its
employees, and for all other matters arising out of the employer/employee
relationship.
3. The parties agree that the engagement of the Contractor hereunder is on a
non-exclusive basis. Accordingly, the Client may engage other independent
contractors to provide similar services to those provided to the Client and the
Contractor may become engaged by other corporations to provide similar services
to the Client, except to the extent provided by in Part X of this agreement.
4. The Contractor shall report to the Board of Directors of the Client.
5. The parties agree that the Contractor shall have the sole responsibility for
supplying the office space, furniture, office equipment, secretarial support,
and all related maintenance fees required to perform the Services.
II. Representations and Warranties
6. The Contractor represents and warrants that it will carry out the Services in
a highly skilled manner and with a high degree of professional competence.
7. The Contractor further represents and warrants that it has received all
authorizations, permits and licenses necessary to enter into this agreement and
to perform the Services.
8. The Contractor further represents and warrants that neither the execution of
this agreement nor the performance of the Services do or will violate, conflict
with or result in a breach of any provision of, or constitute a default under
(a) any contract or other obligation to which the Contractor is a party; or (b)
any order, judgment, injunction or decree applicable to the Contractor or any of
its employees.
<PAGE>
III. Term, Extension and Termination of the Agreement
9. The Contractor shall provide the Services during the period commencing
January 1, 1999 and ending December 31, 2000, at which time the agreement shall
terminate, unless an extension to the agreement is made as provided in paragraph
10 and section XIV.
10. The Client shall have the option to extend the term of this agreement for an
additional six months (to June 30, 2001) upon giving notice to the Contractor no
later than November 30, 2000 of the Client's decision to exercise such option.
11. The Client and the Contractor agree that either party may terminate this
agreement upon thirty (30) days written notice of the termination or immediately
upon mutual agreement, or in the case of a breach of this agreement.
IV. Nature of Relationship
12. The parties acknowledge and agree as follows: (a) the relationship of the
Contractor to the Client is that of independent contractor and that neither the
Client nor the Contractor shall make representations otherwise (including
representations that the relationship is any of a joint-venture, partnership, or
employment relationship); (b) the Contractor and any employee of the Contractor
are not employees of the Client; and (c) nothing herein shall be construed so as
to make any of the employees of the Contractor an employee of the Client or to
impose any liability on the Client which may arise between employer and
employee.
<PAGE>
13. The Contractor shall not, without express written authorization from the
Client, take any action, or permit any action to be taken which purports to be
done in the name of or on behalf of the Client and shall have no power or
authority to bind the Client or to assume or create any obligations or
responsibility, express or implied, on the Client's behalf or in its name, nor
shall the Contractor of any of its employees represent to anyone that it has
such power or authority.
V. Consideration
14. The Client will be invoiced for the Services in accordance with the Schedule
of Fees and Charges contained in Schedule B ("Fees and Charges"). Schedule B is
attached hereto and is incorporated into the terms of this agreement.
15. In the event that any amount relating to any obligation of the Contractor is
payable by the Contractor to the Client on any payment date, the Client shall
have the right to offset the amount of such obligation against any Fees and
Charges otherwise payable to the Contractor hereunder.
16. The Client shall pay the Contractor goods and services taxes on all Fees and
Charges in accordance with the applicable legislation. The Contractor shall
remit such goods and services taxes to Canada Customs and Revenue Agency. The
Contractor agrees to indemnify the Client for all such monies if the Contractor
fails to make proper goods and services tax remittances.
17. All Fees or Charges paid by the Client to the Contractor shall be made
without statutory deductions in respect of, but not limited to, income tax
withholdings, Canada Pension Plan contributions, and Employment Insurance
premiums. Any other remittances in respect of any other obligation owing by an
employer in respect of its employees, including Workplace Safety and Insurance
Board premiums and Employer Health Tax remittances are the sole responsibility
of the Contractor. The Contractor accepts the responsibility for paying all
applicable payments under any federal or provincial legislation with respect to
the Contractor's employees.
<PAGE>
VI. Expenses
18. The Client will not be responsible to reimburse the Contractor for any
expenses or costs incurred by the Contractor other than the Fees and Charges
specified in Schedule B, unless such expenses are reasonable and necessary
expenses incurred for and on behalf of the Client in the performance of
Services. For the purposes of this agreement, expenses incurred for travel and
accommodation of any of the Contractor's employees away from the Contractor's
primary office will be deemed to be reasonable and necessary. All reimbursement
requests must be documented and submitted with appropriate receipts in order to
qualify for reimbursement.
VII. Insurance
19. The Contractor shall maintain throughout the term of the agreement
comprehensive liability insurance and any other insurance as may be considered
necessary by the Client, in amounts satisfactory to the Client.
20. The Contractor will provide proof of insurance coverage at the request of
the Client.
VIII. General Indemnifications
21. The Contractor will hold harmless and indemnify the Client in regard to any
and all claims, demands, costs, expenses and liabilities (including legal fees)
incurred by the Client as a result of the negligent or wrongful act of any
employee provided by the Contractor, or as a result of the entering into of this
agreement by the Contractor or the breach of any provision of this agreement by
the Contractor.
<PAGE>
22. The Client will hold harmless and indemnify the Contractor in regard to any
and all claims, demands, costs, expenses and liabilities (including legal fees)
incurred by the Contractor as a result of the entering into of this agreement by
the Client or the breach of any provision of this agreement by the Client.
IX. Confidentiality
23. The Contractor agrees that in the provision of the Services, it and its
employees will acquire detailed and confidential knowledge of the Client's
operations and other confidential documents and information. The Contractor
agrees on its own behalf and on behalf of its employees, that it will not in any
way divulge, furnish or make accessible to any person, either during the term of
this agreement or any time thereafter, any confidential information relating to
the business of the Client acquired in the course of providing the Services.
24. The Contractor agrees that none of its employees will, at any time, remove
from the Client's premises any drawings, notebooks, data, software, documents,
material, or other confidential information relating to the business and
procedures of the Client, except where necessary to fulfill the Contractor's
obligations under this agreement.
25. The Contractor agrees that, upon the expiration or termination of this
agreement, the Contractor's employees will promptly deliver to the Client any
and all drawings, notebooks, data, software, documents, material, or other
confidential information, including any copies thereof, in the possession or
under the control of the Contractor or any of the Contractor's employees.
<PAGE>
26. For the purposes of this Part, the term "confidential information" shall
include all information given to the Contractor or any of its employees,
directly or indirectly by the Client and all other information relating to the
Client otherwise acquired by the Contractor or its employees during the course
of the engagement of the Contractor, except information which (a) was in the
public domain at the time it was furnished to, or acquired by, the Contractor or
its employees; or (b) thereafter entered the public domain other than through
disclosure indirectly or directly by the Contractor or its employees in
violation of this agreement or any other agreement to maintain such information
in confidence.
X. Non-Competition
27. The Contractor agrees that it will not provide its services (without the
prior consent of the Client) during the term of this agreement to any North
American or European business which directly competes with the Client. Neither
will the Contractor nor any of its employees make any investments in such a
competing business (except that the foregoing shall not restrict any person from
owning not more than five percent (5%) of the outstanding common stock of any
corporation listed on a national securities exchange or NASDAQ).
XI. Non-Solicitation
28. The Contractor acknowledges and agrees that the right to maintain
relationships with the Client's customers constitutes a proprietary right of the
Client which the Client is entitled to protect. The Contractor agrees that it
will not, and its employees will not, at any time during the term of this
agreement, directly or indirectly, either individually, or as a principal,
officer, employee, partner, director, advisor, agent, consultant, or in any
other manner whatsoever: (a) solicit any of the Client's customers, subscribers,
or accounts, or persons whom the Client was soliciting as customers,
subscribers, or accounts at the time of the expiry or termination of this
agreement; (b) cause or seek to persuade any prospective customer, subscriber,
or account of the Client to determine not to enter into a business relationship
with the Client; (c) cause or seek to persuade any director, officer, employee,
customer, subscriber, account, agent, or supplier of the Client to discontinue
the status, employment or relationship of such person or entity with the Client
or to become employed in any activity similar to or competitive with the
activities of the Client; or (d) hire or retain any director, officer or
employee of the Client.
<PAGE>
XII. Restrictive Covenants
29. The Contractor agrees and acknowledges that the restrictions and obligations
imposed on it and its employees under Parts IX, X, and XI of this agreement are
reasonable and necessary for the protection of the Client and the Contractor
waives any and all defenses to the strict enforcement thereof.
XIII. Injunctive Relief
30. The Client and the Contractor each acknowledge and agree that, in the event
of a breach or anticipated breach under Parts IX, X, and XI of this agreement,
irreparable harm will result to the Client and, in addition to damages arising
out of the breach, the Client will be entitled to any interlocutory and
permanent injunction as a necessary remedy to enjoin any further breach by the
Contractor or any of its employees, if the Client elects to seek injunctive
relief.
XIV. General Provisions
31. The notice of termination of the operation of this agreement by the Client
or Contractor and notice of extension of the operation of this agreement by the
Contractor pursuant to the terms of this agreement shall be given in writing by
personal delivery, by courier, ordinary prepaid mail, or facsimile.
32. Any notice given pursuant to this agreement shall be deemed to have been
duly given when delivered by hand, or sent by courier, prepaid mail, or
facsimile.
<PAGE>
33. All representations, warranties, covenants, indemnifications and limitations
of liability in this agreement shall continue in force after the termination of
this agreement.
34. Neither party may assign of this agreement without the written authorization
of the Client and Contractor.
35. The Client and the Contractor agree that if any of the provisions or a part
of a provision of this agreement are deemed illegal or unenforceable, such
provisions shall be considered separate and severable from this agreement, and
the remaining provisions or part of a provision of the agreement shall continue
in force, and be binding upon the parties as though such provision or part of a
provision had never been included.
36. This written instrument constitutes the entire agreement between the
parties. There are no other agreements, understandings, representations or
warranties, either collateral, oral or otherwise.
37. Any disputes as to the validity, interpretation, performance of this
agreement shall be determined in accordance with the laws and by the Courts of
the Province of Ontario.
38. No provisions of this agreement may be amended or waived unless confirmed by
way of written documentation signed on behalf of each party by its authorized
representative.
39. Except as explicitly set forth in this agreement, all dollar amounts are
expressed in Canadian dollars.
40. This agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
<PAGE>
41. The headings used in this agreement are solely for the purpose of
convenience of reference and shall be given on effect in the construction or
interpretation of this agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year above written.
Signed on behalf of
the Contractor
/s/ Duncan Macdonald
- --------------------
Signed on behalf of
the Client
/s/ Dorothy English
- -------------------
<PAGE>
SCHEDULE "A"
Services to be provided by Contractor
- - Assist in obtaining financing of a debt and/or equity nature.
- - Provide expertise it merger and acquisition activities.
- - Provide direction in strategic business planning.
- - Assist in restructuring of the finance and accounting departments.
- - Provide expertise in the SR&ED and tax appeal process.
<PAGE>
SCHEDULE "B"
Fees and Charges
1. The Client agrees to compensate the Contractor for the provision of the
Services pursuant to this agreement as follows:
<TABLE>
<S> <C>
Duncan Macdonald $ $ 13,250.00 per month.
Rainer Vietze - first 160 hours in a month (base) $ 10,000.00 per month
- delivery of 170 hours or more in month $ 1,000.00 per month
Other staff $ 30.00 per hour
Contract bonus payable December 31, 1999 $ 8,750.00
Contract bonus payable December 31, 2000 $ 8,750.00
Contract bonus payable June 30, 2001 (if contract is extended) $ 4,375.00
The above amounts will be subject to G.S.T.
</TABLE>
1
2. The Contractor will invoice the Client on the 15th and the last day of each
month.
3. The parties agree that invoices will be payable by the Client upon
presentation. Interest of 2% per month is added to any account outstanding
for more than 30 days.
4. Mileage costs related to Rainer Vietze between Toronto and Waterloo are
specifically excluded from allowable expenses
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: December 3, 1999
COMPUFLIGHT, INC.
By: /s/ Duncan Macdonald
--------------------
Duncan Macdonald
Chief Executive Officer
