UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10/A
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
INSTANT VIDEO TECHNOLOGIES, INC.
--------------------------------
(Name of Registrant as Specified in its Charter)
Delaware
--------
(State or Other Jurisdiction of Incorporation or Organization)
84-1141967
----------
(I.R.S. Employer Identification Number)
500 Sansome Street, Suite 503
San Francisco, California 94111
-------------------------------
(Address of Principal Executive Offices, including Zip Code)
(415) 391-4455
--------------
(Issuer's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
- --------------------------------------------------------------------------------
Title of each class Name of each exchange on which
To be registered each class is to be registered
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
$0.00001 par value Common Stock
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
<PAGE>
EXPLANATORY NOTE
This Form 10/A constitutes amendment number one (1) to the Form 10 of
the Registration originally filed with the Securities Exchange Commission on
Friday, November 12, 1999, and is being filed solely to submit exhibits
requested in Form 10.
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
(b) Exhibits: ALL EXHIBITS BEING FILED BY AMENDMENT
Index of Exhibits to Form 10
EXHIBIT 2: Plan of acquisition, reorganization, arrangement, liquidation, or
succession
2.1 State of Arizona, Articles of Merger of Video Press, Inc. into
Explore Technology, dated 12/28/90; Agreement and Plan of
Merger dated 8/29/93
2.2 Action by Unanimous Consent of Board of Directors of Explore
Technology, Inc., July 15, 1992
2.3 Certificate of Merger of Time Shift TV, Inc. into IVT
Delaware, Inc. dated July 26, 1999
2.4 Agreement and Plan of Reorganization between Instant Video
Technologies, Inc., IVT, Delaware, and Time Shift TV dated
August 3, 1999
EXHIBIT 3: Articles of Incorporation, Bylaws
3.1.1 Certificate of Incorporation of Catalina Capital Corp. dated
April 27, 1990
3.1.2 Certificate of Amendment to the Certificate of Incorporation
of Catalina Capital Corp. changing its name to Instant Video
Technologies, Inc. dated August 17, 1992
3.2.1 Bylaws of Catalina Capital Corp. dated April 27, 1990;
Amendment No. 1 dated April 5, 1993
3.2.2 Certificate of Status Foreign Corporation dated March 12, 1993
EXHIBIT 4: Instruments defining rights of holders, including indentures
4.1 Prospectus for Catalina Capital Corp. dated October 17, 1990
4.2 SEC Form S-18 for Catalina Capital Corp. dated June 29, 1990
4.3 Amendment No. 1 to SEC Form S-18 for Catalina Capital Corp.
dated August 10, 1990
4.4 Amendment No. 2 to SEC Form S-18 for Catalina Capital Corp.
dated September 28, 1990
4.5 Certificate of Designation for Catalina Capital Corp. of
Series A Preferred Stock dated Aug. 4, 1992
4.6 Certificate of Designation for Catalina Capital Corp. of
Series B-1, B-2, B-3 and B-4 Convertible Preferred Stock,
dated August 4, 1992
4.7 Certificate of Designation for Catalina Capital Corp. of
Series C Preferred Stock, dated August 4, 1992
<PAGE>
4.8 Certificate of Designation for Instant Video Technologies,
Inc. of Series D Convertible Preferred Stock, dated December
23, 1992
4.9 Certificate of Designation for Instant Video Technologies,
Inc. of Series E Convertible Preferred Stock, dated May 9,
1995
4.10 Certificate of Designation for Instant Video Technologies,
Inc. of Series F Convertible Preferred Stock, dated February
13, 1996
4.11 Certificate of Designation of Instant Video Technologies, Inc.
filing Certificate of Elimination of Series A Preferred Stock,
Series B-1, B-2, B-3, B-4 Convertible Preferred Stock, Series
C Preferred Stock, Series D Convertible Preferred Stock and
Series E Convertible Preferred Stock dated November 6, 1998
4.12 Amended Certificate of Designation, Statement of Establishing
Series F Convertible Preferred Stock AND Certificate of
Designation, Statement Establishing Series B Convertible
Preferred Stock filed January 11, 1999
4.13 Stock Purchase Agreement (Series B Stock) with Exhibit A
(Warrant to Purchase Shares of Common Stock), Exhibit B
(Certificate of Designation), Exhibit C (Registration Rights
Agreement), and Exhibit D (Voting and Right of First Refusal)
4.14 Unit Purchase Agreement between Instant Video Technologies and
Investors (Storie Partners, Mindful Partners-Stuart Rudick,
Reed Slatkin, Robert London, Draysec and Mercer Management)
dated February 14, 1996
EXHIBIT 10: Material Contracts:
10.1 RMSI Reseller License Agreement
10.2 RMSI End-User Software License Agreement
10.3 I-Stream TV Reseller Agreement
10.4 Clover Technologies, Inc. Reseller License Agreement
10.5 Service Agreement with The EMS Group
10.6 Lease at 500 Sansome Street, San Francisco, California with
ten (10) Amendments
10.7 Lease for sales office in Livonia, Michigan
10.8 Lease for sales office in Golden, Colorado;
10.9 Lease for sales office in Alexandria, Virginia,
10.10 Lease for sales office in Mount Holly, New Jersey
10.11 Pat Meir Assoc. contract
Employment Agreements/Offer Letters:
10.12 Richard Lang
10.13 Thomas Koshy
10.14 Edward Davis
10.15 Richard Jones
10.16 Kyle Faulkner
10.17 David Morgenstein
10.18 Frank Schwartz
10.19 June White
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
INSTANT VIDEO TECHNOLOGIES, INC.
Dated: December 3, 1999 By /s/ Richard Lang
--------------------------------
Chairman, President, and
Chief Executive Officer
??????????????????
DELIVERED
DEC 18 1990
STATE OF ARIZONA
ARTICLES OF MERGER FILED BY /s/ Esther Thomas
OF -----------------
206520-0 - VIDEO PRESS, INC., TERM
(a domestic corporation) ---------------------
INTO DATE 12-28-90
221412-9 - EXPLORE TECHNOLOGY, INC., ---------------------
(a domestic corporation) Effective 12-28-90
These Articles of Merger are delivered to the Arizona Corporation
Commission for filing pursuant to Section 10-074, Arizona Business Corporation
Act, by the undersigned VIDEO PRESS, INC., an Arizona corpoation, and EXPLORE
TECHNOLOGY, INC., an Arizona corporation.
FIRST: The Agreement and Plan of Merger attached hereto as Exhibit A
(the "Plan"), which provides for the merger of VIDEO PRESS, INC. into EXPLORE
TECHNOLOGY, INC., was approved by the shareholders of each corporation.
SECOND: As to each such corporation, the number of shares outstanding,
and the designation and number of shares of each class are as follows:
Number of
Name of Shares Designation of
Corporation Outstanding Class
----------- ----------- --------------
Video Press, Inc. 131,332 common
Explore Technology, Inc. 52,156 common
THIRD: As to each such corporation, the total number of shares voted
for and against the Plan, respectively, are as follows:
Name of Total Voted Total Voted
Corporation For Against
----------- ----------- --------------
Video Press, Inc. 131,332 None
Explore Technology, Inc. 52,156 None
<PAGE>
Dated this 11th day of May, 1990.
VIDEO PRESS, INC. EXPLORE TECHNOLOGY, INC.
By: /s/ Richard Lang By: /s/ Richard Lang
------------------------------- ------------------------------
Richard Lang, President Richard Lang, President
By: /s/ Lisa Walters By: /s/ G. Peter Spiess
------------------------------- ------------------------------
Lisa Walters, Secretary G. Peter Spiess, Secretary
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing was acknowledged before me this 27th day of November,
1990, by RICHARD LANG and G. LISA WALTERS, President and Secretary, respectively
of VIDEO PRESS, INC., an Arizona corporation, on behalf of the corporation,
pursuant to due authorization.
/s/ Virginia S. Leipprandt
----------------------------------
Notary Public
My Commission Expires:
8-29-93
- ----------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing was acknowledged befoe me this 27th day of November,
1990, by RICHARD LANG and G. PETER SPIESS, President and Secretary, respectively
of EXPLORE TECHNOLOGY, INC., an Arizona corporation, on behalf of the
corporation, pursuant to due authorization.
/s/ Virginia S. Leipprandt
----------------------------------
Notary Public
My Commission Expires:
8-29-93
- ----------------------
2
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called "this Agreement")
dated as of May 11, 1990, by and between EXPLORE TECHNOLOGY, INC., an Arizona
corporation ("ET") and VIDEO PRESS, INC., an Arizona corporation ("VP"), said
corporations being hereinafter sometimes collectively referred to as the
"Constituent Corporations."
WHEREAS, each of the Constituent Corporation is a corporation duly
organized and existing under the laws of the State of Arizona; and
WHEREAS, ET is authorized to issue 100,000,000 shares of common stock
without par value, of which 52,156 shares are outstanding; and VP is authorized
to issue 1,000,000 shares of common stock without, par value, of which 131,332
shares are issued and outstanding; and
WHEREAS, the board of directors of each Constituent Corporation deems
it advisable and in the best interests of such corporation and its shareholders
that VP be merged into ET upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, the parties hereto mutually agree that VP shall be
merged into ET in accordance with the General Corporation Law of the State of
Arizona, with ET continuing its corporate existence as the surviving corporation
(hereinafter sometimes referred to as the "Surviving Corporation"), and that the
terms and conditions of such merger (hereinafter called the "Merger") and the
mode of carrying the same into effect shall be as hereinafter set forth:
1. Plan of Reorganization; Effective Time. The Merger shall constitute
a plan of reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended. The Merger shall become effective
(the "Effective Time") immediately following the close of business on December
28, 1990 following the filing of Articles of Merger by the Arizona Corporation
Commission pursuant to the General Corporation Law of the State of Arizona.
2. Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation as amended and in effect immediately prior to the
Effective Time shall continue in effect after the Merger except as hereinafter
provided and until the same shall be further amended in the manner prescribed by
law. At the Effective Time the Articles of Incorporation of the Surviving
Corporation shall be amended as follows:
(a) Article 5. shall be amended to read as follows:
"ARTICLE 5. Limitation on Liability of Directors. No person
who is or was a director of the corporation shall be
<PAGE>
personally liable to the corporation or to any stockholder or
stockholders of the corporation for monetary damages for breach of
fiduciary duty as a director of the corporation; provided, that the
foregoing provision shall not eliminate or limit any such liability to
the extent otherwise imposed by law upon a director (i) for any breach
of the directors duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for
authorizing the unlawful payment of a dividend or other distribution on
the corporation's capital stock or the unlawful purchase of its capital
or (iv) for any transaction from which the director derived an improper
personal benefit. The foregoing provisions of this Article shall be
applicable, notwithstanding any amendment or repeal thereof, with
respect to any and all acts or omissions occurring prior to the
effective date of such amendment or repeal."
(b) Article 7. shall be amended to read as follows:
"ARTICLE 7. Authorized Capital. The aggregate number of shares
which the corporation shall have the authority to issue is 10,000,000,
all of which shares shall be of one class of common stock without par
value.
(c) Article 13. shall be amended to read as follows:
"ARTICLE 13. Rights and Options. The corporation may, without
shareholder approval or ratification, issue rights and options to
directors, officers or employees of the corporation, or of any
affiliate thereof, to purchase from the corporation shares of any class
or classes.
(d) Article 15. shall be amended to read as follows:
"ARTICLE 15. Amendments. The corporation reserves the right to
amend, alter, change or repeal any provision contained in the Articles
of Incorporation in the manner now or hereafter prescribed by statute,
and all rights conferred upon shareholders herein are granted subject
to this reservation."
3. Directors. The following named persons, who were the directors of ET
immediately prior to the Effective Time, shall continue in office until the next
annual meeting of shareholders of the Surviving Corporation and until their
successors are elected and have qualified:
Richard Lang
Lisa Walters
G. Peter Spiess
2
???????????????????????????????????????????????????????????????????????????????
???????????????????????????????????????????????????????????????????????????????
???????????????????????????????????????????????????????????????????????????????
<PAGE>
4. Officers. The following named persons, who were the officers of ET
immediately prior to the Effective Time, shall continue in office until the
meeting of the board of directors of the Surviving Corporation following the
next annual meeting of shareholders of the Surviving Corporation and until their
successors are elected and have qualified:
Name Office
---- ------
Richard Lang President and Treasurer
Lisa Walters Vice President and Assistant Secretary
G. Peter Spiess Secretary
5. Conversion of Shares. The terms and manner of conversion of the
shares of VP into shares of the Surviving Corporation shall be as follows:
(a) Conversion of VP Common Stock. The shares of common stock
of VP without par value shall be converted into 1,844 shares of the common stock
of the Surviving Corporation without par value in accordance with the table set
forth below; and upon surrender of the certificates evidencing ownership of such
shares of common stock of VP for cancellation, each shareholder of VP other than
the Surviving Corporation shall receive a certificate or certificates for the
full number of shares of common stock of the Surviving Corporation into which
such shareholder is entitled as provided in such table, and all shares of VP
common stock then owned by ET shall be deemed cancelled, and no shares of ET
shall be issued with respect thereto. Shares of the Surviving Corporation's
common stock outstanding immediately prior to the merger shall not be converted
or exchanged but shall remain outstanding immediately after the merger as
identical shares of common stock of the Surviving Corporation.
TABLE OF CONVERSION
-------------------
Name of Number of Shares Number of Shares of ET
VP Shareholder of VP Owned to be received upon merger
- -------------- ---------------- --------------------------
Dr. William Crisp 5,000 132
Ray Gottlieb and
Marilyn Ferguson 7,500 165
Richard Lang and
Lisa Walters 82,000 1,242
Larry Lazarus 5,876 129
Jeffrey P. Wright 7,000 176
-----
Total Number of ET Shares to be Issued 1,844
(b) Manner of Conversion. The shares of the Surviving
Corporation into which the shares of VP shall be converted in
3
<PAGE>
accordance with the provisions of subparagraph (a) of this paragraph 5 shall be
issued by the Surviving Corporation in exchange for the assets and properties of
VP.
(c) Status of Newly Issued Stock. All shares of common stock
of the Surviving Corporation into which shares of VP are converted as herein
provided shall be fully paid and non-assessable and shall be issued in full
satisfaction of all rights pertaining to such shares of common stock of VP.
6. Effect of Merger. At the Effective Time, the separate existence of
VP shall cease and the Surviving Corporation shall thereupon and thereafter
possess all the rights, privileges, immunities and franchises of a public as
well as of a private nature, of each of the Constituent Corporations; and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all other choses in action, and all and
every other interest of or belonging to or due to each of the Constituent
Corporations, shall be taken and deemed to be transferred to and vested in the
Surviving Corporation without further act or deed; and the title to any real
estate, or any interest therein, vested in either of such Constituent
Corporations shall not revert or be in any way impaired by reason of the Merger;
the Surviving Corporation shall thenceforth be responsible and liable for all
the liabilities and obligations of each of the Constituent Corporations; and any
claim existing or action or proceeding pending by or against either of such
Constituent Corporations may be prosecuted as if the Merger had not taken place,
or the Surviving Corporation may be substituted in the place thereof; and
neither the rights of creditors nor any liens upon the property of any
Constituent Corporation shall be impaired by the Merger. Confirmatory deeds,
assignments or other like instruments, when deemed desirable by the Surviving
Corporation to evidence such transfer, vesting or devolution of any property,
right, privilege or franchise, shall at any time or from time to time, be made
and delivered in the name of VP by the last acting officers thereof, or by the
corresponding officers of the Surviving Corporation.
7. Accounting Matters. The assets and liabilities of the Constituent
Corporations at the Effective Time shall be taken up on the books of the
Surviving Corporation at the amounts and in the manner selected by the Surviving
Corporation in accordance with generally accepted accounting principles. The
capital of the Surviving Corporation after the Merger shall be equal to the sum
of the aggregate stated capital of the common stock to be issued in the Merger
and the aggregate stated capital of the common stock remaining outstanding after
the Merger which shall have been issued prior to the Merger. The surplus of the
Surviving Corporation after the Merger, including any surplus arising as a
result of the Merger, shall be available to be used for any legal purposes for
which surplus may be used.
4
<PAGE>
8. Approval of Shareholders; Filing of Articles of Merger. This
Agreement shall be submitted to the shareholders of each of the Constituent
Corporations in the manner required by law, and if the same shall be approved
prior to the Effective Time, appropriate Articles of Merger shall be executed in
the manner required by law and delivered to the Arizona Corporation Commission
for filing as provided by the Arizona General Corporation Law.
9. Termination; Amendments; Counterparts.
a. Termination and Abandonment. This Agreement may be
terminated and abandoned at any time prior to the Effective Time, whether before
or after adoption or approval of this Agreement by the shareholders of the
Constituent Corporations, under any one or more of the following circumstances:
(1) by the mutual consent of the boards of directors
of the Constituent Corporations;
(2) by the board of directors of either of the
Constituent Corporations if any action or proceeding before any court or
governmental body or agency shall have been instituted or threatened to restrain
or prohibit the Merger and such board of directors deems it inadvisable to
proceed with the Merger; or
(3) by the board of directors of either of the
Constituent Corporations if the requisite approval of the shareholders shall not
have been obtained prior to the Effective Time.
Upon any such termination and abandonment, neither party shall have any
liability or obligation hereunder to the other, and each party shall pay all
costs and expenses incurred by such party relating to this Agreement and the
transactions contemplated herein, including fees, expenses and disbursements of
its accountants and counsel. Abandonment of the Merger as provided in the
foregoing provisions of this paragraph shall automatically be deemed to
constitute a direction by the board of directors of ET not to file said Articles
of Merger.
b. Amendments. Any of the terms and conditions of this
Agreement may be modified or waived at any time prior to the Effective Time by
an instrument in writing signed by the party which is, or the shareholders of
which are, entitled to the benefit thereof upon the authority of the board of
directors of such party, provided that any such action taken by such board of
directors shall not, in its judgment, affect substantially or materially and
adversely the benefits to its shareholders contemplated under this Agreement.
c. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed and original
5
<PAGE>
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each Constituent Corporation has caused this
Agreement and Plan of Merger to be signed by its President or authorized Vice
President and attested by the signature of its Secretary as of the date first
above written.
EXPLORE TECHNOLOGY, INC.
By: /s/ Richard Lang
-----------------------------------
Richard Lang, President
ATTEST:
/s/ G. Peter Spiess
- -------------------------------
G. Peter Spiess, Secretary
VIDEO PRESS, INC.
By: /s/ Richard Lang
-----------------------------------
Richard Lang, President
ATTEST:
/s/ Lisa Walters
- -------------------------------
Lisa Walters, Secretary
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 27th day of
November, 1990, by RICHARD LANG and G. PETER SPIESS, the President and
Secretary, respectively, of EXPLORE TECHNOLOGY, INC., an Arizona corporation, on
behalf of the corporation.
/s/ Virginia S. Leipprandt
---------------------------------------
Notary Public
My Commission Expires:
8-29-93
- ----------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 27th day of
November, 1990, by RICHARD LANG and LISA WALTERS, the President and Secretary,
respectively, of VIDEO PRESS, INC., an Arizona corporation, on behalf of the
corporation.
/s/ Virginia S. Leipprandt
---------------------------------------
Notary Public
My Commission Expires:
8-29-93
- ----------------------
6
EXHIBIT D
ACTION BY UNANIMOUS CONSENT
OF BOARD OF DIRECTORS OF
EXPLORE TECHNOLOGY, INC.
JULY 15, 1992
Richard Lang, Lisa Walters, G. Peter Spiess and Ossie Kilkenny, being
all of the Directors of Explore Technology, Inc., an Arizona corporation, do
hereby waive notice of a special meeting of the Board of Directors of said
Corporation and, in lieu of such meeting, consent to, approve, and adopt the
following resolutions:
RESOLVED: That a cetain Plan and Agreement of Reorganization dated July
15, 1992, by and among Catalina Capital Corp., a Delaware corporation,
this Corporation and certain other persons (the "Agreement") in the
form as submitted to the members of the Board of Directors of this
Corporation at this meeting be, and the same hereby is, approved, and
that the Chairman of the Board of this Corporation be, and he hereby
is, authorized and empowered to execute and deliver the Agreement on
behalf of and in the name of this Corporation in substantially the form
hereby approved by this Board of Directors with blanks appropriately
filled in and which such changes in form and content as may be approved
by said Chairman of the Board executing the Agreement, his execution
thereof to be conclusive evidence of such approval.
FURTHUR RESOLVED: That each of the Officers of this Corporation be, and
each of them hereby is, authorized and directed to do and perform all
such other acts and things and to sign all other agreements, documents,
instruments and/or certificates and to take all such other steps as may
be necessary or advisable or convenient or proper to carry out the
intent of the foregoing resolution and to close the transaction
described in the Agreement.
FURTHER RESOLVED: That any and all of the actions heretofore taken by
any of the Officers of this Corporation within the scope of the
foregoing authorities and the tenor and effect of these resolutions are
hereby deemed ratified, confirmed and adopted.
<PAGE>
Dated this 15th day of July, 1992.
/s/ G. Peter Spiess
---------------------------------------
G. Peter Spiess
/s/ Richard Lang
---------------------------------------
Richard Lang
/s/ Lisa Walters
---------------------------------------
Lisa Walters
---------------------------------------
Ossie Kilkenny
being all of the Directors of Explore Technology, Inc., an Arizona corporation.
-2-
<PAGE>
Dated this 15th day of July, 1992.
---------------------------------------
G. Peter Spiess
---------------------------------------
Richard Lang
---------------------------------------
Lisa Walters
/s/ Ossie Kilkenny
---------------------------------------
Ossie Kilkenny
being all of the Directors of Explore Technology, Inc., an Arizona corporation.
-2-
CERTIFICATE OF MERGER
of
TIME SHIFT TV, INC.
into
IVT DELAWARE, INC.
------------------
(Under Section 251 of the Delaware General Corporation Law)
******
Pursuant to the provisions of Section 251 of the General Corporation
Law of the State of Delaware, the undersigned, being the President of IVT
Delaware, Inc., a Delaware corporation hereby certified on this 26th day of
July, 1999 that:
FIRST: The name and state of incorporation of each of the constituent
corporations are as follows: Time Shift TV, Inc., a corporation organized under
the laws of Delaware, and IVT Delaware, Inc., a corporation organized under the
laws of Delaware, (together the "Constituent Corporations").
SECOND: The agreement and plan of merger was approved, adopted,
certified, executed and acknowledged by the Board of Directors and the
stockholders of each of the Constituent Corporations in accordance with Section
251 of the General Corporation Law of the State of Delaware.
THIRD: The name of the surviving corporation is IVT Delaware, Inc., a
Delaware corporation.
FOURTH: At the effective time of the merger, the Certificate of
Incorporation of IVT Delaware, Inc., as in effect immediately prior to such
effective time shall be the Certificate of Incorporation of the surviving
corporation.
FIFTH: The executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation at 500 Sansome Street,
Ste 503, San Francisco, California 94111. A copy of the agreement and plan of
merger will be furnished by the surviving corporation, on request and without
cost, to any shareholder of any Constituent Corporation.
SIXTH: IVT Delaware, Inc., has authorized capital stock of one thousand
(1,000) of common stock no par value shares.
1
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate of
merger and affirms that this certificate of merger is his act and deed and that
the statements contained herein are true under the penalties of perjury.
INSTANT VIDEO TECHNOLOGIES
By: /s/ Richard Lang
--------------------------------------
Richard Lang, President
2
<PAGE>
RESOLUTIONS ADOPTED BY THE UNANIMOUS
WRITTEN CONSENT OF TUE BOARD OF DIRECTORS OF
TIME SHIFT TV, INC.
July 26, 1999
The undersigned, constituting all of the members of the Board of
Directors of Time Shift TV, Inc., a Delaware corporation (this "Corporation"),
and acting by written consent without a meeting pursuant to Section 141(f) of
the Delaware General Corporation Law, hereby adopt the following resolutions
effective as of July 26, 1999:
APPROVAL OF MERGER
------------------
WHEREAS, the Board of Directors of the Corporation has
discussed a proposed Plan and Agreement of Merger of Time Shift TV,
Inc. into IVT Delaware, Inc. which constitutes a plan of reorganization
in the form of a statutory merger as described in section 368(a) of the
Internal Revenue Code of 1986, a copy of which agreement is attached
hereto as Exhibit A; and
WHEREAS, the Board of Directors deems it to be in the best
interests of the corporation and its shareholders that such Agreement
of Merger be approved and that the Corporation merge with and into IVT
Delaware, Inc.; be it
RESOLVED, that the terms and conditions of the proposed
Agreement of Merger between the Corporation and IVT Delaware, Inc. and
its parent, Instant Video Technologies, Inc., are approved in
substantially the form attached hereto as Exhibit A with such
nonmaterial changes thereto as the officers of this Corporation deem
necessary and appropriate to accomplish the proposed merger.
RESOLVED FURTHER, that the President and Secretary of the
Corporation are directed to execute and acknowledge said Agreement of
Merger in the name and on behalf of the Corporation and to deliver a
duly executed copy thereof to IVT Delaware, Inc.
RESOLVED FURTHER, that upon the shareholders of the
Corporation approving the principal terms of the proposed Agreement of
Merger in the manner required by the General Corporation Law of
Delaware, the officers of the Corporation are directed to execute,
acknowledge, file and record such instruments and do such other acts in
the name and on behalf of the Corporation as may be necessary or proper
to fully perform the terms and conditions of the Agreement of Merger.
3
<PAGE>
Omnibus
-------
RESOLVED: That each of the officers of this Company be, and
each hereby is, authorized and directed to execute all documents and
take all such actions as may be necessary and proper for the Company to
carry out its obligations and consummate the transactions contemplated
in the foregoing resolutions.
This action may be executed in one or more counterparts, each of which
shall be deemed an original and all of which shall constitute one instrument.
IN WITNESS WHEREOF, this Unanimous Written Consent has been executed by
the undersigned to be effective as of the date set forth above.
------------------------------
Earl Mincer, Director
/s/ Eric Walters
------------------------------
Eric Walters, Director
/s/ Richard Lang
------------------------------
Richard Lang, Director
4
<PAGE>
Omnibus
-------
RESOLVED: That each of the officers of this Company be, and
each hereby is, authorized and directed to execute all documents and
take all such actions as may be necessary and proper for the Company to
carry out its obligations and consummate the transactions contemplated
in the foregoing resolutions.
This action may be executed in one or more counterparts, each of which
shall be deemed an original and all of which shall constitute one instrument.
IN WITNESS WHEREOF, this Unanimous Written Consent has been executed by
the undersigned to be effective as of the date set forth above.
/s/ Earl Mincer
------------------------------
Earl Mincer, Director
------------------------------
Eric Walters, Director
------------------------------
Richard Lang, Director
5
<PAGE>
RESOLUTIONS ADOPTED BY THE
WRITTEN CONSENT OF THE SHAREHOLDERS OF
TIME SHIFT TV, INC.
July 26, 1999
The undersigned, constituting of the Shareholders of Time Shift TV,
Inc., a Delaware corporation (this "Corporation"), and acting by written consent
without a meeting pursuant to Section 141(f) of the Delaware General Corporation
Law, hereby adopt the following resolutions effective as of July 26, 1999:
WHEREAS, the Board of Directors of the Corporation has
approved the proposed Plan and Agreement of Merger pursuant to the
agreement attached hereto as Exhibit A, which constitutes a plan of
reorganization in the form of a statutory merger as described in
section 368(a) of the Internal Revenue Code of 1986; and
WHEREAS, it is deemed in the best interests of the
shareholders of the Corporation that the terms and conditions of such
Agreement of Merger be approved and performed, be it:
RESOLVED, that the principal terms of the proposed merger and
the Agreement of Merger between the Corporation, IVT Delaware, Inc.,
and Instant Video Technologies, Inc. are approved in the form attached
hereto as Exhibit A.
RESOLVED FURTHER, that the Board of Directors and officers of
the Corporation are authorized on behalf of the Corporation to take
such actions and execute, acknowledge, verify and file such documents
as may be necessary of convenient to carry out and perform such
Agreement of Merger.
/s/ Richard Lang
----------------------------
Richard Lang
----------------------------
Earl Mincer
/s/ Eric Walters
----------------------------
Eric Walters
6
<PAGE>
RESOLUTIONS ADOPTED BY THE
WRITTEN CONSENT OF THE SHAREHOLDERS OF
TIME SHIFT TV, INC.
July 26, 1999
The undersigned, constituting of the Shareholders of Time Shift TV,
Inc., a Delaware corporation (this "Corporation"), and acting by written consent
without a meeting pursuant to Section 141(f) of the Delaware General Corporation
Law, hereby adopt the following resolutions effective as of July 26, 1999:
WHEREAS, the Board of Directors of the Corporation has
approved the proposed Plan and Agreement of Merger pursuant to the
agreement attached hereto as Exhibit A, which constitutes a plan of
reorganization in the form of a statutory merger as described in
section 368(a) of the Internal Revenue Code of 1986; and
WHEREAS, it is deemed in the best interests of the
shareholders of the Corporation that the terms and conditions of such
Agreement of Merger be approved and performed, be it:
RESOLVED, that the principal terms of the proposed merger and
the Agreement of Merger between the Corporation, IVT Delaware, Inc.,
and Instant Video Technologies, Inc. are approved in the form attached
hereto as Exhibit A.
RESOLVED FURTHER, that the Board of Directors and officers of
the Corporation are authorized on behalf of the Corporation to take
such actions and execute, acknowledge, verify and file such documents
as may be necessary of convenient to carry out and perform such
Agreement of Merger.
----------------------------
Richard Lang
/s/ Earl Mincer
----------------------------
Earl Mincer
----------------------------
Eric Walters
7
<PAGE>
RESOLUTIONS ADOPTED BY THE UNANIMOUS
WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF
INSTANT VIDEO TECHNOLOGIES, INC.
July 26, 1999
The undersigned, constituting all of the members of the Board of
Directors of Instant Video Technologies, Inc., a California corporation (this
"Corporation"), and acting by written consent without a meeting pursuant to
Section 141(f) of the Delaware General Corporation Law, hereby adopt the
following resolutions effective as of July 26, 1999:
APPROVAL OF MERGER
------------------
WHEREAS, the Board of Directors of the Corporation has
discussed a proposed Plan and Agreement of Merger of Time Shift TV,
Inc. into IVT Delaware, Inc., this Corporation's subsidiary, pursuant
to a plan of reorganization in the form of a statutory merger using the
stock of this Corporation as described in section 368(a) of the
Internal Revenue Code of 1986, a copy of which agreement is attached
hereto as Exhibit A; and
WHEREAS, the Board of Directors deems it to be in the best
interests of the corporation and its shareholders that such Agreement
of Merger be approved and that Time Shift TV, Inc. merge with and into
IVT Delaware, Inc.
RESOLVED, that the terms and conditions of the proposed
Agreement of Merger between this Corporation, IVT Delaware, Inc., and
Time Shift TV, Inc. are approved in substantially the form attached
hereto as Exhibit A with such nonmaterial changes thereto as the
officers of this Corporation deem necessary and appropriate to
accomplish the proposed merger.
RESOLVED FURTHER, that the President and Secretary of the
Corporation are directed to execute and acknowledge said Agreement of
Merger in the name and on behalf of the Corporation and to deliver a
duly executed copy thereof to Time Shift TV, Inc. and IVT Delaware,
Inc.
Omnibus
-------
RESOLVED: That each of the officers of this Company be, and
each hereby is, authorized and directed to execute all documents and
take all such actions as may be necessary and proper for the Company to
carry out its obligations and consummate the transactions contemplated
in the foregoing resolutions.
This action may be executed in one or more counterparts, each of which
shall be deemed an original and all of which shall constitute one instrument.
8
<PAGE>
IN WITNESS WHEREOF, this Unanimous Written Consent has been executed by
the undersigned to be effective as of the date set forth above.
/s/ Joe Barletta
----------------------------
Joe Barletta
----------------------------
Ossie Kilkenny
----------------------------
Richard Lang
----------------------------
John Micek
----------------------------
Brian Murphy
9
<PAGE>
IN WITNESS WHEREOF, this Unanimous Written Consent has been executed by
the undersigned to be effective as of the date set forth above.
----------------------------
Joe Barletta
/s/ Ossie Kilkenny
----------------------------
Ossie Kilkenny
----------------------------
Richard Lang
----------------------------
John Micek
----------------------------
Brian Murphy
10
<PAGE>
IN WITNESS WHEREOF, this Unanimous Written Consent has been executed by
the undersigned to be effective as of the date set forth above.
----------------------------
Joe Barletta
----------------------------
Ossie Kilkenny
/s/ Richard Lang
----------------------------
Richard Lang
----------------------------
John Micek
----------------------------
Brian Murphy
11
<PAGE>
IN WITNESS WHEREOF, this Unanimous Written Consent has been executed by
the undersigned to be effective as of the date set forth above.
----------------------------
Joe Barletta
----------------------------
Ossie Kilkenny
----------------------------
Richard Lang
/s/ John Micek
----------------------------
John Micek
----------------------------
Brian Murphy
12
<PAGE>
IN WITNESS WHEREOF, this Unanimous Written Consent has been executed by
the undersigned to be effective as of the date set forth above.
----------------------------
Joe Barletta
----------------------------
Ossie Kilkenny
----------------------------
Richard Lang
----------------------------
John Micek
/s/ Brian Murphy
----------------------------
Brian Murphy
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed and attested to as of the date first written above.
Target:
Time Shift TV, Inc.,
a Delaware corporation
By: /s/ Richard Lang
--------------------------
Richard Lang, President
Shareholders
/s/ Richard Lang
-------------------------------
Richard Lang
/s/ Eric Walters
-------------------------------
Eric Walters
-------------------------------
Earl Mincer
Parent
Instant Video Technologies, Inc.,
a California corporation
By /s/ Richard Lang
--------------------------
Richard Lang, Chairman and CEO
Merger Subsidiary
IVT, Delaware
a Delaware corporation
By /s/ Richard Lang
--------------------------
Richard Lang, President
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed and attested to as of the date first written above.
Target:
Time Shift TV, Inc.,
a Delaware corporation
By:
--------------------------
Richard Lang, President
Shareholders
-------------------------------
Richard Lang
-------------------------------
Eric Walters
/s/ Earl Mincer
-------------------------------
Earl Mincer
Parent
Instant Video Technologies, Inc.,
a California corporation
By
--------------------------
Richard Lang, Chairman and CEO
Merger Subsidiary
IVT, Delaware
a Delaware corporation
By
--------------------------
Richard Lang, President
15
Exhibit 2.4 goes here
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "CATALINA CAPITAL CORP.", FILED IN THIS OFFICE ON THE
TWENTY-SEVENTH DAY OF APRIL, A.D. 1990, AT 10 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2229021 8100 AUTHENTICATION: 7964999
960155750 DATE: 05-29-96
<PAGE>
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILE 10:00 AM 04/27/1990
901175002 -- 2229021
CERTIFICATE OF INCORPORATION
OF
CATALINA CAPITAL CORP.
(A Delaware Corporation)
I, the undersigned, being a person capable of contracting
for the purpose of forming a corporation pursuant to
Chapter 1 of Title 8 of the General Corporation Law
of Delaware, do hereby adopt this Certificate of
Incorporation (the "Charter") and
for such purpose certify that:
Article I
NAME AND DURATION
The name of this corporation is Catalina Capital Corp. (the "Company").
It shall have perpetual existence.
Article II
REGISTERED OFFICE AND AGENT
The location of the Company's Registered Office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle, Delaware 19801. The Company's Registered Agent
at this address is The Corporation Trust Company.
Article III
INCORPORATOR
The incorporator's name is Heather Zane Anderson and her mailing
address is 501 South Cherry Street, Suite 500, Denver, Colorado 80222.
Article IV
PURPOSE
The Company may engage in any lawful activities for which corporations
may be formed under the General Corporation Law of Delaware and the laws of any
other state wherein the Company transacts business.
ARTICLE V
CAPITAL STOCK
5.01 Authorized Shares. The aggregate number of shares which the
Company shall have authority to issue is One Hundred and Twenty Million
(120,000,000). One Hundred Million (100,000,000) shares shall be designated
"Common Stock" and shall have a par value of
<PAGE>
$.0000l per share. Twenty Million (20,000,000) shares shall be designated
"Preferred Stock" and shall have a par value of $.0000l per share. All shares of
the Company shall be issued for such consideration, expressed in dollars, as the
Board of Directors may, from time to time, determine.
5.02 Consideration for Stock. Shares of Common Stock and Preferred
Stock issued shall be fully paid and nonassessable if (a) the entire amount of
consideration has been received by the Company in the form of cash, services
rendered, personal property, real property, leases of real property, or a
combination thereof; or (b) not less than the amount of the consideration
determined to be capital pursuant to Section 154 of the General Corporation Law
of Delaware has been received by the Company in the form specified in clause (a)
and the Company has received a binding obligation of the subscriber to pay the
balance of the consideration due. The Board of Directors shall have sole
authority to determine the consideration to be received for the Company's stock
and treasury stock, which shall not be less than the par value thereof.
5.03 Common Stock. The Common Stock may be issued from time to time in
one or more classes or series in any manner permitted by law, as determined by
the Board of Directors and stated in the resolution or resolutions providing for
issuance thereof. Each class or series shall be appropriately designated, prior
to issuance of any shares thereof, by some distinguishing letter, number or
title. All shares of each class or series of Common Stock shall be alike in
every particular and shall be of equal rank and have the same power, preferences
and rights, and shall be subject to the same qualifications, limitations and
restrictions, if any, as all other shares of the same class or series. The
Common Stock, and any class or series thereof, may have such voting powers
(including, without limitation, multiple votes per share, or limited,
contingent, or no voting powers), such designations, preferences and relative,
participating, optional or other special rights, and be subject to such
qualifications, limitations and restrictions, as the Board of Directors shall
determine by resolution or resolutions. Unless otherwise resolved by the Board
of Directors, each Common Stock share shall be of the same class and carry such
voting rights as elsewhere provided for in this Charter, without any
designation, preference or relative, participating, optional or other special
rights, and subject to no qualification, limitation or restriction.
5.04 Preferred Stock. The Preferred Stock may be issued from time to
time in series as determined by the Board of Directors and stated in the
resolution or resolutions providing for issuance thereof. The Board of Directors
is further authorized to fix and determine the variations in the relative rights
and preferences as between series. Each such series shall be appropriately
designated, prior to the issuance of any shares thereof, by some distinguishing
letter, number, or title. The Preferred Stock may
2
<PAGE>
have such voting powers (including, without limitation, multiple votes per
share, or limited, contingent, or no voting powers), may have such designations,
preferences, and relative, participating, optional or other special rights, and
be subject to such qualifications, limitations and restrictions, as the Board of
Directors shall determine by resolution or resolutions. The Preferred Stock
further may be made subject to redemption by the Company at its option or at the
options of the holders thereof and may be convertible into Common Stock or
exchangeable for other securities of the Company.
5.05 Amendment of Stockholder Rights. So long as no shares of any class
or series established by resolution of the Board of Directors have been issued,
the voting rights, designations, preferences and relative, optional,
participating or other rights of these shares may be amended by resolution of
the Board of Directors.
5.06 Shares Reacquired by the Company. Shares of the Company's Common
Stock or Preferred Stock redeemed or otherwise reacquired by the Company shall
not be cancelled and retired, unless the Board of Directors specifically so
resolves at the time issuance thereof is authorized, but shall be given the
status of authorized and unissued shares.
5.07 Dividends. Dividends in cash, property or shares of the Company
may be paid upon the Preferred and Common Stock, as and when declared by the
Board of Directors, out of funds of the Company to the extent and in the manner
permitted by law. If at any time the Company has outstanding more than one class
of shares, it may pay dividends on its shares to the holders of any class of
shares, without the vote either of the stockholders of the class to which the
payment is to be made or of the stockholders of any class to which payment is
not to be made.
5.08 Voting Rights; Cumulative Voting. Unless otherwise provided in a
prior resolution of the Board of Directors that designates the preferences and
relative rights and limitations of the class or series to which such shares
belong or, in the absence of such a resolution, in the resolution that
authorizes the issuance of the shares, each outstanding share of Common Stock
shall be entitled to one vote and each fractional share of Common Stock shall be
entitled to a corresponding fractional vote on each matter submitted to a vote
of stockholders. The voting rights of Preferred Stock, if any, shall be
established by the Board of Directors at the time the series of such stock is
established. Cumulative voting shall not be allowed in the election of directors
of the Company.
5.09 Voting Rights of Debt Holders. Holders of debentures, bonds or
other obligations of the Company may, at the time of issuance thereof, be given
the right to vote in the election of
3
<PAGE>
Directors or other voting rights. Any such voting rights may be fixed or
contingent.
5.10 Denial of Preemptive Rights. No holder of any shares of the
Company, whether now or hereafter authorized, shall have any preemptive or
preferential right to acquire any shares or securities of the Company, including
shares or securities held in the treasury of the Company.
5.11 Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the Company, and after paying or adequately providing for the
payment of all its obligations, including any preferences granted to Preferred
Stock, the remainder of the assets of the Company shall be distributed, either
in cash or in kind, pro rata to the holders of the Common Stock and, if not
previously provided for, to the holders of Preferred Stock, without regard to
par value.
5.12 Partial Liquidation. The Board of Directors may, from time to
time, distribute to the stockholders in partial liquidation, out of stated
capital, or capital surplus of the Company, a portion of its assets, in cash or
property, subject to the limitations contained in the General Corporation Law of
Delaware. Any such partial liquidation may be made without the vote or approval
of stockholders. The Company may also make purchases of its Common or Preferred
Stock, directly or indirectly, to the extent of unreserved and unrestricted
earned surplus available, without the vote or approval of stockholders.
ARTICLE VI
REGISTERED HOLDERS
The Company shall be entitled to treat the registered holder of any
shares of the Company as the owner of such shares, and shall not be bound to
recognize any equitable or other claim to, or interest in, such shares or rights
deriving from such shares, unless and until such purchaser, assignee, transferee
or other person becomes the registered holder of such shares, whether or not the
Company shall have either actual or constructive notice of the interests of such
purchaser, assignee, or transferee or other person. The purchaser, assignee, or
transferee of any of the shares of the Company shall not be entitled: to receive
notice of the meetings of the stockholders; to vote at such meetings; to examine
a list of the stockholders; to be paid dividends or other sums payable to
stockholders; or to own, enjoy and exercise any other property or rights,
deriving from such shares against the Company, until such purchaser, assignee,
or transferee has become the registered holder of such shares.
4
<PAGE>
ARTICLE VII
DIRECTORS
7.01 Initial Directors. The powers of the incorporator shall terminate
upon the filing of this Charter. The number of Directors shall be as fixed in
the manner provided in the Company's Bylaws; provided that, in the absence of
such provision in the Bylaws, the Company shall have three (3) Directors. The
individuals whose names and addresses are set forth below shall serve as the
Company's initial directors until the first annual meeting of stockholders or
until their successors are duly elected and qualified. Directors shall be
elected by plurality vote and need not be elected by written ballot.
John J. Micek III Donald R. McGhan
430 Cowper Street c/o Smith, Mitchell
Suite 231 Associates, Inc.
Palo Alto, CA 94301 980 N. Federal Hwy.
Suite 206
Boca Raton, FL 33432
Frank L. Kramer
12543-A East Pacific Circle
Aurora, CO 80014
7.02 Exclusion of Liability. As authorized by Section 102(b)(7) of the
General Corporation Law of Delaware, no Director of the Company shall be
personally liable to the Company or any stockholder thereof for monetary damages
for breach of his fiduciary duty as a Director, except for liability (i) for any
breach of a Director's duty of loyalty to the Company or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) for acts in violation of Section 174 of the
General Corporation Law of Delaware, as it now exists or may hereafter be
amended, or (iv) for any transaction from which a Director derives an improper
personal benefit. This Article 7.02 shall apply to a person who has ceased to be
a Director of the Company with respect to any breach of fiduciary duty which
occurred when such person was serving as a Director. This Article 7.02 shall not
be construed to limit or modify in any way any Director's right to
indemnification or other right whatsoever under this Charter, the Company's
Bylaws or the General Corporation Law of Delaware. If the General Corporation
Law of Delaware hereafter is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of the Company's
Directors in addition to the limitation on personal liability provided herein,
shall be limited to the fullest extent permitted by the General Corporation Law
of Delaware as so amended. Any repeal or modification of this Article 7.02 by
the stockholders shall be prospective only and shall not adversely affect any
limitation on the personal liability of any Director existing at the time of
such repeal or modification. The affirmative vote of at least two-thirds (2/3)
of the total voting
5
<PAGE>
power shall be required to amend or repeal, or adopt any provision inconsistent
with, this Article 7.02.
7.03 Corporate Opportunity. The Officers, Directors and other members
of management of the Company shall be subject to the doctrine of "corporate
opportunities" only insofar as it applies to any business opportunity in which
the Company has expressed an interest as determined from time to time by the
Company's Board of Directors as evidenced by resolutions appearing in the
Company's minutes. Once such areas of interest are delineated, all such business
opportunities within such areas of interest which come to the attention of the
Officers, Directors, and other members of management of the Company shall be
disclosed promptly to the Company and made available to it. The Board of
Directors may reject any business opportunity presented to it, and only
thereafter may any Officer, Director or other member of management avail himself
of such opportunity. Until such time as the Company, through its Board of
Directors, has designated an area of interest, the Officers, Directors and other
members of management of this Company shall be free to engage in such area of
interest on their own, and this doctrine shall not limit the rights of any
Officer, Director or other member of management of the Company to continue a
business existing prior to the time that such area of interest is designated by
the Company. This provision shall not be construed to release any employee of
the Company (other than an Officer, Director or member of management) from any
duties which he may have to this Company.
ARTICLE VII
Stockholders
8.01 Definition. Whenever the term "total voting power" appears in this
Charter, it shall mean all shares of the Company entitled to vote on the
question presented, and of every class or series of shares entitled to vote by
class or series. Whenever the term "voting power present" appears in this
Charter, it shall mean that portion of the total voting power (if less than
100%) which is present at a legal meeting of the Company's stockholders, duly
called and held, at which a quorum is present.
8.02 Quorum. One-third (1/3) of the total voting power, or where a
separate vote by class or series is required, one-third (1/3) of the shares of
each such class or series, represented in person or by proxy, shall constitute a
quorum at any meeting of the Company's stockholders.
8.03 Vote Required. Any action to be taken by the Company's
stockholders may be taken by a majority of the voting power present, in person
or by proxy, except where this Charter or the Company's bylaws then in effect
require a higher proportion of the voting power present, a proportion of the
total voting power, or
6
<PAGE>
both. Nothing contained in this Article shall affect the voting rights of
holders of any class or series of shares entitled to vote as a class or by
series.
8.04 Manner of Voting. The vote of stockholders may be taken at a
meeting by a show of hands or other method authorized by the Board of Directors.
Written ballots shall be used only upon authorization of the Board of Directors
or as provided in the Company's Bylaws.
8.05 Action Without Meeting. Notwithstanding any other provision of
this Charter, any action by the stockholders may be taken by written consent in
lieu of a meeting, without prior notice or vote, of the holders of that portion
of the total voting power necessary to authorize such action. The manner of
obtaining any such written consent shall be governed by the Company's Bylaws.
ARTICLE IX
BYLAWS
The initial Bylaws of the Company shall be adopted by its Board of
Directors. The power to alter, amend or repeal the Bylaws or adopt new Bylaws
shall be vested in the Board of Directors, subject to the right of the
stockholders to alter, amend or repeal such Bylaws or adopt new Bylaws by the
affirmative vote of at least two-thirds (2/3) of the total voting power. The
Bylaws may contain any provisions for the regulation and management of the
affairs of the Company not inconsistent with law or this Charter.
ARTICLE X
COMPROMISE AND REORGANIZATION
Whenever a compromise or arrangement is proposed between the Company
and its creditors or any class of them and/or between the Company and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the Company or
of any creditor or stockholder thereof or on the application of any receiver or
receivers appointed for the Company under Section 291 of the General Corporation
Law of Delaware or on the application of trustees in dissolution or of any
receiver or receivers appointed for the Company under Section 279 of the General
Corporation Law of Delaware order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the Company,
as the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Company, as the case may be, agree to any compromise or arrangement and to any
reorganization of the
7
<PAGE>
Company as consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
the Company, as the case may be, and also on the Company.
ARTICLE XI
INDEMNIFICATION
11.01. Actions, Suits or Proceedings Other than by or in the Rights of
the Company. The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company), by reason of the fact
that he is or was or has agreed to become a director or officer of the Company,
or is or was serving or has agreed to serve at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges, expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company.
11.02. Actions or Suits by or in the Right of the Company. The Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was or has agreed to become a director or officer of the Company, or is or
was serving or has agreed to serve at the request of the Company as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against costs, charges and expenses (including attorney's fees)
actually and reasonably incurred by him or on his behalf in connection with the
defense or settlement of such action or suit and any appear therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been
8
<PAGE>
adjudged to be liable to the Company unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and expenses
which the Court of Chancery or such other court shall deem proper.
11.03. Indemnification for Costs, Charges and Expenses of Successful
Party. Notwithstanding the other provisions of this Article, to the extent that
a director or officer of the Company has been successful on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suit or proceeding referred to in Sections
11.01 and 11.02 of this Article, or in defense of any claim, issue or matter
therein, he shall be indemnified against all costs, charges and expenses
(including attorney's fees) actually and reasonably incurred by him or on his
behalf in connection therewith.
11.04. Determination of Right to Indemnification. Any indemnification
under Sections 11.01 and 11.02 of this Article (unless ordered by a court) shall
be paid by the Company unless a determination is made (i) by a disinterested
majority of the Board of Directors who were not parties to such action, suit or
proceeding, or (ii) if such disinterested majority of the Board of Directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders, that indemnification of the director or officer is not proper in
the circumstances because he has not met the applicable standard of conduct set
forth in Sections 11.01 and 11.02 of this Article.
11.05. Advances of Costs, Charges and Expenses. Costs, charges and
expenses (including attorney's fees) incurred by a person referred to in
Sections 11.01 or 11.02 of this Article in defending a civil or criminal action,
suit or proceeding shall by paid by the Company in advance of the final
disposition of such action, suit or proceeding; provided, however, that the
payment of such costs, charges and expenses incurred by a director or officer in
his capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer) in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that is shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Company as authorized in this Article. Such costs, charges and expenses
incurred by other employees and agents may be so paid upon terms and conditions,
if any, as the majority of the Directors deems appropriate. The majority of the
Directors may, in the manner set forth above, and upon approval of such
director, officer, employee or agent of the Company, authorize
9
<PAGE>
the Company's counsel to represent such person, in any action, suit or
proceeding, whether or not the Company is a party to such action, suit or
proceeding.
11.06 Procedure for Indemnification. Any indemnification under Sections
11.01, 11.02 and 11.03, or advance of costs, charges and expenses under section
11.05 of this Article, shall be made promptly, and in any event within 60 days,
upon the written request of the director or officer. The right to
indemnification or advances as granted by this Article shall be enforceable by
the director or officer in any court of competent jurisdiction if the Company
denies such request, in whole or in part, or if no disposition thereof is made
within 60 days. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such action shall also be indemnified by the Company. It shall be a defense
to any such action (other than an action brought to enforce a claim for the
advance of costs, charges and expenses under Section 11.05 of this Article where
the required undertaking, if any, has been received by the Company) that the
claimant has not met the standard of conduct set forth in Sections 11.01 or
11.02 of this Article, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Company (including its Board of
Directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in Sections 11.01 or 11.02 of this Article, nor
the fact that there has been an actual determination by the Company (including
its Board of Directors, its independent legal counsel and its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
11.07. Settlement. If in any action, suit or proceeding, including any
appeal, within the scope of Sections 11.01 or 11.02 of this Article, the person
to be indemnified shall have unreasonably failed to enter into a settlement
thereof, then, notwithstanding any other provision hereof, the indemnification
obligation of the Company to such person in connection with such action, suit or
proceeding shall not exceed the total of the amount at which settlement could
have been made and the expenses by such person prior to the time such settlement
could reasonably have been effected.
11.08. Other Rights; Continuation of Right to Indemnification. The
indemnification provided by this Article shall not be deemed exclusive of any
other rights to which any director, officer, employee or agent seeking
indemnification may be entitled under any law (common or statutory), agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his
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official capacity and as to action in another capacity while holding office or
while employed by or acting as agent for the Company, and shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
inure to the benefit of the estate, heirs, executors and administrators of such
person. All rights to indemnification under this Article shall be deemed to be a
contract between the Company and each director or officer of the Company who
serves or served in such capacity at any time while this Article is in effect.
Any repeal or modification of this Article or any repeal or modification of
relevant provisions of the General Corporation Law of Delaware or any other
applicable laws shall not in any way diminish any rights to indemnification of
such director, officer, employee or agent or the obligations of the Company
arising hereunder. This Article shall be binding upon any successor corporation
to this Company, whether by way of acquisition, merger, consolidation or
otherwise.
11.09. Insurance. The Company may purchase and maintain insurance on
behalf of any person who is or was or has agreed to become a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him or on his behalf in any such capacity,
or arising out of his status as such, whether or not the Company would have the
power to indemnify him against such liability under the provisions of this
Article; provided, however, that such insurance is available on acceptable
terms, which determination shall be made by a vote of a majority of the
Directors.
11.10. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company (i) shall nevertheless indemnify each director and officer of the
Company and (ii) may nevertheless indemnify each employee and agent of the
Company, as to any cost, charge and expense (including attorney's fees),
judgement, fine and amount paid in settlement with respect to any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the Company, to the full extent
permitted by any applicable portion of this Article that shall not have been
invalidated and to the full extent permitted by applicable law.
11.11. Amendment. The affirmative vote of at least two-thirds (2/3) of
the total voting power shall be required to amend, repeal, or adopt any
provision inconsistent with, this Article. No amendment, termination or repeal
of this Article shall affect or impair in any way the rights of any director or
officer of the Company to indemnification under the provisions hereof with
respect to any action, suit or proceeding arising out of, or relating to, any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or appeal.
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11.12. Subsequent Legislation. If the General Corporation Law of
Delaware is amended after approval by the stockholders of this Article to
further expand the indemnification permitted to directors, officers, employees
or agents of the Company, then the Company shall indemnify such persons to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
IN WITNESS WHEREOF, the above named Incorporator has signed this
Certificate of Incorporation on the twenty-fourth day of April, 1990.
INCORPORATOR:
/s/ Heather Zane Anderson
---------------------------------
Heather Zane Anderson
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
I, the undersigned, a notary public, hereby certify that on the
twenty-fourth day of April, 1990, the above named Incorporator personally
declared before me and, being by me first duly sworn, declared that she is the
person who signed the foregoing Certificate of Incorporation as Incorporator,
and that the statements therein contained are true.
WITNESS my hand and official seal.
/s/ Rosemarie G. Simone
---------------------------------
Notary Public
(SEAL)
My Commission Expires:
8/12/91
- -----------------------
12
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/19/1992
922335016 -- 2229021
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
CATALINA CAPITAL CORP.
CHANGING ITS NAME TO
INSTANT VIDEO TECHNOLOGIES, INC.
CATALINA CAPITAL CORP., a corporation organized and existing under and
by virtue of The General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the name of the Corporation is Catalina Capital Corp.
SECOND: The original Certificate of Incorporation was filed in the
office of the Secretary of State of the State of Delaware on April 27, 1990.
THIRD: That the Board of Directors and Shareholders of said corporation
have adopted a resolution proposing and declaring advisable the following
amendment to the Certificate of said corporation in accordance with the
provisions of Section 242 of the General Corporation Law of Delaware:
RESOLVED: That Article I of the Certificate of Incorporation of the
Corporation be amended in its entirety to read as follows:
1. The name of the Corporation is Instant Video Technologies,
Inc. (the "Company"). It shall have perpetual existence.
IN WITNESS WHEREOF, the undersigned officers, for and on behalf of the
Corporation, have signed this Certificate of Amendment to the Certificate of
Incorporation, as their free and voluntary act and deed on behalf of the
Corporation, and the facts stated herein are true, this 17th day of August,
1992.
CATALINA CAPITAL CORP.
(changing its name to
INSTANT VIDEO TECHNOLOGIES, INC.
ATTEST:
By /s/ G. Peter Spiess By /s/ Wayne Van Dyck
---------------------------- ----------------------------
G. Peter Spiess, Secretary Wayne Van Dyck, President
BYLAWS
OF
CATALINA CAPITAL CORP.
(A Delaware Corporation)
ARTICLE I
Offices
1.01 Principal Office. The principal office of this Corporation
(hereinafter, the "Company") shall be selected by the Board of Directors from
time to time and may be within or without the State of Delaware.
1.02 Other Offices. The Company may have such other offices, within or
without the State of Delaware, as the Board of Directors may, from time to time,
determine.
1.03 Registered Office. The registered office of the Company required
by the General Corporation Law of Delaware to be maintained in Delaware may be,
but need not be, identical with the principal office if in Delaware, and the
address of the registered office may be changed from time to time by the Board
of Directors.
1.04 Repeal of Inconsistent Provisions. All prior bylaws and
resolutions of the Board of Directors are repealed to the extent in conflict
with the provisions of these ByLaws.
ARTICLE II
Stock and the Transfer Thereof
2.01 Stock Certificates. The shares of the Company's capital stock
shall be represented by consecutively numbered certificates signed by the
President or a Vice President and the Secretary or Assistant S ecretary of the
Company, and sealed with the seal of the Company, or a facsimile thereof. If
certificates are signed by a transfer agent, acting on behalf of the Company,
and a registrar, the signatures of the officers of the Company may be facsimile.
In case any officer who has signed (by real or facsimile signature) shall have
ceased to be such officer before such certificate is issued, it may be issued by
the Company with the same effect as if he were such officer on the date of its
issue.
Each certificate representing shares shall state upon the face thereof:
(a) that the Company is organized under the laws of the State
of Delaware;
(b) the name of the person to whom issued;
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(c) the number, class and series (if any) of shares which such
certificate represents; and
(d) the par value, if any, of the shares represented by such
certificate, or a statement that the shares have no par value.
If any class or series of shares is subject to special powers,
designations, preferences or relative, participating or other special rights,
then such (together with all qualifications, limitations or restrictions of such
preferences or rights) shall be set forth in full or summarized on the
certificate representing such class or series. However, in lieu of such
requirement, the certificate may state that the Company will furnish, without
charge, to the registered holder of the shares represented by such certificate
who so requests a statement setting forth such information in full.
Each certificate also shall set forth restrictions upon
transfer, if any, or a reference thereto, as shall be adopted by the Board of
Directors or by the shareholders, or as may be contained in this Article II.
No certificate shall be issued for any share until such share
is fully paid, as defined in the Certificate of Incorporation.
2.02 Consideration for Shares. Shares shall be issued for such
consideration expressed in dollars as shall be fixed from time to time by the
Board of Directors. Treasury shares may be disposed of by the Company for such
consideration expressed in dollars as may be fixed from time to time by the
Board of Directors. No shares shall be issued for less than the par value
thereof. The consideration for the issuance of shares may be paid, in whole or
in part, in money, in other property, tangible or intangible, or in labor or
services actually performed for the Company, or as permitted in the certificate
of Incorporation. Future services shall not constitute payment or part payment
for shares of the Company.
2.03 Lost Certificate. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, and the Board of Directors when authorizing
such issue of a new certificate or certificates may in its discretion, and as a
condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates or his legal representative to advertise
the same in such manner as it shall require, and/or furnish to the Company a
bond in such sum as it may direct, as indemnity against any claim that may be
made against the Company. Except as hereinabove in this section pro-
2
<PAGE>
vided, no new certificate or certificates evidencing shares of stock shall be
issued unless and until the old certificate or certificates, in lieu of which
the new certificate or certificates are issued, shall be surrendered for
cancellation.
2.04 Registered Holder as Owner. The Company shall be entitled to treat
the holder of record of any share of stock as the owner thereof entitled to
receive dividends and to vote such shares, and accordingly shall not be bound to
recognize any equitable or any other claim to or interest in such shares on the
part of any other person, whether or not it shall have express or other notice
thereof, except as may be required by a valid proxy or by the laws of the State
of Delaware.
2.05 Returned Certificates. All certificates for shares changed or
returned to the Company for transfer shall be marked by the Secretary
"Cancelled," with the date of cancellation, and the transaction shall be
immediately recorded in the certificate book opposite the memorandum of their
issue. The returned certificate may be inserted in the certificate book.
2.06 Transfer of Shares. Upon surrender to the Company or to a transfer
agent of the Company of a certificate of stock endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, and such
documentary stamps as may be required by law, it shall be the duty of the
Company to issue a new certificate. Each such transfer of stock shall be entered
on the stock book of the Company.
2.07 Transfer Agent. The Board of Directors shall have power to appoint
one or more transfer agents and registrars for the transfer and registration of
certificates of stock of any class, and may require that stock certificates
shall be countersigned and registered by one or more of such transfer agents and
registrars. Any powers or duties with respect to the transfer and registration
of certificates may be delegated to the transfer agent and registrar.
ARTICLE III
Shareholders and Meetings Thereof
3.01. Annual Meeting. The annual meeting of the shareholders for the
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date as may be determined by
resolution of the Board of Directors, but if such day be a holiday, then on the
first business day thereafter which is not a holiday; provided, however, that
the Board of Directors may, by resolution, postpone such meeting for a period of
time not in excess of sixty (60) days. The place of the annual meeting shall be
the principal office of the Company or such other place within or without the
State of Delaware as the Board of
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<PAGE>
Directors may determine.
3.02 Special Meetings. Special meetings of the shareholders may be
called by the President, a Vice President, the Board of Directors, or the
holders of not less than one-tenth of all the shares entitled to vote at the
meeting. Special meetings shall be held at the principal office of the Company,
unless the Board of Directors determines otherwise.
3.03 Notice of Meetings. Written or printed notice stating the place,
day, and hour of the meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered not loss than
ten (10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or persons calling the meeting, to each shareholder of record in
the manner above provided. No business other than that specified in the notice
of special meeting shall be transacted at any such special meeting. The notice
of special meeting may be waived by submitting a signed waiver or by attendance
at the meeting.
3.04 Closing of Transfer Books and Fixing Record Date. For the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the company may provide that the stock
transfer books shall be closed for a stated period not to exceed in any case
sixty (60) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than sixty (60) days, and in case of a meeting of shareholders, not less
than ten (10) days prior to the date on which the particular action, requiring
such determination of shareholders, is to be taken, and in no event may the
record date precede the date upon which the Directors adopt a resolution fixing
the record date. If the stock transfer books are not closed and no record date
is fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the rating is given (as defined in Article
9 hereof) or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of the shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this Paragraph, such determination shall apply to any adjournment thereof,
unless the Board of Directors fixes a new record date for the adjournment. The
record date for determining shareholders entitled to consent to corporate
actions without a meeting shall be fixed as provided in Section 3.12.
4
<PAGE>
3.05 Voting List. The officer or agent having charge of the stock
transfer books for shares of the Company shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the principal office of the Company, and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time of
the meeting. The original stock transfer books shall be prima facie evidence as
to who are the shareholders entitled to examine such list or transfer books or
to vote at any meeting of shareholders.
3.06 Quorum. A quorum at any meeting of the shareholders shall consist
of one-third (1/3) of the shares entitled to vote represented in person or by
proxy. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting entitled to vote on the subject matter shall
be the act of the shareholders. If less than one-third (1/3) of the shares
entitled to vote be represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time to the same place without
further notice. At such adjourned meeting, at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
a meeting as originally notified. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
3.07 Proxies. At all meetings of shareholders, a shareholder may vote
by proxy, executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the Company
before or at the time of the meeting. No proxy shall be valid after three (3)
years from the date of its execution, unless otherwise provided in the proxy.
3.08 Voting of Shares. Each outstanding share shall be entitled to one
vote and each fractional share shall be entitled to a corresponding fractional
vote on each matter submitted to vote at a meeting of shareholders.
3.09 Voting of Shares by Certain Holders. Neither treasury shares, nor
shares of its own stock held by the Company in a fiduciary capacity, nor shares
held by another Company if the majority of the shares entitled to vote for the
election of directors of such other corporation is held by the Company, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time.
Shares standing in the name of another corporation, do-
5
<PAGE>
mestic or foreign, may be voted by such officer, agent, or proxy as the bylaws
of such corporation may prescribe, or, in the absence of such provision, as the
board of directors of such Company may determine.
Shares held by an administrator, executor, personal representative,
guardian, or conservator may be voted by him, either in person or by proxy,
without a transfer of such shares into his name. Shares standing in the name of
a trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such shares
into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledge shall be entitled to vote the shares so transferred.
3.10 Chairman. The Chairman of the Board of Directors of the Company,
if there is one, or in his absence, the President, shall act as chairman at all
meetings of shareholders.
3.11 Shareholder Voting. Voting at any shareholders meeting shall be
oral or by show of hands; provided, however, that voting shall be by written
ballot if such demand is made by any shareholder present in person or by proxy
and entitled to vote.
3.12 Informal Action by Shareholders; Record Date. Any action required
to be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of the shareholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of a majority of shares of every
class and series entitled to vote with respect to the subject matter thereof.
Each written consent shall bear the date of every shareholder's signature, and
no written consent will be effective unless written consents, signed by a
sufficient number of shareholders to take action, are delivered to the Company
within sixty (60) days of the date of the earliest such consent. Such consent
shall have the same force and effect as a vote of the shareholders, and may be
stated as such in any document filed with the Secretary of State of Delaware
under the General Corporation Law of Delaware. Prompt notice of such action by
written consent of less than all shareholders entitled to vote shall be given to
all shareholders who have not consented in writing to the action taken.
6
<PAGE>
The record date for determining shareholders entitled to consent to
corporate actions in writing without a meeting (the "Consent record date") shall
not precede, and shall not be more than ten (10) days after, the date upon which
the resolution fixing the record date was adopted; however, if no consent record
date is fixed and prior action by the Board of Directors is required for the
consent to be validly taken, the consent record date shall be at the close of
business on the day the Board of Directors is required, then the consent record
date shall be the first date on which a properly signed and dated consent
setting forth the action taken or proposed to be taken is delivered as required
above.
3.13 Annual Report. The President of the Company shall prepare an
annual report which will set forth a statement of affairs of the Company as of
the end of its last fiscal year, including a balance sheet and an income
statement, and present it at the Annual Meeting of Shareholders. Failure to
prepare or present an annual report shall not affect the validity of any
shareholder meeting. No such report need be prepared or presented for any fiscal
year in which the Company was inactive.
ARTICLE IV
Directors, Powers and Meetings
4.01 General Powers. The business and affairs of the Company shall be
managed by its Board of Directors, except as otherwise provided in the General
Corporation Law of Delaware or the Certificate of Incorporation.
4.02 Number, Tenure and Qualifications. The Company's Board of
Directors shall consist of not less than one (1) and not more than seven (7)
Directors, as resolved from time to time by the Board of Directors. If such
number is not so fixed, the Company shall have three (3) Directors. Directors
shall be elected at each Annual Meeting of Shareholders. Each Director shall
hold office until the next Annual Meeting of Shareholders and thereafter until
his successor shall have been elected and qualified. Directors need not be
residents of Delaware or shareholders of the Company. Directors shall be
removable in the manner provided by the General Corporation Law of Delaware.
Directors shall be elected by plurality vote.
4.03 Vacancies. Any Director may resign at any time by giving written
notice to the President or to the Secretary of the Company. Such resignation
shall take effect at the time specified therein; and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining Directors though less than a
quorum, or by a sole remaining Director. A Director elected to fill a vacancy
shall be elected for the unexpired term
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<PAGE>
of his predecessor in office. Any directorship to be filled by reason of an
increase in the number of Directors shall be filled by the affirmative vote of a
majority of the Directors then in office or by an election at an annual meeting
or at a special meeting of shareholders called for that purpose, and a Director
so chosen shall hold office for the term specified in Paragraph 4.02 of this
Article.
4.04 Removal of Directors. Any Director may be removed only in the
manner provided in the Company's Certificate of Incorporation, as amended, and
if no such provision appears therein: any Director may be removed either with or
without cause, at any time, by a vote of the shareholders holding a majority of
the shares then issued and outstanding and who are entitled to vote for the
election of Directors, present at any special meeting called for that purpose.
In case any vacancy so created shall not be filled by the shareholders at such
meeting, such vacancy may be filled by the Board of Directors as provided
hereinafter.
4.05 Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this ByLaw immediately after and at the
same place as the Annual Meeting of shareholders. The Board of Directors may
provide by resolution the time and place, either within or without the State of
Delaware, for the holding of additional regular meetings without other notice
than such resolution.
4.06 Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the President, the Chairman of the Board, or
any two Directors. The person or persons authorized to call special meetings of
the Board of Directors may fix any place, either within or without the State of
Delaware, as the place for holding any special meeting of the Board of Directors
called by them.
4.07 Telephonic Meetings. Members of the Board of Directors or any
committee designated by the Board may participate in a meeting of the Board of
Directors or committee by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear one another at the same time. Such participation shall constitute presence
in person at the meeting. All participants in any meeting of Directors, by
virtue of their participation and without further action on their part, shall be
deemed to have consented to the recording of such meeting by electronic device
or otherwise, and to the making of a written transcript thereof, in order that
minutes thereof shall be available for the Company's records.
4.08 Notice. Notice of any special meeting shall be given at least four
(4) days previous thereto by written notice delivered personally or mailed to
each Director at his business address, or by notice given at least two (2) days
prior to the meeting, in
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person or by any means specified in Section 9.01(b) or (c). Any Director may
waive notice of any meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
4.09 Quorum. A majority of the number of directors fixed by these
Bylaws shall constitute a quorum for the transaction of business. The act of the
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
4.10 Compensation. By resolution of the Board of Directors, any
Director may be paid any one or more of the following: his expenses, if any, of
attendance at a meeting; a fixed sum for attendance at each meeting; or a stated
salary as Director. No such payment shall preclude any Director from serving the
Company in any other capacity and receiving compensation therefor.
4.11 Presumption of Assent. A Director of the Company who is present at
a meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the Secretary of the
meeting before the adjournment thereof, or shall forward such dissent by
registered or certified mail to the Secretary of the Company immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
4.12 Executive Committee. The Board of Directors, by resolution adopted
by a majority of the number of Directors, may designate two (2) or more
Directors to constitute an Executive Committee, which may exercise all of the
authority of the Board of Directors in the management of the Company, during the
period of time between meetings of the Board of Directors; but the designation
of such committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed upon it or him by law.
4.13 Action by Directors Without Meeting. Any action required to be
taken at a meeting of the Directors of the Company or any action which may be
taken at such a meeting, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the Directors
entitled to vote with respect to the subject matter thereof. A consent shall be
sufficient for this Paragraph if it is executed in counterparts, in
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which event all of such counterparts, when taken together, shall constitute one
and the same consent.
4.14 Chairman of the Board. The Chairman of the Board, if such officer
shall be chosen by the Board of Directors, shall preside at all meetings of the
Board of Directors and meetings of shareholders at which he is present. He
shall, subject to the direction of the Board of Directors, have general
supervision over the affairs of the Company, and shall, from time to time,
consult and advise with the President in the direction and management of the
Company's business and affairs, and shall also do and perform such other duties
as may, from time to time, be assigned to him by the Board of Directors.
4.15 Bank Accounts, etc. Anything herein to the contrary
notwithstanding, the Board of Directors may, except as may otherwise be required
by law, authorize any officer or officers, agent or agents, in the name of and
on behalf of the Company, to sign checks, drafts, or other orders for the
payment of money or notes or other evidences of indebtedness, to endorse for
deposit, deposit to the credit of the Company at any bank or trust company or
banking institution in which the Company may maintain an account or to cash
checks, notes, drafts, or other bankable securities or instruments, and such
authority may be general or confined to specific instances, as the Board of
Directors may elect.
4.16 Inspection of Records. Every Director shall have the absolute
right at any reasonable time to inspect all books, records, documents of every
kind, and the physical properties, of the Company and of its subsidiaries. Such
inspection may be made personally or by an agent and includes the right to make
copies and extracts.
ARTICLE V
Officers and Agents
5.01 General. The officers of the Company shall be a President, one or
more Vice Presidents, a Secretary and a Treasurer. The Board of Directors may
appoint such other officers, assistant officers, as they may consider necessary,
who shall be chosen in such manner and hold their offices for such terms and
have such authority and duties as from time to time may be determined by the
Board of Directors. The salaries of all the officers of the Company shall be
fixed by the Board of Directors. One person may hold any two offices, except
that no person may simultaneously hold the offices of President and Secretary.
In all cases where the duties of any officer, agent or employee are not
prescribed by the Bylaws or by the Board of Directors, such officer, agent or
employee shall follow the orders and instructions of the President.
5.02 Election and Term of Office. The officers of the
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Company shall be elected by the Board of Directors annually at the first meeting
of the board held after each Annual Meeting of the Shareholders. If the election
of officers shall not be held at such meeting, such election shall be held as
soon thereafter as conveniently may be. Each officer shall hold office until the
first of the following to occur: Until his successor shall have been duly
elected and shall have qualified; or until his death; or until he shall resign;
or until he shall have been removed in the manner hereinafter provided.
5.03 Removal. Any officer or agent may be removed by the Board of
Directors or by the Executive Committee whenever in its judgment the best
interest of the Company will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not in itself create
contract rights.
5.04 Vacancies. A vacancy in any office, however occurring, may be
filled by the Board of Directors for the unexpired portion of the term.
5.05 President. The President shall, subject to the direction and
supervision of the Board of Directors, be the chief executive officer of the
Company and shall have general and active control of its affairs and business
and general supervision of its officers, agents and employees. He shall, unless
otherwise directed by the Board of Directors, attend in person or by substitute
appointed by him, or shall execute in behalf of the Company written instruments
appointing a proxy or proxies to represent the Company, at all meetings of the
stockholders of any other Company in which the Company shall hold any stock. He
may, on behalf of the Company, in person or by substitute or by proxy, execute
written waivers of notice and consents with respect to any such meetings. At all
such meetings and otherwise, the President, in person or by substitute or proxy
as aforesaid, may vote the stock so held by the Company and may execute written
consent and other instruments and power incident to the ownership of said stock,
subject however to the instructions, if any, of the Board of Directors. The
President shall have custody of the Treasurer's bond, if any.
5.06 Vice Presidents. The Vice Presidents shall assist the President
and shall perform such duties as may be assigned to them by the President or by
the Board of Directors. In the absence of the President, the Vice President
designated by the Board of Directors or (if there be no such designation)
designated in writing by the President shall have the powers and perform the
duties of the President. If no such designation shall be made all Vice
Presidents may exercise such powers and perform such duties.
5.07 Secretary. The Secretary shall: (a) Keep the minutes of the
proceedings of the shareholders, executive committee and the Board of Directors;
(b) See that all notices are duly given in
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accordance with the provisions of these Bylaws or as required by law; (c) Be
custodian of the corporate records and of the seal of the Company and affix the
seal to all documents when authorized by the Board of Directors; (d) Keep at its
registered office or principal place of business within or outside Delaware a
record containing the names and addresses of all shareholders and the number and
class of shares held by each, unless such a record shall be kept at the office
of the Company's transfer agent or registrar; (e) Sign with the President, or a
Vice President, certificates for shares of the Company, the issuance of which
shall have been authorized by resolution of the Board of Directors; (f) Have
general charge of the stock transfer books of the Company, unless the Company
has a transfer agent; and (g) In general, perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the President or the Board of Directors. Assistant secretaries, if
any, shall have the same duties and powers, subject to supervision by the
Secretary.
5.08 Treasurer. The Treasurer shall be the principal financial officer
of the Company and shall have the care and custody of all funds, securities,
evidence of indebtedness and other personal property of the Company and shall
deposit the same in accordance with the instructions of the Board of Directors.
He shall receive and give receipts and acquittances for monies paid in on
account of the Company, and shall pay out of the funds on hand all bills,
payrolls and other just debts of the Company of whatever nature upon maturity.
He shall perform all other duties incident to the office of the Treasurer and,
upon request of the Board, shall make such reports to it as may be required at
any time. He shall, if required by the Board, give the Company a bond in such
sums, and with such sureties as shall be satisfactory to the Board, conditioned
upon the faithful performance of his duties and for the restoration to the
Company of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Company. He shall
have such other powers and perform such other duties as may be from time to time
prescribed by the Board of Directors or the President. The assistant treasurers,
if any, shall have the same powers and duties, subject to the supervision of the
Treasurer.
The Treasurer shall also be the principal accounting officer of the
Company. He shall prescribe and maintain the methods and systems of accounting
to be followed, keep complete books and records of account, prepare and file all
local, state and federal tax returns, prescribe and maintain an adequate system
of internal audit, and prepare and furnish to the President and the Board of
Directors statements of account showing the financial position of the Company
and the results of its operations.
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<PAGE>
ARTICLE VI
Indemnification
Every Director, Officer, employee and agent of the Company, and every
person serving at the Company's request as a director, officer (or in a position
functionally equivalent to that of officer or director), employee, or agent of
another corporation, partnership, joint venture, trust or other entity, shall be
indemnified to the extent and in the manner provided by the Company's
Certificate of Incorporation, as it may be amended.
ARTICLE VII
Miscellaneous
7.01 Declaration of Dividends. The Board of Directors at any regular or
special meeting may declare dividends payable out of the funds of the Company,
whenever in the exercise of its discretion it may deem such declaration
advisable and such is permitted by law. Such dividends may be paid in cash,
property, or shares of the Company.
7.02 Benefit Programs. Directors shall have the power to install and
authorize any pension, profit sharing, stock option, insurance, welfare,
educational, bonus, health and accident or other benefit program which the Board
deems to be in the interest of the Company, at the expense of the Company, and
to amend or revoke any plan so adopted.
7.03 Seal. The corporate seal of the Company shall be circular in form
and shall contain the name of the Company and the words "Seal, Delaware".
7.04 Fiscal Year. The Board of Directors shall have the power to fix,
and from time to time change, the fiscal year of the Company. Any such adoption
of or change in a fiscal year shall not constitute or require an amendment to
these Bylaws.
ARTICLE VIII
Amendments To Bylaws
These Bylaws may be amended or repealed in the manner provided for in
the Certificate of Incorporation, or if none is there provided: by majority vote
of the Board of Directors, taken at any meeting or by written consent, subject
to the shareholders' right to change or repeal any Bylaws so made. Bylaws
amendments may be proposed by any Director.
13
<PAGE>
ARTICLE IX
Notices
9.01 Giving of Notice. Except as otherwise provided by the General
Corporation Law of Delaware, these Bylaws, the Company's Certificate of
Incorporation, or resolution of the Board of Directors, every meeting notice or
other notice, demand, bill, statement or other communication (collectively,
"Notice") to or from the Company from or to a Director, Officer or shareholder
shall be duly given if it is written or printed and is (a) sent by first class
mail or by overnight service of the U.S. Postal Service, postage prepaid, (b)
sent by any established overnight air courier service, such as Federal Express,
Emery, Airborne or UPS, (c) sent by telegraph, tested telex or other tested
facsimile transmission, (d) delivered by any commercial messenger service which
regularly retains its receipts, or (e) personally delivered, provided a receipt
is obtained reflecting the date of delivery. Notice shall not be duly given
unless all delivery or postage charges are prepaid. Notice shall be given to an
addressee's most recent address as it appears on the Company's records. A Notice
shall be deemed "given" when dispatched for delivery, or if mailed, on the date
postmarked. This Section shall not have the effect of shortening any notice
period provided for in these Bylaws.
9.02 Waiver of Notice. Any Notice required by the General Corporation
Law of Delaware, the Certificate of Incorporation or these Bylaws may be waived
in writing at any time by the person entitled to the Notice, and such waiver
shall be equivalent to the giving of notice. Notice of any meeting shall be
waived by attendance (if a shareholders' meeting, in person or by proxy) at the
meeting. A waiver of Notice of a special meeting of shareholders shall state the
purpose for which the meeting was called or the business to be transacted
thereat.
APPROVED AND ADOPTED as of the 27th day of April, 1990.
/s/ John J. Micek III
----------------------------------------
John J. Micek III
/s/ Donald P. McGahan
----------------------------------------
Donald P. McGahan
/s/ Frank L. Kramer
----------------------------------------
Frank L. Kramer
14
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EXHIBIT A
SERIES D CONVERTIBLE PREFERRED STOCK
WHEREAS, the Articles of Incorporation of the Corporation provides for
a class of shares of stock designated "Preferred Stock," and vests in the Board
of Directors the authority to specify the number of shares of Preferred Stock to
be issued, to divide the Preferred Stock into one or more series within any
class thereof, and to fix the number of Shares in such series, and the
preferences, rights and restrictions thereof; and
WHEREAS, the Corporation desires to establish and designate the Series
D Convertible Preferred Stock of the Corporation;
NOW, THEREFORE, be it resolved that there shall be one series of
Preferred Stock of the Corporation designated "Series D Convertible Preferred
Stock." The number of shares of Series D Convertible Preferred Stock shall be
4,800,000. The powers, designations, preferences and relative, participating,
optional or other special rights of the shares of the Series D Convertible
Preferred Stock and the qualifications, limitations and restrictions of such
preferences and rights shall be as follows:
1. Dividend Provisions. The holders of outstanding shares of Series D
Convertible Preferred Stock described herein shall not be entitled to receive
any fixed dividends.
2. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of each
share of Series D Convertible Preferred Stock shall be entitled to receive, out
of the assets of the Corporation available for distribution to its stockholders,
before any payment or distribution shall be made on the Common Stock, an amount
per share equal to $.25 plus any accrued and unpaid dividends. If the assets and
funds to be distributed among the holders of the Series D Convertible Preferred
Stock shall be insufficient to permit the payment of the full aforesaid
preferential amount to such holders, then the entire assets and funds of the
Corporation legally available for the distribution shall be distributed among
the holders of the Series D Convertible Preferred Stock in proportion to the
aggregate preferential amount of all shares of Series D Convertible Preferred
Stock held by them. After payment has been made to the holders of the Series D
Convertible Preferred Stock, the holders of the Common Stock shall be entitled
to share ratably in the remaining assets on the basis of the number of shares of
Common Stock held by them at the time of such liquidation.
(b) For purposes of this Section 2, a merger or consolidation
of the Corporation with or into any other corporation or corporations, or the
merger of any other corporation or
15
<PAGE>
corporations into the Corporation, or the sale or any other corporate
reorganization, in which shareholders of the Corporation receive distributions
as a result of such consolidation, merger, sale of assets or reorganization,
shall be treated as a liquidation, dissolution or winding up of the Corporation,
unless the stockholders of the Corporation hold more than fifty percent (50%) of
the voting equity securities of the successor or surviving corporation
immediately following such consolidation, merger, sale of assets or
reorganization in which event such consolidation, merger, sale of assets, or
reorganization shall not be treated as a liquidation, dissolution or winding up.
3. Conversion. The Series D Convertible Preferred Stock shall
automatically be converted into Common Stock upon the following terms and
conditions (the "Conversion Rights"):
(a) Incidents Causing Conversion.
(i) Automatic Conversion. During the three (3) year
period commencing January 1, 1993, all of the shares of Series D Convertible
Preferred Stock may be converted into shares of Common Stock in accordance with
paragraphs 3(b) and 3(c) hereof, at such time or times as the holders of the
Series D Convertible Preferred Stock elect; provided that if any shares of the
Series D Convertible Preferred Stock are called for redemption, the conversion
rights will terminate at the close of business on the Redemption Date (30 days
after the written notice is provided).
(b) Mechanics of Conversion. The applicable conversion shall
occur effective upon the election of the holder of the Series D Convertible
Preferred Stock; provided, however, that the election to convert must occur
before the earlier of January 1, 1996, or the redemption date. The holder of the
shares of Convertible Preferred Stock which are converted shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or any authorized transfer agent for such stock together with a
written statement that he elects to convert his Convertible Preferred Stock into
Common Stock. The Corporation or the transfer agent shall promptly issue and
deliver at such office to such holder of Convertible Preferred Stock a
certificate or certificates for the number of shares of Common Stock to which
such holder is thereby entitled. The effective date of such conversion shall be
the date upon which the holder provides written notice of his election to
convert to the Corporation or transfer agent.
(c) Conversion Ratio. Each share of Series D Convertible
Preferred Stock will be converted into one (1) fully paid and nonassessable
share of Common Stock (except as adjusted pursuant to paragraph 3(d) below).
16
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(d) Adjustment of Conversion Rate.
(i) Stock Splits; Stock Dividends. If the Corporation
shall at any time, or from time to time, after the effective date hereof effect
a subdivision of the outstanding Common Stock and not effect a corresponding
subdivision of the Series D Convertible Preferred Stock, or if the Corporation
at any time or from time to time after the effective date hereof shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the number of shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock shall
be proportionately increased as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on such
record date.
(ii) Adjustments for Combinations, Etc. In case the
outstanding shares of Common Stock be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the number of shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock shall, concurrently with the effectiveness of such combination
or consolidation, be proportionately decreased.
(e) No Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all of the provisions of
this Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Convertible Preferred Stock against impairment.
(f) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series D Convertible Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series D Convertible Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all outstanding shares
of Series D Convertible Preferred Stock, the Corporation will take such
corporate action as is necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose.
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(g) Notices. Any notice required to be given to holders of
shares of Series D Convertible Preferred Stock shall be deemed given upon
deposit in the United States mail, postage prepaid, addressed to such holder of
record at his address appearing on the books of the Corporation, or upon
personal delivery of the aforementioned address.
4. Voting Rights. Each share of Series D Convertible Preferred Stock
shall entitle the holder to one (1) vote and with respect to each such vote, a
holder of shares of Series D Convertible Preferred Stock shall have full voting
rights and powers equal to the voting rights and powers of a holder of shares of
Common Stock, share for share, and shall be entitled to notice of any
shareholders' meeting in accordance with the Bylaws of the Corporation, and
shall be entitled to vote with holders of Common Stock together as a single
class.
5. Redemption Provisions. Commencing on January 1, 1993, any shares of
Series D Convertible Preferred Stock which have not been converted into Common
Stock may be redeemed by the Corporation upon the payment of $.3125 per share to
the holder thereof after giving 30 days written notice.
6. Status of Converted or Reacquired Stock. In case any shares of
Series D Convertible Preferred Stock shall be converted pursuant to Section 3
hereof, or redeemed pursuant to Section 5 hereof, the shares so converted or
redeemed shall cease to be a part of the authorized capital stock of the
Corporation.
7. Registration Rights. If the holders of at least seventy-five percent
(75%) of the Series D Convertible Preferred Stock agree to convert their shares
of Series D Convertible Preferred Stock into Common Stock, the Corporation shall
use its best efforts to file a registration statement with the Securities and
Exchange Commission on the later of July 1, 1994, or the date on which the
holders of at 75% of the Series D Convertible Preferred Stock have agreed to
convert their shares of Series D Convertible Preferred Stock for Common Stock.
The registration statement will cover the shares of Common Stock which may be
acquired upon the conversion of the Series D Convertible Preferred Stock.
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<PAGE>
AMENDMENT NO. 1 TO
BYLAWS OF INSTANT VIDEO TECHNOLOGIES, INC.
(Formerly Named Catalina Capital Corp.)
The following amendments to the Bylaws of Instant Video Technologies,
Inc. (the "Corporation"), were adopted by the Board of Directors on April 5,
1993.
Section 4.02 of the Corporation's Bylaws was amended to read as
follows:
4.02 Number, Tenure and Qualifications. The Company's Board of
Directors shall consist of five (5) Directors. Directors shall be
elected at each Annual Meeting of Shareholders. Each Director shall
hold office until the next Annual Meeting of Shareholders and
thereafter until his successor shall have been elected and qualified.
Directors need not be residents of Delaware or shareholders of the
Company. Directors shall be removable in the manner provided by the
General Corporation Law of Delaware. Directors shall be elected by
plurality vote.
Section 5.01 of the Corporation's Bylaws was amended to read as
follows:
5.01 General. The officers of the Company shall be a
President, one or more Vice Presidents, a Secretary and a Treasurer.
The Board of Directors may appoint such other officers, or assistant
officers, as they may consider necessary, who shall be chosen in such
manner and hold their offices for such terms and have such authority
and duties as from time to time may be determined by the Board of
Directors. The salaries of all the officers of the Company shall be
fixed by the Board of Directors. In all cases where the duties of any
officer, agent or employee are not prescribed by the Bylaws or by the
Board of Directors, such officer, agent or employee shall follow the
orders and instructions of the President.
19
<PAGE>
I hereby certify that the foregoing amendments to the Bylaws of the
Corporation were duly adopted by the Board of Directors on the 5th day of April,
1993.
/s/ Wayne K. Van Dyck
----------------------------------------
Wayne K. Van Dyck, Secretary
20
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State of Delaware
SECRETARY OF STATE
DIVISION OF CORPORATIONS
P.O. BOX 898
DOVER, DELAWARE 19903
PAGE 1 OF 1 922335016
9059237 09/03/1992
WILLS & SAWYER PROFESSIONAL CORPORATION
SUITE 400, KITTREDGE BUILDING
511 SIXTEENTH STREET
DENVER CO 80202
ATTN: MEG BECK
- --------------------------------------------------------------------------------
DESCRIPTION AMOUNT
- --------------------------------------------------------------------------------
INSTANT VIDEO TECHNOLOGIES, INC.
22290-21 AMENDMENT
FILING FEE 30.00
RECEIVING AND INDEXING FEE 50.00
CERTIFICATION AND MISCELLANEOUS FEE 20.00
-------
TOTAL CHARGES 100.00
PAYMENT - CHECK NO. 6127 100.00
-------
TOTAL PAYMENTS 100.00
BALANCE DUE .00
INSTANT VIDEO TECHNOLOGIES, INC.
22290-21 AMENDMENT
NEW CASTLE COUNTY RECORDING
SURCHARGE FEE 6.00
PER PAGE FEE 18.00
-------
TOTAL CHARGES 24.00
PAYMENT - CHECK NO. 6127 24.00
-------
TOTAL PAYMENTS 24.00
BALANCE DUE .00
21
State of California (Logo/Seal)
SECRETARY OF STATE
CERTIFICATE OF STATUS
FOREIGN CORPORATION
I, BILL JONES, Secretary of State of the State of California, hereby certify:
That on the 12th day of March, 1993, INSTANT VIDEO TECHNOLOGIES, INC., a
corporation organized and existing under the laws of Delaware, complied with
the requirements of California law in effect on that date for the purpose of
qualifying to transact intrastate business in this State; and
That the above corporation is entitled to transact intrastate business in the
State of California as the date of this certificate, however, subject to any
licensing requirements otherwise imposed by the laws of this State; and
That no information is available in this office on the financial condition,
business activity or practices of this corporation.
[SEAL] IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
28th day of August, 1997.
/s/ Bill Jones
Secretary of State
Prospectus
CATALINA CAPITAL CORP.
(A Delaware Corporation)
3,000,000 Units
$.10 per Unit
By this Prospectus, Catalina Capital Corp. (the "Company"), is offering
to the public 3,000,000 units ("Units") of the Company's securities. Each Unit
consists of one share of common stock, par value $.00001 per share ("Common
Stock" or "Common Shares"), and three redeemable Common Stock Purchase Warrants
("Warrants"), respectively denominated Class A, Class B, and Class C. Each Class
A Warrant will entitle the holder to purchase one share of Common Stock at a
price of $.30 for a period commencing with the date of this Prospectus and
terminating on the second anniversary of such date. Each Class B Warrant will
entitle the holder to purchase one share of Common Stock at a price of $.75 for
a period commencing with the date of this Prospectus and terminating on the
second anniversary of such date. Each Class C Warrant will entitle the holder to
purchase one share of Common Stock at a price of $1.30 for a period commencing
with the date of this Prospectus and terminating on the second anniversary of
such date. The Warrants are in registered form and, upon issuance, will be
immediately detachable and may be traded separately from the Common Stock, in
the event that a market exists therefor. The Company is entitled to redeem the
Warrants without prior notice to the warrantholders should the representatives
of a business opportunity with which the Company wishes to combine require, as a
condition to consummation of the combination, that the Warrants be redeemed.
Under these circumstances, the warrantholder will have no opportunity to
exercise the purchase rights under the Warrants prior to redemption. See "Risk
Factors -- Possible Redemption of Warrants Without Notice." Otherwise, the
Company may redeem any or all of the Warrants upon 30 days' written notice,
reduce the exercise price thereof and indefinitely extend the exercise period
thereof. Except as otherwise provided in subparagraph (a) of the section herein
captioned "Description of Securities -- Warrants -- Redemption," the Warrants
can be exercised or redeemed only if a current prospectus is then in effect. See
"Description of Securities -- Warrants."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK,
SEE "RISK FACTORS" AND "DILUTION AND OTHER COMPARATIVE DATA."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price Proceeds to
to Underwriting the
Public Commissions (2) Company (3)
- --------------------------------------------------------------------------------
Per Unit $ .10 4 $ .10
Total Minimum (1) $150,000 4 $150,000
Total Maximum (1) $300,000 4 $300,000
================================================================================
(1) This offering is not underwritten. The Units offered by this Prospectus
will be offered by John J. Micek III, the Company's President, who has
no prior experience in the sale of securities. See "Risk Factors --
Lack of Underwriting." American Aegis Securities, Inc., a NASD member
firm with whom one of the Company's directors is associated, will not
be involved in the offer and sale of the Units. No underwriting
discounts or commissions will be paid to the Company's President for
his participation in the offering, although his out-of-pocket expenses
will be reimbursed by the Company. This offering of 1,500,000 Units
minimum, 3,000,000 Units maximum, is being made on a "minimum-maximum,
best efforts" basis for a period of 90 days from the date of this
Prospectus, which period may be extended by the Company for an
additional 90 days, or until completion or abandonment of this
offering, whichever occurs sooner. All proceeds from the sale of the
Units being offered will promptly (and in no event later than noon of
the next business day following receipt) be placed into an escrow
account with Omnibank Aurora, located in Aurora, Colorado ("Escrow
Agent"), and no funds will be released to the Company unless and until
a minimum of 1,500,000 Units have been sold. Unless proceeds from the
minimum number of Units offered hereby have been deposited with the
Escrow Agent within 90 days from the date of this Prospectus (which
period may be extended for up to an additional 90 days by the Company),
the offering will be withdrawn and all monies received will be refunded
to subscribers by the Escrow Agent, without deduction therefrom for
offering costs or sales expenses incurred, if any, and without payment
of any interest thereon. All such refunds will be made as promptly as
shall be practicable. The investor should be aware, however, that under
specified circumstances federal law, including the Expedited Funds
Availability Act of 1988 and Regulation CC (pertaining to the
availability of funds and the collection of checks), permits a bank to
withhold payment of funds on a deposit made by a check drawn on a
"nonlocal" bank for up to seven working days pending collection of the
check through the applicable bank check clearing system. As a result,
monies derived from a subscription payment that shall have been made by
check may not be available to the Company, for refund to the subscriber
following the abandonmnet of the offering, until as many as seven
business days following the subscriber's tender of the subscription
funds to the bank. Assuming that, consistent with federal law as
described above, funds for a particular subscription have become
available to the Company for refund, it is
(Notes continued on following page)
The date of this Prospectus is October 17, 1990.
<PAGE>
likely that approximately one working day will be required for the
Company to confirm to the escrow bank that a refund should be made and
for the bank to prepare and mail a refund check to the subscriber. The
date upon which a check would be mailed will depend, therefore, upon
the relationship between the date upon which a subscription check shall
have been tendered and the date upon which the offering shall have been
abandoned. The closer in time the tender shall be to the date of
abandonment, the longer the mailing of the refund check is likely to be
delayed, up to a total of approximately eight working days following
the abandonment. Except as provided above, investors have no right to
the return to their funds during the term of the offering. If at least
1,500,000 Units are sold and the proceeds therefrom deposited into the
escrow account within the period set forth above, the offering will
continue until the remaining 1,500,000 Units being offered are sold,
until 90 days from the date of this Prospectus (up to 180 days if
extended), or until the Company determines to terminate the offering,
whichever occurs first. The officers, directors, and affiliates of the
Company may purchase in the aggregate up to 20% of the Units sold in
this offering. Such purchases, if made, will be made for investment
purposes and not for immediate resale.
(2) The amounts shown do not reflect expenses of the offering payable by
the Company. These expenses, which include filing fees, printing, legal
and accounting costs, and miscellaneous fees, are estimated to be
$20,500, or $.0137 (13.7%) per Unit if the minimum number of Units is
sold and $.0068 (6.8%) per Unit if the maximum number of Units is sold.
See "Use of Proceeds."
(3) The amounts shown do not include any proceeds the Company would receive
upon the exercise of the Warrants. If the maximum number of Units
offered hereby is sold, the Company would receive additional gross
proceeds of $7,050,000 upon the exercise of all of the Warrants.
Prior to this offering there has been no public market for the
Company's securities and there can be no assurance that a public market for the
Units, Common Stock or Warrants will develop following this offering or that the
Units can be resold at or near the offering price. The Company has no
arrangements with broker-dealers to maintain a trading market for its
securities. The initial public offering price of the Units has been arbitrarily
determined by the Company and bears no relationship to the Company's assets, net
worth or prospects, or to any other recognized criteria of value. The exercise
price of the Warrants has been arbitrarily set and there is no assurance, and
little likelihood, that the trading price of the Common Stock will rise
sufficiently to make exercise of any Warrants desirable.
This offering involves special risks concerning the Company, which has
not engaged in business operations other than efforts to raise capital,
including immediate and substantial dilution to public purchasers of Units in
the net tangible book value per share of the Common Stock acquired and
substantial potential profits to present stockholders of the Company by reason
of the increase in the net tangible book value of their shares as a result of
purchases of Units by the public. See "Risk Factors," "Dilution and Other
Comparative Data," and "Certain Transactions with Management."
--------------------------------------------
THESE UNITS ARE OFFERED BY THE COMPANY FOR CASH SUBJECT TO PRIOR SALE,
TO ALLOTMENT AND WITHDRAWAL, AND TO CANCELLATION OF THE OFFERING, WITHOUT NOTICE
AT ANY TIME BY THE COMPANY PRIOR TO THE RELEASE OR DELIVERY OF ANY PROCEEDS OF
THIS OFFERING TO THE COMPANY WHETHER OR NOT A CONFIRMATION OF SALE OF UNITS
OFFERED BY THIS PROSPECTUS PREVIOUSLY HAS BEEN ISSUED BY THE COMPANY. PAYMENT BY
A SUBSCRIBER OF THE FULL SUBSCRIPTION PRICE AND DEPOSIT OF THE SAME INTO THE
ESCROW ACCOUNT DOES NOT CONSTITUTE ACCEPTANCE OF SUCH SUBSCRIPTION BY THE
COMPANY. THE RIGHT IS RESERVED BY THE COMPANY TO REJECT ANY AND ALL OFFERS TO
PURCHASE AND TO CANCEL ANY AND ALL CONFIRMATIONS OF SALE OF ANY UNITS OFFERED
HEREBY, IN WHOLE OR IN PART, FOR CAUSE OR WITHOUT CAUSE, AT ANY TIME PRIOR TO
THE CLOSING OF THE OFFERING. REFUNDS TO SUBSCRIBERS WHOSE SUBSCRIPTIONS ARE
CANCELED WILL BE MADE AS PROMPTLY AS PRACTICABLE AFTER CLOSING, AND ACCORDINGLY,
SUBSCRIBERS MAY LOSE THE USE OF SUBSCRIPTION FUNDS, WITHOUT PAYMENT OF ANY
INTEREST THEREON, FOR UP TO 190 DAYS.
--------------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION WITH
RESPECT TO THESE SECURITIES BY ANYONE TO ANY PERSON IN ANY STATE IN WHICH THIS
OFFERING OR SOLICITATION IS NOT AUTHORIZED BY THE LAWS THEREOF OR IN WHICH THE
PERSON MAKING SAID OFFERING OR SOLICITATION IS NOT QUALIFIED TO ACT AS DEALER OR
BROKER OR OTHERWISE TO MAKE SUCH OFFERING OR SOLICITATION.
--------------------------------------------
THE SECURITIES BEING SOLD PURSUANT TO THIS PROSPECTUS ARE HIGHLY
SPECULATIVE IN NATURE AND NO GUARANTEES OR OTHER WARRANTIES TO THE CONTRARY ARE
MADE BY THE COMPANY AS ISSUER. THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
ii
<PAGE>
--------------------------------------------
THE COMPANY HAS NOT TAKEN ANY STEPS TO CREATE AN AFTERMARKET FOR THE
SECURITIES OFFERED HEREIN AND HAS MADE NO ARRANGEMENTS WITH ANY BROKERS TO TRADE
OR MAKE A MARKET IN THESE SECURITIES. AT SOME TIME IN THE FUTURE, THE COMPANY
MAY ATTEMPT TO ARRANGE FOR INTERESTED BROKERS TO TRADE OR MAKE A MARKET IN THESE
SECURITIES AND TO QUOTE THE SECURITIES OF THE COMPANY IN A PUBLISHED QUOTATION
MEDIUM. NO ARRANGEMENTS HAVE BEEN MADE IN THAT REGARD, HOWEVER, AND NO ASSURANCE
IS OFFERED THAT ANY BROKERS WILL BE WILLING TO ENGAGE IN SUCH ACTIVITIES
RELATIVE TO THESE SECURITIES. IN THE EVENT THAT ANY BROKER WERE TO BECOME THE
EXCLUSIVE MARKET MAKER IN THESE SECURITIES, THE BROKER WOULD IN EFFECT DOMINATE
AND CONTROL THE MARKET FOR THE COMPANY'S SECURITIES.
--------------------------------------------
THE COMPANY HAS UNDERTAKEN, DURING THE 90--DAY PERIOD FOLLOWING THE
DATE OF THIS PROSPECTUS AND DURING THE EXERCISE PERIOD OF THE WARRANTS, DURING
ANY PERIOD IN WHICH OFFERS OR SALES ARE BEING MADE, TO FILE POST-EFFECTIVE
AMENDMENTS TO THE REGISTRATION STATEMENT TO WHICH THIS PROSPECTUS RELATES AND TO
REFLECT THEREIN ANY FACTS OR EVENTS ARISING AFTER THE DATE HEREOF WHICH
REPRESENT A FUNDAMENTAL OR MATERIAL CHANGE IN THE INFORMATION SET FORTH HEREIN
OR IN SUCH REGISTRATION STATEMENT. ANY SUCH AMENDMENTS WILL BE DISSEMINATED TO
STOCKHOLDERS AND WARRANTHOLDERS OF THE COMPANY AFTER THE REQUIRED FILINGS HAVE
BEEN MADE WITH THE SECURITIES AND EXCHANGE COMMISSION AND HAVE BEEN DECLARED
EFFECTIVE.
--------------------------------------------
THE COMPANY IS NOT CURRENTLY SUBJECT TO SECTION 14 OF THE SECURITIES
EXCHANGE ACT OF 1934. THE COMPANY WILL FURNISH TO ITS STOCKHOLDERS ANNUAL
REPORTS CONTAINING FINANCIAL INFORMATION EXAMINED AND REPORTED UPON, WITH AN
OPINION EXPRESSED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, SO LONG AS IT IS
REQUIRED TO DO SO. IN ADDITION, THE COMPANY MAY FURNISH UNAUDITED QUARTERLY OR
OTHER INTERIM REPORTS TO ITS STOCKHOLDERS AS IT DEEMS APPROPRIATE.
--------------------------------------------
IF, AFTER FOUR (4) YEARS FROM THE DATE FUNDS ARE DEPOSITED INTO AN
ESCROW ACCOUNT, ESTABLISHED IN ACCORDANCE WITH THE COLORADO SECURITIES ACT (THE
"COLORADO ESCROW ACCOUNT"), THE COMPANY HAS NOT CONSUMMATED A BUSINESS
COMBINATION THAT HAS RESULTED IN THE RELEASE OF THE FUNDS ESCROWED IN COMPLIANCE
WITH THE COLORADO SECURITIES ACT, THE ESCROW AGREEMENT THAT THE COMPANY HAS
ENTERED INTO WITH OMNIBANK AURORA, LOCATED IN AURORA, COLORADO (FOR PURPOSES OF
THIS PARAGRAPH, THE "ESCROW AGENT") PROVIDES THAT THE ESCROW AGENT SHALL, AS
PROMPTLY AS POSSIBLE, DISTRIBUTE THE FUNDS IN THE COLORADO ESCROW ACCOUNT TO THE
PERSONS THEN HOLDING THE SHARES OF THE COMPANY'S COMMON STOCK ISSUED IN THIS
OFFERING ON A PRO RATA BASIS BASED ON THE NUMBER OF SHARES HELD. SEE "RISK
FACTORS -- IMPACT OF AMENDMENTS TO THE COLORADO SECURITIES ACT" AND "POSSIBLE
DISTRIBUTION OF ESCROWED FUNDS AFTER FOUR YEARS." THEREFORE, INVESTORS IN THIS
OFFERING SHOULD BE AWARE THAT, IN THE EVENT OF A DISTRIBUTION AS DESCRIBED IN
THE PREVIOUS SENTENCE, ONLY A PORTION OF THE FUNDS ORIGINALLY INVESTED WILL BE
DISTRIBUTED TO THE PERSONS THEN HOLDING SHARES ISSUED IN THIS OFFERING, WITHOUT
ANY INTEREST BEING PAID THEREON. NEITHER THE COLORADO ESCROW AGREEMENT, NOR ANY
DISTRIBUTION MADE THEREUNDER, SHALL AFFECT OWNERSHIP OF THE UNITS ISSUED IN THIS
OFFERING, I.E., THE SHAREHOLDERS WHO RECEIVE THEIR PRO RATA PORTION OF THE
AFOREMENTIONED DISTRIBUTION SHALL NOT BE REQUIRED TO RETURN THEIR UNITS TO THE
COMPANY'S TREASURY. IN THE EVENT A DISTRIBUTION IS MADE, AS PROVIDED ABOVE, THE
COMPANY'S ABILITY TO ADEQUATELY INVESTIGATE AND EVALUATE BUSINESS OPPORTUNITIES
AND TO ATTRACT FAVORABLE BUSINESS OPPORTUNITIES WILL BE ADVERSELY AFFECTED.
iii
<PAGE>
Use of Proceeds
The proceeds of this offering, net of all expenses of the offering, are
estimated to be $129,500 if the minimum number of Units is sold and $279,500 if
all of the Units are sold. These proceeds will be used for general and
administrative expenses, to investigate and evaluate business opportunities and
to aquire properties or business interests, and for working capital. However,
investors should be aware that eighty percent (80%) of the net offering proceeds
($103,600, if the minimum number of Units is sold and $223,600 if the maximum
number of Units is sold) will be subject to an escrow for an indeterminable
period. See "Use of Proceeds"
Risk Factors
Investment in the Units involves an extremely high degree of risk.
Potential investors should consider that the Company is in the early development
stage and has not commenced commercial activities, has no revenues, earnings or
operating history and only limited capitalization, and is dependent upon the
proceeds of this offering to commence operations. Further, the proceeds of this
offering have been allocated only generally, no properties or business interests
for acquisition have been identified, and investors will experience immediate
and substantial dilution in the net tangible book value per share of the Common
Stock acquired as compared to the offering price. In seeking business
opportunities, the Company could incur substantial losses. The Company's present
management has very limited experience in seeking, investigating and acquiring
business opportunities. Moreover, management has other business interests which
may conflict with the Company's interests and will devote relatively little time
to the Company's affairs. See "Risk Factors."
Selected Financial Information
Selected financial information concerning the Company as of June 6,
1990, is given below. This information should be read in conjunction with the
financial statements and notes appearing elsewhere in this Prospectus.
Asset
Cash ............................................... $10,791
Organizational Cost ................................ 492
Deferred Offering Costs ............................ 5,385
-------
Total Assets ....................................... $16,668
=======
Liabilities and Stockholders' Equity
Current Liabilities ................................. $ 885
Stockholders' Equity ................................ 15,783
-------
Total Liabilities and Stockholders' Equity .......... $16,668
=======
2
<PAGE>
RISK FACTORS
The purchase of Units in this offering involves extreme risks and the
possibility of the loss of a stockholder's entire investment. A prospective
investor should evaluate all information discussed in this Prospectus and the
risk factors discussed below in relation to his financial circumstances before
investing in the Units.
The Company
1. No Operating History. The Company was formed in Apil 1990 for the
purpose of raising capital through a public offering of securities and to
acquire a business opportunity. The Company has no operating history, revenues
from operations, or assets other than cash from private sales of stock. The
Company faces all of the risks of a new business and those risks specifically
inherent in the investigation, acquisition, or involvement in a new business
opportunity. Purchase of the securities in this offering must be regarded as
placing funds at a high risk in a new or "start-up" venture with all of the
unforeseen costs, expenses, problems, and difficulties to which such ventures
are subject. See "Use of Proceeds" and "Business."
2. No Assurance of Success or ProfitabilIty. There is no assurance that
the Company will acquire a favorable business opportunity. In addition, even if
the Company becomes involved in a business opportunity, there is no assurance
that it will generate revenues or profits, or that the market price of the
Company's Common Stock will be increased thereby. See "Business."
3. Unspecified Use of Proceed. Net proceeds of this offering are not
specifically allocated. They will be used generally to search for, acquire, or
participate in a business opportunity deemed beneficial by management.
Stockholders of the Company will not be given the opportunity to review or
evaluate the merits of a business opportunity before the Company enters into a
transaction involving such business or business opportunity. Investors will be
entrusting their funds to management, which will determine the specific
expenditure of the funds. This type of offering is known as a "blind pool" and
involves extreme risk and speculation for purchasers. Because the Company
intends to offer the Units to residents of the State of Colorado, investors will
benefit from the protections afforded by the Colorado Securities Act, which
requires the placement in escrow of eighty percent of the net proceeds of the
offering until the completion of a transaction or series of transactions whereby
at least fifty percent of the gross proceeds received from the sale of Units are
committed for use in one or more specific lines of business. See "Business" and
"Use of Proceeds."
4. Possible Business - Not Identified and Highly Risky. The Company has
not identified and has no commitments to enter into or acquire a specific
business opportunity and therefore can only disclose the risks and hazards of a
business or opportunity that it may enter into in a general manner, and cannot
disclose the risks and hazards of any specific business or opportunity that it
may enter into. An investor can expect a potential business opportunity to be
quite risky. The Company's acquisition of or participation in a business
opportunity will likely be highly illiquid and could result in a total loss to
the Company and its stockholders if the business or opportunity is unsuccessful.
See "Business."
5. Type of Business Acquired. The type of business to be acquired may
be one which desires to avoid effecting its own public offering and the
accompanying expense, delays, and federal and state requirements which purport
to protect investors. Because of the Company's limited capital, it is more
likely than not that any acquisition by the Company will involve other parties
whose primary interest is the acquisition of a publicly traded company.
Moreover, it is also possible that any business opportunity acquired may be
currently unprofitable or present other negative factors.
6. Impracticability of Exhaustive Investigation. The Company's limited
funds and the lack of full-time management will likely make it impracticable to
conduct a complete and exhaustive investigation and analysis of a business
opportunity before the Company commits its capital or other resources thereto.
Management's difficulties are compounded by the effect of the proceeds escrow
imposed by the Colorado Securities Act, which requires the placement in escrow
of eighty percent of the net proceeds of the offering until the completion of a
transaction or series of transactions whereby at least fifty percent of the
gross proceeds received from the sale of Units are committed for use in one or
more specific lines of business. Management decisions, therefore, will likely be
made without detailed feasibility studies, independent analysis, market surveys
and the like which, if the Company had more funds available to it, would be
desirable. The Company will be particularly dependent in making decisions upon
information provided by the promoter, owner, sponsor or others associated with
the business opportunity seeking the Company's participation. See "Business" and
"Use of Proceeds."
3
<PAGE>
7. Lack of Diversification. Because of the limited financing
capabilities of the Company at the present time and upon completion of this
offering, it is unlikely that the Company will be able to diversify its
acquisitions or operations. The Company's probable inability to diversify its
activities into more than one area will subject the Company to economic
fluctuations within a particular business or industry and therefore increase the
risks associated with the Company's operations. See "Business."
8. Possible Reliance upon Unaudited Financial Statements. The Company
generally will require audited financial statements from companies which the
Company proposes to acquire. No assurance can be given, however, that audited
financials will be available to the Company. In cases where audited financials
are unavailable, the Company will have to rely upon unaudited information
received from target companies' management which has not been independently
verified by outside auditors. Moreover, the Company will be subject to the
reporting provisions of the Securities Exchange Act of 1934 and thus will be
required to furnish certain information about significant acquisitions,
including certified financial statements for any business that the Company
acquires. Consequently, acquisition prospects that do not have or are unable to
obtain the required certified statements may not be appropriate for acquisition
so long as the reporting requirements of the Securities Exchange Act of 1934 are
applicable. In addition, Warrantholders may not be able to exercise their
Warrants if the Company acquires a business that does not have audited financial
statements until such time as audited statements become available, because the
Company would be unable to meet the requirements for maintenance of a current
registration statement on file with the Securities and Exchange Commission.
9. Investment Company Regulation. The Company does not intend to become
classified as an "investment company" under the Investment Company Act of 1940
(the "Investment Act"). The Company believes that it will not become subject to
regulation under the Investment Act because (i) the Company will not be engaged
in the business of investing or trading in securities, (ii) any merger or
acquisition undertaken by the Company will result in the Company's obtaining a
majority interest in any such merger or acquisition candidate, and (iii) the
Company intends to discontinue any investment in a prospective merger or
acquisition candidate in which a majority interest cannot be obtained. In the
event that the Company is required to register as an investment company, it
could be expected to incur significant registration and compliance costs. The
Company has obtained no formal determination from the Securities and Exchange
Commission (the "Commission")as to the status of the Company under the
Investment Act and, consequently, any violation of the Investment Act will
subject the Company to materially adverse consequences. Should the Commission
find that the Company is subject to the Investment Act, and direct the Company
to register under such Act, the Company would vigorously resist any such order
or finding. Irrespective of whether the Commission or the Company prevailed in
such dispute, however, the Company would be damaged by the costs and delays
involved. Because the Company will not register under the Investment Act,
investors in the Company will not have the benefit of the various protective
provisions imposed on investment companies by such Act, including requirements
for independent directors. See "Business."
10. Other Regulation. An acquisition made by the Company may be of a
business that is subject to regulation & licensing by federal, state, or local
authorities. Compliance with such regulations and licensing can be expected to
be a time-consuming and expensive process and may limit other investment
opportunities of the Company.
11. Public Investors Will Bear Financial Risks. The Company's present
stockholders have acquired their shares of the Company at an extremely low cost
and consequently have contributed only an insignificant amount of capital to the
Company. The purchasers in this offering will provide virtually all of the
capital that the Company will use in carrying out its business plan and thus
will bear most of the risk of loss, if any, incurred by the Company. See
"Principal Stockholders."
12. Dependence upon Management. The Company will be heavily dependent
upon the skills, talents, and abilities of its management to implement its
business plan. The Company's officers and directors will each devote on average
between five and twenty hours per month to the affairs of the Company, which for
a company such as this that is heavily dependent upon management, may be
inadequate for Company business, and may delay the acquisition of any
opportunity considered. Furthermore, management does not have substantial
experience in seeking, investigating and acquiring businesses and will depend
upon its general business expertise in making decisions regarding the Company's
operations. See "Management." Because investors will not be able to evaluate the
merits of possible business acquisitions by the Company, they should critically
assess the information concerning the Company's management.
13. Lack of Continuity in Management. The Company does not have
employment agreements with its management, and there is no assurance that
persons named herein will manage the Company in the future. In connection
4
<PAGE>
with acquisition of a business opportunity, some or all of the current
management of the Company probably will resign and appoint successors. This may
occur without the vote or consent of the stockholders of the Company. See
"Business" and "Principal Stockholders."
14. Conflicts of Interest. Certain conflicts of interest have existed
and will continue to exist between the Company and its officers and directors.
all have other business interests to which they devote their primary attention,
and each may be expected to continue to do so although management time should be
devoted to the business of the Company. As a result, conflicts of interest may
arise that can be resolved only through exercise by the officers and directors
of such judgment as is consistent with their fiduciary duties to the Company.
See "Potential Conflicts of Interest"
15. Limited Participation of Management. Each of the officers and
directors has full-time outside employment and will be available to participate
in management decisions only on an "as needed" basis which may amount to on
average as little as five hours per month. The amount of time which officers and
directors are able to devote to Company business may be inadequate for Company
business and may delay the acquisition of any opportunity considered.
16. IndemnifIcation of Officers and Directors. The Company's
Certificate of Incorporation provides for the indemnification of its directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses incurred by them in any litigation to which they become
a party arising from their association with or activities on behalf of the
Company. The Company may also bear the expenses of such litigation for any of
its directors. officers, employees or agents, upon such person's promise to
repay the Company therefor if it is ultimately determined that any such person
shall not have been entitled to indemnification. This indemnification policy
could result in substantial expenditures by the Company which it will be unable
to recoup. See "Management -- Indemnification of Officers and Directors."
17. Director's Liability Limited. Under the Company's Certificate of
Incorporation, directors of the Company cannot be held liable to the Company for
monetary damages for breach of fiduciary duty as a director except (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for any violation of Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit. This provision does not
affect the liability of any director under federal or applicable state
securities laws. See "Management -- Exclusion of Liability."
18. Dependence upon Outside Advisors. To supplement the business
experience of management, the Company may be required to employ accountants,
technical experts, appraisers, attorneys or other consultants or advisors. The
selection of any such advisors will be made by management without any input from
stockholders. Furthermore, it is anticipated that such persons may be engaged on
an "as needed" basis without a continuing fiduciary or other obligation to the
Company.
19. Possible Need for Additional Financing. The Company's funds may not
be adequate to take advantage of any available business opportunities. The
offering may terminate upon the receipt of only the minimum net proceeds of
$129,500, substantially less than the maximum net proceeds of $279,500.
Moreover, investors should be aware that eighty percent of the net proceeds
($103,600 if the minimum number of Units is sold and $223,600 if the maximum
number of Units is sold) will be subject to an escrow for an indeterminable
period. See "Use of Proceeds." Even if the Company has sufficient funds to
acquire an interest in a business opportunity, it may not have sufficient
capital to exploit the opportunity. The ultimate success of the Company may
depend upon its ability to raise additional capital. The Company has not
investigated the availability, source, or terms that might govern the
acquisition of additional capital and will not do so until it determines a need
for additional financing. If additional capital is needed, there is no assurance
that funds will be available from any source or, if available, that they can be
obtained on terms acceptable to the Company. If not available, the Company's
operations will be limited to those that can be financed with its modest
capital. See "Use of Proceeds" and "Business.
20. Leveraged Transactions. There is a possibility that any acquisition
of a business opportunity by the Company may be leveraged, i.e., the Company may
finance the acquisition of the business opportunity by borrowing on the assets
of the business opportunity to be acquired, on the projected future revenues, or
the profitability of the business opportunity. This could increase the Company's
exposure to larger losses. A business opportunity acquired through a leveraged
transaction is profitable only if it generates enough revenues to cover the
related debt and expenses. Failure to make payments on the debt incurred to
purchase the business opportunity could result in the loss of a portion or all
5
<PAGE>
of the assets acquired. There is no assurance that any business opportunity
acquired through a leveraged transaction will generate sufficient revenues to
cover the related debt and expenses, and investors should be aware that the
Company has not established any specific criteria or plan in connection with
analyzing whether, and to what extent, a particular candidate's operations can
support the leverage the Company would incur in a leveraged buy-out. Investors
should also be aware of the high default rate experienced recently by entities
entering into leveraged transactions, many of which defaults resulted from
overly optimistic analyses and income projections.
21. Competition. The search for potentially profitable business
opportunities is intensely competitive. The Company expects to be at a
disadvantage when competing with many firms that have substantially greater
financial and management resources and capabilities than the Company. These
competitive conditions will exist in any industry in which the Company may
become interested. See "Business."
22. No Foreseeable Dividends. The Company has not paid dividends on its
Common Stock and does not anticipate paying dividends on its Common Stock in the
foreseeable future.
23. Loss of Control by Present Management and Stockholders. The Company
may consider an acquisition in which the Company issues a substantial amount of
its authorized but unissued Common Stock (80% or more control) as consideration
for any business opportunity acquired. The result of such acquisition would be
that the acquired Company's stockholders and management would control the
Company, and the Company's management could be replaced by persons unknown at
this time. Such a merger could leave the investors in this offering with stock
worth substantially less than the price paid in this offering, and a greatly
reduced percentage of ownership of the Company. Management could sell its
control block of stock at a premium price to the acquired company's
stockholders, although management has no present plans to do so. See "Certain
Transactions with Management and Others."
24. Dilutive Effects of issuing Additional Common Stock. The vast
majority of the Company's authorized but unissued Common Stock will remain
unissued after this offering, even if all Units offered are sold and all
Warrants offered are exercised. The board of directors of the Company has
authority to issue such unissued shares without the consent or vote of the
stockholders of the Company. The issuance of these shares may further dilute the
interests of investors purchasing in this offering and will reduce their
proportionate ownership and voting power in the Company.
The Offering
25. Determination of Offering and Exercise Price. The price at which
the Units are being offered to the public and the exercise prices of the
Warrants have been arbitrarily determined by the Company. Such prices bear no
direct relationship to the Company's assets, net worth or prospects, or to any
other recognized criteria of value.
26. Loss of Beneficial Use of Subscription Funds. Under the terms of
this offering, subscription funds for Units will be deposited into escrow and
held for the offering period of 90 days (up to 180 days, if extended), or until
this offering is abandoned or closed, whichever occurs first. The Company has
reserved the right to reject any subscription, and cancel any confirmation of
sale issued, in whole or in part, prior to closing, even if the subscriber's
funds are held in escrow until the offering is abandoned or closed, warranting
only to refund such funds as promptly as shall be practicable after abandonment
or closing, as the case may be. In this regard, the investor should be aware
that under specified circumstances federal law, including the Expedited Funds
Availability Act of 1988 and Regulation CC (pertaining to the availability of
funds and the collection of checks), permits a bank to withhold payment of funds
on a deposit made by a check drawn on a "nonlocal" bank for up to seven working
days pending collection of the check through the applicable bank check clearing
system. As a result, monies derived from a subscription payment that shall have
been made by check may not be available to the Company, either for closing of
the offering or for possible refund to the subscriber following a rejection of
all or a portion of the subscription or the abandonment of the offering, until
as many as seven business days following the subscriber's tender of the
subscription funds to the bank. It is anticipated that a decision to reject all
or a portion of a given subscription shall not be made until on or near the date
of closing of the offering. Assuming that, consistent with federal law as
described above, funds for a particular subscription have become available to
the Company for refund, it is likely that approximately one working day will be
required for the Company to notify the escrow bank that a refund of all or a
portion of the subscription funds should be made and for the bank to prepare and
mail a refund check to the subscriber. The date upon which a refund check would
be mailed will depend, therefore, upon the relationship between the date upon
which a subscription check shall have been tendered and the date upon which the
offering shall have been closed or abandoned. The closer the tender shall be to
the date of closing or abandonment, the longer the mailing of the refund check
is likely to be delayed, up to a total of
6
<PAGE>
approximately eight working days following closing or abandonment. Subscribers
could thus lose the beneficial use of their subscription funds for up to
approximately 190 calendar days, without interest, and there is no guarantee
that the subscriber will receive any or all of the Units subscribed for, even if
the offering closes. Moreover, no method has been determined by which to prorate
subscriptions should the offering be over-subscribed, and no proration may be
made.
27. Control by Present Stockholders. After completion of this offering,
the present stockholders will own approximately 83% of the outstanding Common
Stock, assuming that only the minimum number of Units is sold, and approximately
71%, assuming that the maximum number of Units is sold. These figures do not
take into account any Units in this offering which may be purchased by present
stockholders, though no arrangements have been made, and the Company does not
anticipate any future arrangements, whereby shares of the offering are reserved
for sale to such persons. Because the Company's Certificate of Incorporation
does not permit cumulative voting for the election of directors, it is likely
that public purchasers of Units will not have the power to elect a single
director and, as a practical matter, the present stockholders will have the
power to elect all directors and effectively control the Company. See
"Description of Securities" and "Principal Stockholders."
28. Sale of Minimum Number of Units. This offering is being made on a
"best efforts, minimum-maximum" basis. If only the minimum number of Units is
sold, the Company's operations and the scope of business opportunities open to
it will be significantly curtailed. The degree of risk to investors in that
event will be inereased correspondingly.
29. No Public Market Exists. There currently is no public market for
the Units, Common Stock or Warrants being offered, and no assurance can be given
that a market will develop subsequent to this offering or that purchasers will
be able to resell their securities at the public offering price, or that a
purchaser will be able to liquidate his investment without considerable delay,
if at all. If a market does develop, the price may be highly volatile. Factors
such as those discussed in this "Risk Factors" section may have a significant
impact upon the market price of the securities offered hereby. Due to the low
price of the securities, many brokerage firms may not be willing to effect
transactions in the securities. Even if a purchaser finds a broker willing to
effect a transaction in these securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling costs may
exceed the selling price. Further, many lending institutions will not permit the
use of such securities as collateral for any loans.
30. No Market Maker -- Possible Dominance of Market by Single Market
Maker. Even if the Company proves to be successful in selling the Units offered
hereunder, and the Company's securities become eligible to be traded by
securities brokers and dealers which are members of the National Association of
Securities Dealers, Inc. ("NASD") in the `pink sheets" maintained by the
National Quotation Bureau, Inc., the Company has no agreement with any NASD
member to act as a market maker for the Company's securities. If the Company is
unsuccessful in obtaining one or more market makers for the Company's
securities, the trading level and price of the Company's securities will be
materially and adversely affected. If the Company is successful in obtaining
only one market maker for the Company's securities, the market maker would in
effect dominate and control the market for such securities. Although management
intends to contact several broker-dealers concerning their possible
participation as a market maker in the Company's securities following the
conclusion of this offering, there is no assurance management will be successful
in obtaining any market makers for the Company's securities.
31. Dilution. The Company's present stockholders, including officers,
directors and founders, have acquired their controlling interest in the Company
at an average weighted cost that is substantially less than the public offering
price of the Units. Public purchasers of Units will suffer immediate and
substantial dilution of $.0836 per share of Common Stock (83.6%), assuming the
sale of only the minimum number of Units, and $.0714 per share of Common Stock
(71.4%), assuming the sale of all Units being offered. These calculations do not
take into account the issuance of up to an additional 9,000,000 shares of Common
Stock if all Warrants are exercised, which event could result in a further
dilution of the net tangible book value per share of the shares outstanding at
such time, if the net tangible book value of the Common Stock then exceeds the
Warrant exercise price. See "Dilution and Other Comparative Data."
32. Benefit to Present Stockholders. Because present stockholders
acquired their shares at prices substantially lower than the offering price of
the Units, they will experience an increase in the present net tangible book
value of their shares amounting to $.0151, assuming sale of the minimum number
of Units, and $.0273, assuming sale of all the Units being offered. See
"Dilution and Other Comparative Data."
7
<PAGE>
33. Preferred Shares Authorized. The Certificate of Incorporation of
the Company authorizes issuance of a maximum of 20,000,000 Preferred Shares, par
value $.00001 per share. While no Preferred Shares have been issued or are
outstanding on the date of this Prospectus and there is no plan to issue any in
the foreseeable future, if issued, the terms of a series of Preferred Shares
could operate to the significant disadvantage of the holders of outstanding
Common Shares. Such terms could include, among others, preferences as to
dividends, possible voting rights, and distributions on liquidation. See
"Description of Securities -- Preferred Stock."
34. Possible Rule 144 Sales. All of the outstanding shares of Common
Stock held by present stockholders are "restricted securities" as defined by
Rule 144 under the Securities Act of 1933, as amended. As restricted shares,
these shares may be resold only pursuant to an effective registration statement
or under the requirements of Rule 144 or other applicable exemption from
registration under the Act and as required under applicable state securities
laws. Rule 144 provides in essence that a person who has held restricted
securities for a period of two years may, under certain conditions, sell every
three months, in brokerage transactions, a number of shares which does not
exceed the greater of 1.0% of a company's outstanding common stock or the
average weekly trading volume during the four calendar weeks prior to the sale.
There is no limit on the amount of restricted securities that may be sold by a
nonaffiliate after the restricted securities have been held by the owner for a
period of three years. A sale under Rule l44 or any other exemption from the
Act, if available, or subsequent registrations of shares of Common Stock of
present stockholders, may have a depressive effect upon the price of the Common
Stock in any market that may develop. A total of 5,000,000 shares of Common
Stock will become available for sale under Rule 144 beginning in April 1992, and
an additional 2,300,000 shares will become available for sale under Rule 144
beginning in May 1992, all of which will be subject to applicable volume
restrictions under the Rule.
35. Market Overhang of Warrants. The Warrants offered as part of the
Units are detachable and may be separately traded and quoted, if a market for
the Warrants develops. Each Warrant is exercisable for one share of Common Stock
for a period commencing on the date of this Prospectus and terminating on the
second anniversary thereof. Each Class A Warrant, each Class B Warrant and Class
C Warrant carries an exercise price of $30, $.75 and $1.30, respectively.
Exercise of the Warrants can be expected to have an adverse effect on the
trading price of and market for the Common Stock, if any such market develops.
Even if a public market for the Common Stock develops, it is unlikely that
normal market forces will cause an increase in the bid price of the Common Stock
to the level of the exercise price of the Warrants. It is possible that so long
as the Warrants remain outstanding their existence will prevent a rise in the
price of the Common Stock higher than the exercise price of any of the Warrants.
See "Description of Securities -- Warrants."
36. Exercise of Warrants Uncertain. Because of the lack of a market for
the Warrants and the uncertainty of the Company's potential for success, the
Warrants may not be exercised before they expire, with the result that no
Warrant proceeds would be received by the Company. The Warrants may be exercised
only at a time when a current prospectus is in effect and only if the shares are
qualified for sale under applicable securities laws of the states in which the
various Warrantholders reside. Although the Company intends to use its best
efforts to keep this Prospectus current during the Warrant exercise periods,
there is no assurance that it will do so or that it will be financially able to
do so. See "Description of Securities -- Warrants." Investors should be aware
that proceeds received by the Company from the exercise of Warrants may be
subject to the escrow provisions contained in the Colorado Securities Act. See
"Use of Proceeds."
37. Possible Redemption of Warrants without Notice. The Company is
entitled to redeem the Warrants without prior notice to the warrantholders
should the representatives of a business opportunity with which the Company
wishes to combine require, as a condition to consummation of the combination,
that the Warrants be redeemed. Under these circumstances, the warrantholder will
have no opportunity to exercise the purchase rights under the Warrants prior to
redemption. See "Description of Securities -- Warrants."
38. Substantial Offering Expenses. The Company estimates that it will
incur expenses of $20,500 in connection with this offering. These expenses are
substantial, especially in view of the amount to be raised by this offering, and
will significantly decrease the amount of net offering proceeds which otherwise
would be available to the Company. See "Use of Proceeds."
39. Lack of Underwriter. The minimum number of Units is being offered
by the Company, through its President on a "best efforts, all-or-none" basis and
the Company has not retained an underwriter or selected broker-dealer to assist
the Company in offering the Units. The Company's President has no experience in
the offer and sale of securities on behalf of an issuer. Consequently, the
Company may be unable to effect a sale of the Units without the assistance of a
8
<PAGE>
broker-dealer. Should it prove necessary for the Company to retain a
broker-dealer, the offering of the Units would be suspended until an amendment
to the Company's Registration Statement, including this Prospectus, shall have
been made to reflect such retention. The Registration Statement would then
require additional review and clearance by the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and state
regulatory authorities. The Company could be expected to incur significant
additional legal and accounting costs if further reviews were required to be
undertaken by governmental authorities. There is no assurance that the Company
shall prove to be capable of selling all, or any, of the Units offered without
the assistance of an underwriter or broker-dealer. See "Terms of Offering."
40. Blue Sky Considerations. It is entirely possible that, because of
exemptions from registration contained in certain state securities laws, the
Warrants contained in the Units lawfully may be sold to residents of such states
in any aftermarket which may develop for the Warrants. Nevertheless, the
securities laws of such states may prevent the exercise of such Warrants by
residents of those states because the common shares underlying the Warrants were
never registered there. In this event, holders of the Warrants in those states
would be forced to sell their Warrants or hold them until they expire, without
any opportunity to exercise the Warrants.
41. Broker-Dealer Sales of Company's Registered Securities. The
Company's Units, Common Stock and Warrants are covered by a Securities and
Exchange Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of purchasers in this offering to sell their securities in
the secondary market.
42. Impact of Amendments to the Colorado Securities Act. Effective July
1, 1990, the State of Colorado repealed its prior securities laws and enacted
the Colorado Securities Act, which provides that where less than seventy-five
percent of the net proceeds from the sale of securities are committed for use in
one or more specific lines of business, eighty percent of the net proceeds
received by the issuer shall be placed in escrow until (i) completion of a
transaction or series of transactions whereby at least fifty percent of the
gross proceeds received from the sale of securities are committed for use in one
or more specific lines of business, and (ii) notice of the proposed release of
the escrowed funds has been on file with the Colorado Division of Securities for
at least ten days. The Company intends to make offers of the Company's Units to
residents of Colorado, and, accordingly, anticipates that this offering will be
subject to the above-described escrow provisions. In such event, the use of
proceeds table shall not be affected except that certain allocated funds may not
be available for payment until funds are released from the escrow. As such,
investors should be aware that since many providers of goods and services
require compensation for such goods and services at the time or soon after the
time rendered, the inability of the Company to pay until an indeterminate future
time may make it difficult to procure goods and services. Moreover, while the
Company intends to set aside out of the non-escrowed net proceeds sufficient
funds for auditing work, investors should be aware that unpaid fees are
generally regarded as an impediment to independence and may make it impossible
for the Company's auditors to perform an independent audit. Imposition of the
escrow provisions may require the Company to seek additional financing for
payment of administrative and overhead expenses until such time, if ever, the
Company can successfully complete a business combination whereby proceeds from
the offering are committed to a specific line of business and the proceeds in
escrow are released. The Company has entered into an agreement with Omnibank
Aurora, located in Aurora, Colorado, providing for the establishment of an
escrow account to hold the proceeds, subject to the aforementioned escrow
provisions. See "Terms of Offering -- Escrow of Net Proceeds" and "Risk Factors
- -- Possible Distribution of Escrow Funds After Four Years." Investors should
also be aware that the provisions of the Colorado Securities Act will apply to
proceeds of any exercise of Warrants prior to the completion of a transaction
meeting the requirements of the Colorado Securities Act. See "Use of Proceeds."
43. Possible Distribution of Escrowed Funds After Four Years. If, after
four (4) years from the date funds are deposited into an escrow account,
established in accordance with the Colorado Securities Act (the "Colorado escrow
account"), the Company has not consummated a business combination that has
resulted in the release of the funds escrowed in compliance with the Colorado
Securities Act, the escrow agreement that the Company has entered into with
Omnibank Aurora, Colorado (for purposes of this paragraph, the "escrow agent")
provides that the escrow agent shall, as promptly as possible, distribute the
funds in the Colorado escrow account to the persons then holding the shares of
the Company's common stock issued in this offering on a pro rats basis based on
the number of shares held. See
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<PAGE>
"Risk Factors -- Impact of Amendments to the Colorado Securities Act."
Therefore, investors in this offering should be aware that, in the event of a
distribution as described in the previous sentence, only a portion of the funds
originally invested will be distributed to the persons then holding shares
issued in this offering, without any interest being paid thereon. Neither the
Colorado escrow agreement, nor any distribution made thereunder, shall affect
ownership of the Units issued in this offering, i.e., the shareholders who
receive their pro rata portion of the aforementioned distribution shall not be
required to return their Units to the Company's treasury. See "Terms of Offering
- -- Escrow of Net Proceeds." In the event a distribution is made, as provided
above, the Company's ability to adequately investigate and evaluate business
opportunities and to attract favorable business opportunities will be adversely
affected.
DILUTION AND OTHER COMPARATIVE DATA
The net tangible book value of the Common Stock at June 6, 1990, was
$9,906, or approximately $.0014 per share. That per-share value will be
increased as a result of this offering to approximately $.0165 if the minimum is
sold and $.0286 if the maximum is sold (without adjustment for other changes in
net tangible book value subsequent to such date), resulting in immediate,
substantial dilution to public investors of $.0836 (83.6%) per share if the
minimum is sold and $.0714 (71.4%) per share if the maximum is sold. Dilution is
the reduction in value of the purchaser's investment measured by the difference
between the $.10 price per Unit in the public offering and the net tangible book
value per share after completion of the offering.
The following table, which assumes the successful completion of the
offering described herein by the sale of 1,500,000 Units (minimum) and 3,000,000
Units (maximum), illustrates the per-share dilution to investors in this
offering, without giving effect to the issuance of up to 9,000,000 shares of
Common Stock upon exercise of the Warrants included in the Units.
Minimum Maximum
------- -------
Public offering price per Unit ....................... $ .10 $ .10
Net tangible book value per share at June 6, 1990(1) . $ .0014 $ .0014
Pro forma net tangible book value after the offering . $144,791(2) $294,791(3)
Pro forma net tangible book value per share
after the offering (1) .............................. $ .0165 $ .0286
Increase, attributable to purchases by investors in
this offering, in net tangible book value per share of
currently outstanding shares ......................... $ .0151 $ .0273
Dilution per share to public investors ............... $ .0836 5.0714
Dilution as a percentage of offering price ........... 83.6% 71.4%
- -------------
(1) Net tangible book value per share is determined by dividing the number of
Common Shares outstanding into the total tangible assets less total
liabilities of the Company.
(2) The figure shown is the sum of the net tangible book value of $9,906 at
June 6, 1990, pIus proceeds of $150,000 from the sale of the minimum number
of Units in this offering, minus registration costs (anticipated
registration costs of $20,500 less deferred offering costs of $5,385) of
$15,115.
(3) The figure shown is the sum of the net tangible book value of $9,906 at
June 6, 1990, plus proceeds of $300,000 from the sale of the maximum number
of Units in this offering, minus registration costs (anticipated
registration costs of $20,500 less deferred offering costs of $5,385) of
$15,115.
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<PAGE>
Upon successful conclusion of this offering, the public investors will
own 1,500,000 shares (minimum) or 3,000,000 shares (maximum) (approximately 17%
in case of the minimum or approximately 29% in case of the maximum) of the
issued and outstanding Common Stock, for which they will have paid $.10 per
Unit. This compares with 7,300,000 shares of Common Stock acquired from the
Company since inception by officers, directors and founders at a cost of
$16,000, or approximately $.0022 per share, and which will constitute
approximately 83% of the issued and outstanding Common Stock following this
offering if the minimum is sold, or approximately 71% if the maximum is sold.
<TABLE>
The table set forth below summarizes the difference between the number
of shares of Common Stock purchased from the Company, the average price per
share, and the aggregate consideration paid by existing stockholders and public
investors.
<CAPTION>
Minimum Offering
Percent of
Shares Pct. of Average Total Total
Purchased Total Shares Price/Share Consideration Consideration
--------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Present Stockholders 7,300,000 83.0% $.0022 $ 16,000 9.6%
Public Investors 1,500,000 17.0% $.10 150,000 90.4%
--------- ------ -------- ------
Total 8,800,000 100.0% $166,000 100.0%
========= ====== ======== ======
Maximum Offering
Percent of
Shares Pct. of Average Total Total
Purchased Total Shares Price/Share Consideration Consideration
--------- ------------ ----------- ------------- -------------
Present Stockholders 7,300,000 70.9% $.0022 $ 16,000 5.1%
Public Investors 3,000,000 29.1% $.10 300,000 94.9%
---------- ------ -------- ------
Total 10,300,000 100.0% $316,000 100.0%
========== ====== ======== ======
</TABLE>
USE OF PROCEEDS
The Company will receive net proceeds from this offering, after
deducting offering-related expenses, of approximately $129,500 if the minimum
number of Units is sold and $279,500 if the maximum number is sold; however,
investors should be aware that eighty percent of the net proceeds ($103,600 if
the minimum number of Units is sold and $223,600 if the maximum number of Units
is sold) will be subject to an escrow for an indeterminable period. See Note (6)
below. Net proceeds from the offering are anticipated to be used in the order of
priority shown below:
Minimum Maximum
Amount Amount
------ ------
General and Administrative:
Legal (1) .......................................... $ 10,000 $ 10,000
Accounting ......................................... 2,000 2,000
Miscellaneous ...................................... 1,000 1,000
Officer Salaries (2) ............................... 9,000 9,000
Expenses of Investigating and
Evaluating a Prospective Business Opportunity:
Travel ............................................. $ 1,500 $ 6,000
Finders (3)(4) ..................................... 15,000 30,000
Legal (5) .......................................... 14,000 14,000
Accounting ......................................... 2,000 2,500
Unallocated Proceeds
Available for Acquisitions & Mergers (4) ........... $ 75,000 $205,000
-------- --------
Total Proceeds (6) ....................................... $129,500 $279,500
======== ========
- -------------------
(1) The figures shown reflect general corporate and securities compliance work
only.
11
<PAGE>
(2) Commencing after completion of this offering, each of the
Company's two officers will be compensated at a rate of $45 per
hour for time devoted to the affairs of the Company in excess of
five hours per month, limited only by a cap of $1,500 per month
and a total cap of $4,500 on each officer's salary during the
Company's first year in operation.
(3) Should the Company complete the acquisition of a business
opportunity, the Board of Directors may award a finder's fee to
an officer or affiliate of the Company, or to a third party, if
the acquisition is originated as a result of his efforts. The
cash portion of this fee, in the aggregate, if paid to officers
or affiliates, will not exceed 10% of the gross proceeds of the
offering and may be less.
(4) All of these proceeds will be segregated from the remainder of
the net proceeds and placed into a bank account or other
temporary investment, subject to the escrow provisions contained
in the newly enacted Colorado Securities Act. See Note (6).
(5) A portion of these proceeds will be segregated from the remainder
of the net proceeds and placed into a bank account or other
temporary investment, subject to the escrow provisions contained
in the newly enacted Colorado Securities Act. See Note (6) below.
Specifically, all but $400 of the proceeds allocated for payment
of legal fees will be subject to the escrow if only the minimum
number of Units is sold, and all but $6,800 of those proceeds
will be subject to the escrow if the maximum number of Units is
sold.
(6) Effective July 1, 1990, the State of Colorado repealed its
prior securities laws and enacted the Colorado Securities Act,
which provides that where less than seventy-five percent of the
net proceeds from the sale of securities are committed for use in
one or more specific lines of business, eighty percent of the net
proceeds received by the issuer shall be placed in escrow until
(i) completion of a transaction or series of transactions whereby
at least fifty percent of the gross proceeds received from the
sale of securities are committed for use in one or more specific
lines of business, and (ii) notice of the proposed release of the
escrowed funds has been on file with the Colorado Division of
Securities for at least ten days. The Company intends to make
offers of the Company's Units to residents of Colorado, and,
accordingly, anticipates that this offering will be subject to
the above-described escrow provisions. In such event, the use of
proceeds table shall not be affected except that certain
allocated funds may not be available for payment until funds are
released from the escrow. As such, investors should be aware that
since many providers of goods and services require compensation
for such goods and services at the time or soon after the time
rendered, the inability of the Company to pay until an
indeterminate future time may make it difficult to procure goods
and services. Moreover, while the Company intends to set aside
out of the non-escrowed net proceeds sufficient funds for
auditing work, investors should be aware that unpaid fees are
generally regarded as an impediment to independence and may make
it impossible for the Company's auditors to perform an
independent audit. See "Risk Factors -- Impact of Amendments to
the Colorado Securities Act," "Possible Distribution of Escrowed
Funds After Four Years," and `Terms of Offering -- Escrow of Net
Proceeds."
The table set forth above reflecting the use of proceeds is merely the
Company's good-faith estimate. Because the Company has no agreements or
understandings, preliminary or otherwise, for any future acquisitions and has no
specific enterprises targeted for acquisition, the Company is unable to make a
specific allocation of the net proceeds of this offering. Subsequent events may
require a reallocation of available funds affecting one or more of the above
listed categories of expenditure. Any such reallocation will be at the
discretion of the Company's Board of Directors. The allocations reflected in the
table also do not provide for any revenues generated by the Company's
operations, if any, or operations of any business opportunity which may be
acquired, during the one-year period following the closing of this offering.
Should the sale of Units result in proceeds of less than the maximum amount but
greater than the minimum amount, the use of proceeds will be adjusted among the
categories of expenditure as management deems best.
Since the Company does not know to what extent, if any, the Warrants
may be exercised, and because it is unlikely that such Warrants will ever be
exercised, the Company has not made specific plans for the use of proceeds which
might be received upon the exercise of such Warrants. Investors should be aware
that if less than seventy-five percent of the net proceeds from the exercise of
Warrants is committed for use in one or more specific lines of business, the
proceeds from the exercise of Warrants will likely be placed in an escrow
pursuant to the Colorado Securities Act. See Note (6) above.
12
<PAGE>
Subject to certain escrow requirements described above, all funds not
being utilized by the Company will be held in interest-bearing accounts or
investments in commercial financial institutions until such time as it appears
the funds will be required. See "Risk Factors -- The Company -- Investment
Company Regulation." Other than interest income, the Company does not at this
time anticipate generating revenues unless and until an acquisition candidate is
identified, and a business combination consummated with such candidate, in which
case the Company may begin to generate revenues from operations, depending on
the performance of the newly acquired business.
BUSINESS
General
The Company was incorporated under the laws of the State of Delaware on
April 27, 1990, and is in the early developmental and promotional stages. To
date the Company's only activities have been organizational, directed at the
raising of capital. The Company has not commenced any commercial operations and
is entirely dependent upon the successful completion of this offering to do so.
The Company has no full-time employees and owns no real estate.
The Company proposes to implement a business plan to seek, investigate,
and, if warranted, acquire one or more properties or businesses. Such an
acquisition may be made by purchase, merger, exchange of stock or otherwise, and
may encompass assets or a business entity, such as a corporation, joint venture
or partnership. Even if the maximum number of Units is sold, the Company will
have limited capital, and it is unlikely that the Company will be able to take
advantage of more than one such business opportunity. The Company intends to
seek opportunities demonstrating the potential of long-term growth as opposed to
short-term earnings.
At the present time the Company has not identified any business
opportunity that it plans to pursue, nor has the Company reached any agreement
or definitive understanding with any person concerning an acquisition. No
assurance can be given that the Company will be successful in finding or
acquiring a desirable business opportunity, given the limited funds that are
expected to be available for acquisitions, or that any acquisition that occurs
will be on terms that are favorable to the Company or its stockholders.
Moreover, if, after four (4) years from the date funds are deposited into an
escrow account, established in accordance with the Colorado Securities Act (the
"Colorado escrow account"), the Company has not consummated a business
combination that has resulted in the release of the funds escrowed in compliance
with the Colorado Securities Act, the escrow agreement that the Company has
entered into with Omnibank Aurora, located in Aurora, Colorado (for purposes of
this paragraph, the "escrow agent"), provides that the escrow agent shall,as
promptly as possible, distribute the funds in the Colorado escrow account to the
persons then holding the shares of the Company's common stock issued in this
offering on a pro rata basis based on the number of shares held. See "Risk
Factors -- Impact of Amendments to the Colorado Securities Act" and "Possible
Distribution of Escrowed Funds After Four Years." In that event, the Company's
ability to adequately investigate and evaluate business opportunities and to
attract favorable business opportunities will be adversely affected.
The Company's search will be directed toward small and medium-sized
enterprises. The Company anticipates that the business opportunities presented
to it will (i) be recently organized with no operating history, or a history of
losses attributable to under-capitalization or other factors; (ii) be
experiencing financial or operating difficulties; (iii) be in need of funds to
develop a new product or service or to expand into a new market, (iv) be relying
upon an untested product or marketing concept; or (v) have a combination of the
characteristics mentioned in (i) through (iv). The Company intends to
concentrate its acquisition efforts on properties or businesses which it
believes to be undervalued. Given the above factors, investors should expect
that any acquisition candidate may have a history of losses or low
profitability.
The Company does not propose to restrict its search for investment
opportunities to any particular geographical area or industry, and may,
therefore, engage in essentially any business, to the extent of its limited
resources. This includes industries such as service, finance, natural resources,
manufacturing, high technology, product development, medical, communications and
others. The Company's discretion in the selection of business opportunities is
unrestricted, subject to the availability of those opportunities, economic
conditions and other factors. In addition, because of the impact of the proceeds
escrow imposed by the Colorado Securities Act, it can be expected that the
Company will consider only those business combinations that, when consummated,
will result in at least fifty percent of the gross proceeds from the offering
being committed for use in one or more specific lines of business. See "Use of
Proceeds."
13
<PAGE>
As a consequence of this offering, the Company may be acquired by
another entity that desires to become a public company while avoiding the
registration requirements of the federal securities laws. In connection with
such acquisition, it is highly likely that an amount of stock constituting
control of the Company would be issued by the Company or purchased from current
officers and directors by the acquiring entity. If stock is purchased from
officers and directors, the transaction could result in substantial gains to
such officers and directors relative to their original purchase price for such
stock. In the Company's judgment, its officers and directors would not thereby
become "underwriters" within the meaning of the Section 2(11) of the Securities
Act of 1933, as amended.
It is anticipated that business opportunities will come to the
Company's attention from various sources, including its officers and directors,
professional advisors such as attorneys and accountants, securities
broker-dealers, venture capitalists, members of the financial community, and
others who may present unsolicited proposals. The Company has no plans,
understandings, agreements or commitments with any individuals for such persons
to act as a finder of opportunities for the Company.
The Company does not foresee that it would purchase an interest in or
enter into a contract with any business with which an officer or director of the
Company is affiliated. Should the Company's management determine in the future,
contrary to management's current expectations, that a transaction with an
affiliate would be in the best interests of the Company and its stockholders,
the Company's Certificate of Incorporation would permit the Company to enter
into such a transaction only if (i) the Board of Directors of the Company has
been apprised of the relationship or interest of the officer and director and a
disinterested majority of the board members have approved the transaction, or
(ii) the stockholders of the Company have been informed of the relationship or
interest and approve the transaction, or (iii) the transaction is fair and
reasonable to the Company.
Investigation and Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality of the other
company's management and personnel, the anticipated acceptability of new
products or marketing concepts, the merit of technological changes, and numerous
other factors which are difficult, if not impossible, to analyze through the
application of any objective criteria. In many instances, it is anticipated that
the historical operations of a specific firm may not necessarily be indicative
of the potential for the future because of the possible need to shift marketing
approaches substantially, expand significantly, change product emphasis, change
or substantially augment management, or make other changes. Because of the lack
of training or experience of the Company's management, the Company will be
dependent upon the owners of a business opportunity to identify such problems
and to implement, or be primarily responsible for the implementation of,
required changes. Because the Company may participate in a business opportunity
with a newly organized firm or with a firm which is entering a new phase of
growth, it should be emphasized that the Company will incur further risks, since
management in many instances will not have proved its abilities or
effectiveness, the eventual market for such company's products or services will
likely not be established, and such company may not be profitable when acquired.
It is anticipated that the Company will not be able to diversify, but
will essentially be limited to one such venture because of the Company's limited
financing. This lack of diversification will not permit the Company to offset
potential losses from one business opportunity against profits from another, and
should be considered an adverse factor affecting any decision to purchase the
Company's securities.
It is emphasized that management of the Company may effect transactions
having a potentially adverse impact upon the public investors pursuant to the
authority of the Company's Board of Directors to complete acquisitions without
submitting any proposal to the stockholders for their consideration. In some
instances, however, the proposed participation in a business opportunity may be
submitted to the stockholders for their consideration, either voluntarily by the
Board of Directors to seek the stockholders' advice and consent or because state
law so requires.
The analysis of business opportunities will be undertaken by or under
the supervision of the officers and directors, none of whom is a professional
business analyst or has any previous training or significant experience in
business analysis. See "Management." The Company will have unrestricted
flexibility in seeking, analyzing and participating in business opportunities;
however, because of the impact of the escrow imposed by the Colorado Securities
Act, it can be expected that the Company will consider only those business
combinations that, when consummated, will result in at least fifty percent of
the gross proceeds from the offering being committed for use in one or more
specific lines of
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business. See "Use of Proceeds." Otherwise, the Company anticipates that it will
consider, among other things, the following factors.
(a) Potential for growth and profitability, indicated by new
technology, anticipated market expansion or new products;
(b) Competitive position as compared to other companies of
similar size and experience within the industry segment as well as within the
industry as a whole;
(c) Strength and diversity of existing management, or
management prospects that are scheduled for recruitment;
(d) Capital requirements and anticipated availability of
required funds, to be provided by the Company or from operations, through the
sale of additional securities, through joint ventures or similar arrangements
or from other sources;
(e) The cost of participation by the Company as compared to
the perceived tangible and intangible values and potential;
(f) The extent to which the business opportunity can be
advanced
(g) The Company's perception of how any particular business
opportunity will be received by the investment community and by the Company's
stockholders;
(h) The accessibility of required management expertise,
personnel, raw materials, services, professional assistance and other required
items; and
(i) Whether the financial condition of the business
opportunity would be, or would have a significant prospect in the foreseeable
future to become, such as to permit the securities of the Company, following the
business combination, to qualify to be listed on a national automated securities
quotation system, such as NASDAQ, so as to permit the trading of such securities
to be exempt from the requirements of Rule 15c2-6 recently adopted by the
Securities and Exchange Commission. See "Risk Factors -- Broker-Dealer Sales of
Company's Registered Securities."
In regard to the last criterion listed above, the current standards for
NASDAQ listing include the requirements that the issuer of the securities that
are sought to be listed have total assets of at least $2,000,000 and net assets
of at least $1,000,000. A proposal that is currently under consideration would
raise those requirements to $4,000,000 and $2,000,000, respectively.
Many, and perhaps most, of the business opportunities that might be
potential candidates for a combination with the Company would not satisfy the
current and proposed NASDAQ listing criteria. To the extent that the Company
seeks potential NASDAQ listing, therefore, the range of business opportunities
that shall be available for evaluation and potential acquisition by the Company
shall be significantly limited.
In applying the foregoing criteria, no one of which will be
controlling, management will attempt to analyze all factors appropriate to the
opportunity and make a determination based upon reasonable investigative
measures and available data. Potentially available business opportunities may
occur in many different industries and at various stages of development, all of
which will make the task of comparative investigation and analysis of such
business opportunities extremely difficult and complex. Potential investors must
recognize that, because of the Company's limited capital available for
investigation and management's limited experience in business analysis, the
Company may not discover or adequately evaluate adverse facts about the
opportunity to be acquired.
The Company is unable to predict when it may participate in a business
opportunity. It expects, however, that the analysis of specific proposals and
the selection of a business opportunity may take several months or more, and
persons should not purchase Units in the offering if they expect a short-term
appreciation in the value of the Company's securities. It is unlikely that prior
to consummating a business combination, the Company will have any funds
available to be loaned to the target company because eighty percent of the net
proceeds will be subject to an escrow and not available for purposes of a loan
to the target company. See "Use of Proceeds."
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Prior to making a decision to participate in a business opportunity,
the Company will generally request that it be provided with written materials
regarding the business opportunity containing such items as a description of
product, service and company history; management resumes; financial information;
available projections, with related assumptions upon which they are based; an
explanation of proprietary products and services; evidence of existing patents,
trademarks or services marks or rights thereto; present and proposed forms of
compensation to management; a description of transactions between such company
and its affiliates during relevant periods; a description of present and
required facilities; an analysis of risks and competitive conditions; a
financial plan of operation and estimated capital requirements; audited
financial statements; and other information deemed relevant.
As part of the Company's investigation, officers and directors may meet
personally with management and key personnel, may visit and inspect material
facilities, obtain independent analysis or verification of certain information
provided, check references of management and key personnel, and take other
reasonable investigative measures, to the extent of the Company's limited
financial resources and management expertise.
Form of Acquisition
It is impossible to predict the manner in which the Company may
participate in a business opportunity; however, because of the impact of the
escrow imposed by the Colorado Securities Act, it can be expected that the
Company will consider only those business combinations that, when consummated,
will result in at least fifty percent of the gross proceeds from the offering
being committed for use in one or more specific lines of business. See "Use of
Proceeds." Specific business opportunities will be reviewed as well as the
respective needs and desires of the Company and the promoters of the opportunity
and, upon the basis of that review and the relative negotiating strength of the
Company and such promoters, the legal structure or method deemed by management
to be suitable will be selected. Such structure may include, but is not limited
to leases, purchase and sale agreements, licenses, joint ventures and other
contractual arrangements. The Company may act directly or indirectly through an
interest in a partnership, corporation or other form of organization.
Implementing such structure may require the merger, consolidation or
reorganization of the Company with other corporations or forms of business
organization, and there is no assurance that the Company would be the surviving
entity. In addition, the present management and the stockholders of the Company
purchasing securities in this offering most likely will not have control of a
majority of the voting shares of the Company following a reorganization
transaction. As part of such a transaction, all or a majority of the Company's
directors may resign and new directors may be appointed without any vote by
stockholders.
It is likely that the Company will acquire its participation in a
business opportunity through the issuance of Common Stock or other securities of
the Company. Although the terms of any such transaction cannot be predicted, it
should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under the
Internal Revenue Code of 1986, depends upon the issuance to the stockholders of
the acquired company of up to 80% of the common stock of the combined entities
immediately following the reorganization. If a transaction were structured to
take advantage of these provisions rather than other "tax free" provisions
provided under the Internal Revenue Code, the Company's stockholders in such
circumstances would retain in the aggregate 20% or less of the total issued and
outstanding shares. This could result in substantial additional dilution in the
equity of those who were stockholders of the Company prior to such
reorganization.
It is anticipated that any securities issued in any reorganization
would be issued in reliance upon exemptions, if any are available, from
registration under applicable federal and state securities laws. In some
circumstances, however, as a negotiated element of the transaction, the Company
may agree to register such securities either at the time the transaction is
consummated, or under certain conditions or at specified times thereafter. The
issuance of substantial additional securities and their potential sale into any
trading market which may develop in the Company's securities may have a
depressive effect upon such market.
The Company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
As a general matter, the Company anticipates that it will enter into a
letter of intent with the management, principals or owners of a prospective
business opportunity. Such a letter of intent will set forth the terms of the
proposed acquisition
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but will not bind either the Company or the business opportunity to consummate
the transaction. Execution of a letter of intent will by no means indicate that
consummation of an acquisition is probable. Neither the Company nor the business
opportunity will be bound unless and until a definitive agreement concerning the
acquisition as described in the preceding paragraph is executed, and then only
if neither party has any contractual right to terminate the agreement on
specified grounds.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and substantial costs for accountants, attorneys
and others. If a decision is made not to participate in a specific business
opportunity, the costs theretofore incurred in the related investigation would
not be recoverable. Moreover, since many providers of goods and services require
compensation for such goods and services at the time or soon after the time
rendered, the inability of the Company to pay until an indeterminate future time
may make it difficult to procure goods and services.
Investment Company Act and Other Regulation
The Company may participate in a business opportunity by purchasing,
trading or selling the securities of such business. The Company does not,
however, intend to engage primarily in such activities. Specifically, the
Company intends to conduct its activities so as to avoid being classified as an
"investment company" under the Investment Company Act of 1940 (the "Investinent
Act"), and therefore to avoid application of the costly and restrictive
registration and other provisions of the Investment Act, and the regulations
promulgated thereunder.
Section 3(a) of the Investment Act provides the definition of an
"investment company," which excludes any entity that does not engage primarily
in the business of investing, reinvesting or trading in securities, or that does
not engage in the business of investing, owning, holding or trading "investment
securities" (defined as "all securities other than government securities or
securities of majority-owned subsidiaries") the value of which exceeds 40% of
the value of its total assets (excluding government securities, cash or cash
items). The Company intends to implement its business plan in a manner which
will result in the availability of this exception from the definition of
"investment company." Consequently, the Company's participation in a business or
opportunity through the purchase and sale of investment securities will be
limited. In order to avoid classification as an investment company, the Company
may use a major portion of the net proceeds of this offering to search for,
analyze and acquire or participate in a business or opportunity by use of a
method which does not involve the acquisition, ownership or holding of
investment securities.
The Company's plan of business may involve changes in its capital
structure, management, control and business, especially if it consummates a
reorganization as discussed above. Each of these areas is regulated by the
Investment Act, which regulation has the purported purpose of protecting
purchasers of investment company securities. Since the Company will not register
as an investment company, purchasers in this offering will not be afforded these
protections.
Even if the Company restricts its activities as described above, it is
possible that it may be classified as an inadvertent investment company if
significant delays are experienced in locating and expending a major portion of
the net proceeds of this offering on a business or opportunity other than by the
method of acquiring or holding investment securities.
The Company intends vigorously to resist classification as an
investment company, and to take advantage of any exemptions or exceptions from
application of the Investment Act, which allows an entity a one-time option
during any three-year period to claim an exemption as a "transient" investment
company. The necessity of asserting any such resistance, or making any claim of
exemption, could be time consuming and costly, or even prohibitive, given the
Company's limited resources.
Any securities which the Company might acquire in exchange for its
Common Stock will be "restricted securities" within the meaning of the
Securities Act of 1933, as amended (the "Act"). If the Company elects to resell
such securities, such sale cannot proceed unless a registration statement has
been declared effective by the Securities and Exchange Commission or an
exemption from registration was available. Section 4(1) of the Act, which
exempts sales of securities not involving a distribution, would in all
likelihood be available to permit a private sale. Although the plan of operation
does not contemplate resale of securities acquired, if such a sale were to be
necessary, the Company would be required to comply with the provisions of the
Act to effect such resale.
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An acquisition made by the Company may be in an industry which is
regulated or licensed by federal, state or local authorities. Compliance with
such regulations can be expected to be a time-consuming and expensive process.
Competition
The Company expects to encounter substantial competition in its efforts
to locate attractive opportunities, primarily from business development
companies, venture capital partnerships and corporations, venture capital
affiliates of large industrial and financial companies, small investment
companies and wealthy individuals. Many of these entities will have
significantly greater experience, resources and managerial capabilities than the
Company and will therefore be in a better position than the Company to obtain
access to attractive business opportunities. The Company also will experience
competition from other public "blind pool" companies, many of which may have
more funds available than does the Company.
Administrative Offices
The Company presently maintains its offices at 12543-A East Pacific
Circle, Aurora, Colorado 80014, the home of its Vice President. Its phone number
there is (303) 337-1033. The Company believes these facilities will be adequate
for its needs in the foreseeable future. The Company pays no rent for the use of
these facilities.
Employees
The Company is a development stage company and currently has no
employees, other than its officers. Management of the Company expects to use
consultants, attorneys and accountants as necessary, and does not anticipate a
need to engage any full-time employees so long as it is seeking and evaluating
business opportunities. The need for employees and their availability will be
addressed in connection with the decision whether or not to acquire or
participate in specific business opportunities. No remuneration will be paid to
the Company's officers except as set forth under the subheading "Remuneration"
in the "Management" section, and under "Certain Transactions with Management and
Others."
MANAGEMENT
The directors and executive officers currently serving the Company are as
follows:
Name Age Position Held and Tenure
---- --- ------------------------
John J. Micek III 37 President, Director since April 27, 1990
Frank L. Kramer 47 Secretary, Treasurer, Director since April 27, 1990,
Vice President since May 2, 1990
Donald R. McGahan 56 Director since April 27, 1990
The directors named above will serve until the first annual meeting of
the Company's stockholders. Thereafter, directors will be elected for one-year
terms at the annual stockholders' meeting. Officers will hold their positions at
the pleasure of the board of directors, absent any employment agreement, of
which none currently exists or is contemplated. There are no family
relationships among the officers and directors. There is no arrangement or
understanding between any of the directors or officers of the Company and any
other person pursuant to which any director or officer was or is to be selected
as a director or officer. The directors and officers will devote their time to
the Company's affairs on an "as needed" basis, which, depending on the
circumstances, could amount to on average as little as five hours per month.
Biographical Information
John J. Micek II. Mr. Micek, the President and a director of the
Company, has been a director since February 1988 of Armanino Foods of
Distinction, Inc., formerly named Falcon Fund, Inc., a blind pool company
("Armanino - Colorado"), which completed a reverse acquisition of a Delaware
company ("Armanino - Delaware"). Mr. Micek has been a director of Armanino -
Delaware, which is engaged in the production and marketing of gourmet, upscale
specialty food products
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since May 1987, and has been a vice president of Armanino - Delaware since
September 1989. From February 1988 to December 31, 1988, he served as general
counsel and chief financial officer for Armanino - Colorado, and served in these
capacities for Armanino - Delaware from May 1987 to December 31, 1988. Since
January 1989, Mr. Micek has practiced law and currently serves as a consultant
to Armanino - Colorado on corporate finance matters. Mr. Micek also serves as a
financial consultant to Artanis, L.P., a partnership which currently markets a
line of celebrity gourmet food products. From 1979 until December 1986, Mr.
Micek served as corporate counsel and as assistant to the president of G.
Armanino & Son, Inc. and Armanino Farms of California, which were engaged in the
international food marketing business. Mr. Micek has also served as vice
president, treasurer and a director of Laguna Capital Corporation, a Colorado
based "blind pool" company, from April 1986 until February 1988, and as vice
president, treasurer and a director of Capital Equity Resources, Inc. ("CER"),
also a Colorado-based "blind pool" company, from January 1986 until August 1986.
After CER completed a reverse acquisition in August 1986, it changed its name to
Asha Corporation. Mr. Micek remained as a director of Asha Corporation until
June 1989. He also has served as a director of Universal Group Insurance
Companies, an Omaha, Nebraska-based insurance company, since 1982, and as a
director of Cole Publishing Company, an educational publisher, located in Santa
Rosa, California, since March 1990. He was Western Finance Coordinator for the
1984 Presidential Campaign of Walter Mondale. He received a Bachelor of Arts
Degree in History from the University of Santa Clara in 1974 and a Juris
Doctorate from the University of San Francisco School of Law in 1979. Mr. Micek
presently devotes only as much time as is necessary as an officer of the
Company.
Frank L. Kramer. Mr. Kramer, the Vice President, Secretary, Treasurer
and a director of the Company, served as president and a director of Fi-Tek
Corp., a blind pool company headquartered in Aurora, Colorado, from 1984 until
1987 when it acquired Boston Technology, Inc. and moved its operations to
Cambridge, Massachusetts. From May 1987 to November 1988, Mr. Kramer served as
president, treasurer and the chairman of the board of FI-Tek II, Inc., a blind
pool company headquartered in Aurora, Colorado, until it acquired On Line
Communications, Inc. and moved its operations to San Jose, California. The
company has since changed its name to On Line Network, Inc. Mr. Kramer has also
served since November 1988 as the president, treasurer and a director of Fi-Tek
III, Inc., a Delaware-chartered "blind pool" corporation which successfully
completed an offering of securities in September 1989, and which in August 1990
acquired Videoconferencing Systems, Inc., a Norcross, Georgia-based company
engaged in the design, system integration, sale, and service of turnkey
interactive videoconferencing systems. Effective as of the date of acquisition,
Mr. Kramer resigned as president and treasurer, but retained his position on the
board of directors. From February 1987 until December 1989, he was also the
treasurer and a director of Bluestone Capital Corp., a Colorado "blind pool"
corporation which successfully completed an offering of securities in November
1988 and which moved its operations to Braintree, Massachusetts after acquiring
Dialogue, Inc. in December 1989. Mr. Kramer also serves as president, treasurer
and a director of Fi-Tek IV, Inc., a Delaware-chartered "blind pool" corporation
which completed an offering of securities in September 1990. Mr. Kramer has
recently become an officer and director of three other "blind pool" companies,
Fi-Tek V, Inc., Fi-Tek VI, Inc. and FI-Tek VII, Inc., each of which intends to
conduct a public offering of securities. See "Prior Blind Pool Activities." Mr.
Kramer was affiliated with New York Life Insurance Company ("New York Life")
from 1968 through 1981 and was engaged in sales, sales management, and estate
planning. He became a Chartered Life Underwriter in 1972. From 1973 through
1981, he was general manager of two of New York Life's general offices. From
1981 to late 1987, Mr. Kramer was self-employed as a private financial
consultant in the Denver, Colorado area, assisting businesses in arranging
interim financing for their business operations, through private and commercial
borrowings. He has also been engaged in the structuring and implementing of
private financing for the oil and gas and commercial real estate industries.
Since 1987, Mr. Kramer has been affiliated with New York Life as an agent and a
recruiter. From 1986 until March of 1987, he was an employee and a director of
Optimum Manufacturing, Inc., a public company engaged in manufacturing in
Denver, Colorado. He obtained a B.S. Degree in Business Administration from
Louisiana State University in 1964.
Donald R.McGahan. Mr. McGahan, a director of the Company, currently
serves as a senior vice president and resident manager for American Aegis
Securities, Inc. ("American Aegis"), an NASD member broker dealer engaged in
various securities and financing activities and headquartered in San Diego,
California with offices in two other U.S. cities, including Boca Raton, Florida,
the office out of which Mr. McGahan has been working since joining the firm on
July 15, 1990. From October 1989 until joining American Aegis, Mr. McGahan
served as a senior vice president and Eastern regional manager for Smith,
Mitchell & Associates, Inc. ("Smith Mitchell"), an NASD registered firm engaged
in public finance activities and headquartered in Seattle, Washington. Mr.
McGahan served in Smith Mitchell's Boca Raton, Florida office. From May 1989
until October 1989, Mr. McGahan served as senior vice president of R.W. Smith &
Associates, lnc., a municipal bond brokerage, also located in Boca Raton,
Florida. From October 1987 until May 1989, Mr. McGahan served as senior vice
president and a manager for Harry Downs & Co. Municipal Brokers, located in Boca
Raton, Florida. Mr. McGahan
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served as senior vice president of MKI Securities Corp., located in New York
City, from March 1985 to September 1987 where he established and managed a
serial bond revenue desk, and from October 1981 to March 1985, he was senior
vice president and a principal of Vierling, Devaney & Maguire, Inc., a New York
City municipal bond firm, which merged with MKI Securities Corp. in 1985. From
June 1980 to October 1981, Mr. McGahan served as the president and chief
executive officer of George B. Gibbons & Co., a subsidiary of Carroll, McEntee,
McGinley, a dealer in U.S. government securities, located in New York City. Mr.
McGahan was also an outside director of CM&M Securities, a member firm of the
New York Stock Exchange and a subsidiary of Carroll, McEntee, McGinley, from
October 1980 until October 1981. From 1960 to June 1980, Mr. McGahan worked in
the municipal bond department of Fahnestock & Co., a member firm of the New York
Stock Exchange, where he was promoted to manager in 1968 and became a partner in
1969. Mr. MeGahan holds the following NASD licenses: Municipal Securities
Representative, Municipal Securities Principal, Registration/General Securities
Representative, and General Securities Principal. Mr. McGahan obtained a B.A.
degree in history and political science from Villanova University in 1955. He
served in the United States Navy in various capacities from 1956 until 1978 at
which time he retired with the rank of Commander.
Remuneration
The directors and officers will devote their time to the Company's
affairs on an "as needed" basis, which, depending on the circumstances, will
likely amount to on average as little as five hours per month spent each by Mr.
Micek and Mr. McGahan, and on average twenty hours per month spent by Mr.
Kramer. Commencing after completion of this offering, each of the Company's two
officers will be compensated at a rate of $45 per hour for time devoted to the
affairs of the Company, in excess of five hours per month, limited only by a cap
of $1,500 per month and a total cap on each officer's salary of $4,500 during
the Company's first year of operation. As stated previously, it is not expected
that any one of the officers will devote time each month that will entitle each
to draw a salary up to the maximum amount of $1,500 per month.
Should the Company complete the acquisition of a business opportunity,
the Board of Directors may award a finder's fee to an officer or affiliate of
the Company, or to a third party, if the acquisition is originated as a result
of his efforts. The cash portion of this fee, in the aggregate, if paid to
officers or affiliates, will not exceed 10% of the gross proceeds of the
offering and may be less.
Following completion of this offering and until the Company acquires
sufficient capital through means other than this offering, it is not intended,
except as provided in the previous two paragraphs, that any officer or director
will receive compensation from the Company for performance of duties as an
officer or director other than reimbursement for out-of-pocket expenses incurred
on behalf of the Company. See "Certain Transactions with Management and Others."
Indemnification of Officers and Directors
As permitted by Delaware law, the Company's Certificate of
Incorporation provides that the Company will indemnify its directors and
officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil or criminal action brought against them on account of their
being or having been Company directors or officers unless, in any such action,
they are adjudged to have acted with gross negligence or willful misconduct.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in that Act and is, therefore, unenforceable.
Exclusion of Liability
Pursuant to the Delaware General Corporation Law, the Company's
Certificate of Incorporation excludes personal liability for its directors for
monetary damages based upon any violation of their fiduciary duties as
directors, except as to liability for any breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, acts in violation of Section 174 of the Delaware General
Corporation Law, or any transaction from which a director receives an improper
personal benefit. This exclusion of liability does not limit any right which a
director may have to be indemnified and does not affect any director's liability
under federal or applicable state securities laws.
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PRIOR BLIND POOL ACTIVITIES
John J. Micek II, the Company's President and a director, previously
served as vice president, treasurer and a director of Capital Equity Resources,
Inc. ("CER"), a development stage company that conducted a blind pool offering.
CER closed its public offering on May 8, 1986, and raised a total of $200,000 in
gross proceeds by selling 20,000,000 Units at $.01 per Unit. During August 1986,
CER completed a reverse acquisition of ASHA, Inc. ("ASHA") by which CER acquired
100% of ASHA in exchange for approximately 92.4% of the outstanding shares of
CER. ASHA was engaged in the development of a full-time four wheel drive, four
passenger utility automobile which was being developed around a new automotive
architecture invented by ASHA's President, Alain Clenet. ASHA was a newly formed
company and had no operations prior to the acquisition. Mr. Micek did not
dispose of any of his stock holdings in CER or receive any compensation from CER
or from ASHA in connection with the ASHA acquisition. Upon his resignation as a
director of ASHA in June 1989, Mr. Micek received shares of stock in ASHA which
represented less than five percent of the total shares outstanding.
Mr. Micek also previously served as vice president, treasurer, and a
director of Laguna Capital Corp. ("Laguna"), which closed its public offering
during September 1986, with total proceeds raised of $200,000 by selling
20,000,000 units at $.01 per unit. In February 1988, Laguna completed a reverse
acquisition of Sporting Life, Inc. ("Sporting Life") whereby Laguna acquired
100% of the outstanding shares of Sporting Life in exchange for approximately
90% of the outstanding shares of Laguna. Sporting Life distributes and sells
golf and tennis equipment and supplies for domestic and foreign manufacturers
through its Las Vegas Discount Golf and Tennis franchises and mail order
business. Laguna/Sporting Life has changed its name to Las Vegas Discount Golf &
Tennis, Inc. All of the officers and directors of Laguna resigned effective as
of the closing of the acquisition. Mr. Micek did not receive any compensation
from Laguna or Sporting Life and did not dispose of any of his stock holdings in
Laguna in connection with the Sporting Life acquisition.
Frank L. Kramer, the Company's Vice President, Secretary, Treasurer and
a director, previously served as a director and as president of Fi-Tek Corp.
("Fi-Tek"), a blind pool company. Fi-Tek initiated its public offering on April
2, 1986 and closed the offering on June 11, 1986, with total proceeds of
$250,000 upon sale of 12,500,000 units (consisting of common stock and common
stock purchase warrants), at a price of $.02 per unit, which constituted all
units offered.
During January 1987, Fi-Tek completed a reverse acquisition
(stock-for-stock exchange). It acquired Boston Technology, Inc. ("Boston"), a
Delaware corporation based in Cambridge, Massachusetts, which is engaged in the
design, manufacture and marketing of computer-based telecommunications systems
commonly known as "voice messaging systems." FI-Tek issued 98,000,000 restricted
shares of its common stock in exchange for all the outstanding capital stock of
Boston, which shares represented 80% of Fi-Tek's issued and outstanding common
stock following the acquisition. Mr. Kramer, who still owns stock in Fi-Tek and
who resigned as a director and officer of Fi-Tek as of January 31, 1987,
received, as total compensation from Fi-Tek, a consulting fee of $1,000. Mr.
Kramer did not dispose of any of his stock holdings in Fi-Tek as part of the
acquisition of Boston.
Frank L. Kramer previously served also as a director and as president
and treasurer of Fi-Tek II, Inc. ("Fi-Tek II"), a blind pool company. Fi-Tek II
initiated its public offering on March 10, 1988 and closed the offering in July
1988, with total proceeds of $216,211.78 upon sale of 10,810,589 units
(consisting of common stock and common stock purchase warrants), at a price of
$.02 per unit. During November 1988, Fi-Tek II completed a reverse acquisition
(stock-for-stock exchange). It acquired On Line Communications, Inc. ("On
Line"), a California corporation based in San Jose, California, which is an
Alternate Operator Services (AOS) provider of long distance telephone services
for persons making credit card, collect call and third party billing telephone
calls. Fi-Tek II issued 95,442,356 restricted shares of its common stock in
exchange for all the outstanding capital stock of On Line, which shares
represented 80% of Fi-Tek II's issued and outstanding common stock following the
acquisition. Mr. Kramer, who currently owns stock in Fi-Tek II and resigned all
his positions with Fi-Tek II as of October 1988, has not received any
compensation from the Company other than a consulting fee of $5,000. Mr. Kramer
did not dispose of any of his stock holdings in Fi-Tek II as a part of the
acquisition of On Line.
Frank L. Kramer currently serves as president, treasurer and as a
director of Fi-Tek III, Inc. ("Fi-Tek II"), a blind pool company. Fi-Tek III
initiated its public offering on May 26, 1989 and closed the offering on
September 12, 1989, with total proceeds of $500,000 upon the sale of 25,000,000
Units (consisting of common stock and common stock purchase warrants), at a
price of $.02 per unit, which constituted all the units offered. During August
1990, Fi-Tek II completed a
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reverse acquisition (stock-for-stock exchange). It acquired Videoconferencing
Systems, Inc. ("VSI"), a Norcross, Georgia-based company engaged in the design,
system integration, sale, and service of turnkey interactive videoconferencing
systems. Fi-Tek II issued 181,629,157 restricted shares of common stock,
9,081,958 restricted shares of series A cumulative convertible preferred stock
and 500,000 restricted shares of series B cumulative preferred stock for all the
outstanding capital stock of VSI. Mr. Kramer, who currently owns stock of Fi-Tek
III, has received total compensation of $5,000 as a result of his position with
Fi-Tek III. Mr. Kramer did not dispose of any of his stock holdings in Fi-Tek
II as part of the acquisition of VSI.
Mr. Kramer also currently serves as an officer and director of Fi-Tek
IV, Inc., Fi-Tek V, Inc., Fi-Tek VI, Inc., and Fi-Tek VII, Inc. Fi-Tek IV, Inc.
completed a public offering of securities in September 1990, with total proceeds
of $215,415 upon the sale of 10,770,750 units (the maximum number of units
offered was 15,000,000). Fi-Tek V, Inc., and FI-Tek VI, Inc. and Fi-Tek VII,
Inc. each intend to conduct public offerings of their respective securities.
Mr. Kramer also served from February 1987 until December 1989 as a
director and as secretary and treasurer of Bluestone Capital Corp.
("Bluestone"), a blind pool company. Bluestone initiated its public offering on
July 13, 1988 and closed the offering on November 14, 1988, with total proceeds
of $150,000 upon sale of 1,500,000 units (consisting of common stock and common
stock purchase warrants), at a price of $.l0 per unit, which constituted all
units offered. During December 1989, Bluestone incorporated a wholly owned
subsidiary for the purpose of merging it into Dialogue, Inc., a Delaware
corporation ("Dialogue") and in connection therewith, all of the outstanding
stock of Dialogue was converted into 30,000,000 shares of Bluestone's common
stock, which shares represented 80% of Bluestone's issued and outstanding common
stock following the reorganization. Dialogue, Inc., which is a voice mail
systems distributor located in Braintree, Massachusetts, in December 1989,
became a wholly owned subsidiary of Bluestone. Mr. Kramer, who currently owns
stock in Bluestone and resigned all his positions with Bluestone in December
1989, has not received any compensation from the company. Mr. Kramer did not
dispose of any of his stock holdings in Bluestone as a part of the
reorganization with Dialogue.
Mr. Kramer's positions in Fi-Tek IV, Inc., Fi-Tek V, Inc., Fi-Tek VI,
Inc., and Fi-Tek VII, Inc., create the potential for conflicts of interest with
the Company, especially should one or more of those companies happen to be
seeking a business opportunity at the same time that the Company is seeking such
an opportunity. See "Potential Conflicts of Interest."
Mr. McGahan has not previously participated in any "blind pool"
offerings.
POTENTIAL CONFLICTS OF INTEREST
Initially, none of the officers of the Company will devote more than a
portion of his time to the affairs of the Company. See "Management." All of the
officers have employment outside of the Company. There will be occasions when
the time requirements of the Company's business conflict with the demands of the
officers' other employment. In this event, such conflicts may require that the
Company attempt to employ additional personnel. There is no assurance that the
services of such persons will be available or that they can be obtained upon
terms favorable to the Company.
Frank L. Kramer, Vice President, Secretary, Treasurer and a director of the
Company, is also an officer and director of five other Denver, Colorado, based
development stage corporations, three of which intend to conduct a public
offering of securities, and the other two of which have recently completed
public offerings of their respective securities. See "Prior Blind Pool
Activities." Should the Company complete the offering made by this Prospectus
before those other development stage companies acquire a business opportunity,
the Company would be in direct competition with those companies for available
opportunities.
While Mr. Kramer will attempt to resolve any such conflicts in the
Company's favor, there is no assurance that his efforts to that end will be
successful. The Company has not adopted any policy to deal with the conflicts of
interest that are likely to arise from Mr. Kramer's involvement in other blind
pool companies. The resolution of such conflicts is to be made, if at all, only
by the exercise of such business judgment as is consistent with Mr. Kramer's
fiduciary duties to the Company and to the other blind pool companies of which
he is an officer or a director. Should any of the Company's officers and
directors breach their respective fiduciary duty of loyalty, the Company's
stockholders will, under Delaware corporate law, have a cause of action against
those officers and directors. The Company's management does not intend to give
priority to other blind pool offerings in which Mr. Kramer is involved that were
declared effective prior to July 1,
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1990 and, therefore, not subject to the proceeds escrow requirement imposed by
the Colorado Securities Act. See "Use of Proceeds."
The Company's officers, directors, and other management personnel are
subject to the doctrine of corporate opportunities only insofar as it applies to
business opportunities in which the Company has indicated an interest, either
through its proposed business plan or by way of an express statement of
interest, contained in the Company's minutes. No such indication of interest has
yet been declared. If such areas are delineated, all business opportunities
within each area of interest which come to the attention of the officers,
directors and key management personnel of the Company must be promptly disclosed
to the Board of Directors and made available to the Company. In the event the
Board shall reject an opportunity so presented, any of the Company's officers,
directors, or key management personnel may avail himself of such opportunity.
Every effort will be made to resolve any conflicts which may arise in favor of
the Company. There can be no assurance, however, that these efforts will be
successful.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Prior to the date of this Prospectus, the Company issued to its
officers, directors, and others a total of 7,300,000 shares of Common Stock for
a total of $16,000 in cash and services, or an average of $.0022 per share.
Certificates evidencing the Common Stock issued by the Company to these persons
have all been stamped with a restrictive legend, and are subject to stop
transfer orders by the Company. For additional information concerning
restrictions that are imposed upon the Common Stock held by current
stockholders, and the responsibilities of such stockholders to comply with
federal securities laws in the disposition of such Common Stock, see "Risk
Factors -- The Offering -- Possible Rule 144 Sales."
No officer, director, promoter, or affiliate of the Company has or
proposes to have any direct or indirect material interest in any asset proposed
to be acquired by the Company through security holdings, contracts, options, or
otherwise.
The Company has adopted a policy wherein any consulting or finder's fee
paid will be paid to a third party for consulting services on an ad hoc basis,
to assist management in evaluating a prospective business opportunity. Such
consulting or finder's fees may be paid to officers, directors or affiliates of
the Company.
The Company maintains its offices at the residence of its Vice
President, for which it pays no rent, and for which it does not anticipate
paying rent in the future. The Company anticipates that following the
consummation of a business combination with an acquisition candidate, the
Company's office will be moved, but cannot predict future office or facility
arrangements with officers, directors or affiliates of the Company.
The Company may enter into an agreement with an acquisition candidate
requiring the sale of all or a portion of the Common Stock held by the Company's
current stockholders to the acquisition candidate or principals thereof, or to
other individuals or business entities, or requiring some other form of payment
to the Company's current stockholders, or requiring the future employment of
specified officers and payment of salaries to them. It is more likely than not
that any sale of stock by the Company's current stockholders to an acquisition
candidate would be at a price substantially higher than that originally paid by
such stockholders. Any payment to current stockholders in the context of an
acquisition involving the Company would be determined entirely by the largely
unforeseeable terms of a future agreement with an unidentified business entity.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock owned of record and beneficially by officers,
directors and persons presently holding 5.0% or more of the outstanding Common
Stock of the Company. Also included are the shares held by all officers and
directors as a group. The table further shows the effect on ownership resulting
from the sale of both the minimum number of Units (1,500,000) and the maximum
number of Units (3,000,000), without giving effect to the Warrants included in
the Units.
Percent of Class Owned
Name Owned -------------------------------
and Beneficially Before After After
Address Before Offering Offering Minimum(1) Maximum(1)
------- --------------- -------- --------------------
John J. Micek III* 1,200,000 16.4% 13.6% 11.7%
430 Cowper St
Palo Alto,CA 94301
Frank L. Kramer* 1,200,000 16.4% 13.6% 11.7%
12543-A E. Pacific Circle
Aurora, CO 80014
Donald R. McGahan* 1,200,000 16.4% 13.6% 11.7%
c/o Smith Mitchell & Assoc.
980 N. Federal Hwy #206
Boca Raton, FL 33432
Keith A. Koch 1,200,000 16.4% 13.6% 11.7%
9171 Towne Centre Dr. #365
San Diego, CA 92122
Kenneth L. Maul 1,200,000 16.4% 13.6% 11.7%
5160 S. Valley View Blvd. #106
Las Vegas, NY 89118
* All directors 3,600,000 49.3% 40.9% 35.0%
and officers (3 persons)
- --------------
(1) The figures shown do not take into account the Common Stock that the
listed persons may purchase in this offering. No arrangements for any
such purchases have been made and the Company does not anticipate any
future arrangements whereby shares of the offering are reserved for
sale to such persons.
DESCRIPTION OF SECURITIES
Units
Each Unit offered consists of one share of the Company's $.00001 par
value Common Stock, one Class A Common Stock Purchase Warrant, one Class B
Common Stock Purchase Warrant and one Class C Common Stock Purchase Warrant.
Units will be evidenced by Common Stock and Warrant certificates, and will be
mailed to purchasers as soon as practicable following the closing of the
offering.
Common Stock
The Company's Certificate of Incorporation authorizes the issuance of
100,000,000 shares of Common Stock with a par value of 5.00001. Each record
holder of Common Stock is entitled to one vote for each share held on all
matters properly submitted to the stockholders for their vote. Cumulative voting
for the election of directors is not permitted by the Certificate of
Incorporation.
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Holders of outstanding shares of Common Stock are entitled to those
dividends declared by the Board of Directors out of legally available funds;
and, in the event of liquidation, dissolution or winding up of the affairs of
the Company, holders are entitled to receive, ratably, the net assets of the
Company available to stockholders after distribution is made to the preferred
stockholders, if any, who are given preferred rights upon liquidation. Holders
of outstanding shares of Common Stock have no preemptive, conversion or
redemptive rights. All of the issued and outstanding shares of Common Stock are,
and all unissued shares when offered and sold will be, duly authorized, validly
issued, fully paid and nonassessable. To the extent that additional shares of
the Company's Common Stock are issued, the relative interests of then existing
stockholders may be diluted.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of preferred stock, $.00001 par value. The Board of Directors
of the Company is authorized to issue the preferred stock from time to time in
series and is further authorized to establish such series, to fix and determine
the variations in the relative rights and preferences as between series, to fix
voting rights, if any, for each series, and to allow for the conversion of
preferred stock into common stock. No preferred stock has been issued by the
Company. The Company anticipates that preferred stock may be utilized in making
acquisitions.
Warrants
The Warrants being offered as part of the Units will be in registered
form and will be issued pursuant to a Unit Warrant Agreement, dated the same
date as this Prospectus, between the Company and the Warrant Agent named below.
The following information is only a summary of that agreement and is qualified
in its entirety by the provisions of that agreement. Upon issuance, the Warrants
will be detachable and may be separately traded in the over-the-counter market,
if any market for the Warrants should develop.
Exercise Price and Periods. Subject to redemption by the Company and to
the current Registration Statement requirement, both of which limitations are
described below, each Class A Warrant is exercisable for one share of Common
Stock commencing with the date of this Prospectus and terminating on the second
anniversary of such date, at a price of $30 per share. Each Class B Warrant is
exercisable for one share of Common Stock at a price of $35 per share commencing
with the date of this Prospectus and terminating on the second anniversary of
such date. Each Class C Warrant is exercisable for one share of Common Stock at
a price of $1.30 per share commencing with the date of this Prospectus and
terminating on the second anniversary of such date. The Warrant expiration dates
(and the period during which the Warrants are exercisable) may be extended
indefinitely, or the exercise price thereof reduced, at the discretion of the
Company, upon giving written notice to the Warrant Agent and the warrantholders.
Investors should be aware that if less than seventy-five percent of the net
proceeds from the exercise of Warrants is committed for use in one or more
specific lines of business, the proceeds from the exercise of Warrants will
likely be placed in an escrow pursuant to the Colorado Securities Act. See "Use
of Proceeds."
Manner of Exercise. Class A, Class B and Class C Warrants may be
exercised by surrender of the Warrant to the Warrant Agent with appropriate
instructions accompanied by payment of the full purchase price for the Common
Stock underlying each Warrant being exercised. Payment of the purchase price
must be made in United States funds payable to the Company. The Warrant and
payment therewith must reach the Warrant Agent on or before the expiration date
(or the earlier redemption date, as provided in the next paragraph) of the
Warrant.
Redemption of the Warrants. The Warrants shall be subject to redemption
by the Company as follows:
(a) Subject to the limitations set forth below in this subparagraph
(a), all, but not less than all, of the Class A Warrants and, in addition or in
the alternative, all, but not less than all, of the Class B Warrants and, in
addition or in the alternative, all, but not less than all, of the Class C
Warrants may be called for redemption by the Company, at a redemption price of
$.0001 per Warrant, at any time prior to the declaration by the Securities and
Exchange Commission of the effectiveness of a post-effective amendment to the
Registration Statement of which this Prospectus is a part, without prior written
notice to the registered holders of the Warrants and without any right on the
part of the holders of the Warrants to exercise their purchase rights prior to
the redemption date. Upon redemption, the warrantholder will receive only the
redemption price and will forfeit his right to purchase the Common Stock
underlying the Warrants. The warrantholder shall be entitled to receive the
redemption price provided above only if the warrantholder delivers a written
request for such payment, accompanied by the warrant certificate representing
the Warrants to be redeemed,
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to the Company's warrant agent within 30 days after the warrantholder shall have
been notified that the applicable class or classes of Warrants have been
redeemed in accordance with this subparagraph (a). Because the Warrants may be
exercised only so long as this Prospectus remains current or after a
post-effective amendment shall have been declared effective by the Commission, a
redemption of the Warrants pursuant to this subparagraph (a) will mean that the
warrantholder shall never have received an opportunity to exercise the Warrants
following the acquisition of a business opportunity by the Company. The
Company's right to redeem the Warrants in accordance with this subparagraph (a)
may be exercised, however, only in the event that management of a business
opportunity that is the target of a business combination with the Company shall
have required, in writing, that the redemption of the Warrants shall be a
condition precedent to the consummation of the business combination between the
Company and the target company. The redemption is to become effective only upon
the closing of such a business combination. Should the contemplated business
combination fail to close, the redemption shall be void and the exercisability
of the Warrants covered by the redemption shall not be affected. The failure of
one or more business combinations to close shall not, however, impair the
Company's right to redeem Warrants under this subparagraph (a) if the Company
enters into arrangements for a subsequent business combination featuring the
warrant-redemption condition described above in this subparagraph (a). To the
extent that the management of a business opportunity that consummates a business
combination with the Company does not require redemption of Warrants as a
condition of closing, the right of the Company to redeem Warrants under this
subparagraph (a) shall be extinguished. Redemption of only one class of Warrants
pursuant to this subparagraph (a) shall not affect the exercisability of the
other classes of Warrants.
(b) In addition to the redemption mechanism described in subparagraph
(a), above, all or any number of the Warrants can be called for redemption at a
redemption price of $.0001 per Warrant by the Company at any time during their
exercise term upon a minimum of thirty (30) days' prior written notice mailed to
the registered holders of the Warrants, subject to the right of the holders of
the Warrants to exercise their purchase rights between the date of any notice of
redemption up to and including the redemption date given by the Company. The
notice period may be extended, at the discretion of the Company, upon giving
subsequent notice to the Warrant Agent and to registered holders of the
Warrants. Any holder who does not exercise his Warrants prior to the date set
for call will receive only the redemption price and will forfeit his right to
purchase the Common Stock underlying the Warrants. Warrantholders who do not
exercise their Warrants during the redemption period will receive the redemption
price only if the Warrants are received by the Warrant Agent prior to expiration
of the redemption period.
Limitations Upon Exercise or Redemption. The Warrants may not be
exercised or redeemed, except under circumstances set forth in subparagraph (a)
of the preceding paragraph, unless the Company maintains a current Registration
Statement in effect during the respective exercise or redemption periods of the
Warrants. The Company will use its best efforts to file post-effective
amendments to its Registration Statement, if needed, to keep information on the
Company current during the period during which the Warrants may be exercised or
redeemed. However, the Company will have no obligation to keep the Registration
Statement current when the market bid price for the Company's Common Stock is
below the exercise price of the Warrants. The Common Stock issuable upon the
exercise of the Warrants cannot be sold in various states without qualifying the
Common Stock under state law and the Company may find it impractical or
impossible to so qualify the Common Stock in those states where it does not
initially qualify this offering. Investors should be aware that certain
exemptions from registration under state law for the exercise of the Warrants,
otherwise available to the Company, may not be available with respect to
exercise of Warrants by those warrantholders who have disposed of all their
shares of common stock. Warrantholders who are residents of states in which the
Company does not qualify the Common Stock underlying the Warrants for sale will
have no choice but either to sell their Warrants or to let them expire.
Rights of Warrantholders. Holders of the Warrants will have no voting
rights, and will not be entitled to dividends. In the event of liquidation,
dissolution or winding up of the affairs of the Company, holders of the Warrants
will not be entitled to participate in any liquidation distribution. Holders of
Warrants are protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock dividends, stock
splits or reclassifications of the Company's Common Stock. Stockholders should
be aware that the Division of Market Regulation of the Commission has taken the
position that where an issuer materially reduces the exercise price of
outstanding warrants for a specified period of time during the remaining term of
the warrants, and warrantholders are therefore required to make a decision
whether to tender their warrants to the issuer in exchange for another security,
then the warrantholders should be provided with adequate information with
respect to the offer in compliance with Rule 13e-4 (the "Rule"). In the event
the Rule is deemed to be applicable to a particular action taken by the Company,
compliance with the Rule may require the filing of an appropriate schedule under
that Rule and distribution of an offering circular to warrantholders with
appropriate disclosures.
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Effect of Warrants. For the life of the Warrants, warrantholders have
the opportunity to profit from a rise in the market value of the Common Stock of
the Company, if any, at the expense of the Common Stockholders. A warrantholder
may be expected to exercise Warrants at a time when the Company, in all
likelihood, would be able to obtain equity capital, if it so desires, by a
public sale of a new Common Stock offering on terms more favorable than those
provided in the Warrants. Exercise of the Warrants will dilute the equity
interest of other stockholders in the Company.
Warrant Solicitation Fees. The Company may employ selected brokers
and/or dealers to solicit the exercise of Warrants on its behalf. The Company
may pay such brokers and dealers a Warrant solicitation fee of up to 3% of the
gross proceeds received from the exercise of Warrants originated by or from the
broker's or dealer's office. No such fees will be paid if (i) the exercise of
the Warrants is made at a time when the market price of the Company's Common
Stock is lower than the exercise price of the Warrants, (ii) the Warrants to be
exercised are held in a discretionary account, (iii) the solicitation of the
exercise of such Warrants would violate Rule 10b-6 promulgated under the
Securities Exchange Act of 1934, as amended, (iv) the brokers or dealers failed
to notify the Company in writing at least 10 calendar days prior to commencement
of such solicitation, (v) disclosure of compensation arrangements was not made
in documents provided to customers both as part of the original offering and at
the time of exercise, or (vi) the exercise of the Warrants is the result of an
unsolicited transaction.
Transfer and Warrant Agent
American Securities Transfer, Inc., 1825 Lawrence Street, Suite 444,
Denver, Colorado 80202, will act as the Transfer Agent and Warrant Agent for the
Common Stock and Warrants of the Company.
Reports to Stockholders
The Company plans to furnish its stockholders for each fiscal year with
an annual report containing financial statements audited by its independent
certified public accountants. In the event the Company enters into a business
combination with another company, it is the present intent of management to
continue furnishing annual reports to stockholders. Additionally, the Company
may, in its sole discretion, issue unaudited quarterly or other interim reports
to its stockholders when it deems appropriate. The Company intends to comply
with the periodic reporting requirements of the Securities Exchange Act of 1934
for so long as it is subject to those requirements.
TERMS OF OFFERING
This offering is being conducted by the Company and is not being
underwritten. The Units offered hereby are being offered on behalf of the
Company by the Company's President, who has had no prior experience in the sale
of securities. No underwriting discounts or commissions will be paid to him,
although his out-of-pocket expenses will be reimbursed by the Company.
The Units are offered on a "best efforts, minimum-maximum" basis. All
proceeds from the sale of Units will be deposited into an escrow account at
Omnibank Aurora, located in Aurora, Colorado (the "Escrow Agent"), by not later
than noon of the next business day following receipt. No funds will be released
unless and until the minimum 1,500,000 Units have been sold. Unless proceeds
from the sale of the minimum number of Units have been deposited with the Escrow
Agent within 90 days following the date of this Prospectus (which period may be
extended for an additional 90 days at the Company's sole discretion) the
offering will be withdrawn and all monies received will be refunded by the
Escrow Agent, without deduction therefrom for offering costs or sales expenses,
if any, and without the payment of any interest thereon. If at least 1,500,000
Units are sold and the proceeds therefrom deposited within the period set forth
above, the offering will continue until the remaining 1,500,000 Units being
offered are sold, until 90 days from the date of this Prospectus (180 days if
extended), or until the Company determines to terminate the offering, whichever
event occurs first. During the offering period, investors will not have access
to their funds.
The Company expects to make sales of the Units to persons whom it
believes may be interested or who have contacted the Company to express an
interest in purchasing the Units. The Company may sell Units to such persons if
they reside in a state where the Units can lawfully be sold. The Company is not
obligated to sell any Units to any such person and will do so only to the extent
that such sales would not be inconsistent with a public distribution of the
Units.
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Officers, directors, and affiliates of the Company may purchase in the
aggregate up to 20% of the Units sold in this offering. Such purchases, if made,
will be made for investment purposes only and not for immediate resale. Neither
the Company nor any of its officers or directors will provide or otherwise
arrange, either directly or indirectly, financing for any such purchases and
none of the proceeds of this offering will be used, directly or indirectly, to
fund or otherwise to finance any such purchases.
To the extent that such persons purchase Units in the offering, the
number of Units required to be purchased by the general public in order to reach
the minimum amount for closing is reached will be reduced by a like amount.
Moreover, these purchases may be used in order to reach the minimum amount for
closing in the event the minimum is not reached as a result of purchases by the
general public. Consequently, this offering could close with a substantially
greater percentage of Common Stock being held by present stockholders and with
less participation by the public than would otherwise be the case.
Pricing of the Units
There is no public market for the Units or any of their component
securities and there is no assurance that a market will develop for such
following the offering. The offering price of the Units to be sold in the
offering was determined arbitrarily by the Company. In determining the offering
price and number of Units to be offered, the Company considered such factors as
the financial condition of the Company, its net tangible book value, lack of
operating history and the general condition of the securities markets.
Accordingly, the offering price set forth on the cover page of this
Prospectus should not be considered to be an indication of the actual value of
the Company. The price bears no relation to the Company's assets, book value,
lack of earnings or net worth, or any other traditional criteria of value.
Escrow of Net Proceeds
Because the Company intends to offer the Units to residents of the
State of Colorado, the Company will be subject to the new Colorado Securities
Act, which requires the placement in escrow of eighty percent of the net
proceeds of the offering ($103,600 -- minimum, $223,600 maximum) until the
completion of a transaction or series of transactions whereby at least fifty
percent of the gross proceeds received from the sale of Units are committed for
use in one or more specific lines of business. The Company intends to open the
required escrow account immediately following the closing of the offering in
accordance with the new Colorado Securities Act.
The Company has entered into an escrow agreement with Omnibank Aurora,
located in Aurora, Colorado, which provides for the establishment of the
aforementioned escrow account. If, after four (4) years from the date funds are
deposited into an escrow account, established in accordance with the Colorado
Securities Act (the "Colorado escrow account"), the Company has not consummated
a business combination that has resulted in the release of the funds escrowed in
compliance with the Colorado Securities Act, the escrow agreement that the
Company has entered into with Omnibank Aurora (for purposes of this paragraph,
the "escrow agent") provides that the escrow agent shall, as promptly as
possible, distribute the funds in the Colorado escrow account to the persons
then holding the shares of the Company's common stock issued in this offering on
a pro rata basis based on the number of shares held. See "Risk Factors -- Impact
of Amendments to the Colorado Securities Act" and "Possible Distribution of
Escrowed Funds After Four Years." Therefore, investors in this offering should
be aware that, in the event of a distribution as described in the previous
sentence, only a portion of the funds originally invested will be distributed to
the persons then holding shares issued in this offering, without any interest
being paid thereon. Neither the Colorado escrow agreement, nor any distribution
made thereunder, shall affect ownership of the Units issued in this offering,
i.e., the shareholders who receive their pro rata portion of the aforementioned
distribution shall not be required to return their Units to the Company's
treasury. In the event a distribution is made, as provided above, the Company's
ability to adequately investigate and evaluate business opportunities and to
attract favorable business opportunities will be adversely affected.
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LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, and no
such proceedings are known to be contemplated.
No director, officer or affiliate of the Company, and no owner of
record or beneficial owner of more than 5.0% of the securities of the Company,
or any associate of any such director, officer or security holder is a party
adverse to the Company or has a material interest adverse to the Company in
reference to pending litigation.
LEGAL MATTERS
The Company has been represented, and the legality of the securities
being offered hereby has been passed upon, by the firm of Pred and Miller,
Attorneys at Law, 501 South Cherry Street, Suite 500, Denver, Colorado 80222.
Three attorneys of that firm own a total of 500,000 shares of the Company's
outstanding Common Stock.
EXPERTS
The financial statements included in this Prospectus beginning at page
F-l have been examined by Wenner, Silvestain and Company, Independent Certified
Public Accountants, as set forth in their report herein and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Denver Regional Office of the Securities
and Exchange Commission, Denver, Colorado, a Registration Statement on Form S-18
(herein, together with all amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended, regarding the Units being offered.
This Prospectus, filed as part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement. For further
information regarding the Company and the securities offered, reference is made
to the Registration Statement and the exhibits filed therewith. The Registration
Statement, including exhibits, may be inspected at the office of the Securities
and Exchange Commission, 410 Seventeenth Street, Suite 700, Denver, Colorado
80202, and at the Commission's principal office in Washington, D.C., without
charge. Copies of the Registration Statement, or any part thereof, may be
obtained from the Commission's principal office at 450 Fifth Street N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Catalina Capital Corp.
Aurora, Colorado
We have audited the accompanying balance sheet of Catalina Capital
Corp. (a development stage company) as of June 6, 1990, and the related
statements of operations, stockholders' equity and cash flows for the period
April 27, 1990 (inception) to June 6, 1990. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Catalina Capital
Corp. (a development stage company) as of June 6, 1990, and the results of its
operations and its cash flows for the period April 27, 1990 (inception) to June
6, 1990 in conformity with generally accepted accounting principles.
Wenner, Silvestain and Company
Englewood, Colorado
June 20, 1990
F-1
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 6, 1990
ASSETS
CURRENT ASSETS
Cash ........................................................ $10,791
-------
OTHER ASSETS
Organization costs, net of amortization ..................... 492
Deferred offering costs ..................................... 5,385
-------
5,877
-------
TOTAL ASSETS ...................................................... $16,668
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................................ $ 885
-------
STOCKHOLDERS' EQUITY
Preferred stock, $.0000l par value,
20,000,000 shares authorized ............................... --
Common stock, $.00001 par value,
100,000,000 shares authorized,
7,300,000 shares issued and outstanding .................... 73
Additional paid in capital ................................... 15,927
(Deficit) accumulated during the development ................. (217)
-------
Total Stockholders' Equity ............................ 15,783
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $16,668
=======
The accompanying notes to financial statements are
an integral part of these statements.
F-2
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
REVENUES ........................................................ $ --
-----------
EXPENSES
Amortization ............................................... $ 8
General and administrative expenses ........................ 209
-----------
Total Expenses ...................................... 217
-----------
NET (LOSS) ...................................................... $ (217)
===========
NET (LOSS) PER SHARE ............................................ $ --
===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING .......................................... $ 7,300,000
===========
The accompanying notes to financial statements are
an integral part of these statements.
F-3
<PAGE>
<TABLE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
<CAPTION>
Common Stock Deficit
---------------------- Accumulated
Number Additional During the
Preferred of Par Paid In Development
Stock Shares Value Capital Stage
----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
Common stock issued for cash
April 27, 1990 at $.001 per share -- 5,000,000 $ 50 $ 4,950 $ --
Common stock issued for cash
May 2, 1990 at $.0l per share 100,000 1 999 --
Common stock issued for cash
May 9, 1990 at $.Ol per share 100,000 1 999 --
Common stock issued for cash
May 11, 1990 at $.01 per share 200,000 2 1,998 --
Common stock issued for cash
May 14, 1990 at $.0l per share 200,000 2 1,998 --
Common stock issued for cash
May 16, 1990 at $.004 per share 500,000 5 1,995 --
Common stock issued for cash
May 16, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash
May 18, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash
May 25, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash
May 29, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash
May 30, 1990 at $.0l per share 100,000 1 999 --
Common stock issued for cash
May 31, 1990 at $.0l per share 100,000 1 999 --
Common stock issued for cash
June 6, 1990 at $.001 per share 200,000 2 198 --
Net (loss) for the period ended
June 6, 1990 -- -- -- (217)
------ --------- -------- -------- ------
-- 7,300,000 $ 73 $ 15,927 $ (217)
====== ========= ======== ======== ======
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid to suppliers ................................................ $ (209)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ................................ 16,000
Payment of deferred offering costs .................................... (4,500)
Payment of organization costs ......................................... (500)
--------
Net Cash Provided by Financing Activities ............................. 11,000
--------
NET INCREASE IN CASH ....................................................... 10,791
CASH, Beginning of Period .................................................. --
CASH, End of Period ........................................................ $ 10,791
========
RECONCILIATION OF NET INCOME TO NET CASH (USED) BY OPERATING ACTIVITIES
NET (LOSS) ................................................................. $ (217)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities
Amortization ......................................................... 8
--------
NET CASH (USED) BY OPERATING ACTIVITIES .................................... $ (209)
========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Increase in accounts payable for deferred public offering costs is $885.
<FN>
The accompanying notes to financial statements are
an integral part of these statements.
</FN>
</TABLE>
F-5
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Organization -- The Company was organized as a Delaware corporation on
April 27, 1990. The Company intends to implement a business plan to
seek, investigate, and if warranted, acquire one or more business
properties.
Basis of Presentadon -- As of June 6, 1990, the Company was in the
development stage and was primarily engaged in raising capital.
Fiscal Year End -- The Company has selected a March 31 fiscal year end
for its financial and tax reporting.
Note 2 -- Public Offering
The Company intends to offer to the public a minimum of 1,500,000 to a
maximum of 3,000,000 units on a "best efforts, minimum-maximum" basis
at a sales price of $.10 per unit. Each unit consists of one (1) share
of the Company's $.00001 par value common stock and one (1) each Class
A, Class B, and Class C common stock purchase warrant.
The offering is being conducted by the Company and is not being
underwritten. The units offered hereby are being offered on behalf of
the Company by the officers, directors, and affiliates of the Company.
No underwriting discounts or commissions will be paid to such persons,
although their out-of-pocket expenses will be reimbursed by the
Company.
The new Colorado Securities Act, effective July 1, 1990, provides that
where less than seventy-five percent of the net proceeds from the sale
of securities are committed for use in one or more specific lines of
business, eighty percent of the net proceeds received by the issuer
shall be placed in escrow until (i) completion of a transaction or
series of transactions whereby at least fifty percent of the gross
proceeds received from the sale of securities are committed for use in
one or more specific lines of business, and (ii) notice of the proposed
release of the escrowed funds has been on file with the Colorado
Division of Securities for at least ten days. The Company anticipates
that this offering will be subject to the escrow provisions.
The Company estimates it will receive net proceeds from this offering
of $129,500 if the minimum number is sold and $279,500 if the maximum
is sold. As such, eighty percent of the net proceeds required to be
escrowed would be $103,600 if the minimum is sold and $223,600 if the
maximum is sold. If after four years from the date the funds are
deposited into escrow the Company has not consummated a business
combination that has resulted in the release of the escrowed funds as
prescribed, the funds will be distributed to the persons then holding
the shares of common stock issued in this offering on a pro rata basis
based on number of shares held.
Deferred offering costs represent costs incurred with the proposed
offering of common stock to the public. In the event that the current
offering is successful, costs incurred will be charged against the
proceeds of the offering. If the offering is not successful, the costs
will be charged to operations.
Note 3 -- Warrants
Subject to redemption by the Company and to the current Registration
Statement requirement, both of which limitations are described below,
each Class A warrant is exercisable for one share of common stock
commencing with the date of the prospectus and terminating on the
second anniversary of such date, at a price of $.30 per share. Each
Class B warrant is exercisable for one share of common stock at a price
of $.75 per share commencing with the date of the prospectus and
terminating on the second anniversary of such date. Each Class C
warrant is exercisable for one share of common stock at a price of
$1.30 per share commencing with the date of the prospectus and
terminating on the second anniversary of such date. The warrant
expiration dates may be extended indefinitely, or the exercise price
thereof reduced, at the discretion of the Company, upon giving written
notice to the warrant agent and the warrantholders.
F-6
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 3 -- Warrants (Continued)
All of the Class A, Class B or Class C warrants may be called for
redemption by the Company, at a redemption price of $.0001 per warrant,
at any time prior to the declaration by the Securities and Exchange
Commission of the effectiveness of a post-effective amendment to the
Registration Statement of which the prospectus is a part, without prior
written notice to the registered holders of the warrants and without
any right on the part of the holders of the warrants to exercise their
purchase rights prior to the redemption date. The warrants may be
exercised only so long as the prospectus remains current or after a
post-effective amendment shall have been declared effective by the
Commission.
In addition, all or any number of the warrants can be called for
redemption at a redemption price of $.0001 per warrant by the Company
at any time during their exercise term upon a minimum of thirty (30)
days' prior written notice mailed to the registered holders of the
warrants, subject to the right of the holders of the warrants to
exercise their purchase rights between the date of any notice of
redemption up to and including the redemption date given by the
Company. The notice period may be extended, at the discretion of the
Company, upon giving subsequent notice to the warrant agent and to
registered holders of the warrants.
The Company may employ selected brokers and/or dealers to solicit the
exercise of Warrants on its behalf. The Company may pay such brokers
and dealers a warrant solicitation fee of up to 3% of the gross
proceeds received from the exercise of warrants originated by or from
the broker's or dealer's office.
Note 4 -- Related Party Transactions
The Company presently maintains its offices at the home of its Vice
President for which it pays no rent.
The Company has paid its present securities counsel, Pred and Miller,
$5,000 to date for services rendered in connection with the public
offering of the Company's common stock. Three of the Company's
stockholders are partners in the law firm of Pred and Miller.
Should the Company complete the acquisition of a business opportunity,
the Board of Directors may award a finder's fee to an officer or
affiliate of the Company, or to a third party, if the acquisition is
originated as a result of his efforts. The cash portion of this fee, in
the aggregate, if paid to officers or affiliates, will not exceed 10%
of the gross proceeds of the offering and may be less.
F-7
<PAGE>
============================================== ================================
NO UNDERWRITER, DEALER, SALESMAN OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
INFORMATION OR REPRESENTATIONS NOT HERERIN
CONTAINED, IF GIVEN OR MADE, MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. 3,000,000 Units
TABLE OF CONTENTS
Page
----
Prospectus Summary ..................... 1
Risk Factors ........................... 3
Dilution and Other Comparative Data .... 10
Use of Proceeds ........................ 11 CATALINA CAPITAL CORP.
Business ............................... 13
General ................................ 13
Investigation and Selection
of Business Opportunities ......... 14
Form of Acquisition ................ 16
Investment Company Act and Other
Regulation ........................ 17 OFFERING PRICE:
Competition ........................ 18 $.10 PER UNIT
Administrative Offices ............. 18
Employees .......................... 18
Management ............................. 18
Biographical Information ........... 18
Remuneration ....................... 20
Indemnification of Officers and
Directors ......................... 20
Exclusion of Liability ............. 20
Prior Blind Pool Activities ............ 21 ----------
Potential Conflicts of Interest ........ 22 PROSPECTUS
Certain Transactions with Management ----------
and Others ........................ 23
Principal Stockholders ................. 24
Description of Securities .............. 24
Units .............................. 24
Common Stock ....................... 24
Preferred Stock .................... 25
Warrants ........................... 25
Transfer and Warrant Agent ......... 27
Reports to Stockholders ............ 27
Terms of Offering ...................... 27
Pricing of Units ................... 28
Escrow of Net Proceeds ............. 28
Legal Proceedings ...................... 29
Legal Matters .......................... 29
Experts ................................ 29
Additional Information ................. 29 October 17, 1990
Financial Statements ................... F-1
UNTIL JANUARY 15, 1991, THE COMPANY AND
ALL DEALERS TRADING IN THESE SECURITIES WILL
BE REQUIRED TO DELIVER A PROSPECTUS TO ANY
PERSON WHO IS EXPECTED TO RECEIVE A
CONFIRMATION OF SALE AT LEAST 48 HOURS PRIOR
TO THE MAILING OF SUCH CONFIRMATION
============================================== ===============================
<TABLE>
<CAPTION>
As filed with the Securities and Exchange Commission on June 29, 1990.
Registration No. 33-_______-D
====================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------------
FORM S-18
Registration Statement
Under
The Securities Act of 1933
-----------------------------
CATALINA CAPITAL CORP.
(Exact name of registrant as specified in its charter)
<S> <C> <C> <C>
Delaware 7389 (Applied for)
(State of Incorporation) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
12543-A East Pacific Circle
Aurora, Colorado 80014
(303) 337-1033
(Address and telephone number of registrant's principal executive offices and principal place of business)
The Corporation Trust Company
The Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
(Name, address and telephone number of agent for service)
Copy to:
Heather Zane Anderson, Esquire
Pred and Miller
501 South Cherry Street, Suite 500
Denver, Colorado 80222
-----------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
-----------------------------
CALCULATION OF REGISTRATION FEE
======================================================================================================================
Title of Proposed Proposed
Each Class Amount Maximum Maximum Amount of
of Securities Being Offering Price Aggregate Registration
Being Registered Registered Per Unit Offering Price(5) Fee
----------------------------------------------------------------------------------------------------------------------
Common Stock, $.00001 par value 3,000,000 Shares $0.10 $ 300,000 $ 75.00
Class A Common Stock Purchase Warrants 3,000,000 Warrants $-- -- -- (1)
Common Stock, $.00001 par value 3,000,000 Shares (2) $0.30 900,000 225.00
Class B Common Stock Purchase Warrants 3,000,000 Warrants $-- -- -- (1)
Common Stock, $.00001 par value 3,000,000 Shares (3) $0.75 2,250,000 562.50
Class C Common Stock Purchase Warrants 3,000,000 Warrants $-- -- -- (1)
Common Stock, $.00001 par value 3,000,000 Shares (4) $1.30 3,900,000 975.00
----------------------------------------------------------------------------------------------------------------------
$7,350,000 $1,837.50
======================================================================================================================
<FN>
(1) Pursuant to Rule 457(g), no separate registration fee is required for warrants.
(2) To be issued upon exercise of Class A Warrants. Pursuant to Rule 416, the number of shares issuable upon exercise
of the Warrants is subject to adjustment under the antidilution provisions of the Unit Warrant Agreement (see
Exhibit 4.1).
(3) To be issued upon exercise of Class B Warrants. Pursuant to Rule 416, the number of shares issuable upon exercise
of the Warrants is subject to adjustment under the antidilution provisions of the Unit Warrant Agreement (see
Exhibit 4.1).
(4) To be issued upon exercise of Class C Warrants. Pursuant to Rule 416, the number of shares issuable upon exercise
of the Warrants is subject to adjustment under the antidilution provisions of the Unit Warrant Agreement (see
Exhibit 4.1).
(5) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its
effective date until the registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
====================================================================================================================================
</FN>
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on June 29, 1990.
Registration No. 33-___________-D
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-18
Registration Statement
Under
The Securities Act of 1933
----------------------
CATALINA CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 7389 (Applied for
- -------------- ---------------------------- -------------------
(State of (Primary Standard Industrial (I.R.S. Employer
Incorporation) Classification Code Number) Identification No.)
12543-A East Pacific Circle
Aurora, Colorado 80014
(303) 337-1033
(Address and telephone number of registrant's principal executive
offices and principal place of business)
The Corporation Trust Company
The Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
(Name, address and telephone number of agent for service)
----------------------
Copy to:
Heather Zane Anderson, Esquire
Pred and Miller
501 South Cherry Street, Suite 500
Denver, Colorado 80222
----------------------
Approximate date of commencement of proposed sale to the public:
as soon as practicable after this Registration
Statement becomes effective.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------- ---------------------------------------------------------------- ---------------------
Proposed Proposed
Maximum Maximum
Tide of Each Class of Amount Offering Aggregate Amount of
Securities Being Being Price Offering Registration
Registered Registered Per Unit Price(5) Fee
- ----------------------------- ---------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Common Stock, 3,000,000 Shares $0.10 $ 300,000 $ 75
$.00001 par value
Class A Common Stock
Purchase Warrants 3,000,000 Warrants $-- -- --(1)
Common Stock,
$.00001 par value 3,000,000 Shares(2) $0.30 900,000 225
Class B Common Stock
Purchase Warrants 3,000,000 Warrants $-- -- --(1)
Common Stock,
$.00001 par value 3,000,000 Shares(3) $0.75 2,250,000 562.50
Class C Common Stock
Purchase Warrants 3,000,000 Warrants $-- -- --(1)
Common Stock,
$.00001 par value 3,000,000 Shares(4) $1.30 3,900,000 975
----------- ---------
$ 7,350,000 $1,837.50
=========== =========
- ----------------------------- --------------------------- ----------------- ------------------ ---------------------
<FN>
(1) Pursuant to Rule 457(g), no separate registration fee is required for
warrants.
(2) To be issued upon exercise of Class A Warrants. Pursuant to Rule 416,
the number of shares issuable upon exercise of the Warrants is subject
to adjustment under the antidilution provisions of the Unit Warrant
Agreement (see Exhibit 4.1).
(3) To be issued upon exercise of Class B Warrants. Pursuant to Rule 416,
the number of shares issuable upon exercise of the Warrants is subject
to adjustment under the antidilution provisions of the Unit Warrant
Agreement (see Exhibit 4.1).
(4) To be issued upon exercise of Class C Warrants. Pursuant to Rule 416,
the number of shares issuable upon exercise of the Warrants is subject
to adjustment under the antidilution provisions of the Unit Warrant
Agreement (see Exhibit 4.1).
(5) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
</FN>
</TABLE>
<PAGE>
<TABLE>
CATALINA CAPITAL CORP.
CROSS REFERENCE SHEET
<CAPTION>
REGISTRATION ITEM LOCATION IN PROSPECTUS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover of Prospectus .................................. Cover Page
2. Inside Front and Outside Back Cover
page of Prospectus ..................................................... Additional Information
3. Summary Information, Risk Factors ...................................... Prospectus Summary; Risk Factors
4. Use of Proceeds ........................................................ Use of Proceeds
5. Determination of Offering Price ........................................ Cover Page; Terms of Offering
6. Dilution ............................................................... Dilution and Other Comparative Data
7. Selling Security Holders ............................................... Not applicable
8. Plan of Distribution ................................................... Cover Page; Terms of Offering
9. Legal Proceedings ...................................................... Legal Proceedings
10. Directors and Executive Officers ....................................... Management
11. Security Ownership of Certain Beneficial Owners and Management ......... Principal Stockholders; Certain Transactions
with Management and Others
12. Description of Securities to be Registered ............................. Description of Securities
13. Interests of Named Experts and Counsel ................................. Legal Matters; Experts
14. Statement as to Indemnification ........................................ Not Applicable
15. Organization Within 5 Years ............................................ Prospectus Summary; Business
16. Description of Property ................................................ Prospectus Summary; Business
17A. Description of Property -- Registrants Engaged or to be Engaged
in Significant Mining Operations ....................................... Not Applicable
17B. Supplementary Financial Information about Oil and
Gas Producing Activities ............................................... Not Applicable
18. Interest of Management and Others
in Certain Transactions ................................................ Certain Transactions with
Management and Others
19. Certain Market Information ............................................. Not Applicable
20. Executive Compensation ................................................. Management
21. Financial Statements ................................................... Financial Statements
</TABLE>
<PAGE>
Prospectus
CATALINA CAPITAL CORP.
(A Delaware Corporation)
3,000,000 Units
$.10 per Unit
By this Prospectus, Catalina Capital Corp. (the "Company"), is
offering to the public 3,000,000 units ("Units") of the Company's securities.
Each Unit consists of one share of common stock, par value $.00001 per share
("Common Stock" or "Common Shares"), and three redeemable Common Stock Purchase
Warrants ("Warrants"), respectively denominated Class A, Class B, and Class C.
Each Class A Warrant will entitle the holder to purchase one share of Common
Stock at a price of $.30 for a period commencing with the date of this
Prospectus and terminating on the second anniversary of such date. Each Class B
Warrant will entitle the holder to purchase one share of Common Stock at a price
of $.75 for a period commencing with the date of this Prospectus and terminating
on the second anniversary of such date. Each Class C Warrant will entitle the
holder to purchase one share of Common Stock at a price of $1.30 for a period
commencing with the date of this Prospectus and terminating on the second
anniversary of such date. The Warrants are in registered form and, upon
issuance, will be immediately detachable and may be traded separately from the
Common Stock, in the event that a market exists therefor. The Company may redeem
any or all of the Warrants upon 30 days' written notice, reduce the exercise
price thereof and indefinitely extend the exercise period thereof. Except as
otherwise provided in subparagraph (a) of the section herein captioned
"Description of Securities - Warrants - Redemption," the Warrants can be
exercised or redeemed only if a current prospectus is then in effect. See
"Description of Securities - Warrants."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AND "DILUTION AND OTHER COMPARATIVE DATA."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
Price to Underwriting Proceeds to
Public Commissions(2) the Company(3)
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
Per Unit $ .10 -0- $ .10
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
Total Minimum (1) $150,000 -0- $150,000
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
Total Maximum (1) $300,000 -0- $300,000
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
<FN>
(See Notes on the pages following)
</FN>
</TABLE>
The date of this Prospectus is _________________, 1990
<PAGE>
(1) This offering is not underwritten. The Units offered by this
Prospectus will be offered by those officers and directors of the Company who
have had no prior experience in the sale of securities. No underwriting
discounts or commissions will be paid to such persons, although their
out-of-pocket expenses will be reimbursed by the Company. This offering of
1,500,000 Units minimum, 3,000,000 Units maximum, is being made on a
"minimum-maximum, best efforts" basis for a period of 90 days from the date of
this Prospectus, which period may be extended by the Company for an additional
90 days, or until completion or abandonment of this offering, whichever occurs
sooner. All proceeds from the sale of the Units being offered will promptly (and
in no event later than noon of the next business day following receipt) be
placed into an escrow account with Omnibank Aurora, located in Aurora, Colorado
("Escrow Agent"), and no funds will be released to the Company unless and until
a minimum of 1,500,000 Units have been sold. Unless proceeds from the minimum
number of Units offered hereby have been deposited with the Escrow Agent within
90 days from the date of this Prospectus (which period may be extended for up to
an additional 90 days by the Company), the offering will be withdrawn and all
monies received will be refunded to subscribers by the Escrow Agent, without
deduction therefrom for offering costs or sales expenses incurred, if any, and
without payment of any interest thereon. All such refunds will be made as
promptly as shall be practicable. The investor should be aware, however, that
under specified circumstances federal law, including the Expedited Funds
Availability Act of 1988 and Regulation CC (pertaining to the availability of
funds and the collection of checks), permits a bank to withhold payment of funds
on a deposit made by a check drawn on a "nonlocal" bank for up to seven working
days pending collection of the check through the applicable bank check clearing
system. As a result, monies derived from a subscription payment that shall have
been made by check may not be available to the Company, for refund to the
subscriber following the abandonment of the offering, until as many as seven
business days following the subscriber's tender of the subscription funds to the
bank. Assuming that, consistent with federal law as described above, funds for a
particular subscription have become available to the Company for refund, it is
likely that approximately one working day will be required for the Company to
confirm to the escrow bank that a refund should be made and for the bank to
prepare and mail a refund check to the subscriber. The date upon which a refund
check would be mailed will depend, therefore, upon the relationship between the
date upon which a subscription check shall have been tendered and the date upon
which the offering shall have been abandoned. The closer in time the tender
shall be to the date of abandonment, the longer the mailing of the refund check
is likely to be delayed, up to a total of approximately eight working days
following the abandonment. Except as provided above, investors have no right to
the return of their funds during the term of the offering. If at least 1,500,000
Units are sold and the proceeds therefrom deposited into the escrow account
within the period set forth above, the offering will continue until the
remaining 1,500,000 Units being offered are sold, until 90 days from the date of
this Prospectus (up to 180 days if extended), or until the Company determines to
terminate the offering, whichever occurs first.
(2) The amounts shown do not reflect expenses of the offering payable
by the Company. These expenses, which include filing fees, printing, legal and
accounting costs, and miscellaneous fees, are estimated to be $20,500, or $.0137
(13.7%) per Unit if the minimum number of Units is sold and $.0068 (6.8%) per
Unit if the maximum number of Units is sold. See "Use of Proceeds."
(3) The amounts shown do not include any proceeds the Company would
receive upon the exercise of the Warrants. If the maximum number of Units
offered hereby is sold, the Company would receive additional gross proceeds of
$7,050,000 upon the exercise of all of the Warrants.
Prior to this offering there has been no public market for the
Company's securities and there can be no assurance that a public market for the
Units, Common Stock or Warrants will develop following this offering or that the
Units can be resold at or near the offering price. The Company has no
arrangements with broker-dealers to maintain a trading market for its
securities. The initial public offering price of the Units has been arbitrarily
determined by the Company and bears no relationship to the Company's assets, net
worth or prospects, or to any other recognized criteria of value. The exercise
price of the Warrants has been arbitrarily set and there is no assurance, and
little likelihood, that the trading price of the Common Stock will rise
sufficiently to make exercise of any Warrants desirable.
ii
<PAGE>
This offering involves special risks concerning the Company, which has
not engaged in business operations other than efforts to raise capital,
including immediate and substantial dilution to public purchasers of Units in
the net tangible book value per share of the Common Stock acquired and
substantial potential profits to present stockholders of the Company by reason
of the increase in the net tangible book value of their shares as a result of
purchases of Units by the public. See "Risk Factors," "Dilution and Other
Comparative Data," and "Certain Transactions with Management."
----------------------
THESE UNITS ARE OFFERED BY THE COMPANY FOR CASH SUBJECT TO PRIOR SALE,
TO ALLOTMENT AND WITHDRAWAL AND TO CANCELLATION OR MODIFICATION OF THE OFFERING,
WITHOUT NOTICE AT ANY TIME BY THE COMPANY PRIOR TO THE RELEASE OR DELIVERY OF
ANY PROCEEDS OF THIS OFFERING TO THE COMPANY WHETHER OR NOT A CONFIRMATION OF
SALE OF UNITS OFFERED BY THIS PROSPECTUS PREVIOUSLY HAS BEEN ISSUED BY THE
COMPANY. PAYMENT BY A SUBSCRIBER OF THE FULL SUBSCRIPTION PRICE AND DEPOSIT OF
THE SAME INTO THE ESCROW ACCOUNT DOES NOT CONSTITUTE ACCEPTANCE OF SUCH
SUBSCRIPTION BY THE COMPANY. THE RIGHT IS RESERVED BY THE COMPANY TO REJECT ANY
AND ALL OFFERS TO PURCHASE AND TO CANCEL ANY AND ALL CONFIRMATIONS OF SALE OF
ANY UNITS OFFERED HEREBY, IN WHOLE OR IN PART, FOR CAUSE OR WITHOUT CAUSE, AT
ANY TIME PRIOR TO THE CLOSING OF THE OFFERING. REFUNDS TO SUBSCRIBERS WHOSE
SUBSCRIPTIONS ARE CANCELED WILL BE MADE AS PROMPTLY AS PRACTICABLE AFTER
CLOSING, AND ACCORDLNGLY, SUBSCRIBERS MAY LOSE THE USE OF SUBSCRIPTION FUNDS,
WITHOUT PAYMENT OF ANY INTEREST THEREON, FOR UP TO 190 DAYS.
----------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION WITH
RESPECT TO THESE SECURITIES BY ANYONE TO ANY PERSON IN ANY STATE IN WHICH THIS
OFFERING OR SOLICITATION IS NOT AUTHORIZED BY THE LAWS THEREOF OR IN WHICH THE
PERSON MAKING SAID OFFERING OR SOLICITATION IS NOT QUALIFIED TO ACT AS DEALER OR
BROKER OR OTHERW1SE TO MAKE SUCH OFFERING OR SOLICITATION.
----------------------
THE SECURITIES BEING SOLD PURSUANT TO THIS PROSPECTUS ARE HIGHLY
SPECULATIVE IN NATURE AND NO GUARANTEES OR OTHER WARRANTIES TO THE CONTRARY ARE
MADE BY THE COMPANY AS ISSUER. THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
----------------------
THE COMPANY HAS NOT TAKEN ANY STEPS TO CREATE AN AFTERMARKET FOR THE
SECURITIES OFFERED HEREIN AND HAS MADE NO ARRANGEMENTS WITH ANY BROKERS TO TRADE
OR MAKE A MARKET IN THESE SECURITIES. AT SOME TIME IN THE FUTURE, THE COMPANY
MAY ATTEMPT TO ARRANGE FOR INTERESTED BROKERS TO TRADE OR MAKE A MARKET IN THESE
SECURITIES AND TO QUOTE THE SECURITIES OF THE COMPANY IN A PUBLISHED QUOTATION
MEDIUM. NO ARRANGEMENTS HAVE BEEN MADE IN THAT REGARD, HOWEVER, AND NO ASSURANCE
IS OFFERED THAT ANY BROKERS WILL BE WILLING TO ENGAGE IN SUCH ACTIVITIES
RELATIVE TO THESE SECURITIES. IN THE EVENT THAT ANY BROKER WERE TO BECOME THE
EXCLUSIVE MARKET MAKER IN THESE SECURITIES, THE BROKER WOULD IN EFFECT DOMINATE
AND CONTROL THE MARKET FOR THE COMPANY'S SECURITIES.
----------------------
THE COMPANY HAS UNDERTAKEN, DURING THE 90-DAY PERIOD FOLLOWING THE
DATE OF THIS PROSPECTUS AND DURING THE EXERCISE PERIOD OF THE WARRANTS, AT ANY
TIME
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WHEN THE COMMON STOCK BID PRICE EXCEEDS THE WARRANT EXERCISE PRICE, TO FILE
POST-EFFECTIVE AMENDMENTS TO THE REGISTRATION STATEMENT TO WHICH THIS PROSPECTUS
RELATES AND TO REFLECT THEREIN ANY FACTS OR EVENTS ARISING AFTER THE DATE HEREOF
WHICH REPRESENT A FUNDAMENTAL OR MATERIAL CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN SUCH REGISTRATION STATEMENT. ANY SUCH AMENDMENTS WILL BE
DISSEMINATED TO STOCKHOLDERS AND WARRANTHOLDERS OF THE COMPANY AFTER THE
REQUIRED FILINGS HAVE BEEN MADE WITH THE SECURITIES AND EXCHANGE COMMISSION AND
HAVE BEEN DECLARED EFFECTIVE.
----------------------
THE COMPANY IS NOT CURRENTLY SUBJECT TO SECTION 14 OF THE SECURITIES
EXCHANGE ACT OF 1934. THE COMPANY WILL FURNISH TO ITS STOCKHOLDERS ANNUAL
REPORTS CONTAINING FINANCIAL INFORMATION EXAMINED AND REPORTED UPON, WITH AN
OPINION EXPRESSED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, SO LONG AS IT IS
REQUIRED TO DO SO. IN ADDITION, THE COMPANY MAY FURNISH UNAUDITED QUARTERLY OR
OTHER INTERIM REPORTS TO ITS STOCKHOLDERS AS IT DEEMS APPROPRIATE.
iv
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 1
Risk Factors .............................................................. 2
Dilution and Other Comparative Data ....................................... 10
Use of Proceeds ........................................................... 12
Business .................................................................. 13
General ......................................................... 13
Investigation and Selection
of Business Opportunities ..................................... 14
Form of Acquisition ............................................. 17
Investment Company Act and Other Regulation ..................... 18
Competition ..................................................... 19
Administrative Offices .......................................... 19
Employees ....................................................... 19
Management ................................................................ 19
Biographical Information ........................................ 20
Remuneration .................................................... 21
Indemnification of Officers and Directors ....................... 21
Exclusion of Liability .......................................... 22
Prior Blind Pool Activities ............................................... 22
Potential Conflicts of Interest ........................................... 23
Certain Transactions with Management and Others ........................... 24
Principal Stockholders .................................................... 25
Description of Securities ................................................. 26
Units ........................................................... 26
Common Stock .................................................... 26
Preferred Stock ................................................. 26
Warrants ........................................................ 26
Transfer and Warrant Agent ...................................... 28
Reports to Stockholders ......................................... 29
Terms of Offering ......................................................... 29
Pricing of Units ................................................ 29
Legal Proceedings ......................................................... 30
Legal Matters ............................................................. 30
Experts ................................................................... 30
Additional Information .................................................... 30
Financial Statements ...................................................... F-1
<PAGE>
PROSPECTUS SUMMARY
The following summary is intended to supply selected facts and
highlights from material contained in the body of this Prospectus. More detailed
information may be found in the remainder of the Prospectus. This summary is
qualified in its entirety by the detailed information and financial statements
appearing elsewhere herein.
The Company
Catalina Capital Corp. (the "Company") was incorporated under the laws
of Delaware on April 27, 1990. Its offices are located at the residence of its
Vice President at 12543-A East Pacific Circle, Aurora, Colorado 80014. Its
telephone number is (303) 337-1033.
The Company is a new enterprise in the early promotional and
development stage and has not engaged in any business other than organizational
efforts. It has no full-time employees and owns no real property. The Company
intends, upon successful completion of this offering, to utilize the net
proceeds realized to seek out and take advantage of business opportunities which
may have potential for profit and, to that end, intends to acquire properties or
businesses, or a controlling interest therein. Management of the Company will
have virtually unlimited discretion in determining the business activities in
which the Company will engage. The Company believes that its ability to take
advantage of business opportunities will be enhanced by (1) its willingness to
invest in high risk ventures and businesses, (2) its flexibility in structuring
investments, including the probable surrender of control and replacement of
management, and (3) its status as a publicly held company with liquid assets
that can be deployed quickly.
The Company currently does not own any properties or an interest in
any business. Moreover, it has not identified any properties or business
opportunities which it proposes to acquire, has no understanding or arrangement
to acquire any properties or business interests, and has not identified any
specific geographical area, industry or type of business in which it will seek
to operate. Accordingly, this offering must be considered a "blind pool"
offering. There can be no assurance that the Company will be able to acquire any
properties or business interests available, or that any such acquisition will be
profitable. See "Risk Factors" and "Business."
The Offering
The Company is offering a minimum of 1,500,000 and a maximum of
3,000,000 Units, at the price of $.10 per Unit. Each Unit consists of one share
of Common Stock, par value $.00001 per share, one Class A Warrant, one Class B
Warrant and one Class C Warrant. Each Class A Warrant, Class B Warrant and Class
C Warrant will be exercisable for one share of Common Stock, for a period
commencing with the date of this Prospectus and terminating on the second
anniversary of such date, at a price of $.30, $.75 and $1.30, respectively. Upon
issuance, the Warrants will be detachable and may be transferred separately from
the Common Stock. The Company may redeem the Warrants at a price of $.0001 per
Warrant upon 30 days' written notice, reduce the exercise price or indefinitely
extend the exercise period of the Warrants. See "Description of Securities."
Outstanding Shares
There are 7,300,000 shares of the Company's Common Stock currently
outstanding. Upon conclusion of this offering, there will be 8,800,000 shares
outstanding if the minimum number of Units is sold and 10,300,000 shares if the
maximum number of Units is sold. The number of shares stated does not include
any Common Stock issuable upon exercise of the Warrants.
1
<PAGE>
Use of Proceeds
The proceeds of this offering, net of all expenses of the offering, are
estimated to be $129,500 if the minimum number of Units is sold and $279,500 if
all of the Units are sold. These proceeds will be used for general and
administrative expenses, to investigate and evaluate business opportunities and
to acquire properties or business interests, and for working capital. See "Use
of Proceeds."
Risk Factors
Investment in the Units involves an extremely high degree of risk.
Potential investors should consider that the Company is in the early development
stage and has not commenced commercial activities, has no revenues, earnings or
operating history and only limited capitalization, and is dependent upon the
proceeds of this offering to commence operations. Further, the proceeds of this
offering have been allocated only generally, no properties or business interests
for acquisition have been identified, and investors will experience immediate
and substantial dilution in the net tangible book value per share of the Common
Stock acquired as compared to the offering price. In seeking business
opportunities, the Company could incur substantial losses. The Company's present
management has very limited experience in seeking, investigating and acquiring
business opportunities. Moreover, management has other business interests which
may conflict with the Company's interests and will devote relatively little time
to the Company's affairs. See "Risk Factors."
Selected Financial Information
Selected financial information concerning the Company as of June 6,
1990, is given below. This information should be read in conjunction with the
financial statements and notes appearing elsewhere in this Prospectus.
Assets
Cash $10,791
Organizational Cost 492
Deferred Offering Costs 5,385
-------
Total Assets $16,668
=======
Liabilities and Stockholders' Equity
Current Liabilities $ 885
Stockholders' Equity 15,783
-------
Total Liabilities and
Stockholders' Equity $16,668
=======
RISK FACTORS
The purchase of Units in this offering involves extreme risks and the
possibility of the loss of a stockholder's entire investment. A prospective
investor should evaluate all information discussed in this Prospectus and the
risk factors discussed below in relation to his financial circumstances before
investing in the Units.
2
<PAGE>
The Company
1. No Operating History. The Company was formed in April 1990 for the
purpose of raising capital through a public offering of securities and to
acquire a business opportunity. The Company has no operating history, revenues
from operations, or assets other than cash from private sales of stock. The
Company faces all of the risks of a new business and those risks specifically
inherent in the investigation, acquisition, or involvement in a new business
opportunity. Purchase of the securities in this offering must be regarded as
placing funds at a high risk in a new or "start-up" venture with all of the
unforeseen costs, expenses, problems, and difficulties to which such ventures
are subject. See "Use of Proceeds" and "Business."
2. No Assurance of Success or Profitability. There is no assurance
that the Company will acquire a favorable business opportunity. In addition,
even if the Company becomes involved in a business opportunity, there is no
assurance that it will generate revenues or profits, or that the market price of
the Company's Common Stock will be increased thereby. See "Business."
3. Unspecified Use of Proceeds. Net proceeds of this offering are not
specifically allocated. They will be used generally to search for, acquire, or
participate in a business opportunity deemed beneficial by management.
Stockholders of the Company will not be given the opportunity to review or
evaluate the merits of a business opportunity before the Company enters into a
transaction involving such business or business opportunity. Investors will be
entrusting their funds to management, which will determine the specific
expenditure of the funds. This type of offering is known as a "blind pool" and
involves extreme risk and speculation for purchasers. See "Business" and "Use of
Proceeds."
4. Possible Business -- Not Identified and Highly Risky. The Company
has not identified and has no commitments to enter into or acquire a specific
business opportunity and therefore can only disclose the risks and hazards of a
business or opportunity that it may enter into in a general manner, and cannot
disclose the risks and hazards of any specific business or opportunity that it
may enter into. An investor can expect a potential business opportunity to be
quite risky. The Company's acquisition of or participation in a business
opportunity will likely be highly illiquid and could result in a total loss to
the Company and its stockholders if the business or opportunity is unsuccessful.
See "Business."
5. Type of Business Acquired. The type of business to be acquired may
be one which desires to avoid effecting its own public offering and the
accompanying expense, delays, and federal and state requirements which purport
to protect investors. Because of the Company's limited capital, it is more
likely than not that any acquisition by the Company will involve other parties
whose primary interest is the acquisition of a publicly traded company.
Moreover, it is also possible that any business opportunity acquired may be
currently unprofitable or present other negative factors.
6. Impracticability of Exhaustive Investigation. The Company's limited
funds and the lack of full-time management will likely make it impracticable to
conduct a complete and exhaustive investigation and analysis of a business
opportunity before the Company commits its capital or other resources thereto.
Management decisions, therefore, will likely be made without detailed
feasibility studies, independent analysis, market surveys and the like which, if
the Company had more funds available to it, would be desirable. The Company will
be particularly dependent in making decisions upon information provided by the
promoter, owner, sponsor or others associated with the business opportunity
seeking the Company's participation. It is possible that all or a large portion
of the proceeds from this offering may be expended for investigative expenses,
especially if any business opportunity extensively investigated is not
eventually acquired. See "Business."
7. Lack of Diversification. Because of the limited financing
capabilities of the Company at the present time and upon completion of this
offering, it is unlikely that the Company will be able to diversify its
acquisitions or operations. The Company's probable inability to diversify its
activities into more than one area will subject
3
<PAGE>
the Company to economic fluctuations within a particular business or industry
and therefore increase the risks associated with the Company's operations. See
"Business."
8. Possible Reliance upon Unaudited Financial Statements. The Company
generally will require audited financial statements from companies which the
Company proposes to acquire. No assurance can be given, however, that audited
financials will be available to the Company. In cases where audited financials
are unavailable, the Company will have to rely upon unaudited information
received from target companies' management which has not been independently
verified by outside auditors. Moreover, the Company will be subject to the
reporting provisions of the Securities Exchange Act of 1934 and thus will be
required to furnish certain information about significant acquisitions,
including certified financial statements for any business that the Company
acquires. Consequently, acquisition prospects that do not have or are unable to
obtain the required certified statements may not be appropriate for acquisition
so long as the reporting requirements of the Securities Exchange Act of 1934 are
applicable. In addition, Warrantholders may not be able to exercise their
Warrants if the Company acquires a business that does not have audited financial
statements until such time as audited statements become available, because the
Company would be unable to meet the requirements for maintenance of a current
registration statement on file with the Securities and Exchange Commission.
9. Investment Company Regulation. The Company does not intend to
become classified as an "investment company" under the Investment Company Act of
1940 (the "Investment Act"). The Company believes that it will not become
subject to regulation under the Investment Act because (i) the Company will not
be engaged in the business of investing or trading in securities, (ii) any
merger or acquisition undertaken by the Company will result in the Company's
obtaining a majority interest in any such merger or acquisition candidate, and
(iii) the Company intends to discontinue any investment in a prospective merger
or acquisition candidate in which a majority interest cannot be obtained. In the
event that the Company is required to register as an investment company, it
could be expected to incur significant registration and compliance costs. The
Company has obtained no formal determination from the Securities and Exchange
Commission (the "Commission") as to the status of the Company under the
Investment Act and, consequently, any violation of the Investment Act will
subject the Company to materially adverse consequences. Should the Commission
find that the Company is subject to the Investment Act, and direct the Company
to register under such Act, the Company would vigorously resist any such order
or finding. Irrespective of whether the Commission or the Company prevailed in
such dispute, however, the Company would be damaged by the costs and delays
involved. Because the Company will not register under the Investment Act,
investors in the Company will not have the benefit of the various protective
provisions imposed on investment companies by such Act, including requirements
for independent directors. See "Business."
10. Other Regulation. An acquisition made by the Company may be of a
business that is subject to regulation or licensing by federal, state, or local
authorities. Compliance with such regulations and licensing can be expected to
be a time-consuming and expensive process and may limit other investment
opportunities of the Company.
11. Public Investors Will Bear Financial Risks. The Company's present
stockholders have acquired their shares of the Company at an extremely low cost
and consequently have contributed only an insignificant amount of capital to the
Company. The purchasers in this offering will provide virtually all of the
capital that the Company will use in carrying out its business plan and thus
will bear most of the risk of loss, if any, incurred by the Company. See
"Principal Stockholders."
12. Dependence upon Management. The Company will be heavily dependent
upon the skills, talents, and abilities of its management to implement its
business plan. The Company's officers and directors will each devote on average
between five and twenty hours per month to the affairs of the Company, which for
a company such as this that is heavily dependent upon management, may be
inadequate for Company business, and may delay the acquisition of any
opportunity considered. Furthermore, management does not have substantial
experience in seeking, investigating and acquiring businesses and will depend
upon its general business expertise
4
<PAGE>
in making decisions regarding the Company's operations. See "Management."
Because investors will not be able to evaluate the merits of possible business
acquisitions by the Company, they should critically assess the information
concerning the Company's management.
13. Lack of Continuity in Management. The Company does not have
employment agreements with its management, and there is no assurance that
persons named herein will manage the Company in the future. In connection with
acquisition of a business opportunity, some or all of the current management of
the Company probably will resign and appoint successors. This may occur without
the vote or consent of the stockholders of the Company. See "Business" and
"Principal Stockholders."
14. Conflicts of Interest. Certain conflicts of interest have existed
and will continue to exist between the Company and its officers and directors.
All have other business interests to which they devote their primary attention,
and each may be expected to continue to do so although management time should be
devoted to the business of the Company. As a result, conflicts of interest may
arise that can be resolved only through exercise by the officers and directors
of such judgment as is consistent with their fiduciary duties to the Company.
See "Potential Conflicts of Interest."
15. Limited Participation of Management. Each of the officers and
directors has full-time outside employment and will be available to participate
in management decisions only on an "as needed" basis which may amount to on
average as little as five hours per month. The amount of time which officers and
directors are able to devote to Company business may be inadequate for Company
business and may delay the acquisition of any opportunity considered.
16. Indemnification of Officers and Directors. The Company's
Certificate of Incorporation provides for the indemnification of its directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses incurred by them in any litigation to which they become
a party arising from their association with or activities on behalf of the
Company. The Company may also bear the expenses of such litigation for any of
its directors, officers, employees or agents, upon such person's promise to
repay the Company therefor if it is ultimately determined that any such person
shall not have been entitled to indemnification. This indemnification policy
could result in substantial expenditures by the Company which it will be unable
to recoup. See "Management - Indemnification of Officers and Directors."
17. Director's Liability Limited. Under the Company's Certificate of
Incorporation, directors of the Company cannot be held liable to the Company for
monetary damages for breach of fiduciary duty as a director except (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for any violation of Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit. This provision does not
affect the liability of any director under federal or applicable state
securities laws. See "Management - Exclusion of Liability."
18. Dependence upon Outside Advisors. To supplement the business
experience of management, the Company may be required to employ accountants,
technical experts, appraisers, attorneys or other consultants or advisors. The
selection of any such advisors will be made by management without any input from
stockholders. Furthermore, it is anticipated that such persons may be engaged on
an "as needed" basis without a continuing fiduciary or other obligation to the
Company.
19. Possible Need for Additional Financing. The Company's funds may
not be adequate to take advantage of any available business opportunities. The
offering may terminate upon the receipt of only the minimum net proceeds of
$129,500, substantially less than the maximum net proceeds of $279,500. Even if
the Company has sufficient funds to acquire an interest in a business
opportunity, it may not have sufficient capital to exploit the opportunity. The
ultimate success of the Company may depend upon its ability to raise additional
capital. The Company has not investigated the availability, source, or terms
that might govern the acquisition
5
<PAGE>
of additional capital and will not do so until it determines a need for
additional financing. If additional capital is needed, there is no assurance
that funds will be available from any source or, if available, that they can be
obtained on terms acceptable to the Company. If not available, the Company's
operations will be limited to those that can be financed with its modest
capital. See "Use of Proceeds" and "Business."
20. Leveraged Transactions. There is a possibility that any
acquisition of a business opportunity by the Company may be leveraged, i.e., the
Company may finance the acquisition of the business opportunity by borrowing on
the assets of the business opportunity to be acquired, on the projected future
revenues, or the profitability of the business opportunity. This could increase
the Company's exposure to larger losses. A business opportunity acquired through
a leveraged transaction is profitable only if it generates enough revenues to
cover the related debt and expenses. Failure to make payments on the debt
incurred to purchase the business opportunity could result in the loss of a
portion or all of the assets acquired. There is no assurance that any business
opportunity acquired through a leveraged transaction will generate sufficient
revenues to cover the related debt and expenses, and investors should be aware
that the Company has not established any specific criteria or plan in connection
with analyzing whether, and to what extent, a particular candidate's operations
can support the leverage the Company would incur in a leveraged buy-out.
Investors should also be aware of the high default rate experienced recently by
entities entering into leveraged transactions, many of which defaults resulted
from overly optimistic analyses and income projections.
21. Competition. The search for potentially profitable business
opportunities is intensely competitive. The Company expects to be at a
disadvantage when competing with many firms that have substantially greater
financial and management resources and capabilities than the Company. These
competitive conditions will exist in any industry in which the Company may
become interested. See "Business."
22. No Foreseeable Dividends. The Company has not paid dividends on
its Common Stock and does not anticipate paying dividends on its Common Stock in
the foreseeable future.
23. Loss of Control by Present Management and Stockholders. The
Company may consider an acquisition in which the Company issues a substantial
amount of its authorized but unissued Common Stock (80% or more control) as
consideration for any business opportunity acquired. The result of such
acquisition would be that the acquired Company's stockholders and management
would control the Company, and the Company's management could be replaced by
persons unknown at this time. Such a merger could leave the investors in this
offering with stock worth substantially less than the price paid in this
offering, and a greatly reduced percentage of ownership of the Company.
Management could sell its control block of stock at a premium price to the
acquired company's stockholders, although management has no present plans to do
so. See "Certain Transactions with Management and Others."
24. Dilutive Effects of Issuing Additional Common Stock. The vast
majority of the Company's authorized but unissued Common Stock will remain
unissued after this offering, even if all Units offered are sold and all
Warrants offered are exercised. The board of directors of the Company has
authority to issue such unissued shares without the consent or vote of the
stockholders of the Company. The issuance of these shares may further dilute the
interests of investors purchasing in this offering and will reduce their
proportionate ownership and voting power in the Company.
The Offering
25. Determination of Offering and Exercise Price. The price at which
the Units are being offered to the public and the exercise prices of the
Warrants have been arbitrarily determined by the Company. Such prices bear no
direct relationship to the Company's assets, net worth or prospects, or to any
other recognized criteria of value.
6
<PAGE>
26. Loss of Beneficial Use of Subscription Funds. Under the terms of
this offering, subscription funds for Units will be deposited into escrow and
held for the offering period of 90 days (up to 180 days, if extended), or until
this offering is abandoned or closed, whichever occurs first. The Company has
reserved the right to reject any subscription, and cancel any confirmation of
sale issued, in whole or in part, prior to closing, even if the subscriber's
funds are held in escrow until the offering is abandoned or closed, warranting
only to refund such funds as promptly as shall be practicable after abandonment
or closing, as the case may be. In this regard, the investor should be aware
that under specified circumstances federal law, including the Expedited Funds
Availability Act of 1988 and Regulation CC (pertaining to the availability of
funds and the collection of checks), permits a bank to withhold payment of funds
on a deposit made by a check drawn on a "nonlocal" bank for up to seven working
days pending collection of the check through the applicable bank check clearing
system. As a result, monies derived from a subscription payment that shall have
been made by check may not be available to the Company, either for closing of
the offering or for possible refund to the subscriber following a rejection of
all or a portion of the subscription or the abandonment of the offering, until
as many as seven business days following the subscriber's tender of the
subscription funds to the bank. It is anticipated that a decision to reject all
or a portion of a given subscription shall not be made until on or near the date
of closing of the offering. Assuming that, consistent with federal law as
described above, funds for a particular subscription have become available to
the Company for refund, it is likely that approximately one working day will be
required for the Company to notify the escrow bank that a refund of all or a
portion of the subscription funds should be made and for the bank to prepare and
mail a refund check to the subscriber. The date upon which a refund check would
be mailed will depend, therefore, upon the relationship between the date upon
which a subscription check shall have been tendered and the date upon which the
offering shall have been closed or abandoned. The closer the tender shall be to
the date of closing or abandonment, the longer the mailing of the refund check
is likely to be delayed, up to a total of approximately eight working days
following closing or abandonment. Subscribers could thus lose the beneficial use
of their subscription funds for up to approximately 190 calendar days, without
interest, and there is no guarantee that the subscriber will receive any or all
of the Units subscribed for, even if the offering closes. Moreover, no method
has been determined by which to prorate subscriptions should the offering be
over-subscribed, and no proration may be made.
27. Control by Present Stockholders. After completion of this
offering, the present stockholders will own approximately 83% of the outstanding
Common Stock, assuming that only the minimum number of Units is sold, and
approximately 71%, assuming that the maximum number of Units is sold. These
figures do not take into account any Units in this offering which may be
purchased by present stockholders, though no arrangements have been made, and
the Company does not anticipate any future arrangements, whereby shares of the
offering are reserved for sale to such persons. Because the Company's
Certificate of Incorporation does not permit cumulative voting for the election
of directors, it is likely that public purchasers of Units will not have the
power to elect a single director and, as a practical matter, the present
stockholders will have the power to elect all directors and effectively control
the Company. See "Description of Securities" and "Principal Stockholders."
28. Sale of Minimum Number of Units. This offering is being made on a
"best efforts, minimum-maximum" basis. If only the minimum number of Units is
sold, the Company's operations and the scope of business opportunities open to
it will be significantly curtailed. The degree of risk to investors in that
event will be increased correspondingly.
29. No Public Market Exists. There currently is no public market for
the Units, Common Stock or Warrants being offered, and no assurance can be given
that a market will develop subsequent to this offering or that purchasers will
be able to resell their securities at the public offering price, or that a
purchaser will be able to liquidate his investment without considerable delay,
if at all. If a market does develop, the price may be highly volatile. Factors
such as those discussed in this "Risk Factors" section may have a significant
impact upon the market price of the securities offered hereby. Due to the low
price of the securities, many brokerage firms may not be willing to effect
transactions in the securities. Even if a purchaser finds a broker willing to
effect a transaction in these securities, the combination of brokerage
commissions, state transfer taxes, if any, and any
7
<PAGE>
other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of such securities as collateral for any
loans.
30. No Market Maker - Possible Dominance of Market by Single Market
Maker. Even if the Company proves to be successful in selling the Units offered
hereunder, and the Company's securities become eligible to be traded by
securities brokers and dealers which are members of the National Association of
Securities Dealers, Inc. ("NASD") in the "pink sheets" maintained by the
National Quotation Bureau, Inc., the Company has no agreement with any NASD
member to act as a market maker for the Company's securities. If the Company is
unsuccessful in obtaining one or more market makers for the Company's
securities, the trading level and price of the Company's securities will be
materially and adversely affected. If the Company is successful in obtaining
only one market maker for the Company's securities, the market maker would in
effect dominate and control the market for such securities. Although management
intends to contact several broker-dealers concerning their possible
participation as a market maker in the Company's securities following the
conclusion of this offering, there is no assurance management will be successful
in obtaining any market makers for the Company's securities.
31. Dilution. The Company's present stockholders, including officers,
directors and founders, have acquired their controlling interest in the Company
at an average weighted cost that is substantially less than the public offering
price of the Units. Public purchasers of Units will suffer immediate and
substantial dilution of $.0836 per share of Common Stock (83.6%), assuming the
sale of only the minimum number of Units, and $.0714 per share of Common Stock
(71.4%), assuming the sale of all Units being offered. These calculations do not
take into account the issuance of up to an additional 9,000,000 shares of Common
Stock if all Warrants are exercised, which event could result in a further
dilution of the net tangible book value per share of the shares outstanding at
such time, if the net tangible book value of the Common Stock then exceeds the
Warrant exercise price. See "Dilution and Other Comparative Data."
32. Benefit to Present Stockholders. Because present stockholders
acquired their shares at prices substantially lower than the offering price of
the Units, they will experience an increase in the present net tangible book
value of their shares amounting to $.0l51, assuming sale of the minimum number
of Units, and $.0273, assuming sale of all the Units being offered. See
"Dilution and Other Comparative Data."
33. Preferred Shares Authorized. The Certificate of Incorporation of
the Company authorizes issuance of a maximum of 20,000,000 Preferred Shares, par
value $.00001 per share. While no Preferred Shares have been issued or are
outstanding on the date of this Prospectus and there is no plan to issue any in
the foreseeable future, if issued, the terms of a series of Preferred Shares
could operate to the significant disadvantage of the holders of outstanding
Common Shares. Such terms could include, among others, preferences as to
dividends, possible voting rights, and distributions on liquidation. See
"Description of Securities - Preferred Stock."
34. Possible Rule 144 Sales. All of the outstanding shares of Common
Stock held by present stockholders are "restricted securities" as defined by
Rule 144 under the Securities Act of 1933, as amended. As restricted shares,
these shares may be resold only pursuant to an effective registration statement
or under the requirements of Rule 144 or other applicable exemption from
registration under the Act and as required under applicable state securities
laws. Rule 144 provides in essence that a person who has held restricted
securities for a period of two years may, under certain conditions, sell every
three months, in brokerage transactions, a number of shares which does not
exceed the greater of 1.0% of a company's outstanding common stock or the
average weekly trading volume during the four calendar weeks prior to the sale.
There is no limit on the amount of restricted securities that may be sold by a
nonaffiliate after the restricted securities have been held by the owner for a
period of three years. A sale under Rule 144 or any other exemption from the
Act, if available, or subsequent registrations of shares of Common Stock of
present stockholders, may have a depressive effect upon the price of the Common
Stock in any market that may develop. A total of 5,000,000 shares of Common
Stock will become available for sale under Rule 144 beginning in April 1992, and
an additional 2,300,000 shares will
8
<PAGE>
become available for sale under Rule 144 beginning in May 1992, all of which
will be subject to applicable volume restrictions under the Rule.
35. Market Overhang of Warrants. The Warrants offered as part of the
Units are detachable and may be separately traded and quoted, if a market for
the Warrants develops. Each Warrant is exercisable for one share of Common Stock
for a period commencing on the date of this Prospectus and terminating on the
second anniversary thereof. Each Class A Warrant, each Class B Warrant and Class
C Warrant carries an exercise price of $.30, $.75 and $1.30, respectively.
Exercise of the Warrants can be expected to have an adverse effect on the
trading price of and market for the Common Stock, if any such market develops.
Even if a public market for the Common Stock develops, it is unlikely that
normal market forces will cause an increase in the bid price of the Common Stock
to the level of the exercise price of the Warrants. It is possible that so long
as the Warrants remain outstanding their existence will prevent a rise in the
price of the Common Stock higher than the exercise price of any of the Warrants.
See "Description of Securities - Warrants."
36. Exercise of Warrants Uncertain. Because of the lack of a market
for the Warrants and the uncertainty of the Company's potential for success, the
Warrants may not be exercised before they expire, with the result that no
Warrant proceeds would be received by the Company. The Warrants may be exercised
only at a time when a current prospectus is in effect and only if the shares are
qualified for sale under applicable securities laws of the states in which the
various Warrantholders reside. Although the Company intends to use its best
efforts to keep this Prospectus current during the Warrant exercise periods,
there is no assurance that it will do so or that it will be financially able to
do so. Further, it is not required to do so at any time when the market bid
price for the Common Stock is less than the exercise price of the Warrants. See
"Description of Securities - Warrants."
37. Possible Redemption of Warrants without Notice. The Company is
entitled to redeem the Warrants without prior notice to the warrantholders
should the representatives of a business opportunity with which the Company
wishes to combine require, as a condition to consummation of the combination,
that the Warrants be redeemed. Under these circumstances, the warrantholder will
have no opportunity to exercise the purchase rights under the Warrants prior to
redemption. See "Description of Securities - Warrants."
38. Substantial Offering Expenses. The Company estimates that it will
incur expenses of $20,500 in connection with this offering. These expenses are
substantial, especially in view of the amount to be raised by this offering, and
will significantly decrease the amount of net offering proceeds which otherwise
would be available to the Company. See "Use of Proceeds."
39. Lack of Underwriter. The minimum number of Units is being offered
by the Company and its officers and directors on a "best efforts, all-or-none"
basis and the Company has not retained an underwriter or selected broker-dealer
to assist the Company in offering the Units. The officers and directors of the
Company collectively have little experience in the offer and sale of securities
on behalf of an issuer. Consequently, these individuals may be unable to effect
a sale of the Units without the assistance of a broker-dealer. Should it prove
necessary for the Company to retain a broker-dealer, the offering of the Units
would be suspended until an amendment to the Company's Registration Statement,
including this Prospectus, shall have been made to reflect such retention. The
Registration Statement would then require additional review and clearance by the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., and state regulatory authorities. The Company could be expected
to incur significant additional legal and accounting costs if further reviews
were required to be undertaken by governmental authorities. There is no
assurance that the Company shall prove to be capable of selling all, or any, of
the Units offered without the assistance of an underwriter or broker-dealer. See
"Terms of Offering."
40. Blue Sky Considerations. It is entirely possible that, because of
exemptions from registration contained in certain state securities laws, the
Warrants contained in the Units lawfully may be sold to residents of such states
in any aftermarket which may develop for the Warrants. Nevertheless, the
securities laws of such
9
<PAGE>
states may prevent the exercise of such Warrants by residents of those states
because the common shares underlying the Warrants were never registered there.
In this event, holders of the Warrants in those states would be forced to sell
their Warrants or hold them until they expire, without any opportunity to
exercise the Warrants.
41. Broker-Dealer Sales of Company's Registered Securities. The
Company's Units, Common Stock and Warrants are covered by a Securities and
Exchange Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of purchasers in this offering to sell their securities in
the secondary market.
42. Impact of Amendments to the Colorado Securities Act. Effective
July 1, 1990, the State of Colorado repealed its prior securities laws and
enacted the Colorado Securities Act, which provides that where less than
seventy-five percent of the net proceeds from the sale of securities are
committed for use in one or more specific lines of business, eighty percent of
the net proceeds received by the issuer shall be placed in escrow until (i)
completion of a transaction or series of transactions whereby at least fifty
percent of the gross proceeds received from the sale of securities are committed
for use in one or more specific lines of business, and (ii) notice of the
proposed release of the escrowed funds has been on file with the Colorado
Division of Securities for at least ten days. The Company intends to make offers
of the Company's Units to residents of Colorado, and, accordingly, anticipates
that this offering will be subject to the above-described escrow provisions. In
such event, the use of proceeds table shall not be affected except that certain
allocated funds may not be available for payment until funds are released from
the escrow. Imposition of the escrow provisions may require the Company to seek
additional financing for payment of administrative and overhead expenses until
such time, if ever, the Company can successfully complete a business combination
whereby proceeds from the offering are committed to a specific line of business
and the proceeds in escrow are released. In addition, the provisions of the
Colorado Securities Act will apply to proceeds of any exercise of Warrants prior
to the completion of a transaction meeting the requirements of the Colorado
Securities Act. See "Use of Proceeds."
DILUTION AND OTHER COMPARATIVE DATA
The net tangible book value of the Common Stock at June 6, 1990, was
$9,906, or approximately $.0014 per share. That per-share value will be
increased as a result of this offering to approximately $.0165 if the minimum is
sold and $.0286 if the maximum is sold (without adjustment for other changes in
net tangible book value subsequent to such date), resulting in immediate,
substantial dilution to public investors of $.0836 (83.6%) per share if the
minimum is sold and $.0714 (71.4%) per share if the maximum is sold. Dilution is
the reduction in value of the purchaser's investment measured by the difference
between the $.10 price per Unit in the public offering and the net tangible book
value per share after completion of the offering.
The following table, which assumes the successful completion of the
offering described herein by the sale of 1,500,000 Units (minimum) and 3,000,000
Units (maximum), illustrates the per-share dilution to investors in this
offering, without giving effect to the issuance of up to 9,000,000 shares of
Common Stock upon exercise of the Warrants included in the Units.
Minimum Maximum
------- -------
Public offering price per Unit $.10 $.10
Net tangible book value per share at
June 6, 1990 (1) $.0014 $.0014
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Pro forma net tangible book value after
the offering $144,791(2) $294,791(3)
Pro forma net tangible book value per share
after the offering (1) $.0165 $.0286
Increase, attributable to purchases by
investors in this offering, in net
tangible book value per share of
currently outstanding shares $.0151 $.0273
Dilution per share to public investors $.0836 $.0714
Dilution as a percentage of offering price 83.6% 71.4%
- -------------------
<FN>
(1) Net tangible book value per share is determined by dividing
the number of Common Shares outstanding into the total
tangible assets less total liabilities of the Company.
(2) The figure shown is the sum of the net tangible book value of
$9,906 at June 6, 1990, plus proceeds of $150,000 from the
sale of the minimum number of Units in this offering, minus
registration costs (anticipated registration costs of $20,500
less deferred offering costs of $5,385) of $15,115.
(3) The figure shown is the sum of the net tangible book value of
$9,906 at June 6, 1990, plus proceeds of $300,000 from the
sale of the maximum number of Units in this offering, minus
registration costs (anticipated registration costs of $20,500
less deferred offering costs of $5,385) of $15,115.
</FN>
</TABLE>
Upon successful conclusion of this offering, the public investors will
own 1,500,000 shares (minimum) or 3,000,000 shares (maximum) (approximately 17%
in case of the minimum or approximately 29% in case of the maximum) of the
issued and outstanding Common Stock, for which they will have paid $.10 per
Unit. This compares with 7,300,000 shares of Common Stock acquired from the
Company since inception by officers, directors and founders at a cost of
$16,000, or approximately $.0022 per share, and which will constitute
approximately 83% of the issued and outstanding Common Stock following this
offering if the minimum is sold, or approximately 71% if the maximum is sold.
<TABLE>
The table set forth below summarizes the difference between the number
of shares of Common Stock purchased from the Company, the average price per
share, and the aggregate consideration paid by existing stockholders and public
investors.
<CAPTION>
Minimum Offering
Pct. of Average Percent
Shares Total Price/ Total of Total
Purchased Shares Share Consideration Consideration
--------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Present
Stockholders 7,300,000 83.0% $.0022 $ 16,000 9.6%
Public Investors 1,500,000 17.0% $.10 150,000 90.4%
--------- ----- -------- -----
Total 8,800,000 100.0% $166,000 100.0%
========= ===== ======== =====
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Maximum Offering
Pct. of Average Percent
Shares Total Price/ Total of Total
Purchased Shares Share Consideration Consideration
---------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Present
Stockholders 7,300,000 70.9% $.0022 $ 16,000 5.1%
Public Investors 3,000,000 29.1% $.10 300,000 94.9%
---------- ---- -------- -----
Total 10,300,000 100.0% $316,000 100.0%
========== ===== ======== =====
</TABLE>
USE OF PROCEEDS
The Company will receive net proceeds from this offering, after
deducting offering-related expenses, of approximately $129,500 if the minimum
number of Units is sold and $279,500 if the maximum number is sold. Such
proceeds are anticipated to be used in the order of priority shown below:
Minimum Maximum
Amount Amount
------ ------
General and Administrative:
Legal (1) $ 10,000 $ 10,000
Accounting 2,000 2,000
Miscellaneous 1,000 1,000
Officer Salaries (2) 9,000 9,000
Expenses of Investigating and
Evaluating a Prospective
Business Opportunity:
Travel $ 2,000 $ 6,000
Finders (3) 15,000 30,000
Legal 14,000 14,000
Accounting 2,500 2,500
Unallocated Proceeds
Available for
Acquisitions & Mergers (4) $ 74,000 $205,000
-------- --------
Total Proceeds (5) $129,500 $279,500
======== ========
(1) The figures shown reflect general corporate and securities
compliance work only.
(2) Commencing after completion of this offering, each of the
Company's two officers will be compensated at a rate of $45 per hour for time
devoted to the affairs of the Company in excess of five hours per month, limited
only by a cap of $1,500 per month and a total cap of $4,500 on each officer's
salary during the Company's first year in operation.
(3) Should the Company complete the acquisition of a business
opportunity, the Board of Directors may award a finder's fee to an officer or
affiliate of the Company, or to a third party, if the acquisition is originated
as a result of his efforts. The cash portion of this fee, in the aggregate, if
paid to officers or affiliates, will not exceed 10% of the gross proceeds of the
offering and may be less.
(4) These proceeds will be segregated from the remainder of the net
proceeds and placed into a bank account or other temporary investment, subject
to the escrow provisions contained in the newly enacted Colorado Securities Act.
See Note (5).
(5) Effective July 1, 1990, the State of Colorado repealed its prior
securities laws and enacted the Colorado Securities Act, which provides that
where less than seventy-five percent of the net proceeds from the
12
<PAGE>
sale of securities are committed for use in one or more specific lines of
business, eighty percent of the net proceeds received by the issuer shall be
placed in escrow until (i) completion of a transaction or series of transactions
whereby at least fifty percent of the gross proceeds received from the sale of
securities are committed for use in one or more specific lines of business, and
(ii) notice of the proposed release of the escrowed funds has been on file with
the Colorado Division of Securities for at least ten days. The Company intends
to make offers of the Company's Units to residents of Colorado, and,
accordingly, anticipates that this offering will be subject to the
above-described escrow provisions. In such event, the use of proceeds table
shall not be affected except that certain allocated funds may not be available
for payment until funds are released from the escrow. See "Risk Factors - Impact
of Amendments to the Colorado Securities Act."
The table set forth above reflecting the use of proceeds is merely the
Company's good-faith estimate. Because the Company has no agreements or
understandings, preliminary or otherwise, for any future acquisitions and has no
specific enterprises targeted for acquisition, the Company is unable to make a
specific allocation of the net proceeds of this offering. Subsequent events may
require a reallocation of available funds affecting one or more of the above
listed categories of expenditure. Any such reallocation will be at the
discretion of the Company's Board of Directors. The allocations reflected in the
table also do not provide for any revenues generated by the Company's
operations, if any, or operations of any business opportunity which may be
acquired, during the one-year period following the closing of this offering.
Should the sale of Units result in proceeds of less than the maximum amount but
greater than the minimum amount, the use of proceeds will be adjusted among the
categories of expenditure as management deems best.
Since the Company does not know to what extent, if any, the Warrants
may be exercised, and because it is unlikely that such Warrants will ever be
exercised, the Company has not made specific plans for the use of proceeds which
might be received upon the exercise of such Warrants, and unless it does so
prior to the exercise of warrants, the net proceeds derived form the exercise of
Warrants may be subject to the escrow provisions of the newly enacted Colorado
Securities Act. See Note (5) above.
Subject to certain escrow requirements described above, all funds not
being utilized by the Company will be held in interest-bearing accounts or
investments in commercial financial institutions until such time as it appears
the funds will be required. See "Risk Factors - The Company - Investment Company
Regulation." Other than interest income, the Company does not at this time
anticipate generating revenues unless and until an acquisition candidate is
identified, and a business combination consummated with such candidate, in which
case the Company may begin to generate revenues from operations, depending on
the performance of the newly acquired business.
BUSINESS
General
The Company was incorporated under the laws of the State of Delaware
on April 27, 1990, and is in the early developmental and promotional stages. To
date the Company's only activities have been organizational, directed at the
raising of capital. The Company has not commenced any commercial operations and
is entirely dependent upon the successful completion of this offering to do so.
The Company has no full-time employees and owns no real estate.
The Company proposes to implement a business plan to seek,
investigate, and, if warranted, acquire one or more properties or businesses.
Such an acquisition may be made by purchase, merger, exchange of stock or
otherwise, and may encompass assets or a business entity, such as a corporation,
joint venture or partnership. Even if the maximum number of Units is sold, the
Company will have limited capital, and it is unlikely that the Company will be
able to take advantage of more than one such business opportunity. The Company
intends to seek opportunities demonstrating the potential of long-term growth as
opposed to short-term earnings.
13
<PAGE>
At the present time the Company has not identified any business
opportunity that it plans to pursue, nor has the Company reached any agreement
or definitive understanding with any person concerning an acquisition. No
assurance can be given that the Company will be successful in finding or
acquiring a desirable business opportunity, given the limited funds that are
expected to be available for acquisitions, or that any acquisition that occurs
will be on terms that are favorable to the Company or its stockholders.
The Company's search will be directed toward small and medium-sized
enterprises. The Company anticipates that the business opportunities presented
to it will (i) be recently organized with no operating history, or a history of
losses attributable to under-capitalization or other factors; (ii) be
experiencing financial or operating difficulties; (iii) be in need of funds to
develop a new product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept; or (v) have a combination of the
characteristics mentioned in (i) through (iv). The Company intends to
concentrate its acquisition efforts on properties or businesses which it
believes to be undervalued. Given the above factors, investors should expect
that any acquisition candidate may have a history of losses or low
profitability.
The Company does not propose to restrict its search for investment
opportunities to any particular geographical area or industry, and may,
therefore, engage in essentially any business, to the extent of its limited
resources. This includes industries such as service, finance, natural resources,
manufacturing, high technology, product development, medical, communications and
others. The Company's discretion in the selection of business opportunities is
unrestricted, subject to the availability of those opportunities, economic
conditions and other factors.
As a consequence of this offering, the Company may be acquired by
another entity that desires to become a public company while avoiding the
registration requirements of the federal securities laws. In connection with
such acquisition, it is highly likely that an amount of stock constituting
control of the Company would be issued by the Company or purchased from current
officers and directors by the acquiring entity. If stock is purchased from
officers and directors, the transaction could result in substantial gains to
such officers and directors relative to their original purchase price for such
stock. In the Company's judgment, its officers and directors would not thereby
become "underwriters" within the meaning of the Section 2(11) of the Securities
Act of 1933, as amended.
It is anticipated that business opportunities will come to the
Company's attention from various sources, including its officers and directors,
professional advisors such as attorneys and accountants, securities
broker-dealers, venture capitalists, members of the financial community, and
others who may present unsolicited proposals. The Company has no plans,
understandings, agreements or commitments with any individuals for such persons
to act as a finder of opportunities for the Company.
The Company does not foresee that it would purchase an interest in or
enter into a contract with any business with which an officer or director of the
Company is affiliated. Should the Company's management determine in the future,
contrary to management's current expectations, that a transaction with an
affiliate would be in the best interests of the Company and its stockholders,
the Company's Certificate of Incorporation would permit the Company to enter
into such a transaction only if (i) the Board of Directors of the Company has
been apprised of the relationship or interest of the officer and director and a
disinterested majority of the board members have approved the transaction, or
(ii) the stockholders of the Company have been informed of the relationship or
interest and approve the transaction, or (iii) the transaction is fair and
reasonable to the Company.
Investigation and Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality of the other
company's management and personnel, the anticipated acceptability of new
products or marketing concepts, the merit of technological changes, and numerous
other
14
<PAGE>
factors which are difficult, if not impossible, to analyze through the
application of any objective criteria. In many instances, it is anticipated that
the historical operations of a specific firm may not necessarily be indicative
of the potential for the future because of the possible need to shift marketing
approaches substantially, expand significantly, change product emphasis, change
or substantially augment management, or make other changes. Because of the lack
of training or experience of the Company's management, the Company will be
dependent upon the owners of a business opportunity to identify such problems
and to implement, or be primarily responsible for the implementation of,
required changes. Because the Company may participate in a business opportunity
with a newly organized firm or with a firm which is entering a new phase of
growth, it should be emphasized that the Company will incur further risks, since
management in many instances will not have proved its abilities or
effectiveness, the eventual market for such company's products or services will
likely not be established, and such company may not be profitable when acquired.
It is anticipated that the Company will not be able to diversify, but
will essentially be limited to one such venture because of the Company's limited
financing. This lack of diversification will not permit the Company to offset
potential losses from one business opportunity against profits from another, and
should be considered an adverse factor affecting any decision to purchase the
Company's securities.
It is emphasized that management of the Company may effect
transactions having a potentially adverse impact upon the public investors
pursuant to the authority of the Company's Board of Directors to complete
acquisitions without submitting any proposal to the stockholders for their
consideration. In some instances, however, the proposed participation in a
business opportunity may be submitted to the stockholders for their
consideration, either voluntarily by the Board of Directors to seek the
stockholders' advice and consent or because state law so requires.
The analysis of business opportunities will be undertaken by or under
the supervision of the officers and directors, none of whom is a professional
business analyst or has any previous training or significant experience in
business analysis. See "Management." The Company will have unrestricted
flexibility in seeking, analyzing and participating in business opportunities.
The Company anticipates that it will consider, among other things, the following
factors:
(a) Potential for growth and profitability, indicated by new
technology, anticipated market expansion or new products;
(b) Competitive position as compared to other companies of similar size
and experience within the industry segment as well as within the industry as a
whole;
(c) Strength and diversity of existing management, or management
prospects that are scheduled for recruitment;
(d) Capital requirements and anticipated availability of required
funds, to be provided by the Company or from operations, though the sale of
additional securities, through joint ventures or similar arrangements or from
other sources;
(e) The cost of participation by the Company as compared to the
perceived tangible and intangible values and potential;
(f) The extent to which the business opportunity can be advanced;
(g) The Company's perception of how any particular business opportunity
will be received by the investment community and by the Company's stockholders;
15
<PAGE>
(h) The accessibility of required management expertise, personnel, raw
materials, services, professional assistance and other required items; and
(i) Whether the financial condition of the business opportunity would
be, or would have a significant prospect in the foreseeable future to become,
such as to permit the securities of the Company, following the business
combination, to qualify to be listed on a national automated securities
quotation system, such as NASDAQ, so as to permit the trading of such securities
to be exempt from the requirements of Rule 15c2-6 recently adopted by the
Securities and Exchange Commission. See "Risk Factors - Broker-Dealer Sales of
Company's Registered Securities."
In regard to the last criterion listed above, the current standards
for NASDAQ listing include the requirements that the issuer of the securities
that are sought to be listed have total assets of at least $2,000,000 and net
assets of at least $1,000,000. A proposal that is currently under consideration
would raise those requirements to $4,000,000 and $2,000,000, respectively.
Many, and perhaps most, of the business opportunities that might be
potential candidates for a combination with the Company would not satisfy the
current and proposed NASDAQ listing criteria. To the extent that the Company
seeks potential NASDAQ listing, therefore, the range of business opportunities
that shall be available for evaluation and potential acquisition by the Company
shall be significantly limited.
In applying the foregoing criteria, no one of which will be
controlling, management will attempt to analyze all factors appropriate to the
opportunity and make a determination based upon reasonable investigative
measures and available data. Potentially available business opportunities may
occur in many different industries and at various stages of development, all of
which will make the task of comparative investigation and analysis of such
business opportunities extremely difficult and complex. Potential investors must
recognize that, because of the Company's limited capital available for
investigation and management's limited experience in business analysis, the
Company may not discover or adequately evaluate adverse facts about the
opportunity to be acquired.
The Company is unable to predict when it may participate in a business
opportunity. It expects, however, that the analysis of specific proposals and
the selection of a business opportunity may take several months or more, and
persons should not purchase Units in the offering if they expect a short-term
appreciation in the value of the Company's securities.
Prior to making a decision to participate in a business opportunity,
the Company will generally request that it be provided with written materials
regarding the business opportunity containing such items as a description of
product, service and company history; management resumes; financial information;
available projections, with related assumptions upon which they are based; an
explanation of proprietary products and services; evidence of existing patents,
trademarks or services marks or rights thereto; present and proposed forms of
compensation to management; a description of transactions between such company
and its affiliates during relevant periods; a description of present and
required facilities; an analysis of risks and competitive conditions; a
financial plan of operation and estimated capital requirements; audited
financial statements; and other information deemed relevant.
As part of the Company's investigation, officers and directors may
meet personally with management and key personnel, may visit and inspect
material facilities, obtain independent analysis or verification of certain
information provided, check references of management and key personnel, and take
other reasonable investigative measures, to the extent of the Company's limited
financial resources and management expertise.
Prior to consummating a business combination, it is possible that the
Company will loan funds, perhaps in a substantial amount, to the target company.
Any such loan will be made at arm's length and evidenced by
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a negotiable promissory note and may be secured in such manner as the Company
believes prudent. Such a loan probably will be forgiven if the contemplated
combination takes place.
Form of Acquisition
It is impossible to predict the manner in which the Company may
participate in a business opportunity. Specific business opportunities will be
reviewed as well as the respective needs and desires of the Company and the
promoters of the opportunity and, upon the basis of that review and the relative
negotiating strength of the Company and such promoters, the legal structure or
method deemed by management to be suitable will be selected. Such structure may
include, but is not limited to leases, purchase and sale agreements, licenses,
joint ventures and other contractual arrangements. The Company may act directly
or indirectly through an interest in a partnership, corporation or other form of
organization. Implementing such structure may require the merger, consolidation
or reorganization of the Company with other corporations or forms of business
organization, and there is no assurance that the Company would be the surviving
entity. In addition, the present management and the stockholders of the Company
purchasing securities in this offering most likely will not have control of a
majority of the voting shares of the Company following a reorganization
transaction. As part of such a transaction, all or a majority of the Company's
directors may resign and new directors may be appointed without any vote by
stockholders.
It is likely that the Company will acquire its participation in a
business opportunity through the issuance of Common Stock or other securities of
the Company. Although the terms of any such transaction cannot be predicted, it
should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under the
Internal Revenue Code of 1986, depends upon the issuance to the stockholders of
the acquired company of up to 80% of the common stock of the combined entities
immediately following the reorganization. If a transaction were structured to
take advantage of these provisions rather than other "tax free" provisions
provided under the Internal Revenue Code, the Company's stockholders in such
circumstances would retain in the aggregate 20% or less of the total issued and
outstanding shares. This could result in substantial additional dilution in the
equity of those who were stockholders of the Company prior to such
reorganization.
It is anticipated that any securities issued in any reorganization
would be issued in reliance upon exemptions, if any are available, from
registration under applicable federal and state securities laws. In some
circumstances, however, as a negotiated element of the transaction, the Company
may agree to register such securities either at the time the transaction is
consummated, or under certain conditions or at specified times thereafter. The
issuance of substantial additional securities and their potential sale into any
trading market which may develop in the Company's securities may have a
depressive effect upon such market.
The Company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
As a general matter, the Company anticipates that it will enter into a
letter of intent with the management, principals or owners of a prospective
business opportunity. Such a letter of intent will set forth the terms of the
proposed acquisition but will not bind either the Company or the business
opportunity to consummate the transaction. Execution of a letter of intent will
by no means indicate that consummation of an acquisition is probable. Neither
the Company nor the business opportunity will be bound unless and until a
definitive agreement concerning the acquisition as described in the preceding
paragraph is executed, and then only if neither party has any contractual right
to terminate the agreement on specified grounds.
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It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and substantial costs for accountants, attorneys
and others. If a decision is made not to participate in a specific business
opportunity, the costs theretofore incurred in the related investigation would
not be recoverable.
Investment Company Act and Other Regulation
The Company may participate in a business opportunity by purchasing,
trading or selling the securities of such business. The Company does not,
however, intend to engage primarily in such activities. Specifically, the
Company intends to conduct its activities so as to avoid being classified as an
"investment company" under the Investment Company Act of 1940 (the "Investment
Act"), and therefore to avoid application of the costly and restrictive
registration and other provisions of the Investment Act, and the regulations
promulgated thereunder.
Section 3(a) of the Investment Act provides the definition of an
"investment company," which excludes any entity that does not engage primarily
in the business of investing, reinvesting or trading in securities, or that does
not engage in the business of investing, owning, holding or trading "investment
securities" (defined as "all securities other than government securities or
securities of majority-owned subsidiaries") the value of which exceeds 40% of
the value of its total assets (excluding government securities, cash or cash
items). The Company intends to implement its business plan in a manner which
will result in the availability of this exception from the definition of
"investment company." Consequently, the Company's participation in a business or
opportunity through the purchase and sale of investment securities will be
limited. In order to avoid classification as an investment company, the Company
may use a major portion of the net proceeds of this offering to search for,
analyze and acquire or participate in a business or opportunity by use of a
method which does not involve the acquisition, ownership or holding of
investment securities.
The Company's plan of business may involve changes in its capital
structure, management, control and business, especially if it consummates a
reorganization as discussed above. Each of these areas is regulated by the
Investment Act, which regulation has the purported purpose of protecting
purchasers of investment company securities. Since the Company will not register
as an investment company, purchasers in this offering will not be afforded these
protections.
Even if the Company restricts its activities as described above, it is
possible that it may be classified as an inadvertent investment company if
significant delays are experienced in locating and expending a major portion of
the net proceeds of this offering on a business or opportunity other than by the
method of acquiring or holding investment securities.
The Company intends vigorously to resist classification as an
investment company, and to take advantage of any exemptions or exceptions from
application of the Investment Act, which allows an entity a one-time option
during any three-year period to claim an exemption as a "transient" investment
company. The necessity of asserting any such resistance, or making any claim of
exemption, could be time consuming and costly, or even prohibitive, given the
Company's limited resources.
Any securities which the Company might acquire in exchange for its
Common Stock will be "restricted securities" within the meaning of the
Securities Act of 1933, as amended (the "Act"). If the Company elects to resell
such securities, such sale cannot proceed unless a registration statement has
been declared effective by the Securities and Exchange Commission or an
exemption from registration was available. Section 4(1) of the Act, which
exempts sales of securities not involving a distribution, would in all
likelihood be available to permit a private sale. Although the plan of operation
does not contemplate resale of securities acquired, if such a sale were to be
necessary, the Company would be required to comply with the provisions of the
Act to effect such resale.
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An acquisition made by the Company may be in an industry which is
regulated or licensed by federal, state or local authorities. Compliance with
such regulations can be expected to be a time-consuming and expensive process.
Competition
The Company expects to encounter substantial competition in its efforts
to locate attractive opportunities, primarily from business development
companies, venture capital partnerships and corporations, venture capital
affiliates of large industrial and financial companies, small investment
companies and wealthy individuals. Many of these entities will have
significantly greater experience, resources and managerial capabilities than the
Company and will therefore be in a better position than the Company to obtain
access to attractive business opportunities. The Company also will experience
competition from other public "blind pool" companies, many of which may have
more funds available than does the Company.
Administrative Offices
The Company presently maintains its offices at 12543-A East Pacific
Circle, Aurora, Colorado 80014, the home of its Vice President. Its phone number
there is (303) 337-1033. The Company believes these facilities will be adequate
for its needs in the foreseeable future. The Company pays no rent for the use of
these facilities.
Employees
The Company is a development stage company and currently has no
employees, other than its officers. Management of the Company expects to use
consultants, attorneys and accountants as necessary, and does not anticipate a
need to engage any full-time employees so long as it is seeking and evaluating
business opportunities. The need for employees and their availability will be
addressed in connection with the decision whether or not to acquire or
participate in specific business opportunities. No remuneration will be paid to
the Company's officers except as set forth under the subheading "Remuneration"
in the "Management" section, and under "Certain Transactions with Management and
Others."
MANAGEMENT
The directors and executive officers currently serving the Company are
as follows:
Name Age Position Held and Tenure
---- --- ------------------------
John J. Micek III 37 President, Director
since April 27, 1990
Frank L. Kramer 47 Secretary, Treasurer,
Director since April 27, 1990,
Vice President since May 2, 1990
Donald R. McGahan 56 Director since
April 27, 1990
The directors named above will serve until the first annual meeting of
the Company's stockholders. Thereafter, directors will be elected for one-year
terms at the annual stockholders' meeting. Officers will hold their positions at
the pleasure of the board of directors, absent any employment agreement, of
which none currently exists or is contemplated. There are no family
relationships among the officers and directors. There is no arrangement or
understanding between any of the directors or officers of the Company and any
other
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person pursuant to which any director or officer was or is to be selected as a
director or officer. The directors and officers will devote their time to the
Company's affairs on an "as needed" basis, which, depending on the
circumstances, could amount to on average as little as five hours per month.
Biographical Information
John J. Micek III. Mr. Micek, the President and a director of the
Company, has been a director since February 1988 of Armanino Foods of
Distinction, Inc., formerly named Falcon Fund, Inc., a blind pool company
("Armanino - Colorado"), which completed a reverse acquisition of a Delaware
company ("Armanino - Delaware"). Mr. Micek has been a director of Armanino -
Delaware, which is engaged in the production and marketing of gourmet, upscale
specialty food products since May 1987, and has been a vice president of
Armanino - Delaware since September 1989. From February 1988 to December 31,
1988, he served as general counsel and chief financial officer for Armanino -
Colorado, and served in these capacities for Armanino - Delaware from May 1987
to December 31, 1988. Since January 1989, Mr. Micek has practiced law and
currently serves as a consultant to Armanino - Colorado on corporate finance
matters. Mr. Micek also serves as a financial consultant to Artanis, L.P., a
partnership which currently markets a line of celebrity gourmet food products.
From 1979 until December 1986, Mr. Micek served as corporate counsel and as
assistant to the president of G. Armanino & Son, Inc. and Armanino Farms of
California, which were engaged in the international food marketing business. Mr.
Micek has also served as vice president, treasurer and a director of Laguna
Capital Corporation, a Colorado based "blind pool" company, from April 1986
until February 1988, and as vice president, treasurer and a director of Capital
Equity Resources, Inc. ("CER"), also a Colorado-based "blind pool" company, from
January 1986 until August 1986. After CER completed a reverse acquisition in
August 1986, it changed its name to Asha Corporation. Mr. Micek remained as a
director of Asha Corporation until June 1989. He also has served as a director
of Universal Group Insurance Companies, an Omaha, Nebraska-based insurance
company, since 1982, and as a director of Cole Publishing Company, an
educational publisher, located in Santa Rosa, California, since March 1990. He
was Western Finance Coordinator for the 1984 Presidential Campaign of Walter
Mondale. He received a Bachelor of Arts Degree in History from the University of
Santa Clara in 1974 and a Juris Doctorate from the University of San Francisco
School of Law in 1979. Mr. Micek presently devotes only as much time as is
necessary as an officer of the Company.
Frank L. Kramer. Mr. Kramer, the Vice President, Secretary, Treasurer
and a director of the Company, served as president and a director of Fi-Tek
Corp., a blind pool company headquartered in Aurora, Colorado, from 1984 until
1987 when it acquired Boston Technology, Inc. and moved its operations to
Cambridge, Massachusetts. From May 1987 to November 1988, Mr. Kramer served as
president, treasurer and the chairman of the board of Fi-Tek II, Inc., a blind
pool company headquartered in Aurora, Colorado, until it acquired On Line
Communications, Inc. and moved its operations to San Jose, California. The
company has since changed its name to On Line Network, Inc. Mr. Kramer has also
served since November 1988 as the president, treasurer and a director of Fi-Tek
III, Inc., a Delaware-chartered "blind pool" corporation which successfully
completed an offering of securities in September 1989, and from February 1987
until December 1989, he was also the treasurer and a director of Bluestone
Capital Corp., a Colorado "blind pool" corporation which successfully completed
an offering of securities in November 1988 and which moved its operations to
Braintree, Massachusetts after acquiring Dialogue, Inc. in December 1989. Mr.
Kramer also serves as president, treasurer and a director of Fi-Tek IV, Inc., a
Delaware-chartered "blind pool" corporation which is currently conducting an
offering of securities. See "Prior Blind Pool Activities." Mr. Kramer was
affiliated with New York Life Insurance Company ("New York Life") from 1968
through 1981 and was engaged in sales, sales management, and estate planning.
From 1973 through 1981, he was General Manager of two of that company's general
offices. From 1981 to early 1983, he was engaged in sales for a privately held
oil and gas concern. He became a Chartered Life Underwriter in 1972. From 1983
until rejoining New York Life in December 1987, where he currently is employed
as an agent and recruiter, Mr. Kramer was self-employed as a private financial
consultant in the Denver, Colorado area, assisting businesses in arranging
interim financing for their business operations, through private and commercial
borrowings. He has also been engaged in the structuring and implementing of
private financing for the oil and gas and commercial real estate industries.
From 1983 to 1985 Mr. Kramer was
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a director of Micromedical Devices, Inc., a public company headquartered in
Denver, Colorado. From 1986 until March of 1987, he was an employee and a
director of Optimum Manufacturing, Inc., a public company engaged in
manufacturing in Denver, Colorado. He obtained a B.S. Degree in Business
Administration from Louisiana State University in 1964.
Donald R. McGahan. Mr. McGahan, a director of the Company, currently
serves as a senior vice president and Eastern regional manager for Smith,
Mitchell & Associates, Inc. ("Smith Mitchell"), an NASD registered firm engaged
in public finance activities and headquartered in Seattle, Washington with
offices in four U.S. cities, including Boca Raton, Florida, which is the office
out of which Mr. McGahan has carried out his duties since joining the firm in
October 1989. From May 1989 until October 1989, Mr. McGahan served as senior
vice president of R.W. Smith & Associates, Inc., a municipal bond brokerage,
also located in Boca Raton, Florida. From October 1987 until May 1989, Mr.
McGahan served as senior vice president and a manager for Harry Downs & Co.
Municipal Brokers, located in Boca Raton, Florida. Mr. McGahan served as senior
vice president of MKI Securities Corp., located in New York City, from March
1985 to September 1987 where he established and managed a serial bond revenue
desk, and from October 1981 to March 1985, he was senior vice president and a
principal of Vierling, Devaney & Maguire, Inc., a New York City municipal bond
firm, which merged with MKI Securities Corp. in 1985. From June 1980 to October
1981, Mr. McGahan served as the president and chief executive officer of George
B. Gibbons & Co., a subsidiary of Carroll, McEntee, McGinley, a dealer in U.S.
government securities, located in New York City. Mr. McGahan was also an outside
director of CM&M Securities, a member firm of the New York Stock Exchange and a
subsidiary of Carroll, McEntee, McGinley, from October 1980 until October 1981.
From 1960 to June 1980, Mr. McGahan worked in the municipal bond department of
Fahnestock & Co., a member firm of the New York Stock Exchange, where he was
promoted to manager in 1968 and became a partner in 1969. Mr. McGahan holds the
following NASD licenses: Municipal Securities Representative, Municipal
Securities Principal, Registration/General Securities Representative, and
General Securities Principal. Mr. McGahan obtained a B.A. degree in history and
political science from Villanova University in 1955. He served in the United
States Navy in various capacities from 1956 until 1978 at which time he retired
with the rank of Commander.
Remuneration
The directors and officers will devote their time to the Company's
affairs on an "as needed" basis, which, depending on the circumstances, will
likely amount to on average as little as five hours per month spent each by Mr.
Micek and Mr. McGahan, and on average twenty hours per month spent by Mr.
Kramer. Commencing after completion of this offering, each of the Company's two
officers will be compensated at a rate of $45 per hour for time devoted to the
affairs of the Company, in excess of five hours per month, limited only by a cap
of $1,500 per month and a total cap on each officer's salary of $4,500 during
the Company's first year of operation. As stated previously, it is not expected
that any one of the officers will devote time each month that will entitle each
to draw a salary up to the maximum amount of $1,500 per month.
Following completion of this offering and until the Company acquires
sufficient capital through means other than this offering, it is not intended,
except as provided in the previous paragraph, that any officer or director will
receive compensation from the Company for performance of duties as an officer or
director other than reimbursement for out-of-pocket expenses incurred on behalf
of the Company or a finder's fee, as discussed below in "Certain Transactions
with Management and Others."
Indemnification of Officers and Directors
As permitted by Delaware law, the Company's Certificate of
Incorporation provides that the Company will indemnify its directors and
officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil or criminal action brought against them on account of their
being or having been Company directors or officers unless, in any such action,
they are adjudged to have acted with gross negligence or willful misconduct.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors,
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officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in that Act and is, therefore, unenforceable.
Exclusion of Liability
Pursuant to the Delaware General Corporation Law, the Company's
Certificate of Incorporation excludes personal liability for its directors for
monetary damages based upon any violation of their fiduciary duties as
directors, except as to liability for any breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, acts in violation of Section 174 of the Delaware General
Corporation Law, or any transaction from which a director receives an improper
personal benefit. This exclusion of liability does not limit any right which a
director may have to be indemnified and does not affect any director's liability
under federal or applicable state securities laws.
PRIOR BLIND POOL ACTIVITIES
John J. Micek III, the Company's President and a director, previously
served as vice president, treasurer and a director of Capital Equity Resources,
Inc. ("CER"), a development stage company that conducted a blind pool offering.
CER closed its public offering on May 8, 1986, and raised a total of $200,000 in
gross proceeds by selling 20,000,000 Units at $.01 per Unit. During August 1986,
CER completed a reverse acquisition of ASHA, Inc. ("ASHA") by which CER acquired
100% of ASHA in exchange for approximately 92.4% of the outstanding shares of
CER. ASHA was engaged in the development of a full-time four wheel drive, four
passenger utility automobile which was being developed around a new automotive
architecture invented by ASHA's President, Alain Clenet. ASHA was a newly formed
company and had no operations prior to the acquisition. Mr. Micek did not
dispose of any of his stock holdings in CER or receive any compensation from CER
or from ASHA in connection with the ASHA acquisition. Upon his resignation as a
director of ASHA in June 1989, Mr. Micek received shares of stock in ASHA which
represented less than five percent of the total shares outstanding.
Mr. Micek also previously served as vice president, treasurer, and a
director of Laguna Capital Corp. ("Laguna"), which closed its public offering
during September 1986, with total proceeds raised of $200,000 by selling
20,000,000 units at $.01 per unit. In February 1988, Laguna completed a reverse
acquisition of Sporting Life, Inc. ("Sporting Life") whereby Laguna acquired
100% of the outstanding shares of Sporting Life in exchange for approximately
90% of the outstanding shares of Laguna. Sporting Life distributes and sells
golf and tennis equipment and supplies for domestic and foreign manufacturers
through its Las Vegas Discount Golf and Tennis franchises and mail order
business. Laguna/Sporting Life has changed its name to Las Vegas Discount Golf &
Tennis, Inc. All of the officers and directors of Laguna resigned effective as
of the closing of the acquisition. Mr. Micek did not receive any compensation
from Laguna or Sporting Life and did not dispose of any of his stock holdings in
Laguna in connection with the Sporting Life acquisition.
Frank L. Kramer, the Company's Vice President, Secretary, Treasurer and
a director, previously served as a director and as president of Fi-Tek Corp.
("Fi-Tek"), a blind pool company. Fi-Tek initiated its public offering on April
2, 1986 and closed the offering on June 11, 1986, with total proceeds of
$250,000 upon sale of 12,500,000 units (consisting of common stock and common
stock purchase warrants), at a price of $.02 per unit, which constituted all
units offered.
During January 1987, Fi-Tek completed a reverse acquisition
(stock-for-stock exchange). It acquired Boston Technology, Inc. ("Boston"), a
Delaware corporation based in Cambridge, Massachusetts, which is engaged in the
design, manufacture and marketing of computer-based telecommunications systems
commonly known as "voice messaging systems." Fi-Tek issued 98,000,000 restricted
shares of its common stock in exchange for all the outstanding capital stock of
Boston, which shares represented 80% of Fi-Tek's issued and outstanding common
stock following the acquisition. Mr. Kramer, who still owns stock in Fi-Tek and
who resigned as a director and officer of Fi-Tek as of January 31, 1987,
received, as total compensation from Fi-Tek, a consulting
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fee of $1,000. Mr. Kramer did not dispose of any of his stock holdings in Fi-Tek
as part of the acquisition of Boston.
Frank L Kramer previously served also as a director and as president
and treasurer of Fi-Tek II, Inc. ("Fi-Tek II"), a blind pool company. Fi-Tek II
initiated its public offering on March 10, 1988 and closed the offering in July
1988, with total proceeds of $216,211.78 upon sale of 10,810,589 units
(consisting of common stock and common stock purchase warrants), at a price of
$.02 per unit. During November 1988, Fi-Tek II completed a reverse acquisition
(stock-for-stock exchange). It acquired On Line Communications, Inc. ("On
Line"), a California corporation based in San Jose, California, which is an
Alternate Operator Services (AOS) provider of long distance telephone services
for persons making credit card, collect call and third party billing telephone
calls. Fi-Tek II issued 95,442,356 restricted shares of its common stock in
exchange for all the outstanding capital stock of On line, which shares
represented 80% of Fi-Tek II's issued and outstanding common stock following the
acquisition. Mr. Kramer, who currently owns stock in Fi-Tek II and resigned all
his positions with Fi-Tek II as of October 1988, has not received any
compensation from the Company other than a consulting fee of $5,000. Mr. Kramer
did not dispose of any of his stock holdings in Fi-Tek II as a part of the
acquisition of On Line.
Frank L. Kramer currently serves as president, treasurer and as a
director of Fi-Tek III, Inc. ("Fi-Tek III"), a blind pool company. Fi-Tek III
initiated its public offering on May 26, 1989 and closed the offering on
September 12, 1989, with total proceeds of $500,000 upon the sale of 25,000,000
Units (consisting of common stock and common stock purchase warrants), at a
price of $.02 per unit, which constituted all the units offered. The company is
currently implementing its business plan by investigating and evaluating
business opportunities. Mr. Kramer, who currently owns stock of Fi-Tek III, has
received total compensation of $5,000 as a result of his position with Fi-Tek
III.
Mr. Kramer also served from February 1987 until December 1989 as a
director and as secretary and treasurer of Bluestone Capital Corp.
("Bluestone"), a blind pool company. Bluestone initiated its public offering on
July 13, 1988 and closed the offering on November 14, 1988, with total proceeds
of $150,000 upon sale of 1,500,000 units (consisting of common stock and common
stock purchase warrants), at a price of $.10 per unit, which constituted all
units offered. During December 1989, Bluestone incorporated a wholly owned
subsidiary for the purpose of merging it into Dialogue, Inc., a Delaware
corporation ("Dialogue") and in connection therewith, all of the outstanding
stock of Dialogue was converted into 30,000,000 shares of Bluestone's common
stock, which shares represented 80% of Bluestone's issued and outstanding common
stock following the reorganization. Dialogue, Inc., which is a voice mail
systems distributor located in Braintree, Massachusetts, in December 1989,
became a wholly owned subsidiary of Bluestone. Mr. Kramer, who currently owns
stock in Bluestone and resigned all his positions with Bluestone in December
1989, has not received any compensation from the company. Mr. Kramer did not
dispose of any of his stock holdings in Bluestone as a part of the
reorganization with Dialogue.
Mr. Kramer's positions in Fi-Tek III and Fi-Tek IV create the potential
for conflicts of interest with the Company, especially should one or more of
those companies happen to be seeking a business opportunity at the same time
that the Company is seeking such an opportunity. See "Potential Conflicts of
Interest."
Mr. McGahan has not previously participated in any "blind pool"
offerings.
POTENTIAL CONFLICTS OF INTEREST
Initially, none of the officers of the Company will devote more than a
portion of his time to the affairs of the Company. See "Management." All of the
officers have employment outside of the Company. There will be occasions when
the time requirements of the Company's business conflict with the demands of the
officers' other employment. In this event, such conflicts may require that the
Company attempt to employ additional personnel. There is no assurance that the
services of such persons will be available or that they can be obtained upon
terms favorable to the Company.
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Frank L. Kramer, Vice President, Secretary, Treasurer and a director of
the Company, is also an officer and director of two Denver, Colorado, based
development stage corporations, one of which is in the process of conducting a
public offering of securities, and the second of which, Fi-Tek III, completed a
$500,000 offering in August 1989. See "Prior Blind Pool Activities." Should the
Company complete the offering made by this Prospectus before Fi-Tek III or
Fi-Tek IV acquire a business opportunity, the Company would be in direct
competition with those companies for available opportunities.
While Mr. Kramer will attempt to resolve any such conflicts in the
Company's favor, there is no assurance that his efforts to that end will be
successful The Company has not adopted any policy to deal with the conflicts of
interest that are likely to arise from Mr. Kramer's involvement in other blind
pool companies. The resolution of such conflicts is to be made, if at all, only
by the exercise of such business judgment as is consistent with Mr. Kramer's
fiduciary duties to the Company and to the other blind pool companies of which
he is an officer or a director.
The Company's officers, directors, and other management personnel are
subject to the doctrine of corporate opportunities only insofar as it applies to
business opportunities in which the Company has indicated an interest, either
through its proposed business plan or by way of an express statement of
interest, contained in the Company's minutes. No such indication of interest has
yet been declared. If such areas are delineated, all business opportunities
within each area of interest which come to the attention of the officers,
directors and key management personnel of the Company must be promptly disclosed
to the Board of Directors and made available to the Company. In the event the
Board shall reject an opportunity so presented, any of the Company's officers,
directors, or key management personnel may avail himself of such opportunity.
Every effort will be made to resolve any conflicts which may arise in favor of
the Company. There can be no assurance, however, that these efforts will be
successful.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Prior to the date of this Prospectus, the Company issued to its
officers, directors, and others a total of 7,300,000 shares of Common Stock for
a total of $16,000 in cash and services, or an average of $.0022 per share.
Certificates evidencing the Common Stock issued by the Company to these persons
have all been stamped with a restrictive legend, and are subject to stop
transfer orders by the Company. For additional information concerning
restrictions that are imposed upon the Common Stock held by current
stockholders, and the responsibilities of such stockholders to comply with
federal securities laws in the disposition of such Common Stock, see "Risk
Factors - The Offering -- Possible Rule 144 Sales."
No officer, director, promoter, or affiliate of the Company has or
proposes to have any direct or indirect material interest in any asset proposed
to be acquired by the Company through security holdings, contracts, options, or
otherwise.
The Company has adopted a policy wherein any consulting or finder's fee
paid will be paid to a third party for consulting services on an ad hoc basis,
to assist management in evaluating a prospective business opportunity. Such
consulting or finder's fees may be paid to officers, directors or affiliates of
the Company.
The Company maintains its offices at the residence of its Vice
President, for which it pays no rent, and for which it does not anticipate
paying rent in the future. The Company anticipates that following the
consummation of a business combination with an acquisition candidate, the
Company's office will be moved, but cannot predict future office or facility
arrangements with officers, directors or affiliates of the Company.
The Company may enter into an agreement with an acquisition candidate
requiring the sale of all or a portion of the Common Stock held by the Company's
current stockholders to the acquisition candidate or principals thereof, or to
other individuals or business entities, or requiring some other form of payment
to the Company's current stockholders, or requiring the future employment of
specified officers and payment of salaries to them. It is more likely than not
that any sale of stock by the Company's current stockholders to an acquisition
24
<PAGE>
candidate would be at a price substantially higher than that originally paid by
such stockholders. Any payment to current stockholders in the context of an
acquisition involving the Company would be determined entirely by the largely
unforeseeable terms of a future agreement with an unidentified business entity.
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock owned of record and beneficially by officers,
directors and persons presently holding 5.0% or more of the outstanding Common
Stock of the Company. Also included are the shares held by all officers and
directors as a group. The table further shows the effect on ownership resulting
from the sale of both the minimum number of Units (1,500,000) and the maximum
number of Units (3,000,000), without giving effect to the Warrants included in
the Units.
<CAPTION>
Percent of Class Owned
Owned ------------------------------------
Benifically Before Before After After
Name and Address Offering Offering Minimum(1) Maximum(1)
- ---------------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
John J. Micek III* 1,200,000 16.4% 13.6% 11.7%
430 Cowper St.
Palo Alto, CA 94301
Frank L. Kramer* 1,200,000 16.4% 13.6% 11.7%
12543-A E. Pacific Circle
Aurora, CO 80014
Donald R. McGahan* 1,200,000 16.4% 13.6% 11.7%
c/o Smith Mitchell & Assoc.
980 N. Federal Hwy #206
Boca Raton, FL 33432
Keith A. Koch 1,200,000 16.4% 13.6% 11.7%
9171 Towne Centre Dr. #365
San Diego, CA 92122
Kenneth L. Maul 1,200,000 16.4% 13.6% 11.7%
5160 S. Valley View Blvd. #106
Las Vegas, NV 89118
* All directors 3,600,000 49.3% 40.9% 35.0%
and officers (3 persons)
<FN>
- ---------------------------
(1) The figures shown do not take into account the Common Stock that the
listed persons may purchase in this offering. No arrangements for any
such purchases have been made and the Company does not anticipate any
future arrangements whereby shares of the offering are reserved for
sale to such persons.
</FN>
</TABLE>
25
<PAGE>
DESCRIPTION OF SECURITIES
Units
Each Unit offered consists of one share of the Company's $.00001 par
value Common Stock, one Class A Common Stock Purchase Warrant, one Class B
Common Stock Purchase Warrant and one Class C Common Stock Purchase Warrant.
Units will be evidenced by Common Stock and Warrant certificates, and will be
mailed to purchasers as soon as practicable following the closing of the
offering.
Common Stock
The Company's Certificate of Incorporation authorizes the issuance of
100,000,000 shares of Common Stock with a par value of $.00001. Each record
holder of Common Stock is entitled to one vote for each share held on all
matters properly submitted to the stockholders for their vote. Cumulative voting
for the election of directors is not permitted by the Certificate of
Incorporation.
Holders of outstanding shares of Common Stock are entitled to those
dividends declared by the Board of Directors out of legally available funds;
and, in the event of liquidation, dissolution or winding up of the affairs of
the Company, holders are entitled to receive, ratably, the net assets of the
Company available to stockholders after distribution is made to the preferred
stockholders, if any, who are given preferred rights upon liquidation. Holders
of outstanding shares of Common Stock have no preemptive, conversion or
redemptive rights. All of the issued and outstanding shares of Common Stock are,
and all unissued shares when offered and sold will be, duly authorized, validly
issued, fully paid and nonassessable. To the extent that additional shares of
the Company's Common Stock are issued, the relative interests of then existing
stockholders may be diluted.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of preferred stock, $.00001 par value. The Board of Directors
of the Company is authorized to issue the preferred stock from time to time in
series and is further authorized to establish such series, to fix and determine
the variations in the relative rights and preferences as between series, to fix
voting rights, if any, for each series, and to allow for the conversion of
preferred stock into common stock. No preferred stock has been issued by the
Company. The Company anticipates that preferred stock may be utilized in making
acquisitions.
Warrants
The Warrants being offered as part of the Units will be in registered
form and will be issued pursuant to a Unit Warrant Agreement, dated the same
date as this Prospectus, between the Company and the Warrant Agent named below.
The following information is only a summary of that agreement and is qualified
in its entirety by the provisions of that agreement. Upon issuance, the Warrants
will be detachable and may be separately traded in the over-the-counter market,
if any market for the Warrants should develop.
Exercise Price and Periods. Subject to redemption by the Company and to
the current Registration Statement requirement, both of which limitations are
described below, each Class A Warrant is exercisable for one share of Common
Stock commencing with the date of this Prospectus and terminating on the second
anniversary of such date, at a price of $.30 per share. Each Class B Warrant is
exercisable for one share of Common Stock at a price of $.75 per share
commencing with the date of this Prospectus and terminating on the second
anniversary of such date. Each Class C Warrant is exercisable for one share of
Common Stock at a price of $1.30 per share commencing with the date of this
Prospectus and terminating on the second anniversary of such date. The Warrant
expiration dates (and the period during which the Warrants are exercisable) may
be extended indefinitely, or the exercise price thereof reduced, at the
discretion of the Company, upon giving written notice to the Warrant Agent and
the warrantholders.
26
<PAGE>
Manner of Exercise. Class A, Class B and Class C Warrants may be
exercised by surrender of the Warrant to the Warrant Agent with appropriate
instructions accompanied by payment of the full purchase price for the Common
Stock underlying each Warrant being exercised. Payment of the purchase price
must be made in United States funds payable to the Company. The Warrant and
payment therewith must reach the Warrant Agent on or before the expiration date
(or the earlier redemption date, as provided in the next paragraph) of the
Warrant.
Redemption of the Warrants. The Warrants shall be subject to redemption
by the Company as follows:
(a) Subject to the limitations set forth below in this subparagraph
(a), all, but not less than all, of the Class A Warrants and, in addition or in
the alternative, all, but not less than all, of the Class B Warrants and, in
addition or in the alternative, all, but not less than all, of the Class C
Warrants may be called for redemption by the Company, at a redemption price of
$.0001 per Warrant, at any time prior to the declaration by the Securities and
Exchange Commission of the effectiveness of a post-effective amendment to the
Registration Statement of which this Prospectus is a part, without prior written
notice to the registered holders of the Warrants and without any right on the
part of the holders of the Warrants to exercise their purchase rights prior to
the redemption date. Upon redemption, the warrantholder will receive only the
redemption price and will forfeit his right to purchase the Common Stock
underlying the Warrants. The warrantholder shall be entitled to receive the
redemption price provided above only if the warrantholder delivers a written
request for such payment, accompanied by the warrant certificate representing
the Warrants to be redeemed, to the Company's warrant agent within 30 days after
the warrantholder shall have been notified that the applicable class or classes
of Warrants have been redeemed in accordance with this subparagraph (a). Because
the Warrants may be exercised only so long as this Prospectus remains current or
after a post-effective amendment shall have been declared effective by the
Commission, a redemption of the Warrants pursuant to this subparagraph (a) will
mean that the warrantholder shall never have received an opportunity to exercise
the Warrants following the acquisition of a business opportunity by the Company.
The Company's right to redeem the Warrants in accordance with this subparagraph
(a) may be exercised, however, only in the event that management of a business
opportunity that is the target of a business combination with the Company shall
have required, in writing, that the redemption of the Warrants shall be a
condition precedent to the consummation of the business combination between the
Company and the target company. The redemption is to become effective only upon
the closing of such a business combination. Should the contemplated business
combination fail to close, the redemption shall be void and the exercisability
of the Warrants covered by the redemption shall not be affected. The failure of
one or more business combinations to close shall not, however, impair the
Company's right to redeem Warrants under this subparagraph (a) if the Company
enters into arrangements for a subsequent business combination featuring the
warrant-redemption condition described above in this subparagraph (a). To the
extent that the management of a business opportunity that consummates a business
combination with the Company does not require redemption of Warrants as a
condition of closing, the right of the Company to redeem Warrants under this
subparagraph (a) shall be extinguished. Redemption of only one class of Warrants
pursuant to this subparagraph (a) shall not affect the exercisability of the
other classes of Warrants.
(b) In addition to the redemption mechanism described in subparagraph
(a), above, all or any number of the Warrants can be called for redemption at a
redemption price of $.0001 per Warrant by the Company at any time during their
exercise term upon a minimum of thirty (30) days' prior written notice mailed to
the registered holders of the Warrants, subject to the right of the holders of
the Warrants to exercise their purchase rights between the date of any notice of
redemption up to and including the redemption date given by the Company. The
notice period may be extended, at the discretion of the Company, upon giving
subsequent notice to the Warrant Agent and to registered holders of the
Warrants. Any holder who does not exercise his Warrants prior to the date set
for call will receive only the redemption price and will forfeit his right to
purchase the Common Stock underlying the Warrants. Warrantholders who do not
exercise their Warrants during the redemption period will receive the redemption
price only if the Warrants are received by the Warrant Agent prior to expiration
of the redemption period.
27
<PAGE>
Limitations Upon Exercise or Redemption. The Warrants may not be
exercised or redeemed, except under circumstances set forth in subparagraph (a)
of the preceding paragraph, unless the Company maintains a current Registration
Statement in effect during the respective exercise or redemption periods of the
Warrants. The Company will use its best efforts to file post-effective
amendments to its Registration Statement, if needed, to keep information on the
Company current during the period during which the Warrants may be exercised or
redeemed. However, the Company will have no obligation to keep the Registration
Statement current when the market bid price for the Company's Common Stock is
below the exercise price of the Warrants. The Common Stock issuable upon the
exercise of the Warrants cannot be sold in various states without qualifying the
Common Stock under state law and the Company may find it impractical or
impossible to so qualify the Common Stock in those states where it does not
initially qualify this offering. Investors should be aware that certain
exemptions from registration under state law for the exercise of the Warrants,
otherwise available to the Company, may not be available with respect to
exercise of Warrants by those warrantholders who have disposed of all their
shares of common stock. Warrantholders who are residents of states in which the
Company does not qualify the Common Stock underlying the Warrants for sale will
have no choice but either to sell their Warrants or to let them expire.
Rights of Warrantholders. Holders of the Warrants will have no voting
rights, and will not be entitled to dividends. In the event of liquidation,
dissolution or winding up of the affairs of the Company, holders of the Warrants
will not be entitled to participate in any liquidation distribution. Holders of
Warrants are protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock dividends, stock
splits or reclassifications of the Company's Common Stock. Stockholders should
be aware that the Division of Market Regulation of the Commission has taken the
position that where an issuer materially reduces the exercise price of
outstanding warrants for a specified period of time during the remaining term of
the warrants, and warrantholders are therefore required to make a decision
whether to tender their warrants to the issuer in exchange for another security,
then the warrantholders should be provided with adequate information with
respect to the offer in compliance with Rule 13e-4 (the "Rule"). In the event
the Rule is deemed to be applicable to a particular action taken by the Company,
compliance with the Rule may require the filing of an appropriate schedule under
that Rule and distribution of an offering circular to warrantholders with
appropriate disclosures.
Effect of Warrants. For the life of the Warrants, warrantholders have
the opportunity to profit from a rise in the market value of the Common Stock of
the Company, if any, at the expense of the Common Stockholders. A warrantholder
may be expected to exercise Warrants at a time when the Company, in all
likelihood, would be able to obtain equity capital, if it so desires, by a
public sale of a new Common Stock offering on terms more favorable than those
provided in the Warrants. Exercise of the Warrants will dilute the equity
interest of other stockholders in the Company.
Warrant Solicitation Fees. The Company may employ selected brokers
and/or dealers to solicit the exercise of Warrants on its behalf. The Company
may pay such brokers and dealers a Warrant solicitation fee of up to 3% of the
gross proceeds received from the exercise of Warrants originated by or from the
broker's or dealer's office. No such fees will be paid if (i) the exercise of
the Warrants is made at a time when the market price of the Company's Common
Stock is lower than the exercise price of the Warrants, (ii) the Warrants to be
exercised are held in a discretionary account, (iii) the solicitation of the
exercise of such Warrants would violate Rule l0b-6 promulgated under the
Securities Exchange Act of 1934, as amended, (iv) the brokers or dealers failed
to notify the Company in writing at least 10 calendar days prior to commencement
of such solicitation, (v) disclosure of compensation arrangements was not made
in documents provided to customers both as part of the original offering and at
the time of exercise, or (vi) the exercise of the Warrants is the result of an
unsolicited transaction.
Transfer and Warrant Agent
American Securities Transfer, Inc., 1825 Lawrence Street, Suite 444,
Denver, Colorado 80202, will act as the Transfer Agent and Warrant Agent for the
Common Stock and Warrants of the Company.
28
<PAGE>
Reports to Stockholders
The Company plans to furnish its stockholders for each fiscal year with
an annual report containing financial statements audited by its independent
certified public accountants. In the event the Company enters into a business
combination with another company, it is the present intent of management to
continue furnishing annual reports to stockholders. Additionally, the Company
may, in its sole discretion, issue unaudited quarterly or other interim reports
to its stockholders when it deems appropriate. The Company intends to comply
with the periodic reporting requirements of the Securities Exchange Act of 1934
for so long as it is subject to those requirements.
TERMS OF OFFERING
This offering is being conducted by the Company and is not being
underwritten. The Units offered hereby are being offered on behalf of the
Company by the officers, directors, and affiliates of the Company. No
underwriting discounts or commissions will be paid to such persons, although
their out-of-pocket expenses will be reimbursed by the Company.
The Units are offered on a "best efforts, minimum-maximum" basis. All
proceeds from the sale of Units will be deposited into an escrow account at
Omnibank Aurora, located in Aurora, Colorado (the "Escrow Agent"), by not later
than noon of the next business day following receipt. No funds will be released
unless and until the minimum 1,500,000 Units have been sold. Unless proceeds
from the sale of the minimum number of Units have been deposited with the Escrow
Agent within 90 days following the date of this Prospectus (which period may be
extended for an additional 90 days at the Company's sole discretion) the
offering will be withdrawn and all monies received will be refunded by the
Escrow Agent, without deduction therefrom for offering costs or sales expenses,
if any, and without the payment of any interest thereon. If at least 1,500,000
Units are sold and the proceeds therefrom deposited within the period set forth
above, the offering will continue until the remaining 1,500,000 Units being
offered are sold, until 90 days from the date of this Prospectus (180 days if
extended), or until the Company determines to terminate the offering, whichever
event occurs first. During the offering period, investors will not have access
to their funds.
The Company expects to make sales of the Units to persons whom it
believes may be interested or who have contacted the Company to express an
interest in purchasing the Units. The Company may sell Units to such persons if
they reside in a state where the Units can lawfully be sold. The Company is not
obligated to sell any Units to any such person and will do so only to the extent
that such sales would not be inconsistent with a public distribution of the
Units.
Officers, directors, and affiliates of the Company may purchase in the
aggregate up to 20% of the Units sold in this offering. Neither the Company nor
any of its officers or directors will provide or otherwise arrange, either
directly or indirectly, financing for any such purchases and none of the
proceeds of this offering will be used, directly or indirectly, to fund or
otherwise to finance any such purchases.
To the extent that such persons purchase Units in the offering, the
number of Units required to be purchased by the general public in order to reach
the minimum amount for closing is reached will be reduced by a like amount.
Moreover, these purchases may be used in order to reach the minimum amount for
closing in the event the minimum is not reached as a result of purchases by the
general public. Consequently, this offering could close with a substantially
greater percentage of Common Stock being held by present stockholders and with
less participation by the public than would otherwise be the case.
Pricing of the Units
There is no public market for the Units or any of their component
securities and there is no assurance that a market will develop for such
following the offering. The offering price of the Units to be sold in the
offering was determined arbitrarily by the Company. In determining the offering
price and number of Units to
29
<PAGE>
be offered, the Company considered such factors as the financial condition of
the Company, its net tangible book value, lack of operating history and the
general condition of the securities markets.
Accordingly, the offering price set forth on the cover page of this
Prospectus should not be considered to be an indication of the actual value of
the Company. The price bears no relation to the Company's assets, book value,
lack of earnings or net worth, or any other traditional criteria of value.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, and no
such proceedings are known to be contemplated.
No director, officer or affiliate of the Company, and no owner of
record or beneficial owner of more than 5.0% of the securities of the Company,
or any associate of any such director, officer or security holder is a party
adverse to the Company or has a material interest adverse to the Company in
reference to pending litigation.
LEGAL MATTERS
The Company has been represented, and the legality of the securities
being offered hereby has been passed upon, by the firm of Pred and Miller,
Attorneys at Law, 501 South Cherry Street, Suite 500, Denver, Colorado 80222.
Three attorneys of that firm own a total of 500,000 shares of the Company's
outstanding Common Stock.
EXPERTS
The financial statements included in this Prospectus beginning at page
F-1 have been examined by Wenner, Silvestain and Company, Independent Certified
Public Accountants, as set forth in their report herein and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Denver Regional Office of the Securities
and Exchange Commission, Denver, Colorado, a Registration Statement on Form S-18
(herein, together with all amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended, regarding the Units being offered.
This Prospectus, filed as part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement. For further
information regarding the Company and the securities offered, reference is made
to the Registration Statement and the exhibits filed therewith. The Registration
Statement, including exhibits, may be inspected at the office of the Securities
and Exchange Commission, 410 Seventeenth Street, Suite 700, Denver, Colorado
80202, and at the Commission's principal office in Washington, D.C., without
charge. Copies of the Registration Statement, or any part thereof, may be
obtained from the Commission's principal office at 450 Fifth Street N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
30
<PAGE>
wenner, silvestain and company
Certified Public Accountants, 8101 East Prentice, Suite 600,
Englewood Colorado 80111-2935
Telephone (303) 771-5300 FAX (303) 771-7921
Stephen L. Wenner, CPA Bennie Silvestain, CPA Gary P. Saltzman, CPA
Lawrence L. Greenberg, CPA Barry H. Silvestain, CPA
INDEPENDENT AUDITORS' REPORT
Board of Directors
Catalina Capital Corp.
Aurora, Colorado
We have audited the accompanying balance sheet of Catalina Capital
Corp. (a development stage company) as of June 6, 1990, and the related
statements of operations, stockholders' equity and cash flows for the period
April 27, 1990 (inception) to June 6, 1990. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Catalina Capital
Corp. (a development stage company) as of June 6, 1990, and the results of its
operations and its cash flows for the period April 27, 1990 (inception) to June
6, 1990 in conformity with generally accepted accounting principles.
/s/ Wenner, Silvestain and Company
Englewood, Colorado
June 20, 1990
Member, American Institute of Certified Public Accountants
Member, The Colorado Society of Certified Public Accountants
Member, SEC Practice Section of the AICPA
Member, Private Companies Practice Section of the AICPA
F-1
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 6, 1990
------------
ASSETS
CURRENT ASSETS
Cash $ 10,791
--------
OTHER ASSETS
Organization costs, net of amortization 492
Deferred offering costs 5,385
--------
5,877
--------
TOTAL ASSETS $ 16,668
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 885
--------
STOCKHOLDERS' EQUITY
Preferred stock, $.00001 par value,
20,000,000 shares authorized --
Common stock, $.00001 par value,
100,000,000 shares authorized,
7,300,000 shares issued and outstanding 73
Additional paid in capital 15,927
(Deficit) accumulated during the development (217)
--------
Total Stockholders' Equity 15,783
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,668
========
The accompanying notes to financial statements are an integral part of these
statements.
F-2
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
------------------
REVENUES $ --
------------
EXPENSES
Amortization 8
General and administrative expenses 209
------------
Total Expenses 217
------------
NET (LOSS) $ (217)
===========
NET (LOSS) PER SHARE $ --
===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 7,300,000
===========
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
<TABLE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
------------------
<CAPTION>
Deficit
Common Stock Accumulated
----------------------- Additional During the
Preferred Number Par Paid In Development
Stock of Shares Value Capital Stage
----- --------- ----- ------- ------
<S> <C> <C> <C> <C> <C>
Common stock issued for cash April
27, 1990 at $.001 per share -- 5,000,000 $ 50 $ 4,950 $ --
Common stock issued for cash May
2, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash May
9, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash May
11, 1990 at $.01 per share 200,000 2 1,998 --
Common stock issued for cash May
14, 1990 at $.01 per share 200,000 2 1,998 --
Common stock issued for cash May
16, 1990 at $.004 per share 500,000 5 1,995 --
Common stock issued for cash May
16, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
18, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
25, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
29, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
30, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash May
31, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash June
6, 1990 at $.001 per share 200,000 2 198 --
Net (loss) for the period
ended June 6, 1990 -- -- -- (217)
--------- ---------- ------- ---------- --------
-- 7,310,000 $ 73 $ 15,927 $ (217)
========= ========== ======= ========== =========
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
CATALINA CAPITAL CORP
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
STATEMENT OF CASH FLOWS
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid to suppliers $ (209)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 16,000
Payment of deferred offering costs (4,500)
Payment of organization costs (500)
--------
Net Cash Provided by Financing Activities 11,000
--------
NET INCREASE IN CASH 10,791
CASH, Beginning of Period --
--------
CASH, End of Period $ 10,791
========
RECONCILIATION OF NET INCOME TO NET CASH (USED) BY OPERATING ACTIVITIES
NET (LOSS) $ (217)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities
Amortization 8
--------
NET CASH (USED) BY OPERATING ACTIVITIES $ (209)
========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Increase in accounts payable for deferred public offering costs is $885.
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</FN>
</TABLE>
F-5
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
---------------------
Note 1 - Summary of Significant Accounting Policies
Organization - The Company was organized as a Delaware corporation on
April 27, 1990. The Company intends to implement a business plan to
seek, investigate, and if warranted, acquire one or more business
properties.
Basis of Presentation - As of June 6, 1990, the Company was in the
development stage and was primarily engaged in raising capital.
Fiscal Year End - The Company has selected a March 31 fiscal year end
for its financial and tax reporting.
Note 2 - Public Offering
The Company intends to offer to the public a minimum of 1,500,000 to a
maximum of 3,000,000 units on a "best efforts, minimum-maximum" basis
at a sales price of $.10 per unit. Each unit consists of one (1) share
of the Company's $.00001 par value common stock and one (1) each Class
A, Class B, and Class C common stock purchase warrant.
This offering is being conducted by the Company and is not being
underwritten. The units offered hereby are being offered on behalf of
the Company by the officers, directors, and affiliates of the Company.
No underwriting discounts or commissions will be paid to such persons,
although their out-of-pocket expenses will be reimbursed by the
Company.
Deferred offering costs represent costs incurred with the proposed
offering of common stock to the public. In the event that the current
offering is successful, costs incurred will be charged against the
proceeds of the offering. If the offering is not successful, the costs
will be charged to operations.
Note 3 - Warrants
Subject to redemption by the Company and to the current Registration
Statement requirement, both of which limitations are described below,
each Class A warrant is exercisable for one share of common stock
commencing with the date of the prospectus and terminating on the
second anniversary of such date, at a price of $.30 per share. Each
Class B warrant is exercisable for one share of common stock at a price
of $.75 per share commencing with the date of the prospectus and
terminating on the second anniversary of such date. Each Class C
warrant is exercisable for one share of common stock at a price of
$1.30 per share commencing with the date of the prospectus and
terminating on the second anniversary of such date. The warrant
expiration dates may be extended indefinitely, or the exercise price
thereof reduced, at the discretion of the Company, upon giving written
notice to the warrant agent and the warrantholders.
F-6
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
---------------------
Note 3 - Warrants (Continued)
All of the Class A, Class B or Class C warrants may be called for
redemption by the Company, at a redemption price of $.0001 per warrant,
at any time prior to the declaration by the Securities and Exchange
Commission of the effectiveness of a post-effective amendment to the
Registration Statement of which the prospectus is a part, without prior
written notice to the registered holders of the warrants and without
any right on the part of the holders of the warrants to exercise their
purchase rights prior to the redemption date. The warrants may be
exercised only so long as the prospectus remains current or after a
post-effective amendment shall have been declared effective by the
Commission.
In addition, all or any number of the warrants can be called for
redemption at a redemption price of $.0001 per warrant by the Company
at any time during their exercise term upon a minimum of thirty (30)
days' prior written notice mailed to the registered holders of the
warrants, subject to the right of the holders of the warrants to
exercise their purchase rights between the date of any notice of
redemption up to and including the redemption date given by the
Company. The notice period may be extended, at the discretion of the
Company, upon giving subsequent notice to the warrant agent and to
registered holders of the warrants.
The Company may employ selected brokers and/or dealers to solicit the
exercise of Warrants on its behalf. The Company may pay such brokers
and dealers a warrant solicitation fee of up to 3% of the gross
proceeds received from the exercise of warrants originated by or from
the broker's or dealer's office.
Note 4 - Related Party Transactions
The Company presently maintains its offices at the home of its Vice
President for which it pays no rent.
The Company has paid its present securities counsel, Pred and Miller,
$5,000 to date for services rendered in connection with the public
offering of the Company's common stock. Three of the Company's
stockholders are partners in the law firm of Pred and Miller.
F-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 22. Indemnification of Officers and Directors
The Certificate of Incorporation and the Bylaws of the Company,
respectively flied as Exhibits (3.1) and (3.2), provide that the Company will
indemnify its officers and directors for costs and expenses incurred in
connection with the defense of actions, suits or proceedings where the officer
or director acted in good faith and in a manner he reasonably believed to be in
the Company's best interest and is a party by reason of his status as an officer
or director, absent a finding of negligence or misconduct in the performance of
duty.
Item 23. Other Expenses of Issuance and Distribution
Item Amount
- ----------------------------------- --------------------------------
Minimum Maximum
Registration Fee -- ------- -------
Securities and Exchange Commission ......... $1,837.50 $1,837.50
Printing .................................... 2,000* 2,000*
Transfer Agent's Fees ....................... 250* 250*
Printing of Certificates .................... 600* 600*
Legal Fees and Expenses ..................... 11,500* 11,500*
Accounting Fees ............................. 1,000* 1,000*
Blue Sky Fees and Expenses .................. 3,000* 3,000*
Miscellaneous Expenses ...................... 312.50* 312.50*
--------- ---------
Total .............................. $ 20,500* $ $20,500*
*Estimated
Item 24. Recent Sales or Unregistered Securities
<TABLE>
Since its inception, the Company has sold its Common Stock, $.00001 par
value, to the following persons and entities in transactions summarized as
follows:
<CAPTION>
Aggregate Purchase Price
Name of Purchaser Date of Sale Shares Purchase Price Per Share
- ----------------- ------------ ------ -------------- ---------
<S> <C> <C> <C> <C>
John J. Micek III 4/27/90 1,000,000 $1,000 $.001
Keith A. Koch 4/27/90 1,000,000 1,000 .001
Kenneth L. Maul 4/27/90 1,000,000 1,000 .001
Frank L. Kramer 4/27/90 1,000,000 1,000 .001
Donald R. McGahan 4/27/90 1,000,000 1,000 .001
Tony Acone 5/2/90 100,000 1,000 .01
Randel L. Perkins 5/9/90 100,000 1,000 .01
Glen Holt 5/11/90 200,000 2,000 .01
T. David Clemans 5/14/90 200,000 2,000 .01
II-1
<PAGE>
Ronald J. Miller 5/16/90 375,000 1,500 .004
Robert Neece 5/16/90 75,000 300 .004
Heather Anderson 5/16/90 50,000 200 .004
Donald R. McGahan 5/16/90 200,000 200 .001
John J. Micek III 5/18/90 200,000 200 .001
Frank L. Kramer 5/25/90 200,000 200 .001
Keith A. Koch 5/29/90 200,000 200 .001
Dennis Yamamoto 5/30/90 100,000 1,000 .01
Charles M. Cunningham 5/31/90 100,000 1,000 .01
Kenneth L. Maul 6/6/90 200,000 200 .001
</TABLE>
These sales were all made for cash and were made in reliance on the
exemption from registration offered by Section 4(2) of the Securities Act of
1933. The Company had reasonable grounds to believe immediately prior to making
an offer to the private investors for cash, and believed, when such
subscriptions were accepted, that such purchasers (1) were purchasing for
investment and not with a view to distribution, and (2) had such knowledge and
experience in financial and business matters that they were capable of
evaluating the merits and risks of their investment and were able to bear those
risks. The purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of registration.
An appropriate restrictive legend is noted on the certificates representing such
shares, and stop-transfer instructions have been noted in the Company's transfer
records. All such sales were effected without the aid of underwriters, and no
sales commissions were paid.
Item 25. Exhibits
The following Exhibits are filed as part of the Registration Statement.
Exhibit
No. Document
- ------- ------------------------------------------------------
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Form of Unit Warrant Agreement
4.2 Specimen Stock Certificate
4.3 Form of Specimen A Warrant Certificate
4.4 Form of Specimen B Warrant Certificate
4.5 Form of Specimen C Warrant Certificate
5.1 Opinion of Pred and Miller regarding legality
24.1 Consent of Wenner, Silvestain & Company
24.2 Consent of Pred and Miller (included in 5.1, opinion
regarding legality)
28.1 Form of Escrow Agreement
II-2
<PAGE>
Item 26. Undertakings
The undersigned registrant hereby undertakes:
(1) To provide at the closing, Stock Certificates and Warrants in such
denominations and registered in such names as required to permit prompt delivery
to each purchaser.
(2) Upon expiration of the Warrants, to deregister any shares of Common
Stock reserved for issuance upon exercise of any Warrants which expire
unexercised.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(4) With respect to the Warrants and the shares issuable upon the
exercise thereof, that (i) any prospectus revised to show the terms of offering
of such Warrants and/or shares (other than a transaction on a national
securities exchange), and (ii) any prospectus revised to comply with the
requirements of Section 10(a)(3) of the Securities Act of 1933, as amended, will
be filed as a post-effective amendment to the Registration Statement prior to
any offering thereof; and that the effective date of each such amendment shall
be deemed the effective date of the Registration Statement with respect to
securities sold after such amendment shall have become effective.
(5) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement, including, but not limited to, any
addition or deletion of a managing underwriter.
(6) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(7) To remove from registration, by means of a post-effective
amendment, any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-18 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Palo Alto, County of Santa Clara, State of
California on June 29, 1990.
CATALINA CAPITAL CORP.
By: /s/ John J. Micek III
--------------------------------------
John J. Micek III, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John J. Micek III President and June 29, 1990
- --------------------- a Director
John J. Micek III
/s/ Frank L. Kramer Vice President, June 29, 1990
- --------------------- Secretary, Treasurer,
Frank L. Kramer and a Director
/s/ Donald R. McGahan A Director June 29, 1990
- ---------------------
Donald R. McGahan
II-4
<PAGE>
================================================================================
As filed with the Securities and Exchange Commission on June 29,1990.
Registration No. 33- -D
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-18
REGISTRATION STATMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXHIBITS
for
CATALINA CAPITAL CORP.
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE>
CATALINA CAPITAL CORP.
EXHIBIT INDEX
Exhibit Page
No. Document No.
--- -------- ---
3.1 Certificate of Incorporation } missing
3.2 Bylaws } missing
4.1 Form of Warrant Agreement
4.2 Specimen Stock Certificate
4.3 Specimen A Warrant Certificate
4.4 Specimen B Warrant Certificate
4.5 Specimen C Warrant Certificate
5.1 Opinion of Pred and Miller
regarding legality
24.1 Consent of Wenner, Silvestain
and Company
24.2 Consent of Pred and Miller (Included
in Exhibit
5.1)
28.1 Form of Escrow Agreement
- -----------------------
<PAGE>
WARRANT NO. UW-A WARRANTS
CATALINA CAPITAL CORP.
(A Delaware Corporation)
CLASS A WARRANT CERTIFICATE
For the Purchase of Common Stock
Par Value $.00001 per Share
[CUSIP]
THIS CERTIFIES THAT, for value received,
("Warrantholder"), is the registered owner of the above indicated number of
Class "A" Warrants ("Warrants") of Catalina Capital Corp., a Delaware
corporation ("Company"), expiring on _______________ 19___, unless otherwise
called or extended ("Expiration Date"). Each Warrant entitles the Warrantholder
to purchase one (1) share of the common stock, par value $.00001 ("Common Stock"
or "Shares") of the Company, at a purchase price of $.30 per Share ("Exercise
Price"), at any time prior to the Expiration Date, upon surrender of this
Certificate with the exercise form on the reverse side hereof duly completed and
executed, accompanied by the Exercise Price, to American Securities Transfer,
Inc., ("Warrant Agent"), at 1825 Lawrence Street, Suite 444, Denver, Colorado,
80202. This Certificate and exercise of these Warrants will be subject to the
provisions of the Unit Warrant Agreement dated ___________, 19__ ("Warrant
Agreement"), between the Company and the Warrant Agent, to which provisions the
Warrantholder agrees by acceptance of this Certificate. The provisions of the
Warrant Agreement and those set forth on the reverse side of this Certificate
are fully incorporated by reference into this Certificate as if fully set forth
herein.
If all Warrants represented by this Certificate shall not have been duly
exercised on or before the Expiration Date, as it may be extended, those
unexercised Warrants shall expire and this Certificate shall become void. The
Expiration Date may be extended from time to time for an indefinite period, or
the Exercise Price may be reduced, at the discretion of the Company upon giving
notice thereof to the Warrant Agent and giving subsequent notice thereof to
holders of Warrants then listed on its books.
The Warrantholder may exercise all or any of the Warrants in the manner and
during the period above stated, but only for an even number of Shares if less
than all are exercised, upon due presentment of this Certificate to the Warrant
Agent. The Exercise Price must be paid in lawful money of the United States of
America, in cash or by personal check, bank check or certified check payable to
the order of the Company. If fewer than all the above number of Warrants are
exercised, the Warrant Agent shall execute and deliver to the Warrantholder a
new Class A Warrant certificate of like tenor evidencing the number of Warrants
not exercised. Should any or all the Warrants be assigned, then upon due
presentment of this Certificate by the assignee to the Warrant Agent accompanied
by payment of the sum of $10.00 per Class A Warrant certificate to be issued and
of all transfer taxes and other governmental charges due, if any, the Warrant
Agent shall transfer the Warrants assigned on the transfer books and shall
(subject to the Warrant Agreement) execute and deliver to the assignee a Class A
Warrant certificate of like tenor representing the number of Warrants assigned,
and if less than all the Warrants are assigned, execute and deliver to the
Warrantholder a Class A Warrant certificate of like tenor representing the
number of Warrants not assigned.
The Company may call these Warrants for redemption at any time, at the
price of $.0001 per Warrant, upon at least thirty days' prior written notice to
holders of Warrants then listed on its books. This notice shall accelerate the
Expiration Date, which shall become the last day of the redemption period, and
the Warrants may be exercised on or before the accelerated Expiration Date.
Warrants not exercised timely shall expire and this Certificate shall become
void. If the Warrantholder elects not to exercise the Warrants, the redemption
price will be paid only if this Certificate is tendered for redemption prior to
the accelerated Expiration Date. The redemption period (and the accelerated
Expiration Date) may be extended by the Company upon two days' written notice to
the Warrant Agent and giving subsequent notice thereof to holders of Warrants
then listed on its books.
The Warrants may be exercised, or redeemed in accordance with the
immediately preceeding paragraph, only if a current prospectus is then in
effect. The Company has undertaken to use its best efforts to maintain a current
prospectus at any time during which the market bid price for the Common Stock
exceeds the Exercise Price, but is not obligated to do so.
In addition, should management of a business opportunity that is the target
of a business combination with the Company require, as a condition to the
consummation of the business combination, that the Warrants be redeemed, the
Warrants may be called for redemption by the Company under the terms set forth
in the Section 7(a) of the Unit Warrant Agreement without prior written notice
to the registered holders of the Warrants and without any right on the part of
such holders to exercise the Warrants prior to redemption. The Company may
redeem the Warrants under these limited circumstances irrespective of whether a
current prospectus is then in effect.
These Warrants shll not entitle the Warrantholder to any of the rights of
stockholders or to any dividend declared upon the Common Stock unless the
Warrantholder shall have exercised these Warrants and purchased the Shares of
Common Stock prior to the record date fixed by the Board of Directors of the
Company for the determination of holders of Common Stock entitled to such
dividend or other right. Holders of Warrants are protected against dilution of
their interests represented by the underlying shares of Common Stock upon the
occurrence of stock dividends, stock splits or reclassifications of the Common
Stock, as provided in the Warrant Agreement.
This Certificate shall not be valid unless countersigned by the Warrant
Agent.
WITNESS the facsimile seal of the Company and the facsimile signatures of
its duly authorized officers.
Dated:
CATALINA CAPITAL CORP.
By:
John J. Micek, III - President
Frank L. Kramer - Secretary
Countersigned:
AMERICAN SECURITIES TRANSFER, INC.
By: ______________________________
Authorized Officer
<PAGE>
WARRANT SUBSCRIPTION FORM
CATALINA CAPITAL CORP.
12543-A East Pacific Circle
Aurora, Colorado 80014
Date: _____________________, 19___
The Undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase ____ shares of Common Stock of Catalina Capital Corp., called
for thereby, and hereby makes payment of $________________________ (at the rate
of $.30 per share of Common Stock) payable to Catalina Capital Corp., in payment
of the Exercise Price pursuant thereto and, if such number of shares shall not
be all of the shares purchasable hereunder, directs that a new Warrant
Certificate of like tenor for the balance of the remaining shares purchasable
hereunder be delivered to the undersigned at the address stated below. Please
issue the shares of Common Stock as to which this Warrant is exercised in
accordance with the instructions given below.
Signature: X __________________________
Signatures Guaranteed: X __________________________
By: ___________________________________
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name __________________________________________________________________________
(Print in Block Letters)
Address _______________________________________________________________________
Social Security Number _____________________
ASSIGNMENT
(To be executed by the registered Holder to effect
a transfer of the within Warrant:)
FOR VALUE RECEIVED, ___________________________________________, does
hereby sell, assign and transfer unto _____________________________________ the
right to purchase ______________________ shares of the Common Stock of the
Company evidenced by the within Warrant, and does hereby irrevocably constitute
and appoint _______________________________ attorney to transfer such right on
the books of the Company with full power of substitution in the premises.
premises.
Dated: __________________, 19____
Signature: X __________________________
Signature Guaranteed: X __________________________
By: ___________________________________
NOTICE: THE SIGNATURE TO THIS FORM TO ASSIGN MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN WARRANT IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A BANK, OTHER THAN A SAVINGS BANK, OR BY A TRUST COMPANY
OR BY A FIRM HAVING MEMBERSHIP ON A REGISTERED NATIONAL SECURITIES
EXCHANGE.
<PAGE>
WARRANT NO. UW-B WARRANTS
CATALINA CAPITAL CORP.
(A Delaware Corporation)
CLASS B WARRANT CERTIFICATE
For the Purchase of Common Stock
Par Value $.00001 per Share
[CUSIP]
THIS CERTIFIES THAT, for value received,
("Warrantholder"), is the registered owner of the above indicated number of
Class "B" Warrants ("Warrants") of Catalina Capital Corp., a Delaware
corporation ("Company"), expiring on _______________ 19___, unless otherwise
called or extended ("Expiration Date"). Each Warrant entitles the Warrantholder
to purchase one (1) share of the common stock, par value $.00001 ("Common Stock"
or "Shares") of the Company, at a purchase price of $.75 per Share ("Exercise
Price"), at any time prior to the Expiration Date, upon surrender of this
Certificate with the exercise form on the reverse side hereof duly completed and
executed, accompanied by the Exercise Price, to American Securities Transfer,
Inc., ("Warrant Agent"), at 1825 Lawrence Street, Suite 444, Denver, Colorado,
80202. This Certificate and exercise of these Warrants will be subject to the
provisions of the Unit Warrant Agreement dated ___________, 19__ ("Warrant
Agreement"), between the Company and the Warrant Agent, to which provisions the
Warrantholder agrees by acceptance of this Certificate. The provisions of the
Warrant Agreement and those set forth on the reverse side of this Certificate
are fully incorporated by reference into this Certificate as if fully set forth
herein.
If all Warrants represented by this Certificate shall not have been duly
exercised on or before the Expiration Date, as it may be extended, those
unexercised Warrants shall expire and this Certificate shall become void. The
Expiration Date may be extended from time to time for an indefinite period, or
the Exercise Price may be reduced, at the discretion of the Company upon giving
notice thereof to the Warrant Agent and giving subsequent notice thereof to
holders of Warrants then listed on its books.
The Warrantholder may exercise all or any of the Warrants in the manner and
during the period above stated, but only for an even number of Shares if less
than all are exercised, upon due presentment of this Certificate to the Warrant
Agent. The Exercise Price must be paid in lawful money of the United States of
America, in cash or by personal check, bank check or certified check payable to
the order of the Company. If fewer than all the above number of Warrants are
exercised, the Warrant Agent shall execute and deliver to the Warrantholder a
new Class B Warrant certificate of like tenor evidencing the number of Warrants
not exercised. Should any or all the Warrants be assigned, then upon due
presentment of this Certificate by the assignee to the Warrant Agent accompanied
by payment of the sum of $10.00 per Class B Warrant certificate to be issued and
of all transfer taxes and other governmental charges due, if any, the Warrant
Agent shall transfer the Warrants assigned on the transfer books and shall
(subject to the Warrant Agreement) execute and deliver to the assignee a Class B
Warrant certificate of like tenor representing the number of Warrants assigned,
and if less than all the Warrants are assigned, execute and deliver to the
Warrantholder a Class B Warrant certificate of like tenor representing the
number of Warrants not assigned.
The Company may call these Warrants for redemption at any time, at the
price of $.0001 per Warrant, upon at least thirty days' prior written notice to
holders of Warrants then listed on its books. This notice shall accelerate the
Expiration Date, which shall become the last day of the redemption period, and
the Warrants may be exercised on or before the accelerated Expiration Date.
Warrants not exercised timely shall expire and this Certificate shall become
void. If the Warrantholder elects not to exercise the Warrants, the redemption
price will be paid only if this Certificate is tendered for redemption prior to
the accelerated Expiration Date. The redemption period (and the accelerated
Expiration Date) may be extended by the Company upon two days' written notice to
the Warrant Agent and giving subsequent notice thereof to holders of Warrants
then listed on its books.
The Warrants may be exercised, or redeemed in accordance with the
immediately preceeding paragraph, only if a current prospectus is then in
effect. The Company has undertaken to use its best efforts to maintain a current
prospectus at any time during which the market bid price for the Common Stock
exceeds the Exercise Price, but is not obligated to do so.
In addition, should management of a business opportunity that is the target
of a business combination with the Company require, as a condition to the
consummation of the business combination, that the Warrants be redeemed, the
Warrants may be called for redemption by the Company under the terms set forth
in the Section 7(a) of the Unit Warrant Agreement without prior written notice
to the registered holders of the Warrants and without any right on the part of
such holders to exercise the Warrants prior to redemption. The Company may
redeem the Warrants under these limited circumstances irrespective of whether a
current prospectus is then in effect.
These Warrants shll not entitle the Warrantholder to any of the rights of
stockholders or to any dividend declared upon the Common Stock unless the
Warrantholder shall have exercised these Warrants and purchased the Shares of
Common Stock prior to the record date fixed by the Board of Directors of the
Company for the determination of holders of Common Stock entitled to such
dividend or other right. Holders of Warrants are protected against dilution of
their interests represented by the underlying shares of Common Stock upon the
occurrence of stock dividends, stock splits or reclassifications of the Common
Stock, as provided in the Warrant Agreement.
This Certificate shall not be valid unless countersigned by the Warrant
Agent.
WITNESS the facsimile seal of the Company and the facsimile signatures of
its duly authorized officers.
Dated:
CATALINA CAPITAL CORP.
By:
John J. Micek, III - President
Frank L. Kramer - Secretary
Countersigned:
AMERICAN SECURITIES TRANSFER, INC.
By: ______________________________
Authorized Officer
<PAGE>
WARRANT SUBSCRIPTION FORM
CATALINA CAPITAL CORP.
12543-A East Pacific Circle
Aurora, Colorado 80014
Date: _____________________, 19___
The Undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase ____ shares of Common Stock of Catalina Capital Corp., called
for thereby, and hereby makes payment of $________________________ (at the rate
of $.75 per share of Common Stock) payable to Catalina Capital Corp., in payment
of the Exercise Price pursuant thereto and, if such number of shares shall not
be all of the shares purchasable hereunder, directs that a new Warrant
Certificate of like tenor for the balance of the remaining shares purchasable
hereunder be delivered to the undersigned at the address stated below. Please
issue the shares of Common Stock as to which this Warrant is exercised in
accordance with the instructions given below.
Signature: X __________________________
Signatures Guaranteed: X __________________________
By: ___________________________________
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name __________________________________________________________________________
(Print in Block Letters)
Address _______________________________________________________________________
ASSIGNMENT
(To be executed by the registered Holder to effect
a transfer of the within Warrant:)
FOR VALUE RECEIVED, ___________________________________________, does
hereby sell, assign and transfer unto _____________________________________ the
right to purchase ______________________ shares of the Common Stock of the
Company evidenced by the within Warrant, and does hereby irrevocably constitute
and appoint _______________________________ attorney to transfer such right on
the books of the Company with full power of substitution in the premises.
premises.
Dated: __________________, 19____
Signature: X __________________________
Signature Guaranteed: X __________________________
By: ___________________________________
*****
NOTICE: THE SIGNATURE TO THIS FORM TO ASSIGN MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN WARRANT IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A BANK, OTHER THAN A SAVINGS BANK, OR BY A TRUST COMPANY
OR BY A FIRM HAVING MEMBERSHIP ON A REGISTERED NATIONAL SECURITIES
EXCHANGE.
<PAGE>
WARRANT NO. UW-C WARRANTS
CATALINA CAPITAL CORP.
(A Delaware Corporation)
CLASS C WARRANT CERTIFICATE
For the Purchase of Common Stock
Par Value $.00001 per Share
[CUSIP]
THIS CERTIFIES THAT, for value received,
("Warrantholder"), is the registered owner of the above indicated number of
Class "C" Warrants ("Warrants") of Catalina Capital Corp., a Delaware
corporation ("Company"), expiring on _______________ 19___, unless otherwise
called or extended ("Expiration Date"). Each Warrant entitles the Warrantholder
to purchase one (1) share of the common stock, par value $.00001 ("Common Stock"
or "Shares") of the Company, at a purchase price of $1.30 per Share ("Exercise
Price"), at any time prior to the Expiration Date, upon surrender of this
Certificate with the exercise form on the reverse side hereof duly completed and
executed, accompanied by the Exercise Price, to American Securities Transfer,
Inc., ("Warrant Agent"), at 1825 Lawrence Street, Suite 444, Denver, Colorado,
80202. This Certificate and exercise of these Warrants will be subject to the
provisions of the Unit Warrant Agreement dated ___________, 19__ ("Warrant
Agreement"), between the Company and the Warrant Agent, to which provisions the
Warrantholder agrees by acceptance of this Certificate. The provisions of the
Warrant Agreement and those set forth on the reverse side of this Certificate
are fully incorporated by reference into this Certificate as if fully set forth
herein.
If all Warrants represented by this Certificate shall not have been duly
exercised on or before the Expiration Date, as it may be extended, those
unexercised Warrants shall expire and this Certificate shall become void. The
Expiration Date may be extended from time to time for an indefinite period, or
the Exercise Price may be reduced, at the discretion of the Company upon giving
notice thereof to the Warrant Agent and giving subsequent notice thereof to
holders of Warrants then listed on its books.
The Warrantholder may exercise all or any of the Warrants in the manner and
during the period above stated, but only for an even number of Shares if less
than all are exercised, upon due presentment of this Certificate to the Warrant
Agent. The Exercise Price must be paid in lawful money of the United States of
America, in cash or by personal check, bank check or certified check payable to
the order of the Company. If fewer than all the above number of Warrants are
exercised, the Warrant Agent shall execute and deliver to the Warrantholder a
new Class C Warrant certificate of like tenor evidencing the number of Warrants
not exercised. Should any or all the Warrants be assigned, then upon due
presentment of this Certificate by the assignee to the Warrant Agent accompanied
by payment of the sum of $10.00 per Class C Warrant certificate to be issued and
of all transfer taxes and other governmental charges due, if any, the Warrant
Agent shall transfer the Warrants assigned on the transfer books and shall
(subject to the Warrant Agreement) execute and deliver to the assignee a Class C
Warrant certificate of like tenor representing the number of Warrants assigned,
and if less than all the Warrants are assigned, execute and deliver to the
Warrantholder a Class C Warrant certificate of like tenor representing the
number of Warrants not assigned.
The Company may call these Warrants for redemption at any time, at the
price of $.0001 per Warrant, upon at least thirty days' prior written notice to
holders of Warrants then listed on its books. This notice shall accelerate the
Expiration Date, which shall become the last day of the redemption period, and
the Warrants may be exercised on or before the accelerated Expiration Date.
Warrants not exercised timely shall expire and this Certificate shall become
void. If the Warrantholder elects not to exercise the Warrants, the redemption
price will be paid only if this Certificate is tendered for redemption prior to
the accelerated Expiration Date. The redemption period (and the accelerated
Expiration Date) may be extended by the Company upon two days' written notice to
the Warrant Agent and giving subsequent notice thereof to holders of Warrants
then listed on its books.
The Warrants may be exercised, or redeemed in accordance with the
immediately preceeding paragraph, only if a current prospectus is then in
effect. The Company has undertaken to use its best efforts to maintain a current
prospectus at any time during which the market bid price for the Common Stock
exceeds the Exercise Price, but is not obligated to do so.
In addition, should management of a business opportunity that is the target
of a business combination with the Company require, as a condition to the
consummation of the business combination, that the Warrants be redeemed, the
Warrants may be called for redemption by the Company under the terms set forth
in the Section 7(a) of the Unit Warrant Agreement without prior written notice
to the registered holders of the Warrants and without any right on the part of
such holders to exercise the Warrants prior to redemption. The Company may
redeem the Warrants under these limited circumstances irrespective of whether a
current prospectus is then in effect.
These Warrants shll not entitle the Warrantholder to any of the rights of
stockholders or to any dividend declared upon the Common Stock unless the
Warrantholder shall have exercised these Warrants and purchased the Shares of
Common Stock prior to the record date fixed by the Board of Directors of the
Company for the determination of holders of Common Stock entitled to such
dividend or other right. Holders of Warrants are protected against dilution of
their interests represented by the underlying shares of Common Stock upon the
occurrence of stock dividends, stock splits or reclassifications of the Common
Stock, as provided in the Warrant Agreement.
This Certificate shall not be valid unless countersigned by the Warrant
Agent.
WITNESS the facsimile seal of the Company and the facsimile signatures of
its duly authorized officers.
Dated:
CATALINA CAPITAL CORP.
By:
John J. Micek, III - President
Frank L. Kramer - Secretary
Countersigned:
AMERICAN SECURITIES TRANSFER, INC.
By: ______________________________
Authorized Officer
<PAGE>
WARRANT SUBSCRIPTION FORM
CATALINA CAPITAL CORP.
12543-A East Pacific Circle
Aurora, Colorado 80014
Date: _____________________, 19___
The Undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase ____ shares of Common Stock of Catalina Capital Corp., called
for thereby, and hereby makes payment of $________________________ (at the rate
of $1.30 per share of Common Stock) payable to Catalina Capital Corp., in
payment of the Exercise Price pursuant thereto and, if such number of shares
shall not be all of the shares purchasable hereunder, directs that a new Warrant
Certificate of like tenor for the balance of the remaining shares purchasable
hereunder be delivered to the undersigned at the address stated below. Please
issue the shares of Common Stock as to which this Warrant is exercised in
accordance with the instructions given below.
Signature: X __________________________
Signatures Guaranteed: X __________________________
By: ___________________________________
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name __________________________________________________________________________
(Print in Block Letters)
Address _______________________________________________________________________
ASSIGNMENT
(To be executed by the registered Holder to effect
a transfer of the within Warrant:)
FOR VALUE RECEIVED, ___________________________________________, does
hereby sell, assign and transfer unto _____________________________________ the
right to purchase ______________________ shares of the Common Stock of the
Company evidenced by the within Warrant, and does hereby irrevocably constitute
and appoint _______________________________ attorney to transfer such right on
the books of the Company with full power of substitution in the premises.
premises.
Dated: __________________, 19____
Signature: X __________________________
Signature Guaranteed: X __________________________
By: ___________________________________
*****
NOTICE: THE SIGNATURE TO THIS FORM TO ASSIGN MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN WARRANT IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A BANK, OTHER THAN A SAVINGS BANK, OR BY A TRUST COMPANY
OR BY A FIRM HAVING MEMBERSHIP ON A REGISTERED NATIONAL SECURITIES
EXCHANGE.
<PAGE>
PRED AND MILLER
ATTORNEYS AND COUNSELORS AT LAW
RONALD S PRED, P.C. ONE CHERRY CENTER, SUITE 500 TELEPHONE 303 320-1146
RONALD J. MILLER 501 SOUTH CHERRY STREET FASCIMILE 303 320-1915
ROBERT NEECE DENVER, COLORADO 80222-1327
HEATER ZANE ANDERSON
June 29, 1990
Catalina Capital Corp.
12543-A East Pacific Circle
Aurora, Colorado 80014
Gentlemen:
This law firm has acted as counsel to Catalina Capital Corp., a
Delaware corporation (the "Company"), in connection with the contemplated
initial public offering of securities by the Company (the "Offering") under a
Registration Statement on Form S-18 (the "Registration Statement") that has been
prepared to be filed with the United States Securities and Exchange Commission
(the "Commission"). The Registration Statement is to cover 3,000,000 units of
the Company's securities (the "Units"). Each of the Units is to consist of one
share of the Company's common stock, par value $.00001 per share (the "Common
Stock"), and three purchase warrants ("Warrants"), each of which is to entitle
the holder to purchase one share of the Common Stock.
In connection with the Offering, you have asked this firm to examine
the corporate records and proceedings of the Company with respect to the
organization of the Company, and with respect to the creation and issuance of
both the outstanding securities of the Company and the securities that are
contemplated to be issued in the Offering. Pursuant to your request, we have
examined originals, or documents identified to us by management of the Company
as being true copies of originals, of:
1. The Certificate of Incorporation of the Company, as certified by the
Office of Secretary of State of the State of Delaware.
2. The Bylaws of the Company.
3. The minute book of the Company.
4. The stock book of the Company.
5. The Registration Statement to be filed by the Company with the
Commission.
The opinions set forth below are based entirely upon the laws
<PAGE>
Catalina Capital Corp.
June 29, 1990
Page 2
of the State of Delaware and, in furnishing this letter to the Company, we have
not undertaken to opine on matters arising under the laws of any other
jurisdiction.
Upon the basis of the examination, and subject to the qualifications,
described above, we are of the opinion that:
A. The Company is duly organized and validly existing under the laws of
the State of Delaware.
B. The Company is authorized to have outstanding 100,000,000 shares of
the Common Stock; 7,300,000 shares of the Common Stock have been issued and are
outstanding; and all of such outstanding shares have been validly issued, and
are fully paid and nonassessable.
C. When the shares of Common Stock that are covered by the Registration
Statement, including the shares of Common Stock underlying the Warrants, shall
have been issued and sold upon the terms set forth in the Registration
Statement, such shares shall be validly authorized and legally issued, fully
paid, and nonassessable.
D. When the Warrants shall have been issued and sold upon the terms set
forth in the Registration Statement, the Warrants shall be valid, legal, and
binding obligations of the Company.
By this letter, we (a) consent to be named in the Registration
Statement, and in the Prospectus included within the Registration Statement, as
the attorneys who shall pass upon legal matters in connection with the issuance
and sale of the Units and the securities contained in the Units, and (b) consent
to the filing of this opinion as an exhibit to the Registration Statement.
Yours very truly,
PRED AND MILLER
/s/ PRED and MILLER
<PAGE>
- --------------------------------------------------------------------------------
wenner, silvestain and company
Certified Public Accountants, 8101 East Prentice, Suite 600,
Englewood, Colorado 80111-2935
Telephone (303) 771-5300 FAX (303) 771-7921
Stephen L. Wenner, CPA Bennie Silvestain, CPA Gary P. Saltzman, CPA
Lawrence L. Greenberg, CPA Barry H. Silvestain, CPA
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-18, and any amendments thereto, to be filed by
Catalina Capital Corp. of our Auditors' Opinion dated June 20, 1990 accompanying
the Financial Statements of Catalina Capital Corp. as of June 6, 1990, and to
the use of our name under the caption "Experts" in the Prospectus.
/s/ Wenner, Silvestain and Company
Wenner, Silvestain and Company
Englewood, Colorado
June 26, 1990
Member, American Institute of Certified Public Accountants
Member, The Colorado Society of Certified Public Accountants
Member, SEC Practice Section of the AICPA
Member, Private Companies Practice Section of the AICPA
- --------------------------------------------------------------------------------
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT, made this ____________ day of June, 1990, by and
between Catalina Capital Corp., a Delaware corporation (the "Company"), and
Omnibank Aurora, of Aurora, Colorado, a state banking association (the "Escrow
Agent").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue, and to offer and sell to the
public, pursuant to the provisions of the Securities Act of 1933, as amended
(the "Act"), up to 3,000,000 Units, each consisting of one share of the duly
authorized common stock, par value $.0000l per share, of the Company (the
"Common Stock"), one Class A Common Stock Purchase Warrant of the Company, one
Class B Common Stock Purchase Warrant of the Company, and one Class C Common
Stock Purchase Warrant of the Company (the "Units"), on a 1,500,000 Unit
minimum, "best efforts, all or none," 3,000,000 Unit maximum, "best efforts"
basis, at an offering price of $.l0 per Unit (the authorization, issuance and
offering of the Units to the public being hereinafter referred to as the "Public
Offering"); and
WHEREAS, the Public Offering is to be made pursuant to a Registration
Statement and Prospectus to be filed with the United States Securities and
Exchange Commission (the "Commission") under the provisions of the Act and
pursuant to appropriate filings made or to be made with the applicable
authorities of the states in which the Public Offering may be made; and
WHEREAS, pursuant to the Registration Statement and Prospectus to be
filed by the Company with the Commission, provision must be made to impound in
escrow such proceeds as shall be received from the sale of such of the Units as
may be sold in the Public Offering; and
WHEREAS, the Company and the Escrow Agent desire to enter into this
Agreement for the purpose of fulfilling the escrow requirement established by
the Company;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants, terms and conditions hereinafter set forth, the parties hereto hereby
agree as follows:
1. Transmission of Funds; etc. The Company agrees that it shall,
immediately upon receipt, and in no event later than by noon of the next
business day following receipt thereof, deliver, or arrange for and facilitate
delivery by any participating dealers or others participating in the Public
Offering, to the Escrow Agent all proceeds from the sale of the Units in the
Public Offering in an amount not exceeding $300,000, together with a copy of the
subscriber's subscription agreement or other written account of each sale,
including all sales made by participating dealers, which subscription agreement
or written account shall set forth, among other things, the subscriber's name
and address, the number of
<PAGE>
Units purchased and the amount paid therefor and to comply otherwise, and to
facilitate compliance by participating dealers, with the provisions of Rule
15c2-4 promulgated under the Securities Exchange Act of 1934, as amended, and
all checks and other orders for the payment of money shall be made payable to
the order of "Omnibank Aurora - Catalina Capital Corp. Escrow Account."
2. The Escrow Account. All funds or remittances delivered to the Escrow
Agent pursuant hereto shall be deposited immediately by the Escrow Agent into a
separate account designated substantially as follows: "Catalina Capital Corp. -
Escrow Account" (the "Escrow Account"). The Escrow Account shall be created and
maintained subject to the customary rules and regulations of the Escrow Agent
pertaining to such accounts.
3. Status of Escrowed Funds. During the Escrow Period (hereinafter
defined) none of the amounts deposited into the Escrow Account shall become the
property of the Company or of any other entity or be subject to the debts of the
Company or of any other entity except as expressly provided herein with respect
to payment by the Escrow Agent to the Company, and the Escrow Agent shall
neither make nor permit any disbursements from the Escrow Account except as
expressly provided herein.
4. The Escrow Period.
(a) The Escrow Period shall begin with the commencement of the
Public Offering on the Effective Date under the Registration Statement, which
date shall be the date of the Prospectus.
(b) The Escrow Period shall terminate upon the earlier to
occur of:
(i) Gross proceeds of a minimum of $150,000
(collected funds) having been deposited into the Escrow Account; or
(ii) The expiration of ninety (90) days from the
Effective Date, which date may be extended for an additional ninety-day
period at the election of the Company, if at that time at least
1,500,000 Units shall not have been sold and the proceeds thereof shall
not have been delivered to the Escrow Agent, unless the Escrow Agent
shall have previously received notice of the election of the Company
effecting such extension and stating the period thereof.
5. Closing Out of Escrow. Should the Escrow Period terminate pursuant
to the provisions of paragraph 4(b)(i) hereof, the Escrow Agent shall deliver
and pay over to the Company on the Closing Date all amounts deposited into the
Escrow Account, less any amounts owed to the Escrow Agent pursuant to paragraph
9 hereof. On the making of the payment by the Escrow Agent as provided for in
this
2
<PAGE>
paragraph, the Escrow Agent shall be discharged completely and released of any
further liabilities or responsibilities hereunder.
6. Abandonment of Offering. Should the Escrow Period terminate pursuant
to the provisions of paragraph 4(b)(ii) hereof, then the Escrow Agent shall
promptly as practicable and on the basis of its Escrow Account records, return
to each of the subscribers for Units the respective amounts paid by them,
without interest thereon or deduction therefrom. All amounts paid or payable to
each subscriber pursuant to this paragraph shall be deemed to be the property of
such subscriber, free and clear of any or all claims of the Company or of any of
its creditors, and the respective agreements to purchase the stock made and
entered into under the Public Offering shall be deemed cancelled without any
further liability of subscribers to pay for the Units purchased. The Escrow
Agent shall be required to make such payment only to the person named in the
written account of each sale to be furnished by the Company pursuant to
paragraph 1 hereof. At such time as the Escrow Agent shall have made all of the
payments and remittances provided for in this paragraph, the Escrow Agent shall
be discharged completely and released of any and all further liabilities and
responsibilities hereunder. The Company shall pay to the Escrow Agent the sum of
$5.00 for each check written by the Escrow Agent in the course of returning
funds to subscribers pursuant to this paragraph. This per-check amount shall
not be deducted from funds deposited into the Escrow Account, but shall be paid
by the Company promptly upon receipt of an invoice therefor from the Escrow
Agent.
7. Notice of Extension. The Company agrees to deliver to the Escrow
Agent appropriate written notice of any extension of the offering period and of
the Closing Date.
8. Discretion of the Escrow Agent. In acting pursuant to this
Agreement, the Escrow Agent shall be fully protected in every reasonable
exercise of its discretion and shall have no obligation hereunder either to the
Company or to any other party, except as expressly set forth herein.
9. Fees and Expenses of Escrow Agent. The Company shall not pay the
Escrow Agent any fee for its services hereunder. The Company shall be
responsible, however, for the payment of all reasonable expenses incurred by the
Escrow Agent in the course of performing hereunder, including the sums required
by Section 6 hereof. No such expense, however, shall be chargeable to or paid
from the funds deposited into the Escrow Account.
10. Investment of Escrowed Funds. The Escrow Agent shall have no
obligation to anyone to invest any of the deposited funds or to pay interest
thereon. Any such investment shall be made only in investments permissible under
Rule 15c2-4 of the Commission.
3
<PAGE>
11. Notice by Escrow Agent. The Escrow Agent shall not issue any
certificate of deposit, stock certificate, or any other instrument or document
representing any interest in the funds deposited, except written notice
acknowledging receipt of the funds deposited by the Company, a copy of which
notice shall be delivered from time to time by the Escrow Agent to the Company
and to counsel to the Company, as soon after receipt thereof as is practicable.
The Escrow Agent shall give the Company prompt written notice when collected
funds deposited into the Escrow Account total $150,000, at which time a
Closing Date shall be set in accordance with the provisions of the Registration
Statement and Prospectus filed by the Company with the Commission. The Escrow
Agent shall, after it disburses funds from the Escrow Account pursuant to
Paragraphs 5 or 6 of this Agreement, promptly render a written accounting
thereof to the Company. The Escrow Agent shall not be responsible for any fees
or charges in connection with the issuance or transfer of the Units.
12. Liability of Escrow Agent Limited. In performing any of its duties
hereunder, the Escrow Agent shall not incur any liability to anyone for any
damages, losses or expenses, except for willful default or negligence, and it
shall, accordingly, not incur any such liability with respect to (a) any action
taken or omitted in good faith upon advice of its counsel or counsel for the
Company given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent under this Agreement, or (b) any action
taken or omitted in reliance upon any instrument, including the written advices
provided for herein, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information contained therein, which the Escrow Agent shall in good faith
believe to be genuine, to have been signed or presented by a proper person or
persons, and to conform with the provisions of this Agreement.
13. Reliance by Escrow Agent; Indemnity: etc. The Company agrees to
provide to the Escrow Agent all information necessary to facilitate the
administration of this Agreement, and the Escrow Agent may rely upon any
representation so made. In performing any of its duties hereunder, the Escrow
Agent may not be held to take notice of any terms of any agreement or rights
with respect thereto unless specifically stated herein. The Company hereby
agrees to indemnify and hold harmless the Escrow Agent against any and all
claims, losses, damages, liabilities, costs and expenses, including reasonable
costs of investigation and counsel fees and disbursements, which may be imposed
upon the Escrow Agent or incurred by the Escrow Agent in connection with its
acceptance of appointment as Escrow Agent hereunder or the performance of its
duties hereunder, including any litigation arising from this Agreement or
involving the subject matter hereof. Such indemnity, however, shall not include
acts or omissions to act of the Escrow Agent which involve gross negligence or
willful misconduct.
4
<PAGE>
14. Interpleader. If at any time a dispute shall exist as to the duties
of the Escrow Agent and the terms hereof, or the Escrow Agent shall not have
been able to locate a subscriber(s) to return his (their) funds, the Escrow
Agent may deposit said funds with the Clerk of the District Court of the City
and County of Denver, State of Colorado, and may interplead the other party
hereto. Upon so depositing such funds and filing its complaint in interpleader,
the Escrow Agent shall be completely discharged and released from all further
liability or responsibility under the terms hereof. The parties hereto, for
themselves, their heirs, successors and assigns, do hereby submit themselves to
the jurisdiction of said Court and do hereby appoint the Clerk of said Court as
their agent for service of all process in connection with the proceedings
mentioned in this paragraph.
15. Compliance With Court Orders; etc. The Escrow Agent is hereby
expressly authorized and directed to disregard any and all notices or warnings
not specifically called for in or permitted by this Agreement, or by any other
person or corporation, excepting only orders or process of court, and is hereby
expressly authorized to comply with and obey any and all orders, judgments, or
decrees of any court, and in case the Escrow Agent obeys or complies with any
such order, judgment, or decree of any court, it shall not be liable to any of
the parties hereto or to any other person, firm or corporation by reason of such
compliance, notwithstanding that any such order, judgment, or decree may be
subsequently reversed, modified, annulled, set aside or vacated, or found to
have been entered without jurisdiction.
16. Notices to Parties and Counsel. All notices, demands or requests
required or authorized hereunder shall be deemed given sufficiently if in
writing and sent by registered mail or certified mail, return receipt requested
and postage prepaid, or by tested telex, telegram or cable to, in the case of
the Company:
Catalina Capital Corp.
12543-A East Pacific Circle
Aurora, Colorado 80014
ATTENTION: John J. Micek III, President
with a copy to the Company's counsel:
Pred and Miller
Attorneys at Law
501 S. Cherry Street, Suite 500
Denver, Colorado 80222
ATTENTION: Heather Zane Anderson, Esq.
and, in the case of the Escrow Agent, to:
5
<PAGE>
Omnibank Aurora
3000 South Peoria Street
Aurora, Colorado 80014
ATTENTION:
17. Governing Law. The validity, interpretation and construction of
this Agreement and of each part hereof shall be governed by the laws of the
State of Colorado.
18. Obtaining Account Information. The persons named on Schedule 1 to
this Agreement are authorized at any time, one or more times, to obtain without
delay the balance and other information concerning the Escrow Account, in person
or by telephone. Escrow Agent agrees to make such list available to its
personnel in possession of such information to facilitate such access.
IN WITNESS WHEREOF, the Company and the Escrow Agent have executed this
Escrow Agreement on the day and year of the first above written.
CATALINA CAPITAL CORP.
By:
-----------------------------------------------------
John J. Micek III, President
OMNIBANK AURORA
By:
-----------------------------------------------------
6
<PAGE>
Acct. No.__________
SCHEDULE 1
CATALINA CAPITAL CORP. -- ESCROW ACCOUNT
Notice to Omnibank Aurora Personnel:
The persons named below are entitled to obtain the total account
balance, amount of funds collected, and other information desired concerning the
above public offering escrow account, in person or by telephone. Any person
identifying himself or herself as a secretary or assistant to the persons named
below also is entitled to obtain such information.
For the Company: John J. Micek III
Frank L. Kramer
Donald R. McGahan
Company Counsel: Heather Zane Anderson, Esg.
Ronald J. Miller, Esq.
Rosemarie Simone
Other: __________________________________
__________________________________
__________________________________
7
<TABLE>
<CAPTION>
As filed with the Securities and Exchange Commission on August 10, 1990.
Registration No. 33-35580-D
====================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------------
AMENDMENT NO. 1 TO
FORM S-18 Conformed Copy
Registration Statement with
Under Exhibits
The Securities Act of 1933
-----------------------------
CATALINA CAPITAL CORP.
(Exact name of registrant as specified in its charter)
<S> <C> <C> <C>
Delaware 7389 (Applied for)
(State of Incorporation) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
12543-A East Pacific Circle
Aurora, Colorado 80014
(303) 337-1033
(Address and telephone number of registrant's principal executive offices and principal place of business)
The Corporation Trust Company
The Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
(Name, address and telephone number of agent for service)
Copy to:
Heather Zane Anderson, Esquire
Pred and Miller
501 South Cherry Street, Suite 500
Denver, Colorado 80222
-----------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
-----------------------------
CALCULATION OF REGISTRATION FEE
======================================================================================================================
Title of Proposed Proposed
Each Class Amount Maximum Maximum Amount of
of Securities Being Offering Price Aggregate Registration
Being Registered Registered Per Unit Offering Price(5) Fee
----------------------------------------------------------------------------------------------------------------------
Common Stock, $.00001 par value 3,000,000 Shares $0.10 $ 300,000 $ 75.00
Class A Common Stock Purchase Warrants 3,000,000 Warrants $-- -- -- (1)
Common Stock, $.00001 par value 3,000,000 Shares (2) $0.30 900,000 225.00
Class B Common Stock Purchase Warrants 3,000,000 Warrants $-- -- -- (1)
Common Stock, $.00001 par value 3,000,000 Shares (3) $0.75 2,250,000 562.50
Class C Common Stock Purchase Warrants 3,000,000 Warrants $-- -- -- (1)
Common Stock, $.00001 par value 3,000,000 Shares (4) $1.30 3,900,000 975.00
----------------------------------------------------------------------------------------------------------------------
$7,350,000 $1,837.50
======================================================================================================================
<FN>
(1) Pursuant to Rule 457(g), no separate registration fee is required for warrants.
(2) To be issued upon exercise of Class A Warrants. Pursuant to Rule 416, the number of shares issuable upon exercise
of the Warrants is subject to adjustment under the antidilution provisions of the Unit Warrant Agreement (see
Exhibit 4.1).
(3) To be issued upon exercise of Class B Warrants. Pursuant to Rule 416, the number of shares issuable upon exercise
of the Warrants is subject to adjustment under the antidilution provisions of the Unit Warrant Agreement (see
Exhibit 4.1).
(4) To be issued upon exercise of Class C Warrants. Pursuant to Rule 416, the number of shares issuable upon exercise
of the Warrants is subject to adjustment under the antidilution provisions of the Unit Warrant Agreement (see
Exhibit 4.1).
(5) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its
effective date until the registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
====================================================================================================================================
</FN>
</TABLE>
<PAGE>
<TABLE>
CATALINA CAPITAL CORP.
CROSS REFERENCE SHEET
<CAPTION>
REGISTRATION ITEM LOCATION IN PROSPECTUS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover of Prospectus .................................. Cover Page
2. Inside Front and Outside Back Cover
page of Prospectus ..................................................... Additional Information
3. Summary Information, Risk Factors ...................................... Prospectus Summary; Risk Factors
4. Use of Proceeds ........................................................ Use of Proceeds
5. Determination of Offering Price ........................................ Cover Page; Terms of Offering
6. Dilution ............................................................... Dilution and Other Comparative Data
7. Selling Security Holders ............................................... Not applicable
8. Plan of Distribution ................................................... Cover Page; Terms of Offering
9. Legal Proceedings ...................................................... Legal Proceedings
10. Directors and Executive Officers ....................................... Management
11. Security Ownership of Certain Beneficial Owners and Management ......... Principal Stockholders; Certain Transactions
with Management and Others
12. Description of Securities to be Registered ............................. Description of Securities
13. Interests of Named Experts and Counsel ................................. Legal Matters; Experts
14. Statement as to Indemnification ........................................ Not Applicable
15. Organization Within 5 Years ............................................ Prospectus Summary; Business
16. Description of Property ................................................ Prospectus Summary; Business
17A. Description of Property -- Registrants Engaged or to be Engaged
in Significant Mining Operations ....................................... Not Applicable
17B. Supplementary Financial Information about Oil and
Gas Producing Activities ............................................... Not Applicable
18. Interest of Management and Others
in Certain Transactions ................................................ Certain Transactions with
Management and Others
<PAGE>
19. Certain Market Information ............................................. Not Applicable
20. Executive Compensation ................................................. Management
21. Financial Statements ................................................... Financial Statements
</TABLE>
<PAGE>
Prospectus
CATALINA CAPITAL CORP.
(A Delaware Corporation)
3,000,000 Units
$.10 per Unit
By this Prospectus, Catalina Capital Corp. (the "Company"), is offering
to the public 3,000,000 units ("Units") of the Company's securities. Each Unit
consists of one share of common stock, par value $.00001 per share ("Common
Stock" or "Common Shares"), and three redeemable Common Stock Purchase Warrants
("Warrants"), respectively denominated Class A, Class B, and Class C. Each Class
A Warrant will entitle the holder to purchase one share of Common Stock at a
price of $.30 for a period commencing with the date of this Prospectus and
terminating on the second anniversary of such date. Each Class B Warrant will
entitle the holder to purchase one share of Common Stock at a price of $.75 for
a period commencing with the date of this Prospectus and terminating on the
second anniversary of such date. Each Class C Warrant will entitle the holder to
purchase one share of Common Stock at a price of $1.30 for a period commencing
with the date of this Prospectus and terminating on the second anniversary of
such date. The Warrants are in registered form and, upon issuance, will be
immediately detachable and may be traded separately from the Common Stock, in
the event that a market exists therefor. The Company is entitled to redeem the
Warrants without prior notice to the warrantholders should the representatives
of a business opportuntiy with which the Company wishes to combine require, as a
condition to consummation of the combination, that the Warrants be redeemed.
Under these circumstances, the warrantholder will have no opportunity to
exercise the purchase rights under the Warrants prior to redemption. See "Risk
Factors - Possible Redemption of Warrants Without Notice." Otherwise, the
Company may redeem any or all of the Warrants upon 30 days' written notice,
reduce the exercise price thereof and indefinitely extend the exercise period
thereof. Except as otherwise provided in subparagraph (a) of the section herein
captioned "Description of Securities - Warrants - Redemption," the Warrants can
be exercised or redeemed only if a current prospectus is then in effect. See
"Description of Securities - Warrants."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AND "DILUTION AND OTHER COMPARATIVE DATA."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
Price to Underwriting Proceeds to
Public Commissions(2) the Company(3)
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
Per Unit $ .10 -0- $ .10
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
Total Minimum (1) $150,000 -0- $150,000
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
Total Maximum (1) $300,000 -0- $300,000
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
<FN>
(See Notes on the pages following)
</FN>
</TABLE>
The date of this Prospectus is _________________, 1990
<PAGE>
(1) This offering is not underwritten. The Units offered by this
Prospectus will be offered by those officers and directors of the Company who
have had no prior experience in the sale of securities. American Aegis
Securities, Inc., a NASD member firm with whom one of the Company's directors is
associated, will not be involved in the offer and sale of the Units. No
underwriting discounts or commissions will be paid to those officers and
directors participating in the offering, although their out-of-pocket expenses
will be reimbursed by the Company. This offering of 1,500,000 Units minimum,
3,000,000 Units maximum, is being made on a "minimum-maximum, best efforts"
basis for a period of 90 days from the date of this Prospectus, which period may
be extended by the Company for an additional 90 days, or until completion or
abandonment of this offering, whichever occurs sooner. All proceeds from the
sale of the Units being offered will promptly (and in no event later than noon
of the next business day following receipt) be placed into an escrow account
with Omnibank Aurora, located in Aurora, Colorado ("Escrow Agent"), and no funds
will be released to the Company unless and until a minimum of 1,500,000 Units
have been sold. Unless proceeds from the minimum number of Units offered hereby
have been deposited with the Escrow Agent within 90 days from the date of this
Prospectus (which period may be extended for up to an additional 90 days by the
Company), the offering will be withdrawn and all monies received will be
refunded to subscribers by the Escrow Agent, without deduction therefrom for
offering costs or sales expenses incurred, if any, and without payment of any
interest thereon. All such refunds will be made as promptly as shall be
practicable. The investor should be aware, however, that under specified
circumstances federal law, including the Expedited Funds Availability Act of
1988 and Regulation CC (pertaining to the availability of funds and the
collection of checks), permits a bank to withhold payment of funds on a deposit
made by a check drawn on a "nonlocal" bank for up to seven working days pending
collection of the check through the applicable bank check clearing system. As a
result, monies derived from a subscription payment that shall have been made by
check may not be available to the Company, for refund to the subscriber
following the abandonment of the offering, until as many as seven business days
following the subscriber's tender of the subscription funds to the bank.
Assuming that, consistent with federal law as described above, funds for a
particular subscription have become available to the Company for refund, it is
likely that approximately one working day will be required for the Company to
confirm to the escrow bank that a refund should be made and for the bank to
prepare and mail a refund check to the subscriber. The date upon which a refund
check would be mailed will depend, therefore, upon the relationship between the
date upon which a subscription check shall have been tendered and the date upon
which the offering shall have been abandoned. The closer in time the tender
shall be to the date of abandonment, the longer the mailing of the refund check
is likely to be delayed, up to a total of approximately eight working days
following the abandonment. Except as provided above, investors have no right to
the return of their funds during the term of the offering. If at least 1,500,000
Units are sold and the proceeds therefrom deposited into the escrow account
within the period set forth above, the offering will continue until the
remaining 1,500,000 Units being offered are sold, until 90 days from the date of
this Prospectus (up to 180 days if extended), or until the Company determines to
terminate the offering, whichever occurs first. The officers, directors, and
affiliates of the Company may purchase in the aggregate up to 20% of the Units
sold in this offering. Such purchases, if made, will be made for investment
purposes and not for immediate resale.
(2) The amounts shown do not reflect expenses of the offering payable
by the Company. These expenses, which include filing fees, printing, legal and
accounting costs, and miscellaneous fees, are estimated to be $20,500, or $.0137
(13.7%) per Unit if the minimum number of Units is sold and $.0068 (6.8%) per
Unit if the maximum number of Units is sold. See "Use of Proceeds."
(3) The amounts shown do not include any proceeds the Company would
receive upon the exercise of the Warrants. If the maximum number of Units
offered hereby is sold, the Company would receive additional gross proceeds of
$7,050,000 upon the exercise of all of the Warrants.
Prior to this offering there has been no public market for the
Company's securities and there can be no assurance that a public market for the
Units, Common Stock or Warrants will develop following this offering or that the
Units can be resold at or near the offering price. The Company has no
arrangements with broker-dealers to maintain a trading market for its
securities. The initial public offering price of the Units has
ii
<PAGE>
been arbitrarily determined by the Company and bears no relationship to the
Company's assets, net worth or prospects, or to any other recognized criteria of
value. The exercise price of the Warrants has been arbitrarily set and there is
no assurance, and little likelihood, that the trading price of the Common Stock
will rise sufficiently to make exercise of any Warrants desirable.
This offering involves special risks concerning the Company, which has
not engaged in business operations other than efforts to raise capital,
including immediate and substantial dilution to public purchasers of Units in
the net tangible book value per share of the Common Stock acquired and
substantial potential profits to present stockholders of the Company by reason
of the increase in the net tangible book value of their shares as a result of
purchases of Units by the public. See "Risk Factors," "Dilution and Other
Comparative Data," and "Certain Transactions with Management."
----------------------
THESE UNITS ARE OFFERED BY THE COMPANY FOR CASH SUBJECT TO PRIOR SALE,
TO ALLOTMENT AND WITHDRAWAL AND TO CANCELLATION OF THE OFFERING, WITHOUT NOTICE
AT ANY TIME BY THE COMPANY PRIOR TO THE RELEASE OR DELIVERY OF ANY PROCEEDS OF
THIS OFFERING TO THE COMPANY WHETHER OR NOT A CONFIRMATION OF SALE OF UNITS
OFFERED BY THIS PROSPECTUS PREVIOUSLY HAS BEEN ISSUED BY THE COMPANY. PAYMENT BY
A SUBSCRIBER OF THE FULL SUBSCRIPTION PRICE AND DEPOSIT OF THE SAME INTO THE
ESCROW ACCOUNT DOES NOT CONSTITUTE ACCEPTANCE OF SUCH SUBSCRIPTION BY THE
COMPANY. THE RIGHT IS RESERVED BY THE COMPANY TO REJECT ANY AND ALL OFFERS TO
PURCHASE AND TO CANCEL ANY AND ALL CONFIRMATIONS OF SALE OF ANY UNITS OFFERED
HEREBY, IN WHOLE OR IN PART, FOR CAUSE OR WITHOUT CAUSE, AT ANY TIME PRIOR TO
THE CLOSING OF THE OFFERING. REFUNDS TO SUBSCRIBERS WHOSE SUBSCRIPTIONS ARE
CANCELED WILL BE MADE AS PROMPTLY AS PRACTICABLE AFTER CLOSING, AND ACCORDINGLY,
SUBSCRIBERS MAY LOSE THE USE OF SUBSCRIPTION FUNDS, WITHOUT PAYMENT OF ANY
INTEREST THEREON, FOR UP TO 190 DAYS.
----------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION WITH
RESPECT TO THESE SECURITIES BY ANYONE TO ANY PERSON IN ANY STATE IN WHICH THIS
OFFERING OR SOLICITATION IS NOT AUTHORIZED BY THE LAWS THEREOF OR IN WHICH THE
PERSON MAKING SAID OFFERING OR SOLICITATION IS NOT QUALIFIED TO ACT AS DEALER OR
BROKER OR OTHERW1SE TO MAKE SUCH OFFERING OR SOLICITATION.
----------------------
THE SECURITIES BEING SOLD PURSUANT TO THIS PROSPECTUS ARE HIGHLY
SPECULATIVE IN NATURE AND NO GUARANTEES OR OTHER WARRANTIES TO THE CONTRARY ARE
MADE BY THE COMPANY AS ISSUER. THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
----------------------
THE COMPANY HAS NOT TAKEN ANY STEPS TO CREATE AN AFTERMARKET FOR THE
SECURITIES OFFERED HEREIN AND HAS MADE NO ARRANGEMENTS WITH ANY BROKERS TO TRADE
OR MAKE A MARKET IN THESE SECURITIES. AT SOME TIME IN THE FUTURE, THE COMPANY
MAY ATTEMPT TO ARRANGE FOR INTERESTED BROKERS TO TRADE OR MAKE A MARKET IN THESE
SECURITIES AND TO QUOTE THE SECURITIES OF THE COMPANY IN A PUBLISHED QUOTATION
MEDIUM. NO ARRANGEMENTS HAVE BEEN MADE IN THAT REGARD, HOWEVER, AND NO ASSURANCE
IS OFFERED THAT ANY BROKERS WILL BE WILLING TO ENGAGE IN SUCH ACTIVITIES
RELATIVE TO THESE SECURITIES. IN THE EVENT THAT ANY BROKER WERE
iii
<PAGE>
TO BECOME THE EXCLUSIVE MARKET MAKER IN THESE SECURITIES, THE BROKER WOULD IN
EFFECT DOMINATE AND CONTROL THE MARKET FOR THE COMPANY'S SECURITIES.
----------------------
THE COMPANY HAS UNDERTAKEN, DURING THE 90-DAY PERIOD FOLLOWING THE
DATE OF THIS PROSPECTUS AND DURING THE EXERCISE PERIOD OF THE WARRANTS, DURING
ANY PERIOD IN WHICH OFFERS OR SALES ARE BEING MADE, TO FILE POST-EFFECTIVE
AMENDMENTS TO THE REGISTRATION STATEMENT TO WHICH THIS PROSPECTUS RELATES AND TO
REFLECT THEREIN ANY FACTS OR EVENTS ARISING AFTER THE DATE HEREOF WHICH
REPRESENT A FUNDAMENTAL OR MATERIAL CHANGE IN THE INFORMATION SET FORTH HEREIN
OR IN SUCH REGISTRATION STATEMENT. ANY SUCH AMENDMENTS WILL BE DISSEMINATED TO
STOCKHOLDERS AND WARRANTHOLDERS OF THE COMPANY AFTER THE REQUIRED FILINGS HAVE
BEEN MADE WITH THE SECURITIES AND EXCHANGE COMMISSION AND HAVE BEEN DECLARED
EFFECTIVE.
----------------------
THE COMPANY IS NOT CURRENTLY SUBJECT TO SECTION 14 OF THE SECURITIES
EXCHANGE ACT OF 1934. THE COMPANY WILL FURNISH TO ITS STOCKHOLDERS ANNUAL
REPORTS CONTAINING FINANCIAL INFORMATION EXAMINED AND REPORTED UPON, WITH AN
OPINION EXPRESSED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, SO LONG AS IT IS
REQUIRED TO DO SO. IN ADDITION, THE COMPANY MAY FURNISH UNAUDITED QUARTERLY OR
OTHER INTERIM REPORTS TO ITS STOCKHOLDERS AS IT DEEMS APPROPRIATE.
iv
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 1
Risk Factors .............................................................. 2
Dilution and Other Comparative Data ....................................... 10
Use of Proceeds ........................................................... 12
Business .................................................................. 14
General ......................................................... 14
Investigation and Selection
of Business Opportunities ..................................... 15
Form of Acquisition ............................................. 17
Investment Company Act and Other Regulation ..................... 18
Competition ..................................................... 19
Administrative Offices .......................................... 20
Employees ....................................................... 20
Management ................................................................ 20
Biographical Information ........................................ 20
Remuneration .................................................... 22
Indemnification of Officers and Directors ....................... 22
Exclusion of Liability .......................................... 23
Prior Blind Pool Activities ............................................... 23
Potential Conflicts of Interest ........................................... 24
Certain Transactions with Management and Others ........................... 25
Principal Stockholders .................................................... 26
Description of Securities ................................................. 27
Units ........................................................... 27
Common Stock .................................................... 27
Preferred Stock ................................................. 27
Warrants ........................................................ 27
Transfer and Warrant Agent ...................................... 30
Reports to Stockholders ......................................... 30
Terms of Offering ......................................................... 30
Pricing of Units ................................................ 31
Escrow of Net Proceeds .......................................... 31
Legal Proceedings ......................................................... 31
Legal Matters ............................................................. 31
Experts ................................................................... 31
Additional Information .................................................... 31
Financial Statements ...................................................... F-1
<PAGE>
PROSPECTUS SUMMARY
The following summary is intended to supply selected facts and
highlights from material contained in the body of this Prospectus. More detailed
information may be found in the remainder of the Prospectus. This summary is
qualified in its entirety by the detailed information and financial statements
appearing elsewhere herein.
The Company
Catalina Capital Corp. (the "Company") was incorporated under the laws
of Delaware on April 27, 1990. Its offices are located at the residence of its
Vice President at 12543-A East Pacific Circle, Aurora, Colorado 80014. Its
telephone number is (303) 337-1033.
The Company is a new enterprise in the early promotional and
development stage and has not engaged in any business other than organizational
efforts. It has no full-time employees and owns no real property. The Company
intends, upon successful completion of this offering, to utilize the net
proceeds realized to seek out and take advantage of business opportunities which
may have potential for profit and, to that end, intends to acquire properties or
businesses, or a controlling interest therein. Management of the Company will
have virtually unlimited discretion in determining the business activities in
which the Company will engage. The Company believes that its ability to take
advantage of business opportunities will be enhanced by (1) its willingness to
invest in high risk ventures and businesses, (2) its flexibility in structuring
investments, including the probable surrender of control and replacement of
management, and (3) its status as a publicly held company with liquid assets
that can be deployed quickly.
The Company currently does not own any properties or an interest in
any business. Moreover, it has not identified any properties or business
opportunities which it proposes to acquire, has no understanding or arrangement
to acquire any properties or business interests, and has not identified any
specific geographical area, industry or type of business in which it will seek
to operate. Accordingly, this offering must be considered a "blind pool"
offering. There can be no assurance that the Company will be able to acquire any
properties or business interests available, or that any such acquisition will be
profitable. See "Risk Factors" and "Business."
The Offering
The Company is offering a minimum of 1,500,000 and a maximum of
3,000,000 Units, at the price of $.10 per Unit. Each Unit consists of one share
of Common Stock, par value $.00001 per share, one Class A Warrant, one Class B
Warrant and one Class C Warrant. Each Class A Warrant, Class B Warrant and Class
C Warrant will be exercisable for one share of Common Stock, for a period
commencing with the date of this Prospectus and terminating on the second
anniversary of such date, at a price of $.30, $.75 and $1.30, respectively. Upon
issuance, the Warrants will be detachable and may be transferred separately from
the Common Stock. The Company may redeem the Warrants at a price of $.0001 per
Warrant upon 30 days' written notice, reduce the exercise price or indefinitely
extend the exercise period of the Warrants. See "Description of Securities."
Outstanding Shares
There are 7,300,000 shares of the Company's Common Stock currently
outstanding. Upon conclusion of this offering, there will be 8,800,000 shares
outstanding if the minimum number of Units is sold and 10,300,000 shares if the
maximum number of Units is sold. The number of shares stated does not include
any Common Stock issuable upon exercise of the Warrants.
1
<PAGE>
Use of Proceeds
The proceeds of this offering, net of all expenses of the offering,
are estimated to be $129,500 if the minimum number of Units is sold and $279,500
if all of the Units are sold. These proceeds will be used for general and
administrative expenses, to investigate and evaluate business opportunities and
to acquire properties or business interests, and for working capital. However,
investors should be aware that eighty percent (80%) of the net offering proceeds
($103,600, if the minimum number of Units is sold and $223,600 if the maximum
number of Units is sold) will be subject to an escrow for an indeterminable
period. See "Use of Proceeds."
Risk Factors
Investment in the Units involves an extremely high degree of risk.
Potential investors should consider that the Company is in the early development
stage and has not commenced commercial activities, has no revenues, earnings or
operating history and only limited capitalization, and is dependent upon the
proceeds of this offering to commence operations. Further, the proceeds of this
offering have been allocated only generally, no properties or business interests
for acquisition have been identified, and investors will experience immediate
and substantial dilution in the net tangible book value per share of the Common
Stock acquired as compared to the offering price. In seeking business
opportunities, the Company could incur substantial losses. The Company's present
management has very limited experience in seeking, investigating and acquiring
business opportunities. Moreover, management has other business interests which
may conflict with the Company's interests and will devote relatively little time
to the Company's affairs. See "Risk Factors."
Selected Financial Information
Selected financial information concerning the Company as of June 6,
1990, is given below. This information should be read in conjunction with the
financial statements and notes appearing elsewhere in this Prospectus.
Assets
Cash $10,791
Organizational Cost 492
Deferred Offering Costs 5,385
-------
Total Assets $16,668
=======
Liabilities and Stockholders' Equity
Current Liabilities $ 885
Stockholders' Equity 15,783
-------
Total Liabilities and
Stockholders' Equity $16,668
=======
RISK FACTORS
The purchase of Units in this offering involves extreme risks and the
possibility of the loss of a stockholder's entire investment. A prospective
investor should evaluate all information discussed in this Prospectus and the
risk factors discussed below in relation to his financial circumstances before
investing in the Units.
2
<PAGE>
The Company
1. No Operating History. The Company was formed in April 1990 for the
purpose of raising capital through a public offering of securities and to
acquire a business opportunity. The Company has no operating history, revenues
from operations, or assets other than cash from private sales of stock. The
Company faces all of the risks of a new business and those risks specifically
inherent in the investigation, acquisition, or involvement in a new business
opportunity. Purchase of the securities in this offering must be regarded as
placing funds at a high risk in a new or "start-up" venture with all of the
unforeseen costs, expenses, problems, and difficulties to which such ventures
are subject. See "Use of Proceeds" and "Business."
2. No Assurance of Success or Profitability. There is no assurance
that the Company will acquire a favorable business opportunity. In addition,
even if the Company becomes involved in a business opportunity, there is no
assurance that it will generate revenues or profits, or that the market price of
the Company's Common Stock will be increased thereby. See "Business."
3. Unspecified Use of Proceeds. Net proceeds of this offering are not
specifically allocated. They will be used generally to search for, acquire, or
participate in a business opportunity deemed beneficial by management.
Stockholders of the Company will not be given the opportunity to review or
evaluate the merits of a business opportunity before the Company enters into a
transaction involving such business or business opportunity. Investors will be
entrusting their funds to management, which will determine the specific
expenditure of the funds. This type of offering is known as a "blind pool" and
involves extreme risk and speculation for purchasers. Because the Company
intends to offer the Units to residents of the State of Colorado, investors will
benefit from the protections afforded by the Colorado Securities Act, which
requires the placement in escrow of eighty percent of the net proceeds of the
offering until the completion of a transaction or series of transactions whereby
at least fifty percent of the gross proceeds received from the sale of Units are
committed for use in one or more specific lines of business. See "Business" and
"Use of Proceeds."
4. Possible Business -- Not Identified and Highly Risky. The Company
has not identified and has no commitments to enter into or acquire a specific
business opportunity and therefore can only disclose the risks and hazards of a
business or opportunity that it may enter into in a general manner, and cannot
disclose the risks and hazards of any specific business or opportunity that it
may enter into. An investor can expect a potential business opportunity to be
quite risky. The Company's acquisition of or participation in a business
opportunity will likely be highly illiquid and could result in a total loss to
the Company and its stockholders if the business or opportunity is unsuccessful.
See "Business."
5. Type of Business Acquired. The type of business to be acquired may
be one which desires to avoid effecting its own public offering and the
accompanying expense, delays, and federal and state requirements which purport
to protect investors. Because of the Company's limited capital, it is more
likely than not that any acquisition by the Company will involve other parties
whose primary interest is the acquisition of a publicly traded company.
Moreover, it is also possible that any business opportunity acquired may be
currently unprofitable or present other negative factors.
6. Impracticability of Exhaustive Investigation. The Company's limited
funds and the lack of full-time management will likely make it impracticable to
conduct a complete and exhaustive investigation and analysis of a business
opportunity before the Company commits its capital or other resources thereto.
Management's difficulties are compounded by the effect of the proceeds escrow
imposed by the Colorado Securities Act, which requires the placement in escrow
of eighty percent of the net proceeds of the offering until the completion of a
transaction or series of transactions whereby at least fifty percent of the
gross proceeds received from the sale of Units are committed for use in one or
more specific lines of business. Management decisions, therefore, will likely be
made without detailed feasibility studies, independent analysis, market surveys
and the like which, if the Company had more funds available to it, would be
desirable. The Company will be particularly dependent in
3
<PAGE>
making decisions upon information provided by the promoter, owner, sponsor or
others associated with the business opportunity seeking the Company's
participation. See "Business." and "Use of Proceeds."
7. Lack of Diversification. Because of the limited financing
capabilities of the Company at the present time and upon completion of this
offering, it is unlikely that the Company will be able to diversify its
acquisitions or operations. The Company's probable inability to diversify its
activities into more than one area will subject the Company to economic
fluctuations within a particular business or industry and therefore increase the
risks associated with the Company's operations. See "Business."
8. Possible Reliance upon Unaudited Financial Statements. The Company
generally will require audited financial statements from companies which the
Company proposes to acquire. No assurance can be given, however, that audited
financials will be available to the Company. In cases where audited financials
are unavailable, the Company will have to rely upon unaudited information
received from target companies' management which has not been independently
verified by outside auditors. Moreover, the Company will be subject to the
reporting provisions of the Securities Exchange Act of 1934 and thus will be
required to furnish certain information about significant acquisitions,
including certified financial statements for any business that the Company
acquires. Consequently, acquisition prospects that do not have or are unable to
obtain the required certified statements may not be appropriate for acquisition
so long as the reporting requirements of the Securities Exchange Act of 1934 are
applicable. In addition, Warrantholders may not be able to exercise their
Warrants if the Company acquires a business that does not have audited financial
statements until such time as audited statements become available, because the
Company would be unable to meet the requirements for maintenance of a current
registration statement on file with the Securities and Exchange Commission.
9. Investment Company Regulation. The Company does not intend to
become classified as an "investment company" under the Investment Company Act of
1940 (the "Investment Act"). The Company believes that it will not become
subject to regulation under the Investment Act because (i) the Company will not
be engaged in the business of investing or trading in securities, (ii) any
merger or acquisition undertaken by the Company will result in the Company's
obtaining a majority interest in any such merger or acquisition candidate, and
(iii) the Company intends to discontinue any investment in a prospective merger
or acquisition candidate in which a majority interest cannot be obtained. In the
event that the Company is required to register as an investment company, it
could be expected to incur significant registration and compliance costs. The
Company has obtained no formal determination from the Securities and Exchange
Commission (the "Commission") as to the status of the Company under the
Investment Act and, consequently, any violation of the Investment Act will
subject the Company to materially adverse consequences. Should the Commission
find that the Company is subject to the Investment Act, and direct the Company
to register under such Act, the Company would vigorously resist any such order
or finding. Irrespective of whether the Commission or the Company prevailed in
such dispute, however, the Company would be damaged by the costs and delays
involved. Because the Company will not register under the Investment Act,
investors in the Company will not have the benefit of the various protective
provisions imposed on investment companies by such Act, including requirements
for independent directors. See "Business."
10. Other Regulation. An acquisition made by the Company may be of a
business that is subject to regulation or licensing by federal, state, or local
authorities. Compliance with such regulations and licensing can be expected to
be a time-consuming and expensive process and may limit other investment
opportunities of the Company.
11. Public Investors Will Bear Financial Risks. The Company's present
stockholders have acquired their shares of the Company at an extremely low cost
and consequently have contributed only an insignificant amount of capital to the
Company. The purchasers in this offering will provide virtually all of the
capital that the Company will use in carrying out its business plan and thus
will bear most of the risk of loss, if any, incurred by the Company. See
"Principal Stockholders."
4
<PAGE>
12. Dependence upon Management. The Company will be heavily dependent
upon the skills, talents, and abilities of its management to implement its
business plan. The Company's officers and directors will each devote on average
between five and twenty hours per month to the affairs of the Company, which for
a company such as this that is heavily dependent upon management, may be
inadequate for Company business, and may delay the acquisition of any
opportunity considered. Furthermore, management does not have substantial
experience in seeking, investigating and acquiring businesses and will depend
upon its general business expertise in making decisions regarding the Company's
operations. See "Management." Because investors will not be able to evaluate the
merits of possible business acquisitions by the Company, they should critically
assess the information concerning the Company's management.
13. Lack of Continuity in Management. The Company does not have
employment agreements with its management, and there is no assurance that
persons named herein will manage the Company in the future. In connection with
acquisition of a business opportunity, some or all of the current management of
the Company probably will resign and appoint successors. This may occur without
the vote or consent of the stockholders of the Company. See "Business" and
"Principal Stockholders."
14. Conflicts of Interest. Certain conflicts of interest have existed
and will continue to exist between the Company and its officers and directors.
All have other business interests to which they devote their primary attention,
and each may be expected to continue to do so although management time should be
devoted to the business of the Company. As a result, conflicts of interest may
arise that can be resolved only through exercise by the officers and directors
of such judgment as is consistent with their fiduciary duties to the Company.
See "Potential Conflicts of Interest."
15. Limited Participation of Management. Each of the officers and
directors has full-time outside employment and will be available to participate
in management decisions only on an "as needed" basis which may amount to on
average as little as five hours per month. The amount of time which officers and
directors are able to devote to Company business may be inadequate for Company
business and may delay the acquisition of any opportunity considered.
16. Indemnification of Officers and Directors. The Company's
Certificate of Incorporation provides for the indemnification of its directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses incurred by them in any litigation to which they become
a party arising from their association with or activities on behalf of the
Company. The Company may also bear the expenses of such litigation for any of
its directors, officers, employees or agents, upon such person's promise to
repay the Company therefor if it is ultimately determined that any such person
shall not have been entitled to indemnification. This indemnification policy
could result in substantial expenditures by the Company which it will be unable
to recoup. See "Management - Indemnification of Officers and Directors."
17. Director's Liability Limited. Under the Company's Certificate of
Incorporation, directors of the Company cannot be held liable to the Company for
monetary damages for breach of fiduciary duty as a director except (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for any violation of Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit. This provision does not
affect the liability of any director under federal or applicable state
securities laws. See "Management - Exclusion of Liability."
18. Dependence upon Outside Advisors. To supplement the business
experience of management, the Company may be required to employ accountants,
technical experts, appraisers, attorneys or other consultants or advisors. The
selection of any such advisors will be made by management without any input from
stockholders. Furthermore, it is anticipated that such persons may be engaged on
an "as needed" basis without a continuing fiduciary or other obligation to the
Company.
5
<PAGE>
19. Possible Need for Additional Financing. The Company's funds may
not be adequate to take advantage of any available business opportunities. The
offering may terminate upon the receipt of only the minimum net proceeds of
$129,500, substantially less than the maximum net proceeds of $279,500.
Moreover, investors should be aware that eighty percent of the net proceeds
($103,600 if the minimum number of Units is sold and $223,600 if the maximum
number of Units is sold) will be subject to an escrow for an indeterminable
period. See "Use of Proceeds." Even if the Company has sufficient funds to
acquire an interest in a business opportunity, it may not have sufficient
capital to exploit the opportunity. The ultimate success of the Company may
depend upon its ability to raise additional capital. The Company has not
investigated the availability, source, or terms that might govern the
acquisition of additional capital and will not do so until it determines a need
for additional financing. If additional capital is needed, there is no assurance
that funds will be available from any source or, if available, that they can be
obtained on terms acceptable to the Company. If not available, the Company's
operations will be limited to those that can be financed with its modest
capital. See "Use of Proceeds" and "Business."
20. Leveraged Transactions. There is a possibility that any
acquisition of a business opportunity by the Company may be leveraged, i.e., the
Company may finance the acquisition of the business opportunity by borrowing on
the assets of the business opportunity to be acquired, on the projected future
revenues, or the profitability of the business opportunity. This could increase
the Company's exposure to larger losses. A business opportunity acquired through
a leveraged transaction is profitable only if it generates enough revenues to
cover the related debt and expenses. Failure to make payments on the debt
incurred to purchase the business opportunity could result in the loss of a
portion or all of the assets acquired. There is no assurance that any business
opportunity acquired through a leveraged transaction will generate sufficient
revenues to cover the related debt and expenses, and investors should be aware
that the Company has not established any specific criteria or plan in connection
with analyzing whether, and to what extent, a particular candidate's operations
can support the leverage the Company would incur in a leveraged buy-out.
Investors should also be aware of the high default rate experienced recently by
entities entering into leveraged transactions, many of which defaults resulted
from overly optimistic analyses and income projections.
21. Competition. The search for potentially profitable business
opportunities is intensely competitive. The Company expects to be at a
disadvantage when competing with many firms that have substantially greater
financial and management resources and capabilities than the Company. These
competitive conditions will exist in any industry in which the Company may
become interested. See "Business."
22. No Foreseeable Dividends. The Company has not paid dividends on
its Common Stock and does not anticipate paying dividends on its Common Stock in
the foreseeable future.
23. Loss of Control by Present Management and Stockholders. The
Company may consider an acquisition in which the Company issues a substantial
amount of its authorized but unissued Common Stock (80% or more control) as
consideration for any business opportunity acquired. The result of such
acquisition would be that the acquired Company's stockholders and management
would control the Company, and the Company's management could be replaced by
persons unknown at this time. Such a merger could leave the investors in this
offering with stock worth substantially less than the price paid in this
offering, and a greatly reduced percentage of ownership of the Company.
Management could sell its control block of stock at a premium price to the
acquired company's stockholders, although management has no present plans to do
so. See "Certain Transactions with Management and Others."
24. Dilutive Effects of Issuing Additional Common Stock. The vast
majority of the Company's authorized but unissued Common Stock will remain
unissued after this offering, even if all Units offered are sold and all
Warrants offered are exercised. The board of directors of the Company has
authority to issue such unissued shares without the consent or vote of the
stockholders of the Company. The issuance of these shares may further dilute the
interests of investors purchasing in this offering and will reduce their
proportionate ownership and voting power in the Company.
6
<PAGE>
The Offering
25. Determination of Offering and Exercise Price. The price at which
the Units are being offered to the public and the exercise prices of the
Warrants have been arbitrarily determined by the Company. Such prices bear no
direct relationship to the Company's assets, net worth or prospects, or to any
other recognized criteria of value.
26. Loss of Beneficial Use of Subscription Funds. Under the terms of
this offering, subscription funds for Units will be deposited into escrow and
held for the offering period of 90 days (up to 180 days, if extended), or until
this offering is abandoned or closed, whichever occurs first. The Company has
reserved the right to reject any subscription, and cancel any confirmation of
sale issued, in whole or in part, prior to closing, even if the subscriber's
funds are held in escrow until the offering is abandoned or closed, warranting
only to refund such funds as promptly as shall be practicable after abandonment
or closing, as the case may be. In this regard, the investor should be aware
that under specified circumstances federal law, including the Expedited Funds
Availability Act of 1988 and Regulation CC (pertaining to the availability of
funds and the collection of checks), permits a bank to withhold payment of funds
on a deposit made by a check drawn on a "nonlocal" bank for up to seven working
days pending collection of the check through the applicable bank check clearing
system. As a result, monies derived from a subscription payment that shall have
been made by check may not be available to the Company, either for closing of
the offering or for possible refund to the subscriber following a rejection of
all or a portion of the subscription or the abandonment of the offering, until
as many as seven business days following the subscriber's tender of the
subscription funds to the bank. It is anticipated that a decision to reject all
or a portion of a given subscription shall not be made until on or near the date
of closing of the offering. Assuming that, consistent with federal law as
described above, funds for a particular subscription have become available to
the Company for refund, it is likely that approximately one working day will be
required for the Company to notify the escrow bank that a refund of all or a
portion of the subscription funds should be made and for the bank to prepare and
mail a refund check to the subscriber. The date upon which a refund check would
be mailed will depend, therefore, upon the relationship between the date upon
which a subscription check shall have been tendered and the date upon which the
offering shall have been closed or abandoned. The closer the tender shall be to
the date of closing or abandonment, the longer the mailing of the refund check
is likely to be delayed, up to a total of approximately eight working days
following closing or abandonment. Subscribers could thus lose the beneficial use
of their subscription funds for up to approximately 190 calendar days, without
interest, and there is no guarantee that the subscriber will receive any or all
of the Units subscribed for, even if the offering closes. Moreover, no method
has been determined by which to prorate subscriptions should the offering be
over-subscribed, and no proration may be made.
27. Control by Present Stockholders. After completion of this
offering, the present stockholders will own approximately 83% of the outstanding
Common Stock, assuming that only the minimum number of Units is sold, and
approximately 71%, assuming that the maximum number of Units is sold. These
figures do not take into account any Units in this offering which may be
purchased by present stockholders, though no arrangements have been made, and
the Company does not anticipate any future arrangements, whereby shares of the
offering are reserved for sale to such persons. Because the Company's
Certificate of Incorporation does not permit cumulative voting for the election
of directors, it is likely that public purchasers of Units will not have the
power to elect a single director and, as a practical matter, the present
stockholders will have the power to elect all directors and effectively control
the Company. See "Description of Securities" and "Principal Stockholders."
28. Sale of Minimum Number of Units. This offering is being made on a
"best efforts, minimum-maximum" basis. If only the minimum number of Units is
sold, the Company's operations and the scope of business opportunities open to
it will be significantly curtailed. The degree of risk to investors in that
event will be increased correspondingly.
7
<PAGE>
29. No Public Market Exists. There currently is no public market for
the Units, Common Stock or Warrants being offered, and no assurance can be given
that a market will develop subsequent to this offering or that purchasers will
be able to resell their securities at the public offering price, or that a
purchaser will be able to liquidate his investment without considerable delay,
if at all. If a market does develop, the price may be highly volatile. Factors
such as those discussed in this "Risk Factors" section may have a significant
impact upon the market price of the securities offered hereby. Due to the low
price of the securities, many brokerage firms may not be willing to effect
transactions in the securities. Even if a purchaser finds a broker willing to
effect a transaction in these securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling costs may
exceed the selling price. Further, many lending institutions will not permit the
use of such securities as collateral for any loans.
30. No Market Maker - Possible Dominance of Market by Single Market
Maker. Even if the Company proves to be successful in selling the Units offered
hereunder, and the Company's securities become eligible to be traded by
securities brokers and dealers which are members of the National Association of
Securities Dealers, Inc. ("NASD") in the "pink sheets" maintained by the
National Quotation Bureau, Inc., the Company has no agreement with any NASD
member to act as a market maker for the Company's securities. If the Company is
unsuccessful in obtaining one or more market makers for the Company's
securities, the trading level and price of the Company's securities will be
materially and adversely affected. If the Company is successful in obtaining
only one market maker for the Company's securities, the market maker would in
effect dominate and control the market for such securities. Although management
intends to contact several broker-dealers concerning their possible
participation as a market maker in the Company's securities following the
conclusion of this offering, there is no assurance management will be successful
in obtaining any market makers for the Company's securities.
31. Dilution. The Company's present stockholders, including officers,
directors and founders, have acquired their controlling interest in the Company
at an average weighted cost that is substantially less than the public offering
price of the Units. Public purchasers of Units will suffer immediate and
substantial dilution of $.0836 per share of Common Stock (83.6%), assuming the
sale of only the minimum number of Units, and $.0714 per share of Common Stock
(71.4%), assuming the sale of all Units being offered. These calculations do not
take into account the issuance of up to an additional 9,000,000 shares of Common
Stock if all Warrants are exercised, which event could result in a further
dilution of the net tangible book value per share of the shares outstanding at
such time, if the net tangible book value of the Common Stock then exceeds the
Warrant exercise price. See "Dilution and Other Comparative Data."
32. Benefit to Present Stockholders. Because present stockholders
acquired their shares at prices substantially lower than the offering price of
the Units, they will experience an increase in the present net tangible book
value of their shares amounting to $.0l51, assuming sale of the minimum number
of Units, and $.0273, assuming sale of all the Units being offered. See
"Dilution and Other Comparative Data."
33. Preferred Shares Authorized. The Certificate of Incorporation of
the Company authorizes issuance of a maximum of 20,000,000 Preferred Shares, par
value $.00001 per share. While no Preferred Shares have been issued or are
outstanding on the date of this Prospectus and there is no plan to issue any in
the foreseeable future, if issued, the terms of a series of Preferred Shares
could operate to the significant disadvantage of the holders of outstanding
Common Shares. Such terms could include, among others, preferences as to
dividends, possible voting rights, and distributions on liquidation. See
"Description of Securities - Preferred Stock."
34. Possible Rule 144 Sales. All of the outstanding shares of Common
Stock held by present stockholders are "restricted securities" as defined by
Rule 144 under the Securities Act of 1933, as amended. As restricted shares,
these shares may be resold only pursuant to an effective registration statement
or under the requirements of Rule 144 or other applicable exemption from
registration under the Act and as required under applicable state securities
laws. Rule 144 provides in essence that a person who has held restricted
securities for a period of two years may, under certain conditions, sell every
three months, in brokerage transactions, a
8
<PAGE>
number of shares which does not exceed the greater of 1.0% of a company's
outstanding common stock or the average weekly trading volume during the four
calendar weeks prior to the sale. There is no limit on the amount of restricted
securities that may be sold by a nonaffiliate after the restricted securities
have been held by the owner for a period of three years. A sale under Rule 144
or any other exemption from the Act, if available, or subsequent registrations
of shares of Common Stock of present stockholders, may have a depressive effect
upon the price of the Common Stock in any market that may develop. A total of
5,000,000 shares of Common Stock will become available for sale under Rule 144
beginning in April 1992, and an additional 2,300,000 shares will become
available for sale under Rule 144 beginning in May 1992, all of which will be
subject to applicable volume restrictions under the Rule.
35. Market Overhang of Warrants. The Warrants offered as part of the
Units are detachable and may be separately traded and quoted, if a market for
the Warrants develops. Each Warrant is exercisable for one share of Common Stock
for a period commencing on the date of this Prospectus and terminating on the
second anniversary thereof. Each Class A Warrant, each Class B Warrant and Class
C Warrant carries an exercise price of $.30, $.75 and $1.30, respectively.
Exercise of the Warrants can be expected to have an adverse effect on the
trading price of and market for the Common Stock, if any such market develops.
Even if a public market for the Common Stock develops, it is unlikely that
normal market forces will cause an increase in the bid price of the Common Stock
to the level of the exercise price of the Warrants. It is possible that so long
as the Warrants remain outstanding their existence will prevent a rise in the
price of the Common Stock higher than the exercise price of any of the Warrants.
See "Description of Securities - Warrants."
36. Exercise of Warrants Uncertain. Because of the lack of a market
for the Warrants and the uncertainty of the Company's potential for success, the
Warrants may not be exercised before they expire, with the result that no
Warrant proceeds would be received by the Company. The Warrants may be exercised
only at a time when a current prospectus is in effect and only if the shares are
qualified for sale under applicable securities laws of the states in which the
various Warrantholders reside. Although the Company intends to use its best
efforts to keep this Prospectus current during the Warrant exercise periods,
there is no assurance that it will do so or that it will be financially able to
do so. See "Description of Securities - Warrants." Investors should be aware
that proceeds received by the Company from the exercise of Warrants may be
subject to the escrow provisions contained in the Colorado Securities Act. See
"Use of Proceeds."
37. Possible Redemption of Warrants without Notice. The Company is
entitled to redeem the Warrants without prior notice to the warrantholders
should the representatives of a business opportunity with which the Company
wishes to combine require, as a condition to consummation of the combination,
that the Warrants be redeemed. Under these circumstances, the warrantholder will
have no opportunity to exercise the purchase rights under the Warrants prior to
redemption. See "Description of Securities - Warrants."
38. Substantial Offering Expenses. The Company estimates that it will
incur expenses of $20,500 in connection with this offering. These expenses are
substantial, especially in view of the amount to be raised by this offering, and
will significantly decrease the amount of net offering proceeds which otherwise
would be available to the Company. See "Use of Proceeds."
39. Lack of Underwriter. The minimum number of Units is being offered
by the Company and its officers and directors on a "best efforts, all-or-none"
basis and the Company has not retained an underwriter or selected broker-dealer
to assist the Company in offering the Units. The officers and directors of the
Company collectively have little experience in the offer and sale of securities
on behalf of an issuer. Consequently, these individuals may be unable to effect
a sale of the Units without the assistance of a broker-dealer. Should it prove
necessary for the Company to retain a broker-dealer, the offering of the Units
would be suspended until an amendment to the Company's Registration Statement,
including this Prospectus, shall have been made to reflect such retention. The
Registration Statement would then require additional review and clearance by the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., and state regulatory authorities. The Company could be expected
to incur significant additional legal and accounting costs if further reviews
were
9
<PAGE>
required to be undertaken by governmental authorities. There is no assurance
that the Company shall prove to be capable of selling all, or any, of the Units
offered without the assistance of an underwriter or broker-dealer. See "Terms of
Offering."
40. Blue Sky Considerations. It is entirely possible that, because of
exemptions from registration contained in certain state securities laws, the
Warrants contained in the Units lawfully may be sold to residents of such states
in any aftermarket which may develop for the Warrants. Nevertheless, the
securities laws of such states may prevent the exercise of such Warrants by
residents of those states because the common shares underlying the Warrants were
never registered there. In this event, holders of the Warrants in those states
would be forced to sell their Warrants or hold them until they expire, without
any opportunity to exercise the Warrants.
41. Broker-Dealer Sales of Company's Registered Securities. The
Company's Units, Common Stock and Warrants are covered by a Securities and
Exchange Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of purchasers in this offering to sell their securities in
the secondary market.
42. Impact of Amendments to the Colorado Securities Act. Effective
July 1, 1990, the State of Colorado repealed its prior securities laws and
enacted the Colorado Securities Act, which provides that where less than
seventy-five percent of the net proceeds from the sale of securities are
committed for use in one or more specific lines of business, eighty percent of
the net proceeds received by the issuer shall be placed in escrow until (i)
completion of a transaction or series of transactions whereby at least fifty
percent of the gross proceeds received from the sale of securities are committed
for use in one or more specific lines of business, and (ii) notice of the
proposed release of the escrowed funds has been on file with the Colorado
Division of Securities for at least ten days. The Company intends to make offers
of the Company's Units to residents of Colorado, and, accordingly, anticipates
that this offering will be subject to the above-described escrow provisions. In
such event, the use of proceeds table shall not be affected except that certain
allocated funds may not be available for payment until funds are released from
the escrow. As such, investors should be aware that since many providers of
goods and services require compensation for such goods and services at the time
or soon after the time rendered, the inability of the Comapny to pay until an
indeterminate future time may make it difficult to procure goods and services.
Moreover, while the Company intends to set aside out of the non-escrowed net
proceeds sufficient funds for auditing work, investors should be aware that
unpaid fees are generally regarded as an impediment to independence and may make
it impossible for the Company's auditors to perform an independent audit.
Imposition of the escrow provisions may require the Company to seek additional
financing for payment of administrative and overhead expenses until such time,
if ever, the Company can successfully complete a business combination whereby
proceeds from the offering are committed to a specific line of business and the
proceeds in escrow are released. In addition, the provisions of the Colorado
Securities Act will apply to proceeds of any exercise of Warrants prior to the
completion of a transaction meeting the requirements of the Colorado Securities
Act. See "Use of Proceeds."
DILUTION AND OTHER COMPARATIVE DATA
The net tangible book value of the Common Stock at June 6, 1990, was
$9,906, or approximately $.0014 per share. That per-share value will be
increased as a result of this offering to approximately $.0165 if the minimum is
sold and $.0286 if the maximum is sold (without adjustment for other changes in
net tangible book value subsequent to such date), resulting in immediate,
substantial dilution to public investors of $.0836 (83.6%) per share if the
minimum is sold and $.0714 (71.4%) per share if the maximum is sold. Dilution is
the reduction
10
<PAGE>
in value of the purchaser's investment measured by the difference between the
$.10 price per Unit in the public offering and the net tangible book value per
share after completion of the offering.
<TABLE>
The following table, which assumes the successful completion of the
offering described herein by the sale of 1,500,000 Units (minimum) and 3,000,000
Units (maximum), illustrates the per-share dilution to investors in this
offering, without giving effect to the issuance of up to 9,000,000 shares of
Common Stock upon exercise of the Warrants included in the Units.
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
Public offering price per Unit $.10 $.10
Net tangible book value per share at
June 6, 1990 (1) $.0014 $.0014
Pro forma net tangible book value after
the offering $144,791(2) $294,791(3)
Pro forma net tangible book value per share
after the offering (1) $.0165 $.0286
Increase, attributable to purchases by
investors in this offering, in net
tangible book value per share of
currently outstanding shares $.0151 $.0273
Dilution per share to public investors $.0836 $.0714
Dilution as a percentage of offering price 83.6% 71.4%
- -------------------
<FN>
(1) Net tangible book value per share is determined by dividing
the number of Common Shares outstanding into the total
tangible assets less total liabilities of the Company.
(2) The figure shown is the sum of the net tangible book value of
$9,906 at June 6, 1990, plus proceeds of $150,000 from the
sale of the minimum number of Units in this offering, minus
registration costs (anticipated registration costs of $20,500
less deferred offering costs of $5,385) of $15,115.
(3) The figure shown is the sum of the net tangible book value of
$9,906 at June 6, 1990, plus proceeds of $300,000 from the
sale of the maximum number of Units in this offering, minus
registration costs (anticipated registration costs of $20,500
less deferred offering costs of $5,385) of $15,115.
</FN>
</TABLE>
Upon successful conclusion of this offering, the public investors will
own 1,500,000 shares (minimum) or 3,000,000 shares (maximum) (approximately 17%
in case of the minimum or approximately 29% in case of the maximum) of the
issued and outstanding Common Stock, for which they will have paid $.10 per
Unit. This compares with 7,300,000 shares of Common Stock acquired from the
Company since inception by officers, directors and founders at a cost of
$16,000, or approximately $.0022 per share, and which will constitute
approximately 83% of the issued and outstanding Common Stock following this
offering if the minimum is sold, or approximately 71% if the maximum is sold.
11
<PAGE>
<TABLE>
The table set forth below summarizes the difference between the number
of shares of Common Stock purchased from the Company, the average price per
share, and the aggregate consideration paid by existing stockholders and public
investors.
<CAPTION>
Minimum Offering
Pct. of Average Percent
Shares Total Price/ Total of Total
Purchased Shares Share Consideration Consideration
--------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Present
Stockholders 7,300,000 83.0% $.0022 $ 16,000 9.6%
Public Investors 1,500,000 17.0% $.10 150,000 90.4%
--------- ----- -------- -----
Total 8,800,000 100.0% $166,000 100.0%
========= ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
Maximum Offering
Pct. of Average Percent
Shares Total Price/ Total of Total
Purchased Shares Share Consideration Consideration
---------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Present
Stockholders 7,300,000 70.9% $.0022 $ 16,000 5.1%
Public Investors 3,000,000 29.1% $.10 300,000 94.9%
---------- ---- -------- -----
Total 10,300,000 100.0% $316,000 100.0%
========== ===== ======== =====
</TABLE>
USE OF PROCEEDS
The Company will receive net proceeds from this offering, after
deducting offering-related expenses, of approximately $129,500 if the minimum
number of Units is sold and $279,500 if the maximum number is sold; however,
investors should be aware that eighty percent of the net proceeds ($103,600 if
the minimum number of Units is sold and $223,600 if the maximum number of Units
is sold) will be subject to an escrow for an indeterminable period. See Note (6)
below. Net proceeds are anticipated to be used in the order of priority shown
below:
Minimum Maximum
Amount Amount
------ ------
General and Administrative:
Legal (1) $ 10,000 $ 10,000
Accounting 2,000 2,000
Miscellaneous 1,000 1,000
Officer Salaries (2) 9,000 9,000
Expenses of Investigating and
Evaluating a Prospective
Business Opportunity:
Travel $ 1,500 $ 6,000
Finders (3)(4) 15,000 30,000
Legal (5) 14,000 14,000
Accounting 2,500 2,500
Unallocated Proceeds
Available for
Acquisitions & Mergers (4) $ 75,000 $205,000
-------- --------
Total Proceeds (6) $129,500 $279,500
======== ========
12
<PAGE>
(1) The figures shown reflect general corporate and securities
compliance work only.
(2) Commencing after completion of this offering, each of the
Company's two officers will be compensated at a rate of $45 per hour for time
devoted to the affairs of the Company in excess of five hours per month, limited
only by a cap of $1,500 per month and a total cap of $4,500 on each officer's
salary during the Company's first year in operation.
(3) Should the Company complete the acquisition of a business
opportunity, the Board of Directors may award a finder's fee to an officer or
affiliate of the Company, or to a third party, if the acquisition is originated
as a result of his efforts. The cash portion of this fee, in the aggregate, if
paid to officers or affiliates, will not exceed 10% of the gross proceeds of the
offering and may be less.
(4) All of these proceeds will be segregated from the remainder of the
net proceeds and placed into a bank account or other temporary investment,
subject to the escrow provisions contained in the newly enacted Colorado
Securities Act. See Note (6).
(5) A portion of these proceeds will be segregated from the remainder
of the net proceeds and placed into a bank account or other temporary
investment, subject to the escrow provisions contained in the newly enacted
Colorado Securities Act. See Note (6) below. Specifically, all but $400 of the
proceeds allocated for payment of legal fees will be subject to the escrow if
only the minimum number of Units is sold, and all but $6,800 of those proceeds
will be subject to the escrow if the maximum number of Units is sold.
(6) Effective July 1, 1990, the State of Colorado repealed its prior
securities laws and enacted the Colorado Securities Act, which provides that
where less than seventy-five percent of the net proceeds from the sale of
securities are committed for use in one or more specific lines of business,
eighty percent of the net proceeds received by the issuer shall be placed in
escrow until (i) completion of a transaction or series of transactions whereby
at least fifty percent of the gross proceeds received from the sale of
securities are committed for use in one or more specific lines of business, and
(ii) notice of the proposed release of the escrowed funds has been on file with
the Colorado Division of Securities for at least ten days. The Company intends
to make offers of the Company's Units to residents of Colorado, and,
accordingly, anticipates that this offering will be subject to the
above-described escrow provisions. In such event, the use of proceeds table
shall not be affected except that certain allocated funds may not be available
for payment until funds are released from the escrow. As such, investors should
be aware that since many providers of goods and services require compensation
for such goods and services at the time or soon after the time rendered, the
inability of the Comapny to pay until an indeterminate future time may make it
difficult to procure goods and services. Moreover, while the Company intends to
set aside out of the non-escrowed net proceeds sufficient funds for auditing
work, investors should be aware that unpaid fees are generally regarded as an
impediment to independence and may make it impossible for the Company's auditors
to perform an independent audit. See "Risk Factors - Impact of Amendments to the
Colorado Securities Act."
The table set forth above reflecting the use of proceeds is merely the
Company's good-faith estimate. Because the Company has no agreements or
understandings, preliminary or otherwise, for any future acquisitions and has no
specific enterprises targeted for acquisition, the Company is unable to make a
specific allocation of the net proceeds of this offering. Subsequent events may
require a reallocation of available funds affecting one or more of the above
listed categories of expenditure. Any such reallocation will be at the
discretion of the Company's Board of Directors. The allocations reflected in the
table also do not provide for any revenues generated by the Company's
operations, if any, or operations of any business opportunity which may be
acquired, during the one-year period following the closing of this offering.
Should the sale of Units result in proceeds of less than the maximum amount but
greater than the minimum amount, the use of proceeds will be adjusted among the
categories of expenditure as management deems best.
13
<PAGE>
Since the Company does not know to what extent, if any, the Warrants
may be exercised, and because it is unlikely that such Warrants will ever be
exercised, the Company has not made specific plans for the use of proceeds which
might be received upon the exercise of such Warrants. Investors should be aware
that if less than seventy-five percent of the net proceeds from the exercise of
Warrants is committed for use in one or more specific lines of business, the
proceeds from the exercise of Warrants will likely be placed in an escrow
pursuant to the Colorado Securities Act. See Note (6) above.
Subject to certain escrow requirements described above, all funds not
being utilized by the Company will be held in interest-bearing accounts or
investments in commercial financial institutions until such time as it appears
the funds will be required. See "Risk Factors - The Company - Investment Company
Regulation." Other than interest income, the Company does not at this time
anticipate generating revenues unless and until an acquisition candidate is
identified, and a business combination consummated with such candidate, in which
case the Company may begin to generate revenues from operations, depending on
the performance of the newly acquired business.
BUSINESS
General
The Company was incorporated under the laws of the State of Delaware
on April 27, 1990, and is in the early developmental and promotional stages. To
date the Company's only activities have been organizational, directed at the
raising of capital. The Company has not commenced any commercial operations and
is entirely dependent upon the successful completion of this offering to do so.
The Company has no full-time employees and owns no real estate.
The Company proposes to implement a business plan to seek,
investigate, and, if warranted, acquire one or more properties or businesses.
Such an acquisition may be made by purchase, merger, exchange of stock or
otherwise, and may encompass assets or a business entity, such as a corporation,
joint venture or partnership. Even if the maximum number of Units is sold, the
Company will have limited capital, and it is unlikely that the Company will be
able to take advantage of more than one such business opportunity. The Company
intends to seek opportunities demonstrating the potential of long-term growth as
opposed to short-term earnings.
At the present time the Company has not identified any business
opportunity that it plans to pursue, nor has the Company reached any agreement
or definitive understanding with any person concerning an acquisition. No
assurance can be given that the Company will be successful in finding or
acquiring a desirable business opportunity, given the limited funds that are
expected to be available for acquisitions, or that any acquisition that occurs
will be on terms that are favorable to the Company or its stockholders.
The Company's search will be directed toward small and medium-sized
enterprises. The Company anticipates that the business opportunities presented
to it will (i) be recently organized with no operating history, or a history of
losses attributable to under-capitalization or other factors; (ii) be
experiencing financial or operating difficulties; (iii) be in need of funds to
develop a new product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept; or (v) have a combination of the
characteristics mentioned in (i) through (iv). The Company intends to
concentrate its acquisition efforts on properties or businesses which it
believes to be undervalued. Given the above factors, investors should expect
that any acquisition candidate may have a history of losses or low
profitability.
The Company does not propose to restrict its search for investment
opportunities to any particular geographical area or industry, and may,
therefore, engage in essentially any business, to the extent of its limited
resources. This includes industries such as service, finance, natural resources,
manufacturing, high technology, product development, medical, communications and
others. The Company's discretion in the selection of business opportunities is
unrestricted, subject to the availability of those opportunities, economic
conditions and
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other factors. In addition, because of the impact of the proceeds escrow imposed
by the Colorado Securities Act, it can be expected that the Company will
consider only those business combinations that, when consummated, will result in
at least fifty percent of the gross proceeds from the offering being committed
for use in one or more specific lines of business. See "Use of Proceeds."
As a consequence of this offering, the Company may be acquired by
another entity that desires to become a public company while avoiding the
registration requirements of the federal securities laws. In connection with
such acquisition, it is highly likely that an amount of stock constituting
control of the Company would be issued by the Company or purchased from current
officers and directors by the acquiring entity. If stock is purchased from
officers and directors, the transaction could result in substantial gains to
such officers and directors relative to their original purchase price for such
stock. In the Company's judgment, its officers and directors would not thereby
become "underwriters" within the meaning of the Section 2(11) of the Securities
Act of 1933, as amended.
It is anticipated that business opportunities will come to the
Company's attention from various sources, including its officers and directors,
professional advisors such as attorneys and accountants, securities
broker-dealers, venture capitalists, members of the financial community, and
others who may present unsolicited proposals. The Company has no plans,
understandings, agreements or commitments with any individuals for such persons
to act as a finder of opportunities for the Company.
The Company does not foresee that it would purchase an interest in or
enter into a contract with any business with which an officer or director of the
Company is affiliated. Should the Company's management determine in the future,
contrary to management's current expectations, that a transaction with an
affiliate would be in the best interests of the Company and its stockholders,
the Company's Certificate of Incorporation would permit the Company to enter
into such a transaction only if (i) the Board of Directors of the Company has
been apprised of the relationship or interest of the officer and director and a
disinterested majority of the board members have approved the transaction, or
(ii) the stockholders of the Company have been informed of the relationship or
interest and approve the transaction, or (iii) the transaction is fair and
reasonable to the Company.
Investigation and Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality of the other
company's management and personnel, the anticipated acceptability of new
products or marketing concepts, the merit of technological changes, and numerous
other factors which are difficult, if not impossible, to analyze through the
application of any objective criteria. In many instances, it is anticipated that
the historical operations of a specific firm may not necessarily be indicative
of the potential for the future because of the possible need to shift marketing
approaches substantially, expand significantly, change product emphasis, change
or substantially augment management, or make other changes. Because of the lack
of training or experience of the Company's management, the Company will be
dependent upon the owners of a business opportunity to identify such problems
and to implement, or be primarily responsible for the implementation of,
required changes. Because the Company may participate in a business opportunity
with a newly organized firm or with a firm which is entering a new phase of
growth, it should be emphasized that the Company will incur further risks, since
management in many instances will not have proved its abilities or
effectiveness, the eventual market for such company's products or services will
likely not be established, and such company may not be profitable when acquired.
It is anticipated that the Company will not be able to diversify, but
will essentially be limited to one such venture because of the Company's limited
financing. This lack of diversification will not permit the Company to offset
potential losses from one business opportunity against profits from another, and
should be considered an adverse factor affecting any decision to purchase the
Company's securities.
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It is emphasized that management of the Company may effect
transactions having a potentially adverse impact upon the public investors
pursuant to the authority of the Company's Board of Directors to complete
acquisitions without submitting any proposal to the stockholders for their
consideration. In some instances, however, the proposed participation in a
business opportunity may be submitted to the stockholders for their
consideration, either voluntarily by the Board of Directors to seek the
stockholders' advice and consent or because state law so requires.
The analysis of business opportunities will be undertaken by or under
the supervision of the officers and directors, none of whom is a professional
business analyst or has any previous training or significant experience in
business analysis. See "Management." The Company will have unrestricted
flexibility in seeking, analyzing and participating in business opportunities;
however, because of the impact of the proceeds escrow imposed by the Colorado
Securities Act, it can be expected that the Company will consider only those
business combinations that, when consummated, will result in at least fifty
percent of the gross proceeds from the offering being committed for use in one
or more specific lines of business. See "Use of Proceeds." Otherwise, the
Company anticipates that it will consider, among other things, the following
factors:
(a) Potential for growth and profitability, indicated by new
technology, anticipated market expansion or new products;
(b) Competitive position as compared to other companies of similar size
and experience within the industry segment as well as within the industry as a
whole;
(c) Strength and diversity of existing management, or management
prospects that are scheduled for recruitment;
(d) Capital requirements and anticipated availability of required
funds, to be provided by the Company or from operations, though the sale of
additional securities, through joint ventures or similar arrangements or from
other sources;
(e) The cost of participation by the Company as compared to the
perceived tangible and intangible values and potential;
(f) The extent to which the business opportunity can be advanced;
(g) The Company's perception of how any particular business opportunity
will be received by the investment community and by the Company's stockholders;
(h) The accessibility of required management expertise, personnel, raw
materials, services, professional assistance and other required items; and
(i) Whether the financial condition of the business opportunity would
be, or would have a significant prospect in the foreseeable future to become,
such as to permit the securities of the Company, following the business
combination, to qualify to be listed on a national automated securities
quotation system, such as NASDAQ, so as to permit the trading of such securities
to be exempt from the requirements of Rule 15c2-6 recently adopted by the
Securities and Exchange Commission. See "Risk Factors - Broker-Dealer Sales of
Company's Registered Securities."
In regard to the last criterion listed above, the current standards
for NASDAQ listing include the requirements that the issuer of the securities
that are sought to be listed have total assets of at least $2,000,000 and net
assets of at least $1,000,000. A proposal that is currently under consideration
would raise those requirements to $4,000,000 and $2,000,000, respectively.
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Many, and perhaps most, of the business opportunities that might be
potential candidates for a combination with the Company would not satisfy the
current and proposed NASDAQ listing criteria. To the extent that the Company
seeks potential NASDAQ listing, therefore, the range of business opportunities
that shall be available for evaluation and potential acquisition by the Company
shall be significantly limited.
In applying the foregoing criteria, no one of which will be
controlling, management will attempt to analyze all factors appropriate to the
opportunity and make a determination based upon reasonable investigative
measures and available data. Potentially available business opportunities may
occur in many different industries and at various stages of development, all of
which will make the task of comparative investigation and analysis of such
business opportunities extremely difficult and complex. Potential investors must
recognize that, because of the Company's limited capital available for
investigation and management's limited experience in business analysis, the
Company may not discover or adequately evaluate adverse facts about the
opportunity to be acquired.
The Company is unable to predict when it may participate in a business
opportunity. It expects, however, that the analysis of specific proposals and
the selection of a business opportunity may take several months or more, and
persons should not purchase Units in the offering if they expect a short-term
appreciation in the value of the Company's securities. It is unlikely that prior
to consummating a business combination, the Company will have any funds
available to be loaned to the target company because eighty percent of the net
proceeds will be subject to an escrow and not available for purposes of a loan
to the target company. See "Use of Proceeds."
Prior to making a decision to participate in a business opportunity,
the Company will generally request that it be provided with written materials
regarding the business opportunity containing such items as a description of
product, service and company history; management resumes; financial information;
available projections, with related assumptions upon which they are based; an
explanation of proprietary products and services; evidence of existing patents,
trademarks or services marks or rights thereto; present and proposed forms of
compensation to management; a description of transactions between such company
and its affiliates during relevant periods; a description of present and
required facilities; an analysis of risks and competitive conditions; a
financial plan of operation and estimated capital requirements; audited
financial statements; and other information deemed relevant.
As part of the Company's investigation, officers and directors may
meet personally with management and key personnel, may visit and inspect
material facilities, obtain independent analysis or verification of certain
information provided, check references of management and key personnel, and take
other reasonable investigative measures, to the extent of the Company's limited
financial resources and management expertise.
Form of Acquisition
It is impossible to predict the manner in which the Company may
participate in a business opportunity; however, because of the impact of the
proceeds escrow imposed by the Colorado Securities Act, it can be expected that
the Company will consider only those business combinations that, when
consummated, will result in at least fifty percent of the gross proceeds from
the offering being committed for use in one or more specific lines of business.
See "Use of Proceeds." Specific business opportunities will be reviewed as well
as the respective needs and desires of the Company and the promoters of the
opportunity and, upon the basis of that review and the relative negotiating
strength of the Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected. Such structure may include, but
is not limited to leases, purchase and sale agreements, licenses, joint ventures
and other contractual arrangements. The Company may act directly or indirectly
through an interest in a partnership, corporation or other form of organization.
Implementing such structure may require the merger, consolidation or
reorganization of the Company with other corporations or forms of business
organization, and there is no assurance that the Company would be the surviving
entity. In
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addition, the present management and the stockholders of the Company purchasing
securities in this offering most likely will not have control of a majority of
the voting shares of the Company following a reorganization transaction. As part
of such a transaction, all or a majority of the Company's directors may resign
and new directors may be appointed without any vote by stockholders.
It is likely that the Company will acquire its participation in a
business opportunity through the issuance of Common Stock or other securities of
the Company. Although the terms of any such transaction cannot be predicted, it
should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under the
Internal Revenue Code of 1986, depends upon the issuance to the stockholders of
the acquired company of up to 80% of the common stock of the combined entities
immediately following the reorganization. If a transaction were structured to
take advantage of these provisions rather than other "tax free" provisions
provided under the Internal Revenue Code, the Company's stockholders in such
circumstances would retain in the aggregate 20% or less of the total issued and
outstanding shares. This could result in substantial additional dilution in the
equity of those who were stockholders of the Company prior to such
reorganization.
It is anticipated that any securities issued in any reorganization
would be issued in reliance upon exemptions, if any are available, from
registration under applicable federal and state securities laws. In some
circumstances, however, as a negotiated element of the transaction, the Company
may agree to register such securities either at the time the transaction is
consummated, or under certain conditions or at specified times thereafter. The
issuance of substantial additional securities and their potential sale into any
trading market which may develop in the Company's securities may have a
depressive effect upon such market.
The Company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
As a general matter, the Company anticipates that it will enter into a
letter of intent with the management, principals or owners of a prospective
business opportunity. Such a letter of intent will set forth the terms of the
proposed acquisition but will not bind either the Company or the business
opportunity to consummate the transaction. Execution of a letter of intent will
by no means indicate that consummation of an acquisition is probable. Neither
the Company nor the business opportunity will be bound unless and until a
definitive agreement concerning the acquisition as described in the preceding
paragraph is executed, and then only if neither party has any contractual right
to terminate the agreement on specified grounds.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and substantial costs for accountants, attorneys
and others. If a decision is made not to participate in a specific business
opportunity, the costs theretofore incurred in the related investigation would
not be recoverable. Moreover, since many providers of goods and services require
compensation for such goods and services at the time or soon after the time
rendered, the inability of the Company to pay until an indeterminate future time
may make it difficult to procure goods and services.
Investment Company Act and Other Regulation
The Company may participate in a business opportunity by purchasing,
trading or selling the securities of such business. The Company does not,
however, intend to engage primarily in such activities. Specifically, the
Company intends to conduct its activities so as to avoid being classified as an
"investment company" under
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the Investment Company Act of 1940 (the "Investment Act"), and therefore to
avoid application of the costly and restrictive registration and other
provisions of the Investment Act, and the regulations promulgated thereunder.
Section 3(a) of the Investment Act provides the definition of an
"investment company," which excludes any entity that does not engage primarily
in the business of investing, reinvesting or trading in securities, or that does
not engage in the business of investing, owning, holding or trading "investment
securities" (defined as "all securities other than government securities or
securities of majority-owned subsidiaries") the value of which exceeds 40% of
the value of its total assets (excluding government securities, cash or cash
items). The Company intends to implement its business plan in a manner which
will result in the availability of this exception from the definition of
"investment company." Consequently, the Company's participation in a business or
opportunity through the purchase and sale of investment securities will be
limited. In order to avoid classification as an investment company, the Company
may use a major portion of the net proceeds of this offering to search for,
analyze and acquire or participate in a business or opportunity by use of a
method which does not involve the acquisition, ownership or holding of
investment securities.
The Company's plan of business may involve changes in its capital
structure, management, control and business, especially if it consummates a
reorganization as discussed above. Each of these areas is regulated by the
Investment Act, which regulation has the purported purpose of protecting
purchasers of investment company securities. Since the Company will not register
as an investment company, purchasers in this offering will not be afforded these
protections.
Even if the Company restricts its activities as described above, it is
possible that it may be classified as an inadvertent investment company if
significant delays are experienced in locating and expending a major portion of
the net proceeds of this offering on a business or opportunity other than by the
method of acquiring or holding investment securities.
The Company intends vigorously to resist classification as an
investment company, and to take advantage of any exemptions or exceptions from
application of the Investment Act, which allows an entity a one-time option
during any three-year period to claim an exemption as a "transient" investment
company. The necessity of asserting any such resistance, or making any claim of
exemption, could be time consuming and costly, or even prohibitive, given the
Company's limited resources.
Any securities which the Company might acquire in exchange for its
Common Stock will be "restricted securities" within the meaning of the
Securities Act of 1933, as amended (the "Act"). If the Company elects to resell
such securities, such sale cannot proceed unless a registration statement has
been declared effective by the Securities and Exchange Commission or an
exemption from registration was available. Section 4(1) of the Act, which
exempts sales of securities not involving a distribution, would in all
likelihood be available to permit a private sale. Although the plan of operation
does not contemplate resale of securities acquired, if such a sale were to be
necessary, the Company would be required to comply with the provisions of the
Act to effect such resale.
An acquisition made by the Company may be in an industry which is
regulated or licensed by federal, state or local authorities. Compliance with
such regulations can be expected to be a time-consuming and expensive process.
Competition
The Company expects to encounter substantial competition in its efforts
to locate attractive opportunities, primarily from business development
companies, venture capital partnerships and corporations, venture capital
affiliates of large industrial and financial companies, small investment
companies and wealthy individuals. Many of these entities will have
significantly greater experience, resources and managerial capabilities than the
Company and will therefore be in a better position than the Company to obtain
access to attractive
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business opportunities. The Company also will experience competition from other
public "blind pool" companies, many of which may have more funds available than
does the Company.
Administrative Offices
The Company presently maintains its offices at 12543-A East Pacific
Circle, Aurora, Colorado 80014, the home of its Vice President. Its phone number
there is (303) 337-1033. The Company believes these facilities will be adequate
for its needs in the foreseeable future. The Company pays no rent for the use of
these facilities.
Employees
The Company is a development stage company and currently has no
employees, other than its officers. Management of the Company expects to use
consultants, attorneys and accountants as necessary, and does not anticipate a
need to engage any full-time employees so long as it is seeking and evaluating
business opportunities. The need for employees and their availability will be
addressed in connection with the decision whether or not to acquire or
participate in specific business opportunities. No remuneration will be paid to
the Company's officers except as set forth under the subheading "Remuneration"
in the "Management" section, and under "Certain Transactions with Management and
Others."
MANAGEMENT
The directors and executive officers currently serving the Company are
as follows:
Name Age Position Held and Tenure
---- --- ------------------------
John J. Micek III 37 President, Director
since April 27, 1990
Frank L. Kramer 47 Secretary, Treasurer,
Director since April 27, 1990,
Vice President since May 2, 1990
Donald R. McGahan 56 Director since
April 27, 1990
The directors named above will serve until the first annual meeting of
the Company's stockholders. Thereafter, directors will be elected for one-year
terms at the annual stockholders' meeting. Officers will hold their positions at
the pleasure of the board of directors, absent any employment agreement, of
which none currently exists or is contemplated. There are no family
relationships among the officers and directors. There is no arrangement or
understanding between any of the directors or officers of the Company and any
other person pursuant to which any director or officer was or is to be selected
as a director or officer. The directors and officers will devote their time to
the Company's affairs on an "as needed" basis, which, depending on the
circumstances, could amount to on average as little as five hours per month.
Biographical Information
John J. Micek III. Mr. Micek, the President and a director of the
Company, has been a director since February 1988 of Armanino Foods of
Distinction, Inc., formerly named Falcon Fund, Inc., a blind pool company
("Armanino - Colorado"), which completed a reverse acquisition of a Delaware
company ("Armanino - Delaware"). Mr. Micek has been a director of Armanino -
Delaware, which is engaged in the production and marketing of gourmet, upscale
specialty food products since May 1987, and has been a vice president of
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Armanino - Delaware since September 1989. From February 1988 to December 31,
1988, he served as general counsel and chief financial officer for Armanino -
Colorado, and served in these capacities for Armanino - Delaware from May 1987
to December 31, 1988. Since January 1989, Mr. Micek has practiced law and
currently serves as a consultant to Armanino - Colorado on corporate finance
matters. Mr. Micek also serves as a financial consultant to Artanis, L.P., a
partnership which currently markets a line of celebrity gourmet food products.
From 1979 until December 1986, Mr. Micek served as corporate counsel and as
assistant to the president of G. Armanino & Son, Inc. and Armanino Farms of
California, which were engaged in the international food marketing business. Mr.
Micek has also served as vice president, treasurer and a director of Laguna
Capital Corporation, a Colorado based "blind pool" company, from April 1986
until February 1988, and as vice president, treasurer and a director of Capital
Equity Resources, Inc. ("CER"), also a Colorado-based "blind pool" company, from
January 1986 until August 1986. After CER completed a reverse acquisition in
August 1986, it changed its name to Asha Corporation. Mr. Micek remained as a
director of Asha Corporation until June 1989. He also has served as a director
of Universal Group Insurance Companies, an Omaha, Nebraska-based insurance
company, since 1982, and as a director of Cole Publishing Company, an
educational publisher, located in Santa Rosa, California, since March 1990. He
was Western Finance Coordinator for the 1984 Presidential Campaign of Walter
Mondale. He received a Bachelor of Arts Degree in History from the University of
Santa Clara in 1974 and a Juris Doctorate from the University of San Francisco
School of Law in 1979. Mr. Micek presently devotes only as much time as is
necessary as an officer of the Company.
Frank L. Kramer. Mr. Kramer, the Vice President, Secretary, Treasurer
and a director of the Company, served as president and a director of Fi-Tek
Corp., a blind pool company headquartered in Aurora, Colorado, from 1984 until
1987 when it acquired Boston Technology, Inc. and moved its operations to
Cambridge, Massachusetts. From May 1987 to November 1988, Mr. Kramer served as
president, treasurer and the chairman of the board of Fi-Tek II, Inc., a blind
pool company headquartered in Aurora, Colorado, until it acquired On Line
Communications, Inc. and moved its operations to San Jose, California. The
company has since changed its name to On Line Network, Inc. Mr. Kramer has also
served since November 1988 as the president, treasurer and a director of Fi-Tek
III, Inc., a Delaware-chartered "blind pool" corporation which successfully
completed an offering of securities in September 1989, and from February 1987
until December 1989, he was also the treasurer and a director of Bluestone
Capital Corp., a Colorado "blind pool" corporation which successfully completed
an offering of securities in November 1988 and which moved its operations to
Braintree, Massachusetts after acquiring Dialogue, Inc. in December 1989. Mr.
Kramer also serves as president, treasurer and a director of Fi-Tek IV, Inc., a
Delaware-chartered "blind pool" corporation which is currently conducting an
offering of securities. See "Prior Blind Pool Activities." Mr. Kramer was
affiliated with New York Life Insurance Company ("New York Life") from 1968
through 1981 and was engaged in sales, sales management, and estate planning. He
became a Chartered Life Underwriter in 1972. From 1973 through 1981, he was
general manager of two of New York Life's general offices. From 1981 to late
1987, Mr. Kramer was self-employed as a private financial consultant in the
Denver, Colorado area, assisting businesses in arranging interim financing for
their business operations, through private and commercial borrowings. He has
also been engaged in the structuring and implementing of private financing for
the oil and gas and commercial real estate industries. Since 1987, Mr. Kramer
has been affiliated with New York Life as an agent and recruiter. From 1986
until March of 1987, he was an employee and a director of Optimum Manufacturing,
Inc., a public company engaged in manufacturing in Denver, Colorado. He obtained
a B.S. Degree in Business Administration from Louisiana State University in
1964.
Donald R. McGahan. Mr. McGahan, a director of the Company, currently
serves as a senior vice president and resident manager for American Aegis
Securities, Inc. ("American Aegis"), an NASD member broker dealer engaged in
various securities and financing activities and headquartered in San Diego,
California with offices in two other U.S. cities, including Boca Raton, Florida,
the office out of which Mr. McGahan has been working since joining the firm on
July 15, 1990. From October 1989 until joining American Aegis, Mr. McGahan
served as a senior vice president and Eastern regional manager for Smith,
Mitchell & Associates, Inc. ("Smith Mitchell"), an NASD registered firm engaged
in public finance activities and headquartered in Seattle, Washington. Mr.
McGahan served in Smith Mitchell's Boca Raton, Florida office. From May 1989
until
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October 1989, Mr. McGahan served as senior vice president of R.W. Smith &
Associates, Inc., a municipal bond brokerage, also located in Boca Raton,
Florida. From October 1987 until May 1989, Mr. McGahan served as senior vice
president and a manager for Harry Downs & Co. Municipal Brokers, located in Boca
Raton, Florida. Mr. McGahan served as senior vice president of MKI Securities
Corp., located in New York City, from March 1985 to September 1987 where he
established and managed a serial bond revenue desk, and from October 1981 to
March 1985, he was senior vice president and a principal of Vierling, Devaney &
Maguire, Inc., a New York City municipal bond firm, which merged with MKI
Securities Corp. in 1985. From June 1980 to October 1981, Mr. McGahan served as
the president and chief executive officer of George B. Gibbons & Co., a
subsidiary of Carroll, McEntee, McGinley, a dealer in U.S. government
securities, located in New York City. Mr. McGahan was also an outside director
of CM&M Securities, a member firm of the New York Stock Exchange and a
subsidiary of Carroll, McEntee, McGinley, from October 1980 until October 1981.
From 1960 to June 1980, Mr. McGahan worked in the municipal bond department of
Fahnestock & Co., a member firm of the New York Stock Exchange, where he was
promoted to manager in 1968 and became a partner in 1969. Mr. McGahan holds the
following NASD licenses: Municipal Securities Representative, Municipal
Securities Principal, Registration/General Securities Representative, and
General Securities Principal. Mr. McGahan obtained a B.A. degree in history and
political science from Villanova University in 1955. He served in the United
States Navy in various capacities from 1956 until 1978 at which time he retired
with the rank of Commander.
Remuneration
The directors and officers will devote their time to the Company's
affairs on an "as needed" basis, which, depending on the circumstances, will
likely amount to on average as little as five hours per month spent each by Mr.
Micek and Mr. McGahan, and on average twenty hours per month spent by Mr.
Kramer. Commencing after completion of this offering, each of the Company's two
officers will be compensated at a rate of $45 per hour for time devoted to the
affairs of the Company, in excess of five hours per month, limited only by a cap
of $1,500 per month and a total cap on each officer's salary of $4,500 during
the Company's first year of operation. As stated previously, it is not expected
that any one of the officers will devote time each month that will entitle each
to draw a salary up to the maximum amount of $1,500 per month.
Should the Company complete the acquisition of a business opportunity,
the Board of Directors may award a finder's fee to an officer or affiliate of
the Company, or to a third party, if the acquisition is originated as a result
of his efforts. The cash portion of this fee, in the aggregate, if paid to
officers or affiliates, will not exceed 10% of the gross proceeds of the
offering and may be less.
Following completion of this offering and until the Company acquires
sufficient capital through means other than this offering, it is not intended,
except as provided in the previous two paragraphs, that any officer or director
will receive compensation from the Company for performance of duties as an
officer or director other than reimbursement for out-of-pocket expenses incurred
on behalf of the Company or a finder's fee, as discussed below in "Certain
Transactions with Management and Others."
Indemnification of Officers and Directors
As permitted by Delaware law, the Company's Certificate of
Incorporation provides that the Company will indemnify its directors and
officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil or criminal action brought against them on account of their
being or having been Company directors or officers unless, in any such action,
they are adjudged to have acted with gross negligence or willful misconduct.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in that Act and is, therefore, unenforceable.
22
<PAGE>
Exclusion of Liability
Pursuant to the Delaware General Corporation Law, the Company's
Certificate of Incorporation excludes personal liability for its directors for
monetary damages based upon any violation of their fiduciary duties as
directors, except as to liability for any breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, acts in violation of Section 174 of the Delaware General
Corporation Law, or any transaction from which a director receives an improper
personal benefit. This exclusion of liability does not limit any right which a
director may have to be indemnified and does not affect any director's liability
under federal or applicable state securities laws.
PRIOR BLIND POOL ACTIVITIES
John J. Micek III, the Company's President and a director, previously
served as vice president, treasurer and a director of Capital Equity Resources,
Inc. ("CER"), a development stage company that conducted a blind pool offering.
CER closed its public offering on May 8, 1986, and raised a total of $200,000 in
gross proceeds by selling 20,000,000 Units at $.01 per Unit. During August 1986,
CER completed a reverse acquisition of ASHA, Inc. ("ASHA") by which CER acquired
100% of ASHA in exchange for approximately 92.4% of the outstanding shares of
CER. ASHA was engaged in the development of a full-time four wheel drive, four
passenger utility automobile which was being developed around a new automotive
architecture invented by ASHA's President, Alain Clenet. ASHA was a newly formed
company and had no operations prior to the acquisition. Mr. Micek did not
dispose of any of his stock holdings in CER or receive any compensation from CER
or from ASHA in connection with the ASHA acquisition. Upon his resignation as a
director of ASHA in June 1989, Mr. Micek received shares of stock in ASHA which
represented less than five percent of the total shares outstanding.
Mr. Micek also previously served as vice president, treasurer, and a
director of Laguna Capital Corp. ("Laguna"), which closed its public offering
during September 1986, with total proceeds raised of $200,000 by selling
20,000,000 units at $.01 per unit. In February 1988, Laguna completed a reverse
acquisition of Sporting Life, Inc. ("Sporting Life") whereby Laguna acquired
100% of the outstanding shares of Sporting Life in exchange for approximately
90% of the outstanding shares of Laguna. Sporting Life distributes and sells
golf and tennis equipment and supplies for domestic and foreign manufacturers
through its Las Vegas Discount Golf and Tennis franchises and mail order
business. Laguna/Sporting Life has changed its name to Las Vegas Discount Golf &
Tennis, Inc. All of the officers and directors of Laguna resigned effective as
of the closing of the acquisition. Mr. Micek did not receive any compensation
from Laguna or Sporting Life and did not dispose of any of his stock holdings in
Laguna in connection with the Sporting Life acquisition.
Frank L. Kramer, the Company's Vice President, Secretary, Treasurer and
a director, previously served as a director and as president of Fi-Tek Corp.
("Fi-Tek"), a blind pool company. Fi-Tek initiated its public offering on April
2, 1986 and closed the offering on June 11, 1986, with total proceeds of
$250,000 upon sale of 12,500,000 units (consisting of common stock and common
stock purchase warrants), at a price of $.02 per unit, which constituted all
units offered.
During January 1987, Fi-Tek completed a reverse acquisition
(stock-for-stock exchange). It acquired Boston Technology, Inc. ("Boston"), a
Delaware corporation based in Cambridge, Massachusetts, which is engaged in the
design, manufacture and marketing of computer-based telecommunications systems
commonly known as "voice messaging systems." Fi-Tek issued 98,000,000 restricted
shares of its common stock in exchange for all the outstanding capital stock of
Boston, which shares represented 80% of Fi-Tek's issued and outstanding common
stock following the acquisition. Mr. Kramer, who still owns stock in Fi-Tek and
who resigned as a director and officer of Fi-Tek as of January 31, 1987,
received, as total compensation from Fi-Tek, a consulting fee of $1,000. Mr.
Kramer did not dispose of any of his stock holdings in Fi-Tek as part of the
acquisition of Boston.
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<PAGE>
Frank L Kramer previously served also as a director and as president
and treasurer of Fi-Tek II, Inc. ("Fi-Tek II"), a blind pool company. Fi-Tek II
initiated its public offering on March 10, 1988 and closed the offering in July
1988, with total proceeds of $216,211.78 upon sale of 10,810,589 units
(consisting of common stock and common stock purchase warrants), at a price of
$.02 per unit. During November 1988, Fi-Tek II completed a reverse acquisition
(stock-for-stock exchange). It acquired On Line Communications, Inc. ("On
Line"), a California corporation based in San Jose, California, which is an
Alternate Operator Services (AOS) provider of long distance telephone services
for persons making credit card, collect call and third party billing telephone
calls. Fi-Tek II issued 95,442,356 restricted shares of its common stock in
exchange for all the outstanding capital stock of On line, which shares
represented 80% of Fi-Tek II's issued and outstanding common stock following the
acquisition. Mr. Kramer, who currently owns stock in Fi-Tek II and resigned all
his positions with Fi-Tek II as of October 1988, has not received any
compensation from the Company other than a consulting fee of $5,000. Mr. Kramer
did not dispose of any of his stock holdings in Fi-Tek II as a part of the
acquisition of On Line.
Frank L. Kramer currently serves as president, treasurer and as a
director of Fi-Tek III, Inc. ("Fi-Tek III"), a blind pool company. Fi-Tek III
initiated its public offering on May 26, 1989 and closed the offering on
September 12, 1989, with total proceeds of $500,000 upon the sale of 25,000,000
Units (consisting of common stock and common stock purchase warrants), at a
price of $.02 per unit, which constituted all the units offered. The company is
currently implementing its business plan by investigating and evaluating
business opportunities. Mr. Kramer, who currently owns stock of Fi-Tek III, has
received total compensation of $5,000 as a result of his position with Fi-Tek
III.
Mr. Kramer also served from February 1987 until December 1989 as a
director and as secretary and treasurer of Bluestone Capital Corp.
("Bluestone"), a blind pool company. Bluestone initiated its public offering on
July 13, 1988 and closed the offering on November 14, 1988, with total proceeds
of $150,000 upon sale of 1,500,000 units (consisting of common stock and common
stock purchase warrants), at a price of $.10 per unit, which constituted all
units offered. During December 1989, Bluestone incorporated a wholly owned
subsidiary for the purpose of merging it into Dialogue, Inc., a Delaware
corporation ("Dialogue") and in connection therewith, all of the outstanding
stock of Dialogue was converted into 30,000,000 shares of Bluestone's common
stock, which shares represented 80% of Bluestone's issued and outstanding common
stock following the reorganization. Dialogue, Inc., which is a voice mail
systems distributor located in Braintree, Massachusetts, in December 1989,
became a wholly owned subsidiary of Bluestone. Mr. Kramer, who currently owns
stock in Bluestone and resigned all his positions with Bluestone in December
1989, has not received any compensation from the company. Mr. Kramer did not
dispose of any of his stock holdings in Bluestone as a part of the
reorganization with Dialogue.
Mr. Kramer currently serves as president, treasurer, and director of
Fi-Tek IV, Inc. ("Fi-Tek IV"), a Delaware-chartered blind pool company which is
currently conducting a public offering of its securities. Mr. Kramer's positions
in Fi-Tek III and Fi-Tek IV create the potential for conflicts of interest with
the Company, especially should one or more of those companies happen to be
seeking a business opportunity at the same time that the Company is seeking such
an opportunity. See "Potential Conflicts of Interest."
Mr. McGahan has not previously participated in any "blind pool"
offerings.
POTENTIAL CONFLICTS OF INTEREST
Initially, none of the officers of the Company will devote more than a
portion of his time to the affairs of the Company. See "Management." All of the
officers have employment outside of the Company. There will be occasions when
the time requirements of the Company's business conflict with the demands of the
officers' other employment. In this event, such conflicts may require that the
Company attempt to employ additional
24
<PAGE>
personnel. There is no assurance that the services of such persons will be
available or that they can be obtained upon terms favorable to the Company.
Frank L. Kramer, Vice President, Secretary, Treasurer and a director of
the Company, is also an officer and director of two Denver, Colorado, based
development stage corporations, one of which is in the process of conducting a
public offering of securities, and the second of which, Fi-Tek III, completed a
$500,000 offering in August 1989. See "Prior Blind Pool Activities." Should the
Company complete the offering made by this Prospectus before Fi-Tek III or
Fi-Tek IV acquire a business opportunity, the Company would be in direct
competition with those companies for available opportunities.
While Mr. Kramer will attempt to resolve any such conflicts in the
Company's favor, there is no assurance that his efforts to that end will be
successful The Company has not adopted any policy to deal with the conflicts of
interest that are likely to arise from Mr. Kramer's involvement in other blind
pool companies. The resolution of such conflicts is to be made, if at all, only
by the exercise of such business judgment as is consistent with Mr. Kramer's
fiduciary duties to the Company and to the other blind pool companies of which
he is an officer or a director. Should any of the Company's officers and
directors breach their respective fiduciary duty of loyalty, the Company's
stockholders will, under Delaware corporate law, have a cause of action against
those officers and directors. The Company's management does not intend to give
priority to other blind pool offerings in which Mr. Kramer is involved that were
declared effective prior to July 1, 1990 and, therefore, not subject to the
proceeds escrow requirement imposed by the Colorado Securities Act. See "Use of
Proceeds."
The Company's officers, directors, and other management personnel are
subject to the doctrine of corporate opportunities only insofar as it applies to
business opportunities in which the Company has indicated an interest, either
through its proposed business plan or by way of an express statement of
interest, contained in the Company's minutes. No such indication of interest has
yet been declared. If such areas are delineated, all business opportunities
within each area of interest which come to the attention of the officers,
directors and key management personnel of the Company must be promptly disclosed
to the Board of Directors and made available to the Company. In the event the
Board shall reject an opportunity so presented, any of the Company's officers,
directors, or key management personnel may avail himself of such opportunity.
Every effort will be made to resolve any conflicts which may arise in favor of
the Company. There can be no assurance, however, that these efforts will be
successful.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Prior to the date of this Prospectus, the Company issued to its
officers, directors, and others a total of 7,300,000 shares of Common Stock for
a total of $16,000 in cash and services, or an average of $.0022 per share.
Certificates evidencing the Common Stock issued by the Company to these persons
have all been stamped with a restrictive legend, and are subject to stop
transfer orders by the Company. For additional information concerning
restrictions that are imposed upon the Common Stock held by current
stockholders, and the responsibilities of such stockholders to comply with
federal securities laws in the disposition of such Common Stock, see "Risk
Factors - The Offering - Possible Rule 144 Sales."
No officer, director, promoter, or affiliate of the Company has or
proposes to have any direct or indirect material interest in any asset proposed
to be acquired by the Company through security holdings, contracts, options, or
otherwise.
The Company has adopted a policy wherein any consulting or finder's fee
paid will be paid to a third party for consulting services on an ad hoc basis,
to assist management in evaluating a prospective business opportunity. Such
consulting or finder's fees may be paid to officers, directors or affiliates of
the Company.
The Company maintains its offices at the residence of its Vice
President, for which it pays no rent, and for which it does not anticipate
paying rent in the future. The Company anticipates that following the
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<PAGE>
consummation of a business combination with an acquisition candidate, the
Company's office will be moved, but cannot predict future office or facility
arrangements with officers, directors or affiliates of the Company.
The Company may enter into an agreement with an acquisition candidate
requiring the sale of all or a portion of the Common Stock held by the Company's
current stockholders to the acquisition candidate or principals thereof, or to
other individuals or business entities, or requiring some other form of payment
to the Company's current stockholders, or requiring the future employment of
specified officers and payment of salaries to them. It is more likely than not
that any sale of stock by the Company's current stockholders to an acquisition
candidate would be at a price substantially higher than that originally paid by
such stockholders. Any payment to current stockholders in the context of an
acquisition involving the Company would be determined entirely by the largely
unforeseeable terms of a future agreement with an unidentified business entity.
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock owned of record and beneficially by officers,
directors and persons presently holding 5.0% or more of the outstanding Common
Stock of the Company. Also included are the shares held by all officers and
directors as a group. The table further shows the effect on ownership resulting
from the sale of both the minimum number of Units (1,500,000) and the maximum
number of Units (3,000,000), without giving effect to the Warrants included in
the Units.
<CAPTION>
Percent of Class Owned
Owned ------------------------------------
Benifically Before Before After After
Name and Address Offering Offering Minimum(1) Maximum(1)
- ---------------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
John J. Micek III* 1,200,000 16.4% 13.6% 11.7%
430 Cowper St.
Palo Alto, CA 94301
Frank L. Kramer* 1,200,000 16.4% 13.6% 11.7%
12543-A E. Pacific Circle
Aurora, CO 80014
Donald R. McGahan* 1,200,000 16.4% 13.6% 11.7%
c/o Smith Mitchell & Assoc.
980 N. Federal Hwy #206
Boca Raton, FL 33432
Keith A. Koch 1,200,000 16.4% 13.6% 11.7%
9171 Towne Centre Dr. #365
San Diego, CA 92122
Kenneth L. Maul 1,200,000 16.4% 13.6% 11.7%
5160 S. Valley View Blvd. #106
Las Vegas, NV 89118
* All directors 3,600,000 49.3% 40.9% 35.0%
and officers (3 persons)
<FN>
- ---------------------------
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<PAGE>
(1) The figures shown do not take into account the Common Stock that the
listed persons may purchase in this offering. No arrangements for any
such purchases have been made and the Company does not anticipate any
future arrangements whereby shares of the offering are reserved for
sale to such persons.
</FN>
</TABLE>
DESCRIPTION OF SECURITIES
Units
Each Unit offered consists of one share of the Company's $.00001 par
value Common Stock, one Class A Common Stock Purchase Warrant, one Class B
Common Stock Purchase Warrant and one Class C Common Stock Purchase Warrant.
Units will be evidenced by Common Stock and Warrant certificates, and will be
mailed to purchasers as soon as practicable following the closing of the
offering.
Common Stock
The Company's Certificate of Incorporation authorizes the issuance of
100,000,000 shares of Common Stock with a par value of $.00001. Each record
holder of Common Stock is entitled to one vote for each share held on all
matters properly submitted to the stockholders for their vote. Cumulative voting
for the election of directors is not permitted by the Certificate of
Incorporation.
Holders of outstanding shares of Common Stock are entitled to those
dividends declared by the Board of Directors out of legally available funds;
and, in the event of liquidation, dissolution or winding up of the affairs of
the Company, holders are entitled to receive, ratably, the net assets of the
Company available to stockholders after distribution is made to the preferred
stockholders, if any, who are given preferred rights upon liquidation. Holders
of outstanding shares of Common Stock have no preemptive, conversion or
redemptive rights. All of the issued and outstanding shares of Common Stock are,
and all unissued shares when offered and sold will be, duly authorized, validly
issued, fully paid and nonassessable. To the extent that additional shares of
the Company's Common Stock are issued, the relative interests of then existing
stockholders may be diluted.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of preferred stock, $.00001 par value. The Board of Directors
of the Company is authorized to issue the preferred stock from time to time in
series and is further authorized to establish such series, to fix and determine
the variations in the relative rights and preferences as between series, to fix
voting rights, if any, for each series, and to allow for the conversion of
preferred stock into common stock. No preferred stock has been issued by the
Company. The Company anticipates that preferred stock may be utilized in making
acquisitions.
Warrants
The Warrants being offered as part of the Units will be in registered
form and will be issued pursuant to a Unit Warrant Agreement, dated the same
date as this Prospectus, between the Company and the Warrant Agent named below.
The following information is only a summary of that agreement and is qualified
in its entirety by the provisions of that agreement. Upon issuance, the Warrants
will be detachable and may be separately traded in the over-the-counter market,
if any market for the Warrants should develop.
Exercise Price and Periods. Subject to redemption by the Company and to
the current Registration Statement requirement, both of which limitations are
described below, each Class A Warrant is exercisable for one share of Common
Stock commencing with the date of this Prospectus and terminating on the second
anniversary of such date, at a price of $.30 per share. Each Class B Warrant is
exercisable for one share of Common Stock at a price of $.75 per share
commencing with the date of this Prospectus and terminating on the second
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<PAGE>
anniversary of such date. Each Class C Warrant is exercisable for one share of
Common Stock at a price of $1.30 per share commencing with the date of this
Prospectus and terminating on the second anniversary of such date. The Warrant
expiration dates (and the period during which the Warrants are exercisable) may
be extended indefinitely, or the exercise price thereof reduced, at the
discretion of the Company, upon giving written notice to the Warrant Agent and
the warrantholders. Investors should be aware that if less than seventy-five
percent of the net proceeds from the exercise of Warrants is committed for use
in one or more specific lines of business, the proceeds from the exercise of
Warrants will likely be placed in an escrow pursuant to the Colorado Securities
Act. See "Use of Proceeds."
Manner of Exercise. Class A, Class B and Class C Warrants may be
exercised by surrender of the Warrant to the Warrant Agent with appropriate
instructions accompanied by payment of the full purchase price for the Common
Stock underlying each Warrant being exercised. Payment of the purchase price
must be made in United States funds payable to the Company. The Warrant and
payment therewith must reach the Warrant Agent on or before the expiration date
(or the earlier redemption date, as provided in the next paragraph) of the
Warrant.
Redemption of the Warrants. The Warrants shall be subject to redemption
by the Company as follows:
(a) Subject to the limitations set forth below in this subparagraph
(a), all, but not less than all, of the Class A Warrants and, in addition or in
the alternative, all, but not less than all, of the Class B Warrants and, in
addition or in the alternative, all, but not less than all, of the Class C
Warrants may be called for redemption by the Company, at a redemption price of
$.0001 per Warrant, at any time prior to the declaration by the Securities and
Exchange Commission of the effectiveness of a post-effective amendment to the
Registration Statement of which this Prospectus is a part, without prior written
notice to the registered holders of the Warrants and without any right on the
part of the holders of the Warrants to exercise their purchase rights prior to
the redemption date. Upon redemption, the warrantholder will receive only the
redemption price and will forfeit his right to purchase the Common Stock
underlying the Warrants. The warrantholder shall be entitled to receive the
redemption price provided above only if the warrantholder delivers a written
request for such payment, accompanied by the warrant certificate representing
the Warrants to be redeemed, to the Company's warrant agent within 30 days after
the warrantholder shall have been notified that the applicable class or classes
of Warrants have been redeemed in accordance with this subparagraph (a). Because
the Warrants may be exercised only so long as this Prospectus remains current or
after a post-effective amendment shall have been declared effective by the
Commission, a redemption of the Warrants pursuant to this subparagraph (a) will
mean that the warrantholder shall never have received an opportunity to exercise
the Warrants following the acquisition of a business opportunity by the Company.
The Company's right to redeem the Warrants in accordance with this subparagraph
(a) may be exercised, however, only in the event that management of a business
opportunity that is the target of a business combination with the Company shall
have required, in writing, that the redemption of the Warrants shall be a
condition precedent to the consummation of the business combination between the
Company and the target company. The redemption is to become effective only upon
the closing of such a business combination. Should the contemplated business
combination fail to close, the redemption shall be void and the exercisability
of the Warrants covered by the redemption shall not be affected. The failure of
one or more business combinations to close shall not, however, impair the
Company's right to redeem Warrants under this subparagraph (a) if the Company
enters into arrangements for a subsequent business combination featuring the
warrant-redemption condition described above in this subparagraph (a). To the
extent that the management of a business opportunity that consummates a business
combination with the Company does not require redemption of Warrants as a
condition of closing, the right of the Company to redeem Warrants under this
subparagraph (a) shall be extinguished. Redemption of only one class of Warrants
pursuant to this subparagraph (a) shall not affect the exercisability of the
other classes of Warrants.
(b) In addition to the redemption mechanism described in subparagraph
(a), above, all or any number of the Warrants can be called for redemption at a
redemption price of $.0001 per Warrant by the Company at any time during their
exercise term upon a minimum of thirty (30) days' prior written notice mailed to
the registered holders of the Warrants, subject to the right of the holders of
the Warrants to exercise their purchase
28
<PAGE>
rights between the date of any notice of redemption up to and including the
redemption date given by the Company. The notice period may be extended, at the
discretion of the Company, upon giving subsequent notice to the Warrant Agent
and to registered holders of the Warrants. Any holder who does not exercise his
Warrants prior to the date set for call will receive only the redemption price
and will forfeit his right to purchase the Common Stock underlying the Warrants.
Warrantholders who do not exercise their Warrants during the redemption period
will receive the redemption price only if the Warrants are received by the
Warrant Agent prior to expiration of the redemption period.
Limitations Upon Exercise or Redemption. The Warrants may not be
exercised or redeemed, except under circumstances set forth in subparagraph (a)
of the preceding paragraph, unless the Company maintains a current Registration
Statement in effect during the respective exercise or redemption periods of the
Warrants. The Company will use its best efforts to file post-effective
amendments to its Registration Statement, if needed, to keep information on the
Company current during the period during which the Warrants may be exercised or
redeemed. However, the Company will have no obligation to keep the Registration
Statement current when the market bid price for the Company's Common Stock is
below the exercise price of the Warrants. The Common Stock issuable upon the
exercise of the Warrants cannot be sold in various states without qualifying the
Common Stock under state law and the Company may find it impractical or
impossible to so qualify the Common Stock in those states where it does not
initially qualify this offering. Investors should be aware that certain
exemptions from registration under state law for the exercise of the Warrants,
otherwise available to the Company, may not be available with respect to
exercise of Warrants by those warrantholders who have disposed of all their
shares of common stock. Warrantholders who are residents of states in which the
Company does not qualify the Common Stock underlying the Warrants for sale will
have no choice but either to sell their Warrants or to let them expire.
Rights of Warrantholders. Holders of the Warrants will have no voting
rights, and will not be entitled to dividends. In the event of liquidation,
dissolution or winding up of the affairs of the Company, holders of the Warrants
will not be entitled to participate in any liquidation distribution. Holders of
Warrants are protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock dividends, stock
splits or reclassifications of the Company's Common Stock. Stockholders should
be aware that the Division of Market Regulation of the Commission has taken the
position that where an issuer materially reduces the exercise price of
outstanding warrants for a specified period of time during the remaining term of
the warrants, and warrantholders are therefore required to make a decision
whether to tender their warrants to the issuer in exchange for another security,
then the warrantholders should be provided with adequate information with
respect to the offer in compliance with Rule 13e-4 (the "Rule"). In the event
the Rule is deemed to be applicable to a particular action taken by the Company,
compliance with the Rule may require the filing of an appropriate schedule under
that Rule and distribution of an offering circular to warrantholders with
appropriate disclosures.
Effect of Warrants. For the life of the Warrants, warrantholders have
the opportunity to profit from a rise in the market value of the Common Stock of
the Company, if any, at the expense of the Common Stockholders. A warrantholder
may be expected to exercise Warrants at a time when the Company, in all
likelihood, would be able to obtain equity capital, if it so desires, by a
public sale of a new Common Stock offering on terms more favorable than those
provided in the Warrants. Exercise of the Warrants will dilute the equity
interest of other stockholders in the Company.
Warrant Solicitation Fees. The Company may employ selected brokers
and/or dealers to solicit the exercise of Warrants on its behalf. The Company
may pay such brokers and dealers a Warrant solicitation fee of up to 3% of the
gross proceeds received from the exercise of Warrants originated by or from the
broker's or dealer's office. No such fees will be paid if (i) the exercise of
the Warrants is made at a time when the market price of the Company's Common
Stock is lower than the exercise price of the Warrants, (ii) the Warrants to be
exercised are held in a discretionary account, (iii) the solicitation of the
exercise of such Warrants would violate Rule l0b-6 promulgated under the
Securities Exchange Act of 1934, as amended, (iv) the brokers or dealers failed
to notify the Company in writing at least 10 calendar days prior to commencement
of such solicitation, (v)
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<PAGE>
disclosure of compensation arrangements was not made in documents provided to
customers both as part of the original offering and at the time of exercise, or
(vi) the exercise of the Warrants is the result of an unsolicited transaction.
Transfer and Warrant Agent
American Securities Transfer, Inc., 1825 Lawrence Street, Suite 444,
Denver, Colorado 80202, will act as the Transfer Agent and Warrant Agent for the
Common Stock and Warrants of the Company.
Reports to Stockholders
The Company plans to furnish its stockholders for each fiscal year with
an annual report containing financial statements audited by its independent
certified public accountants. In the event the Company enters into a business
combination with another company, it is the present intent of management to
continue furnishing annual reports to stockholders. Additionally, the Company
may, in its sole discretion, issue unaudited quarterly or other interim reports
to its stockholders when it deems appropriate. The Company intends to comply
with the periodic reporting requirements of the Securities Exchange Act of 1934
for so long as it is subject to those requirements.
TERMS OF OFFERING
This offering is being conducted by the Company and is not being
underwritten. The Units offered hereby are being offered on behalf of the
Company by those officers and directors of the Company who have had no prior
experience in the sale of securities. No underwriting discounts or commissions
will be paid to such persons, although their out-of-pocket expenses will be
reimbursed by the Company.
The Units are offered on a "best efforts, minimum-maximum" basis. All
proceeds from the sale of Units will be deposited into an escrow account at
Omnibank Aurora, located in Aurora, Colorado (the "Escrow Agent"), by not later
than noon of the next business day following receipt. No funds will be released
unless and until the minimum 1,500,000 Units have been sold. Unless proceeds
from the sale of the minimum number of Units have been deposited with the Escrow
Agent within 90 days following the date of this Prospectus (which period may be
extended for an additional 90 days at the Company's sole discretion) the
offering will be withdrawn and all monies received will be refunded by the
Escrow Agent, without deduction therefrom for offering costs or sales expenses,
if any, and without the payment of any interest thereon. If at least 1,500,000
Units are sold and the proceeds therefrom deposited within the period set forth
above, the offering will continue until the remaining 1,500,000 Units being
offered are sold, until 90 days from the date of this Prospectus (180 days if
extended), or until the Company determines to terminate the offering, whichever
event occurs first. During the offering period, investors will not have access
to their funds.
The Company expects to make sales of the Units to persons whom it
believes may be interested or who have contacted the Company to express an
interest in purchasing the Units. The Company may sell Units to such persons if
they reside in a state where the Units can lawfully be sold. The Company is not
obligated to sell any Units to any such person and will do so only to the extent
that such sales would not be inconsistent with a public distribution of the
Units.
Officers, directors, and affiliates of the Company may purchase in the
aggregate up to 20% of the Units sold in this offering. Neither the Company nor
any of its officers or directors will provide or otherwise arrange, either
directly or indirectly, financing for any such purchases and none of the
proceeds of this offering will be used, directly or indirectly, to fund or
otherwise to finance any such purchases.
To the extent that such persons purchase Units in the offering, the
number of Units required to be purchased by the general public in order to reach
the minimum amount for closing is reached will be reduced
30
<PAGE>
by a like amount. Moreover, these purchases may be used in order to reach the
minimum amount for closing in the event the minimum is not reached as a result
of purchases by the general public. Consequently, this offering could close with
a substantially greater percentage of Common Stock being held by present
stockholders and with less participation by the public than would otherwise be
the case.
Pricing of the Units
There is no public market for the Units or any of their component
securities and there is no assurance that a market will develop for such
following the offering. The offering price of the Units to be sold in the
offering was determined arbitrarily by the Company. In determining the offering
price and number of Units to be offered, the Company considered such factors as
the financial condition of the Company, its net tangible book value, lack of
operating history and the general condition of the securities markets.
Accordingly, the offering price set forth on the cover page of this
Prospectus should not be considered to be an indication of the actual value of
the Company. The price bears no relation to the Company's assets, book value,
lack of earnings or net worth, or any other traditional criteria of value.
Escrow of Net Proceeds
Because the Company intends to offer the Units to residents of the
State of Colorado, the Company will be subject to the new Colorado Securities
Act, which requires the placement in escrow of eighty percent of the net
proceeds of the offering ($103,600 - minimum, $223,600 maximum) until the
completion of a transaction or series of transactions whereby at least fifty
percent of the gross proceeds received from the sale of Units are committed for
use in one or more specific lines of business. The Company intends to open the
required escrow account immediately following the closing of the offering in
accordance with the new Colorado Securities Act.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, and no
such proceedings are known to be contemplated.
No director, officer or affiliate of the Company, and no owner of
record or beneficial owner of more than 5.0% of the securities of the Company,
or any associate of any such director, officer or security holder is a party
adverse to the Company or has a material interest adverse to the Company in
reference to pending litigation.
LEGAL MATTERS
The Company has been represented, and the legality of the securities
being offered hereby has been passed upon, by the firm of Pred and Miller,
Attorneys at Law, 501 South Cherry Street, Suite 500, Denver, Colorado 80222.
Three attorneys of that firm own a total of 500,000 shares of the Company's
outstanding Common Stock.
EXPERTS
The financial statements included in this Prospectus beginning at page
F-1 have been examined by Wenner, Silvestain and Company, Independent Certified
Public Accountants, as set forth in their report herein and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Denver Regional Office of the Securities
and Exchange Commission, Denver, Colorado, a Registration Statement on Form S-18
(herein, together with all amendments thereto, the
31
<PAGE>
"Registration Statement") under the Securities Act of 1933, as amended,
regarding the Units being offered. This Prospectus, filed as part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information regarding the Company and the
securities offered, reference is made to the Registration Statement and the
exhibits filed therewith. The Registration Statement, including exhibits, may be
inspected at the office of the Securities and Exchange Commission, 410
Seventeenth Street, Suite 700, Denver, Colorado 80202, and at the Commission's
principal office in Washington, D.C., without charge. Copies of the Registration
Statement, or any part thereof, may be obtained from the Commission's principal
office at 450 Fifth Street N.W., Washington, D.C. 20549, upon payment of the
fees prescribed by the Commission.
32
<PAGE>
wenner, silvestain and company
Certified Public Accountants, 8101 East Prentice, Suite 600,
Englewood Colorado 80111-2935
Telephone (303) 771-5300 FAX (303) 771-7921
Stephen L. Wenner, CPA Bennie Silvestain, CPA Gary P. Saltzman, CPA
Lawrence L. Greenberg, CPA Barry H. Silvestain, CPA
INDEPENDENT AUDITORS' REPORT
Board of Directors
Catalina Capital Corp.
Aurora, Colorado
We have audited the accompanying balance sheet of Catalina Capital
Corp. (a development stage company) as of June 6, 1990, and the related
statements of operations, stockholders' equity and cash flows for the period
April 27, 1990 (inception) to June 6, 1990. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Catalina Capital
Corp. (a development stage company) as of June 6, 1990, and the results of its
operations and its cash flows for the period April 27, 1990 (inception) to June
6, 1990 in conformity with generally accepted accounting principles.
/s/ Wenner, Silvestain and Company
Englewood, Colorado
June 20, 1990
Member, American Institute of Certified Public Accountants
Member, The Colorado Society of Certified Public Accountants
Member, SEC Practice Section of the AICPA
Member, Private Companies Practice Section of the AICPA
F-1
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 6, 1990
------------
ASSETS
CURRENT ASSETS
Cash $ 10,791
--------
OTHER ASSETS
Organization costs, net of amortization 492
Deferred offering costs 5,385
--------
5,877
--------
TOTAL ASSETS $ 16,668
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 885
--------
STOCKHOLDERS' EQUITY
Preferred stock, $.00001 par value,
20,000,000 shares authorized --
Common stock, $.00001 par value,
100,000,000 shares authorized,
7,300,000 shares issued and outstanding 73
Additional paid in capital 15,927
(Deficit) accumulated during the development (217)
--------
Total Stockholders' Equity 15,783
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,668
========
The accompanying notes to financial statements are an integral part of these
statements.
F-2
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
------------------
REVENUES $ --
------------
EXPENSES
Amortization 8
General and administrative expenses 209
------------
Total Expenses 217
------------
NET (LOSS) $ (217)
===========
NET (LOSS) PER SHARE $ --
===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 7,300,000
===========
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
<TABLE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
------------------
<CAPTION>
Deficit
Common Stock Accumulated
----------------------- Additional During the
Preferred Number Par Paid In Development
Stock of Shares Value Capital Stage
----- --------- ----- ------- ------
<S> <C> <C> <C> <C> <C>
Common stock issued for cash April
27, 1990 at $.001 per share -- 5,000,000 $ 50 $ 4,950 $ --
Common stock issued for cash May
2, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash May
9, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash May
11, 1990 at $.01 per share 200,000 2 1,998 --
Common stock issued for cash May
14, 1990 at $.01 per share 200,000 2 1,998 --
Common stock issued for cash May
16, 1990 at $.004 per share 500,000 5 1,995 --
Common stock issued for cash May
16, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
18, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
25, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
29, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
30, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash May
31, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash June
6, 1990 at $.001 per share 200,000 2 198 --
Net (loss) for the period
ended June 6, 1990 -- -- -- (217)
--------- ---------- ------- ---------- --------
-- 7,310,000 $ 73 $ 15,927 $ (217)
========= ========== ======= ========== =========
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
CATALINA CAPITAL CORP
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
STATEMENT OF CASH FLOWS
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid to suppliers $ (209)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 16,000
Payment of deferred offering costs (4,500)
Payment of organization costs (500)
--------
Net Cash Provided by Financing Activities 11,000
--------
NET INCREASE IN CASH 10,791
CASH, Beginning of Period --
--------
CASH, End of Period $ 10,791
========
RECONCILIATION OF NET INCOME TO NET CASH (USED) BY OPERATING ACTIVITIES
NET (LOSS) $ (217)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities
Amortization 8
--------
NET CASH (USED) BY OPERATING ACTIVITIES $ (209)
========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Increase in accounts payable for deferred public offering costs is $885.
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</FN>
</TABLE>
F-5
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
---------------------
Note 1 - Summary of Significant Accounting Policies
Organization - The Company was organized as a Delaware corporation on
April 27, 1990. The Company intends to implement a business plan to
seek, investigate, and if warranted, acquire one or more business
properties.
Basis of Presentation - As of June 6, 1990, the Company was in the
development stage and was primarily engaged in raising capital.
Fiscal Year End - The Company has selected a March 31 fiscal year end
for its financial and tax reporting.
Note 2 - Public Offering
The Company intends to offer to the public a minimum of 1,500,000 to a
maximum of 3,000,000 units on a "best efforts, minimum-maximum" basis
at a sales price of $.10 per unit. Each unit consists of one (1) share
of the Company's $.00001 par value common stock and one (1) each Class
A, Class B, and Class C common stock purchase warrant.
This offering is being conducted by the Company and is not being
underwritten. The units offered hereby are being offered on behalf of
the Company by the officers, directors, and affiliates of the Company.
No underwriting discounts or commissions will be paid to such persons,
although their out-of-pocket expenses will be reimbursed by the
Company.
The new Colorado Securities Act, effective July 1, 1990, provides that
where less than seventy-five percent of the net proceeds from the sale
of securities are committed for use in one or more specific lines of
business, eighty percent of the net proceeds received by the issuer
shall be placed in escrow until (i) completion of a transaction or
series of transactions whereby at least fifty percent of the gross
proceeds received from the sale of securities are committed for use in
one or more specific lines of business, and (ii) notice of the proposed
release of the escrowed funds had been on file with the Colorado
Division of Securities for at least ten days. The Company anticipates
that this offering will be subject to the escrow provisions.
The Company estimates it will receive net proceeds from this offering
of $129,500 if the minimum number is sold and $279,500 if the maximum
is sold. As such, eighty percent of the net proceeds required to be
escrowed would be $103,600 if the minimum is sold and $223,600 if the
maximum is sold.
Deferred offering costs represent costs incurred with the proposed
offering of common stock to the public. In the event that the current
offering is successful, costs incurred will be charged against the
proceeds of the offering. If the offering is not successful, the costs
will be charged to operations.
F-6
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
---------------------
Note 3 - Warrants
Subject to redemption by the Company and to the current Registration
Statement requirement, both of which limitations are described below,
each Class A warrant is exercisable for one share of common stock
commencing with the date of the prospectus and terminating on the
second anniversary of such date, at a price of $.30 per share. Each
Class B warrant is exercisable for one share of common stock at a price
of $.75 per share commencing with the date of the prospectus and
terminating on the second anniversary of such date. Each Class C
warrant is exercisable for one share of common stock at a price of
$1.30 per share commencing with the date of the prospectus and
terminating on the second anniversary of such date. The warrant
expiration dates may be extended indefinitely, or the exercise price
thereof reduced, at the discretion of the Company, upon giving written
notice to the warrant agent and the warrantholders.
All of the Class A, Class B or Class C warrants may be called for
redemption by the Company, at a redemption price of $.0001 per warrant,
at any time prior to the declaration by the Securities and Exchange
Commission of the effectiveness of a post-effective amendment to the
Registration Statement of which the prospectus is a part, without prior
written notice to the registered holders of the warrants and without
any right on the part of the holders of the warrants to exercise their
purchase rights prior to the redemption date. The warrants may be
exercised only so long as the prospectus remains current or after a
post-effective amendment shall have been declared effective by the
Commission.
In addition, all or any number of the warrants can be called for
redemption at a redemption price of $.0001 per warrant by the Company
at any time during their exercise term upon a minimum of thirty (30)
days' prior written notice mailed to the registered holders of the
warrants, subject to the right of the holders of the warrants to
exercise their purchase rights between the date of any notice of
redemption up to and including the redemption date given by the
Company. The notice period may be extended, at the discretion of the
Company, upon giving subsequent notice to the warrant agent and to
registered holders of the warrants.
The Company may employ selected brokers and/or dealers to solicit the
exercise of Warrants on its behalf. The Company may pay such brokers
and dealers a warrant solicitation fee of up to 3% of the gross
proceeds received from the exercise of warrants originated by or from
the broker's or dealer's office.
Note 4 - Related Party Transactions
The Company presently maintains its offices at the home of its Vice
President for which it pays no rent.
F-7
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
---------------------
Note 4 - Related Party Transactions (Continued)
The Company has paid its present securities counsel, Pred and Miller,
$5,000 to date for services rendered in connection with the public
offering of the Company's common stock. Three of the Company's
stockholders are partners in the law firm of Pred and Miller.
Should the Company complete the acquisition of a business opportunity,
the Board of Directors may award a finder's fee to an officer or
affiliate of the Company, or to a third party, if the acquisition is
originated as a result of his efforts. The cash portion of this fee, in
the aggregate, if paid to officers or affiliates, will not exceed 10%
of the gross proceeds of the offering and may be less.
F-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 22. Indemnification of Officers and Directors
The Certificate of Incorporation and the Bylaws of the Company,
respectively flied as Exhibits (3.1) and (3.2), provide that the Company will
indemnify its officers and directors for costs and expenses incurred in
connection with the defense of actions, suits or proceedings where the officer
or director acted in good faith and in a manner he reasonably believed to be in
the Company's best interest and is a party by reason of his status as an officer
or director, absent a finding of negligence or misconduct in the performance of
duty.
Item 23. Other Expenses of Issuance and Distribution
Item Amount
- ----------------------------------- --------------------------------
Minimum Maximum
Registration Fee -- ------- -------
Securities and Exchange Commission ......... $1,837.50 $1,837.50
Printing .................................... 2,000* 2,000*
Transfer Agent's Fees ....................... 250* 250*
Printing of Certificates .................... 600* 600*
Legal Fees and Expenses ..................... 11,500* 11,500*
Accounting Fees ............................. 1,000* 1,000*
Blue Sky Fees and Expenses .................. 3,000* 3,000*
Miscellaneous Expenses ...................... 312.50* 312.50*
--------- ---------
Total .............................. $ 20,500* $ 20,500*
*Estimated
Item 24. Recent Sales or Unregistered Securities
<TABLE>
Since its inception, the Company has sold its Common Stock, $.00001 par
value, to the following persons and entities in transactions summarized as
follows:
<CAPTION>
Aggregate Purchase Price
Name of Purchaser Date of Sale Shares Purchase Price Per Share
- ----------------- ------------ ------ -------------- ---------
<S> <C> <C> <C> <C>
John J. Micek III 4/27/90 1,000,000 $1,000 $.001
Keith A. Koch 4/27/90 1,000,000 1,000 .001
Kenneth L. Maul 4/27/90 1,000,000 1,000 .001
Frank L. Kramer 4/27/90 1,000,000 1,000 .001
Donald R. McGahan 4/27/90 1,000,000 1,000 .001
Tony Acone 5/2/90 100,000 1,000 .01
Randel L. Perkins 5/9/90 100,000 1,000 .01
Glen Holt 5/11/90 200,000 2,000 .01
T. David Clemans 5/14/90 200,000 2,000 .01
II-1
<PAGE>
Ronald J. Miller 5/16/90 375,000 1,500 .004
Robert Neece 5/16/90 75,000 300 .004
Heather Anderson 5/16/90 50,000 200 .004
Donald R. McGahan 5/16/90 200,000 200 .001
John J. Micek III 5/18/90 200,000 200 .001
Frank L. Kramer 5/25/90 200,000 200 .001
Keith A. Koch 5/29/90 200,000 200 .001
Dennis Yamamoto 5/30/90 100,000 1,000 .01
Charles M. Cunningham 5/31/90 100,000 1,000 .01
Kenneth L. Maul 6/6/90 200,000 200 .001
</TABLE>
These sales were all made for cash and were made in reliance on the
exemption from registration offered by Section 4(2) of the Securities Act of
1933. The Company had reasonable grounds to believe immediately prior to making
an offer to the private investors for cash, and believed, when such
subscriptions were accepted, that such purchasers (1) were purchasing for
investment and not with a view to distribution, and (2) had such knowledge and
experience in financial and business matters that they were capable of
evaluating the merits and risks of their investment and were able to bear those
risks. The purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of registration.
An appropriate restrictive legend is noted on the certificates representing such
shares, and stop-transfer instructions have been noted in the Company's transfer
records. All such sales were effected without the aid of underwriters, and no
sales commissions were paid.
Item 25. Exhibits
The following Exhibits are filed as part of the Registration Statement.
Exhibit
No. Document
- ------- ------------------------------------------------------
3.1 Certificate of Incorporation (1)
3.2 Bylaws (1)
4.1 Form of Unit Warrant Agreement (1)
4.2 Specimen Stock Certificate (1)
4.3 Form of Specimen A Warrant Certificate (1)
4.4 Form of Specimen B Warrant Certificate (1)
4.5 Form of Specimen C Warrant Certificate (1)
5.1 Opinion of Pred and Miller regarding legality (1)
24.1 Consent of Wenner, Silvestain & Company (1)
24.2 Consent of Pred and Miller (included in 5.1, opinion
regarding legality) (1)
28.1 Form of Post-Offering Escrow Agreement (2)
(1) Previously filed and not included herein.
(2) To be supplied by amendment.
II-2
<PAGE>
Item 26. Undertakings
The undersigned registrant hereby undertakes:
(1) To provide at the closing, Stock Certificates and Warrants in such
denominations and registered in such names as required to permit prompt delivery
to each purchaser.
(2) Upon expiration of the Warrants, to deregister any shares of Common
Stock reserved for issuance upon exercise of any Warrants which expire
unexercised.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(4) With respect to the Warrants and the shares issuable upon the
exercise thereof, that (i) any prospectus revised to show the terms of offering
of such Warrants and/or shares (other than a transaction on a national
securities exchange), and (ii) any prospectus revised to comply with the
requirements of Section 10(a)(3) of the Securities Act of 1933, as amended, will
be filed as a post-effective amendment to the Registration Statement prior to
any offering thereof; and that the effective date of each such amendment shall
be deemed the effective date of the Registration Statement with respect to
securities sold after such amendment shall have become effective.
(5) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement, including, but not limited to, any
addition or deletion of a managing underwriter.
(6) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(7) To remove from registration, by means of a post-effective
amendment, any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-18 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Palo Alto, County of Santa Clara, State of
California on June 29, 1990.
CATALINA CAPITAL CORP.
By: /s/ John J. Micek III
--------------------------------------
John J. Micek III, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John J. Micek III President and August 3, 1990
- --------------------- a Director
John J. Micek III
/s/ Frank L. Kramer Vice President, August 3, 1990
- --------------------- Secretary, Treasurer,
Frank L. Kramer and a Director
/s/ Donald R. McGahan A Director August 3, 1990
- ---------------------
Donald R. McGahan
II-4
<PAGE>
- --------------------------------------------------------------------------------
wenner, silvestain and company
Certified Public Accountants, 8101 East Prentice, Suite 600,
Englewood, Colorado 80111-2935
Telephone (303) 771-5300 FAX (303) 771-7921
Stephen L. Wenner, CPA Bennie Silvestain, CPA Gary P. Saltzman, CPA
Lawrence L. Greenberg, CPA Barry H. Silvestain, CPA
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-18, and any amendments thereto, to be filed by
Catalina Capital Corp. of our Auditors' Opinion dated June 20, 1990 accompanying
the Financial Statements of Catalina Capital Corp. as of June 6, 1990, and to
the use of our name under the caption "Experts" in the Prospectus.
/s/ Wenner, Silvestain and Company
Wenner, Silvestain and Company
Englewood, Colorado
June 26, 1990
Member, American Institute of Certified Public Accountants
Member, The Colorado Society of Certified Public Accountants
Member, SEC Practice Section of the AICPA
Member, Private Companies Practice Section of the AICPA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As filed with the Securities and Exchange Commission on September 28, 1990.
Registration No. 33-35580-D
====================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------------
AMENDMENT NO. 2 TO
FORM S-18 Marked Copy
Registration Statement with
Under Exhibits
The Securities Act of 1933
-----------------------------
CATALINA CAPITAL CORP.
(Exact name of registrant as specified in its charter)
<S> <C> <C> <C>
Delaware 7389 84-1141967
(State of Incorporation) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
12543-A East Pacific Circle
Aurora, Colorado 80014
(303) 337-1033
(Address and telephone number of registrant's principal executive offices and principal place of business)
The Corporation Trust Company
The Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
(Name, address and telephone number of agent for service)
Copy to:
Heather Zane Anderson, Esquire
Pred and Miller
501 South Cherry Street, Suite 500
Denver, Colorado 80222
-----------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
-----------------------------
CALCULATION OF REGISTRATION FEE
======================================================================================================================
Title of Proposed Proposed
Each Class Amount Maximum Maximum Amount of
of Securities Being Offering Price Aggregate Registration
Being Registered Registered Per Unit Offering Price(5) Fee
----------------------------------------------------------------------------------------------------------------------
Common Stock, $.00001 par value 3,000,000 Shares $0.10 $ 300,000 $ 75.00
Class A Common Stock Purchase Warrants 3,000,000 Warrants $-- -- -- (1)
Common Stock, $.00001 par value 3,000,000 Shares (2) $0.30 900,000 225.00
Class B Common Stock Purchase Warrants 3,000,000 Warrants $-- -- -- (1)
Common Stock, $.00001 par value 3,000,000 Shares (3) $0.75 2,250,000 562.50
Class C Common Stock Purchase Warrants 3,000,000 Warrants $-- -- -- (1)
Common Stock, $.00001 par value 3,000,000 Shares (4) $1.30 3,900,000 975.00
----------------------------------------------------------------------------------------------------------------------
$7,350,000 $1,837.50
======================================================================================================================
<FN>
(1) Pursuant to Rule 457(g), no separate registration fee is required for warrants.
(2) To be issued upon exercise of Class A Warrants. Pursuant to Rule 416, the number of shares issuable upon exercise
of the Warrants is subject to adjustment under the antidilution provisions of the Unit Warrant Agreement (see
Exhibit 4.1).
(3) To be issued upon exercise of Class B Warrants. Pursuant to Rule 416, the number of shares issuable upon exercise
of the Warrants is subject to adjustment under the antidilution provisions of the Unit Warrant Agreement (see
Exhibit 4.1).
(4) To be issued upon exercise of Class C Warrants. Pursuant to Rule 416, the number of shares issuable upon exercise
of the Warrants is subject to adjustment under the antidilution provisions of the Unit Warrant Agreement (see
Exhibit 4.1).
(5) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its
effective date until the registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
====================================================================================================================================
</FN>
</TABLE>
<PAGE>
<TABLE>
CATALINA CAPITAL CORP.
CROSS REFERENCE SHEET
<CAPTION>
REGISTRATION ITEM LOCATION IN PROSPECTUS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover of Prospectus .................................. Cover Page
2. Inside Front and Outside Back Cover
page of Prospectus ..................................................... Additional Information
3. Summary Information, Risk Factors ...................................... Prospectus Summary; Risk Factors
4. Use of Proceeds ........................................................ Use of Proceeds
5. Determination of Offering Price ........................................ Cover Page; Terms of Offering
6. Dilution ............................................................... Dilution and Other Comparative Data
7. Selling Security Holders ............................................... Not applicable
8. Plan of Distribution ................................................... Cover Page; Terms of Offering
9. Legal Proceedings ...................................................... Legal Proceedings
10. Directors and Executive Officers ....................................... Management
11. Security Ownership of Certain Beneficial Owners and Management ......... Principal Stockholders; Certain Transactions
with Management and Others
12. Description of Securities to be Registered ............................. Description of Securities
13. Interests of Named Experts and Counsel ................................. Legal Matters; Experts
14. Statement as to Indemnification ........................................ Not Applicable
15. Organization Within 5 Years ............................................ Prospectus Summary; Business
16. Description of Property ................................................ Prospectus Summary; Business
17A. Description of Property -- Registrants Engaged or to be Engaged
in Significant Mining Operations ....................................... Not Applicable
17B. Supplementary Financial Information about Oil and
Gas Producing Activities ............................................... Not Applicable
18. Interest of Management and Others
in Certain Transactions ................................................ Certain Transactions with
Management and Others
<PAGE>
19. Certain Market Information ............................................. Not Applicable
20. Executive Compensation ................................................. Management
21. Financial Statements ................................................... Financial Statements
</TABLE>
<PAGE>
Prospectus
CATALINA CAPITAL CORP.
(A Delaware Corporation)
3,000,000 Units
$.10 per Unit
By this Prospectus, Catalina Capital Corp. (the "Company"), is offering
to the public 3,000,000 units ("Units") of the Company's securities. Each Unit
consists of one share of common stock, par value $.00001 per share ("Common
Stock" or "Common Shares"), and three redeemable Common Stock Purchase Warrants
("Warrants"), respectively denominated Class A, Class B, and Class C. Each Class
A Warrant will entitle the holder to purchase one share of Common Stock at a
price of $.30 for a period commencing with the date of this Prospectus and
terminating on the second anniversary of such date. Each Class B Warrant will
entitle the holder to purchase one share of Common Stock at a price of $.75 for
a period commencing with the date of this Prospectus and terminating on the
second anniversary of such date. Each Class C Warrant will entitle the holder to
purchase one share of Common Stock at a price of $1.30 for a period commencing
with the date of this Prospectus and terminating on the second anniversary of
such date. The Warrants are in registered form and, upon issuance, will be
immediately detachable and may be traded separately from the Common Stock, in
the event that a market exists therefor. The Company is entitled to redeem the
Warrants without prior notice to the warrantholders should the representatives
of a business opportuntiy with which the Company wishes to combine require, as a
condition to consummation of the combination, that the Warrants be redeemed.
Under these circumstances, the warrantholder will have no opportunity to
exercise the purchase rights under the Warrants prior to redemption. See "Risk
Factors - Possible Redemption of Warrants Without Notice." Otherwise, the
Company may redeem any or all of the Warrants upon 30 days' written notice,
reduce the exercise price thereof and indefinitely extend the exercise period
thereof. Except as otherwise provided in subparagraph (a) of the section herein
captioned "Description of Securities - Warrants - Redemption," the Warrants can
be exercised or redeemed only if a current prospectus is then in effect. See
"Description of Securities - Warrants."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AND "DILUTION AND OTHER COMPARATIVE DATA."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
Price to Underwriting Proceeds to
Public Commissions(2) the Company(3)
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
Per Unit $ .10 -0- $ .10
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
Total Minimum (1) $150,000 -0- $150,000
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
Total Maximum (1) $300,000 -0- $300,000
- ---------------------------------- ---------------------------- ----------------------------- ----------------------
<FN>
(See Notes on the pages following)
</FN>
</TABLE>
The date of this Prospectus is _________________, 1990
<PAGE>
(1) This offering is not underwritten. The Units offered by this
Prospectus will be offered by John J. Micek III, the Company's President, who
has had no prior experience in the sale of securities. See "Risk Factors - Lack
of Underwriting." American Aegis Securities, Inc., a NASD member firm with whom
one of the Company's directors is associated, will not be involved in the offer
and sale of the Units. No underwriting discounts or commissions will be paid to
the Company's President for his participation in the offering, although his
out-of-pocket expenses will be reimbursed by the Company. This offering of
1,500,000 Units minimum, 3,000,000 Units maximum, is being made on a
"minimum-maximum, best efforts" basis for a period of 90 days from the date of
this Prospectus, which period may be extended by the Company for an additional
90 days, or until completion or abandonment of this offering, whichever occurs
sooner. All proceeds from the sale of the Units being offered will promptly (and
in no event later than noon of the next business day following receipt) be
placed into an escrow account with Omnibank Aurora, located in Aurora, Colorado
("Escrow Agent"), and no funds will be released to the Company unless and until
a minimum of 1,500,000 Units have been sold. Unless proceeds from the minimum
number of Units offered hereby have been deposited with the Escrow Agent within
90 days from the date of this Prospectus (which period may be extended for up to
an additional 90 days by the Company), the offering will be withdrawn and all
monies received will be refunded to subscribers by the Escrow Agent, without
deduction therefrom for offering costs or sales expenses incurred, if any, and
without payment of any interest thereon. All such refunds will be made as
promptly as shall be practicable. The investor should be aware, however, that
under specified circumstances federal law, including the Expedited Funds
Availability Act of 1988 and Regulation CC (pertaining to the availability of
funds and the collection of checks), permits a bank to withhold payment of funds
on a deposit made by a check drawn on a "nonlocal" bank for up to seven working
days pending collection of the check through the applicable bank check clearing
system. As a result, monies derived from a subscription payment that shall have
been made by check may not be available to the Company, for refund to the
subscriber following the abandonment of the offering, until as many as seven
business days following the subscriber's tender of the subscription funds to the
bank. Assuming that, consistent with federal law as described above, funds for a
particular subscription have become available to the Company for refund, it is
likely that approximately one working day will be required for the Company to
confirm to the escrow bank that a refund should be made and for the bank to
prepare and mail a refund check to the subscriber. The date upon which a refund
check would be mailed will depend, therefore, upon the relationship between the
date upon which a subscription check shall have been tendered and the date upon
which the offering shall have been abandoned. The closer in time the tender
shall be to the date of abandonment, the longer the mailing of the refund check
is likely to be delayed, up to a total of approximately eight working days
following the abandonment. Except as provided above, investors have no right to
the return of their funds during the term of the offering. If at least 1,500,000
Units are sold and the proceeds therefrom deposited into the escrow account
within the period set forth above, the offering will continue until the
remaining 1,500,000 Units being offered are sold, until 90 days from the date of
this Prospectus (up to 180 days if extended), or until the Company determines to
terminate the offering, whichever occurs first. The officers, directors, and
affiliates of the Company may purchase in the aggregate up to 20% of the Units
sold in this offering. Such purchases, if made, will be made for investment
purposes and not for immediate resale.
(2) The amounts shown do not reflect expenses of the offering payable
by the Company. These expenses, which include filing fees, printing, legal and
accounting costs, and miscellaneous fees, are estimated to be $20,500, or $.0137
(13.7%) per Unit if the minimum number of Units is sold and $.0068 (6.8%) per
Unit if the maximum number of Units is sold. See "Use of Proceeds."
(3) The amounts shown do not include any proceeds the Company would
receive upon the exercise of the Warrants. If the maximum number of Units
offered hereby is sold, the Company would receive additional gross proceeds of
$7,050,000 upon the exercise of all of the Warrants.
Prior to this offering there has been no public market for the
Company's securities and there can be no assurance that a public market for the
Units, Common Stock or Warrants will develop following this offering or that the
Units can be resold at or near the offering price. The Company has no
arrangements with broker-dealers to maintain a trading market for its
securities. The initial public offering price of the Units has
ii
<PAGE>
been arbitrarily determined by the Company and bears no relationship to the
Company's assets, net worth or prospects, or to any other recognized criteria of
value. The exercise price of the Warrants has been arbitrarily set and there is
no assurance, and little likelihood, that the trading price of the Common Stock
will rise sufficiently to make exercise of any Warrants desirable.
This offering involves special risks concerning the Company, which has
not engaged in business operations other than efforts to raise capital,
including immediate and substantial dilution to public purchasers of Units in
the net tangible book value per share of the Common Stock acquired and
substantial potential profits to present stockholders of the Company by reason
of the increase in the net tangible book value of their shares as a result of
purchases of Units by the public. See "Risk Factors," "Dilution and Other
Comparative Data," and "Certain Transactions with Management."
----------------------
THESE UNITS ARE OFFERED BY THE COMPANY FOR CASH SUBJECT TO PRIOR SALE,
TO ALLOTMENT AND WITHDRAWAL AND TO CANCELLATION OF THE OFFERING, WITHOUT NOTICE
AT ANY TIME BY THE COMPANY PRIOR TO THE RELEASE OR DELIVERY OF ANY PROCEEDS OF
THIS OFFERING TO THE COMPANY WHETHER OR NOT A CONFIRMATION OF SALE OF UNITS
OFFERED BY THIS PROSPECTUS PREVIOUSLY HAS BEEN ISSUED BY THE COMPANY. PAYMENT BY
A SUBSCRIBER OF THE FULL SUBSCRIPTION PRICE AND DEPOSIT OF THE SAME INTO THE
ESCROW ACCOUNT DOES NOT CONSTITUTE ACCEPTANCE OF SUCH SUBSCRIPTION BY THE
COMPANY. THE RIGHT IS RESERVED BY THE COMPANY TO REJECT ANY AND ALL OFFERS TO
PURCHASE AND TO CANCEL ANY AND ALL CONFIRMATIONS OF SALE OF ANY UNITS OFFERED
HEREBY, IN WHOLE OR IN PART, FOR CAUSE OR WITHOUT CAUSE, AT ANY TIME PRIOR TO
THE CLOSING OF THE OFFERING. REFUNDS TO SUBSCRIBERS WHOSE SUBSCRIPTIONS ARE
CANCELED WILL BE MADE AS PROMPTLY AS PRACTICABLE AFTER CLOSING, AND ACCORDINGLY,
SUBSCRIBERS MAY LOSE THE USE OF SUBSCRIPTION FUNDS, WITHOUT PAYMENT OF ANY
INTEREST THEREON, FOR UP TO 190 DAYS.
----------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION WITH
RESPECT TO THESE SECURITIES BY ANYONE TO ANY PERSON IN ANY STATE IN WHICH THIS
OFFERING OR SOLICITATION IS NOT AUTHORIZED BY THE LAWS THEREOF OR IN WHICH THE
PERSON MAKING SAID OFFERING OR SOLICITATION IS NOT QUALIFIED TO ACT AS DEALER OR
BROKER OR OTHERW1SE TO MAKE SUCH OFFERING OR SOLICITATION.
----------------------
THE SECURITIES BEING SOLD PURSUANT TO THIS PROSPECTUS ARE HIGHLY
SPECULATIVE IN NATURE AND NO GUARANTEES OR OTHER WARRANTIES TO THE CONTRARY ARE
MADE BY THE COMPANY AS ISSUER. THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
----------------------
THE COMPANY HAS NOT TAKEN ANY STEPS TO CREATE AN AFTERMARKET FOR THE
SECURITIES OFFERED HEREIN AND HAS MADE NO ARRANGEMENTS WITH ANY BROKERS TO TRADE
OR MAKE A MARKET IN THESE SECURITIES. AT SOME TIME IN THE FUTURE, THE COMPANY
MAY ATTEMPT TO ARRANGE FOR INTERESTED BROKERS TO TRADE OR MAKE A MARKET IN THESE
SECURITIES AND TO QUOTE THE SECURITIES OF THE COMPANY IN A PUBLISHED QUOTATION
MEDIUM. NO ARRANGEMENTS HAVE BEEN MADE IN THAT REGARD, HOWEVER, AND NO ASSURANCE
IS OFFERED THAT ANY BROKERS WILL BE WILLING TO ENGAGE IN SUCH ACTIVITIES
RELATIVE TO THESE SECURITIES. IN THE EVENT THAT ANY BROKER WERE
iii
<PAGE>
TO BECOME THE EXCLUSIVE MARKET MAKER IN THESE SECURITIES, THE BROKER WOULD IN
EFFECT DOMINATE AND CONTROL THE MARKET FOR THE COMPANY'S SECURITIES.
----------------------
THE COMPANY HAS UNDERTAKEN, DURING THE 90-DAY PERIOD FOLLOWING THE
DATE OF THIS PROSPECTUS AND DURING THE EXERCISE PERIOD OF THE WARRANTS, DURING
ANY PERIOD IN WHICH OFFERS OR SALES ARE BEING MADE, TO FILE POST-EFFECTIVE
AMENDMENTS TO THE REGISTRATION STATEMENT TO WHICH THIS PROSPECTUS RELATES AND TO
REFLECT THEREIN ANY FACTS OR EVENTS ARISING AFTER THE DATE HEREOF WHICH
REPRESENT A FUNDAMENTAL OR MATERIAL CHANGE IN THE INFORMATION SET FORTH HEREIN
OR IN SUCH REGISTRATION STATEMENT. ANY SUCH AMENDMENTS WILL BE DISSEMINATED TO
STOCKHOLDERS AND WARRANTHOLDERS OF THE COMPANY AFTER THE REQUIRED FILINGS HAVE
BEEN MADE WITH THE SECURITIES AND EXCHANGE COMMISSION AND HAVE BEEN DECLARED
EFFECTIVE.
----------------------
THE COMPANY IS NOT CURRENTLY SUBJECT TO SECTION 14 OF THE SECURITIES
EXCHANGE ACT OF 1934. THE COMPANY WILL FURNISH TO ITS STOCKHOLDERS ANNUAL
REPORTS CONTAINING FINANCIAL INFORMATION EXAMINED AND REPORTED UPON, WITH AN
OPINION EXPRESSED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, SO LONG AS IT IS
REQUIRED TO DO SO. IN ADDITION, THE COMPANY MAY FURNISH UNAUDITED QUARTERLY OR
OTHER INTERIM REPORTS TO ITS STOCKHOLDERS AS IT DEEMS APPROPRIATE.
----------------------
IF, AFTER FOUR (4) YEARS FROM THE DATE FUNDS ARE DEPOSITED INTO AN
ESCROW ACCOUNT, ESTABLISHED IN ACCORDANCE WITH THE COLORADO SECURITIES ACT (THE
"COLORADO ESCROW ACCOUNT"), THE COMPANY HAS NOT CONSUMMATED A BUSINESS
COMBINATION THAT HAS RESULTED IN THE RELEASE OF THE FUNDS ESCROWED IN COMPLIANCE
WITH THE COLORADO SECURITIES ACT, THE ESCROW AGREEMENT THAT THE COMPANY HAS
ENTERED INTO WITH OMNIBANK AURORA, LOCATED IN AURORA, COLORADO (FOR PURPOSES OF
THIS PARAGRAPH, THE "ESCROW AGENT") PROVIDES THAT THE ESCROW AGENT SHALL, AS
PROMPTLY AS POSSIBLE, DISTRIBUTE THE FUNDS IN THE COLORADO ESCROW ACCOUNT TO THE
PERSONS THEN HOLDING THE SHARES OF THE COMPANY'S COMMON STOCK ISSUED IN THIS
OFFERING ON A PRO RATA BASIS BASED ON THE NUMBER OF SHARES HELD. SEE "RISK
FACTORS - IMPACT OF AMENDMENTS TO THE COLORADO SECURITIES ACT" AND "POSSIBLE
DISTRIBUTION OF ESCROWED FUNDS AFTER FOUR YEARS." THEREFORE, INVESTORS IN THIS
OFFERING SHOULD BE AWARE THAT, IN THE EVENT OF A DISTRIBUTION AS DESCRIBED IN
THE PREVIOUS SENTENCE, ONLY A PORTION OF THE FUNDS ORIGINALLY INVESTED WILL BE
DISTRIBUTED TO THE PERSONS THEN HOLDING SHARES ISSUED IN THIS OFFERING, WITHOUT
ANY INTEREST BEING PAID THEREON. NEITHER THE COLORADO ESCROW AGREEMENT, NOR ANY
DISTRIBUTION MADE THEREUNDER, SHALL AFFECT OWNERSHIP OF THE UNITS ISSUED IN THIS
OFFERING, I.E., THE SHAREHOLDERS WHO RECEIVE THEIR PRO RATA PORTION OF THE
AFOREMENTIONED DISTRIBUTION SHALL NOT BE REQUIRED TO RETURN THEIR UNITS TO THE
COMPANY'S TREASURY. IN THE EVENT A DISTRIBUTION IS MADE, AS PROVIDED ABOVE, THE
COMPANY'S ABILITY TO ADEQUATELY INVESTIGATE AND EVALUATE BUSINESS OPPORTUNITIES
AND TO ATTRACT FAVORABLE BUSINESS OPPORTUNITIES WILL BE ADVERSELY AFFECTED.
iv
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 1
Risk Factors .............................................................. 3
Dilution and Other Comparative Data ....................................... 11
Use of Proceeds ........................................................... 13
Business .................................................................. 14
General ......................................................... 14
Investigation and Selection
of Business Opportunities ..................................... 16
Form of Acquisition ............................................. 18
Investment Company Act and Other Regulation ..................... 19
Competition ..................................................... 20
Administrative Offices .......................................... 20
Employees ....................................................... 20
Management ................................................................ 21
Biographical Information ........................................ 21
Remuneration .................................................... 23
Indemnification of Officers and Directors ....................... 23
Exclusion of Liability .......................................... 23
Prior Blind Pool Activities ............................................... 24
Potential Conflicts of Interest ........................................... 25
Certain Transactions with Management and Others ........................... 26
Principal Stockholders .................................................... 27
Description of Securities ................................................. 28
Units ........................................................... 28
Common Stock .................................................... 28
Preferred Stock ................................................. 28
Warrants ........................................................ 28
Transfer and Warrant Agent ...................................... 31
Reports to Stockholders ......................................... 31
Terms of Offering ......................................................... 31
Pricing of Units ................................................ 32
Escrow of Net Proceeds .......................................... 32
Legal Proceedings ......................................................... 32
Legal Matters ............................................................. 33
Experts ................................................................... 33
Additional Information .................................................... 33
Financial Statements ...................................................... F-1
<PAGE>
PROSPECTUS SUMMARY
The following summary is intended to supply selected facts and
highlights from material contained in the body of this Prospectus. More detailed
information may be found in the remainder of the Prospectus. This summary is
qualified in its entirety by the detailed information and financial statements
appearing elsewhere herein.
The Company
Catalina Capital Corp. (the "Company") was incorporated under the laws
of Delaware on April 27, 1990. Its offices are located at the residence of its
Vice President at 12543-A East Pacific Circle, Aurora, Colorado 80014. Its
telephone number is (303) 337-1033.
The Company is a new enterprise in the early promotional and
development stage and has not engaged in any business other than organizational
efforts. It has no full-time employees and owns no real property. The Company
intends, upon successful completion of this offering, to utilize the net
proceeds realized to seek out and take advantage of business opportunities which
may have potential for profit and, to that end, intends to acquire properties or
businesses, or a controlling interest therein. Management of the Company will
have virtually unlimited discretion in determining the business activities in
which the Company will engage. The Company believes that its ability to take
advantage of business opportunities will be enhanced by (1) its willingness to
invest in high risk ventures and businesses, (2) its flexibility in structuring
investments, including the probable surrender of control and replacement of
management, and (3) its status as a publicly held company with liquid assets
that can be deployed quickly.
The Company currently does not own any properties or an interest in any
business. Moreover, it has not identified any properties or business
opportunities which it proposes to acquire, has no understanding or arrangement
to acquire any properties or business interests, and has not identified any
specific geographical area, industry or type of business in which it will seek
to operate. Accordingly, this offering must be considered a "blind pool"
offering. There can be no assurance that the Company will be able to acquire any
properties or business interests available, or that any such acquisition will be
profitable. See "Risk Factors" and "Business." Moreover, if, after four (4)
years from the date funds are deposited into an escrow account, established in
accordance with the Colorado Securities Act (the "Colorado escrow account"), the
Company has not consummated a business combination that has resulted in the
release of the funds escrowed in compliance with the Colorado Securities Act,
the escrow agreement that the Company has entered into with Omnibank Aurora,
located in Aurora, Colorado (for purposes of this paragraph, the "escrow
agent"), provides that the escrow agent shall, as promptly as possible,
distribute the funds in the Colorado escrow account to the persons then holding
the shares of the Company's common stock issued in this offering on a pro rata
basis based on the number of shares held. See "Risk Factors - Impact of
Amendments to the Colorado Securities Act" and "Possible Distribution of
Escrowed Funds After Four Years." In that event, the Company's ability to
adequately investigate and evaluate business opportunities and to attract
favorable business opportunities will be adversely affected.
1
<PAGE>
The Offering
The Company is offering a minimum of 1,500,000 and a maximum of
3,000,000 Units, at the price of $.10 per Unit. Each Unit consists of one share
of Common Stock, par value $.00001 per share, one Class A Warrant, one Class B
Warrant and one Class C Warrant. Each Class A Warrant, Class B Warrant and Class
C Warrant will be exercisable for one share of Common Stock, for a period
commencing with the date of this Prospectus and terminating on the second
anniversary of such date, at a price of $.30, $.75 and $1.30, respectively. Upon
issuance, the Warrants will be detachable and may be transferred separately from
the Common Stock. The Company may redeem the Warrants at a price of $.0001 per
Warrant upon 30 days' written notice, reduce the exercise price or indefinitely
extend the exercise period of the Warrants. See "Description of Securities."
Outstanding Shares
There are 7,300,000 shares of the Company's Common Stock currently
outstanding. Upon conclusion of this offering, there will be 8,800,000 shares
outstanding if the minimum number of Units is sold and 10,300,000 shares if the
maximum number of Units is sold. The number of shares stated does not include
any Common Stock issuable upon exercise of the Warrants.
Use of Proceeds
The proceeds of this offering, net of all expenses of the offering,
are estimated to be $129,500 if the minimum number of Units is sold and $279,500
if all of the Units are sold. These proceeds will be used for general and
administrative expenses, to investigate and evaluate business opportunities and
to acquire properties or business interests, and for working capital. However,
investors should be aware that eighty percent (80%) of the net offering proceeds
($103,600, if the minimum number of Units is sold and $223,600 if the maximum
number of Units is sold) will be subject to an escrow for an indeterminable
period. See "Use of Proceeds."
Risk Factors
Investment in the Units involves an extremely high degree of risk.
Potential investors should consider that the Company is in the early development
stage and has not commenced commercial activities, has no revenues, earnings or
operating history and only limited capitalization, and is dependent upon the
proceeds of this offering to commence operations. Further, the proceeds of this
offering have been allocated only generally, no properties or business interests
for acquisition have been identified, and investors will experience immediate
and substantial dilution in the net tangible book value per share of the Common
Stock acquired as compared to the offering price. In seeking business
opportunities, the Company could incur substantial losses. The Company's present
management has very limited experience in seeking, investigating and acquiring
business opportunities. Moreover, management has other business interests which
may conflict with the Company's interests and will devote relatively little time
to the Company's affairs. See "Risk Factors."
Selected Financial Information
Selected financial information concerning the Company as of June 6,
1990, is given below. This information should be read in conjunction with the
financial statements and notes appearing elsewhere in this Prospectus.
Assets
Cash $10,791
Organizational Cost 492
Deferred Offering Costs 5,385
-------
Total Assets $16,668
=======
Liabilities and Stockholders' Equity
Current Liabilities $ 885
Stockholders' Equity 15,783
-------
Total Liabilities and
Stockholders' Equity $16,668
=======
2
<PAGE>
RISK FACTORS
The purchase of Units in this offering involves extreme risks and the
possibility of the loss of a stockholder's entire investment. A prospective
investor should evaluate all information discussed in this Prospectus and the
risk factors discussed below in relation to his financial circumstances before
investing in the Units.
The Company
1. No Operating History. The Company was formed in April 1990 for the
purpose of raising capital through a public offering of securities and to
acquire a business opportunity. The Company has no operating history, revenues
from operations, or assets other than cash from private sales of stock. The
Company faces all of the risks of a new business and those risks specifically
inherent in the investigation, acquisition, or involvement in a new business
opportunity. Purchase of the securities in this offering must be regarded as
placing funds at a high risk in a new or "start-up" venture with all of the
unforeseen costs, expenses, problems, and difficulties to which such ventures
are subject. See "Use of Proceeds" and "Business."
2. No Assurance of Success or Profitability. There is no assurance
that the Company will acquire a favorable business opportunity. In addition,
even if the Company becomes involved in a business opportunity, there is no
assurance that it will generate revenues or profits, or that the market price of
the Company's Common Stock will be increased thereby. See "Business."
3. Unspecified Use of Proceeds. Net proceeds of this offering are not
specifically allocated. They will be used generally to search for, acquire, or
participate in a business opportunity deemed beneficial by management.
Stockholders of the Company will not be given the opportunity to review or
evaluate the merits of a business opportunity before the Company enters into a
transaction involving such business or business opportunity. Investors will be
entrusting their funds to management, which will determine the specific
expenditure of the funds. This type of offering is known as a "blind pool" and
involves extreme risk and speculation for purchasers. Because the Company
intends to offer the Units to residents of the State of Colorado, investors will
benefit from the protections afforded by the Colorado Securities Act, which
requires the placement in escrow of eighty percent of the net proceeds of the
offering until the completion of a transaction or series of transactions whereby
at least fifty percent of the gross proceeds received from the sale of Units are
committed for use in one or more specific lines of business. See "Business" and
"Use of Proceeds."
4. Possible Business -- Not Identified and Highly Risky. The Company
has not identified and has no commitments to enter into or acquire a specific
business opportunity and therefore can only disclose the risks and hazards of a
business or opportunity that it may enter into in a general manner, and cannot
disclose the risks and hazards of any specific business or opportunity that it
may enter into. An investor can expect a potential business opportunity to be
quite risky. The Company's acquisition of or participation in a business
opportunity will likely be highly illiquid and could result in a total loss to
the Company and its stockholders if the business or opportunity is unsuccessful.
See "Business."
5. Type of Business Acquired. The type of business to be acquired may
be one which desires to avoid effecting its own public offering and the
accompanying expense, delays, and federal and state requirements which purport
to protect investors. Because of the Company's limited capital, it is more
likely than not that any acquisition by the Company will involve other parties
whose primary interest is the acquisition of a publicly traded company.
Moreover, it is also possible that any business opportunity acquired may be
currently unprofitable or present other negative factors.
3
<PAGE>
6. Impracticability of Exhaustive Investigation. The Company's limited
funds and the lack of full-time management will likely make it impracticable to
conduct a complete and exhaustive investigation and analysis of a business
opportunity before the Company commits its capital or other resources thereto.
Management's difficulties are compounded by the effect of the proceeds escrow
imposed by the Colorado Securities Act, which requires the placement in escrow
of eighty percent of the net proceeds of the offering until the completion of a
transaction or series of transactions whereby at least fifty percent of the
gross proceeds received from the sale of Units are committed for use in one or
more specific lines of business. Management decisions, therefore, will likely be
made without detailed feasibility studies, independent analysis, market surveys
and the like which, if the Company had more funds available to it, would be
desirable. The Company will be particularly dependent in
making decisions upon information provided by the promoter, owner, sponsor or
others associated with the business opportunity seeking the Company's
participation. See "Business." and "Use of Proceeds."
7. Lack of Diversification. Because of the limited financing
capabilities of the Company at the present time and upon completion of this
offering, it is unlikely that the Company will be able to diversify its
acquisitions or operations. The Company's probable inability to diversify its
activities into more than one area will subject the Company to economic
fluctuations within a particular business or industry and therefore increase the
risks associated with the Company's operations. See "Business."
8. Possible Reliance upon Unaudited Financial Statements. The Company
generally will require audited financial statements from companies which the
Company proposes to acquire. No assurance can be given, however, that audited
financials will be available to the Company. In cases where audited financials
are unavailable, the Company will have to rely upon unaudited information
received from target companies' management which has not been independently
verified by outside auditors. Moreover, the Company will be subject to the
reporting provisions of the Securities Exchange Act of 1934 and thus will be
required to furnish certain information about significant acquisitions,
including certified financial statements for any business that the Company
acquires. Consequently, acquisition prospects that do not have or are unable to
obtain the required certified statements may not be appropriate for acquisition
so long as the reporting requirements of the Securities Exchange Act of 1934 are
applicable. In addition, Warrantholders may not be able to exercise their
Warrants if the Company acquires a business that does not have audited financial
statements until such time as audited statements become available, because the
Company would be unable to meet the requirements for maintenance of a current
registration statement on file with the Securities and Exchange Commission.
9. Investment Company Regulation. The Company does not intend to
become classified as an "investment company" under the Investment Company Act of
1940 (the "Investment Act"). The Company believes that it will not become
subject to regulation under the Investment Act because (i) the Company will not
be engaged in the business of investing or trading in securities, (ii) any
merger or acquisition undertaken by the Company will result in the Company's
obtaining a majority interest in any such merger or acquisition candidate, and
(iii) the Company intends to discontinue any investment in a prospective merger
or acquisition candidate in which a majority interest cannot be obtained. In the
event that the Company is required to register as an investment company, it
could be expected to incur significant registration and compliance costs. The
Company has obtained no formal determination from the Securities and Exchange
Commission (the "Commission") as to the status of the Company under the
Investment Act and, consequently, any violation of the Investment Act will
subject the Company to materially adverse consequences. Should the Commission
find that the Company is subject to the Investment Act, and direct the Company
to register under such Act, the Company would vigorously resist any such order
or finding. Irrespective of whether the Commission or the Company prevailed in
such dispute, however, the Company would be damaged by the costs and delays
involved. Because the Company will not register under the Investment Act,
investors in the Company will not have the benefit of the various protective
provisions imposed on investment companies by such Act, including requirements
for independent directors. See "Business."
10. Other Regulation. An acquisition made by the Company may be of a
business that is subject to regulation or licensing by federal, state, or local
authorities. Compliance with such regulations and licensing can
4
<PAGE>
be expected to be a time-consuming and expensive process and may limit other
investment opportunities of the Company.
11. Public Investors Will Bear Financial Risks. The Company's present
stockholders have acquired their shares of the Company at an extremely low cost
and consequently have contributed only an insignificant amount of capital to the
Company. The purchasers in this offering will provide virtually all of the
capital that the Company will use in carrying out its business plan and thus
will bear most of the risk of loss, if any, incurred by the Company. See
"Principal Stockholders."
12. Dependence upon Management. The Company will be heavily dependent
upon the skills, talents, and abilities of its management to implement its
business plan. The Company's officers and directors will each devote on average
between five and twenty hours per month to the affairs of the Company, which for
a company such as this that is heavily dependent upon management, may be
inadequate for Company business, and may delay the acquisition of any
opportunity considered. Furthermore, management does not have substantial
experience in seeking, investigating and acquiring businesses and will depend
upon its general business expertise in making decisions regarding the Company's
operations. See "Management." Because investors will not be able to evaluate the
merits of possible business acquisitions by the Company, they should critically
assess the information concerning the Company's management.
13. Lack of Continuity in Management. The Company does not have
employment agreements with its management, and there is no assurance that
persons named herein will manage the Company in the future. In connection with
acquisition of a business opportunity, some or all of the current management of
the Company probably will resign and appoint successors. This may occur without
the vote or consent of the stockholders of the Company. See "Business" and
"Principal Stockholders."
14. Conflicts of Interest. Certain conflicts of interest have existed
and will continue to exist between the Company and its officers and directors.
All have other business interests to which they devote their primary attention,
and each may be expected to continue to do so although management time should be
devoted to the business of the Company. As a result, conflicts of interest may
arise that can be resolved only through exercise by the officers and directors
of such judgment as is consistent with their fiduciary duties to the Company.
See "Potential Conflicts of Interest."
15. Limited Participation of Management. Each of the officers and
directors has full-time outside employment and will be available to participate
in management decisions only on an "as needed" basis which may amount to on
average as little as five hours per month. The amount of time which officers and
directors are able to devote to Company business may be inadequate for Company
business and may delay the acquisition of any opportunity considered.
16. Indemnification of Officers and Directors. The Company's
Certificate of Incorporation provides for the indemnification of its directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses incurred by them in any litigation to which they become
a party arising from their association with or activities on behalf of the
Company. The Company may also bear the expenses of such litigation for any of
its directors, officers, employees or agents, upon such person's promise to
repay the Company therefor if it is ultimately determined that any such person
shall not have been entitled to indemnification. This indemnification policy
could result in substantial expenditures by the Company which it will be unable
to recoup. See "Management - Indemnification of Officers and Directors."
17. Director's Liability Limited. Under the Company's Certificate of
Incorporation, directors of the Company cannot be held liable to the Company for
monetary damages for breach of fiduciary duty as a director except (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for any violation of Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from which
the
5
<PAGE>
director derived an improper personal benefit. This provision does not affect
the liability of any director under federal or applicable state securities laws.
See "Management - Exclusion of Liability."
18. Dependence upon Outside Advisors. To supplement the business
experience of management, the Company may be required to employ accountants,
technical experts, appraisers, attorneys or other consultants or advisors. The
selection of any such advisors will be made by management without any input from
stockholders. Furthermore, it is anticipated that such persons may be engaged on
an "as needed" basis without a continuing fiduciary or other obligation to the
Company.
19. Possible Need for Additional Financing. The Company's funds may
not be adequate to take advantage of any available business opportunities. The
offering may terminate upon the receipt of only the minimum net proceeds of
$129,500, substantially less than the maximum net proceeds of $279,500.
Moreover, investors should be aware that eighty percent of the net proceeds
($103,600 if the minimum number of Units is sold and $223,600 if the maximum
number of Units is sold) will be subject to an escrow for an indeterminable
period. See "Use of Proceeds." Even if the Company has sufficient funds to
acquire an interest in a business opportunity, it may not have sufficient
capital to exploit the opportunity. The ultimate success of the Company may
depend upon its ability to raise additional capital. The Company has not
investigated the availability, source, or terms that might govern the
acquisition of additional capital and will not do so until it determines a need
for additional financing. If additional capital is needed, there is no assurance
that funds will be available from any source or, if available, that they can be
obtained on terms acceptable to the Company. If not available, the Company's
operations will be limited to those that can be financed with its modest
capital. See "Use of Proceeds" and "Business."
20. Leveraged Transactions. There is a possibility that any
acquisition of a business opportunity by the Company may be leveraged, i.e., the
Company may finance the acquisition of the business opportunity by borrowing on
the assets of the business opportunity to be acquired, on the projected future
revenues, or the profitability of the business opportunity. This could increase
the Company's exposure to larger losses. A business opportunity acquired through
a leveraged transaction is profitable only if it generates enough revenues to
cover the related debt and expenses. Failure to make payments on the debt
incurred to purchase the business opportunity could result in the loss of a
portion or all of the assets acquired. There is no assurance that any business
opportunity acquired through a leveraged transaction will generate sufficient
revenues to cover the related debt and expenses, and investors should be aware
that the Company has not established any specific criteria or plan in connection
with analyzing whether, and to what extent, a particular candidate's operations
can support the leverage the Company would incur in a leveraged buy-out.
Investors should also be aware of the high default rate experienced recently by
entities entering into leveraged transactions, many of which defaults resulted
from overly optimistic analyses and income projections.
21. Competition. The search for potentially profitable business
opportunities is intensely competitive. The Company expects to be at a
disadvantage when competing with many firms that have substantially greater
financial and management resources and capabilities than the Company. These
competitive conditions will exist in any industry in which the Company may
become interested. See "Business."
22. No Foreseeable Dividends. The Company has not paid dividends on
its Common Stock and does not anticipate paying dividends on its Common Stock in
the foreseeable future.
23. Loss of Control by Present Management and Stockholders. The
Company may consider an acquisition in which the Company issues a substantial
amount of its authorized but unissued Common Stock (80% or more control) as
consideration for any business opportunity acquired. The result of such
acquisition would be that the acquired Company's stockholders and management
would control the Company, and the Company's management could be replaced by
persons unknown at this time. Such a merger could leave the investors in this
offering with stock worth substantially less than the price paid in this
offering, and a greatly reduced percentage of ownership of the Company.
Management could sell its control block of stock at a
6
<PAGE>
premium price to the acquired company's stockholders, although management has no
present plans to do so. See "Certain Transactions with Management and Others."
24. Dilutive Effects of Issuing Additional Common Stock. The vast
majority of the Company's authorized but unissued Common Stock will remain
unissued after this offering, even if all Units offered are sold and all
Warrants offered are exercised. The board of directors of the Company has
authority to issue such unissued shares without the consent or vote of the
stockholders of the Company. The issuance of these shares may further dilute the
interests of investors purchasing in this offering and will reduce their
proportionate ownership and voting power in the Company.
The Offering
25. Determination of Offering and Exercise Price. The price at which
the Units are being offered to the public and the exercise prices of the
Warrants have been arbitrarily determined by the Company. Such prices bear no
direct relationship to the Company's assets, net worth or prospects, or to any
other recognized criteria of value.
26. Loss of Beneficial Use of Subscription Funds. Under the terms of
this offering, subscription funds for Units will be deposited into escrow and
held for the offering period of 90 days (up to 180 days, if extended), or until
this offering is abandoned or closed, whichever occurs first. The Company has
reserved the right to reject any subscription, and cancel any confirmation of
sale issued, in whole or in part, prior to closing, even if the subscriber's
funds are held in escrow until the offering is abandoned or closed, warranting
only to refund such funds as promptly as shall be practicable after abandonment
or closing, as the case may be. In this regard, the investor should be aware
that under specified circumstances federal law, including the Expedited Funds
Availability Act of 1988 and Regulation CC (pertaining to the availability of
funds and the collection of checks), permits a bank to withhold payment of funds
on a deposit made by a check drawn on a "nonlocal" bank for up to seven working
days pending collection of the check through the applicable bank check clearing
system. As a result, monies derived from a subscription payment that shall have
been made by check may not be available to the Company, either for closing of
the offering or for possible refund to the subscriber following a rejection of
all or a portion of the subscription or the abandonment of the offering, until
as many as seven business days following the subscriber's tender of the
subscription funds to the bank. It is anticipated that a decision to reject all
or a portion of a given subscription shall not be made until on or near the date
of closing of the offering. Assuming that, consistent with federal law as
described above, funds for a particular subscription have become available to
the Company for refund, it is likely that approximately one working day will be
required for the Company to notify the escrow bank that a refund of all or a
portion of the subscription funds should be made and for the bank to prepare and
mail a refund check to the subscriber. The date upon which a refund check would
be mailed will depend, therefore, upon the relationship between the date upon
which a subscription check shall have been tendered and the date upon which the
offering shall have been closed or abandoned. The closer the tender shall be to
the date of closing or abandonment, the longer the mailing of the refund check
is likely to be delayed, up to a total of approximately eight working days
following closing or abandonment. Subscribers could thus lose the beneficial use
of their subscription funds for up to approximately 190 calendar days, without
interest, and there is no guarantee that the subscriber will receive any or all
of the Units subscribed for, even if the offering closes. Moreover, no method
has been determined by which to prorate subscriptions should the offering be
over-subscribed, and no proration may be made.
27. Control by Present Stockholders. After completion of this
offering, the present stockholders will own approximately 83% of the outstanding
Common Stock, assuming that only the minimum number of Units is sold, and
approximately 71%, assuming that the maximum number of Units is sold. These
figures do not take into account any Units in this offering which may be
purchased by present stockholders, though no arrangements have been made, and
the Company does not anticipate any future arrangements, whereby shares of the
offering are reserved for sale to such persons. Because the Company's
Certificate of Incorporation does not permit
7
<PAGE>
cumulative voting for the election of directors, it is likely that public
purchasers of Units will not have the power to elect a single director and, as a
practical matter, the present stockholders will have the power to elect all
directors and effectively control the Company. See "Description of Securities"
and "Principal Stockholders."
28. Sale of Minimum Number of Units. This offering is being made on a
"best efforts, minimum-maximum" basis. If only the minimum number of Units is
sold, the Company's operations and the scope of business opportunities open to
it will be significantly curtailed. The degree of risk to investors in that
event will be increased correspondingly.
29. No Public Market Exists. There currently is no public market for
the Units, Common Stock or Warrants being offered, and no assurance can be given
that a market will develop subsequent to this offering or that purchasers will
be able to resell their securities at the public offering price, or that a
purchaser will be able to liquidate his investment without considerable delay,
if at all. If a market does develop, the price may be highly volatile. Factors
such as those discussed in this "Risk Factors" section may have a significant
impact upon the market price of the securities offered hereby. Due to the low
price of the securities, many brokerage firms may not be willing to effect
transactions in the securities. Even if a purchaser finds a broker willing to
effect a transaction in these securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling costs may
exceed the selling price. Further, many lending institutions will not permit the
use of such securities as collateral for any loans.
30. No Market Maker - Possible Dominance of Market by Single Market
Maker. Even if the Company proves to be successful in selling the Units offered
hereunder, and the Company's securities become eligible to be traded by
securities brokers and dealers which are members of the National Association of
Securities Dealers, Inc. ("NASD") in the "pink sheets" maintained by the
National Quotation Bureau, Inc., the Company has no agreement with any NASD
member to act as a market maker for the Company's securities. If the Company is
unsuccessful in obtaining one or more market makers for the Company's
securities, the trading level and price of the Company's securities will be
materially and adversely affected. If the Company is successful in obtaining
only one market maker for the Company's securities, the market maker would in
effect dominate and control the market for such securities. Although management
intends to contact several broker-dealers concerning their possible
participation as a market maker in the Company's securities following the
conclusion of this offering, there is no assurance management will be successful
in obtaining any market makers for the Company's securities.
31. Dilution. The Company's present stockholders, including officers,
directors and founders, have acquired their controlling interest in the Company
at an average weighted cost that is substantially less than the public offering
price of the Units. Public purchasers of Units will suffer immediate and
substantial dilution of $.0836 per share of Common Stock (83.6%), assuming the
sale of only the minimum number of Units, and $.0714 per share of Common Stock
(71.4%), assuming the sale of all Units being offered. These calculations do not
take into account the issuance of up to an additional 9,000,000 shares of Common
Stock if all Warrants are exercised, which event could result in a further
dilution of the net tangible book value per share of the shares outstanding at
such time, if the net tangible book value of the Common Stock then exceeds the
Warrant exercise price. See "Dilution and Other Comparative Data."
32. Benefit to Present Stockholders. Because present stockholders
acquired their shares at prices substantially lower than the offering price of
the Units, they will experience an increase in the present net tangible book
value of their shares amounting to $.0l51, assuming sale of the minimum number
of Units, and $.0273, assuming sale of all the Units being offered. See
"Dilution and Other Comparative Data."
33. Preferred Shares Authorized. The Certificate of Incorporation of
the Company authorizes issuance of a maximum of 20,000,000 Preferred Shares, par
value $.00001 per share. While no Preferred Shares have been issued or are
outstanding on the date of this Prospectus and there is no plan to issue any in
the foreseeable future, if issued, the terms of a series of Preferred Shares
could operate to the significant disadvantage of the
8
<PAGE>
holders of outstanding Common Shares. Such terms could include, among others,
preferences as to dividends, possible voting rights, and distributions on
liquidation. See "Description of Securities - Preferred Stock."
34. Possible Rule 144 Sales. All of the outstanding shares of Common
Stock held by present stockholders are "restricted securities" as defined by
Rule 144 under the Securities Act of 1933, as amended. As restricted shares,
these shares may be resold only pursuant to an effective registration statement
or under the requirements of Rule 144 or other applicable exemption from
registration under the Act and as required under applicable state securities
laws. Rule 144 provides in essence that a person who has held restricted
securities for a period of two years may, under certain conditions, sell every
three months, in brokerage transactions, a number of shares which does not
exceed the greater of 1.0% of a company's outstanding common stock or the
average weekly trading volume during the four calendar weeks prior to the sale.
There is no limit on the amount of restricted securities that may be sold by a
nonaffiliate after the restricted securities have been held by the owner for a
period of three years. A sale under Rule 144 or any other exemption from the
Act, if available, or subsequent registrations of shares of Common Stock of
present stockholders, may have a depressive effect upon the price of the Common
Stock in any market that may develop. A total of 5,000,000 shares of Common
Stock will become available for sale under Rule 144 beginning in April 1992, and
an additional 2,300,000 shares will become available for sale under Rule 144
beginning in May 1992, all of which will be subject to applicable volume
restrictions under the Rule.
35. Market Overhang of Warrants. The Warrants offered as part of the
Units are detachable and may be separately traded and quoted, if a market for
the Warrants develops. Each Warrant is exercisable for one share of Common Stock
for a period commencing on the date of this Prospectus and terminating on the
second anniversary thereof. Each Class A Warrant, each Class B Warrant and Class
C Warrant carries an exercise price of $.30, $.75 and $1.30, respectively.
Exercise of the Warrants can be expected to have an adverse effect on the
trading price of and market for the Common Stock, if any such market develops.
Even if a public market for the Common Stock develops, it is unlikely that
normal market forces will cause an increase in the bid price of the Common Stock
to the level of the exercise price of the Warrants. It is possible that so long
as the Warrants remain outstanding their existence will prevent a rise in the
price of the Common Stock higher than the exercise price of any of the Warrants.
See "Description of Securities - Warrants."
36. Exercise of Warrants Uncertain. Because of the lack of a market
for the Warrants and the uncertainty of the Company's potential for success, the
Warrants may not be exercised before they expire, with the result that no
Warrant proceeds would be received by the Company. The Warrants may be exercised
only at a time when a current prospectus is in effect and only if the shares are
qualified for sale under applicable securities laws of the states in which the
various Warrantholders reside. Although the Company intends to use its best
efforts to keep this Prospectus current during the Warrant exercise periods,
there is no assurance that it will do so or that it will be financially able to
do so. See "Description of Securities - Warrants." Investors should be aware
that proceeds received by the Company from the exercise of Warrants may be
subject to the escrow provisions contained in the Colorado Securities Act. See
"Use of Proceeds."
37. Possible Redemption of Warrants without Notice. The Company is
entitled to redeem the Warrants without prior notice to the warrantholders
should the representatives of a business opportunity with which the Company
wishes to combine require, as a condition to consummation of the combination,
that the Warrants be redeemed. Under these circumstances, the warrantholder will
have no opportunity to exercise the purchase rights under the Warrants prior to
redemption. See "Description of Securities - Warrants."
38. Substantial Offering Expenses. The Company estimates that it will
incur expenses of $20,500 in connection with this offering. These expenses are
substantial, especially in view of the amount to be raised by this offering, and
will significantly decrease the amount of net offering proceeds which otherwise
would be available to the Company. See "Use of Proceeds."
9
<PAGE>
39. Lack of Underwriter. The minimum number of Units is being offered
by the Company, through its President, on a "best efforts, all-or-none" basis
and the Company has not retained an underwriter or selected broker-dealer to
assist the Company in offering the Units. The Company's President has no
experience in the offer and sale of securities on behalf of an issuer.
Consequently, the Company may be unable to effect a sale of the Units without
the assistance of a broker-dealer. Should it prove necessary for the Company to
retain a broker-dealer, the offering of the Units would be suspended until an
amendment to the Company's Registration Statement, including this Prospectus,
shall have been made to reflect such retention. The Registration Statement would
then require additional review and clearance by the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and state
regulatory authorities. The Company could be expected to incur significant
additional legal and accounting costs if further reviews were
required to be undertaken by governmental authorities. There is no assurance
that the Company shall prove to be capable of selling all, or any, of the Units
offered without the assistance of an underwriter or broker-dealer. See "Terms of
Offering."
40. Blue Sky Considerations. It is entirely possible that, because of
exemptions from registration contained in certain state securities laws, the
Warrants contained in the Units lawfully may be sold to residents of such states
in any aftermarket which may develop for the Warrants. Nevertheless, the
securities laws of such states may prevent the exercise of such Warrants by
residents of those states because the common shares underlying the Warrants were
never registered there. In this event, holders of the Warrants in those states
would be forced to sell their Warrants or hold them until they expire, without
any opportunity to exercise the Warrants.
41. Broker-Dealer Sales of Company's Registered Securities. The
Company's Units, Common Stock and Warrants are covered by a Securities and
Exchange Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of purchasers in this offering to sell their securities in
the secondary market.
42. Impact of Amendments to the Colorado Securities Act. Effective
July 1, 1990, the State of Colorado repealed its prior securities laws and
enacted the Colorado Securities Act, which provides that where less than
seventy-five percent of the net proceeds from the sale of securities are
committed for use in one or more specific lines of business, eighty percent of
the net proceeds received by the issuer shall be placed in escrow until (i)
completion of a transaction or series of transactions whereby at least fifty
percent of the gross proceeds received from the sale of securities are committed
for use in one or more specific lines of business, and (ii) notice of the
proposed release of the escrowed funds has been on file with the Colorado
Division of Securities for at least ten days. The Company intends to make offers
of the Company's Units to residents of Colorado, and, accordingly, anticipates
that this offering will be subject to the above-described escrow provisions. In
such event, the use of proceeds table shall not be affected except that certain
allocated funds may not be available for payment until funds are released from
the escrow. As such, investors should be aware that since many providers of
goods and services require compensation for such goods and services at the time
or soon after the time rendered, the inability of the Comapny to pay until an
indeterminate future time may make it difficult to procure goods and services.
Moreover, while the Company intends to set aside out of the non-escrowed net
proceeds sufficient funds for auditing work, investors should be aware that
unpaid fees are generally regarded as an impediment to independence and may make
it impossible for the Company's auditors to perform an independent audit.
Imposition of the escrow provisions may require the Company to seek additional
financing for payment of administrative and overhead expenses until such time,
if ever, the Company can successfully complete a business combination whereby
proceeds from the offering are committed to a specific line of business and the
proceeds in escrow are released. The Company has entered into an agreement with
Omnibank Aurora, located in Aurora, Colorado, providing for the establishment of
an escrow account to hold the proceeds, subject to the aforementioned escrow
provisions. See "Terms of Offering - Escrow of Net Proceeds" and "Risk Factors -
Possible Distribution of Escrow Funds After Four Years." Investors should also
be aware that the provisions of the Colorado Securities
10
<PAGE>
Act will apply to proceeds of any exercise of Warrants prior to the completion
of a transaction meeting the requirements of the Colorado Securities Act. See
"Use of Proceeds."
43. Possible Distribution of Escrowed Funds After Four Years. If,
after four (4) years from the date funds are deposited into an escrow account,
established in accordance with the Colorado Securities Act (the "Colorado escrow
account"), the Company has not consummated a business combination that has
resulted in the release of the funds escrowed in compliance with the Colorado
Securities Act, the escrow agreement that the Company has entered into with
Omnibank Aurora, Colorado (for purposes of this paragraph, the "escrow agent")
provides that the escrow agent shall, as promptly as possible, distribute the
funds in the Colorado escrow account to the persons then holding the shares of
the Company's common stock issued in this offering on a pro rata basis based on
the number of shares held. See "Risk Factors - Impact of Amendments to the
Colorado Securities Act." Therefore, investors in this offering should be aware
that, in the event of a distribution as described in the previous sentence, only
a portion of the funds originally invested will be distributed to the persons
then holding shares issued in this offering, without any interest being paid
thereon. Neither the Colorado escrow agreement, nor any distribution made
thereunder, shall affect ownership of the Units issued in this offering, i.e.,
the shareholders who receive their pro rata portion of the aforementioned
distribution shall not be required to return their Units to the Company's
treasury. See "Terms of Offering - Escrow of Net Proceeds." In the event a
distribution is made, as provided above, the Company's ability to adequately
investigate and evaluate business opportunities and to attract favorable
business opportunities will be adversely affected.
DILUTION AND OTHER COMPARATIVE DATA
The net tangible book value of the Common Stock at June 6, 1990, was
$9,906, or approximately $.0014 per share. That per-share value will be
increased as a result of this offering to approximately $.0165 if the minimum is
sold and $.0286 if the maximum is sold (without adjustment for other changes in
net tangible book value subsequent to such date), resulting in immediate,
substantial dilution to public investors of $.0836 (83.6%) per share if the
minimum is sold and $.0714 (71.4%) per share if the maximum is sold. Dilution is
the reduction
in value of the purchaser's investment measured by the difference between the
$.10 price per Unit in the public offering and the net tangible book value per
share after completion of the offering.
<TABLE>
The following table, which assumes the successful completion of the
offering described herein by the sale of 1,500,000 Units (minimum) and 3,000,000
Units (maximum), illustrates the per-share dilution to investors in this
offering, without giving effect to the issuance of up to 9,000,000 shares of
Common Stock upon exercise of the Warrants included in the Units.
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
Public offering price per Unit $.10 $.10
Net tangible book value per share at
June 6, 1990 (1) $.0014 $.0014
Pro forma net tangible book value after
the offering $144,791(2) $294,791(3)
Pro forma net tangible book value per share
after the offering (1) $.0165 $.0286
Increase, attributable to purchases by
investors in this offering, in net
tangible book value per share of
currently outstanding shares $.0151 $.0273
11
<PAGE>
Dilution per share to public investors $.0836 $.0714
Dilution as a percentage of offering price 83.6% 71.4%
- -------------------
<FN>
(1) Net tangible book value per share is determined by dividing
the number of Common Shares outstanding into the total
tangible assets less total liabilities of the Company.
(2) The figure shown is the sum of the net tangible book value of
$9,906 at June 6, 1990, plus proceeds of $150,000 from the
sale of the minimum number of Units in this offering, minus
registration costs (anticipated registration costs of $20,500
less deferred offering costs of $5,385) of $15,115.
(3) The figure shown is the sum of the net tangible book value of
$9,906 at June 6, 1990, plus proceeds of $300,000 from the
sale of the maximum number of Units in this offering, minus
registration costs (anticipated registration costs of $20,500
less deferred offering costs of $5,385) of $15,115.
</FN>
</TABLE>
Upon successful conclusion of this offering, the public investors will
own 1,500,000 shares (minimum) or 3,000,000 shares (maximum) (approximately 17%
in case of the minimum or approximately 29% in case of the maximum) of the
issued and outstanding Common Stock, for which they will have paid $.10 per
Unit. This compares with 7,300,000 shares of Common Stock acquired from the
Company since inception by officers, directors and founders at a cost of
$16,000, or approximately $.0022 per share, and which will constitute
approximately 83% of the issued and outstanding Common Stock following this
offering if the minimum is sold, or approximately 71% if the maximum is sold.
<TABLE>
The table set forth below summarizes the difference between the number
of shares of Common Stock purchased from the Company, the average price per
share, and the aggregate consideration paid by existing stockholders and public
investors.
<CAPTION>
Minimum Offering
Pct. of Average Percent
Shares Total Price/ Total of Total
Purchased Shares Share Consideration Consideration
--------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Present
Stockholders 7,300,000 83.0% $.0022 $ 16,000 9.6%
Public Investors 1,500,000 17.0% $.10 150,000 90.4%
--------- ----- -------- -----
Total 8,800,000 100.0% $166,000 100.0%
========= ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
Maximum Offering
Pct. of Average Percent
Shares Total Price/ Total of Total
Purchased Shares Share Consideration Consideration
---------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Present
Stockholders 7,300,000 70.9% $.0022 $ 16,000 5.1%
Public Investors 3,000,000 29.1% $.10 300,000 94.9%
---------- ---- -------- -----
Total 10,300,000 100.0% $316,000 100.0%
========== ===== ======== =====
</TABLE>
12
<PAGE>
USE OF PROCEEDS
The Company will receive net proceeds from this offering, after
deducting offering-related expenses, of approximately $129,500 if the minimum
number of Units is sold and $279,500 if the maximum number is sold; however,
investors should be aware that eighty percent of the net proceeds ($103,600 if
the minimum number of Units is sold and $223,600 if the maximum number of Units
is sold) will be subject to an escrow for an indeterminable period. See Note (6)
below. Net proceeds are anticipated to be used in the order of priority shown
below:
Minimum Maximum
Amount Amount
------ ------
General and Administrative:
Legal (1) $ 10,000 $ 10,000
Accounting 2,000 2,000
Miscellaneous 1,000 1,000
Officer Salaries (2) 9,000 9,000
Expenses of Investigating and
Evaluating a Prospective
Business Opportunity:
Travel $ 1,500 $ 6,000
Finders (3)(4) 15,000 30,000
Legal (5) 14,000 14,000
Accounting 2,500 2,500
Unallocated Proceeds
Available for
Acquisitions & Mergers (4) $ 75,000 $205,000
-------- --------
Total Proceeds (6) $129,500 $279,500
======== ========
(1) The figures shown reflect general corporate and securities
compliance work only.
(2) Commencing after completion of this offering, each of the
Company's two officers will be compensated at a rate of $45 per hour for time
devoted to the affairs of the Company in excess of five hours per month, limited
only by a cap of $1,500 per month and a total cap of $4,500 on each officer's
salary during the Company's first year in operation.
(3) Should the Company complete the acquisition of a business
opportunity, the Board of Directors may award a finder's fee to an officer or
affiliate of the Company, or to a third party, if the acquisition is originated
as a result of his efforts. The cash portion of this fee, in the aggregate, if
paid to officers or affiliates, will not exceed 10% of the gross proceeds of the
offering and may be less.
(4) All of these proceeds will be segregated from the remainder of the
net proceeds and placed into a bank account or other temporary investment,
subject to the escrow provisions contained in the newly enacted Colorado
Securities Act. See Note (6).
(5) A portion of these proceeds will be segregated from the remainder
of the net proceeds and placed into a bank account or other temporary
investment, subject to the escrow provisions contained in the newly enacted
Colorado Securities Act. See Note (6) below. Specifically, all but $400 of the
proceeds allocated for payment of legal fees will be subject to the escrow if
only the minimum number of Units is sold, and all but $6,800 of those proceeds
will be subject to the escrow if the maximum number of Units is sold.
(6) Effective July 1, 1990, the State of Colorado repealed its prior
securities laws and enacted the Colorado Securities Act, which provides that
where less than seventy-five percent of the net proceeds from the sale of
securities are committed for use in one or more specific lines of business,
eighty percent of the net proceeds received by the issuer shall be placed in
escrow until (i) completion of a transaction or series of
13
<PAGE>
transactions whereby at least fifty percent of the gross proceeds received from
the sale of securities are committed for use in one or more specific lines of
business, and (ii) notice of the proposed release of the escrowed funds has been
on file with the Colorado Division of Securities for at least ten days. The
Company intends to make offers of the Company's Units to residents of Colorado,
and, accordingly, anticipates that this offering will be subject to the
above-described escrow provisions. In such event, the use of proceeds table
shall not be affected except that certain allocated funds may not be available
for payment until funds are released from the escrow. As such, investors should
be aware that since many providers of goods and services require compensation
for such goods and services at the time or soon after the time rendered, the
inability of the Comapny to pay until an indeterminate future time may make it
difficult to procure goods and services. Moreover, while the Company intends to
set aside out of the non-escrowed net proceeds sufficient funds for auditing
work, investors should be aware that unpaid fees are generally regarded as an
impediment to independence and may make it impossible for the Company's auditors
to perform an independent audit. See "Risk Factors - Impact of Amendments to the
Colorado Securities Act." "Possible Distribution of Escrowed Funds After Four
Years," and "Terms of Offering - Escrow of Net Proceeds."
The table set forth above reflecting the use of proceeds is merely the
Company's good-faith estimate. Because the Company has no agreements or
understandings, preliminary or otherwise, for any future acquisitions and has no
specific enterprises targeted for acquisition, the Company is unable to make a
specific allocation of the net proceeds of this offering. Subsequent events may
require a reallocation of available funds affecting one or more of the above
listed categories of expenditure. Any such reallocation will be at the
discretion of the Company's Board of Directors. The allocations reflected in the
table also do not provide for any revenues generated by the Company's
operations, if any, or operations of any business opportunity which may be
acquired, during the one-year period following the closing of this offering.
Should the sale of Units result in proceeds of less than the maximum amount but
greater than the minimum amount, the use of proceeds will be adjusted among the
categories of expenditure as management deems best.
Since the Company does not know to what extent, if any, the Warrants
may be exercised, and because it is unlikely that such Warrants will ever be
exercised, the Company has not made specific plans for the use of proceeds which
might be received upon the exercise of such Warrants. Investors should be aware
that if less than seventy-five percent of the net proceeds from the exercise of
Warrants is committed for use in one or more specific lines of business, the
proceeds from the exercise of Warrants will likely be placed in an escrow
pursuant to the Colorado Securities Act. See Note (6) above.
Subject to certain escrow requirements described above, all funds not
being utilized by the Company will be held in interest-bearing accounts or
investments in commercial financial institutions until such time as it appears
the funds will be required. See "Risk Factors - The Company - Investment Company
Regulation." Other than interest income, the Company does not at this time
anticipate generating revenues unless and until an acquisition candidate is
identified, and a business combination consummated with such candidate, in which
case the Company may begin to generate revenues from operations, depending on
the performance of the newly acquired business.
BUSINESS
General
The Company was incorporated under the laws of the State of Delaware
on April 27, 1990, and is in the early developmental and promotional stages. To
date the Company's only activities have been organizational, directed at the
raising of capital. The Company has not commenced any commercial operations and
is entirely dependent upon the successful completion of this offering to do so.
The Company has no full-time employees and owns no real estate.
14
<PAGE>
The Company proposes to implement a business plan to seek,
investigate, and, if warranted, acquire one or more properties or businesses.
Such an acquisition may be made by purchase, merger, exchange of stock or
otherwise, and may encompass assets or a business entity, such as a corporation,
joint venture or partnership. Even if the maximum number of Units is sold, the
Company will have limited capital, and it is unlikely that the Company will be
able to take advantage of more than one such business opportunity. The Company
intends to seek opportunities demonstrating the potential of long-term growth as
opposed to short-term earnings.
At the present time the Company has not identified any business
opportunity that it plans to pursue, nor has the Company reached any agreement
or definitive understanding with any person concerning an acquisition. No
assurance can be given that the Company will be successful in finding or
acquiring a desirable business opportunity, given the limited funds that are
expected to be available for acquisitions, or that any acquisition that occurs
will be on terms that are favorable to the Company or its stockholders.
Moreover, if, after four (4) years from the date funds are deposited into an
escrow account, established in accordance with the Colorado Securities Act (the
"Colorado escrow account"), the Company has not consummated a business
combination that has resulted in the release of the funds escrowed in compliance
with the Colorado Securities Act, the escrow agreement that the Company has
entered into with Omnibank Aurora, located in Aurora, Colorado (for purposes of
this paragraph, the "escrow agent"), provides that the escrow agent shall, as
promptly as possible, distribute the funds in the Colorado escrow account to the
persons then holding the shares of the Company's common stock issued in this
offering on a pro rata basis based on the number of shares held. See "Risk
Factors - Impact of Amendments to the Colorado Securities Act" and "Possible
Distribution of Escrowed Funds After Four Years." In that event, the Company's
ability to adequately investigate and evaluate business opportunities and to
attract favorable business opportunities will be adversely affected.
The Company's search will be directed toward small and medium-sized
enterprises. The Company anticipates that the business opportunities presented
to it will (i) be recently organized with no operating history, or a history of
losses attributable to under-capitalization or other factors; (ii) be
experiencing financial or operating difficulties; (iii) be in need of funds to
develop a new product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept; or (v) have a combination of the
characteristics mentioned in (i) through (iv). The Company intends to
concentrate its acquisition efforts on properties or businesses which it
believes to be undervalued. Given the above factors, investors should expect
that any acquisition candidate may have a history of losses or low
profitability.
The Company does not propose to restrict its search for investment
opportunities to any particular geographical area or industry, and may,
therefore, engage in essentially any business, to the extent of its limited
resources. This includes industries such as service, finance, natural resources,
manufacturing, high technology, product development, medical, communications and
others. The Company's discretion in the selection of business opportunities is
unrestricted, subject to the availability of those opportunities, economic
conditions and
other factors. In addition, because of the impact of the proceeds escrow imposed
by the Colorado Securities Act, it can be expected that the Company will
consider only those business combinations that, when consummated, will result in
at least fifty percent of the gross proceeds from the offering being committed
for use in one or more specific lines of business. See "Use of Proceeds."
As a consequence of this offering, the Company may be acquired by
another entity that desires to become a public company while avoiding the
registration requirements of the federal securities laws. In connection with
such acquisition, it is highly likely that an amount of stock constituting
control of the Company would be issued by the Company or purchased from current
officers and directors by the acquiring entity. If stock is purchased from
officers and directors, the transaction could result in substantial gains to
such officers and directors relative to their original purchase price for such
stock. In the Company's judgment, its officers and directors would not thereby
become "underwriters" within the meaning of the Section 2(11) of the Securities
Act of 1933, as amended.
15
<PAGE>
It is anticipated that business opportunities will come to the
Company's attention from various sources, including its officers and directors,
professional advisors such as attorneys and accountants, securities
broker-dealers, venture capitalists, members of the financial community, and
others who may present unsolicited proposals. The Company has no plans,
understandings, agreements or commitments with any individuals for such persons
to act as a finder of opportunities for the Company.
The Company does not foresee that it would purchase an interest in or
enter into a contract with any business with which an officer or director of the
Company is affiliated. Should the Company's management determine in the future,
contrary to management's current expectations, that a transaction with an
affiliate would be in the best interests of the Company and its stockholders,
the Company's Certificate of Incorporation would permit the Company to enter
into such a transaction only if (i) the Board of Directors of the Company has
been apprised of the relationship or interest of the officer and director and a
disinterested majority of the board members have approved the transaction, or
(ii) the stockholders of the Company have been informed of the relationship or
interest and approve the transaction, or (iii) the transaction is fair and
reasonable to the Company.
Investigation and Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality of the other
company's management and personnel, the anticipated acceptability of new
products or marketing concepts, the merit of technological changes, and numerous
other factors which are difficult, if not impossible, to analyze through the
application of any objective criteria. In many instances, it is anticipated that
the historical operations of a specific firm may not necessarily be indicative
of the potential for the future because of the possible need to shift marketing
approaches substantially, expand significantly, change product emphasis, change
or substantially augment management, or make other changes. Because of the lack
of training or experience of the Company's management, the Company will be
dependent upon the owners of a business opportunity to identify such problems
and to implement, or be primarily responsible for the implementation of,
required changes. Because the Company may participate in a business opportunity
with a newly organized firm or with a firm which is entering a new phase of
growth, it should be emphasized that the Company will incur further risks, since
management in many instances will not have proved its abilities or
effectiveness, the eventual market for such company's products or services will
likely not be established, and such company may not be profitable when acquired.
It is anticipated that the Company will not be able to diversify, but
will essentially be limited to one such venture because of the Company's limited
financing. This lack of diversification will not permit the Company to offset
potential losses from one business opportunity against profits from another, and
should be considered an adverse factor affecting any decision to purchase the
Company's securities.
It is emphasized that management of the Company may effect
transactions having a potentially adverse impact upon the public investors
pursuant to the authority of the Company's Board of Directors to complete
acquisitions without submitting any proposal to the stockholders for their
consideration. In some instances, however, the proposed participation in a
business opportunity may be submitted to the stockholders for their
consideration, either voluntarily by the Board of Directors to seek the
stockholders' advice and consent or because state law so requires.
The analysis of business opportunities will be undertaken by or under
the supervision of the officers and directors, none of whom is a professional
business analyst or has any previous training or significant experience in
business analysis. See "Management." The Company will have unrestricted
flexibility in seeking, analyzing and participating in business opportunities;
however, because of the impact of the proceeds escrow imposed by the Colorado
Securities Act, it can be expected that the Company will consider only those
business combinations that, when consummated, will result in at least fifty
percent of the gross proceeds from the offering being
16
<PAGE>
committed for use in one or more specific lines of business. See "Use of
Proceeds." Otherwise, the Company anticipates that it will consider, among other
things, the following factors:
(a) Potential for growth and profitability, indicated by new
technology, anticipated market expansion or new products;
(b) Competitive position as compared to other companies of similar size
and experience within the industry segment as well as within the industry as a
whole;
(c) Strength and diversity of existing management, or management
prospects that are scheduled for recruitment;
(d) Capital requirements and anticipated availability of required
funds, to be provided by the Company or from operations, though the sale of
additional securities, through joint ventures or similar arrangements or from
other sources;
(e) The cost of participation by the Company as compared to the
perceived tangible and intangible values and potential;
(f) The extent to which the business opportunity can be advanced;
(g) The Company's perception of how any particular business opportunity
will be received by the investment community and by the Company's stockholders;
(h) The accessibility of required management expertise, personnel, raw
materials, services, professional assistance and other required items; and
(i) Whether the financial condition of the business opportunity would
be, or would have a significant prospect in the foreseeable future to become,
such as to permit the securities of the Company, following the business
combination, to qualify to be listed on a national automated securities
quotation system, such as NASDAQ, so as to permit the trading of such securities
to be exempt from the requirements of Rule 15c2-6 recently adopted by the
Securities and Exchange Commission. See "Risk Factors - Broker-Dealer Sales of
Company's Registered Securities."
In regard to the last criterion listed above, the current standards
for NASDAQ listing include the requirements that the issuer of the securities
that are sought to be listed have total assets of at least $2,000,000 and net
assets of at least $1,000,000. A proposal that is currently under consideration
would raise those requirements to $4,000,000 and $2,000,000, respectively.
Many, and perhaps most, of the business opportunities that might be
potential candidates for a combination with the Company would not satisfy the
current and proposed NASDAQ listing criteria. To the extent that the Company
seeks potential NASDAQ listing, therefore, the range of business opportunities
that shall be available for evaluation and potential acquisition by the Company
shall be significantly limited.
In applying the foregoing criteria, no one of which will be
controlling, management will attempt to analyze all factors appropriate to the
opportunity and make a determination based upon reasonable investigative
measures and available data. Potentially available business opportunities may
occur in many different industries and at various stages of development, all of
which will make the task of comparative investigation and analysis of such
business opportunities extremely difficult and complex. Potential investors must
recognize that, because of the Company's limited capital available for
investigation and management's limited experience in business analysis, the
Company may not discover or adequately evaluate adverse facts about the
opportunity to be acquired.
17
<PAGE>
The Company is unable to predict when it may participate in a business
opportunity. It expects, however, that the analysis of specific proposals and
the selection of a business opportunity may take several months or more, and
persons should not purchase Units in the offering if they expect a short-term
appreciation in the value of the Company's securities. It is unlikely that prior
to consummating a business combination, the Company will have any funds
available to be loaned to the target company because eighty percent of the net
proceeds will be subject to an escrow and not available for purposes of a loan
to the target company. See "Use of Proceeds."
Prior to making a decision to participate in a business opportunity,
the Company will generally request that it be provided with written materials
regarding the business opportunity containing such items as a description of
product, service and company history; management resumes; financial information;
available projections, with related assumptions upon which they are based; an
explanation of proprietary products and services; evidence of existing patents,
trademarks or services marks or rights thereto; present and proposed forms of
compensation to management; a description of transactions between such company
and its affiliates during relevant periods; a description of present and
required facilities; an analysis of risks and competitive conditions; a
financial plan of operation and estimated capital requirements; audited
financial statements; and other information deemed relevant.
As part of the Company's investigation, officers and directors may
meet personally with management and key personnel, may visit and inspect
material facilities, obtain independent analysis or verification of certain
information provided, check references of management and key personnel, and take
other reasonable investigative measures, to the extent of the Company's limited
financial resources and management expertise.
Form of Acquisition
It is impossible to predict the manner in which the Company may
participate in a business opportunity; however, because of the impact of the
proceeds escrow imposed by the Colorado Securities Act, it can be expected that
the Company will consider only those business combinations that, when
consummated, will result in at least fifty percent of the gross proceeds from
the offering being committed for use in one or more specific lines of business.
See "Use of Proceeds." Specific business opportunities will be reviewed as well
as the respective needs and desires of the Company and the promoters of the
opportunity and, upon the basis of that review and the relative negotiating
strength of the Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected. Such structure may include, but
is not limited to leases, purchase and sale agreements, licenses, joint ventures
and other contractual arrangements. The Company may act directly or indirectly
through an interest in a partnership, corporation or other form of organization.
Implementing such structure may require the merger, consolidation or
reorganization of the Company with other corporations or forms of business
organization, and there is no assurance that the Company would be the surviving
entity. In addition, the present management and the stockholders of the Company
purchasing securities in this offering most likely will not have control of a
majority of the voting shares of the Company following a reorganization
transaction. As part of such a transaction, all or a majority of the Company's
directors may resign and new directors may be appointed without any vote by
stockholders.
It is likely that the Company will acquire its participation in a
business opportunity through the issuance of Common Stock or other securities of
the Company. Although the terms of any such transaction cannot be predicted, it
should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under the
Internal Revenue Code of 1986, depends upon the issuance to the stockholders of
the acquired company of up to 80% of the common stock of the combined entities
immediately following the reorganization. If a transaction were structured to
take advantage of these provisions rather than other "tax free" provisions
provided under the Internal Revenue Code, the Company's stockholders in such
circumstances would retain in the aggregate 20% or less of the total issued and
outstanding
18
<PAGE>
shares. This could result in substantial additional dilution in the equity of
those who were stockholders of the Company prior to such reorganization.
It is anticipated that any securities issued in any reorganization
would be issued in reliance upon exemptions, if any are available, from
registration under applicable federal and state securities laws. In some
circumstances, however, as a negotiated element of the transaction, the Company
may agree to register such securities either at the time the transaction is
consummated, or under certain conditions or at specified times thereafter. The
issuance of substantial additional securities and their potential sale into any
trading market which may develop in the Company's securities may have a
depressive effect upon such market.
The Company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
As a general matter, the Company anticipates that it will enter into a
letter of intent with the management, principals or owners of a prospective
business opportunity. Such a letter of intent will set forth the terms of the
proposed acquisition but will not bind either the Company or the business
opportunity to consummate the transaction. Execution of a letter of intent will
by no means indicate that consummation of an acquisition is probable. Neither
the Company nor the business opportunity will be bound unless and until a
definitive agreement concerning the acquisition as described in the preceding
paragraph is executed, and then only if neither party has any contractual right
to terminate the agreement on specified grounds.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and substantial costs for accountants, attorneys
and others. If a decision is made not to participate in a specific business
opportunity, the costs theretofore incurred in the related investigation would
not be recoverable. Moreover, since many providers of goods and services require
compensation for such goods and services at the time or soon after the time
rendered, the inability of the Company to pay until an indeterminate future time
may make it difficult to procure goods and services.
Investment Company Act and Other Regulation
The Company may participate in a business opportunity by purchasing,
trading or selling the securities of such business. The Company does not,
however, intend to engage primarily in such activities. Specifically, the
Company intends to conduct its activities so as to avoid being classified as an
"investment company" under the Investment Company Act of 1940 (the "Investment
Act"), and therefore to avoid application of the costly and restrictive
registration and other provisions of the Investment Act, and the regulations
promulgated thereunder.
Section 3(a) of the Investment Act provides the definition of an
"investment company," which excludes any entity that does not engage primarily
in the business of investing, reinvesting or trading in securities, or that does
not engage in the business of investing, owning, holding or trading "investment
securities" (defined as "all securities other than government securities or
securities of majority-owned subsidiaries") the value of which exceeds 40% of
the value of its total assets (excluding government securities, cash or cash
items). The Company intends to implement its business plan in a manner which
will result in the availability of this exception from the definition of
"investment company." Consequently, the Company's participation in a business or
opportunity through the purchase and sale of investment securities will be
limited. In order to avoid classification as an investment company, the Company
may use a major portion of the net proceeds of this offering to search for,
analyze and acquire or participate in a business or opportunity by use of a
method which does not involve the acquisition, ownership or holding of
investment securities.
19
<PAGE>
The Company's plan of business may involve changes in its capital
structure, management, control and business, especially if it consummates a
reorganization as discussed above. Each of these areas is regulated by the
Investment Act, which regulation has the purported purpose of protecting
purchasers of investment company securities. Since the Company will not register
as an investment company, purchasers in this offering will not be afforded these
protections.
Even if the Company restricts its activities as described above, it is
possible that it may be classified as an inadvertent investment company if
significant delays are experienced in locating and expending a major portion of
the net proceeds of this offering on a business or opportunity other than by the
method of acquiring or holding investment securities.
The Company intends vigorously to resist classification as an
investment company, and to take advantage of any exemptions or exceptions from
application of the Investment Act, which allows an entity a one-time option
during any three-year period to claim an exemption as a "transient" investment
company. The necessity of asserting any such resistance, or making any claim of
exemption, could be time consuming and costly, or even prohibitive, given the
Company's limited resources.
Any securities which the Company might acquire in exchange for its
Common Stock will be "restricted securities" within the meaning of the
Securities Act of 1933, as amended (the "Act"). If the Company elects to resell
such securities, such sale cannot proceed unless a registration statement has
been declared effective by the Securities and Exchange Commission or an
exemption from registration was available. Section 4(1) of the Act, which
exempts sales of securities not involving a distribution, would in all
likelihood be available to permit a private sale. Although the plan of operation
does not contemplate resale of securities acquired, if such a sale were to be
necessary, the Company would be required to comply with the provisions of the
Act to effect such resale.
An acquisition made by the Company may be in an industry which is
regulated or licensed by federal, state or local authorities. Compliance with
such regulations can be expected to be a time-consuming and expensive process.
Competition
The Company expects to encounter substantial competition in its efforts
to locate attractive opportunities, primarily from business development
companies, venture capital partnerships and corporations, venture capital
affiliates of large industrial and financial companies, small investment
companies and wealthy individuals. Many of these entities will have
significantly greater experience, resources and managerial capabilities than the
Company and will therefore be in a better position than the Company to obtain
access to attractive business opportunities. The Company also will experience
competition from other public "blind pool" companies, many of which may have
more funds available than does the Company.
Administrative Offices
The Company presently maintains its offices at 12543-A East Pacific
Circle, Aurora, Colorado 80014, the home of its Vice President. Its phone number
there is (303) 337-1033. The Company believes these facilities will be adequate
for its needs in the foreseeable future. The Company pays no rent for the use of
these facilities.
Employees
The Company is a development stage company and currently has no
employees, other than its officers. Management of the Company expects to use
consultants, attorneys and accountants as necessary, and does not anticipate a
need to engage any full-time employees so long as it is seeking and evaluating
business
20
<PAGE>
opportunities. The need for employees and their availability will be addressed
in connection with the decision whether or not to acquire or participate in
specific business opportunities. No remuneration will be paid to the Company's
officers except as set forth under the subheading "Remuneration" in the
"Management" section, and under "Certain Transactions with Management and
Others."
MANAGEMENT
The directors and executive officers currently serving the Company are
as follows:
Name Age Position Held and Tenure
---- --- ------------------------
John J. Micek III 37 President, Director
since April 27, 1990
Frank L. Kramer 47 Secretary, Treasurer,
Director since April 27, 1990,
Vice President since May 2, 1990
Donald R. McGahan 56 Director since
April 27, 1990
The directors named above will serve until the first annual meeting of
the Company's stockholders. Thereafter, directors will be elected for one-year
terms at the annual stockholders' meeting. Officers will hold their positions at
the pleasure of the board of directors, absent any employment agreement, of
which none currently exists or is contemplated. There are no family
relationships among the officers and directors. There is no arrangement or
understanding between any of the directors or officers of the Company and any
other person pursuant to which any director or officer was or is to be selected
as a director or officer. The directors and officers will devote their time to
the Company's affairs on an "as needed" basis, which, depending on the
circumstances, could amount to on average as little as five hours per month.
Biographical Information
John J. Micek III. Mr. Micek, the President and a director of the
Company, has been a director since February 1988 of Armanino Foods of
Distinction, Inc., formerly named Falcon Fund, Inc., a blind pool company
("Armanino - Colorado"), which completed a reverse acquisition of a Delaware
company ("Armanino - Delaware"). Mr. Micek has been a director of Armanino -
Delaware, which is engaged in the production and marketing of gourmet, upscale
specialty food products since May 1987, and has been a vice president of
Armanino - Delaware since September 1989. From February 1988 to December 31,
1988, he served as general counsel and chief financial officer for Armanino -
Colorado, and served in these capacities for Armanino - Delaware from May 1987
to December 31, 1988. Since January 1989, Mr. Micek has practiced law and
currently serves as a consultant to Armanino - Colorado on corporate finance
matters. Mr. Micek also serves as a financial consultant to Artanis, L.P., a
partnership which currently markets a line of celebrity gourmet food products.
From 1979 until December 1986, Mr. Micek served as corporate counsel and as
assistant to the president of G. Armanino & Son, Inc. and Armanino Farms of
California, which were engaged in the international food marketing business. Mr.
Micek has also served as vice president, treasurer and a director of Laguna
Capital Corporation, a Colorado based "blind pool" company, from April 1986
until February 1988, and as vice president, treasurer and a director of Capital
Equity Resources, Inc. ("CER"), also a Colorado-based "blind pool" company, from
January 1986 until August 1986. After CER completed a reverse acquisition in
August 1986, it changed its name to Asha Corporation. Mr. Micek remained as a
director of Asha Corporation until June 1989. He also has served as a director
of Universal Group Insurance Companies, an Omaha, Nebraska-based insurance
company, since 1982, and as a director of Cole Publishing Company, an
educational publisher, located in Santa Rosa, California, since March 1990. He
was Western Finance Coordinator for the
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<PAGE>
1984 Presidential Campaign of Walter Mondale. He received a Bachelor of Arts
Degree in History from the University of Santa Clara in 1974 and a Juris
Doctorate from the University of San Francisco School of Law in 1979. Mr. Micek
presently devotes only as much time as is necessary as an officer of the
Company.
Frank L. Kramer. Mr. Kramer, the Vice President, Secretary, Treasurer
and a director of the Company, served as president and a director of Fi-Tek
Corp., a blind pool company headquartered in Aurora, Colorado, from 1984 until
1987 when it acquired Boston Technology, Inc. and moved its operations to
Cambridge, Massachusetts. From May 1987 to November 1988, Mr. Kramer served as
president, treasurer and the chairman of the board of Fi-Tek II, Inc., a blind
pool company headquartered in Aurora, Colorado, until it acquired On Line
Communications, Inc. and moved its operations to San Jose, California. The
company has since changed its name to On Line Network, Inc. Mr. Kramer has also
served since November 1988 as the president, treasurer and a director of Fi-Tek
III, Inc., a Delaware-chartered "blind pool" corporation which successfully
completed an offering of securities in September 1989, and which in August 1990
acquired Videoconferencing Systems, Inc., a Norcross, Georgia-based company
engaged in the design, system integration, sale, and service of turnkey
interactive videoconferencing systems. Effective as of the date of acquisition,
Mr. Kramer resigned as president and treasurer, but retained his position on the
board of directors. From February 1987 until December 1989, he was also the
treasurer and a director of Bluestone Capital Corp., a Colorado "blind pool"
corporation which successfully completed an offering of securities in November
1988 and which moved its operations to Braintree, Massachusetts after acquiring
Dialogue, Inc. in December 1989. Mr. Kramer also serves as president, treasurer
and a director of Fi-Tek IV, Inc., a Delaware-chartered "blind pool" corporation
which completed an offering of securities in September 1990. Mr. Kramer has
recently become an officer and director of three other "blind pool" companies,
Fi-Tek V, Inc., Fi-Tek VI, Inc. and Fi-Tek VII, Inc., each of which intends to
conduct a public offering of securities. See "Prior Blind Pool Activities." Mr.
Kramer was affiliated with New York Life Insurance Company ("New York Life")
from 1968 through 1981 and was engaged in sales, sales management, and estate
planning. He became a Chartered Life Underwriter in 1972. From 1973 through
1981, he was general manager of two of New York Life's general offices. From
1981 to late 1987, Mr. Kramer was self-employed as a private financial
consultant in the Denver, Colorado area, assisting businesses in arranging
interim financing for their business operations, through private and commercial
borrowings. He has also been engaged in the structuring and implementing of
private financing for the oil and gas and commercial real estate industries.
Since 1987, Mr. Kramer has been affiliated with New York Life as an agent and
recruiter. From 1986 until March of 1987, he was an employee and a director of
Optimum Manufacturing, Inc., a public company engaged in manufacturing in
Denver, Colorado. He obtained a B.S. Degree in Business Administration from
Louisiana State University in 1964.
Donald R. McGahan. Mr. McGahan, a director of the Company, currently
serves as a senior vice president and resident manager for American Aegis
Securities, Inc. ("American Aegis"), an NASD member broker dealer engaged in
various securities and financing activities and headquartered in San Diego,
California with offices in two other U.S. cities, including Boca Raton, Florida,
the office out of which Mr. McGahan has been working since joining the firm on
July 15, 1990. From October 1989 until joining American Aegis, Mr. McGahan
served as a senior vice president and Eastern regional manager for Smith,
Mitchell & Associates, Inc. ("Smith Mitchell"), an NASD registered firm engaged
in public finance activities and headquartered in Seattle, Washington. Mr.
McGahan served in Smith Mitchell's Boca Raton, Florida office. From May 1989
until October 1989, Mr. McGahan served as senior vice president of R.W. Smith &
Associates, Inc., a municipal bond brokerage, also located in Boca Raton,
Florida. From October 1987 until May 1989, Mr. McGahan served as senior vice
president and a manager for Harry Downs & Co. Municipal Brokers, located in Boca
Raton, Florida. Mr. McGahan served as senior vice president of MKI Securities
Corp., located in New York City, from March 1985 to September 1987 where he
established and managed a serial bond revenue desk, and from October 1981 to
March 1985, he was senior vice president and a principal of Vierling, Devaney &
Maguire, Inc., a New York City municipal bond firm, which merged with MKI
Securities Corp. in 1985. From June 1980 to October 1981, Mr. McGahan served as
the president and chief executive officer of George B. Gibbons & Co., a
subsidiary of Carroll, McEntee, McGinley, a dealer in U.S. government
securities, located in New York City. Mr. McGahan was also an outside director
of CM&M Securities, a member firm of the New York Stock Exchange and a
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<PAGE>
subsidiary of Carroll, McEntee, McGinley, from October 1980 until October 1981.
From 1960 to June 1980, Mr. McGahan worked in the municipal bond department of
Fahnestock & Co., a member firm of the New York Stock Exchange, where he was
promoted to manager in 1968 and became a partner in 1969. Mr. McGahan holds the
following NASD licenses: Municipal Securities Representative, Municipal
Securities Principal, Registration/General Securities Representative, and
General Securities Principal. Mr. McGahan obtained a B.A. degree in history and
political science from Villanova University in 1955. He served in the United
States Navy in various capacities from 1956 until 1978 at which time he retired
with the rank of Commander.
Remuneration
The directors and officers will devote their time to the Company's
affairs on an "as needed" basis, which, depending on the circumstances, will
likely amount to on average as little as five hours per month spent each by Mr.
Micek and Mr. McGahan, and on average twenty hours per month spent by Mr.
Kramer. Commencing after completion of this offering, each of the Company's two
officers will be compensated at a rate of $45 per hour for time devoted to the
affairs of the Company, in excess of five hours per month, limited only by a cap
of $1,500 per month and a total cap on each officer's salary of $4,500 during
the Company's first year of operation. As stated previously, it is not expected
that any one of the officers will devote time each month that will entitle each
to draw a salary up to the maximum amount of $1,500 per month.
Should the Company complete the acquisition of a business opportunity,
the Board of Directors may award a finder's fee to an officer or affiliate of
the Company, or to a third party, if the acquisition is originated as a result
of his efforts. The cash portion of this fee, in the aggregate, if paid to
officers or affiliates, will not exceed 10% of the gross proceeds of the
offering and may be less.
Following completion of this offering and until the Company acquires
sufficient capital through means other than this offering, it is not intended,
except as provided in the previous two paragraphs, that any officer or director
will receive compensation from the Company for performance of duties as an
officer or director other than reimbursement for out-of-pocket expenses incurred
on behalf of the Company or a finder's fee, as discussed below in "Certain
Transactions with Management and Others."
Indemnification of Officers and Directors
As permitted by Delaware law, the Company's Certificate of
Incorporation provides that the Company will indemnify its directors and
officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil or criminal action brought against them on account of their
being or having been Company directors or officers unless, in any such action,
they are adjudged to have acted with gross negligence or willful misconduct.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in that Act and is, therefore, unenforceable.
Exclusion of Liability
Pursuant to the Delaware General Corporation Law, the Company's
Certificate of Incorporation excludes personal liability for its directors for
monetary damages based upon any violation of their fiduciary duties as
directors, except as to liability for any breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, acts in violation of Section 174 of the Delaware General
Corporation Law, or any transaction from which a director receives an improper
personal benefit. This exclusion of liability does not limit any right which a
director may have to be indemnified and does not affect any director's liability
under federal or applicable state securities laws.
23
<PAGE>
PRIOR BLIND POOL ACTIVITIES
John J. Micek III, the Company's President and a director, previously
served as vice president, treasurer and a director of Capital Equity Resources,
Inc. ("CER"), a development stage company that conducted a blind pool offering.
CER closed its public offering on May 8, 1986, and raised a total of $200,000 in
gross proceeds by selling 20,000,000 Units at $.01 per Unit. During August 1986,
CER completed a reverse acquisition of ASHA, Inc. ("ASHA") by which CER acquired
100% of ASHA in exchange for approximately 92.4% of the outstanding shares of
CER. ASHA was engaged in the development of a full-time four wheel drive, four
passenger utility automobile which was being developed around a new automotive
architecture invented by ASHA's President, Alain Clenet. ASHA was a newly formed
company and had no operations prior to the acquisition. Mr. Micek did not
dispose of any of his stock holdings in CER or receive any compensation from CER
or from ASHA in connection with the ASHA acquisition. Upon his resignation as a
director of ASHA in June 1989, Mr. Micek received shares of stock in ASHA which
represented less than five percent of the total shares outstanding.
Mr. Micek also previously served as vice president, treasurer, and a
director of Laguna Capital Corp. ("Laguna"), which closed its public offering
during September 1986, with total proceeds raised of $200,000 by selling
20,000,000 units at $.01 per unit. In February 1988, Laguna completed a reverse
acquisition of Sporting Life, Inc. ("Sporting Life") whereby Laguna acquired
100% of the outstanding shares of Sporting Life in exchange for approximately
90% of the outstanding shares of Laguna. Sporting Life distributes and sells
golf and tennis equipment and supplies for domestic and foreign manufacturers
through its Las Vegas Discount Golf and Tennis franchises and mail order
business. Laguna/Sporting Life has changed its name to Las Vegas Discount Golf &
Tennis, Inc. All of the officers and directors of Laguna resigned effective as
of the closing of the acquisition. Mr. Micek did not receive any compensation
from Laguna or Sporting Life and did not dispose of any of his stock holdings in
Laguna in connection with the Sporting Life acquisition.
Frank L. Kramer, the Company's Vice President, Secretary, Treasurer and
a director, previously served as a director and as president of Fi-Tek Corp.
("Fi-Tek"), a blind pool company. Fi-Tek initiated its public offering on April
2, 1986 and closed the offering on June 11, 1986, with total proceeds of
$250,000 upon sale of 12,500,000 units (consisting of common stock and common
stock purchase warrants), at a price of $.02 per unit, which constituted all
units offered.
During January 1987, Fi-Tek completed a reverse acquisition
(stock-for-stock exchange). It acquired Boston Technology, Inc. ("Boston"), a
Delaware corporation based in Cambridge, Massachusetts, which is engaged in the
design, manufacture and marketing of computer-based telecommunications systems
commonly known as "voice messaging systems." Fi-Tek issued 98,000,000 restricted
shares of its common stock in exchange for all the outstanding capital stock of
Boston, which shares represented 80% of Fi-Tek's issued and outstanding common
stock following the acquisition. Mr. Kramer, who still owns stock in Fi-Tek and
who resigned as a director and officer of Fi-Tek as of January 31, 1987,
received, as total compensation from Fi-Tek, a consulting fee of $1,000. Mr.
Kramer did not dispose of any of his stock holdings in Fi-Tek as part of the
acquisition of Boston.
Frank L Kramer previously served also as a director and as president
and treasurer of Fi-Tek II, Inc. ("Fi-Tek II"), a blind pool company. Fi-Tek II
initiated its public offering on March 10, 1988 and closed the offering in July
1988, with total proceeds of $216,211.78 upon sale of 10,810,589 units
(consisting of common stock and common stock purchase warrants), at a price of
$.02 per unit. During November 1988, Fi-Tek II completed a reverse acquisition
(stock-for-stock exchange). It acquired On Line Communications, Inc. ("On
Line"), a California corporation based in San Jose, California, which is an
Alternate Operator Services (AOS) provider of long distance telephone services
for persons making credit card, collect call and third party billing telephone
calls. Fi-Tek II issued 95,442,356 restricted shares of its common stock in
exchange for all the outstanding capital stock of On line, which shares
represented 80% of Fi-Tek II's issued and outstanding common stock following the
acquisition. Mr. Kramer, who currently owns stock in Fi-Tek II and resigned all
his positions with Fi-Tek II as of October 1988, has not received any
compensation from the Company other than
24
<PAGE>
a consulting fee of $5,000. Mr. Kramer did not dispose of any of his stock
holdings in Fi-Tek II as a part of the acquisition of On Line.
Frank L. Kramer currently serves as president, treasurer and as a
director of Fi-Tek III, Inc. ("Fi-Tek III"), a blind pool company. Fi-Tek III
initiated its public offering on May 26, 1989 and closed the offering on
September 12, 1989, with total proceeds of $500,000 upon the sale of 25,000,000
Units (consisting of common stock and common stock purchase warrants), at a
price of $.02 per unit, which constituted all the units offered. During August
1990, Fi-Tek III completed a reverse acquisition (stock-for-stock exchange). It
acquired Video conferencing Systems, Inc. ("VSI"), a Norcross, Georgia-based
company engaged in the design, system integration, sale, and service of turnkey
interactive videoconferencing systems. Fi-Tek III issued 181,629,157 restricted
shares of common stock, 9,081,958 restricted shares of series A cumulative
convertible preferred stock and 500,000 restricted shares of series B cumulative
preferred stock for all the outstanding capital stock of VSI. Mr. Kramer, who
currently owns stock of Fi-Tek III, has received total compensation of $5,000 as
a result of his position with Fi-Tek III. Mr. Kramer did not dispose of any of
his stock holdings in Fi-Tek III as part of the acquisition of VSI.
Mr. Kramer also currently serves as an officer and director of Fi-Tek
IV, Inc., Fi-Tek V, Inc., Fi-Tek VI, Inc., and Fi-Tek VII, Inc. Fi-Tek IV, Inc.
completed a public offering of securities in September 1990, with total proceeds
of $215,415 upon the sale of 10,770,750 units (the maximum number of units
offered was 15,000,000). Fi-Tek V, Inc., and Fi-Tek VI, Inc. and Fi-Tek VII,
Inc. each intend to conduct public offerings of their respective securities.
Mr. Kramer also served from February 1987 until December 1989 as a
director and as secretary and treasurer of Bluestone Capital Corp.
("Bluestone"), a blind pool company. Bluestone initiated its public offering on
July 13, 1988 and closed the offering on November 14, 1988, with total proceeds
of $150,000 upon sale of 1,500,000 units (consisting of common stock and common
stock purchase warrants), at a price of $.10 per unit, which constituted all
units offered. During December 1989, Bluestone incorporated a wholly owned
subsidiary for the purpose of merging it into Dialogue, Inc., a Delaware
corporation ("Dialogue") and in connection therewith, all of the outstanding
stock of Dialogue was converted into 30,000,000 shares of Bluestone's common
stock, which shares represented 80% of Bluestone's issued and outstanding common
stock following the reorganization. Dialogue, Inc., which is a voice mail
systems distributor located in Braintree, Massachusetts, in December 1989,
became a wholly owned subsidiary of Bluestone. Mr. Kramer, who currently owns
stock in Bluestone and resigned all his positions with Bluestone in December
1989, has not received any compensation from the company. Mr. Kramer did not
dispose of any of his stock holdings in Bluestone as a part of the
reorganization with Dialogue.
Mr. Kramer's positions in Fi-Tek IV, Inc., Fi-tek V, Inc., Fi-Tek VI,
Inc., and Fi-Tek VII, Inc., create the potential for conflicts of interest with
the Company, especially should one or more of those companies happen to be
seeking a business opportunity at the same time that the Company is seeking such
an opportunity. See "Potential Conflicts of Interest."
Mr. McGahan has not previously participated in any "blind pool"
offerings.
POTENTIAL CONFLICTS OF INTEREST
Initially, none of the officers of the Company will devote more than a
portion of his time to the affairs of the Company. See "Management." All of the
officers have employment outside of the Company. There will be occasions when
the time requirements of the Company's business conflict with the demands of the
officers' other employment. In this event, such conflicts may require that the
Company attempt to employ additional personnel. There is no assurance that the
services of such persons will be available or that they can be obtained upon
terms favorable to the Company.
25
<PAGE>
Frank L. Kramer, Vice President, Secretary, Treasurer and a director of
the Company, is also an officer and director of two Denver, Colorado, based
development stage corporations, one of which is in the process of conducting a
public offering of securities, and the second of which, Fi-Tek III, completed a
$500,000 offering in August 1989. See "Prior Blind Pool Activities." Should the
Company complete the offering made by this Prospectus before Fi-Tek III or
Fi-Tek IV acquire a business opportunity, the Company would be in direct
competition with those companies for available opportunities.
While Mr. Kramer will attempt to resolve any such conflicts in the
Company's favor, there is no assurance that his efforts to that end will be
successful The Company has not adopted any policy to deal with the conflicts of
interest that are likely to arise from Mr. Kramer's involvement in other blind
pool companies. The resolution of such conflicts is to be made, if at all, only
by the exercise of such business judgment as is consistent with Mr. Kramer's
fiduciary duties to the Company and to the other blind pool companies of which
he is an officer or a director. Should any of the Company's officers and
directors breach their respective fiduciary duty of loyalty, the Company's
stockholders will, under Delaware corporate law, have a cause of action against
those officers and directors. The Company's management does not intend to give
priority to other blind pool offerings in which Mr. Kramer is involved that were
declared effective prior to July 1, 1990 and, therefore, not subject to the
proceeds escrow requirement imposed by the Colorado Securities Act. See "Use of
Proceeds."
The Company's officers, directors, and other management personnel are
subject to the doctrine of corporate opportunities only insofar as it applies to
business opportunities in which the Company has indicated an interest, either
through its proposed business plan or by way of an express statement of
interest, contained in the Company's minutes. No such indication of interest has
yet been declared. If such areas are delineated, all business opportunities
within each area of interest which come to the attention of the officers,
directors and key management personnel of the Company must be promptly disclosed
to the Board of Directors and made available to the Company. In the event the
Board shall reject an opportunity so presented, any of the Company's officers,
directors, or key management personnel may avail himself of such opportunity.
Every effort will be made to resolve any conflicts which may arise in favor of
the Company. There can be no assurance, however, that these efforts will be
successful.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Prior to the date of this Prospectus, the Company issued to its
officers, directors, and others a total of 7,300,000 shares of Common Stock for
a total of $16,000 in cash and services, or an average of $.0022 per share.
Certificates evidencing the Common Stock issued by the Company to these persons
have all been stamped with a restrictive legend, and are subject to stop
transfer orders by the Company. For additional information concerning
restrictions that are imposed upon the Common Stock held by current
stockholders, and the responsibilities of such stockholders to comply with
federal securities laws in the disposition of such Common Stock, see "Risk
Factors - The Offering - Possible Rule 144 Sales."
No officer, director, promoter, or affiliate of the Company has or
proposes to have any direct or indirect material interest in any asset proposed
to be acquired by the Company through security holdings, contracts, options, or
otherwise.
The Company has adopted a policy wherein any consulting or finder's fee
paid will be paid to a third party for consulting services on an ad hoc basis,
to assist management in evaluating a prospective business opportunity. Such
consulting or finder's fees may be paid to officers, directors or affiliates of
the Company.
The Company maintains its offices at the residence of its Vice
President, for which it pays no rent, and for which it does not anticipate
paying rent in the future. The Company anticipates that following the
consummation of a business combination with an acquisition candidate, the
Company's office will be moved, but cannot predict future office or facility
arrangements with officers, directors or affiliates of the Company.
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<PAGE>
The Company may enter into an agreement with an acquisition candidate
requiring the sale of all or a portion of the Common Stock held by the Company's
current stockholders to the acquisition candidate or principals thereof, or to
other individuals or business entities, or requiring some other form of payment
to the Company's current stockholders, or requiring the future employment of
specified officers and payment of salaries to them. It is more likely than not
that any sale of stock by the Company's current stockholders to an acquisition
candidate would be at a price substantially higher than that originally paid by
such stockholders. Any payment to current stockholders in the context of an
acquisition involving the Company would be determined entirely by the largely
unforeseeable terms of a future agreement with an unidentified business entity.
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock owned of record and beneficially by officers,
directors and persons presently holding 5.0% or more of the outstanding Common
Stock of the Company. Also included are the shares held by all officers and
directors as a group. The table further shows the effect on ownership resulting
from the sale of both the minimum number of Units (1,500,000) and the maximum
number of Units (3,000,000), without giving effect to the Warrants included in
the Units.
<CAPTION>
Percent of Class Owned
Owned ------------------------------------
Benifically Before Before After After
Name and Address Offering Offering Minimum(1) Maximum(1)
- ---------------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
John J. Micek III* 1,200,000 16.4% 13.6% 11.7%
430 Cowper St.
Palo Alto, CA 94301
Frank L. Kramer* 1,200,000 16.4% 13.6% 11.7%
12543-A E. Pacific Circle
Aurora, CO 80014
Donald R. McGahan* 1,200,000 16.4% 13.6% 11.7%
c/o Smith Mitchell & Assoc.
980 N. Federal Hwy #206
Boca Raton, FL 33432
Keith A. Koch 1,200,000 16.4% 13.6% 11.7%
9171 Towne Centre Dr. #365
San Diego, CA 92122
Kenneth L. Maul 1,200,000 16.4% 13.6% 11.7%
5160 S. Valley View Blvd. #106
Las Vegas, NV 89118
* All directors 3,600,000 49.3% 40.9% 35.0%
and officers (3 persons)
<FN>
- ---------------------------
(1) The figures shown do not take into account the Common Stock that the
listed persons may purchase in this offering. No arrangements for any
such purchases have been made and the Company does not anticipate any
future arrangements whereby shares of the offering are reserved for
sale to such persons.
</FN>
</TABLE>
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<PAGE>
DESCRIPTION OF SECURITIES
Units
Each Unit offered consists of one share of the Company's $.00001 par
value Common Stock, one Class A Common Stock Purchase Warrant, one Class B
Common Stock Purchase Warrant and one Class C Common Stock Purchase Warrant.
Units will be evidenced by Common Stock and Warrant certificates, and will be
mailed to purchasers as soon as practicable following the closing of the
offering.
Common Stock
The Company's Certificate of Incorporation authorizes the issuance of
100,000,000 shares of Common Stock with a par value of $.00001. Each record
holder of Common Stock is entitled to one vote for each share held on all
matters properly submitted to the stockholders for their vote. Cumulative voting
for the election of directors is not permitted by the Certificate of
Incorporation.
Holders of outstanding shares of Common Stock are entitled to those
dividends declared by the Board of Directors out of legally available funds;
and, in the event of liquidation, dissolution or winding up of the affairs of
the Company, holders are entitled to receive, ratably, the net assets of the
Company available to stockholders after distribution is made to the preferred
stockholders, if any, who are given preferred rights upon liquidation. Holders
of outstanding shares of Common Stock have no preemptive, conversion or
redemptive rights. All of the issued and outstanding shares of Common Stock are,
and all unissued shares when offered and sold will be, duly authorized, validly
issued, fully paid and nonassessable. To the extent that additional shares of
the Company's Common Stock are issued, the relative interests of then existing
stockholders may be diluted.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of preferred stock, $.00001 par value. The Board of Directors
of the Company is authorized to issue the preferred stock from time to time in
series and is further authorized to establish such series, to fix and determine
the variations in the relative rights and preferences as between series, to fix
voting rights, if any, for each series, and to allow for the conversion of
preferred stock into common stock. No preferred stock has been issued by the
Company. The Company anticipates that preferred stock may be utilized in making
acquisitions.
Warrants
The Warrants being offered as part of the Units will be in registered
form and will be issued pursuant to a Unit Warrant Agreement, dated the same
date as this Prospectus, between the Company and the Warrant Agent named below.
The following information is only a summary of that agreement and is qualified
in its entirety by the provisions of that agreement. Upon issuance, the Warrants
will be detachable and may be separately traded in the over-the-counter market,
if any market for the Warrants should develop.
Exercise Price and Periods. Subject to redemption by the Company and to
the current Registration Statement requirement, both of which limitations are
described below, each Class A Warrant is exercisable for one share of Common
Stock commencing with the date of this Prospectus and terminating on the second
anniversary of such date, at a price of $.30 per share. Each Class B Warrant is
exercisable for one share of Common Stock at a price of $.75 per share
commencing with the date of this Prospectus and terminating on the second
anniversary of such date. Each Class C Warrant is exercisable for one share of
Common Stock at a price of $1.30 per share commencing with the date of this
Prospectus and terminating on the second anniversary of such date. The Warrant
expiration dates (and the period during which the Warrants are exercisable) may
be extended indefinitely, or the exercise price thereof reduced, at the
discretion of the Company, upon giving written notice to the Warrant Agent and
the warrantholders. Investors should be aware that if less than seventy-five
percent of the net proceeds from the exercise of Warrants is committed for use
in one or more specific lines of business,
28
<PAGE>
the proceeds from the exercise of Warrants will likely be placed in an escrow
pursuant to the Colorado Securities Act. See "Use of Proceeds."
Manner of Exercise. Class A, Class B and Class C Warrants may be
exercised by surrender of the Warrant to the Warrant Agent with appropriate
instructions accompanied by payment of the full purchase price for the Common
Stock underlying each Warrant being exercised. Payment of the purchase price
must be made in United States funds payable to the Company. The Warrant and
payment therewith must reach the Warrant Agent on or before the expiration date
(or the earlier redemption date, as provided in the next paragraph) of the
Warrant.
Redemption of the Warrants. The Warrants shall be subject to redemption
by the Company as follows:
(a) Subject to the limitations set forth below in this subparagraph
(a), all, but not less than all, of the Class A Warrants and, in addition or in
the alternative, all, but not less than all, of the Class B Warrants and, in
addition or in the alternative, all, but not less than all, of the Class C
Warrants may be called for redemption by the Company, at a redemption price of
$.0001 per Warrant, at any time prior to the declaration by the Securities and
Exchange Commission of the effectiveness of a post-effective amendment to the
Registration Statement of which this Prospectus is a part, without prior written
notice to the registered holders of the Warrants and without any right on the
part of the holders of the Warrants to exercise their purchase rights prior to
the redemption date. Upon redemption, the warrantholder will receive only the
redemption price and will forfeit his right to purchase the Common Stock
underlying the Warrants. The warrantholder shall be entitled to receive the
redemption price provided above only if the warrantholder delivers a written
request for such payment, accompanied by the warrant certificate representing
the Warrants to be redeemed, to the Company's warrant agent within 30 days after
the warrantholder shall have been notified that the applicable class or classes
of Warrants have been redeemed in accordance with this subparagraph (a). Because
the Warrants may be exercised only so long as this Prospectus remains current or
after a post-effective amendment shall have been declared effective by the
Commission, a redemption of the Warrants pursuant to this subparagraph (a) will
mean that the warrantholder shall never have received an opportunity to exercise
the Warrants following the acquisition of a business opportunity by the Company.
The Company's right to redeem the Warrants in accordance with this subparagraph
(a) may be exercised, however, only in the event that management of a business
opportunity that is the target of a business combination with the Company shall
have required, in writing, that the redemption of the Warrants shall be a
condition precedent to the consummation of the business combination between the
Company and the target company. The redemption is to become effective only upon
the closing of such a business combination. Should the contemplated business
combination fail to close, the redemption shall be void and the exercisability
of the Warrants covered by the redemption shall not be affected. The failure of
one or more business combinations to close shall not, however, impair the
Company's right to redeem Warrants under this subparagraph (a) if the Company
enters into arrangements for a subsequent business combination featuring the
warrant-redemption condition described above in this subparagraph (a). To the
extent that the management of a business opportunity that consummates a business
combination with the Company does not require redemption of Warrants as a
condition of closing, the right of the Company to redeem Warrants under this
subparagraph (a) shall be extinguished. Redemption of only one class of Warrants
pursuant to this subparagraph (a) shall not affect the exercisability of the
other classes of Warrants.
(b) In addition to the redemption mechanism described in subparagraph
(a), above, all or any number of the Warrants can be called for redemption at a
redemption price of $.0001 per Warrant by the Company at any time during their
exercise term upon a minimum of thirty (30) days' prior written notice mailed to
the registered holders of the Warrants, subject to the right of the holders of
the Warrants to exercise their purchase rights between the date of any notice of
redemption up to and including the redemption date given by the Company. The
notice period may be extended, at the discretion of the Company, upon giving
subsequent notice to the Warrant Agent and to registered holders of the
Warrants. Any holder who does not exercise his Warrants prior to the date set
for call will receive only the redemption price and will forfeit his right to
purchase the Common Stock underlying the Warrants. Warrantholders who do not
exercise their Warrants during the
29
<PAGE>
redemption period will receive the redemption price only if the Warrants are
received by the Warrant Agent prior to expiration of the redemption period.
Limitations Upon Exercise or Redemption. The Warrants may not be
exercised or redeemed, except under circumstances set forth in subparagraph (a)
of the preceding paragraph, unless the Company maintains a current Registration
Statement in effect during the respective exercise or redemption periods of the
Warrants. The Company will use its best efforts to file post-effective
amendments to its Registration Statement, if needed, to keep information on the
Company current during the period during which the Warrants may be exercised or
redeemed. However, the Company will have no obligation to keep the Registration
Statement current when the market bid price for the Company's Common Stock is
below the exercise price of the Warrants. The Common Stock issuable upon the
exercise of the Warrants cannot be sold in various states without qualifying the
Common Stock under state law and the Company may find it impractical or
impossible to so qualify the Common Stock in those states where it does not
initially qualify this offering. Investors should be aware that certain
exemptions from registration under state law for the exercise of the Warrants,
otherwise available to the Company, may not be available with respect to
exercise of Warrants by those warrantholders who have disposed of all their
shares of common stock. Warrantholders who are residents of states in which the
Company does not qualify the Common Stock underlying the Warrants for sale will
have no choice but either to sell their Warrants or to let them expire.
Rights of Warrantholders. Holders of the Warrants will have no voting
rights, and will not be entitled to dividends. In the event of liquidation,
dissolution or winding up of the affairs of the Company, holders of the Warrants
will not be entitled to participate in any liquidation distribution. Holders of
Warrants are protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock dividends, stock
splits or reclassifications of the Company's Common Stock. Stockholders should
be aware that the Division of Market Regulation of the Commission has taken the
position that where an issuer materially reduces the exercise price of
outstanding warrants for a specified period of time during the remaining term of
the warrants, and warrantholders are therefore required to make a decision
whether to tender their warrants to the issuer in exchange for another security,
then the warrantholders should be provided with adequate information with
respect to the offer in compliance with Rule 13e-4 (the "Rule"). In the event
the Rule is deemed to be applicable to a particular action taken by the Company,
compliance with the Rule may require the filing of an appropriate schedule under
that Rule and distribution of an offering circular to warrantholders with
appropriate disclosures.
Effect of Warrants. For the life of the Warrants, warrantholders have
the opportunity to profit from a rise in the market value of the Common Stock of
the Company, if any, at the expense of the Common Stockholders. A warrantholder
may be expected to exercise Warrants at a time when the Company, in all
likelihood, would be able to obtain equity capital, if it so desires, by a
public sale of a new Common Stock offering on terms more favorable than those
provided in the Warrants. Exercise of the Warrants will dilute the equity
interest of other stockholders in the Company.
Warrant Solicitation Fees. The Company may employ selected brokers
and/or dealers to solicit the exercise of Warrants on its behalf. The Company
may pay such brokers and dealers a Warrant solicitation fee of up to 3% of the
gross proceeds received from the exercise of Warrants originated by or from the
broker's or dealer's office. No such fees will be paid if (i) the exercise of
the Warrants is made at a time when the market price of the Company's Common
Stock is lower than the exercise price of the Warrants, (ii) the Warrants to be
exercised are held in a discretionary account, (iii) the solicitation of the
exercise of such Warrants would violate Rule l0b-6 promulgated under the
Securities Exchange Act of 1934, as amended, (iv) the brokers or dealers failed
to notify the Company in writing at least 10 calendar days prior to commencement
of such solicitation, (v) disclosure of compensation arrangements was not made
in documents provided to customers both as part of the original offering and at
the time of exercise, or (vi) the exercise of the Warrants is the result of an
unsolicited transaction.
30
<PAGE>
Transfer and Warrant Agent
American Securities Transfer, Inc., 1825 Lawrence Street, Suite 444,
Denver, Colorado 80202, will act as the Transfer Agent and Warrant Agent for the
Common Stock and Warrants of the Company.
Reports to Stockholders
The Company plans to furnish its stockholders for each fiscal year with
an annual report containing financial statements audited by its independent
certified public accountants. In the event the Company enters into a business
combination with another company, it is the present intent of management to
continue furnishing annual reports to stockholders. Additionally, the Company
may, in its sole discretion, issue unaudited quarterly or other interim reports
to its stockholders when it deems appropriate. The Company intends to comply
with the periodic reporting requirements of the Securities Exchange Act of 1934
for so long as it is subject to those requirements.
TERMS OF OFFERING
This offering is being conducted by the Company and is not being
underwritten. The Units offered hereby are being offered on behalf of the
Company by the Company's President, who has had no prior experience in the sale
of securities. No underwriting discounts or commissions will be paid to him,
although his out-of-pocket expenses will be reimbursed by the Company.
The Units are offered on a "best efforts, minimum-maximum" basis. All
proceeds from the sale of Units will be deposited into an escrow account at
Omnibank Aurora, located in Aurora, Colorado (the "Escrow Agent"), by not later
than noon of the next business day following receipt. No funds will be released
unless and until the minimum 1,500,000 Units have been sold. Unless proceeds
from the sale of the minimum number of Units have been deposited with the Escrow
Agent within 90 days following the date of this Prospectus (which period may be
extended for an additional 90 days at the Company's sole discretion) the
offering will be withdrawn and all monies received will be refunded by the
Escrow Agent, without deduction therefrom for offering costs or sales expenses,
if any, and without the payment of any interest thereon. If at least 1,500,000
Units are sold and the proceeds therefrom deposited within the period set forth
above, the offering will continue until the remaining 1,500,000 Units being
offered are sold, until 90 days from the date of this Prospectus (180 days if
extended), or until the Company determines to terminate the offering, whichever
event occurs first. During the offering period, investors will not have access
to their funds.
The Company expects to make sales of the Units to persons whom it
believes may be interested or who have contacted the Company to express an
interest in purchasing the Units. The Company may sell Units to such persons if
they reside in a state where the Units can lawfully be sold. The Company is not
obligated to sell any Units to any such person and will do so only to the extent
that such sales would not be inconsistent with a public distribution of the
Units.
Officers, directors, and affiliates of the Company may purchase in the
aggregate up to 20% of the Units sold in this offering. Neither the Company nor
any of its officers or directors will provide or otherwise arrange, either
directly or indirectly, financing for any such purchases and none of the
proceeds of this offering will be used, directly or indirectly, to fund or
otherwise to finance any such purchases.
To the extent that such persons purchase Units in the offering, the number of
Units required to be purchased by the general public in order to reach the
minimum amount for closing is reached will be reduced by a like amount.
Moreover, these purchases may be used in order to reach the minimum amount for
closing in the event the minimum is not reached as a result of purchases by the
general public. Consequently, this offering could close with a substantially
greater percentage of Common Stock being held by present stockholders and with
less participation by the public than would otherwise be the case.
31
<PAGE>
Pricing of the Units
There is no public market for the Units or any of their component
securities and there is no assurance that a market will develop for such
following the offering. The offering price of the Units to be sold in the
offering was determined arbitrarily by the Company. In determining the offering
price and number of Units to be offered, the Company considered such factors as
the financial condition of the Company, its net tangible book value, lack of
operating history and the general condition of the securities markets.
Accordingly, the offering price set forth on the cover page of this
Prospectus should not be considered to be an indication of the actual value of
the Company. The price bears no relation to the Company's assets, book value,
lack of earnings or net worth, or any other traditional criteria of value.
Escrow of Net Proceeds
Because the Company intends to offer the Units to residents of the
State of Colorado, the Company will be subject to the new Colorado Securities
Act, which requires the placement in escrow of eighty percent of the net
proceeds of the offering ($103,600 - minimum, $223,600 maximum) until the
completion of a transaction or series of transactions whereby at least fifty
percent of the gross proceeds received from the sale of Units are committed for
use in one or more specific lines of business. The Company intends to open the
required escrow account immediately following the closing of the offering in
accordance with the new Colorado Securities Act.
The Company has entered into an escrow agreement with Omnibank Aurora,
located in Aurora, Colorado, which provides for the establishment of the
aforementioned escrow account. If, after four (4) years from the date funds are
deposited into an escrow account, established in accordance with the Colorado
Securities Act (the "Colorado escrow account"), the Company has not consummated
a business combination that has resulted in the release of the funds escrowed in
compliance with the Colorado Securities Act, the escrow agreement that the
Company has entered into with Omnibank Aurora (for purposes of this paragraph,
the "escrow agent") provides that the escrow agent shall, as promptly as
possible, distribute the funds in the Colorado escrow account to the persons
then holding the shares of the Company's common stock issued in this offering on
a pro rata basis based on the number of shares held. See "Risk Factors - Impact
of Amendments to the Colorado Securities Act" and "Possible Distribution of
Escrowed Funds After Four Years." Therefore, investors in this offering should
be aware that, in the event of a distribution as described in the previous
sentence, only a portion of the funds originally invested will be distributed to
the persons then holding shares issued in this offering, without any interest
being paid thereon. Neither the Colorado escrow agreement, nor any distribution
made thereunder, shall affect ownership of the Units issued in this offering,
i.e., the shareholders who receive their pro rata portion of the aforementioned
distribution shall not be required to return their Units to the Company's
treasury. In the event a distribution is made, as provided above, the Company's
ability to adequately investigate and evaluate business opportunities and to
attract favorable business opportunities will be adversely affected.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, and no
such proceedings are known to be contemplated.
No director, officer or affiliate of the Company, and no owner of
record or beneficial owner of more than 5.0% of the securities of the Company,
or any associate of any such director, officer or security holder is a party
adverse to the Company or has a material interest adverse to the Company in
reference to pending litigation.
32
<PAGE>
LEGAL MATTERS
The Company has been represented, and the legality of the securities
being offered hereby has been passed upon, by the firm of Pred and Miller,
Attorneys at Law, 501 South Cherry Street, Suite 500, Denver, Colorado 80222.
Three attorneys of that firm own a total of 500,000 shares of the Company's
outstanding Common Stock.
EXPERTS
The financial statements included in this Prospectus beginning at page
F-1 have been examined by Wenner, Silvestain and Company, Independent Certified
Public Accountants, as set forth in their report herein and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Denver Regional Office of the Securities
and Exchange Commission, Denver, Colorado, a Registration Statement on Form S-18
(herein, together with all amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended, regarding the Units being offered.
This Prospectus, filed as part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement. For further
information regarding the Company and the securities offered, reference is made
to the Registration Statement and the exhibits filed therewith. The Registration
Statement, including exhibits, may be inspected at the office of the Securities
and Exchange Commission, 410 Seventeenth Street, Suite 700, Denver, Colorado
80202, and at the Commission's principal office in Washington, D.C., without
charge. Copies of the Registration Statement, or any part thereof, may be
obtained from the Commission's principal office at 450 Fifth Street N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
33
<PAGE>
wenner, silvestain and company
Certified Public Accountants, 8101 East Prentice, Suite 600,
Englewood Colorado 80111-2935
Telephone (303) 771-5300 FAX (303) 771-7921
Stephen L. Wenner, CPA Bennie Silvestain, CPA Gary P. Saltzman, CPA
Lawrence L. Greenberg, CPA Barry H. Silvestain, CPA
INDEPENDENT AUDITORS' REPORT
Board of Directors
Catalina Capital Corp.
Aurora, Colorado
We have audited the accompanying balance sheet of Catalina Capital
Corp. (a development stage company) as of June 6, 1990, and the related
statements of operations, stockholders' equity and cash flows for the period
April 27, 1990 (inception) to June 6, 1990. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Catalina Capital
Corp. (a development stage company) as of June 6, 1990, and the results of its
operations and its cash flows for the period April 27, 1990 (inception) to June
6, 1990 in conformity with generally accepted accounting principles.
/s/ Wenner, Silvestain and Company
Englewood, Colorado
June 20, 1990
Member, American Institute of Certified Public Accountants
Member, The Colorado Society of Certified Public Accountants
Member, SEC Practice Section of the AICPA
Member, Private Companies Practice Section of the AICPA
F-1
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 6, 1990
------------
ASSETS
CURRENT ASSETS
Cash $ 10,791
--------
OTHER ASSETS
Organization costs, net of amortization 492
Deferred offering costs 5,385
--------
5,877
--------
TOTAL ASSETS $ 16,668
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 885
--------
STOCKHOLDERS' EQUITY
Preferred stock, $.00001 par value,
20,000,000 shares authorized --
Common stock, $.00001 par value,
100,000,000 shares authorized,
7,300,000 shares issued and outstanding 73
Additional paid in capital 15,927
(Deficit) accumulated during the development (217)
--------
Total Stockholders' Equity 15,783
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,668
========
The accompanying notes to financial statements are an integral part of these
statements.
F-2
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
------------------
REVENUES $ --
------------
EXPENSES
Amortization 8
General and administrative expenses 209
------------
Total Expenses 217
------------
NET (LOSS) $ (217)
===========
NET (LOSS) PER SHARE $ --
===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 7,300,000
===========
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
<TABLE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
------------------
<CAPTION>
Deficit
Common Stock Accumulated
----------------------- Additional During the
Preferred Number Par Paid In Development
Stock of Shares Value Capital Stage
----- --------- ----- ------- ------
<S> <C> <C> <C> <C> <C>
Common stock issued for cash April
27, 1990 at $.001 per share -- 5,000,000 $ 50 $ 4,950 $ --
Common stock issued for cash May
2, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash May
9, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash May
11, 1990 at $.01 per share 200,000 2 1,998 --
Common stock issued for cash May
14, 1990 at $.01 per share 200,000 2 1,998 --
Common stock issued for cash May
16, 1990 at $.004 per share 500,000 5 1,995 --
Common stock issued for cash May
16, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
18, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
25, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
29, 1990 at $.001 per share 200,000 2 198 --
Common stock issued for cash May
30, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash May
31, 1990 at $.01 per share 100,000 1 999 --
Common stock issued for cash June
6, 1990 at $.001 per share 200,000 2 198 --
Net (loss) for the period
ended June 6, 1990 -- -- -- (217)
--------- ---------- ------- ---------- --------
-- 7,310,000 $ 73 $ 15,927 $ (217)
========= ========== ======= ========== =========
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
CATALINA CAPITAL CORP
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
STATEMENT OF CASH FLOWS
FOR THE PERIOD APRIL 27, 1990 (INCEPTION) TO JUNE 6, 1990
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid to suppliers $ (209)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 16,000
Payment of deferred offering costs (4,500)
Payment of organization costs (500)
--------
Net Cash Provided by Financing Activities 11,000
--------
NET INCREASE IN CASH 10,791
CASH, Beginning of Period --
--------
CASH, End of Period $ 10,791
========
RECONCILIATION OF NET INCOME TO NET CASH (USED) BY OPERATING ACTIVITIES
NET (LOSS) $ (217)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities
Amortization 8
--------
NET CASH (USED) BY OPERATING ACTIVITIES $ (209)
========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Increase in accounts payable for deferred public offering costs is $885.
<FN>
The accompanying notes to financial statements are an integral part of these statements.
</FN>
</TABLE>
F-5
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
---------------------
Note 1 - Summary of Significant Accounting Policies
Organization - The Company was organized as a Delaware corporation on
April 27, 1990. The Company intends to implement a business plan to
seek, investigate, and if warranted, acquire one or more business
properties.
Basis of Presentation - As of June 6, 1990, the Company was in the
development stage and was primarily engaged in raising capital.
Fiscal Year End - The Company has selected a March 31 fiscal year end
for its financial and tax reporting.
Note 2 - Public Offering
The Company intends to offer to the public a minimum of 1,500,000 to a
maximum of 3,000,000 units on a "best efforts, minimum-maximum" basis
at a sales price of $.10 per unit. Each unit consists of one (1) share
of the Company's $.00001 par value common stock and one (1) each Class
A, Class B, and Class C common stock purchase warrant.
This offering is being conducted by the Company and is not being
underwritten. The units offered hereby are being offered on behalf of
the Company by the officers, directors, and affiliates of the Company.
No underwriting discounts or commissions will be paid to such persons,
although their out-of-pocket expenses will be reimbursed by the
Company.
The new Colorado Securities Act, effective July 1, 1990, provides that
where less than seventy-five percent of the net proceeds from the sale
of securities are committed for use in one or more specific lines of
business, eighty percent of the net proceeds received by the issuer
shall be placed in escrow until (i) completion of a transaction or
series of transactions whereby at least fifty percent of the gross
proceeds received from the sale of securities are committed for use in
one or more specific lines of business, and (ii) notice of the proposed
release of the escrowed funds had been on file with the Colorado
Division of Securities for at least ten days. The Company anticipates
that this offering will be subject to the escrow provisions.
The Company estimates it will receive net proceeds from this offering
of $129,500 if the minimum number is sold and $279,500 if the maximum
is sold. As such, eighty percent of the net proceeds required to be
escrowed would be $103,600 if the minimum is sold and $223,600 if the
maximum is sold. If after four years from the date the funds are
deposited into escrow the Company has not consumated a business
combination that has resulted in the release of the escrowed funds as
prescribed, the funds will be distributed to the persons then holding
the shares of common stock issued in this offering on a pro rata basis
based on number of shares held.
F-6
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
---------------------
Note 2 - Public Offering (Continued)
Deferred offering costs represent costs incurred with the proposed
offering of common stock to the public. In the event that the current
offering is successful, costs incurred will be charged against the
proceeds of the offering. If the offering is not successful, the costs
will be charged to operations.
Note 3 - Warrants
Subject to redemption by the Company and to the current Registration
Statement requirement, both of which limitations are described below,
each Class A warrant is exercisable for one share of common stock
commencing with the date of the prospectus and terminating on the
second anniversary of such date, at a price of $.30 per share. Each
Class B warrant is exercisable for one share of common stock at a price
of $.75 per share commencing with the date of the prospectus and
terminating on the second anniversary of such date. Each Class C
warrant is exercisable for one share of common stock at a price of
$1.30 per share commencing with the date of the prospectus and
terminating on the second anniversary of such date. The warrant
expiration dates may be extended indefinitely, or the exercise price
thereof reduced, at the discretion of the Company, upon giving written
notice to the warrant agent and the warrantholders.
All of the Class A, Class B or Class C warrants may be called for
redemption by the Company, at a redemption price of $.0001 per warrant,
at any time prior to the declaration by the Securities and Exchange
Commission of the effectiveness of a post-effective amendment to the
Registration Statement of which the prospectus is a part, without prior
written notice to the registered holders of the warrants and without
any right on the part of the holders of the warrants to exercise their
purchase rights prior to the redemption date. The warrants may be
exercised only so long as the prospectus remains current or after a
post-effective amendment shall have been declared effective by the
Commission.
In addition, all or any number of the warrants can be called for
redemption at a redemption price of $.0001 per warrant by the Company
at any time during their exercise term upon a minimum of thirty (30)
days' prior written notice mailed to the registered holders of the
warrants, subject to the right of the holders of the warrants to
exercise their purchase rights between the date of any notice of
redemption up to and including the redemption date given by the
Company. The notice period may be extended, at the discretion of the
Company, upon giving subsequent notice to the warrant agent and to
registered holders of the warrants.
The Company may employ selected brokers and/or dealers to solicit the
exercise of Warrants on its behalf. The Company may pay such brokers
and dealers a warrant solicitation fee of up to 3% of the gross
proceeds received from the exercise of warrants originated by or from
the broker's or dealer's office.
F-7
<PAGE>
CATALINA CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
---------------------
Note 4 - Related Party Transactions
The Company presently maintains its offices at the home of its Vice
President for which it pays no rent.
The Company has paid its present securities counsel, Pred and Miller,
$5,000 to date for services rendered in connection with the public
offering of the Company's common stock. Three of the Company's
stockholders are partners in the law firm of Pred and Miller.
Should the Company complete the acquisition of a business opportunity,
the Board of Directors may award a finder's fee to an officer or
affiliate of the Company, or to a third party, if the acquisition is
originated as a result of his efforts. The cash portion of this fee, in
the aggregate, if paid to officers or affiliates, will not exceed 10%
of the gross proceeds of the offering and may be less.
F-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 22. Indemnification of Officers and Directors
The Certificate of Incorporation and the Bylaws of the Company,
respectively flied as Exhibits (3.1) and (3.2), provide that the Company will
indemnify its officers and directors for costs and expenses incurred in
connection with the defense of actions, suits or proceedings where the officer
or director acted in good faith and in a manner he reasonably believed to be in
the Company's best interest and is a party by reason of his status as an officer
or director, absent a finding of negligence or misconduct in the performance of
duty.
Item 23. Other Expenses of Issuance and Distribution
Item Amount
- ----------------------------------- --------------------------------
Minimum Maximum
Registration Fee -- ------- -------
Securities and Exchange Commission ......... $1,837.50 $1,837.50
Printing .................................... 2,000* 2,000*
Transfer Agent's Fees ....................... 250* 250*
Printing of Certificates .................... 600* 600*
Legal Fees and Expenses ..................... 11,500* 11,500*
Accounting Fees ............................. 1,000* 1,000*
Blue Sky Fees and Expenses .................. 3,000* 3,000*
Miscellaneous Expenses ...................... 312.50* 312.50*
--------- ---------
Total .............................. $ 20,500* $ 20,500*
*Estimated
Item 24. Recent Sales or Unregistered Securities
<TABLE>
Since its inception, the Company has sold its Common Stock, $.00001 par
value, to the following persons and entities in transactions summarized as
follows:
<CAPTION>
Aggregate Purchase Price
Name of Purchaser Date of Sale Shares Purchase Price Per Share
- ----------------- ------------ ------ -------------- ---------
<S> <C> <C> <C> <C>
John J. Micek III 4/27/90 1,000,000 $1,000 $.001
Keith A. Koch 4/27/90 1,000,000 1,000 .001
Kenneth L. Maul 4/27/90 1,000,000 1,000 .001
Frank L. Kramer 4/27/90 1,000,000 1,000 .001
Donald R. McGahan 4/27/90 1,000,000 1,000 .001
Tony Acone 5/2/90 100,000 1,000 .01
Randel L. Perkins 5/9/90 100,000 1,000 .01
Glen Holt 5/11/90 200,000 2,000 .01
T. David Clemans 5/14/90 200,000 2,000 .01
II-1
<PAGE>
Ronald J. Miller 5/16/90 375,000 1,500 .004
Robert Neece 5/16/90 75,000 300 .004
Heather Anderson 5/16/90 50,000 200 .004
Donald R. McGahan 5/16/90 200,000 200 .001
John J. Micek III 5/18/90 200,000 200 .001
Frank L. Kramer 5/25/90 200,000 200 .001
Keith A. Koch 5/29/90 200,000 200 .001
Dennis Yamamoto 5/30/90 100,000 1,000 .01
Charles M. Cunningham 5/31/90 100,000 1,000 .01
Kenneth L. Maul 6/6/90 200,000 200 .001
</TABLE>
These sales were all made for cash and were made in reliance on the
exemption from registration offered by Section 4(2) of the Securities Act of
1933. The Company had reasonable grounds to believe immediately prior to making
an offer to the private investors for cash, and believed, when such
subscriptions were accepted, that such purchasers (1) were purchasing for
investment and not with a view to distribution, and (2) had such knowledge and
experience in financial and business matters that they were capable of
evaluating the merits and risks of their investment and were able to bear those
risks. The purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of registration.
An appropriate restrictive legend is noted on the certificates representing such
shares, and stop-transfer instructions have been noted in the Company's transfer
records. All such sales were effected without the aid of underwriters, and no
sales commissions were paid.
Item 25. Exhibits
The following Exhibits are filed as part of the Registration Statement.
Exhibit
No. Document
- ------- ------------------------------------------------------
3.1 Certificate of Incorporation (1)
3.2 Bylaws (1)
4.1 Form of Unit Warrant Agreement (1)
4.2 Specimen Stock Certificate (1)
4.3 Form of Specimen A Warrant Certificate (1)
4.4 Form of Specimen B Warrant Certificate (1)
4.5 Form of Specimen C Warrant Certificate (1)
5.1 Opinion of Pred and Miller regarding legality (1)
24.1 Consent of Wenner, Silvestain & Company (1)
24.2 Consent of Pred and Miller (included in 5.1, opinion
regarding legality) (1)
28.1 Form of Escrow Agreement (1)
28.2 Form of Post-Offering Escrow Agreement
(1) Previously filed and not included herein.
II-2
<PAGE>
Item 26. Undertakings
The undersigned registrant hereby undertakes:
(1) To provide at the closing, Stock Certificates and Warrants in such
denominations and registered in such names as required to permit prompt delivery
to each purchaser.
(2) Upon expiration of the Warrants, to deregister any shares of Common
Stock reserved for issuance upon exercise of any Warrants which expire
unexercised.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(4) With respect to the Warrants and the shares issuable upon the
exercise thereof, that (i) any prospectus revised to show the terms of offering
of such Warrants and/or shares (other than a transaction on a national
securities exchange), and (ii) any prospectus revised to comply with the
requirements of Section 10(a)(3) of the Securities Act of 1933, as amended, will
be filed as a post-effective amendment to the Registration Statement prior to
any offering thereof; and that the effective date of each such amendment shall
be deemed the effective date of the Registration Statement with respect to
securities sold after such amendment shall have become effective.
(5) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement, including, but not limited to, any
addition or deletion of a managing underwriter.
(6) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(7) To remove from registration, by means of a post-effective
amendment, any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-18 and has duly caused this
Amendment No. 2 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, County of
Santa Clara, State of California on September 28, 1990.
CATALINA CAPITAL CORP.
By: /s/ John J. Micek III
--------------------------------------
John J. Micek III, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John J. Micek III President and September 28, 1990
- --------------------- a Director
John J. Micek III
/s/ Frank L. Kramer Vice President, September 28, 1990
- --------------------- Secretary, Treasurer,
Frank L. Kramer and a Director
/s/ Donald R. McGahan A Director September 28, 1990
- ---------------------
Donald R. McGahan
II-4
<PAGE>
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 24.1
<PAGE>
wenner, silvestain and company
Certified Public Accountants, 8101 East Prentice, Suite 600,
Englewood, Colorado 80111-2935
Telephone (303) 771-5300 FAX (303) 771-7921
Stephen L. Wenner, CPA Bennie Silvestain, CPA Gary P. Saltzman, CPA
Lawrence L. Greenberg, CPA Barry H. Silvestain, CPA
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-18, and any amendments thereto, to be filed by
Catalina Capital Corp. of our Auditors' Opinion dated June 20, 1990 accompanying
the Financial Statements of Catalina Capital Corp. as of June 6, 1990, and to
the use of our name under the caption "Experts" in the Prospectus.
/s/ Wenner, Silvestain and Company
Wenner, Silvestain and Company
Englewood, Colorado
June 26, 1990
Member, American Institute of Certified Public Accountants
Member, The Colorado Society of Certified Public Accountants
Member, SEC Practice Section of the AICPA
Member, Private Companies Practice Section of the AICPA
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 28.2
State of Delaware
Office of the Secretary of State PAGE 1
----------------------------------
I, EDWARD 3. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "CATALINA CAPITAL CORP.", FILED IN THIS OFFICE ON THE FOURTH DAY
OF AUGUST. A.D. 1992, AT 9 O'CLOcK A.M.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2229021 8100 7965000
DATE:
960155750 05-29-96
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/04/1992
922175315 2229021
CERTIFICATE OF DESIGNATION
STATEMENT ESTABLISHING SERIES OF PREFERRED STOCK
OF
CATALINA CAPITAL CORP.
Pursuant to the requirements of Section 151(a) of the Delaware
Corporation Law, the undersigned Corporation submits the following Statement
Establishing Series of Preferred Stock.
FIRST: The name of the Corporation is Catalina Capital Corp.
SECOND: A copy of the resolutions establishing and designating the
series and fixing and determining the relative rights and preferences of the
Series A Preferred Stock is attached hereto as Exhibit A.
THIRD: Such resolutions were duly adopted by the Board of Directors of
the Corporation on the 31st day of July, 1992.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused this
Statement to be signed by a duly authorized officer and duly attested by
another such officer this day of July, 1992.
CATALINA CAPITAL CORP.
by: /s/ John J. Micek
------------------------------
John J. Micek III, President
ATTEST:
/s/ Frank L. Kramer
- ---------------------------
Frank L. Kramer Secretary
<PAGE>
EXHIBIT A
SERIES A PREFERRED STOCK
WHEREAS, the Articles of Incorporation of the Corporation provides for
a class of shares of stock designated "Preferred Stock," and vests in the Board
of Directors the authority to specify the number of shares of Preferred Stock to
be issued, to divide the Preferred Stock into one or more series within any
class thereof, and to fix the number of Shares in such series, and the
preferences, rights and restrictions thereof; and
WHEREAS, the Corporation desires to establish and designate a Series of
Preferred Stock which has only voting rights for the reasons set forth in the
following background summary.
The shares of Series A Preferred Stock are being issued to certain
shareholders of Explore Technology, Inc., an Arizona corporation ("Explore"), in
connection with the acquisition by the Corporation of all of the issued and
outstanding shares of Explore. It is the purpose of the Series A Preferred Stock
to ensure that the shareholders of Explore will always have at least 50,206,667
votes (before such persons sell any of the Corporation's common stock). Since
the Corporation will issue 38,240,170 shares of its common stock to the
shareholders of Explore at the closing of its acquisition of Explore, it is
necessary for the Corporation to issue 11,966,497 shares of Series A Preferred
Stock with 1,000 votes per share, so that the total number of votes represented
by the common and preferred stock being issued at the Closing will be 50,206,
667.
In connection with the closing of the acquisition of Explore, the
Corporation will reserve, for future issuance, a total of 11,966,497 shares of
its common stock. These shares are being reserved for potential future issuance
as follows:
Purpose No. of Shares
------- -------------
1. Conversion of debt owed to
William H. Fuller 993,480
2. Conversion of debt owed to
Gordon Rock 447,028
3. Conversion of Convertible
Preferred Stock being issued
to Wayne Van Dyke 6,500,829
4. Exercise of outstanding options 4,025,160
-------------
Total 11,966,497
<PAGE>
In accordance. with the Plan and Agreement of Reorganization with Explore, to
the extent any of the reserved shares are `not issued for the purposes set forth
above, the shares will be issued to all Explore Shareholders pro rata.
NOW, THEREFORE, be it resolved that there shall be one series of
Preferred Stock of the Corporation designated "Series A Preferred Stock." The
number of shares of Series A Preferred Stock shall be 11,966.497. The powers,
designations, preferences and relative, participating, optional or other special
rights of the shares of the Series A Preferred Stock and the qualifications,
limitations and restrictions of such preferences and rights shall be as follows:
1. Dividend Provisions The holders of outstanding shares of the Series
A Preferred Stock shall not be entitled to receive any dividends.
2. Liquidation Preference In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of shares of the Series A Preferred Stock shall not be entitled to
receive any amounts out of the assets of the Corporation available for
distribution to its stockholders.
3. The Series A Preferred Stock shall not be convertible into Common
Stock or any other security of the Corporation.
4. Voting Rights. Each share of Series A Preferred Stock shall entitle
the holder to one thousand (1,000) votes and with respect to each such vote, a
holder of shares of Series A Preferred Stock shall have full voting rights and
powers equal to the voting rights and powers of a holder of shares of Common
Stock, share for share, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote with holders of Common Stock together as a single class with respect to
any matter upon which the shareholders may vote.
(a) Adjustment of Voting Rights.
(i) Stock Splits Stock Dividends. If the Corporation shall at any
time, or from time to time, after the effective date hereof effect a subdivision
of the outstanding Common Stock and not effect a corresponding subdivision of
the Series A Preferred Stock, or if the Corporation at any time or from time to
time after the effective date hereof shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in additional shares of Common Stock, then and in
each such event the number of votes which the holders of the Series A Preferred
Stock are entitled to shall
-2-
<PAGE>
be proportionately increased as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on such
record date.
(ii) Adjustments for Combinations. Etc. In case the outstanding
shares of Common Stock be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the number of votes
which the holders of Series A Preferred Stock are entitled to shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately decreased.
5. Cancellation Provisions. Whenever any of the reserved shares of the
Corporation's Common Stock are issued for the purposes described in the
Background Summary above or whenever any such shares are issued to the
shareholders of Explore because the rights to acquire the shares upon the
conversion of debt or preferred stock or upon the exercise of options have
expired, a number of shares of the Series A Preferred Stock will be cancelled
which equals 1/1000 of the number of shares of Common Stock issued. Whenever
shares of Series A Preferred Stock are cancelled, the number of shares cancelled
will be shared pro rata among all holders of the Series A Preferred Stock.
(sn9334-a.stm)
-3-
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 08/04/1992
922175316 - 2229021
CERTIFICATE OF DESIGNATION
STATEMENT ESTABLISHING SERIES OF PREFERRED STOCK
OF
CATALINA CAPITAL CORP.
Pursuant to the requirements of Section 151(a) of the Delaware
Corporation Law, the undersigned Corporation submits the following Statement
Establishing Series of Preferred Stock.
FIRST: The name of the Corporation is Catalina Capital Corp.
SECOND: A copy of the resolutions establishing and designating the
series and fixing and determining the relative rights and preferences of the
Series B-1, Series B-2 Series B-3 and Series B-4 Convertible Preferred Stock is
attached hereto as Exhibit A.
THIRD: Such resolutions were duly adopted by the Board of Directors of
the Corporation on the 31st day of July, 1992.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused this
Statement to be signed by a duly authorized officer and duly attested by another
such officer this day of July, 1992.
CATALINA CAPITAL CORP.
By /s/ John J. Micek
--------------------------------
John J. Micek III, President
ATTEST
/s/ Frank L. Kramer
- --------------------------------
Frank L. Kramer, Secretary
<PAGE>
EXHIBIT A
SERIES B-1, SERIES B-2, SERIES B-3, AND
SERIES B-4 CONVERTIBLE PREFERRED STOCK
WHEREAS, the Articles of Incorporation of the Corporation provides for
a class of shares of stock designated "Preferred Stock," and vests in the Board
of Directors the authority to specify the number of shares of Preferred Stock to
be issued, to divide the Preferred Stock into one or more series within any
class thereof, and to fix the number of Shares in such series, and the
preferences, rights and restrictions thereof; and
WHEREAS, the Corporation desires to establish and designate the Series
8--1, Series 8-2, Series 8-3, and Series 8-4 Convertible Preferred Stock of the
Corporation;
NOW, THEREFORE, be it resolved that there shall be one series of
Preferred Stock of the Corporation designated "Series 8-1 Convertible Preferred
Stock," one series of Preferred Stock of the Corporation designated "Series B-2
Convertible Preferred Stock", one series of Preferred Stock of the Corporation
designated "Series 8-3 Convertible Preferred Stock", and one series of Preferred
Stock of the Corporation designated "Series 8-4 Convertible Preferred Stock."
The number of shares of each of these four Series shall be as follows:
Series Number of Shares
------ ----------------
B-1 1,300.166
B-2 866.522
B-3 2,166.688
B-4 2,167.453
---------
Total 6,500.829
=========
The powers, designations, preferences and relative, participating, optional or
other special rights of the shares of each of the four series of Convertible
Preferred Stock and the qualifications, limitations and restrictions of such
preferences and rights shall be as follows:
1. Dividend Provisions. The holders of outstanding shares of each of
the four series of Convertible Preferred Stock described herein shall not be
entitled to receive any dividends.
<PAGE>
2. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of shares of the four series of Convertible Preferred Stock described
herein shall not be entitled to receive any amounts out of the assets of the
Corporation available for distribution to its stockholders.
3. The Series B-1 Series B-2 Series B-3 and Series B-4 Convertible
Preferred Stock may be converted into Common Stock upon the following terms and
conditions (the "Conversion Rights"):
(a) Conditions to Conversion and Conversion Rate. Upon the
occurrence of the events specified in subparagraphs 3(a) (1) through 3(a) (5)
below (the "Conditions to Conversion"), the outstanding shares of Series B-1
Series B-2 Series B-3 and Series B-4 Convertible Preferred Stock, respectively,
may be converted into shares of Common Stock at the conversion rate specified as
follows:
(1) Each share of Series B-1 Convertible Preferred Stock may
be converted into 1,000 shares of Common Stock if the Corporation has received
$500,000 in new equity funding by September 15, 1992, and an additional $500,000
in new equity funding by December 31, 1992. Any fees and costs associated with
obtaining the funding will not be deducted from the amount of equity raised.
(2) Each share of Series B-2 Convertible Preferred Stock may
be converted into 1,000 shares of Common Stock if the Corporation has received
at least $500,000 in licensing income by March 15, 1993.
(3) Each share of Series B-3 Convertible Preferred Stock may
be converted into 1,000 shares of Common Stock if the Corporation has received
$1,000,000 in additional equity funding or licensing income, or combination
thereof, by September 15, 1993. Any fees and costs associated with obtaining the
funding will not be deducted from the amount of equity raised. Upon conversion,
the holder must agree to cancel one-half of the licensing royalties (5%) he is
entitled to receive.
(4) Each share of Series B-4 Convertible Preferred Stock may
be converted into 1,000 shares of Common Stock if the Corporation has received
at least $1,000,000 in additional licensing income by March 15, 1994. Upon
conversion, the holder must agree to cancel the remaining one-half of the
licensing royalties (5*) he is entitled to receive.
-2-
<PAGE>
(5) The word "additional" in subparagraphs (3) and (4) above
means in addition to any funds or income received vhich was used in determining
if shares of Series B-1 or Series B-2 Convertible Preferred Stock may be
converted. It is also a condition to conversion of each of the Series B-2 B-3
and 8-4 Convertible Preferred Stock that the conditions for the preceding series
have been met.
(b) Mechanics of Conversion. The applicable conversion shall occur
effective upon the satisfaction of the appropriate Conditions to Conversion, and
upon the election of the holder of the Series B-1 Series B-2 Series B-3 and
Series B-4 Convertible Preferred Stock; provided, however, that the election to
convert must occur before September 15, 1994. The holder of the shares of
Convertible Preferred Stock which are converted shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or any
authorized transfer agent for such stock together with a written statement that
he elects to convert his Convertible Preferred Stock into Common Stock. The
Corporation or the transfer agent shall promptly issue and deliver at such
office to such holder of Convertible Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which such holder is
thereby entitled. The effective date of such conversion shall be the date upon
which the holder provides written notice of his election to convert to the
Corporation or transfer agent.
(c) Adjustments of Conversion Rate.
(i) Stock Splits: Stock Dividends. If the Corporation shall at
any time, or from time to time, after the effective date hereof effect a
subdivision of the outstanding Common Stock and not effect a corresponding
subdivision of the Series B-1 Series B-2 Series B-3 and Series B-4 Convertible
Preferred Stock, or if the Corporation at any time or from time to time after
the effective date hereof shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the number of shares of Common Stock issuable upon conversion of
the Convertible Preferred Stock shall be proportionately increased as of the
time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date.
(ii) Adjustments for Combinations, Etc. In case the
outstanding shares of Common Stock be combined or consolidated, by,
reclassification or otherwise, into a lesser number of shares of Common Stock,
the number of shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock shall, concurrently with the effectiveness of such combination
or consolidation, be proportionately decreased.
-3-
<PAGE>
(d) No Impairment The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all of the provisions of
this Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Convertible Preferred Stock against impairment.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series. B-1, Series B-2, Series B-3 and Series B-4 Convertible
Preferred Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of Series
B-1, Series B-2, Series B-3 and Series B-4 Convertible Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all outstanding shares of Series
B-1 Series B-2, Series B-3 and Series B-4 Convertible Preferred Stock, the
Corporation will take such corporate action as is necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
(f) Any notice required to be given to holders of shares of Series
B-1, Series B-2, Series B-3 and Series B-4 Convertible Preferred Stock shall be
deemed given upon deposit in the United States mail, postage prepaid, addressed
to such holder of record at his address appearing on the books of the
Corporation, or upon personal delivery of the aforementioned address.
4. Voting Rights. Each share of Series B-1, Series B-2, Series B-3 and
Series B-4 Convertible Preferred Stock shall entitle the holder to one (1) vote
and with respect to each such vote, a holder of shares of Series B-1, Series
B-2, Series B-3 and Series B-4 Convertible Preferred Stock shall have full
voting rights and powers equal to the voting rights and powers of a holder of
shares of Common Stock, share for share, and shall be entitled to notice of any
shareholders' meeting in accordance with the Bylaws of the Corporation, and
shall be entitled to vote with holders of Common Stock together as a single
class.
5. Redemption Provisions. Commencing on September 15, 1994, any shares
of Series 8-1, Series 3-2, Series 8-3 and Series 8-4 Convertible Preferred Stock
which have not been converted into Common Stock may be redeemed by the
Corporation upon the payment of $.001 per share to the holder thereof.
-4-
<PAGE>
6. Status of Converted or Reacquired Stock In case any shares of
Series 8-1, Series 8-2, Series B-3 and Series 8--4 Convertible Preferred Stock
shall be converted pursuant to Section 3 hereof, or redeemed pursuant to Section
5 hereof, the shares so converted shall cease to be a part of the authorized
capital stock of the Corporation.
7. Status of Shares of Common Stock if Preferred Stock is not
Converted. To the extent any shares of Common Stock, which have been reserved
for issuance upon the conversion of the Series B Convertible Preferred Stock,
are not issued, such shares shall be issued to the shareholders of Explore
Technology, Inc. as of August 3, 1992, in accordance with the provisions of the
Plan and Agreement of Reorganization dated July 15, 1992, between the
Corporation and Explore Technology, Inc.
(SW9334-b.stm)
State of Delaware
Office of the Secretary of State PAGE 1
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "CATALINA CAPITAL CORP.". FILED IN THIS OFFICE ON THE FOURTH DAY
OF AUGUST. A.D. 1992, AT 9:02 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel , Secretary of State
AUTHENTICATION:
7965002
<PAGE>
2229021 8100 DATE:
05-29-99
960155750
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:02 AM 08/04/1992
922175317 - 2229021
CERTIFICATE OF DESIGNATION
STATEMENT ESTABLISHING SERIES OF PREFERRED STOCK
OF
CATALINA CAPITAL CORP.
Pursuant to the requirements of Section 151(a) or the Delaware
Corporation Law, the undersigned Corporation submits the following Statement
Establishing Series of Preferred Stock.
FIRST: The name of the Corporation is Catalina Capital Corp.
SECOND: A copy of the resolutions establishing and designating the
series and fixing and determining the relative rights and preferences of the
Series C Preferred Stock is attached hereto as Exhibit A.
THIRD: Such resolutions were duly adopted by the Board of Directors
of the Corporation on the 31st day of July, 1992.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused this
Statement to be signed by a duly authorized officer and duly attested by another
such officer this 31st day of July, 1992.
CATALINA CAPITAL CORP.
by /s/ John J. Micek III
------------------------------------
John J. Micek III, President
ATTEST:
/s/ Frank L. Kramer
- --------------------------------
Frank L. Kramer, Secretary
<PAGE>
EXHIBIT A
SERIES C PREFERRED STOCK
WHEREAS, the Articles of Incorporation of the Corporation provides for
a class of shares of stock designated "Preferred Stock," and vests in the Board
of Directors the authority to specify the number of shares of Preferred Stock to
be issued, to divide the Preferred Stock into one or more series within any
class thereof, and to fix the number of Shares in such series, and the
preferences, rights and restrictions thereof; and
WHEREAS, the Corporation desires to establish and designate a Series of
Preferred Stock which will have voting rights in the event of an attempted
takeover for the reasons set forth in the following background summary.
Background Summary
In connection with the Corporation's acquisition of Explore Technology,
Inc., an Arizona corporation ("Explore"), the Corporation's Board of Directors
has deemed it necessary to require that the reversionary interest in the patent
assignment to Explore of Explore's patents be terminated. This reversionary
interest was originally created by the owners of the patent rights to protect
against the possibility of someone acquiring control of Explore for the purpose
of delaying or discontinuing the development or marketing of the technology
covered by the patents.
The holders of the reversionary interest have agreed with the
Corporation to terminate their reversionary interest effective on the closing of
the acquisition of Explore in consideration for the Corporation's agreement to
issue shares of preferred stock having voting rights which are triggered in the
event of a takeover of the Corporation.
NOW, THEREFORE, be it resolved that there shall be one series of
Preferred Stock of the Corporation designated "Series C Preferred Stock." The
number of shares of Series C Preferred Stock shall be 20,000. The powers,
designations, preferences and relative, participating, optional or other special
rights of the shares of the Series C Preferred Stock and the qualifications,
limitations and restrictions of such preferences and rights shall be as follows:
1. Dividend Provisions. The holders of outstanding shares of the Series
C Preferred Stock shall not be entitled to receive any dividends.
<PAGE>
2. Liquidation Preference In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of shares of the Series C Preferred Stock shall not be entitled to
receive any amounts out of the assets of the Corporation available for
distribution to its stockholders.
3. Conversion The Series C Preferred Stock shall not be convertible
into Common Stock or any other security of the Corporation
4. Voting Rights. The voting rights described in the next sentence will
be triggered if, and only if, a person (or group within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934), acquires either in the open
market or through transactions directly with then existing shareholders, 20% or
more of the outstanding shares of the Corporation's Common Stock. Each share of
Series C Preferred Stock shall entitle the holder to one thousand (1,000) votes
and with respect to each such vote, a holder of shares of Series C Preferred
Stock shall have full voting rights and powers equal to the voting rights and
powers of a holder of shares of Common Stock, share for share, and shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote with holders of Common Stock
together as a single class with respect to any matter upon which the
shareholders may vote.
(a) Adjustment of Conversion Rate.
(i) Stock Splits; Stock Dividends. If the Corporation shall at
any time, or from time to time, after the effective date hereof effect a
subdivision of the outstanding Common Stock and not effect a corresponding
subdivision of the Series C Preferred Stock, or if the Corporation at any time
or from time to time after the effective date hereof shall make or issue, or fix
a record date for the. determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the number of votes which the holders of the
Series C Preferred Stock are entitled to shall be proportionately increased as
of the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date.
(ii) Adjustments for Combinations Etc. In case the outstanding
shares of Common Stock be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the number of votes
which the holders of Series C Preferred Stock are entitled to shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately decreased.
-2-
<PAGE>
5. Expiration Date. The shares of Series C Preferred Stock will expire
on July 31, 1997, and have no further rights thereafter.
6. Redemption Provision. The shares of Series C Preferred Stock are
not redeemable.
-3-
(SN8334-c.stm)
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "INSTANT VIDEO TECHNOLOGIES, INC.", FILED IN THIS OFFICE ON THE
TWENTY-THIRD DAY OF DECEMBER, A.D. 1992, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2229021 8100 7965004
DATE:
960155750 05-29-96
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/23/1992
930045134 - 2229021
CERTIFICATE OF DESIGNATION
STATEMENT ESTABLISHING SERIES OF PREFERRED STOCK
OF
INSTANT VIDEO TECHNOLOGIES, INC.
SERIES D CONVERTIBLE PREFERRED STOCK
Pursuant to the requirements of Section 151(a) of the Delaware
Corporation Law, the undersigned Corporation submits the following Statement
Establishing Series of Preferred Stock.
FIRST: The name of the Corporation is Instant Video Technologies, Inc.
SECOND: A copy of the resolutions establishing and designating the
series and fixing and determining the relative rights and preferences of the
Series D Convertible Preferred Stock is attached hereto as Exhibit A.
THIRD: Such resolutions were duly adopted by the Board of Directors of
the Corporation on the 30th day of November, 1992.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused this
Statement to be signed by a duly authorized officer and duly attested by another
such officer this day of November, 1992.
INSTANT VIDEO TECHNOLOGIES, INC.
By /s/ Wayne Van Dyck
--------------------------------
Wayne Van Dyck, President
ATTEST:
/s/ Lisa Walters
- ---------------------------
Lisa Walters, Secretary
<PAGE>
EXHIBIT A
SERIES D CONVERTIBLE PREFERRED STOCK
WHEREAS, the Articles of Incorporation of the Corporation provides for
a class of shares of stock designated "Preferred Stock," and vests in the Board
of Directors the authority to specify the number of shares of Preferred Stock to
be issued, to divide the Preferred Stock into one or more series within any
class thereof, and to fix the number of Shares in such series, and the
preferences, rights and restrictions thereof; and
WHEREAS, the Corporation desires to establish and designate the Series
D Convertible Preferred Stock of the Corporation;
NOW, THEREFORE, be it resolved that there shall be one series of
Preferred Stock of the Corporation designated "Series D Convertible Preferred
Stock." The number of shares of Series D Convertible Preferred Stock shall be
4,800,000. The powers, designations, preferences and relative, participating,
optional or other special rights of the shares of the Series D Convertible
Preferred Stock and the qualifications, limitations and restrictions of such
preferences and rights shall be as follows:
1. Dividend Provisions. The holders of outstanding shares of Series D
Convertible Preferred Stock described herein shall not be entitled to receive
any fixed dividends.
2. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of each
share of Series D Convertible Preferred Stock shall be entitled to receive, out
of the assets of the Corporation available for distribution to its stockholders,
before any payment or distribution shall be made on the Common Stock, an amount
per share equal to $.25 plus any accrued and unpaid dividends. If the assets and
funds to be distributed among the holders of the Series D Convertible Preferred
Stock shall be insufficient to permit the payment of the full aforesaid
preferential amount to such holders, then the entire assets and funds of the
Corporation legally available for the distribution shall be distributed among
the holders of the Series D Convertible Preferred Stock in proportion to the
aggregate preferential amount of all shares of Series D Convertible Preferred
Stock held by them. After payment has been made to the holders of the Series D
Convertible Preferred Stock, the holders of the Common Stock shall be entitled
to share ratably in the remaining assets on the basis of the number of shares of
Common Stock held by them at the time of such liquidation.
(b) For purposes of this Section 2, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or
<PAGE>
corporations into the Corporation, or the sale or any other corporate
reorganization, in which shareholders of the Corporation receive distributions
as a result of such consolidation, merger, sale of assets or reorganization,
shall be treated as a liquidation, dissolution or winding up of the Corporation,
unless the stockholders of the Corporation hold more than fifty percent (50%) of
the voting equity securities of the successor or surviving corporation
immediately following such consolidation, merger, sale of assets or
reorganization in which event such consolidation, merger, sale of assets, or
reorganization shall not be treated as a liquidation, dissolution or winding up.
3. The Series D Convertible Preferred Stock shall automatically be
converted into Common Stock upon the following terms and conditions (the
"Conversion Rights"):
(a) Incidents Causing Conversion.
(i) Automatic Conversion. During the three (3) year period
commencing January 1, 1993, all of the shares of Series D Convertible Preferred
Stock may be converted into shares of Common Stock in accordance with paragraphs
3(b) and 3(c) hereof, at such time or times as the holders of the Series D
Convertible Preferred Stock elect; provided that if any shares of the Series D
Convertible Preferred Stock are called for redemption, the conversion rights
will terminate at the close of business on the Redemption Date (30 days after
the written notice is provided).
(b) Mechanics of Conversion. The applicable conversion shall
occur effective upon the election of the holder of the Series D Convertible
Preferred Stock; provided, however, that the election to convert must occur
before the earlier of January 1, 1996, or the redemption date. The holder of the
shares of Convertible Preferred Stock which are converted shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or any authorized transfer agent for such stock together with a
written statement that he elects to convert his Convertible Preferred Stock into
Common Stock. The Corporation or the transfer agent shall promptly issue and
deliver at such office to such holder of Convertible Preferred Stock a
certificate or certificates for the number of shares of Common Stock to which
such holder is thereby entitled. The effective date of such conversion shall be
the date upon which the holder provides written notice of his election to
convert to the Corporation or transfer agent.
(c) Conversion Ratio. Each share of Series D Convertible
Preferred Stock will be converted into one (1) fully paid and nonassessable
share of Common Stock (except as adjusted pursuant to paragraph 3(d) below).
-2-
<PAGE>
(d) Adjustment of Conversion Rate.
(i) Stock Splits; Stock Dividends. If the Corporation shall at
any time, or from time to time, after the effective date hereof effect a
subdivision of the outstanding Common Stock and not effect a corresponding
subdivision of the Series D Convertible Preferred Stock, or if the Corporation
at any time or from time to time after the effective date hereof shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the number of shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock shall
be proportionately increased as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on such
record date.
(ii) Adjustments for Combinations. Etc. In case the
outstanding shares of Common Stock be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the number of shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock shall, concurrently with the effectiveness of such combination
or consolidation, be proportionately decreased.
(e) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all of the provisions of
this Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Convertible Preferred Stock against impairment.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series D Convertible Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series D Convertible Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all outstanding shares of Series D
Convertible Preferred Stock, the Corporation will take such corporate action as
is necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
-3-
<PAGE>
(g) Notices. Any notice required to be given to holders of shares of
Series D Convertible Preferred Stock shall be deemed given upon deposit in the
United States mail, postage prepaid, addressed to such holder of record at his
address appearing on the books of the Corporation, or upon personal delivery of
the aforementioned address.
4. voting Rights. Each share of Series D Convertible Preferred Stock
shall entitle the holder to one (1) vote and with respect to each such vote, a
holder of shares of Series D Convertible Preferred Stock shall have full voting
rights and powers equal to the voting rights and powers of a holder of shares of
Common Stock, share for share, and shall be entitled to notice of any
shareholders' meeting in accordance with the Bylaws of the Corporation, and
shall be entitled to vote with holders of Common Stock together as a single
class.
5. Redemption Provisions. Commencing on January 1, 1993, any shares of
Series D Convertible Preferred Stock which have not been converted into Common
Stock may be redeemed by the Corporation upon the payment of $.3125 per share to
the holder thereof after giving 30 days written notice.
6. Status of Converted or Reacquired Stock. In case any shares of
Series D Convertible Preferred Stock shall be converted pursuant to Section 3
hereof, or redeemed pursuant to Section 5 hereof, the shares so converted or
redeemed shall cease to be a part of the authorized capital stock of the
Corporation.
7. Registration Rights. If the holders of at least seventy-five percent
(75%) of the Series D Convertible Preferred Stock agree to convert their shares
of Series D Convertible Preferred Stock into Common Stock, the Corporation shall
use its best efforts to file a registration statement with the Securities and
Exchange Commission on the later of July 1, 1994, or the date on which the
holders of at 75% of the Series D. Convertible Preferred Stock have agreed to
convert their shares of Series D Convertible Preferred Stock for Common Stock.
The registration statement will cover the shares of Common Stock which may be
acquired upon the conversion of the Series D Convertible Preferred Stock.
(SM9445.cer)
-4-
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "INSTANT VIDEO TECHNOLOGIES, INC.", FILED IN THIS OFFICE ON THE
NINTH DAY OF MAY, A.D. 1995. AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2229021 8100 7965006
DATE:
960155750 05-29-96
<PAGE>
STATE OF DELAWARE ORIGINAL
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/09/1995
950102455 - 2229021
CERTIFICATE OF DESIGNATION
STATEMENT ESTABLISHING SERIES OF PREFERRED STOCK
OF
INSTANT VIDEO TECHNOLOGIES, INC.
SERIES E CONVERTIBLE PREFERRED STOCK
Pursuant to the requirements of Section 151(a) of the Delaware
Corporation Law, the undersigned Corporation submits the following Statement
Establishing Series of Preferred Stock.
FIRST: The name of the Corporation is Instant Video Technologies, Inc.
SECOND: A copy of the resolutions establishing and designating the
series and fixing and determining the relative rights and preferences of the
Series E Convertible Preferred Stock is attached hereto as Exhibit A.
THIRD: Such resolutions were duly adopted by the Board of Directors of
the Corporation on the 17th day of February, 1995.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused this
Statement to be signed by a duly authorized officer and duly attested by another
such officer this 17th day of February, 1995.
INSTANT VIDEO TECHNOLOGIES, INC.
By /s/ Gary R. Familian
------------------------------------
Gary R. Familian, President
ATTEST:
/s/ John J. Micek
- -----------------------------
John J. Micek, III, Secretary
<PAGE>
Exhibit A
Series E Couvertible Preferred Stock
WHEREAS, the Certificate of Incorporation of the Corporation provides for a
class of shares of stock designated "Preferred Stock," and vests in the Board of
Directors the authority to specify the number of shares of Preferred Stock to be
issued, to divide the Preferred Stock into one or more series within any class
thereof, and to fix the number of Shares in such series, and the preferences,
rights and restrictions thereof; and
WHEREAS, the Corporation desires to designate a Series E Convertible Preferred
Stock;
NOW, THEREFORE, be it resolved that there shall be another series of Preferred
Stock of the Corporation designated "Series E Convertible Preferred Stock." The
number of shares of Series H Convertible Preferred Stock shall be 1,000,000. The
powers, designations, preferences and relative, participating, optional or other
special rights of the shares of the Series E Convertible Preferred Stock and the
qualifications, limitations and restrictions of such preferences and rights
shall be as follows:
1. Dividend Provisions The holders of outstanding shares of Series E
Convertible Preferred Stock described herein shall not be entitled to receive
any fixed dividends.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of each
share of Series E Convertible Preferred Stock shall be entitled to receive, out
of the assets of the Corporation available for distribution to its stockholders
before any payment or distribution shall be made on the Common Stock, and after
any payment or distribution shall be made on the Series D Convertible Preferred
Stock, an amount per share equal to $1.00. If the assets and funds to be
distributed among the holders of the Series H Convertible Preferred Stock shall
be insufficient to permit the payment of the full aforesaid preferential amount
to such holders, then the entire assets and funds of the Corporation legally
available for the distribution shall be distributed among the holders of the
Series H Convertible Preferred Stock in proportion to the aggregate preferential
amount of all shares of Series E Convertible Preferred Stock held by them. After
payment has been made to the holders of the Series E Convertible Preferred
Stock, the holders of the Common Stock shall be entitled to share ratably in the
remaining assets on the basis of the number of shares of Common stock held by
them at the time of such liquidation.
(b) For purposes of this Section 2, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the Corporation, or the sale
<PAGE>
or any other corporate reorganization, in which shareholders of the Corporation
receive distributions as a result of such consolidation, merger, sale of assets
or reorganization, shall be treated as a liquidation, dissolution or winding up
of the Corporation, unless the stockholders of the Corporation hold more than
fifty percent (50%) of the voting equity securities of the successor or
surviving corporation immediately following such consolidation, merger, sale of
assets or reorganization in which event such consolidation, merger, sale of
assets, or reorganization shall not be treated as a liquidation, dissolution or
winding up.
3. Conversion The Series E Convertible Preferred Stock may be converted
into Common Stock upon the following terms and conditions (the "Conversion
Rights"):
(a) Conversion During the three (3) year period commencing February
17,1995, all of the shares of Series E Convertible Preferred Stock may be
converted into shares of Common Stock in accordance with paragraphs 3(b) and
3(c) hereof, at such time or times as the holders of the Series E Convertible
Preferred Stock are called for redemption, the conversion rights will terminate
at the dose of business on the Redemption Date (30 days after the written notice
is provided).
(b) Mechanics of Conversion. The applicable conversion shall occur
effective upon the election of the holder of the Series E Convertible Preferred
Stock; provided, however, that the election to convert must occur before the
earlier of February 17, 1998, or the redemption date. The holder of the shares
of Series E Convertible Preferred Stock which are converted shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or any authorized transfer agent for such stock together with a
written statement that he elects to convert his Series E Convertible Preferred
Stock into Common Stock. The Corporation or the transfer agent shall promptly
issue and deliver at such office to such holder of Series E Convertible
Preferred Stock a certificate or certificates for the number of shares of Common
Stock to which such holder is thereby entitled. The effective date of such
conversion shall be the date upon which the holder provides written notice of
his election to convert to the Corporation or transfer agent.
(c) Conversion Ratio Each share of Series B Convertible Preferred
Stock will be converted into one (1) fully paid and nonassessable share of
Common Stock (except as adjusted pursuant to paragraph 3(d) below).
(d) Adjustment of Conversion Rate.
(i)Stock Splits: Stock Dividends. If the Corporation shall at
any time, or from time to time, after the effective date hereof effect a
subdivision of the outstanding Common Stock and not effect a corresponding
subdivision of the Series E Convertible Preferred Stock, or if the Corporation
at any time or from time to time after the effective date hereof shall make or
issue, or fix a
<PAGE>
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the number of shares of Common Stock issuable
upon conversion of the Convertible Preferred Stock shall be proportionately
increased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the dose of business on such record date.
(ii) In case the outstanding shares of Common Stock be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock, the number of shires of Common Stock issuable upon
conversion of the Convertible Preferred Stock shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
decreased.
(e) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all of the provisions of
this Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Convertible Preferred Stock against impairment.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized by unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series E Convertible Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series E Convertible Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all outstanding shares of Series E
Convertible Preferred Stock, the Corporation will take such corporate action as
is necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(g) Notices. Any notice required to be give to holders o shares of
Series E Convertible Preferred Stock shall be deemed given upon deposit in the
United States mail, postage prepaid, addressed to such holder of record at his
address appearing on the books of the Corporation, or upon personal delivery at
the aforementioned address.
4. Voting Rights. Each share of Series E Convertible Preferred Stock
shall entitle the holder to one (1) vote and with respect to each such vote a
holder of shares of Series E Convertible Preferred Stock shall have full voting
rights and powers equal to the voting rights and powers of a holder of shares of
Common Stock, share for share, and shall be entitled to notice of any
shareholders'
<PAGE>
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote with holders of Common Stock together as a single class.
5. Redemption Provisions Commencing on February 17,19%, any shares of
Series E Convertible Preferred Stock which have not been converted into Common
Stock may be redeemed by the Corporation upon, the payment of $1.08 per share to
the holder thereof after giving 30 days written notice.
6. Status of Converted or Reacquired Stock. In case any shares of
Series E Convertible Preferred Stock shall be converted pursuant to Section 3
hereof, or redeemed pursuant to Section 5 hereof, the shares so converted or
redeemed shall cease to be a part of the authorized capital stock of the
Corporation.
7. Registration Rights. If the holders of at least seventy-five percent
(75%) of the series E convertible preferred stock agree to convert their shares
of Series E Convertible Preferred Stock into Common Stock, the Corporation shall
use its best efforts to file a registration statement with the Securities and
Exchange Commission on the later of December 31,1997, or the date on which the
holders of at 75% of the Series E Convertible Preferred Stock have agreed to
convert their shares of Series E Convertible Preferred Stock for Common Stock.
The registration statement will cover the shares of Common. Stock which have
been acquired upon the conversion of the Series E Convertible Preferred Stock.
The Company agrees to include the shares which may be purchased upon the
exercise of this Common Stock Option in any Registration Statement filed by the
Company which is. a proper form for registration of such shares in which such
shares may be registered. The Company will not be required to register a share
of common stock on more than one registration statement.
State of Delaware
PAGE 1
Office of the Secretary of State
-------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "INSTANT VIDEO TECHNOLOGIES, INC.", FILED IN THIS OFFICE ON THE
THIRTEENTH DAY OF FEBRUARY, A.D. 1996, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7965007
DATE: 05-29-96
2229021 8100
960155750
<PAGE>
CERTIFICATE OF DESIGNATION
STATEMENT ESTABLISHING SERIES OF PREFERRED STOCK
OF
INSTANT VIDEO TECHNOLOGIES, INC.
SERIES F CONVERTIBLE PREFERRED STOCK
Pursuant to the requirements of Section 151(a) of the Delaware
Corporation Law, the undersigned Corporation submits the following Statement
Establishing Series of Preferred Stock.
FIRST: The name of the Corporation is Instant Video Technologies, Inc.
SECOND: A copy of the resolutions establishing and designating the
series and fixing and determining the relative rights and preferences of the
Series F Convertible Preferred Stock is attached hereto as Exhibit A.
THIRD: Such resolutions were duly adopted by the Board of Directors of
the Corporation on the 8th day of February, 1996.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused this
Statement to be signed by a duly authorized officer and duly attested by another
such officer this 8th day of February, 1996.
INSTANT VIDEO TECHNOLOGIES, INC.
By /s/ Gary R. Familian
------------------------------------
Gary R. Familian, President
ATTEST:
/s/ John J. Micek, III
- ------------------------------------
John J. Micek, III, Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/13/1996
980041994 - 2229021
<PAGE>
Exhibit A
Series F Convertible Preferred Stock
WHEREAS, the Certificate of Incorporation of the Corporation provides for a
class of shares of stock designated "Preferred Stock," and vests in the Board of
Directors the authority to specify the number of shares of Preferred Stock to be
issued, to divide the Preferred Stock into one or more series within any class
thereof, and to fix the number of Shares in such series, and the preferences,
rights and restrictions thereof; and
WHEREAS, the Corporation desires to designate a Series F Convertible Preferred
Stock;
NOW, THEREFORE, be it resolved that there shall be another series of Preferred
Stock of the Corporation designated "Series F Convertible Preferred Stock." The
number of shares of Series F Convertible Preferred Stock shall be 5,000,000. The
powers, designations, preferences and relative, participating, optional or other
special rights of the shares of the Series F Convertible Preferred Stock and the
qualifications, limitations and restrictions of such preferences and rights
shall be as follows:
1. Definitions. For purposes of this Certificate of Designation, the
following definitions will apply:
(a) "Additional Shares of Common Stock" means all shares of Common
Stock issued or deemed issued by the Corporation after the sale of any shares of
Series F Stock, whether or not subsequently reacquired or retired by the
Company, other than (i) shares of Common Stock issued upon conversion of the
Corporation's Series A through F Convertible Preferred Stock; or (ii) shares of
Common Stock (and any related options or warrants therefor) issued to employees,
officers, directors, consultants, contractors, agents or other persons
performing services or for extending credit to the Corporation, issued pursuant
to any stock option plan, stock purchase plan, stock bonus plan, or other plan,
agreement or arrangement approved by the Board.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Common Stock" means the Common Stock of the Corporation.
(d) "Common Stock's Fair Market Value" means the fair market value of a
share of Common Stock, as determined in good faith by the Board for the purpose
of granting stock options or issuing shares to employees of the Corporation or
any subsidiary of the Company as of the applicable date.
(e) "Corporation" means this corporation.
1
<PAGE>
(f) "Original Issue Price" means $1.00 per share for the Series F
Stock.
(g) "Series F Stock" means the Series F Convertible Preferred Stock
established hereby.
(h) "Reference Date" means, with respect to the Series F Stock, the
date this Certificate of Designation is filed with the Secretary of State of
Delaware.
2. Dividend Provisions. The holders of outstanding shares of Series F
Stock described herein shall not be entitled to receive any fixed dividends.
3. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of each
share of Series F Stock shall be entitled to receive, out of the assets of the
Corporation available for distribution to its stockholders before any payment or
distribution shall be made on the Common Stock, and after any payment or
distribution shall be made on the Series E Convertible Preferred Stock, an
amount per share equal to $1.00, adjusted for any combinations, consolidations,
or stock distributions or dividends with respect to such shares occurring after
the date hereof, and, in addition, an amount equal to all declared but unpaid
dividends on the Series F Stock. If the assets and funds to be distributed among
the holders of the Series F Stock shall be insufficient to permit the payment of
the full aforesaid preferential amount to such holders, then the entire assets
and funds of the Corporation legally available for the distribution to such
holders shall be distributed among the holders of the Series F Stock in
proportion to the aggregate preferential amount of all shares of Series F Stock
held by them. After payment has been made to the holders of the Series F Stock,
the holders of the Common Stock shall be entitled to share ratably in the
remaining assets on the basis of the number of shares of Common Stock held by
them at the time of such liquidation.
(b) For purposes of this Section 3, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the Corporation, or the sale or any
other corporate reorganization, in which shareholders of the Corporation receive
distributions as a result of such consolidation, merger, sale of assets or
reorganization, shall be treated as a liquidation, dissolution or winding up of
the Corporation, unless the stockholders of the Corporation hold more than fifty
percent (50%) of the voting equity securities of the successor or surviving
corporation immediately following such consolidation, merger, sale of assets or
reorganization in which event such consolidation,
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<PAGE>
merger, sale of assets, or reorganization shall not be treated as a liquidation,
dissolution or winding up.
4. Conversion. The holders of the Series F Stock will have the
following conversion rights:
(a) Right to Convert. Each share of Series F Stock will be convertible,
at any time or from time to time at the option of the holder thereof, into fully
paid and nonassessable shares of Common Stock as provided herein.
(b) Conversion Price. Each share of Series F Stock will be convertible
into the number of shares of Common Stock which results from dividing the
conversion price of the Series F Stock that is in effect at the time of
conversion (the "Conversion Price") into the Original Issue Price for such
series of Preferred Stock. The initial Conversion Price for the Series F Stock
will be the original Issue Price for such series. The Conversion Price will be
subject to adjustment from time to time as provided below.
(c) Mechanics of Conversion. Each holder of Series F Stock who desires
to convert the same into shares of Common Stock will surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or any
transfer agent for the Series F Stock or Common Stock, and will give written
notice to the Corporation at such office that such holder elects to convert the
same and will state therein the number of shares of Series F Stock being
converted. Thereupon the Corporation will promptly issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled and will promptly pay in cash any
declared and unpaid dividends on the shares of Series F Stock being converted.
Such conversion will be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate representing the
shares of Series F Stock to be converted, and the person entitled to receive the
shares of Common Stock issuable upon such conversion will be treated for all
purposes as the record holder of such shares of Common Stock on such date.
(d) Adjustment for Stock Splits and Combinations. If the Corporation at
any time or from time to time after the Reference Date of the Series F Stock
effects a subdivision of the outstanding Common Stock, the Conversion Price for
such Series F Stock in effect immediately before that subdivision will be
proportionately decreased, and, conversely, if the Corporation at any time or
from time to time after the Reference Date of the Series F Stock combines the
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price for the Series F Stock in effect immediately before the
combination will be proportionately
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<PAGE>
increased. Any adjustment under this Section 4(d) will become effective at the
close of business on the date the subdivision or combination becomes effective.
(e) Adjustment for Common Stock Dividends and Distributions. If the
Corporation at any time or from time to time after the Reference Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Conversion Price for the Series F Stock that is
then in effect will be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction (1) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the applicable Conversion Price will be recomputed accordingly
as of the close of business on such record date and thereafter the Conversion
Price will be adjusted pursuant to this Section 4(e) to reflect the actual
payment of such dividend or distribution.
(f) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Reference Date of the
Series F Preferred Stock makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, in
each such event provision will be made so that the holders of such series of
Preferred Stock will receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Preferred Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 4 with respect to the rights of the holders of the Series F Stock
or with respect to such other securities by their terms.
(g) Adjustment for Reclassification Exchange and Substitution. If at
any time or from time to time after the Reference Date of the Series F Stock,
the Common Stock issuable upon the conversion of such series of Preferred Stock
is changed into the same or a different number of shares of any class or
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classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 4 or Section 3(b)), then in any such event each holder of such
series of Preferred Stock will have the right thereafter to convert such stock
into the kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change by holders of the
maximum number of shares of Common Stock into which such shares of Series F
Stock could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
(h) Reorganizations. If at any time or from time to time after the
Reference Date of the Series F Stock there is a capital reorganization of the
Common Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Section 4 or in Section 3(b)), as a part of such capital reorganization
provision will be made so that the holders of such series of Preferred Stock
will thereafter be entitled to receive upon conversion of such series of
Preferred Stock the number of shares of stock or other securities or property of
the Company to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment will be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of Series F Stock after such capital reorganization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares issuable upon conversion of the
Preferred Stock) will be applicable after that event and be as nearly equivalent
as practicable.
(i) Adjustment to Series F Stock Conversion Price For Sale of Shares
Below Conversion Price.
(A) If at any time or from time to time after the Reference Date for
the Series F Stock, the Corporation issues or sells Additional Shares of Common
Stock, other than as a dividend or other distribution on any class of stock with
a Conversion Price adjustment as provided herein and other than upon a
subdivision or combination of shares of Common Stock with a Conversion Price
adjustment as provided herein, for a consideration per share less than the
then-existing Conversion Price for Series F Stock then, and in each case that
the consideration per share is less than such Conversion Price for Series F
Stock then in effect, such Conversion Price will be reduced, as of the opening
of business on the date of such issue or sale, to a price determined by
multiplying that
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<PAGE>
Conversion Price by a fraction (1) the numerator of which will be the sum of (a)
the number of shares of Common Stock outstanding immediately prior to such issue
or sale, plus (b) the number of shares of Common Stock that the aggregate
consideration received (or deemed received) by the Corporation for the total
number of Additional Shares of Common Stock so issued (or deemed issued) would
purchase at such Conversion Price, and (2) the denominator of which will be the
sum of (a) the number of shares of Common Stock outstanding immediately prior to
such issue or sale plus (b) the number of such Additional Shares of Common Stock
so issued (or deemed issued).
(B) For the purpose of making any adjustment in the Conversion
Price for the Series F Stock under this Section 4(i), consideration received by
the Corporation for any issue or sale of securities will:
(1) to the extent it consists of cash, be computed at the net
amount of cash received by the Corporation after deduction of any underwriting
or similar commissions, concessions, or compensation paid or allowed by the
Corporation in connection with such issue or sale;
(2) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by the
Board; and
(3) if Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined), or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the Corporation for a
consideration that covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board to be
allocable to such Additional Shares of Common Stock, Convertible Securities or
rights or options.
(C) For the purpose of the adjustment provided in this Section
4(i), if at any time or from time to time after the Reference Date for the
Series F Stock, the Corporation issues any rights or options for the purchase
of, or stock or other securities convertible into, Additional Shares of Common
Stock (such convertible stock or securities hereinafter referred to as
"Convertible Securities") then in each case, if the Effective Price (as
hereinafter defined) of such rights, options, or Convertible Securities is less
than the then-existing Conversion Price for the Series F Stock, the Corporation
will be deemed to have issued at the time of the issuance of such rights or
options or Convertible Securities the maximum number of Additional Shares of
Common Stock issuable upon exercise or conversion thereof and to have received
as consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the
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<PAGE>
Corporation for the issuance of such rights or options or Convertible
Securities, plus, in the case of such options or rights, the minimum amounts of
consideration, if any, payable to the Corporation upon full exercise or
conversion of such options or rights. As used in this Section 4(i)(C), the term
"Effective Price" means the quotient determined by dividing the total of all of
such consideration by such maximum number of Additional Shares of Common Stock.
No further adjustment of the Conversion Price for Series F Stock adjusted upon
the issuance of such rights, options, or Convertible Securities will be made as
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities.
If any such rights or options or the conversion privilege represented
by any such Convertible Securities expire without having been exercised, then
the Conversion Price for Series F Stock, adjusted upon the issuance of such
rights, options, or Convertible Securities will be readjusted to the applicable
Conversion Price that would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Corporation upon such
exercise, plus the consideration, if any, actually received by the Corporation
for the granting of all such rights or options, whether or not exercised, plus
the consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Corporation on the conversion of such Convertible Securities.
(D) For the purpose of the adjustment provided in this Section
4(i), if at any time or from time to time after the Reference Date for the
Series F Stock, the Corporation issues any rights or options for Convertible
Securities, then, in each such case, if the Effective Price thereof is less than
the then current Conversion Price for Series F Stock, the Corporation will be
deemed to have issued at the time of the issuance of such rights or options the
maximum number of Additional Shares of Common Stock issuable upon conversion of
the total amount of Convertible Securities covered by such rights or options and
to have received as consideration for the issuance of such Additional Shares of
Common Stock an amount equal to the amount of consideration, if any, received by
the Corporation for the issuance of such rights or options, plus the minimum
amount consideration, if any, payable to the Corporation upon the full exercise
of such rights or options plus the minimum amount of consideration, if any,
payable to the Corporation upon the full conversion of such Convertible
Securities. As used in this Section 4(i)(D), the term "Effective Price" means
the quotient determined by dividing the total amount
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<PAGE>
of such consideration by such maximum number of Additional Shares of Common
Stock. No further adjustment of the Conversion Price for Series F Stock,
adjusted upon the issuance of such rights or options will be made as a result of
the actual issuance of the Convertible Securities upon the exercise of such
rights or options or upon the actual issuance of Additional Shares of Common
Stock upon the conversion of such Convertible Securities. The provisions of
Section 4(i)(C) hereof for the readjustment of the Conversion Price for Series F
Stock upon the expiration of rights or options or the rights of conversion of
Convertible Securities will apply equally to the rights, options and Convertible
Securities referred to in this Section 4(i)(D).
(j) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of any Conversion Price for the number of shares of
Common Stock or other securities issuable upon conversion of the Preferred
Stock, the Corporation, at its expense, upon the written request of a holder of
Preferred Stock for which the Conversion Price has been so adjusted, will cause
independent public accountants of recognized standing selected by the
Corporation (who may be the independent public accountants then auditing the
books of the Corporation) to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and will mail such certificate, by first class mail,
postage prepaid, to such registered holder of the Preferred Stock, and to all
other holders of the same series of Preferred Stock, at the holders' address as
shown in the Corporation's books. The certificate will set forth such adjustment
or readjustment, showing in reasonable detail the facts upon which such
adjustment or readjustment is based, including a statement of the Conversion
Price at the time in effect and the type and amount, if any, of other property
which at the time would be received upon conversion of the relevant Preferred
Stock.
(k) Notices of Record Date. Upon (i) any taking by the Corporation of a
record of the holders of any Series F Stock for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
or (ii) any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, or any
transfer of all or substantially all the assets of the Company to any other
person or any voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, the Corporation will mail to each holder of Series F Stock at
least thirty (30) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to
8
<PAGE>
become effective, and (3) the date, if any, that is to be fixed as to when the
holders of record of Common Stock (or other securities) will be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up; provided that
such 30-day notice may be waived by the written consent of the holders of at
least a majority of the then outstanding Series F Stock and such waiver if
obtained automatically will be binding upon all holders of Series F Stock.
(1) Automatic Conversion.
(i) Subject to the provisions of Section 4(1)(iii) hereof,
each share of Series F Stock will be converted automatically into shares of
Common Stock based on the then effective Conversion Price for such share, upon
the earlier of (A) the closing of a firmly underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (a "Registration Statement") covering the offer and sale of Common Stock
for the account of the Corporation at a price per share of at least $4.00, with
an aggregate offering price for all shares under such Registration Statement of
at least $3,000,000.00, (B) at such time as less than 20% of the Series F Stock
issued pursuant to the Corporation's initial offering of up to 4,000,000 shares
of Series F Stock remains outstanding or (C) upon the voluntary consent of a
majority of the voting power of the then outstanding shares of such Series F
Stock.
(ii) Automatic conversion under Section 4(1)(i) hereof will
be conditioned upon payment by the Corporation of all declared and unpaid
dividends on the outstanding Series F Stock to be converted and including the
date of such conversion, payable either in cash or, at the option of the
Corporation, Common Stock (valued at the Common Stock's Fair Market Value), or
both.
(iii) Upon the occurrence of any of the events specified in
Section 4(1)(i) hereof, the outstanding shares of the Series F Stock will be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, however, that the Corporation
will not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless the certificates evidencing such
shares of Series F Stock are either delivered to the Corporation or its transfer
agent as provided below, or the holder notifies the Corporation or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. Upon the occurrence of
such automatic conversion of the Series F Stock, the holders of the Series F
Stock will
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surrender the certificates representing such shares at the office of the
Corporation or any transfer agent for the Series F Stock or Common Stock.
Thereupon, there will be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Series F Stock surrendered were convertible on the date on
which such automatic conversion occurred.
(m) Fractional Shares. No fractional shares of Common Stock will be
issued upon conversion of Series F Stock. In lieu of any fractional share to
which the holder would otherwise be entitled, the Corporation will pay cash
equal to the product of such fraction multiplied by the Common Stock's Fair
Market Value on the date of conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Corporation will
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series F Stock, such number of its shares of Common Stock as
will from time to time be sufficient to effect the conversion of all outstanding
shares of the Series F Stock. If at any time the number of authorized but
unissued shares of Common Stock will not be sufficient to effect the conversion
of all then outstanding shares of the Series F Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as will be sufficient for such purpose.
(o) Notices. Any notice required by the provisions of this Section 4 to
be given to or by the holders of shares of the Series F Stock will be deemed
given upon the earlier of actual receipt or seventy-two (72) hours after the
same has been deposited in the United States mail, by certified or registered
mail, return receipt requested, postage prepaid, and addressed to each holder of
record at the address of such holder appearing on the books of the Corporation,
or to the Corporation as to notices from holders.
(p) Payment of Taxes. The Corporation will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series F Stock, including without limitation any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of Series F
Stock so converted were registered.
(q) No Impairment. The Corporation will not amend its Articles of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, for the purpose
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of avoiding or seeking to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but will at all
times in good faith assist in carrying out all such action as may be reasonably
necessary or appropriate in order to protect the conversion rights of the
holders of the Series F Stock against dilution or other impairment.
5. Voting Rights. Each share of Series F Stock shall entitle the holder
to one (1) vote and with respect to each such vote a holder of shares of Series
F Stock shall have full voting rights and powers equal to the voting rights and
powers of a holder of shares of Common Stock, share for share, and shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote with holders of Common Stock
together as a single class.
6. Redemption Provisions. Commencing on February 26, 1996 and
continuing through November 26, 1996, any shares of Series F Stock which have
not been converted into Common Stock may be redeemed by the Corporation upon the
payment of $1.25 per share to the holder thereof after giving 30 days written
notice.
7. Status of Converted or Reacquired Stock. In case any shares of
Series F Convertible Preferred Stock shall be converted pursuant to Section 4
hereof, or redeemed pursuant to Section 6 hereof, the shares so converted or
redeemed shall cease to be a part of the authorized capital stock of the
Corporation.
8. Restrictions and Limitations. So long as any shares of Series F
Stock remain outstanding, the consent of the holders of a majority of the Series
F Stock then outstanding, voting as a series, will be required with respect to
any action that:
(a) involves any merger, reorganization or sale by the Corporation of
all or substantially all of its assets, or
(b) involves the issuance of Additional Shares of Common Stock or
Convertible Securities.
11
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "INSTANT VIDEO TECHNOLOGIES, INC.," FILED IN THIS OFFICE ON THE
SIXTH DAY OF NOVEMBER, A.D. 1998, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[GREAT SEAL OF THE STATE OF DELAWARE]
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2229021 8100 AUTHENTICATION: 9396533
981429552 DATE: 11-10-98
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/06/1998
981429552 -- 2229021
CERTIFICATE OF ELIMINATION
OF
INSTANT VIDEO TECHNOLOGIES, INC.
OF SHARES DESIGNATED AS SERIES A PREFERRED STOCK,
SERIES B-1, SERIES B-2, SERIES B-3, AND SERIES B-4 CONVERTIBLE PREFERRED
STOCK, SERIES C PREFERRED STOCK, SERIES D CONVERTIBLE PREFERRED
STOCK AND SERIES E CONVERTIBLE PREFERRED STOCK
Instant Video Technologies, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Certificate of Incorporation of this Corporation was filed in
the office of the Seretary of State of Delaware on April 27, 1990; and
Certificates of Designation, Statements Establishing the Series A
Preferred Stock, Series B-1, Series B-2, Series B-3 and Series B-4
Convertible Preferred Stock, and Series C Preferred Stock, were each
filed in said office of the Secretary of State on August 4, 1992; a
Certificate of Designation, Statement Establishing the Series D
Convertible Preferred Stock was filed with said Secretary of State on
December 23, 1992; and a Certificate of Designation, Statement
Establishing the Series E Convertible Preferred Stock was filed with
said Secretary of State on February 17, 1995.
SECOND: That, effective as of October 26, 1998, the Board of Directors of this
Corporation duly adopted resolutions authorizing and directing that
each of the Series A Preferred Stock, the Series B-1, Series B-2,
Series B-3, and Series B-4 Convertible Preferred Stock, the Series C
Preferred Stock, the Series D Convertible Preferred Stock and the
Series E Convertible Preferred Stock (collectively referred to herein
as the "Series A-E Preferred Stock") be eliminated as set forth herein:
RESOLVED, that no shares of the Series A-E Preferred Stock are
currently outstanding and none will be issued subsequent to the date
hereof.
<PAGE>
FURTHER RESOLVED, that a Certificate of Elimination of this Corporation
of Shares Designated Series A-E Preferred Stock be executed, which
shall have the effect when filed with the Secretary of State of
Delaware of eliminating each of the Certificates of Designation,
Statements Establishing the Series A-E Preferred Stock.
THIRD: That none of the authorized shares of the Series A-E Preferred Stock is
currently outstanding and none will be issued subsequent to the date
hereof.
FOURTH: That in accordance with the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware, the Certificates of
Designation, Statements Establishing the Series A-E Preferred Stock are
hereby eliminated.
IN WITNESS WHEREOF, the undersigned Corporation has caused this
Certificate of Elimination to be signed by Richard Lang, this Corporation's
Chief Executive Officer and President, and duly attested by John Micek, III,
this Corporation's Secretary, this 26 day of October, 1998.
INSTANT VIDEO TECHNOLOGIES, INC.
By: /s/ Richard Lang
--------------------------------
Richard Lang
Chairman and Chief Executive
Officer
ATTEST:
By: /s/ John J. Micek, III
--------------------------------
John J. Micek, III
Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/11/1999
991011105 -- 2229021
AMENDED CERTIFICATE OF DESIGNATION, STATEMENT ESTABLISHING
SERIES F CONVERTIBLE PREFERRED STOCK
AND
CERTIFICATE OF DESIGNATION, STATEMENT ESTABLISHING SERIES B
CONVERTIBLE PREFERRED STOCK
OF
INSTANT VIDEO TECHNOLOGIES, INC.
INSTANT VIDEO TECHNOLOGIES, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware pursuant to section
151.
DOES HEREBY CERTlFY:
FIRST: That a Certificate of Designation, Statement Establishing the Series F
Convertible Preferred Stock, was filed by this Corporation with the Secretary of
State of the State of Delaware on February 13, 1996.
SECOND: That the Board of Directors of this corporation has duly adopted the
following resolutions, (i) amending said Certificate of Designation, Statement
Establishing the Series F Convertible Preferred Stock to, among other things,
change the designation of such Series to "Series A Convertible Preferred Stock,"
and to amend certain of the powers, preferences and rights of the Series A
Convertible Preferred Stock, and (ii) providing for the designation of a new
series of preferred stock, to be designated "Series B Convertible Preferred
Stock," and establishing the powers, preferences and rights of the Series B
Convertible Preferred Stock:
"WHEREAS, the Certificate of Incorporation of the Corporation provides
for a class of shares of stock designated "Preferred Stock," comprising
20,000,000 shares, and vests in the Board of Directors the authority to specify
the number of shares of Preferred Stock to be issued, to divide the Preferred
Stock into one or more series within any class thereof, and to fix the number of
shares in such series and the preferences, rights and restrictions thereof; and
WHEREAS, the Board of Directors of this Corporation has previously
authorized the issuance of a series of Preferred Stock, consisting of 5,000,000
shares, designated as "Series F Convertible Preferred Stock," all of which
shares have been issued and are outstanding; and
WHEREAS, the Corporation has previously filed a Certificate of
Elimination with the Secretary of State of the State of Delaware, eliminating
the Series A through Series E Convertible Preferred Stock, of which no shares
were then issued or outstanding; and
WHEREAS, it is now the desire of the Board of Directors, pursuant to
its authority as aforesaid, to establish a new Series of preferred stock,
designated "Series B Convertible Preferred Stock," and to fix the powers,
preferences and rights of such Series B Convertible Preferred Stock; and
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WHEREAS, it is now the desire of the Board of Directors, subject to the
approval of the holders of at least a majority of the shares of Common Stock and
Series F Convertible Preferred Stock, to amend the Certificate of Designation,
Statement Establishing Series F Convertible Stock, to alter the designation of
such series to be "Series A Convertible Preferred Stock," and to alter the
powers, preferences and rights of the Series A Convertible Preferred Stock to
conform to the powers, preferences and rights of the Series B Convertible
Preferred Stock.
NOW, THEREFORE, BE IT RESOLVED, that, subject to the approval of the
holders of at least a majority of the shares of Common Stock and Series F
Convertible Preferred Stock, the Certificate of Designation, Statement
Establishing the Series F Convertible Preferred Stock, is hereby amended such
that the Series F Convertible Preferred Stock is re-designated as "Series A
Convertible Preferred Stock," and the powers, preferences and rights of the
Series A Convertible Preferred Stock are amended as set forth below.
RESOLVED FURTHER, that there shall be another series of Preferred
Stock, $.0000l par value per share, of the Corporation, designated "Series B
Convertible Preferred Stock." The number of shares of Series B Convertible
Preferred Stock shall be 3,000,000. The powers, designations, preferences and
relative, participating, optional or other special rights of the shares of the
Series B Convertible Preferred Stock and the qualifications, limitations and
restrictions of such preferences and rights shall be as follows:
1. Definitions. For purposes of this Certificate of Designation, the
following definitions shall apply:
(a) "Additional Shares of Common Stock" means all shares of
Common Stock issued or deemed issued by the Corporation after February 8, 1996
(the date of the first issuance by this Corporation of its Series A Stock),
whether or not subsequently reacquired or retired by the Corporation, other than
(i) Common Stock issued pursuant to a transaction described in subsections 4(c),
(d), (e), (f) and (g) hereof; (ii) shares of Common Stock issued upon conversion
of the Corporation's Series A Stock and Series B Stock; or (ii) shares of Common
Stock (and any related options or warrants) issued to employees, officers,
directors, consultants, contractors, agents or other persons performing services
or for extending credit to the Corporation, issued pursuant to any stock option
plan, stock purchase plan, stock bonus plan, or other plan, agreement or
arrangement approved by the Board.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Common Stock" means the Common Stock, $.0000l par value
per share, of the Corporation.
(d) "Common Stock Fair Market Value" means the fair market
value of a share of Common Stock, as determined in good faith by the Board for
the purpose of granting stock options or issuing shares to employees of the
Corporation or any subsidiary of the Corporation as of the applicable date.
(e) "Corporation" means Instant Video Technologies, Inc.
(f) "Original Series A Issue Price" means $1.00 per share for
the Series A Stock.
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(g) "Original Series B Issue Price" means $2.00 per share for
the Series B Stock.
(h) "Preferred Stock" means the Series A Stock and the Series
B Stock of the Corporation.
(i) "Series A Stock" means the Series A Convertible Preferred
Stock established hereby.
(j) "Series B Stock" means the Series B Convertible Preferred
Stock established hereby.
(k) "Series A Reference Date" means, with respect to the
Series A Stock, February 8, 1996.
(l) "Series B Reference Date" means, with respect to the
Series B Stock, the date this Certificate of Designation is filed with the
Secretary of State of Delaware.
2. Dividend Provisions. The holders of outstanding shares of Series A
Stock and Series B Stock described herein shall not be entitled to receive any
fixed dividends.
3. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of the
Series A Stock and Series B Stock shall be entitled to receive, out of the
assets of the Corporation available for distribution to its stockholders, prior
and in preference to any payment or distribution of the assets or surplus funds
of the Corporation to the holders of the Common Stock by reason of their
ownership thereof, an amount per share equal to: (1) with respect to the Series
A Stock, $1.00 for each outstanding share of Series A Stock; and (2) with
respect to the Series B Stock, (A) $7.50 for each outstanding share of Series B
Stock during the first year following the Series B Reference Date; (B) $8.40 for
each outstanding share of Series B Stock during the second year following the
Series B Reference Date; and (C) $9.30 for each outstanding share of Series B
Stock during and after the third year following the Series B Reference Date.
(b) If the assets and funds to be distributed among the
holders of the Series A Stock and the Series B Stock shall be insufficient to
permit the payment of the full aforesaid preferential amount to such holders,
then the entire assets and funds of the Corporation legally available for the
distribution to such holders shall be distributed ratably among the holders of
the Series A Stock and the Series B Stock and, as between such series, in
proportion to the product of the respective preferential amount of each such
share multiplied by the number of shares of such stock held by each such holder.
(c) After payment has been made to the holders of the Series A
Stock and the Series B Stock to the full aforesaid preferential amounts to
which they are entitled, all remaining
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assets of the Corporation shall be distributed ratably on a per share basis
among the holders of the Series B Stock and Common Stock (assuming conversion of
all Series B Stock into Common Stock).
(d) A consolidation of the Corporation with or merger into any
other corporation or, corporations (other than a wholly-owned subsidiary
corporation or a merger to change the state of domicile of the Corporation), or
a sale, conveyance or disposition of all or substantially all of the assets of
the Corporation, or the effectuation by the Corporation of a transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Corporation is disposed of, shall be treated as a
liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section 3.
4. Conversion. The holders of the Series A Stock and the Series B Stock
shall have the following conversion rights:
(a) Right to Convert. Each share of Series A Stock and Series
B Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series A Issue Price or the Original Series B Issue Price, as appropriate, by
the Conversion Price at the time in effect for such series. The initial
Conversion Price per share for the Series A Stock shall be the Original Series A
Issue Price, and the initial Conversion Price per share for the Series B Stock
shall be the Original Series B Issue Price; provided, however, that the
Conversion Price for each series of Preferred Stock shall be subject to
adjustment from time to time as provided in subsections 4(c) through 4(h) below.
(b) Mechanics of Conversion. Each holder of Preferred Stock
who desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or any transfer agent for the Preferred Stock, and shall give
written notice to the Corporation at such office that such holder elects to
convert the same and shall state therein the number of shares of Preferred Stock
being converted. The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash any declared and unpaid dividends on the
shares of Preferred Stock being converted. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the certificate representing the shares of Preferred Stock to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock as of such date.
(c) Adjustment for Stock Splits and Combinations. If the
Corporation at any time or from time to time after the Series B Reference Date
effects a subdivision of the outstanding Common Stock, the Conversion Price for
the Series A Stock and the Series B Stock in effect immediately before that
subdivision shall be proportionately decreased, and, conversely, if the
Corporation at any time or from time to time after the Series B Reference Date
combines the outstanding shares of Common Stock into a smaller number of shares,
the Conversion Price for the Series A Stock and the Series B Stock in effect
immediately before the combination shall be
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proportionately increased. Any adjustment under this Section 4(c) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(d) Adjustment for Common Stock Dividends and Distributions.
If the Corporation at any time or from time to time after the Series B Reference
Date makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, in each such event the Conversion Price for
the Series A Stock and the Series B Stock that is then in effect shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect for each such series by a fraction (1) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed, the applicable Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price shall
be adjusted pursuant to this Section 4(d) to reflect the actual payment of such
dividend or distribution.
(e) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Series B Reference Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Series A Stock and the Series B Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
which they would have received had their Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 4 with respect to the rights of the holders of the Series A Stock and
the Series B Stock or with respect to such other securities by their terms.
(f) Adjustment for Reclassification Exchange and Substitution.
If at any time or from time to time after the Series B Reference Date, the
Common Stock issuable upon the conversion of the Series A Stock and the Series B
Stock is changed into the same or a different number of shares of any class or
classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 4 or Section 3(d)), then in any such event each holder of such
series of Preferred Stock shall have the right thereafter to convert such stock
into the kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change by holders of the
maximum number of shares of Common Stock into which such shares of Series A
Stock and Series B Stock could have been converted immediately prior to such
recapitalization,
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reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
(g) Reorganizations. If at any time or from time to time after
the Series B Reference Date there is a capital reorganization of the Common
Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Section 4 or in Section 3(d)), as a part of such capital reorganization
provision shall be made so that the holders of the Series A Stock and the Series
B Stock shall thereafter be entitled to receive upon conversion of such series
of Preferred Stock the number of shares of stock or other securities or property
of the Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Stock and the Series B Stock after such capital
reorganization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price of the Series A Stock and the Series B Stock
then in effect and the number of shares issuable upon conversion of the Series A
Stock and the Series B Stock) shall be applicable after that event and be as
nearly equivalent as practicable.
(h) Adjustment to Series A Stock and Series B Stock Conversion
Price for Sale of Shares Below the Conversion Price.
(1) Adjustments to Series A Stock Conversion Price.
Upon each issuance by the Corporation of Additional Shares of Common Stock after
the Series A Reference Date, without consideration or for a consideration per
share less than the Conversion Price for the Series A Stock in effect
immediately prior to each such issuance, the Conversion Price for the Series A
Stock in effect immediately prior to each such issuance shall forthwith (except
as otherwise provided in this Section 4) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, (A) the numerator of which
shall be the sum of (i) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, plus (ii) the number of shares of
Common Stock that the aggregate consideration received (or deemed received) by
the Corporation for the total number of Additional Shares of Common Stock so
issued (or deemed issued) would purchase at such Conversion Price, and (B) the
denominator of which shall be the sum of (i) the number of shares of Common
Stock outstanding immediately prior to such issue or sale, plus (ii) the number
of shares such Additional Shares of Common Stock so issued (or deemed issued).
(2) Adjustments to Series B Stock Conversion Price.
Upon each issuance by the Corporation of Additional Shares of Common Stock after
the Series B Reference Date, without consideration or for a consideration per
share less than the Conversion Price for the Series B Stock in effect
immediately prior to each such issuance, the Conversion Price for the Series B
Stock in effect immediately prior to each such issuance shall forthwith (except
as otherwise provided in this Section 4) be adjusted to a price equal to the
consideration per share received (or deemed received) by the Corporation for the
Additional Shares of Common Stock so issued (or deemed issued).
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(3) Consideration. For the purpose of making any
adjustment in the Conversion Price for the Series A Stock and the Series B Stock
under this Section 4(h), consideration received by the Corporation for any issue
or sale of securities shall:
(A) to the extent it consists of cash, be
computed at the net amount of cash received by the Corporation after deduction
of any underwriting or similar commissions, concessions, or compensation paid or
allowed by the Corporation in connection with such issue or sale;
(B) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined in
good faith by the Board; and
(C) if Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined), or rights or options to
purchase either Additional Shares of Common Stock or Convertible Securities are
issued or sold together with other stock or securities or other assets of the
Corporation for a consideration that covers both, be computed as the portion of
the consideration so received that may be reasonably determined in good faith by
the Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
(4) Adjustment Formula for Issuances of Rights or
Options, or Convertible Securities. For the purpose of the adjustment provided
in this Section 4(h), if at any time or from time to time after the Series A
Reference Date, with respect to the Series A Stock, or the Series B Reference
Date, with respect to the Series B Stock, the Corporation issues any rights or
options for the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities
hereinafter referred to as "Convertible Securities") then in each case, if the
Effective Price (as hereinafter defined) of such rights, options, or Convertible
Securities is less than the Conversion Price for the Series A Stock or the
Series B Stock, as appropriate, in effect immediately prior to such issuance,
the Corporation shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the
Corporation for the issuance of such rights or options or Convertible
Securities, plus, in the case of such options or rights, the minimum amounts of
consideration, if any, payable to the Corporation upon full exercise or
conversion of such options or rights. As used in this Section 4(h)(4), the term
"Effective Price" means the quotient determined by dividing the total of all of
such consideration by such maximum number of Additional Shares of Common Stock.
No further adjustment of the Conversion Price for the Series A Stock or the
Series B Stock, adjusted upon the issuance of such rights, options, or
Convertible Securities shall be made as result of the actual issuance of
Additional Shares of Common Stock upon the exercise of any such rights or
options or the conversion of any such Convertible Securities.
If any such rights or options or the conversion privilege represented
by any such Convertible Securities expire without having been exercised, then
the Conversion Price for the Series A Stock and the Series B Stock, as
appropriate, adjusted upon the issuance of such rights, options, or Convertible
Securities shall be readjusted to the applicable Conversion Price that
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would have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or options
or rights of conversion of such Convertible Securities, and such Additional
Shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Corporation upon such exercise, plus the consideration,
if any, actually received by the Corporation for the granting of all such rights
or options, whether or not exercised, plus the consideration received for
issuing or selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Corporation upon the conversion
of such Convertible Securities.
(5) Adjustments for Issuance of Rights or Options for
Convertible Securities. For the purpose of the adjustment provided in this
Section 4(h), if at any time or from time to time after the Series A Reference
Date, with respect to the Series A Stock, or the Series B Reference Date, with
respect to the Series B Stock, the Corporation issues any rights or options for
Convertible Securities, then, in each such case, if the Effective Price thereof
is less than the then current Conversion Price for the Series A Stock or the
Series B Stock, as appropriate, the Corporation shall be deemed to have issued
at the time of the issuance of such rights or options the maximum number of
Additional Shares of Common Stock issuable upon conversion of the total amount
of Convertible Securities covered by such rights or options and to have received
as consideration for the issuance of such Additional Shares of Common Stock an
amount equal to the amount of consideration, if any, received by the Corporation
for the issuance of such rights or options, plus the minimum amount of
consideration, if any, payable to the Corporation upon the full exercise of such
rights or options plus the minimum amount of consideration, if any, payable to
the Corporation upon the full conversion of such Convertible Securities. As used
in this Section 4(h)(5), the term "Effective price" means the quotient
determined by dividing the total amount of such consideration by such maximum
number of Additional Shares of Common Stock. No further adjustment of the
Conversion Price for the Series A Stock or the Series B Stock, adjusted upon the
issuance of such rights or options shall be made as a result of the actual
issuance of the Convertible Securities upon the exercise of such rights or
options or upon the actual issuance of Additional Shares of Common Stock upon
the conversion of such Convertible Securities. The provisions of Section 4(h)(4)
hereof for the readjustment of the Conversion Price for the Series A Stock and
the Series B Stock upon the expiration of rights or options or the rights of
conversion of Convertible Securities shall apply equally to the rights, options
and Convertible Securities referred to in this Section 4(h)(5).
(i) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of any Conversion Price for the number of shares of
Common Stock or other securities issuable upon conversion of the Preferred
Stock, the Corporation, at its expense, upon the written request of a holder of
Preferred Stock for which the Conversion Price has been so adjusted, shall cause
independent public accountants of recognized standing selected by the
Corporation (who may be the independent public accountants then auditing the
books of the Corporation) to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to such registered holder of the Preferred Stock, and to
all other holders of the same series of Preferred Stock, at the holders' address
as shown in the Corporation's books. The certificate shall set forth such
adjustment or readjustment, showing
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in reasonable detail the facts upon which such adjustment or readjustment is
based, including a statement of the Conversion Price at the time in effect and
the type and amount, if any, of other property which at the time would be
received upon conversion of the relevant Preferred Stock.
(j) Notices of Record Date. Upon (i) any taking by the
corporation of a record of the holders of any Preferred Stock for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation with or into any other
corporation, or any transfer of all or substantially all the assets of the
Company to any other person or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Preferred Stock at least thirty (30) days prior to the record date
specified therein a notice specifying (1) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (2) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (3) the date, if any, that is to
be fixed as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up; provided that such 30-day notice may be waived by the written
consent of the holders of at least a majority of the then outstanding Preferred
Stock and such waiver if obtained automatically shall be binding upon all
holders of Preferred Stock.
(k) Automatic Conversion.
(1) (A) Automatic Conversion of Series A Stock.
Subject to the provisions of Subsections 4(k)(2) and (3) hereof, each share of
Series A Stock shall be converted automatically into shares of Common Stock
based on the then effective Conversion Price for such share, upon the earlier of
(A) the closing of a firmly underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended (a
"Registration Statement") covering the offer and sale of Common Stock for the
account of the Corporation at a price per share of at least $4.00 (adjusted to
reflect subsequent stock splits, stock dividends, or recapitalizations and the
like) with an aggregate offering price for all shares under such Registration
Statement of at least $3,000,000.00, (B) at such time as fewer than 800,000
shares of the Series A Stock remain outstanding, or (C) upon the voluntary
consent of a majority of the voting power of the then outstanding shares of the
Series A Stock.
(B) Automatic Conversion of Series B Stock.
Subject to the provisions of Subsections 4(k)(2) and (3) hereof, each share of
Series B Stock shall be converted automatically into shares of Common Stock
based on the then effective Conversion Price for such share, upon the earlier of
(A) the closing of a firmly underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended (a
"Registration Statement") covering the offer and sale of Common Stock for the
account of the Corporation with an aggregate offering price for all shares under
such Registration Statement of at least $15,000,000.00, (B) at such time as
fewer than 100,000 shares of the Series B Stock remain
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outstanding, or (C) upon the voluntary consent of a majority of the voting power
of the then outstanding shares of the Series B Stock.
(2) Automatic conversion under Section 4(k)(l) hereof
shall be conditioned upon payment by the Corporation of all declared and unpaid
dividends on the outstanding Preferred Stock to be converted and including the
date of such conversion, payable either in cash or, at the option of the
Corporation, Common Stock (valued at the Common Stock Fair Market Value), or
both.
(3) Upon the occurrence of any of the events
specified in Section 4(k)(1) hereof, the outstanding shares of the Preferred
Stock shall be converted automatically without any further action by the holders
of such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided, however, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Preferred Stock are either delivered to the
Corporation or its transfer agent as provided below, or the holder notifies the
Corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion of the Preferred
Stock, the holders of the Preferred Stock shall surrender the certificates
representing such shares at the office of the Corporation or any transfer agent
for the Preferred Stock or Common Stock. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Preferred Stock
surrendered were convertible on the date on which such automatic conversion
occurred.
(l) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to the product of such fraction multiplied by the Common Stock Fair
Market Value on the date of conversion.
(m) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Corporation shall take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(n) Notices. Any notice required by the provisions of this
Section 4 to be given to or by the holders of shares of the Preferred Stock
shall be deemed given upon the earlier of actual receipt or seventy-two (72)
hours after the same has been deposited in the United States mail, by certified
or registered mail, return receipt requested, postage prepaid, and addressed to
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each holder of record at the address of such holder appearing on the books of
the Corporation, or to the Corporation as to notices from holders.
(o) Payment of Taxes. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Preferred Stock, including without limitation any tax or
other charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the shares
of Preferred Stock so converted were registered.
(p) No Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
5. Voting Rights. The holder of each share of Preferred Stock shall
have the right to one (1) vote for each share of Common Stock into which such
Preferred Stock could then be converted (with any fractional share determined on
an aggregate conversion basis being rounded to the nearest whole share), and
with respect to such vote, such holder shall have full voting rights and powers,
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together as a single class with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote.
6. Status of Converted Preferred Stock. In case any shares of Preferred
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be cancelled and shall cease to be a part of the authorized capital stock
of the Corporation.
7. Restrictions and Limitations. So long as any shares of Preferred
Stock remain outstanding, the consent of the holders of a majority of the Series
A Stock and the Series B Stock then outstanding, each voting as a separate
series, shall be required with respect to any action that involves any merger,
reorganization or sale by the Corporation of all or substantially all of its
assets."
THIRD: The above amendments of the Certificate of Designation, Statement
Establishing the Series F Convertible Preferred Stock, and the designation of
the Series B Convertible Stock, have been duly adopted and approved pursuant to
Section 151 and Section 242 of the General Corporation Law of the State of
Delaware by the directors and stockholders of this Corporation, and the written
consent of the stockholders entitled to vote on the above amendments has been
given in accordance with Section 228 of the General Corporation Law of the State
of Delaware. The number of shares voting in favor of the foregoing amendment
equaled or exceeded the vote required, such required vote being a majority of
the outstanding shares of Common Stock and
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Series F Preferred Stock voting together as a single class, and a majority of
the outstanding shares of Series F Preferred Stock, voting as a separate class.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Richard Lang, this Corporation's Chief Executive Officer, and duly
attested by John Micek, III, this Corporation's Secretary, this 7th day of
January, 1999.
INSTANT VIDEO TECHNOLOGIES, INC.
By: /s/ Richard Lang
--------------------------------
Richard Lang
Chairman and Chief Executive
Officer
ATTEST:
By: /s/ John J. Micek, III
--------------------------------
John J. Micek, III
Secretary
12
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of __________, 199_ by and among Instant Video Technologies, Inc., a
Delaware corporation (the "Company"), and ______________, whose address is
_____________________.
The Company desires to sell to Investor, and Investor desires to
purchase from the Company, units of investment, each of which consists of (one
hundred fifty thousand (150,000) shares of the Company's Series B Convertible
Preferred Stock (the "Series B Stock") and (ii) a warrant to purchase nineteen
thousand five hundred (19,500) warrants for the Company's Common Stock
("Warrant") at a Warrant exercise price of $2.00 per share (individually, a
"Unit" and collectively, the "Units"), on the terms and conditions set forth in
this Agreement. See, Exhibit A.
THEREFORE, PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
1.1 Authorization. As of the Closing (as defined below) the
Company will have authorized the issuance, pursuant to the terms and conditions
of this Agreement, of up to five million (5,000,000) shares of the Company's
Series B Preferred Stock (the "Series B Stock") having the rights, preferences,
privileges and restrictions set forth in the Certificate of Designation of the
Company attached to this Agreement as Exhibit B (the "Certificate"). The Company
reserves the right to amend its Certificate of Incorporation prior to the
closing to eliminate provisions relating to the Company's authorized shares of
Series A, Series B, Series C, Series D and Series E Convertible Preferred
Stock, none of which shares shall then be outstanding, and redesignate the
Company's Series F Convertible Preferred Stock ("Series F Stock") as Series A
Preferred Stock. Each Investor hereby consents to such amendment to the
Certificate of Incorporation and an amendment to this Agreement to reflect such
changes in the Certificate of Incorporation. In the event of such redesignation,
all references herein to Series F Stock shall be deemed to refer to the
Company's Series A Convertible Preferred Stock.
1.2 Agreement to Purchase and Sell. The Company agrees to sell
to Investor at the closing, and Investor agrees, to purchase from the Company at
the Closing, one hundred and fifty thousand (150,000) shares of Series B
Convertible Preferred Stock set forth above at a price of $2.00 per share. The
shares of Series B Stock and the Warrants purchased and sold pursuant to this
Agreement shall be collectively hereinafter referred to an the "Purchased
Securities", and the shares of Common Stock issuable upon conversion of the
Shares of Series B Stock and the shares of Common Stock issuable upon the
exercise of any Warrant shall be collectively hereinafter referred to as the
"Common Shares".
2. CLOSINGS.
2.1 The Closing. The purchase and sale of the Purchased
Securities shall take place at the offices of Instant Video Technologies, Inc.
at 500 Sansome Street, Suite 503, San
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Stock Purchase Agreement
Francisco California, at 10:00 a.m. Pacific Time, on December 17, 1998 or at
such other time and place as the Company and Investors mutually agree upon
(which time and place are referred to in this Agreement as the closing). At the
Closing, the Company will deliver to Investor a certificate representing 150,000
shares of Series B Stock, and a warrant for the purchase of 19,500 shares of
common stock, that such Investor has agreed to purchase hereunder as stated
above, against delivery to the Company by such Investor of the full purchase
price of $300,000 paid by (i) a bank certified check payable to the Company's
order, (ii) wire transfer of immediately available funds to the Company, or
(iii) any combination of the foregoing.
2.2 Additional Closings.
(a) Conditions of Additional Closing(s). At any time
and from time to time during the period immediately following the Closing and
ending on December 31, 1999, the Company may at one or more additional closings
(each an "Additional Closing"), without obtaining the signature, consent or
permission of the Investor, offer and sell to other investors ("Other
Investors"), at a price of $2.00 per Unit, such that the total number of Units
sold by the Company [inclusive of the number of Units sold at the
above-mentioned Closings (1&2) and at any prior Additional Closings] equals five
million (5,000,000). New Investors may include persons or entities that were
previously Investors under this Agreement
(b) Amendments. The Company and the New Investors
purchasing Units at each Additional Closing will execute counterpart signature
pages to the Stock Purchase Agreement, the Registration Rights Agreement (as
defined in Section 5.4) and the Voting Agreement (as defined in Section 5.5),
and such New Investors will, upon delivery to the Company of such signature
pages, become parties to, and bound by, this Agreement, the Registration Rights
Agreement and the Voting Agreement, each to the same extent as if they had been
Investors at the Closing. Upon the completion of each Additional Closing as
provided in section 2, each New Investor will be deemed to be an "Investor" for
all purposes of the Stock Purchase Agreement, the Registration Rights Agreement
and the Voting Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Investor that the statements in the following
paragraphs of section 3 are all true and correct:
3.1 Organization Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own its properties and assets and to carry on its business as now
conducted and as proposed to be conducted. The Company is qualified to do
business as a foreign corporation in each jurisdiction where failure to be so
qualified would have a material adverse effect on its financial condition,
business, prospects or operations.
3.2 Due Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
the Company under, the Stock Purchase Agreement, the Registration Rights
Agreement and the Voting Agreement have been taken or will be taken prior to the
Closing. The Registration Rights Agreement and the Voting Agreement when
executed
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Stock Purchase Agreement
will constitute, valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except as may be limited
by (i) applicable bankruptcy, insolvency, reorganization or others laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the effect of rules of law governing the availability
of equitable remedies.
3.3 Valid Issuance of Purchased Securities. The Purchased
Securities, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration provided for herein, will be duly and validly
issued, fully paid and nonassessable.
3.4 Capitalization. Immediately prior to Closing, the
capitalization of the Company will consist of the following:
(a) Preferred Stock. A total of 11,938,467.32
authorized shares of preferred stock, $.0001 par value per share (the "Preferred
Stocks"), consisting of 11,966,497 shares designated as Series A Convertible
Preferred Stock, none of which will be issued and outstanding, an aggregate of
6,500,829 shares designated as Series B-1 through B-4 Convertible Preferred
Stock, none of which will be issued and outstanding, 20,000 shares designated as
Series C Convertible Preferred Stock, none of which will be issued and
outstanding, 5,900,000 shares designated as Series D Convertible Preferred
Stock, none of which will be issued and outstanding 1,000,000 shares designated
as Series B Convertible Preferred Stock, none of which will be issued and
outstanding (all such Series A through B Convertible Preferred Stock having
previously either been converted into Common Stock or contributed back to the
Company), and 5,000,000 shares of Series F Convertible Preferred 5,000,000 of
which are issued and outstanding.
(b) Common Stock. A total 100,000,000 authorized
shares of common stock, no par value per share (the "Common Stock"), of which
4,4644,011 shares will be issued and outstanding.
(c) Options. Warrants. Reserved Shares. Except for
(i) the conversion privileges of the Series F Stock; the right of first refusal
granted to the Investor hereunder and, (iii) other outstanding options,
warrants, rights or agreements for the purchase or acquisition of not in excess
of 5,000,000 Common Stock equivalents; there are no other outstanding options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock
or any securities convertible into or ultimately exchangeable or exercisable for
any shares of the Company's capital stock. Except for the right of first refusal
provided in the Voting Agreement, none of the Company's outstanding capital
stock, or stock issuable upon exercise or exchange of any outstanding options,
warrants or rights, is subject to any rights of first refusal or other rights to
purchase such stock (whether in favor of the Company or any other person),
pursuant to any agreement or commitment of the Company.
3.5 Disclosure. This Agreement, the Exhibits hereto and all
written documents previously provided to the Investors in connection with the
transactions contemplated by this Agreement (when read together) do not contain
any untrue statement of a material fact and do not omit any material fact;
except that, with respect to any financial projections submitted to the
Investors, the Company represents and warrants only that such financial
projections were prepared in good
3
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Stock Purchase Agreement
faith based on reasonable assumptions that may or may not be accurate or occur,
in which case the Investors could lose all or part of their investment in the
Purchased Securities.
4. REPRESENTATIONS. WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR.
Investor hereby represents and warrants to, and agrees with, the Company, that:
4.1 Authorization. All corporate or other action on the part
of such Investor, its officers, directors, partners and/or shareholders
necessary for the authorization, execution, delivery of, and the performance of
all obligations of such Investor under this Agreement, the Registration Rights
Agreement and the Voting Agreement have been taken or will be taken prior to the
Closing. This agreement constitutes Investor's valid and legally binding
obligation, enforceable in accordance with its terms except as may be limited by
(i) applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) the effect of rules of law governing the availability of
equitable remedies. Investor represents that it has full power and authority to
enter into this Agreement, the Registration Rights Agreement and the Voting
Agreement.
4.2 Purchase for Own Account. The Purchased Shares to be
purchased by Investor will be acquired for investment for Investor's own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "1933 Act"), and such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same.
4.3 Disclosure of Information. The Investor has had full
access to all information that Investor (or the Investor's advisors) considers
necessary or appropriate to make an informed decision with respect to the
Investor's investment in the Purchased Securities. The Investor acknowledges
that the Company has made available to the Investor and the Investor's advisors
the opportunity to ask questions and examine any documents matter or information
that the Investor considers relevant or appropriate in connection with such
investment and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Investor or to
which the Investor had access. To the extent that the Investor has not sought
information regarding any particular matter, the Investor represents that the
Investor had no interest in doing so and that such matters are not material to
the Investor in connection with such investment. The Investor has accepted the
responsibility for conducting the Investor's own investigation and obtaining for
the Investor, from the above sources and other sources, such information as to
the foregoing and all other subjects as the Investor deems relevant or
appropriate in connection with such investment.
4.4 Investment Experience. Such Investor understands that the
purchase of the Purchased Securities involves substantial risk. Such Investor
has experience as an investor in securities of companies in the development
stage and acknowledges that such Investor is able to fend for itself, can bear
the economic risk of such Investor's investment in the Purchased Securities and
has such knowledge and experience in financial or business matters that such
Investor is capable of evaluating the merits and risks of this investment in the
purchased securities. If not an individual, such Investor also represents that
it has not been organized for the specific purpose of
4
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Stock Purchase Agreement
acquiring the Purchased Securities, or, alternatively, if such Investor has been
organized for the specific purpose of acquiring the Purchased Securities, such
Investor has notified the Company in writing of such fact, and has provided, and
shall provide to the Company prior to the Closing, such additional documents and
information as the Company may reasonably request to confirm compliance by the
Company with applicable federal and state securities laws and regulations.
4.5 Accredited Investor Status. Such Investor is an
"accredited investor" within the meaning of Regulation D promulgated under the
1933 Act.
4.6 Restricted Securities. Such Investor understands that the
Purchased Securities are characterized as "Restricted Securities" under the 1933
Act inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under the 1933 Act and applicable
regulations thereunder such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with Rule 144 of the U.S. Securities and
Exchange Commission ("SEC"), as presently in effect, and understands the resale
limitations imposed thereby and by the 1933 Act. Such Investor acknowledges and
agrees that the Company shall be under no obligation to maintain the
registration of the Company's Common Stock under the Securities and Exchange Act
of 1934 and that if such registration is terminated, Rule 144 will not be
available to such Investor for resale of any of the Purchased Securities or the
Common Shares. Such Investor understands that the Company is under no obligation
to register any of the securities sold hereunder except as provided in the
Registration Rights Agreement. Such Investor understands that no public market
now exists for any of the Purchased Securities and it is uncertain whether a
public market will ever exist for the Purchased Securities or the Common Shares.
4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Purchased Securities or the
Common Shares unless and until:
(a) there is a proposed disposition and such
disposition is made in accordance with such registration statement; or
(b) (i) such Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (ii)
such Investor shall have furnished the Company, at the expense of such Investor
or its transferee, with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the 1933 Act.
4.8 Legends.
(a) It is understood that the certificates evidencing
the Purchased Securities and the Common Shares will bear the legends set forth
below:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE
5
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Stock Purchase Agreement
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 if the California Corporations Code or any
other state securities laws, including legends on certificates evidencing shares
of Series B Stock substantially in the form of the following:
THE SHARES EVIDENCED BY THIS CERTIFICATE: (1) ARE CONVERTIBLE
INTO SHARES OF COMMON STOCK OF THE COMPANY AT THE OPTION OF THE HOLDER AT ANY
TIME PRIOR TO AUTOMATIC CONVERSION THEREOF; (2) AUTOMATICALLY CONVERT INTO
COMMON STOCK OF THE COMPANY IN THE EVENT OF A PUBLIC OFFERING MEETING CERTAIN
REQUIREMENTS OR UPON CERTAIN CONSENTS OF THE HOLDERS OF THE COMPANY'S PREFERRED
STOCK; AND (3) ARE REDEEMABLE ALL PURSUANT TO AND UPON THE TERMS AND CONDITIONS
SPECIFIED IN THE COMPANY'S CERTIFICATE OF INCORPORATION, A COPY OF WHICH MAY BE
OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S PRINCIPAL OFFICE.
(c) It is understood that the certificates evidencing
the shares of Common Stock subject to the Voting Agreement will bear the legend
set forth below:
THESE SECURITIES ARE SUBJECT TO THE TERMS OF A VOTING AND
RIGHT OF FIRST REFUSAL AGREEMENT, THE TERMS OF WHICH ARE AVAILABLE FROM THE
SECRETARY OF THE COMPANY. SUCH AGREEMENT IS BINDING UPON ANY HOLDER OF THESE
SECURITIES, AND ANY SUCCESSOR OR ASSIGN OF ANY HOLDER OF THESE SECURITIES.
The legend set forth in (a) above shall be removed by the
Company from any certificate evidencing Purchased Securities or Common Shares
upon delivery to the Company of an opinion by counsel in form and substance
reasonably satisfactory to the Company, that a registration statement under the
1933 Act is at that time in effect with respect to the legend security or that
such security can be freely transferred in a public sale without such a
registration statement being in effect and that such transfer will not
jeopardize the exemption or exemptions from registration pursuant to which the
Company issued the Purchased Securities or Common Shares.
6
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Stock Purchase Agreement
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The obligations of
Investor under Section 2 of this Agreement are subject to the fulfillment or
waiver, on or before the Closing, of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
to such waiver, which consent may be given by written, oral or telephone
communication to the Company, its counsel or to special counsel to the
Investors:
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Certificate Effective. The Certificate shall have been
duly filed with and accepted by the Secretary of State of the State of Delaware.
5.4 Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement in the form attached to
this Agreement as Exhibit C (the "Registration Rights Agreement").
5.5 Voting Agreement. The Company and the holders of the
Company's Common Stock who are parties to the Voting and Right of First Refusal
Agreement in the form attached to this Agreement as Exhibit D (the "Voting
Agreement") shall each have executed and Delivered the Voting Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation
of the Company to Investor under this Agreement is subject to fulfillment or
waiver on or before the Closing of each of the following conditions by Investor:
6.1 Representations and Warranties. The representations and
warranties of Investor contained in Section 4 shall be true and correct on the
date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. Investor shall have delivered
to the Company the purchase price specified for Investor in accordance with the
provisions of Section 2.
6.3 Certificate Effective. The Certificate shall have been
duly filed with and accepted by the Secretary of State of the State of Delaware.
6.4 Securities Exemptions. The offer and sale of the Purchased
Securities to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, and the registration and/or
qualification requirements of all applicable state securities laws.
7
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Stock Purchase Agreement
6.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel, and the Company
shall have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request.
7. RIGHT OF FIRST REFUSAL.
7.1 General. Each holder of Series B Stock, including each
holder of Common Stock received upon conversion of such holders Series B Stock
(a "Holder"), has the right of first refusal to purchase such Holders pro rata
share (as defined below) of all, and not less than all, of any "New Securities"
(as defined in Section 7.2) that the Company may, from time to time, propose to
sell and issue. A Holder's "Pro rata share" for purposes of this right of first
refusal is the ratio of the (a) number of shares of Common Stock into which the
shares of the Holder's Series B Stock are convertible, plus the number of shares
of Common Stock held by the Holder that were received upon conversion of such
holder's Series B Stock and received upon exercise of Warrants, to (b) the total
number of shares of Common Stock into which all currently outstanding shares of
Series B Stock are convertible, plus the total number of shares of Common Stock
that were issued upon conversion of Series B Stock and received upon exercise of
Warrants.
7.2 New Securities. "New Securities" shall mean any Common
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
"New Securities" does not include: (i) shares of the Company's Common Stock (or
related options) issued to employees, officers, directors or consultants of the
Company pursuant to incentive agreements or plans approved by the Board of
Directors of the Company or any other securities issued upon the exercise of any
outstanding option, warrant or other right, (ii) securities issuable upon
conversion of or with respect to Series F Stock, (iii) shares of the Company's
Common Stock or Preferred Stock issued in connection with any stock split or
stock dividend (iv) securities offered to the public pursuant to a registration
statement filed under the 1933 Act, or (v) securities issued pursuant to the
acquisition of another corporation or entity by the Company by merger, purchase
of substantially all of the assets, or other reorganization after which the
Company owns not less than fifty-one (51%) of the voting power of such other
corporation or fifty-one (51%) of the ownership of such other entity.
7.3 Mechanics of Right. In the event that the Company proposes
to undertake an issuance of New Securities, it shall give to each Holder written
notice of its intention, describing the type of New Securities, the price and
the general terms upon which the Company proposes to issue the same. Each Holder
shall have ten (10) days from the date of mailing of any such notice to agree to
purchase such Holder's pro rata share of such New Securities for the price and
upon the general terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased. Each
purchasing Holder shall have a right of over-allotment such that if any other
Holder fails to exercise such other Holder's right hereunder
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Stock Purchase Agreement
to purchase such Holder's pro rata share of New Securities, the purchasing
Holder may purchase the non-purchasing Holder's unpurchased pro rata share,
within five (5) days from the date such non-purchasing Holder fails to exercise
such Holder's right hereunder to purchase such non-purchasing Holder's full pro
rata share of New Securities.
7.4 Failure to Exercise. In the event that the Holder fails to
exercise in full the right of first refusal with respect to all New Securities
within such ten (10) plus five (5) day period (it being the intention of the
parties that unless the right of first refusal is exercised as to all New
Securities, the Company may issue all or any part of the New Securities as
hereinafter provided), the Company shall have 120 day thereafter to sell (or
enter into an agreement pursuant to which the sale of new securities shall be
closed, if at all, within 120 days from the date of said agreement) the New
Securities respecting which the Holder's rights were not exercised, at a price
and upon general terms no more favorable to the purchasers thereof than
specified in the Company's notice to the Holders. In the event that the Company
has not sold the New Securities within 120-day period (or sold and issued New
Securities in accordance with the above within 120 days from the date of the
agreement), the Company shall not thereafter issue or sell any New Securities
without first offering the New Securities pursuant to this Section 7.
7.5 Co-sale Agreement. The stock held by certain founders and
senior management of the Company shall be made subject to a co-sale agreement
(subject to certain reasonable exceptions) with the holders of Series B
Preferred Stock such that the founders may not sell, transfer or exchange their
stock unless each holder of the Series B Preferred Stock has the opportunity to
participate in the sale on a pro rata basis on the same terns and conditions.
This right shall terminate on a Qualified Public Offering with an aggregate
offering price for all shares of at least $15,000,000. The co-sale agreement
shall provide a right of first refusal in favor of the Preferred Stock and the
other classes of preferred stock with respect to sales of Common Stock by
certain founders. Senior officers of the Company will be prohibited from selling
shares, whether publicly or in private sales, in any amount greater than the
number of shares that could be sold to the public by such officers under the
volume restrictions imposed by Rule 144.
7.6 Termination. The right of first refusal shall terminate
immediately before the closing of the first firmly underwritten public offering
of Common Stock of the Company pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of Common Stock for the account
of the Company with an aggregate offering price for all shares under such
registration statement of at least $15,000,000.
8. LIQUIDATION PREFERENCE
8.1 In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of each
share of Series B Stock shall be entitled to receive, out of the assets of the
Corporation available for distribution to its stockholders before any payment or
distribution shall be made on the Common Stock, an amount per share equal to:
(1) 125% of the purchase during the first year following the closing up to a
maximum of 300%; (2) 140% of the purchase price during the second year following
the closing up to a maximum of 300%; (3) 155% of the purchase price (up to a
maximum of 300%) during the third year following the closing; adjusted for any
combinations, consolidations, or stock distributions or
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Stock Purchase Agreement
dividends with respect to such shares occurring after the date hereof, and, in
addition, an amount equal to all declared but unpaid dividends on the Series B
Stock.
8.2 If the assets and funds to be distributed among the
holders of the Series B Stock shall be insufficient to permit the payment of the
full aforesaid preferential amount to such holders, then the entire assets and
funds of the Corporation legally available for the distribution to such holders
shall be distributed among the holders of the Series B Stock in proportion to
the aggregate preferential amount of all shares of Series B Stock held by them.
After payment has been made to the holders of the Series B Stock, the holders of
the preferred stock and Common Stock shall be entitled to share ratably in the
remaining assets based on the number of shares of Common Stock (on an
as-converted to Common Stock basis) held by them at the time of such
liquidation. Provided, however, that the holders of Preferred Stock will be
ineligible to participate upon receiving a total liquidation amount per share
equal to three times the original Purchase Price per share of Preferred Stock,
plus any declared but unpaid dividends. Notwithstanding the foregoing, automatic
conversion to Common Stock will occur if such conversion would yield a greater
liquidation amount to the holders of the Preferred Stock than the Liquidation
Preference and participating distribution specified herein.
8.3 For purposes of Section 8 of this document, a merger or
consolidation of the Corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
Corporation, or the sale or any other corporate reorganization, in which
shareholders of the Corporation receive distributions as a result of such
consolidation, merger, sale of assets or reorganization, shall be treated as a
liquidation, dissolution or winding up of the Corporation, unless the
stockholders of the Corporation hold more than fifty percent (50%) of the voting
equity securities of the successor or surviving corporation immediately
following such consolidation, merger, sale of assets or reorganization in which
event such consolidation, merger, sale of assets, or reorganization shall not be
treated as a liquidation, dissolution or winding up.
9. CONVERSION: THE SHAREHOLDERS OF SERIES B STOCK WILL HAVE THE
FOLLOWING CONVERSION RIGHTS.
9.1 The Right to Convert. Each share of Series B Stock will be
convertible, at any time or from time to time at the option of the holder
thereof, into fully paid and nonassessable shares of Common Stock as provided
herein.
9.2 The Conversion Price. Each share of Series B Stock will be
convertible into the number of shares of Common Stock which results from
dividing the conversion price of the Series B Stock that is in effect at the
time of conversion (the "Conversion Price") into the original Issue Price for
such series of Preferred Stock. The initial Conversion Price of $2.00 for the
Series B Stock will be the original Issue Price for such series. The Conversion
Price will be subject to adjustment from time to time as provided below.
9.3 The Mechanics of Conversion. Each holder of Series B Stock
who desires to convert the same into shares of Common Stock will surrender the
certificate or certificates therefore; duly endorsed, at the office of the
Corporation or any transfer agent for the Series B
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Stock Purchase Agreement
Stock or Common Stock, and will give written notice to the Corporation at such
office that such holder elects to convert the same and will state therein the
number of shares of Series B Stock being converted. Therefore the Corporation
will promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which such holder is
entitled and will promptly pay in cash any declared and unpaid dividends on the
shares of Series B Stock being converted. Such conversion will be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the certificate representing the shares of Series B Stock to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion will be treated for all purposes as the record
holder of such shares of Common Stock on such date.
9.4 Adjustment for Stock Splits and Combinations. If the
Corporation at any time or from time to time after the Reference Date of the
Series B Stock effects a subdivision of the outstanding Common Stock, the
Conversion Price for such Series B Stock in effect immediately before that
subdivision will be proportionately decreased, and, conversely, if the
Corporation at any time or from time to time after the Reference Date of the
Series B Stock combines the outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price for the Series B Stock in effect
immediately before the combination will be proportionately increased. Any
adjustment under this Section 9.4 will become effective at the close of business
on the date the subdivision or combination becomes effective.
9.5 Adjustment for Common Stock Dividends and Distributions.
If the Corporation at any time or from time to time after the Reference Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in Additional
Shares of Common or Preferred Stock, in each such event the Conversion Price for
the Series B Stock that is then in effect will be decreased as of the time of
such issuance or, in the event such record date is fixed, as of the close of
business on such record date, by multiplying the Conversion Price then in effect
by a fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date, and (2) the denominator of which is
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed, the applicable Conversion Price will be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price will
be adjusted pursuant to this Section 9.5 to reflect the actual payment of such
dividend or distribution.
9.6 Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Reference Date of the
Series B Preferred Stock makes, or fixes a record date For the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, in
each such event provision will be made so that the holders of such series of
Preferred Stock will receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Preferred Stock been
converted into Common Stock on the date of
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Stock Purchase Agreement
such event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities receivable
by them as aforesaid during such period, subject to all other adjustments called
for during such period under this Section 9 with respect to the rights of the
holders of the Series B Stock or with respect to such other securities by their
terms.
9.7 Adjustment for Reclassification. Exchange and
Substitution. If at any time or from time to time after the Reference Date of
the Series B Stock, the Common Stock issuable upon the conversion of such series
of Preferred Stock is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 9 or Section 8.2), then in any such event each holder
of such series of Preferred Stock will have the right thereafter to convert such
stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the maximum number of shares of Common Stock into which such shares
of Series B Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.
9.8 Reorganizations. If at any time or from time to time after
the Reference Date of the Series B Stock there is a capital reorganization of
the Common Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Section 9 or in Section 8.2), as a part of such capital reorganization
provision will be made so that the holders of such series of Preferred Stock
will thereafter be entitled to receive upon conversion of such series of
Preferred Stock the number of shares of stock or other securities or property of
the Company to which a holder of the nether of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment will be made in the
application of the provisions of this Section 9 with respect to the rights of
the holders of Series B Stock after such capital reorganization to the end that
the provisions of this Section 9 (including adjustment of the Conversion Price
then in effect and the nether of shares issuable upon conversion of the
Preferred Stock) will be applicable after that event and be as nearly equivalent
as practicable.
10. ADJUSTMENT TO SERIES B STOCK CONVERSION PRICE, FOR SALE OF SHARES
BELOW THE CONVERSION PRICE
10.1 Sale of Additional Shares. If at any time or from time to
time after the Reference Date for the Series B Stock, the Corporation issues or
sells Additional Shares of Common or Preferred Stock, other than as a dividend
or other distribution on any class of stock, for a consideration per share less
than the then-existing Conversion Price for Series B Stock The conversion price
of the Preferred Stock will be subject to a ratchet adjustment to reduce
dilution through the deemed issuance of additional shares of Series B Stock to
equal the value of consideration already paid.
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Stock Purchase Agreement
10.2 Adjustments. For the purpose of making any adjustment in
the Conversion Price for the Series B Stock under this Section consideration
received by the Corporation for any issue or sale of securities will:
(a) to the extent it consists of cash, be computed at
the net amount of cash received by the Corporation after deduction of any
underwriting or similar commissions, concessions, or compensation paid or
allowed by the Corporation in connection with such issue or sale;
(b) to the extent it consists of property other than
cash, be computed at the fair value of that property as determined in good faith
by the Board; and
10.3 Adjustment Formula. For the purpose of the adjustment
provided in this Section, if the Effective Price (as hereinafter defined) of
such rights, options, or Convertible Securities is less than the then-existing
Conversion Price for the Series B Stock, the Corporation will be deemed to have
issued at the time of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common or Preferred Stock
issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration received by the Corporation for the issuance of such
rights or options or Convertible Securities.
10.4 Effective Price. As used in this Section the term
"Effective Price" means the quotient determined by dividing the total of all of
such consideration by such maximum number of Additional Shares of Common or
Preferred Stock. No further adjustment of the Conversion Price for Series B
Stock adjusted upon the issuance of such rights, options, or Convertible
Securities will be made as result of the actual issuance of Additional Shares of
Common or Preferred Stock on the exercise of any such rights or options or the
conversion of any such Convertible Securities.
10.5 Expiration. If any such rights or options or the
conversion privilege represented by any such Convertible Securities expire
without having been exercised, then the Conversion Price for Series B Stock,
adjusted upon the issuance of such rights, options, or Convertible Securities
will be readjusted to the applicable Conversion Price that would have been in
effect had an adjustment been made on the basis that the only Additional Shares
of Common or Preferred Stock so issued were the Additional Shares of Common or
Preferred Stock, if any, actually issued or sold on the exercise of such rights
or options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common or Preferred Stock, if any, were issued or sold for
the consideration actually received by the Corporation upon such exercise, plus
the consideration, if any, actually received by the Corporation for the granting
of all such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Corporation on the
conversion of such Convertible Securities.
10.6 Issuance of Rights or Options Subsequent to the Reference
Date. For the purpose of the adjustment provided in this Section 10, if at any
time or from time to time after the Reference Date for the Series B Stock, the
Corporation issues any rights or options for Convertible Securities, then, in
each such case, if the Effective Price thereof is less than the then
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Stock Purchase Agreement
current Conversion Price for Series B Stock, the Corporation will be deemed to
have issued at the time of the issuance of such rights or options the maximum
number of Additional Shares of Common or Preferred Stock issuable upon
conversion of the total amount of Convertible Securities covered by such rights
or options and to have received as consideration for the issuance of such
Additional Shares of Common or Preferred Stock an amount equal to the amount of
consideration, if any, received by the Corporation for the issuance of such
rights or options, plus the minimum amount consideration, if any, payable to the
Corporation upon the full exercise of such rights or options plus the minimum
amount of consideration, if any, payable to the Corporation upon the full
conversion of such Convertible Securities. As used in this Section 10.2(d), the
term "Effective price" means the quotient determined by dividing the total
amount of such consideration by such maximum number of Additional Shares of
Common or Preferred Stock. No further adjustment of the Conversion Price for
Series B Stock, adjusted upon the issuance of such rights or options will be
made as a result of the actual issuance of the Convertible Securities upon the
exercise of such rights or options or upon the actual issuance of Additional
Shares of Common or Preferred Stock upon the conversion of such Convertible
Securities. The provisions of Section 10.2(c) hereof for the readjustment of the
Conversion Price for Series B Stock upon the expiration of rights or options or
the rights of conversion of Convertible Securities will apply equally to the
rights, options and Convertible Securities referred to in this Section 10.2(d).
11. ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of any Conversion Price for the number of shares of
Common Stock or other securities issuable upon conversion of the Preferred
Stock, the Corporation, at its expense, upon the written request of a holder of
Preferred Stock for which the Conversion Price has been so adjusted, will cause
independent public accountants of recognized standing selected by the
Corporation (who may be the independent public accountants then auditing the
books of the Corporation) to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and will mail such certificate, by first class mail,
postage prepaid, to such registered holder of the Preferred Stock, and to all
other holders of the same series of Preferred Stock, at the holders' address as
shown in the Corporation's books. The certificate will set forth such adjustment
or readjustment, showing in reasonable detail the facts upon which such
adjustment or readjustment is based, including a statement of the Conversion
Price at the time in effect and the type and amount, if any, of other property
which at the time would be received upon conversion of the relevant Preferred
Stock.
12. NOTICES OF RECORD DATE. Upon (i) any taking by the corporation of a
record or the holders of any Series B Stock for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
or (ii) any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, or any
transfer of all or substantially all the assets of the Company to any other
person or any voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, the Corporation will mail to each holder of Series B Stock at
least thirty (30) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation
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Stock Purchase Agreement
or winding up is expected to become effective, and (3) the date, if any, that is
to be fixed as to when the holders of record of Common Stock (or other
securities) will be entitled to exchange their share of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up; provided that such 30-day notice may be waived by the
written consent of the holder of at least a majority of the then outstanding
Series B Stock and such waiver if obtained automatically will be binding upon
all holders of Series B Stock.
13. AUTOMATIC CONVERSION
13.1 Public Offering. Subject to the provisions of Section
13.3 hereof, each share of Series B Stock will be converted automatically into
shares of Common Stock based on the then effective Conversion Price for such
share, upon the earlier of (A) the closing of a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended (a "Registration") covering the offer and sale of Common
Stock for the account of the Corporation with an aggregate offering price for
all shares under such Registration Statement of at least $15,000,000.00, (B) at
such time as less than 20% of the Series B Stock issued pursuant to the
Corporation's initial offering of up to 5,000,000 shares of Series B Stock
remains outstanding or to upon the voluntary consent of a majority of the voting
power of the then outstanding shares of such Series B Stock.
13.2 Payment By Corporation. Automatic conversion under
Section 13.1 hereof will be conditioned upon payment by the Corporation of all
declared and unpaid dividends on the outstanding Series B Stock to be converted
and including the date of such conversion, payable either in cash or, at the
option of the Corporation, Common Stock (valued at the Common Stock's Fair
Market Value), or both.
13.3 Occurrence of Specified Events. Upon the occurrence of
any of the events specified in Section 13.1 hereof, the outstanding shares of
the Series B Stock will be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation will not be obligated to issue certificates
evidencing the shares of common Stock issuable upon such conversion evidencing
such the Corporation holder notifies one corporation or its transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. Upon the occurrence of such
automatic conversion of the Series B Stock, the holders of the Series B Stock
will surrender the certificates representing such shares at the office of the
Corporation or any transfer agent for the Series B Stock or Common Stock.
Thereupon, there will be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Series B Stock surrendered were convertible on the date on
which such automatic conversion occurred.
13.4 Fractional Shares. No fractional shares of Common Stock
will be issued upon conversion of Series B Stock. In lieu of any fractional
share to which the holder would otherwise
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Stock Purchase Agreement
be entitled, the Corporation will pay cash equal to the product of such fraction
multiplied by the Common Stock's Fair Market Value on the date of conversion.
13.5 Reservation of Stock Issuable Upon Conversion. The
Corporation will at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Stock, such number of its shares of
Common Stock as will from time to time be sufficient to effect the conversion of
all outstanding shares of the Series B Stock. If at any time the number of
authorized but unissued shares of Common Stock will not be sufficient to effect
the conversion of all then outstanding shares of the Series B Stock the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as will be sufficient for such purpose.
13.6 Notices. Any notice required by the provisions of thin
Section 4 to be given to or by the holders of shares of the Series B Stock will
be deemed given upon the earlier of actual receipt or seventy-two (72) hours
after the same has been deposited in the United States mail, by certified or
registered mail, return receipt requested, postage prepaid, and addressed to
each holder of record at the address of such holder appearing on the books of
the Corporation, or to the Corporation as to notices from holders.
13.7 Payment of Taxes. The Corporation will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Series B Stock, including without limitation any tax or
other charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the shares
of Series B Stock so converted were registered.
13.8 No Impairment. The Corporation will not amend its
Articles of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series B Stock
against dilution or other impairment.
13.9 Voting Rights. Each share of Series B Stock shall entitle
the holder to one (1) vote and with respect to each such vote a holder of shares
of Series B Stock shall have full voting right" and powers equal to the voting
rights and powers of a holder of shares of Common Stock, share for share, and
shall be entitled to notice of any shareholders' meeting in accordance with the
Bylaws of the Corporation, and shall be entitled to vote with holders of Common
Stock together as a Single class; See Exhibit D
13.10. Status of Converted or Reacquired Stock. In case any
shares of Series B Convertible Preferred Stock shall be converted pursuant to
Section 4 hereof or redeemed pursuant to Section 6 hereof the shares so
converted or redeemed shall cease to be a part of the authorized capital stock
of the Corporation.
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Stock Purchase Agreement
13.11. Restrictions and Limitation. So long as any share of
Series B Stock remain outstanding, the consent of the holder of a majority of
the Series B Stock then outstanding, voting as a series, will be required with
respect to any action that:
(a) involves any merger, reorganization or sale by
the Corporation of all or substantially all of its assets, or
14. MISCELLANEOUS
14.1 Survival of Warranties. The representations, warranties
and covenants of the Company and the Investors contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of any of the Investors their counsel or the
Company, as the case may be.
14.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
14.3 Governing Law: Forum. This Agreement shall be governed by
and construed under the internal laws of the State of California as applied to
agreement among California residents entered into and to be performed entirely
within California, without reference to principles of conflict of laws or choice
of laws. Each party consents to the jurisdiction and proper venue of the state
and federal courts sitting in the City and County of San Francisco in any action
to enforce the terms hereof
14.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.5 Headings. The headings and captions used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. All references in this Agreement to
sections, paragraphs, exhibits and schedules shall, unless otherwise provided,
refer to sections and paragraphs hereof and exhibits and schedules attached
hereto, all of which are incorporated herein by this reference.
14.6 Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on Exhibit A or, in the case of the Company, at 500
Sansome Street, Suite 503, San Francisco, California 94111, or at such other
address as such party may designate by ten (10) days advance written notice to
all other parties.
14.7 Each party represents that it is not obligated for any
finder's or broker's fee or commission in connection with this transaction. Each
Investor agrees to indemnify and to hold
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Stock Purchase Agreement
harmless the Company from any liability for any commission or compensation in
the nature of a finders' or broker's fee (and any asserted liability) for which
the Investor or any of its officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finder's or broker's fee (and any asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
14.8 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Registration
Rights Agreement, the Voting Agreement or the Certificate, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
14.9 Amendments and Waivers. Except as specified in Section
2.2, any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived neither generally or in a particular instance and
either retroactively or prospectively, only with the written consent of the
Company and the holders of shares of Series B Stock and/or Common Shares
representing at least 66-2/3% of the aggregate number of shares of Common Stock
into which such shares of Series B Stock then are convertible and/or have been
converted (excluding any of such shares that have boon sold to the public or
pursuant to SEC Rule (44). Any amendment or waiver effected in accordance with
this Section shall be binding upon each holder of Any Purchased Securities
and/or Common Shares at the time outstanding, each future holder of such
securities, and the Company: Provided, however, that no condition set forth in
Section 5 may be waived with respect to any Investor who does not consent
thereto.
14.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision(s)
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provisions were so excluded and shall be enforceable in
accordance with its terms.
14.11 Entire Agreement. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire understanding and
agreement or the parties with respect to the subject matter and supersedes all
prior understandings and agreements with respect to such matters.
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Stock Purchase Agreement
14.12 Further Assurances. From and after the date of this
Agreement, upon the request of any Investor or the Company, the Company and the
Investors shall execute and deliver such instruments, documents or other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
IN WITNESS OF THIS AGREEMENT the parties hereto have executed this
Stock Purchase Agreement as of _______________________, 199_.
THE COMPANY:
Instant Video Technologies, Inc. a California corporation
By: _______________________________
Title: ____________________________
THE INVESTOR:
By: _______________________________
Title: ____________________________
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EXHIBIT A
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THE SECURITIES MAY REQUIRE AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A PROMISSORY NOTE AGREEMENT, A
COPY OF WHICH CAN BE OBTAINED UPON REQUEST FROM THE SECRETARY OF THE CORPORATION
AT ITS PRINCIPAL OFFICES. THE RESTRICTIONS CONTAINED IN SUCH AGREEMENT ARE
BINDING ON TRANSFEREES OF THESE SECURITIES.
INSTANT VIDEO TECHNOLOGIES, INC.
WARRANT TO PURCHASE SHARES OF
COMMON STOCK
INSTANT VIDEO TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), hereby grants to ________________ (the "Holder"), for value
received, the right to purchase from the Company _______ shares of the Company's
Common Stock, $.00001 par value per share ("Common Stock") (subject to
adjustment pursuant to paragraph 5 below), at the exercise price per share
designated in paragraph 1 below (the "Warrant Price"), at any time commencing on
the date of this Warrant and until ______________. (California Time) on
____________________ (the "Exercise Period"), upon surrender to the Company, at
its principal offices, of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by bank cashier's or certified check of the Warrant Price for the number of
shares as to which this Warrant is exercised.
This Warrant is issued pursuant to the Series B Preferred Stock
Purchase Agreement (the "Agreement") dated _________________ between the Company
and the original Holder hereof. The Holder of this Warrant is subject to certain
restrictions set forth in the Agreement.
<PAGE>
Warrant to Purchase Shares of Common Stock
This Warrant is subject to the following additional terms and
conditions:
1. The Warrant Price per share payable upon exercise of this Warrant,
as adjusted from time to time pursuant to paragraph 5 below, shall be $____ per
share.
2. This Warrant may be exercised in whole or in part at any time
during the Exercise Period, at the option of the Holder of record hereof, but
not for a fraction of a share. In case of an exercise of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant or Warrants of like tenor for the
balance of the shares purchasable under the Warrant surrendered upon such
exercise.
3. The Company agrees at all times to reserve a sufficient number of
shares of authorized but unissued Common Stock, when and as required for the
purpose of complying with the terms of this Warrant.
4. The Holder shall not have any rights as a stockholder of the
Company with regard to the shares for which this Warrant is exercisable prior to
actual exercise of this Warrant resulting in the purchase of such shares.
5. If the Company at any time during the Exercise Period shall effect
a stock dividend, stock split, recapitalization, reclassification, merger,
consolidation, combination or exchange of shares, separation, reorganization,
liquidation, or the like, the number and class of shares issuable upon exercise
of this Warrant, and the Warrant Price, shall automatically be correspondingly
adjusted such that the Holder of this Warrant shall be entitled to acquire, for
the same aggregate Warrant Price, the total number, class and kind of shares as
such Holder would have owned had this Warrant been exercised prior to such event
and had such Holder continued to hold such shares until after the event
requiring adjustment.
6. Neither this Warrant nor the shares issuable upon the exercise of
this Warrant have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or any state securities laws. The Holder acknowledges by
acceptance of the Warrant that as of the date of this Warrant and at the time of
exercise (a) he has acquired this Warrant or the shares, as the case may be, for
investment and not with a view to distribution thereof; and either (b) he has a
pre-existing personal or business relationship with the Company, or its
executive officers, or by reason of his business or financial experience he has
the capacity to protect his own interests in connection with the transaction;
and (c) he is an "accredited investor" as that term is defined in Regulation D
promulgated under the Securities Act. The Holder agrees that any shares issuable
upon exercise of this Warrant will be acquired for investment and not with a
view to distribution thereof and such shares will not be registered under the
Securities Act and applicable state securities laws and that such shares may
have to be held indefinitely unless they are subsequently registered or
qualified under the Securities Act and applicable state securities laws or,
based on an opinion of counsel reasonably satisfactory to the Company, an
exemption from such registration and qualification is available. The
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Warrant to Purchase Shares of Common Stock
Holder, by acceptance hereof, consents to the placement of the following
restrictive legends, or substantially similar legends, on each certificate to be
issued to the Holder by the Company in connection with the issuance of such
shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER ANY STATE
SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED
UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS
COVERING SUCH SECURITIES, OR (B) THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THE SECURITIES SATISFACTORY TO THE COMPANY, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND THE QUALIFICATION REQUIREMENTS
UNDER APPLICABLE STATE LAW.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME NOT TO EXCEED ONE HUNDRED EIGHTY
(180) DAYS FROM THE EFFECTIVE DATE OF THE CORPORATION'S FIRST PUBLIC OFFERING.
7. Holder agrees hereby that he shall not, unless the Company
otherwise consents in writing, sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise transfer or dispose of any of the
Company's securities, whether now held of hereafter acquired by the Holder,
during the one hundred eighty (180) day period following the effective date of a
registration statement of the Company filed under the Securities Act in
connection with the initial public registration of the Company's securities
after the date of this Warrant. The Holder shall also execute such written
agreement in the form as may be reasonably requested by the Company, and the
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such one hundred eighty (180) day
period.
8. No fractional shares shall be issued upon exercise of this Warrant.
The Company shall, in lieu of issuing any fractional share, pay the Holder
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of exercise (as determined in good faith by the Board of
Directors of the Company).
9. Notwithstanding any provision hereof to the contrary, no exercise
of this Warrant will be made unless such exercise can be made under exemptions
from registration or qualification of such exercise under applicable securities
laws without the creation of any offering memorandum prescribed by such laws
unless at the time of such exercise the Company already has completed such a
memorandum and such exercise would be exempt from registration and qualification
by, among other things, delivery of such memorandum to the Holder.
3
<PAGE>
Warrant to Purchase Shares of Common Stock
10. This Warrant and any and all shares of Common Stock issued upon
exercise of this Warrant will be transferable on the books of the Company at its
principal office, by the Holder hereof in person or by duly authorized attorney,
upon surrender of this Warrant or the stock certificate, as applicable, properly
endorsed. Any such transfer is subject to any restrictions upon and requirements
for any such transfer imposed by applicable federal or state securities laws. It
will be a further condition to any transfer of this Warrant that the transferor
(if any portion of this Warrant is retained) and the transferee will receive,
accept and execute new Warrants, of like tenor and date, executed by the
Company, for the portion so transferred and for any portion retained, and will
surrender this Warrant to the Company along with any documents requested by the
Company to establish compliance with securities laws applicable to such
transfer.
11. Any terms of this Warrant may be amended and the observance of any
term of this Warrant may be waived (either retroactively or prospectively) only
with the written consent of the Company and the Holder.
12. This Warrant is issued in and shall be governed by the laws of the
State of California applicable to contracts entered into between California
residents and to be performed entirely within the State of California.
13. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant or stock
certificate representing the shares purchasable hereunder, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or
stock certificate of like tenor, in lieu of this Warrant or lost, stolen,
destroyed or mutilated stock certificate.
14. Unless otherwise provided, any notice required or permitted under
this Warrant shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified; one day following proper
sending by overnight courier service; or three (3) business days after deposit
in the United States Post Office mail, by registered or certified mail, postage
prepaid and addressed, if to the Company, at its principal office located at 500
Sansome Street, Suite 503, San Francisco, California 94111, or if to the Holder,
at the address indicated for the Holder in the Company's records, or at such
other address as a party may designate by ten (10) days' advance written notice.
4
<PAGE>
Warrant to Purchase Shares of Common Stock
15. If any action at law or in equity is necessary to enforce or
interpret the terms of this Warrant, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which such party may be entitled.
INSTANT VIDEO TECHNOLOGIES, INC.
By: ______________________________ Attest: _______________________
Richard Lang John Micek III
Chairman, CEO Secretary
HOLDER
Accepted: __________________ _______________________
Name: _____________________________ Date: _________________
5
<PAGE>
Warrant to Purchase Shares of Common Stock
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To____________________:
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, ___________ (_________________)1 shares of Common Stock of INSTANT
VIDEO TECHNOLOGIES, INC. (the "Company") and herewith makes payment of
_________________ DOLLARS ($_________) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
____________, whose address is _____________________.
The undersigned represents that he or she is acquiring such Common Stock for his
or her own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within his or her
control)2.
The undersigned agrees that he or she will not make any disposition of all or
any portion of the Common Stock unless and until there is then in effect a
Registration Statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said Registration
Statement; or the undersigned shall have notified the Company of the proposed
disposition and shall have furnished the Company with (I) a detailed statement
of the circumstances surrounding the proposed disposition, and (II) an opinion
of the undersigned's own counsel to the effect that such disposition will not
require registration of such shares under the Securities Act, which opinion
shall have been concurred in by counsel for the Company.
DATED: _______________ ____________________________________________
(Signature must conform in all respects
to name of holder as specified on the face
of the Warrant)
Address: _______________________________
_______________________________
_______________________________
[footnotes on next page]
6
<PAGE>
Warrant to Purchase Shares of Common Stock
1. Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for additional
Common Stock or any other stock or other securities or property or cash which,
pursuant to the adjustment provisions of the Warrant, may be deliverable upon
exercise.
2. This representation is applicable only if, on the date this subscription is
effected, the Common Stock shall not be registered under the Securities Act of
1933, as amended.
7
<PAGE>
EXHIBIT B
AMENDED CERTIFICATE OF DESIGNATION, STATEMENT ESTABLISHING
SERIES F CONVERTIBLE PREFERRED STOCK
AND
CERTIFICATE OF DESIGNATION, STATEMENT ESTABLISHING SERIES B
CONVERTIBLE PREFERRED STOCK
OF
INSTANT VIDEO TECHNOLOGIES, INC.
INSTANT VIDEO TECHNOLOGIES, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That a Certificate of Designation, Statement Establishing the Series F
Convertible Preferred Stock, was filed by this Corporation with the Secretary of
State of the State of Delaware on _______________.
SECOND: That the Board of Directors of this corporation has duly adopted the
following resolutions, (i) amending said Certificate of Designation, Statement
Establishing the Series F Convertible Preferred Stock to, among other things,
change the designation of such Series to "Series A Convertible Preferred Stock,"
and to amend certain of the powers, preferences and rights of the Series A
Convertible Preferred Stock, and (ii) providing for the designation of a new
series of preferred stock, to be designated "Series B Convertible Preferred
Stock," and establishing the powers, preferences and rights of the Series B
Convertible Preferred Stock:
WHEREAS, the Certificate of Incorporation of the Corporation provides
for a class of shares of stock designated "Preferred Stock," comprising
20,000,000 shares, and vests in the Board of Directors the authority to specify
the number of shares of Preferred Stock to be issued, to divide the Preferred
Stock into one or more series within any class thereof, and to fix the number of
shares in such series and the preferences, rights and restrictions thereof; and
WHEREAS, the Board of Directors of this Corporation has previously
authorized the issuance of a series of Preferred Stock, consisting of 5,000,000
shares, designated as "Series F Convertible Preferred Stock," all of which
shares have been issued and are outstanding; and
WHEREAS, the Corporation has previously filed a Certificate of
Elimination with the Secretary of State of the State of Delaware, eliminating
the Series A through Series E Convertible Preferred Stock, of which no shares
were then issued or outstanding; and
WHEREAS, it is now the desire of the Board of Directors, pursuant to
its authority as aforesaid, to establish a new series of preferred stock,
designated "Series B Convertible Preferred Stock," and to fix the powers,
preferences and rights of such Series B Convertible Preferred Stock; and
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
WHEREAS, it is now the desire of the Board of Directors, subject to the
approval of the holders of at least a majority of the shares of Common Stock and
Series F Convertible Preferred Stock, to amend the Certificate of Designation,
Statement Establishing Series F Convertible Stock, to alter the designation of
such series to be "Series A Convertible Preferred Stock," and to alter the
powers, preferences and rights of the Series A Convertible Preferred Stock to
conform to the powers, preferences and rights of the Series B Convertible
Preferred Stock.
NOW, THEREFORE, BE IT RESOLVED, that, subject to the approval of the
holders of at least a majority of the shares of Common Stock and Series F
Convertible Preferred Stock, the Certificate of Designation, Statement
Establishing the Series F Convertible Preferred Stock, is hereby amended such
that the Series F Convertible Preferred Stock is re-designated as "Series A
Convertible Preferred Stock," and the powers, preferences and rights of the
Series A Convertible Preferred Stock are amended as set forth below.
RESOLVED FURTHER, that there shall be another series of Preferred
Stock, $.00001 par value per share, of the Corporation, designated "Series B
Convertible Preferred Stock." The number of shares of Series B Convertible
Preferred Stock shall be 5,000,000. The powers, designations, preferences and
relative, participating, optional or other special rights of the shares of the
Series B Convertible Preferred Stock and the qualifications, limitations and
restrictions of such preferences and rights shall be as follows:
1. Definitions. For purposes of this Certificate of Designation, the
following definitions shall apply:
(a) "Additional Shares of Common Stock" means all shares of
Common Stock issued or deemed issued by the Corporation after
___________________ (the date of the first issuance by this Corporation of its
Series A Stock), whether or not subsequently reacquired or retired by the
Corporation, other than (i) Common Stock issued pursuant to a transaction
described in subsections 4(c), (d), (e), (f) and (g) hereof; (ii) shares of
Common Stock issued upon conversion of the Corporation's Series A Stock and
Series B Stock; or (iii) shares of Common Stock (and any related options or
warrants) issued to employees, officers, directors, consultants, contractors,
agents or other persons performing services or for extending credit to the
Corporation, issued pursuant to any stock option plan, stock purchase plan,
stock bonus plan, or other plan, agreement or arrangement approved by the Board.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Common Stock" means the Common Stock, $.0000l par value
per share, of the Corporation.
(d) "Common Stock Fair Market Value" means the fair market
value of a share of Common Stock, as determined in good faith by the Board for
the purpose of granting stock options or issuing shares to employees of the
Corporation or any subsidiary of the Corporation as of the applicable date.
(e) "Corporation" means Instant Video Technologies, Inc.
2
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
(f) "Original Series A Issue Price" means $1.00 per share for
the Series A Stock.
(g) "Original Series B Issue Price" means $2.00 per share for
the Series B Stock.
(h) "Preferred Stock" means the Series A Stock and the Series
B Stock of the Corporation.
(i) "Series A Stock" means the Series A Convertible Preferred
Stock established hereby.
(j) "Series B Stock" means the Series B Convertible Preferred
Stock established hereby.
(k) "Series A Reference Date" means, with respect to the
Series A Stock, _______________________.
(l) "Series B Reference Date" means, with respect to the
Series B Stock, the date this Certificate of Designation is filed with the
Secretary of State of Delaware.
2. Dividend Provisions. The holders of outstanding shares of Series A
Stock and Series B Stock described herein shall not be entitled to receive any
fixed dividends.
3. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of the
Series A Stock and Series B Stock shall be entitled to receive, out of the
assets of the Corporation available for distribution to its stockholders, prior
and in preference to any payment or distribution of the assets or surplus funds
of the Corporation to the holders of the Common Stock by reason of their
ownership thereof, an amount per share equal to: (1) with respect to the Series
A Stock, $1.00 for each outstanding share of Series A Stock; and (2) with
respect to the Series B Stock, (A) $7.50 for each outstanding share of Series B
Stock during the first year following the Series B Reference Date; (B) $8.40 for
each outstanding share of Series B Stock during the second year following the
Series B Reference Date; and (C) $9.30 for each outstanding share of Series B
Stock during and after the third year following the Series B Reference Date.
(b) If the assets and funds to be distributed among the
holders of the Series A Stock and the Series B Stock shall be insufficient to
permit the payment of the full aforesaid preferential amount to such holders,
then the entire assets and funds of the Corporation legally available for the
distribution to such holders shall be distributed ratably among the holders of
the Series A Stock and the Series B Stock and, as between such series, in
proportion to the product of the respective preferential amount of each such
share multiplied by the number of shares of such stock held by each such holder.
3
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
(c) After payment has been made to the holders of the Series A
Stock and the Series B Stock to the full aforesaid preferential amounts to which
they are entitled, all remaining assets of the Corporation shall be distributed
ratably on a per share basis among the holders of the Series B Stock and Common
Stock (assuming conversion of all Series B Stock into Common Stock).
(d) A consolidation of the Corporation with or merger into any
other corporation or corporations (other than a wholly-owned subsidiary
corporation or a merger to change the state of domicile of the Corporation), or
a sale, conveyance or disposition of all or substantially all of the assets of
the Corporation, or the effectuation by the Corporation of a transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Corporation is disposed of, shall be treated as a
liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section 3.
4. Conversion. The holders of the Series A Stock and the Series B Stock
shall have the following conversion rights:
(a) Right to Convert. Each share of Series A Stock and Series
B Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series A Issue Price or the Original Series B Issue Price, as appropriate, by
the Conversion Price at the time in effect for such series. The initial
Conversion Price per share for the Series A Stock shall be the Original Series A
Issue Price, and the initial Conversion Price per share for the Series B Stock
shall be the Original Series B Issue Price; provided, however, that the
Conversion Price for each series of Preferred Stock shall be subject to
adjustment from time to time as provided in subsections 4(c) through 4(h) below.
(b) Mechanics of Conversion. Each holder of Preferred Stock
who desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or any transfer agent for the Preferred Stock, and shall give
written notice to the Corporation at such office that such holder elects to
convert the same and shall state therein the number of shares of Preferred Stock
being converted. The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash any declared and unpaid dividends on the
shares of Preferred Stock being converted. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the certificate representing the shares of Preferred Stock to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock as of such date.
(c) Adjustment for Stock Splits and Combinations. If the
Corporation at any time or from time to time after the Series B Reference Date
effects a subdivision of the outstanding Common Stock, the Conversion Price for
the Series A Stock and the Series B Stock
4
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
in effect immediately before that subdivision shall be proportionately
decreased, and, conversely, if the Corporation at any time or from time to time
after the Series B Reference Date combines the outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price for the Series A
Stock and the Series B Stock in effect immediately before the combination shall
be proportionately increased. Any adjustment under this Section 4(c) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(d) Adjustment for Common Stock Dividends and Distributions.
If the Corporation at any time or from time to time after the Series B Reference
Date makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, in each such event the Conversion Price for
the Series A Stock and the Series B Stock that is then in effect shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect for each such series by a fraction (1) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed, the applicable Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price shall
be adjusted pursuant to this Section 4(d) to reflect the actual payment of such
dividend or distribution.
(e) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Series B Reference Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Series A Stock and the Series B Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
which they would have received had their Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 4 with respect to the rights of the holders of the Series A Stock and
the Series B Stock or with respect to such other securities by their terms.
(f) Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Series B Reference
Date, the Common Stock issuable upon the conversion of the Series A Stock and
the Series B Stock is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 4 or
5
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
Section 3(d)), then in any such event each holder of such series of Preferred
Stock shall have the right thereafter to convert such stock into the kind and
amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series A Stock and
Series B Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.
(g) Reorganizations. If at any time or from time to time after
the Series B Reference Date there is a capital reorganization of the Common
Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Section 4 or in Section 3(d)), as a part of such capital reorganization
provision shall be made so that the holders of the Series A Stock and the Series
B Stock shall thereafter be entitled to receive upon conversion of such series
of Preferred Stock the number of shares of stock or other securities or property
of the Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Stock and the Series B Stock after such capital
reorganization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price of the Series A Stock and the Series B Stock
then in effect and the number of shares issuable upon conversion of the Series A
Stock and the Series B Stock) shall be applicable after that event and be as
nearly equivalent as practicable.
(h) Adjustment to Series A Stock and Series B Stock Conversion
Price for Sale of Shares Below the Conversion Price.
(1) Adjustments to Series A Stock Conversion Price.
Upon each issuance by the Corporation of Additional Shares of Common Stock after
the Series A Reference Date, without consideration or for a consideration per
share less than the Conversion Price for the Series A Stock in effect
immediately prior to each such issuance, the Conversion Price for the Series A
Stock in effect immediately prior to each such issuance shall forthwith (except
as otherwise provided in this Section 4) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, (A) the numerator of which
shall be the sum of (i) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, plus (ii) the number of shares of
Common Stock that the aggregate consideration received (or deemed received) by
the Corporation for the total number of Additional Shares of Common Stock so
issued (or deemed issued) would purchase at such Conversion Price, and (B) the
denominator of which shall be the sum of (i) the number of shares of Common
Stock outstanding immediately prior to such issue or sale, plus (ii) the number
of shares such Additional Shares of Common Stock so issued (or deemed issued).
(2) Adjustments to Series B Stock Conversion Price.
Upon each issuance by the Corporation of Additional Shares of Common Stock after
the Series B Reference Date, without consideration or for a consideration per
share less than the Conversion Price for the
6
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
Series B Stock in effect immediately prior to each such issuance, the Conversion
Price for the Series B Stock in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in this Section 4) be adjusted to
a price equal to the consideration per share received (or deemed received) by
the Corporation for the Additional Shares of Common Stock so issued (or deemed
issued).
(3) Consideration. For the purpose of making any
adjustment in the Conversion Price for the Series A Stock and the Series B Stock
under this Section 4(h), consideration received by the Corporation for any issue
or sale of securities shall:
(A) to the extent it consists of cash, be
computed at the net amount of cash received by the Corporation after deduction
of any underwriting or similar commissions, concessions, or compensation paid or
allowed by the Corporation in connection with such issue or sale;
(B) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined in
good faith by the Board; and
(C) if Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined), or rights or options to
purchase either Additional Shares of Common Stock or Convertible Securities are
issued or sold together with other stock or securities or other assets of the
Corporation for a consideration that covers both, be computed as the portion of
the consideration so received that may be reasonably determined in good faith by
the Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
(4) Adjustment Formula for Issuances of Rights or
Options or Convertible Securities. For the purpose of the adjustment provided in
this Section 4(h), if at any time or from time to time after the Series A
Reference Date, with respect to the Series A Stock, or the Series B Reference
Date, with respect to the Series B Stock, the Corporation issues any rights or
options for the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities
hereinafter referred to as "Convertible Securities") then in each case, if the
Effective Price (as hereinafter defined) of such rights, options, or Convertible
Securities is less than the Conversion Price for the Series A Stock or the
Series B Stock, as appropriate, in effect immediately prior to such issuance,
the Corporation shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the
Corporation for the issuance of such rights or options or Convertible
Securities, plus, in the case of such options or rights, the minimum amounts of
consideration, if any, payable to the Corporation upon full exercise or
conversion of such options or rights. As used in this Section 4(h)(4), the term
"Effective Price" means the quotient determined by dividing the total of all of
such consideration by such maximum number of Additional Shares of Common Stock.
No further adjustment of the Conversion Price for the Series A Stock or the
Series B Stock, adjusted upon the issuance of such rights, options, or
Convertible Securities shall be made as result of the actual issuance of
7
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
Additional Shares of Common Stock upon the exercise of any such rights or
options or the conversion of any such Convertible Securities.
If any such rights or options or the conversion privilege
represented by any such Convertible Securities expire without having been
exercised, then the Conversion Price for the Series A Stock and the Series B
Stock, as appropriate, adjusted upon the issuance of such rights, options, or
Convertible Securities shall be readjusted to the applicable Conversion Price
that would have been in effect had an adjustment been made on the basis that the
only Additional Shares of Common Stock so issued were the Additional Shares of
Common Stock, if any, actually issued or sold on the exercise of such rights or
options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Corporation upon the
conversion of such Convertible Securities.
(5) Adjustments for Issuance of Rights or Options for
Convertible Securities. For the purpose of the adjustment provided in this
Section 4(h), if at any time or from time to time after the Series A Reference
Date, with respect to the Series A Stock, or the Series B Reference Date, with
respect to the Series B Stock, the Corporation issues any rights or options for
Convertible Securities, then, in each such case, if the Effective Price thereof
is less than the then current Conversion Price for the Series A Stock or the
Series B Stock, as appropriate, the Corporation shall be deemed to have issued
at the time of the issuance of such rights or options the maximum number of
Additional Shares of Common Stock issuable upon conversion of the total amount
of Convertible Securities covered by such rights or options and to have received
as consideration for the issuance of such Additional Shares of Common Stock an
amount equal to the amount of consideration, if any, received by the Corporation
for the issuance of such rights or options, plus the minimum amount of
consideration, if any, payable to the Corporation upon the full exercise of such
rights or options plus the minimum amount of consideration, if any, payable to
the Corporation upon the full conversion of such Convertible Securities. As used
in this Section 4(h)(5), the term "Effective price" means the quotient
determined by dividing the total amount of such consideration by such maximum
number of Additional Shares of Common Stock. No further adjustment of the
Conversion Price for the Series A Stock or the Series B Stock, adjusted upon the
issuance of such rights or options shall be made as a result of the actual
issuance of the Convertible Securities upon the exercise of such rights or
options or upon the actual issuance of Additional Shares of Common Stock upon
the conversion of such Convertible Securities. The provisions of Section 4(h)(4)
hereof for the readjustment of the Conversion Price for the Series A Stock and
the Series B Stock upon the expiration of rights or options or the rights of
conversion of Convertible Securities shall apply equally to the rights, options
and Convertible Securities referred to in this Section 4(h)(5).
(i) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of any Conversion Price for the number of shares of
Common Stock or other securities issuable upon conversion of the Preferred
Stock, the Corporation, at its expense, upon
8
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
the written request of a holder of Preferred Stock for which the Conversion
Price has been so adjusted, shall cause independent public accountants of
recognized standing selected by the Corporation (who may be the independent
public accountants then auditing the books of the Corporation) to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to such registered holder of
the Preferred Stock, and to all other holders of the same series of Preferred
Stock, at the holders' address as shown in the Corporation's books. The
certificate shall set forth such adjustment or readjustment, showing in
reasonable detail the facts upon which such adjustment or readjustment is based,
including a statement of the Conversion Price at the time in effect and the type
and amount, if any, of other property which at the time would be received upon
conversion of the relevant Preferred Stock.
6) Notices of Record Date. Upon (i) any taking by the
corporation of a record of the holders of any Preferred Stock for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation with or into any other
corporation, or any transfer of all or substantially all the assets of the
Company to any other person or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Preferred Stock at least thirty (30) days prior to the record date
specified therein a notice specifying (1) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (2) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (3) the date, if any, that is to
be fixed as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up; provided that such 30-day notice may be waived by the written
consent of the holders of at least a majority of the then outstanding Preferred
Stock and such waiver if obtained automatically shall be binding upon all
holders of Preferred Stock.
(k) Automatic Conversion.
(1) (A) Automatic Conversion of Series A Stock.
Subject to the provisions of Subsections 4(k)(2) and (3) hereof, each share of
Series A Stock shall be converted automatically into shares of Common Stock
based on the then effective Conversion Price for such share, upon the earlier of
(A) the closing of a firmly underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended (a
"Registration Statement") covering the offer and sale of Common Stock for the
account of the Corporation at a price per share of at least $4.00 (adjusted to
reflect subsequent stock splits, stock dividends, or recapitalizations and the
like) with an aggregate offering price for all shares under such Registration
Statement of at least $3,000,000.00, (B) at such time as fewer than 800,000
shares of the Series A Stock remain outstanding, or (C) upon the voluntary
consent of a majority of the voting power of the then outstanding shares of the
Series A Stock.
9
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
(B) Automatic Conversion of Series B Stock.
Subject to the provisions of Subsections 4(k)(2) and (3) hereof, each share of
Series B Stock shall be converted automatically into shares of Common Stock
based on the then effective Conversion Price for such share, upon the earlier of
(A) the closing of a firmly underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended (a
"Registration Statement") covering the offer and sale of Common Stock for the
account of the Corporation with an aggregate offering price for all shares under
such Registration Statement of at least $15,000,000.00, (B) at such time as
fewer than 100,000 shares of the Series B Stock remain outstanding, or (C) upon
the voluntary consent of a majority of the voting power of the then outstanding
shares of the Series B Stock.
(2) Automatic conversion under Section 4(k)(1) hereof
shall be conditioned upon payment by the Corporation of all declared and unpaid
dividends on the outstanding Preferred Stock to be converted and including the
date of such conversion, payable either in cash or, at the option of the
Corporation, Common Stock (valued at the Common Stock Fair Market Value), or
both.
(3) Upon the occurrence of any of the events
specified in Section 4(k)(1) hereof, the outstanding shares of the Preferred
Stock shall be converted automatically without any further action by the holders
of such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided, however, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Preferred Stock are either delivered to the
Corporation or its transfer agent as provided below, or the holder notifies the
Corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion of the Preferred
Stock, the holders of the Preferred Stock shall surrender the certificates
representing such shares at the office of the Corporation or any transfer agent
for the Preferred Stock or Common Stock. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Preferred Stock
surrendered were convertible on the date on which such automatic conversion
occurred.
(1) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to the product of such fraction multiplied by the Common Stock Fair
Market Value on the date of conversion.
(m) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock. If at any time the number of
10
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Corporation shall take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(n) Notices. Any notice required by the provisions of this
Section 4 to be given to or by the holders of shares of the Preferred Stock
shall be deemed given upon the earlier of actual receipt or seventy-two (72)
hours after the same has been deposited in the United States mail, by certified
or registered mail, return receipt requested, postage prepaid, and addressed to
each holder of record at the address of such holder appearing on the books of
the Corporation, or to the Corporation as to notices from holders.
(o) Payment of Taxes. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Preferred Stock, including without limitation any tax or
other charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the shares
of Preferred Stock so converted were registered.
(p) No Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
5. Voting Rights. The holder of each share of Preferred Stock shall
have the right to one (1) vote for each share of Common Stock into which such
Preferred Stock could then be converted (with any fractional share determined on
an aggregate conversion basis being rounded to the nearest whole share), and
with respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together as a single class with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote.
6. Status of Converted Preferred Stock. In case any shares of
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be cancelled and shall cease to be a part of the authorized
capital stock of the Corporation.
7. Restrictions and Limitations. So long as any shares of Preferred
Stock remain outstanding, the consent of the holders of a majority of the Series
A Stock and the Series B Stock then outstanding, each voting as a separate
series, shall be required with respect to any action that
11
<PAGE>
Amended Certificate of Designation, Series F Convertible Preferred
Certificate of Designation, Series B Convertible Preferred
involves any merger, reorganization or sale by the Corporation of all or
substantially all of its assets."
THIRD: The above amendments of the Certificate of Designation, Statement
Establishing the Series F Convertible Preferred Stock, and the designation of
the Series B Convertible Stock, have been duly adopted and approved pursuant to
Section 151 and Section 242 of the General Corporation Law of the State of
Delaware by the directors and stockholders of this Corporation, and the written
consent of the stockholders entitled to vote on the above amendments has been
given in accordance with Section 228 of the General Corporation Law of the State
of Delaware. The number of shares voting in favor of the foregoing amendment
equaled or exceeded the vote required, such required vote being a majority of
the outstanding shares of Common Stock and Series F Preferred Stock voting
together as a single class, and a majority of the outstanding shares of Series F
Preferred Stock, voting as a separate class.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Richard Lang, this Corporation's Chief Executive Officer, and duly
attested by John Micek, III, this Corporation's Secretary, this ____ day of
December, 1998.
INSTANT VIDEO TECHNOLOGIES, INC.
By:__________________________
Richard Lang
Chairman and Chief Executive Officer
ATTEST:
By:_____________________________
John J. Micek, III
Secretary
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<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
effective as of_________, 199_ by and among Instant Video Technologies, Inc., a
Delaware Corporation (the "Company") and ______________________, whose address
is ____________________.
RECITALS
WHEREAS, the Investor has agreed to purchase from the Company shares
of the Company's Series B Convertible Preferred Stock ("Series B Stock") and
warrants to purchase shares of Common Stock of the Company at a warrant exercise
price of $2.00 per share ("Warrants") pursuant to a Unit Purchase Agreement of
even date herewith (the "Unit Purchase Agreement").
WHEREAS, the obligations of the Company and the Shareholders under the
Unit Purchase Agreement are conditioned on, among other things, the execution
and delivery by the parties of this Agreement, which grants registration rights
to the Investor;
THEREFORE, in consideration of the promises and covenants contained
herein, the parties hereto agree as follows:
1. Definitions. For purposes of this Section:
(a) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of effectiveness of such registration statement or document.
(b) The term "Registrable Securities" means (1) the shares of
Common Stock issued and/or issuable upon conversion of the Series B Stock, (2)
the shares of Common Stock issued and/or issuable upon exercise of the Warrants
and (3) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such securities.
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock which
are Registrable Securities and (1) are then issued and outstanding or (2) are
issuable pursuant to then exercisable options, warrants or convertible
securities.
(d) The term "Holder" means (i) any person owning of record
Registrable Securities that have not been sold to the public and have not been
sold otherwise than in compliance with Section 8 hereof or (ii) any assignee of
record of such Registrable Securities in accordance with Section 8 hereof
provided, however, that for purposes of this Agreement, a record holder of
securities convertible into such Registrable Securities shall be treated as the
Holder of such Registrable Securities; and provided, further, that the Company
shall in no event be obligated to register such securities, and that Holders of
Registrable Securities will not be
<PAGE>
Registration Rights Agreement
required to convert such securities into Common Stock in order to exercise
registration rights granted hereunder, until immediately before the closing of
the offering to which the registration relates.
(f) The term "Form S-3" means such form under the Securities
Act as is in effect on the date hereof or any successor registration form under
the Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(g) The term "SEC" or "Commission" means the Securities and
Exchange Commission.
(h) The term "Securities Act" means the Securities Act of
1933, as amended.
2. Form S3 Registration. The Company shall effect a registration on
Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) the Company shall immediately, but no later than on or
prior to 180 days following the closing, register for sale all of the shares of
Common Stock issuable upon conversion of Preferred Stock and exercise of the
Warrants pursuant to Rules 415 and 416
(b). Promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities.
(c) However, the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section 3:
(I) if Form S-3 is not available for such offering by the Holders; (2) if the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of discount. and commissions) of less than $15,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement once during any twelve month period for a period of not
more than one hundred twenty (120) days after receipt of the request of the
Holder or Holders under this Section 3; (4) if the Company has, within the
twelve (12) month period preceding the date of such request, already effected
two registrations off Form S-3 for the Holders pursuant to this Section 3; or
(5) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(d) All expenses incurred in connection with any registration
requested pursuant to this Section 3 shall be borne by the Holders in proportion
to the number of Registrable Securities owned by the Holders included in such
registration at the time it goes effective.
3. Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the
2
<PAGE>
Registration Rights Agreement
Securities Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration statements
relating to employee benefit plans and corporate reorganizations), and will
afford each such Holder an opportunity to include in such registration statement
all or part of such Registrable Securities held by such Holder. Each Holder
desiring to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within twenty (20) days after the
giving of the above described notice by the Company, so notify the Company in
writing, which notice shall state the number of shares the Holder desires to
include and the intended method of disposition of the Registrable Securities by
such Holder. If a Holder decides not to include all of its Registrable
Securities in any registration statement filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) Underwriting. If the registration statement under which
the Company gives notice under this Section 2 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant to
this Section 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder'. Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriter.
Selected for such underwriting. Notwithstanding any other provision of this
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company and second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders. NO such reduction shall
reduce the securities being offered by the Company for its own account to be
included in the registration and underwriting. If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter, delivered at least five (5)
days prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(b) Registration Expenses. The Company shall bear all fees and
expenses incurred in connection with all registrations under this Section 2
(including but not limited to all registration and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and
reasonable fees and disbursements of a single special counsel representing all
or a majority of the participating Holders), except that each participating
Holder shall bear its proportionate share of all brokers in connection with such
amounts payable to underwriters or offering for fees and commissions.
4. Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become
3
<PAGE>
Registration Rights Agreement
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective
until all such shares have been sold or are otherwise freely transferable under
rule 144.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other document" as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration of Registrable Securities, addressed to the underwriters, if any,
and to the Holders requesting such registration.
4
<PAGE>
Registration Rights Agreement
5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2, 3, or 4
that the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
6. Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.
7. Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2 or 3:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, officer or director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld) nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation that
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder, partner,
officer, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of the directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such registration statement or any
of such other Holder's partners, directors or officers or any person who
controls such Holder, against any losses, claims, damages or liabilities (joint
or several) to which the Company or any
5
<PAGE>
Registration Rights Agreement
such director, officer, controlling person, underwriter or other such Holder,
partner or director, officer or controlling person of such other Holder may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or any such other Holder, expressly each such owner expenses
reasonably incurred by the Company director, officer, controlling person,
underwriter or partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 7(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided further, that in no event shall any indemnity under this
Section 7(b) exceed the gross proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under
this Section 7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 7, but the omission to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 7.
(d) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action Is required by the Securities Act.
(e) The obligations of the Company and Holders under this
Section 7 shall survive the completion of any offering of Registrable Securities
in a registration statement, and otherwise.
6
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Registration Rights Agreement
8. Assignment of Registration Rights. The rights to Cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned by
a Holder to a transferee or assignee of Registrable Securities provided,
however, that no such transferee or assignee shall be entitled to registration
rights under this Agreement unless (i) immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act; and (ii) such assignment is approved by the
Company, which approval will not be unreasonably withheld. The Company shall be,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned. Notwithstanding
the foregoing, rights to cause the Company to register securities may be
assigned to any constituent partner of a Holder without Company approval and
without regard to any minimum amount of Registrable Securities.
9. "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company or an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities (other than to donees who agree to be
similarly bound) for up to ninety (90) days following the effective date of a
registration statement of the Company filed under the Securities Act: provided,
however, that:
(a) Such agreement shall be applicable only to the first
next such registration statement of the Company which covers securities to be
sold on its behalf to the public in an underwritten offering; and
(b) All officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
10. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section
shall be binding upon each Holder and the Company. By acceptance of any benefits
under this Agreement, Holders of Registrable Securities hereby agree to be bound
by the provisions hereunder.
11. Governing Law. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California excluding that body of law relating to
conflicts of laws. The parties hereto agree to submit to the jurisdiction of the
federal and state courts of the State of California sitting in the City and
County of San Francisco with respect to the breach or interpretation of this
Agreement or the enforcement of any and all rights, duties, liabilities,
obligations, powers, and other relations between the parties arising under this
Agreement.
12. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding rights to registration
and the other subject matter hereof. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of,
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Registration Rights Agreement
and be binding upon the successors, assigns heirs, executors and administrators
of the parties hereto.
13. Notices. Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or five (5) days after
deposit with the United States mail, by registered or certified mail, postage
prepaid, addressed (a) if to an Investor, at such Investor's address as set
forth on Exhibit A, or at such other address as such Investor shall have
furnished to the Company in writing in accordance with this Section 14, (b) if
to any other holder of any securities or any Common Stock issued upon conversion
of Preferred Stock, at such address as such holder shall have furnished the
Company in writing in accordance with this Section 14, or, until any such holder
so furnishes an address to the Company, then to and at the address of the last
holder who has furnished an address to the Company, or (c) if to the Company, at
its principal office.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Registration
Rights Agreement as of _________________, 199_.
THE COMPANY:
Instant Video Technologies, Inc. a California corporation
By: __________________________________
Title: _______________________________
INVESTOR
By: __________________________________
Title: _______________________________
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EXHIBIT D
VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT
This VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT is entered into as
of ____________, 199_ by the undersigned shareholder (the "Shareholder") of
Instant Video Technologies, Inc., a Delaware corporation (the "Company"), and
_____________, whose address is _________________________________.
RECITALS
A. As of the above listed date, the Investor is purchasing units of
investment ("Units"), each of which consists of (i) 150,000 shares of the
Company's Series B Preferred Stock ("Series B Stock") and (ii) a warrant to
purchase 19,500 shares of the Company's Common Stock ("Common Stock") at an
exercise price of $2.00 per share, pursuant to that certain Unit Purchase
Agreement between the Company and the Investors dated as of the date hereof (the
"Purchase Agreement"). Additional purchasers of Units may execute this Agreement
as "Investors", whereupon such purchasers will be included within the term
"Investors" as used herein.
B. The Company has a seven member Board of Directors (the "Board").
C. It is a condition to the investment by the Investor under the
Purchase Agreement that the on-going composition of the Board of Directors of
the Company be established in an agreed upon manner.
D. It is also a condition to the investment by the Investor that they
be granted a Right of First Refusal to purchase any shares of Common Stock that
are offered for sale by the Shareholders.
B. This Agreement is being made by the various Shareholders as
additional consideration for the investment by the Investor and with the
acknowledgement of the Shareholders that the Investors are relying hereon in
making their investments.
THEREFORE, THE PARTIES AGREE AS FOLLOWS:
Voting Rights 1
1.1 Investor will vote all shares of capital stock of the Company
(whether Preferred, Common or otherwise) that such Investor may own, control or
have the power to vote from time to time, and, to the extent additional votes
are necessary, each Shareholder will vote a pro rata number of shares of such
capital stock (based on the ratio that the number of shares owned by such
Shareholder bears to the total number of shares owned by all Shareholders) that
such Shareholder may own, control or have the power to vote from time to time,
in such a manner as will ensure the election of two (2) directors to the Board
nominated by Investors holding a majority of the shares of Series B Stock and/or
Common Stock then held by all Investors (the Majority Investors).
1.2. Within five (5) days after receipt of notice of any meeting of
shareholders of the Company at which directors are to be elected, the Majority
Investors shall submit to the
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Voting and Right of First Refusal Agreement
Company and to the other Investors the names of the Investors' nominees for
director and such additional information regarding such nominees as the Company
may reasonably request.
1.3 In the event of any resignation, removal or death of a director
nominated or elected in the manner specified in paragraph (1), above, each
Shareholder and Investor will take such action as is necessary to replace such
director with a person nominated in the manner specified in paragraph 1 which
caused the election of such director.
1.4 The Shareholders, the Company and the Investor will not take
any action to cause the removal of a director nominated or elected in the manner
specified in paragraph 1 without the approval of the persons who had the right
to cause such nomination as provided in paragraph 1, except where such director
has committed criminal acts, has acted in a grossly improper or negligent manner
or has committed acts in bad faith.
1.5 The Shareholders and Investor will take such action as the
Majority Investor reasonably may request or as otherwise may reasonably be
required in order to effectuate the nomination and election of directors as
provided in paragraph 1.
1.6 This Agreement will apply to votes on the election of directors
to the Board, whether such votes involves cumulative voting or otherwise.
1.7 Each of the parties agree to use its best efforts to cause the
persons selected in the manner described in paragraph 1 to be nominated for
election to the Board.
Right of First Refusal 2
2.1 During the twelve (12) month period following the second
closing of the sale of Units by the Company (or following the first closing of
such sale in the absence of any additional closings after the first closing),
each Investor has the right of first refusal to purchase such Investor's pro
rata share (as defined below) of all, and not less than all, of any shares of
Common Stock that any Shareholder may, from time to time, propose to sell and
issue. An Investor's "Pro Rata Share" for purposes of this right of first
refusal is the ratio of the (a) number of shares of Common Stock into which the
shares of the Company's Series B Convertible Preferred Stock ("Series B Stock")
then held by such Investor are convertible, plus the number of shares of Common
Stock held by the Investor that were received upon conversion of the Investor's
Series B Stock and received upon exercise of the warrants issued to the Investor
concurrently with the issuance of Series B Stock ("Warrants"), to (b) the total
number of shares of Common Stock into which outstanding shares of Series B Stock
held by all Investors are convertible, plus the total number of shares of Common
Stock that were issued to Investors upon conversion of Series B Stock and
received upon exercise of Warrants.
2.2 In the event that a Shareholder proposes to sell shares of
Common Stock, such Shareholder shall give to each Investor written notice of the
Shareholder's intention, describing the price and the general terms upon which
the Shareholder proposes to sell the same. Each Investor shall have ten (10)
days from the date of mailing of any such notice to agree to purchase such
Investor's pro rata share of such shares of Common Stock for the price and upon
the general terms specified in the notice by giving written notice to the
Shareholder and stating therein the
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Voting and Right of First Refusal Agreement
quantity of such shares to be purchased. Each purchasing Investor shall have a
right of over-allotment such that if any other Investor fails to exercise such
other Investor's right hereunder to purchase such Investor's pro rata share of
such shares, the purchasing Investor may purchase the nonpurchasing Investor's
unpurchased pro rata share, within five (5) days from the date such
nonpurchasing Investor fails to exercise such Investor's right hereunder to
purchase such nonpurchasing Investor's full pro rata share of such shares of
Common Stock.
2.3 In the event that the Investors fail to exercise in full the right
of first refusal with respect to all shares of Common Stock being offered for
sale by a Shareholder within such ten (10) plus five (5) day period (it being
the intention of the parties that unless the right of first refusal is exercised
as to all such shares, the Shareholder may sell all or any portion of such
shares as hereinafter provided), the Shareholder shall have 120 days thereafter
to sell (or enter into an agreement pursuant to which the sale of such shares
covered thereby shall be closed, if at all, within 120 days from the date of
said agreement) all or any portion of such shares of Common Stock respecting
which the Investors' rights were not fully exercised, at a price and upon
general terms no more favorable to the purchasers than specified in the
Shareholder's notice to the Investors. In the event that the Shareholder has not
sold the shares of Common Stock within such 120-day period (or sold such shares
in accordance with the foregoing within 120 days from the date of such
agreement), the Shareholder shall not thereafter sell any shares of Common Stock
without first offering such shares pursuant to this Section 2.
2.4 Co-sale Agreement. The stock held by certain founders and senior
management of the Company shall be made subject to a co-sale agreement (subject
to certain reasonable exceptions) with the holders of Series B Preferred Stock
such that the founders may not sell, transfer or exchange their stock unless
each holder of the Series B Preferred Stock has the opportunity to participate
in the sale on a pro rata basis on the same terms and conditions. This right
shall terminate on a Qualified Public Offering with an aggregate offering price
for all shares of at least $15,000,000. The co-sale agreement shall provide a
right of first refusal in favor of the Preferred Stock and the other classes of
preferred stock with respect to sales of Common Stock by certain founders.
Senior officers of the Company will be prohibited from selling shares, whether
publicly or in private sales, in any amount greater than the number of shares
that could be sold to the public by such officers under the volume restrictions
imposed by Rule 144.
3. Each Shareholder and Investor represents that it has full power
and authority to vote the shares of stock of which it is the beneficial holder
on the books and records of the Company, and that it will not alienate such
power and authority separate and apart from the transfer of beneficial
ownership. Each of the Shareholders and Investors acknowledges and agrees that
this Agreement is intended to bind the successors and assigns of such person,
and accordingly that:
3.1 such person will not transfer any shares of stock in the
Company or warrants, options or other rights to purchase or acquire shares of
stock in the Company (collectively, rights) without obtaining the transferee's
written agreement to the terms hereof; and
3.2 such person will deliver to the Company the certificate"
representing his shares of stock in the Company or Rights in order that the
Company may place thereon the following restrictive legend:
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Voting and Right of First Refusal Agreement
THESE SECURITIES ARE SUBJECT TO THE TERMS OF A VOTING AND RIGHT OF FIRST REFUSAL
AGREEMENT, THE TERMS OF WHICH ARE AVAILABLE FROM THE SECRETARY OF THE COMPANY.
SUCH VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT IS BINDING UPON ANY HOLDER OF
THESE SECURITIES AND ANY SUCCESSOR OR ASSIGN OF ANY HOLDER OF THESE SECURITIES.
4. The Company agrees to promptly effect the legending of securities
as provided in paragraph 9(b), above.
5. Each Shareholder, each Investor and the Company acknowledge that
damages would be an insufficient remedy in the event of the breach hereof, and
hereby consents to any entry of equitable relief in the event of a breach
hereof. Each party consents to the jurisdiction and proper venue of any state or
federal court sitting in the City and County of San Francisco in any action to
enforce the terms hereof.
6. This Agreement may not be amended without the consent of a majority
in interest of the Shareholders, the Company and the Majority Investors.
7. This Agreement will terminate once there are fewer than 50% of the
greatest number of shares of Series B Stock previously outstanding, other than
by reason of a reverse stock split.
8. Each Shareholder and the Company acknowledge that the Investors are
intended third party beneficiaries of this Agreement.
9. The Company will cause each Shareholder to have notice of all
information necessary to effect the provisions of this Agreement.
10. The Agreement may be executed in multiple counterparts, each of
which will be an original. This Agreement will be governed by the substantive
laws of the State of California.
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Voting and Right of First Refusal Agreement
11. Each party to this Agreement agrees not to take any action, or in
any way encourage, condone, solicit, or support any action, that would have the
effect of producing a Board composed other than as specified in paragraph 1, but
rather to take all actions necessary to encourage and promote such Board
composition.
IN WITNESS OF THIS AGREEMENT the parties hereto have executed THIS
VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT as of __________, 199_.
THE COMPANY:
Instant Video Technologies, Inc.
A Delaware Corporation
By: ____________________________________
Title: _________________________________
INVESTOR:
By: ___[name]________
By: ____________________________________
Title: _________________________________
5
UNIT PURCHASE AGREEMENT
This UNIT PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of February 14, 1996 by and among Instant Video Technologies, Inc., a
Delaware corporation (the "Company"), and the parties listed on the Schedule of
Investors attached to this Agreement as Exhibit A (each hereinafter individually
referred to as an "Investor" and collectively referred to as the "Investors").
W I T N E S S E T H:
WHEREAS, the Company desires to sell to the Investors, and the
Investors desire to purchase from the Company, units of investment, each of
which consists of (i) one share of the Company's Series F Convertible Preferred
Stock (the "Series F Stock") and (ii) a warrant to purchase one share of the
Company's Common Stock (a "Warrant") at a warrant exercise price of $1.00 per
share (individually, a "Unit" and collectively, the "Units"), on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
1.1 Authorization. As of the Closing (as defined below) the
Company will have authorized the issuance, pursuant to the terms and conditions
of this Agreement, of up to five million (5,000,000) shares of the Company's
Series F Preferred Stock (the "Series F Stock") having the rights, preferences,
privileges and restrictions set forth in the Certificate of Designation of the
Company attached to this Agreement as Exhibit B (the "Certificate"). The Company
reserves the right to amend its Certificate of Incorporation subsequent to the
Closing to eliminate all provisions relating to the Company's authorized shares
of Series A, Series B, Series C and Series D Convertible Preferred Stock, none
of which shares shall then be outstanding, and redesignate the Company's Series
E Convertible Preferred Stock ("Series E Stock") as Series A Preferred Stock and
the Series F Stock as Series B Preferred Stock. Each Investor hereby consents to
such amendment to the Certificate of Incorporation and an amendment to this
Agreement to reflect such changes in the Certificate of Incorporation. In the
event of such redesignation, all references herein to Series E Stock and Series
F Stock shall be deemed to refer to the Company's Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock, respectively.
1.2 Agreement to Purchase and Sell. The Company agrees to sell
to each Investor at the Closing, and each Investor agrees, severally and not
jointly, to purchase from the Company at the Closing, the number of Units set
forth beside such Investor's name
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on Exhibit A, at a price of $1.00 per Unit. The shares of Series F Stock and the
Warrants purchased and sold pursuant to this Agreement shall be collectively
hereinafter referred to as the "Purchased Securities", and the shares of Common
Stock issuable upon conversion of the shares of Series F Stock and the shares of
Common Stock issuable upon the exercise of any Warrant shall be collectively
hereinafter referred to as the "Common Shares".
2. CLOSING.
2.1 The Closing. The purchase and sale of the Purchased
Securities shall take place at the offices of Carr, DeFilippo & Ferrell, LLP,
2225 East Bayshore Road, Suite 200, Palo Alto, California, at 10:00 a.m. Pacific
Time, on February 14, 1996 or at such other time and place as the Company and
Investors who have agreed to purchase a majority of the Purchased Securities
listed on Exhibit A mutually agree upon (which time and place are referred to in
this Agreement as the "Closing"). At the Closing, the Company will deliver to
each Investor a certificate representing the number shares of Series F Stock,
and a warrant in the form of Exhibit C hereto representing the number of
Warrants, that such Investor has agreed to purchase hereunder as shown on
Exhibit A against delivery to the Company by such Investor of the full purchase
price of such Purchased Securities, paid by (i) a bank certified check payable
to the Company's order, (ii) wire transfer of immediately available funds to the
Company, or (iii) any combination of the foregoing.
2.2 Additional Closing(s).
(a) Conditions of Additional Closing(s). At any time
and from time to time during the period immediately following the Closing and
ending on December 31, 1996, the Company may at one or more additional closings
(each an "Additional Closing"), without obtaining the signature, consent or
permission of any of the Investors, offer and sell to other investors ("New
Investors"), at a price of $1.00 per Unit, (i) up to that number of Units such
that the total number of Units sold by the Company (inclusive of the number of
Units sold at the Closing and at any prior Additional Closings) equals five
million (5,000,000). New Investors may include persons or entities who were
previously Investors under this Agreement. It is the expectation of the parties
that one such Additional Closing will take place for the purchase and sale of up
to an additional 500,000 of Units on or about February 23, 1996 to persons or
entities introduced to the Company by the Investors.
(b) Amendments. The Company and the New Investors
purchasing Units at each Additional Closing will execute counterpart signature
pages to this Agreement, the Registration Rights Agreement (as defined in
Section 5.4) and the Voting Agreement (as defined in Section 5.5), and such New
Investors will, upon delivery to the Company of such signature pages, become
parties to, and bound by, this Agreement, the Registration Rights
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Agreement and the Voting Agreement, each to the same extent as if they had been
Investors at the Closing. Immediately after each Additional Closing, Exhibit A
to this Agreement will be amended to list the New Investors purchasing Units
hereunder and the number of Units purchased by them under this Agreement at such
Additional Closing. Upon the completion of each Additional Closing as provided
in this Section 2, each New Investor will be deemed to be an "Investor" for all
purposes of this Agreement, the Registration Rights Agreement and the Voting
Agreement. The Company will promptly furnish to each Investor copies of the
amendments to Exhibit A referred to in the preceding sentence.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Investor that the statements in the following
paragraphs of this Section 3 are all true and correct:
3.1 Organization1 Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own its properties and assets and to carry on its business as now
conducted and as proposed to be conducted. The Company is qualified to do
business as a foreign corporation in each jurisdiction where failure to be so
qualified would have a material adverse effect on its financial condition,
business, prospects or operations.
3.2 Due Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
the Company under, this Agreement, the Registration Rights Agreement and the
Voting Agreement has been taken or will be taken prior to the Closing and this
Agreement constitutes, and the Registration Rights Agreement and the Voting
Agreement when executed will constitute, valid and legally binding obligations
of the Company, enforceable in accordance with their respective terms, except as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally and (ii) the effect of rules of law governing the
availability of equitable remedies.
3.3 Valid Issuance of Purchased Securities. The Purchased
Securities, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration provided for herein, will be duly and validly
issued, fully paid and nonassessable.
3.4 Capitalization. Immediately prior to the Closing the
capitalization of the Company will consist of the following:
(a) Preferred Stock. A total of 11,938,467.32
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authorized shares of preferred stock, $.000l par value per share (the "Preferred
Stock"), consisting of 11,966.497 shares designated as Series A Convertible
Preferred Stock, none of which will be issued and outstanding, an aggregate of
6,500.829 shares designated as Series B-l through B-4 Convertible Preferred
Stock, none of which will be issued and outstanding, 20,000 shares designated as
Series C Convertible Preferred Stock, none of which will be issued and
outstanding, 5,900,000 shares designated as Series D Convertible Preferred
Stock, none of which will be issued and outstanding (all such Series A through D
Convertible Preferred Stock having previously either been converted into Common
Stock or contributed back to the Company), 1,000,000 shares designated as Series
E Convertible Preferred Stock, 500,000 of which will be issued and outstanding
and 5,000,000 shares of Series F Stock, none of which will be issued and
outstanding.
(b) Common Stock. A total of 100,000,000 authorized
shares of common stock, no par value per share (the "Common Stock"), of which
4,4644,011 shares will be issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for
(i) the conversion privileges of the Series E Stock and the Series F Stock, (ii)
the right of first refusal granted to the Investors hereunder, (iii) other
outstanding options, warrants, rights or agreements for the purchase or
acquisition of not in excess of 4,200,000 Common Stock equivalents; there are
not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any securities convertible into or
ultimately exchangeable or exercisable for any shares of the Company's capital
stock. Apart from the exceptions noted in this Section 3.2(c), and except for
right of first refusal provided in the Voting Agreement, none of the Company's
outstanding capital stock, or stock issuable upon exercise or exchange of any
outstanding options, warrants or rights, is subject to any rights of first
refusal or other rights to purchase such stock (whether in favor of the Company
or any other person), pursuant to any agreement or commitment of the Company.
3.5 Disclosure. This Agreement, the Exhibits hereto and all
written documents previously provided to the Investors in connection with the
transactions contemplated by this Agreement (when read together) do not contain
any untrue statement of a material fact and do not omit to state a material fact
necessary to make the statements therein or herein not misleading; except that,
with respect to any financial projections submitted to the Investors, the
Company represents and warrants only that such financial projections were
prepared in good faith based on reasonable assumptions that may or may not be
accurate or occur, in which case the Investors could lose all or part of their
investment in the Purchased Securities.
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4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS.
Each Investor hereby represents and warrants to, and agrees with, the Company,
severally and not jointly, that:
4.1 Authorization. All corporate or other action on the part
of such Investor, its officers, directors, partners and/or shareholders
necessary for the authorization, execution, delivery of, and the performance of
all obligations of such Investor under, this Agreement, the Registration Rights
Agreement and the Voting Agreement has been taken or will be taken prior to the
Closing and this Agreement constitutes such Investor's valid and legally binding
obligation, enforceable in accordance with its terms except as may be limited by
(i) applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) the effect of rules of law governing the availability of
equitable remedies. Each Investor represents that it has full power and
authority to enter into this Agreement, the Registration Rights Agreement and
the Voting Agreement.
4.2 Purchase for Own Account. The Purchased Shares to be
purchased by such Investor hereunder will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
public resale or distribution thereof within the meaning of the Securities Act
of 1933, as amended (the "1933 Act"), and such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
4.3 Disclosure of Information. The Investor has had full
access to all the information that the Investor (or the Investor's advisors)
considers necessary or appropriate to make an informed decision with respect to
the Investor's investment in the Purchased Securities. The Investor acknowledges
that the Company has made available to the Investor and the Investor's advisors
the opportunity to ask questions and examine any document, matter or information
that the Investor considers relevant or appropriate in connection with such
investment and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Investor or to
which the Investor had access. To the extent that the Investor has not sought
information regarding any particular matter, the Investor represents that the
Investor had no interest in doing so and that such matters are not material to
the Investor in connection with such investment. The Investor has accepted the
responsibility for conducting the Investor's own investigation and obtaining for
the Investor, from the above sources and other sources, such information as to
the foregoing and all other subjects as the Investor deems relevant or
appropriate in connection with such investment.
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4.4 Investment Experience. Such Investor understands that the
purchase of the Purchased Securities involves substantial risk. Such Investor
has experience as an investor in securities of companies in the development
stage and acknowledges that such Investor is able to fend for itself, can bear
the economic risk of such Investor's investment in the Purchased Securities and
has such knowledge and experience in financial or business matters that such
Investor is capable of evaluating the merits and risks of this investment in the
Purchased Securities. If not an individual, such Investor also represents that
it has not been organized for the specific purpose of acquiring the Purchased
Securities, or, alternatively, if such Investor has been organized for the
specific purpose of acquiring the Purchased Securities, such Investor has
notified the Company in writing of such fact, and has provided, and shall
provide to the Company prior to the Closing, such additional documents and
information as the Company may reasonably request to confirm compliance by the
Company with applicable federal and state securities laws and regulations.
4.5 Accredited Investor Status. Such Investor is an
"accredited investor" within the meaning of Regulation D promulgated under the
1933 Act.
4.6 Restricted Securities. Such Investor understands that the
Purchased Securities are characterized as "restricted securities" under the 1933
Act inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under the 1933 Act and applicable
regulations thereunder such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with Rule 144 of the U.S. Securities and
Exchange Commission ("SEC"), as presently in effect, and understands the resale
limitations imposed thereby and by the 1933 Act. Such Investor acknowledges and
agrees that the Company shall be under no obligation to maintain the
registration of the Company's Common Stock under the Securities and Exchange Act
of 1934 and that if such registration is terminated, Rule 144 will not be
available to such Investor for resales of any of the Purchased Securities or the
Common Shares. Such Investor understands that the Company is under no obligation
to register any of the securities sold hereunder except as provided in the
Registration Rights Agreement. Such Investor understands that no public market
now exists for any of the Purchased Securities and it is uncertain whether a
public market will ever exist for the Purchased Securities or the Common Shares.
4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Purchased Securities or the
Common Shares unless and until:
(a) there is then in effect a registration
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statement under the 1933 Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(b) (i) such Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (ii)
such Investor shall have furnished the Company, at the expense of such Investor
or its transferee, with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the 1933 Act.
4.8 Legends. It is understood that the certificates evidencing
the Purchased Securities and the Common Shares will bear the legends set forth
below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code or any
other state securities laws, including legends on certificates evidencing shares
of Series F Stock substantially in the form of the following:
THE SHARES EVIDENCED BY THIS CERTIFICATE:
(1) ARE CONVERTIBLE INTO SHARES OF COMMON STOCK OF THE COMPANY AT THE OPTION OF
THE HOLDER AT ANY TIME PRIOR TO AUTOMATIC CONVERSION THEREOF; (2) AUTOMATICALLY
CONVERT INTO COMMON STOCK OF THE COMPANY IN THE EVENT OF A PUBLIC OFFERING
MEETING CERTAIN REQUIREMENTS OR UPON CERTAIN CONSENTS OF THE HOLDERS OF THE
COMPANY'S PREFERRED STOCK; AND (3) ARE REDEEMABLE; ALL PURSUANT TO AND UPON THE
TERMS AND CONDITIONS SPECIFIED IN THE COMPANY'S CERTIFICATE OF INCORPORATION, A
COPY OF WHICH MAY BE OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S PRINCIPAL
OFFICE.
(c) It is understood that the certificates evidencing
the shares of Common Stock subject to the Voting Agreement will bear the legend
set forth below:
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<PAGE>
THESE SECURITIES ARE SUBJECT TO THE TERMS OF
A VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT, THE TERMS OF WHICH ARE AVAILABLE
FROM THE SECRETARY OF THE COMPANY. SUCH AGREEMENT IS BINDING UPON ANY HOLDER OF
THESE SECURITIES, AND ANY SUCCESSOR OR ASSIGN OF ANY HOLDER OF THESE SECURITIES.
The legend set forth in (a) above shall be removed by the Company from any
certificate evidencing Purchased Securities or Common Shares upon delivery to
the Company of an opinion by counsel, in form and substance reasonably
satisfactory to the Company, that a registration statement under the 1933 Act is
at that time in effect with respect to the legended security or that such
security can be freely transferred in a public sale without such a registration
statement being in effect and that such transfer will not jeopardize the
exemption or exemptions from registration pursuant to which the Company issued
the Purchased Securities or Common Shares.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The obligations of
each Investor under Section 2 of this Agreement are subject to the fulfillment
or waiver, on or before the Closing, of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
to such waiver, which consent may be given by written, oral or telephone
communication to the Company, its counsel or to special counsel to the
Investors:
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Certificate Effective. The Certificate shall have been
duly filed with and accepted by the Secretary of State of the State of Delaware.
5.4 Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement in the form attached to
this Agreement as Exhibit D (the "Registration Rights Agreement").
5.5 Voting Agreement. The Company and the holders of the
Company's Common Stock who are parties to the Voting and Right of First Refusal
Agreement in the form attached to this Agreement
8
<PAGE>
as Exhibit E (the "Voting Agreement") shall each have executed and delivered the
Voting Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment or waiver on or before the Closing of each of the following
conditions by such Investor:
6.1 Representations and Warranties. The representations and
warranties of such Investor contained in Section 4 shall be true and correct on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. Each Investor shall have
delivered to the Company the purchase price specified for such Investor on
Exhibit A in accordance with the provisions of Section 2.
6.3 Certificate Effective. The Certificate shall have been
duly filed with and accepted by the Secretary of State of the State of Delaware.
6.4 Securities Exemptions. The offer and sale of the Purchased
Securities to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, and the registration and/or
qualification requirements of all applicable state securities laws.
6.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel, and the Company
shall have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request.
7. RIGHT OF FIRST REFUSAL.
7.1 General. Each holder of Series F Stock, including each
holder of Common Stock received upon conversion of such holder's Series F Stock
(a "Holder"), has the right of first refusal to purchase such Holder's pro rata
share (as defined below) of all, and not less than all, of any "New Securities"
(as defined in Section 7.2) that the Company may, from time to time, propose to
sell and issue. A Holder's "pro rata share" for purposes of this right of first
refusal is the ratio of the (a) number of shares of Common Stock into which the
shares of the Holder's Series F Stock are convertible, plus the number of shares
of Common Stock held by the Holder that were received upon conversion of such
holder's Series F Stock and received upon exercise of Warrants, to (b) the total
number of shares of Common Stock into which all currently
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<PAGE>
outstanding shares of Series F Stock are convertible, plus the total number of
shares of Common Stock that were issued upon conversion of Series F Stock and
received upon exercise of Warrants.
7.2 New Securities. "New Securities" shall mean any Common
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
"New Securities" does not include: (i) shares of the Company's Common Stock (or
related options) issued to employees, officers, directors or consultants of the
Company pursuant to incentive agreements or plans approved by the Board of
Directors of the Company or any other securities issued upon the exercise of any
outstanding option, warrant or other right, (ii) securities issuable upon
conversion of or with respect to Series E or Series F Stock, (iii) shares of the
Company's Common Stock or Preferred Stock issued in connection with any stock
split or stock dividend (iv) securities offered to the public pursuant to a
registration statement filed under the 1933 Act, or (v) securities issued
pursuant to the acquisition of another corporation or entity by the Company by
merger, purchase of substantially all of the assets, or other reorganization
after which the Company owns not less than fifty-one (51%) of the voting power
of such other corporation or fifty-one (51%) of the ownership of such other
entity.
7.3 Mechanics of Right. In the event that the Company proposes
to undertake an issuance of New Securities, it shall give to each Holder written
notice of its intention, describing the type of New Securities, the price and
the general terms upon which the Company proposes to issue the same. Each Holder
shall have ten (10) days from the date of mailing of any such notice to agree to
purchase such Holder's pro rata share of such New Securities for the price and
upon the general terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased. Each
purchasing Holder shall have a right of overallotment such that if any other
Holder fails to exercise such other Holder's right hereunder to purchase such
Holder's pro rata share of New Securities, the purchasing Holder may purchase
the nonpurchasing Holder's unpurchased pro rata share, within five (5) days from
the date such nonpurchasing Holder fails to exercise such Holder's right
hereunder to purchase such nonpurchasing Holder's full pro rata share of New
Securities.
7.4 Failure to Exercise. In the event that the Holders fail to
exercise in full the right of first refusal with respect to all New Securities
within such ten (10) plus five (5) day period (it being the intention of the
parties that unless the right of first refusal is exercised as to all New
Securities, the Company may issue all or any part of the New Securities as
hereinafter
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<PAGE>
provided), the Company shall have 120 days thereafter to sell (or enter into an
agreement pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within 120 days from the date of said agreement) the New
Securities respecting which the Holder's rights were not exercised, at a price
and upon general terms no more favorable to the purchasers thereof than
specified in the Company's notice to the Holders. In the event that the Company
has not sold the New Securities within such 120-day period (or sold and issued
New Securities in accordance with the foregoing within 120 days from the date of
such agreement), the Company shall not thereafter issue or sell any New
Securities without first offering such New Securities pursuant to this Section
7.
7.5 Termination. The right of first refusal shall terminate
immediately before the closing of the first firmly underwritten public offering
of Common Stock of the Company pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of Common Stock for the account
of the Company at a price per share of at least $4.00, with an aggregate
offering price for all shares under such registration statement of at least
$3,000,000.
8. MISCELLANEOUS.
8.1 Survival of Warranties. The representations, warranties
and covenants of the Company and the Investors as contained in or made pursuant
to this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of any of the Investors, their counsel or
the Company, as the case may be.
8.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
8.3 Governing Law; Forum. This Agreement shall be governed by
and construed under the internal laws of the State of California as applied to
agreement among California residents entered into and to be performed entirely
within California, without reference to principles of conflict of laws or choice
of laws. Each party consents to the jurisdiction and proper venue of the state
and federal courts sitting in the City and County of San Francisco in any action
to enforce the terms hereof.
8.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
8.5 Headings. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which are incorporated herein by this reference.
8.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on Exhibit A or, in the case of the Company, at 500
Sansome Street, Suite 503, San Francisco, California 94111, or at such other
address as such party may designate by ten (10) days advance written notice to
all other parties.
8.7 Finder's Fees. Other than fees that may be payable by the
Company to Mr. Bennett Johnston (the amount of which may be subject to dispute)
and a 100,000 Unit commission payable to Stuart Rudick which shall in no event
exceed 100,000 options to purchase the Company's Common Stock at $1.00 per
share, each party represents that it neither is nor will be obligated for any
finder's or broker's fee or commission in connection with this transaction. Each
Investor agrees to indemnify and to hold harmless the Company from any liability
for any commission or compensation in the nature of a finders' or broker's fee
(and any asserted liability) for which the Investor or any of its officers,
partners, employees, or representatives is responsible. The Company agrees to
indemnify and hold harmless each Investor from any liability for any commission
or compensation in the nature of a finder's or broker's fee (and any asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
8.8 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Registration
Rights Agreement, the Voting Agreement or the Certificate, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
8.9 Amendments and Waivers. Except as specified in Section
2.2, any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of the
Company and the holders of shares of Series F Stock and/or Common Shares
representing at least 66-2/3% of the aggregate number of shares of Common Stock
into which such shares of Series F Stock then are convertible and/or have been
converted (excluding any of such
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<PAGE>
shares that have been sold to the public or pursuant to SEC Rule 144). Any
amendment or waiver effected in accordance with this Section shall be binding
upon each holder of any Purchased Securities and/or Common Shares at the time
outstanding, each future holder of such securities, and the Company; provided,
however, that no condition set forth in Section 5 may be waived with respect to
any Investor who does not consent thereto.
8.10 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
8.12 Entire Agreement. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire understanding and
agreement of the parties with respect to the subject matter hereof and
supersedes all prior understandings and agreements with respect to such matters.
8.13 Further Assurances. From and after the date of this
Agreement, upon the request of any Investor or the Company, the Company and the
Investors shall execute and deliver such instruments, documents or other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Unit
Purchase Agreement as of the date first above written.
THE COMPANY: THE INVESTORS:
Instant Video Technologies, Inc. Storie Partners, a California
a Delaware corporation limited partnership
By: _________________________________ By: Storie Advisors, Inc.,
General Partner
Title: ______________________________
By: _________________________________
Title: ______________________________
Mindful Partners, a
California limited
partnership
By: _________________________________
Stuart Rudick
General Partner
Executed April ___, 1996
_____________________________________
Reed Slatkin
Executed ______________________, 1996
Delaware Charter Guaranty and
Trust Company FBO Stuart L.
Rudick IRA Rollover
By: _________________________________
Title: ______________________________
Executed April ___, 1996
_____________________________________
ROBERT LONDON
Executed June __, 1996
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<PAGE>
LIST OF EXHIBITS
Exhibit A - Schedule of Investors
Exhibit B - Certificate of Designation
Exhibit C - Form of Warrant
Exhibit D - Registration Rights Agreement
Exhibit E - Voting and Right of First Refusal Agreement
<PAGE>
EXHIBIT A
Schedule of Investors
Shares of Series F Purchase
Investor Stock Purchased Warrants Price
- -------- --------------- -------- -----
Storie Partners 700,000 700,000 $700,000
One Bush Street
Suite 1350
San Francisco, CA 94104
Att: ___________________
Mindful Partners 250,000(1) 250,000(1) $250,000(1)
591 Redwood Highway
Suite 5295
Mill Valley, CA 94941
Att: Stuart Rudick
Reed Slatkin 200,000 200,000 $200,000
890 North Kellogg Avenue
Santa Barbara, California 93111
Delaware Charter Guaranty 75,000 75,000 $ 75,000
Trust Company FBO Stuart L.
Rudick IRA Rollover
c/o Mindful Partners
591 Redwood Highway
Suite 5295
Mill Valley, CA 94941
Att: Stuart Rudick
Robert London 100,000 100,000 $100,000
c/o Crittendon Roth & Co.
809 Presidio Avenue
Santa Barbara, CA 93101
- ---------------------
(1) $150,000 of which was invested on or about February 14, 1996, with the
remaining $100,000 invested in April 1996.
<PAGE>
EXHIBIT B
CERTIFICATE OF DESIGNATION
<PAGE>
Exhibit A
Series F Convertible Preferred Stock
WHEREAS, the Certificate of Incorporation of the Corporation provides for a
class of shares of stock designated "Preferred Stock," and vests in the Board of
Directors the authority to specify the number of shares of Preferred Stock to be
issued, to divide the Preferred Stock into one or more series within any class
thereof, and to fix the number of Shares in such series, and the preferences,
rights and restrictions thereof; and
WHEREAS, the Corporation desires to designate a Series F Convertible Preferred
Stock;
NOW, THEREFORE, be it resolved that there shall be another series of Preferred
Stock of the Corporation designated "Series F Convertible Preferred Stock." The
number of shares of Series F Convertible Preferred Stock shall be 5,000,000. The
powers, designations, preferences and relative, participating, optional or other
special rights of the shares of the Series F Convertible Preferred Stock and the
qualifications, limitations and restrictions of such preferences and rights
shall be as follows:
1. Definitions. For purposes of this Certificate of Designation, the
following definitions will apply:
(a) "Additional Shares of Common Stock" means all shares of Common
Stock issued or deemed issued by the Corporation after the sale of any shares of
Series F Stock, whether or not subsequently reacquired or retired by the
Company, other than (i) shares of Common Stock issued upon conversion of the
Corporation's Series A through F Convertible Preferred Stock; or (ii) shares of
Common Stock (and any related options or warrants therefor) issued to employees,
officers, directors, consultants, contractors, agents or other persons
performing services or for extending credit to the Corporation, issued pursuant
to any stock option plan, stock purchase plan, stock bonus plan, or other plan,
agreement or arrangement approved by the Board.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Common Stock" means the Common Stock of the Corporation.
(d) "Common Stock's Fair Market Value" means the fair market value of a
share of Common Stock, as determined in good faith by the Board for the purpose
of granting stock options or issuing shares to employees of the Corporation or
any subsidiary of the Company as of the applicable date.
(e) "Corporation" means this corporation.
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(f) "Original Issue Price" means $1.00 per share for the Series F
Stock.
(g) "Series F Stock" means the Series F Convertible Preferred Stock
established hereby.
(h) "Reference Date" means, with respect to the Series F Stock, the
date this Certificate of Designation is filed with the Secretary of State of
Delaware.
2. Dividend Provisions. The holders of outstanding shares of Series F
Stock described herein shall not be entitled to receive any fixed dividends.
3. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of each
share of Series F Stock shall be entitled to receive, out of the assets of the
Corporation available for distribution to its stockholders before any payment or
distribution shall be made on the Common Stock, and after any payment or
distribution shall be made on the Series E Convertible Preferred Stock, an
amount per share equal to $1.00, adjusted for any combinations, consolidations,
or stock distributions or dividends with respect to such shares occurring after
the date hereof, and, in addition, an amount equal to all declared but unpaid
dividends on the Series F Stock. If the assets and funds to be distributed among
the holders of the Series F Stock shall be insufficient to permit the payment of
the full aforesaid preferential amount to such holders, then the entire assets
and funds of the Corporation legally available for the distribution to such
holders shall be distributed among the holders of the Series F Stock in
proportion to the aggregate preferential amount of all shares of Series F Stock
held by them. After payment has been made to the holders of the Series F Stock,
the holders of the Common Stock shall be entitled to share ratably in the
remaining assets on the basis of the number of shares of Common Stock held by
them at the time of such liquidation.
(b) For purposes of this Section 3, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the Corporation, or the sale or any
other corporate reorganization, in which shareholders of the Corporation receive
distributions as a result of such consolidation, merger, sale of assets or
reorganization, shall be treated as a liquidation, dissolution or winding up of
the Corporation, unless the stockholders of the Corporation hold more than fifty
percent (50%) of the voting equity securities of the successor or surviving
corporation immediately following such consolidation, merger, sale of assets or
reorganization in which event such consolidation,
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merger, sale of assets, or reorganization shall not be treated as a liquidation,
dissolution or winding up.
4. Conversion. The holders of the Series F Stock will have the
following conversion rights:
(a) Right to Convert. Each share of Series F Stock will be convertible,
at any time or from time to time at the option of the holder thereof, into fully
paid and nonassessable shares of Common Stock as provided herein.
(b) Conversion Price. Each share of Series F Stock will be convertible
into the number of shares of Common Stock which results from dividing the
conversion price of the Series F Stock that is in effect at the time of
conversion (the "Conversion Price") into the Original Issue Price for such
series of Preferred Stock. The initial Conversion Price for the Series F Stock
will be the Original Issue Price for such series. The Conversion Price will be
subject to adjustment from time to time as provided below.
(c) Mechanics of Conversion. Each holder of Series F Stock who desires
to convert the same into shares of Common Stock will surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or any
transfer agent for the Series F Stock or Common Stock, and will give written
notice to the Corporation at such office that such holder elects to convert the
same and will state therein the number of shares of Series F Stock being
converted. Thereupon the Corporation will promptly issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled and will promptly pay in cash any
declared and unpaid dividends on the shares of Series F Stock being converted.
Such conversion will be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate representing the
shares of Series F Stock to be converted, and the person entitled to receive the
shares of Common Stock issuable upon such conversion will be treated for all
purposes as the record holder of such shares of Common Stock on such date.
(d) Adjustment for Stock Splits and Combinations. If the Corporation at
any time or from time to time after the Reference Date of the Series F Stock
effects a subdivision of the outstanding Common Stock, the Conversion Price for
such Series F Stock in effect immediately before that subdivision will be
proportionately decreased, and, conversely, if the Corporation at any time or
from time to time after the Reference Date of the Series F Stock combines the
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price for the Series F Stock in effect immediately before the
combination will be proportionately
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<PAGE>
increased. Any adjustment under this Section 4(d) will become effective at the
close of business on the date the subdivision or combination becomes effective.
(e) Adjustment for Common Stock Dividends and Distributions. If the
Corporation at any time or from time to time after the Reference Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Conversion Price for the Series F Stock that is
then in effect will be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction (1) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the applicable Conversion Price will be recomputed accordingly
as of the close of business on such record date and thereafter the Conversion
Price will be adjusted pursuant to this Section 4(e) to reflect the actual
payment of such dividend or distribution.
(f) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Reference Date of the
Series F Preferred Stock makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, in
each such event provision will be made so that the holders of such series of
Preferred Stock will receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Preferred Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 4 with respect to the rights of the holders of the Series F Stock
or with respect to such other securities by their terms.
(g) Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time after the Reference Date of the Series F Stock,
the Common Stock issuable upon the conversion of such series of Preferred Stock
is changed into the same or a different number of shares of any class or
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<PAGE>
classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 4 or Section 3(b)), then in any such event each holder of such
series of Preferred Stock will have the right thereafter to convert such stock
into the kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change by holders of the
maximum number of shares of Common Stock into which such shares of Series F
Stock could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
(h) Reorganizations. If at any time or from time to time after the
Reference Date of the Series F Stock there is a capital reorganization of the
Common Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Section 4 or in Section 3(b)), as a part of such capital reorganization
provision will be made so that the holders of such series of Preferred Stock
will thereafter be entitled to receive upon conversion of such series of
Preferred Stock the number of shares of stock or other securities or property of
the Company to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment will be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of Series F Stock after such capital reorganization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares issuable upon conversion of the
Preferred Stock) will be applicable after that event and be as nearly equivalent
as practicable.
(i) Adjustment to Series F Stock Conversion Price For Sale of Shares
Below Conversion Price.
(A) If at any time or from time to time after the Reference
Date for the Series F Stock, the Corporation issues or sells Additional Shares
of Common Stock, other than as a dividend or other distribution on any class of
stock with a Conversion Price adjustment as provided herein and other than upon
a subdivision or combination of shares of Common Stock with a Conversion Price
adjustment as provided herein, for a consideration per share less than the
then-existing Conversion Price for Series F Stock then, and in each case that
the consideration per share is less than such Conversion Price for Series F
Stock then in effect, such Conversion Price will be reduced, as of the opening
of business on the date of such issue or sale, to a price determined by
multiplying that
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Conversion Price by a fraction (1) the numerator of which will be the sum of (a)
the number of shares of Common Stock outstanding, immediately prior to such
issue or sale, plus (b) the number of shares of Common Stock that the aggregate
consideration received (or deemed received) by the Corporation for the total
number of Additional Shares of Common Stock so issued (or deemed issued) would
purchase at such Conversion Price, and (2) the denominator of which will be the
sum of (a) the number of shares of Common Stock outstanding immediately prior to
such issue or sale plus (b) the number of such Additional Shares of Common Stock
so issued (or deemed issued).
(B) For the purpose of making any adjustment in the Conversion
Price for the Series F Stock under this Section 4(i), consideration received by
the Corporation for any issue or sale of securities will:
(1) to the extent it consists of cash, be computed at
the net amount of cash received by the Corporation after deduction of any
underwriting or similar commissions, concessions, or compensation paid or
allowed by the Corporation in connection with such issue or sale;
(2) to the extent it consists of property other than
cash, be computed at the fair value of that property as determined in good faith
by the Board; and
(3) if Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined), or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the Corporation for a
consideration that covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board to be
allocable to such Additional Shares of Common Stock, Convertible Securities or
rights or options.
(C) For the purpose of the adjustment provided in this Section
4(i), if at any time or from time to time after the Reference Date for the
Series F Stock, the Corporation issues any rights or options for the purchase
of, or stock or other securities convertible into, Additional Shares of Common
Stock (such convertible stock or securities hereinafter referred to as
"Convertible Securities") then in each case, if the Effective Price (as
hereinafter defined) of such rights, options, or Convertible Securities is less
than the then-existing Conversion Price for the Series F Stock, the Corporation
will be deemed to have issued at the time of the issuance of such rights or
options or Convertible Securities the maximum number of Additional Shares of
Common Stock issuable upon exercise or conversion thereof and to have received
as consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the
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Corporation for the issuance of such rights or options or Convertible
Securities, plus, in the case of such options or rights, the minimum amounts of
consideration, if any, payable to the Corporation upon full exercise or
conversion of such options or rights. As used in this Section 4(i)(C), the term
"Effective Price" means the quotient determined by dividing the total of all of
such consideration by such maximum number of Additional Shares of Common Stock.
No further adjustment of the Conversion Price for Series F Stock adjusted upon
the issuance of such rights, options, or Convertible Securities will be made as
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities.
If any such rights or options or the conversion privilege
represented by any such Convertible Securities expire without having been
exercised, then the Conversion Price for Series F Stock, adjusted upon the
issuance of such rights, options, or Convertible Securities will be readjusted
to the applicable Conversion Price that would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such rights or options or rights of conversion
of such Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by the
Corporation upon such exercise, plus the consideration, if any, actually
received by the Corporation for the granting of all such rights or options,
whether or not exercised, plus the consideration received for issuing or selling
the Convertible Securities actually converted, plus the consideration, if any,
actually received by the Corporation on the conversion of such Convertible
Securities.
(D) For the purpose of the adjustment provided in this Section
4(i), if at any time or from time to time after the Reference Date for the
Series F Stock, the Corporation issues any rights or options for Convertible
Securities, then, in each such case, if the Effective Price thereof is less than
the then current Conversion Price for Series F Stock, the Corporation will be
deemed to have issued at the time of the issuance of such rights or options the
maximum number of Additional Shares of Common Stock issuable upon conversion of
the total amount of Convertible Securities covered by such rights or options and
to have received as consideration for the issuance of such Additional Shares of
Common Stock an amount equal to the amount of consideration, if any, received by
the Corporation for the issuance of such rights or options, plus the minimum
amount consideration, if any, payable to the Corporation upon the full exercise
of such rights or options plus the minimum amount of consideration, if any,
payable to the Corporation upon the full conversion of such Convertible
Securities. As used in this Section 4(i)(D), the term "Effective Price" means
the quotient determined by dividing the total amount
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<PAGE>
of such consideration by such maximum number of Additional Shares of Common
Stock. No further adjustment of the Conversion Price for Series F Stock,
adjusted upon the issuance of such rights or options will be made as a result of
the actual issuance of the Convertible Securities upon the exercise of such
rights or options or upon the actual issuance of Additional Shares of Common
Stock upon the conversion of such Convertible Securities. The provisions of
Section 4(i)(C) hereof for the readjustment of the Conversion Price for Series
F Stock upon the expiration of rights or options or the rights of conversion of
Convertible Securities will apply equally to the rights, options and Convertible
Securities referred to in this Section 4(i)(D).
(j) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of any Conversion Price for the number of shares of
Common Stock or other securities issuable upon conversion of the Preferred
Stock, the Corporation, at its expense, upon the written request of a holder of
Preferred Stock for which the Conversion Price has been so adjusted, will cause
independent public accountants of recognized standing selected by the
Corporation (who may be the independent public accountants then auditing the
books of the Corporation) to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and will mail such certificate, by first class mail,
postage prepaid, to such registered holder of the Preferred Stock, and to all
other holders of the same series of Preferred Stock, at the holders' address as
shown in the Corporation's books. The certificate will set forth such adjustment
or readjustment, showing in reasonable detail the facts upon which such
adjustment or readjustment is based, including a statement of the Conversion
Price at the time in effect and the type and amount, if any, of other property
which at the time would be received upon conversion of the relevant Preferred
Stock.
(k) Notices of Record Date. Upon (i) any taking by the Corporation of a
record of the holders of any Series F Stock for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
or (ii) any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, or any
transfer of all or substantially all the assets of the Company to any other
person or any voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, the Corporation will mail to each holder of Series F Stock at
least thirty (30) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to
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<PAGE>
become effective, and (3) the date, if any, that is to be fixed as to when the
holders of record of Common Stock (or other securities) will be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up; provided that
such 30-day notice may be waived by the written consent of the holders of at
least a majority of the then outstanding Series F Stock and such waiver if
obtained automatically will be binding upon all holders of Series F Stock.
(1) Automatic Conversion.
(i) Subject to the provisions of Section 4(l)(iii) hereof,
each share of Series F Stock will be converted automatically into shares of
Common Stock based on the then effective Conversion Price for such share, upon
the earlier of (A) the closing of a firmly underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (a "Registration Statement") covering the offer and sale of Common Stock
for the account of the Corporation at a price per share of at least $4.00, with
an aggregate offering price for all shares under such Registration Statement of
at least $3,000,000.00, (B) at such time as less than 20% of the Series F Stock
issued pursuant to the Corporation's initial offering of up to 4,000,000 shares
of Series F Stock remains outstanding or (C) upon the voluntary consent of a
majority of the voting power of the then outstanding shares of such Series F
Stock.
(ii) Automatic conversion under Section 4(l)(i) hereof will be
conditioned upon payment by the Corporation of all declared and unpaid dividends
on the outstanding Series F Stock to be converted and including the date of such
conversion, payable either in cash or, at the option of the Corporation, Common
Stock (valued at the Common Stock's Fair Market Value), or both.
(iii) Upon the occurrence of any of the events specified in
Section 4(l)(i) hereof, the outstanding shares of the Series F Stock will be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, however, that the Corporation
will not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless the certificates evidencing such
shares of Series F Stock are either delivered to the Corporation or its transfer
agent as provided below, or the holder notifies the Corporation or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. Upon the occurrence of
such automatic conversion of the Series F Stock, the holders of the Series F
Stock will
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surrender the certificates representing such shares at the office of the
Corporation or any transfer agent for the Series F Stock or Common Stock.
Thereupon, there will be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Series F Stock surrendered were convertible on the date on
which such automatic conversion occurred.
(m) Fractional Shares. No fractional shares of Common Stock will be
issued upon conversion of Series F Stock. In lieu of any fractional share to
which the holder would otherwise be entitled, the Corporation will pay cash
equal to the product of such fraction multiplied by the Common Stock's Fair
Market Value on the date of conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Corporation will
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series F Stock, such number of its shares of Common Stock as
will from time to time be sufficient to effect the conversion of all outstanding
shares of the Series F Stock. If at any time the number of authorized but
unissued shares of Common Stock will not be sufficient to effect the conversion
of all then outstanding shares of the Series F Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as will be sufficient for such purpose.
(o) Notices. Any notice required by the provisions of this Section 4 to
be given to or by the holders of shares of the Series F Stock will be deemed
given upon the earlier of actual receipt or seventy-two (72) hours after the
same has been deposited in the United States mail, by certified or registered
mail, return receipt requested, postage prepaid, and addressed to each holder of
record at the address of such holder appearing on the books of the Corporation,
or to the Corporation as to notices from holders.
(p) Payment of Taxes. The Corporation will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series F Stock, including without limitation any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of Series F
Stock so converted were registered.
(q) No Impairment. The Corporation will not amend its Articles of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, for the purpose
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<PAGE>
of avoiding or seeking to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but will at all
times in good faith assist in carrying out all such action as may be reasonably
necessary or appropriate in order to protect the conversion rights of the
holders of the Series F Stock against dilution or other impairment.
5. Voting Rights. Each share of Series F Stock shall entitle the holder
to one (1) vote and with respect to each such vote a holder of shares of Series
F Stock shall have full voting rights and powers equal to the voting rights and
powers of a holder of shares of Common Stock, share for share, and shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote with holders of Common Stock
together as a single class.
6. Redemption Provisions. Commencing on February 26, 1996 and
continuing through November 26, 1996, any shares of Series F Stock which have
not been converted into Common Stock may be redeemed by the Corporation upon the
payment of $1.25 per share to the holder thereof after giving 30 days written
notice.
7. Status of Converted or Reacquired Stock. In case any shares of
Series F Convertible Preferred Stock shall be converted pursuant to Section 4
hereof, or redeemed pursuant to Section 6 hereof, the shares so converted or
redeemed shall cease to be a part of the authorized capital stock of the
Corporation.
8. Restrictions and Limitations. So long as any shares of Series F
Stock remain outstanding, the consent of the holders of a majority of the Series
F Stock then outstanding, voting as a series, will be required with respect to
any action that:
(a) involves any merger, reorganization or sale by the Corporation of
all or substantially all of its assets, or
(b) involves the issuance of Additional Shares of Common Stock or
Convertible Securities.
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EXHIBIT C
FORM OF WARRANT
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF CERTAIN STATES. SUCH SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THE SECURITIES MAY REQUIRE AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A UNIT PURCHASE AGREEMENT, A
COPY OF WHICH CAN BE OBTAINED UPON REQUEST FROM THE SECRETARY OF THE CORPORATION
AT ITS PRINCIPAL OFFICES. THE RESTRICTIONS CONTAINED IN SUCH AGREEMENT ARE
BINDING ON TRANSFEREES OF THESE SECURITIES.
INSTANT VIDEO TECHNOLOGIES, INC.
WARRANT TO PURCHASE SHARES OF
COMMON STOCK
(Void after February 26, 1997)
This certifies that ________________________________________________
(the "Purchaser"), for value received, is entitled to purchase from INSTANT
VIDEO TECHNOLOGIES, INC., a Delaware corporation (the "Company"), the number of
shares of fully paid and nonassessable shares of Common Stock, no par value, of
the Company ("Common Stock") calculated in accordance with paragraph 1 below, at
the price per share designated in paragraph 1 below (the "Warrant Price"), at or
before 5:00 P.M. (Pacific Standard Time) on February 26, 1997 upon surrender to
the Company at its principal offices of this Warrant properly endorsed with the
Form of Subscription attached hereto duly filled in and signed and upon payment
in cash or by bank cashier's or certified check of the Warrant Price for the
number of shares as to which this Warrant is exercised.
This Warrant is issued pursuant to that certain Unit Purchase Agreement
(the "Agreement") dated as of February 14, 1996 between the Company, the
Purchaser and certain additional investors. The holder of this Warrant is
subject to certain restrictions set forth in the Agreement.
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This Warrant is subject to the following additional terms and
conditions:
1. The exercise price per share payable upon exercise of this Warrant,
as adjusted from time to time pursuant to paragraph 7 below, shall be $1.00 per
share. The number of shares of Common Stock as to which this Warrant is
initially exercisable shall be equal to the number of shares of the Company's
Series F Convertible Preferred Stock purchased by the Purchaser pursuant to the
Agreement.
2. The purchase rights represented by this Warrant are exercisable at
the option of the holder of record hereof, either as an entirety, or from time
to time for any part of the shares of Common Stock (but not for a fraction of a
share) which may be purchased hereunder. In case of a purchase of less than all
the shares which many be purchased under this Warrant, the Company shall cancel
this Warrant and execute and deliver a new Warrant or Warrants of like tenor for
the balance of the shares purchasable under the Warrant surrendered upon such
purchase.
3. The Company agrees at all times to reserve a sufficient number of
shares of authorized but unissued Common Stock, when and as required for the
purpose of complying with the terms of this Warrant.
4. Nothing contained in this Warrant shall be construed as conferring
upon the holder hereof or any other person the right to vote or to consent or to
receive notice as a stockholder in respect of meetings of shareholders for the
election of directors of the Company or any other matters or any rights
whatsoever as a shareholder of the Company; and no dividends or interest shall
be payable or accrued in respect of this Warrant or the interest represented
hereby or the shares purchasable hereunder until, and only to the extent that,
this Warrant shall have been exercised.
5. This Warrant, with or without similar Warrants, when surrendered
properly endorsed at the principal offices of the Company may be exchanged for
another Warrant or Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock of the company.
6. This Warrant is transferable on the books of the Company at its
principal office by the above named holder of record in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. The
Company may treat the holder of record of this Warrant as the absolute owner
hereof for all purposes and shall not be affected by any notice to the contrary.
7. In the event of changes in the outstanding Common Stock of the
Company by reason of stock dividends, split-ups,
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recapitalizations, reclassifications, mergers, consolidations, combinations or
exchanges of shares, separations, reorganizations, liquidations, or the like,
the number and class of shares available under the Warrant in the aggregate and
the Warrant Price shall be correspondingly adjusted by the Board of Directors of
the Company. The adjustment shall be such as will give the holder of the Warrant
on exercise for the same aggregate Warrant Price the total number, class and
kind of shares as such holder would have owned had the Warrant been exercised
prior to the event and had such holder continued to hold such shares until after
the event requiring adjustment.
8. No fractional share shall be issued upon exercise of this Warrant.
The Company shall, in lieu of issuing any fractional share, pay the holder
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of exercise (as determined in good faith by the Board of
Directors of the Company).
9. Notwithstanding any provision hereof to the contrary, no exercise of
this Warrant will be made unless such exercise can be made under exemptions from
registration or qualification of such exercise under applicable securities laws
without the creation of any offering memorandum prescribed by such laws unless
at the time of such exercise, the Company already has completed such a
memorandum and such exercise would be exempt from registration and qualification
by, among other things, delivery of such memorandum to the Purchaser.
10. This Warrant and any and all shares of Common Stock issued upon
exercise of this Warrant will be transferable on the books of the Company, by
the holder hereof in person or by duly authorized attorney, subject to any
restrictions upon and requirements for any such transfer imposed by applicable
federal or state securities laws. This Warrant is issued in connection with, and
in reliance upon the representations of the original holder contained in, an
investment representation letter of even date herewith by the original holder
hereof. It will be further condition to any transfer of this Warrant that the
transferor (if any portion of this Warrant is retained) and the transferee will
receive and accept now Warrants, of like tenor and date, executed by the
Company, for the portion so transferred and for any portion retained, and will
surrender this Warrant to the Company along with any documents requested by the
Company to establish compliance with securities laws applicable to such
transfer.
11. Any terms of this Warrant may be amended and the observance of any
term of this Warrant may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
Company and the holders of a majority of the outstanding Warrants.
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12. This Warrant is issued in and shall be governed by the laws of the
State of California.
IN WITNESS WHEREOF the Company has caused this warrant to be duly
executed by its officers thereunto duly authorized this day of February, 1996.
INSTANT VIDEO TECHNOLOGIES, INC.
By /S/ Gary R. Familian
-----------------------------------
Gary R. Familian,
President
ATTEST:
/S/
- -----------------------------------
Secretary
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To_________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ______________ (____________________)1 shares of Common
Stock of INSTANT VIDEO TECHNOLOGIES, INC. (the "Company") and herewith makes
payment of__________________ DOLLARS ($__________) therefor, and requests that
the certificates for such shares be issued in the name of, and delivered to,
_______________________________, whose address is ______________________________
_________________________________________________________________________.
The undersigned represents that he or she is acquiring such Common
Stock for his or her own account for investment and not with a view to or for
sale in connection with any distribution thereof (subject, however, to any
requirement of law that the disposition thereof shall at all times be within his
or her control.)
The undersigned agrees that he or she will not make any disposition of
all or any portion of the Common Stock unless and until there is then in effect
a Registration Statement under the Act covering such proposed disposition and
such disposition is made in accordance with said Registration Statement; or the
undersigned shall have notified the Company of the proposed disposition and
shall have furnished the Company with (i) a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) an opinion of the
undersigned's own counsel to the effect that such disposition will not require
registration of such shares under the Act, which opinion shall have been
concurred in by counsel for the Company.
DATED: __________________________
_____________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
Address: _____________________________________
_____________________________________
_____________________________________
[footnotes on next page]
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- ----------------------
1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for additional
Common Stock or any other stock or other securities or property or cash which,
pursuant to the adjustment provisions of the Warrant, may be deliverable upon
exercise.
2) This representation is applicable only if, on the date this subscription is
effected, the Common Stock shall not be registered under the Securities Act of
1933, as amended.
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EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made effective
as of February 14, 1996 by and among Instant Video Technologies, Inc., a
Delaware corporation (the "Company") and the persons identified on Exhibit A
attached hereto (the "Investors").
RECITALS
WHEREAS, the Investors have agreed to purchase from the Company shares
of the Company's Series F Convertible Preferred Stock ("Series F Stock") and
warrants to purchase shares of Common Stock of the Company at a warrant exercise
price of $1.00 per share ("Warrants") pursuant to a Unit Purchase Agreement of
even date herewith (the "Unit Purchase Agreement");
WHEREAS, the obligations of the Company and the Shareholders under the
Unit Purchase Agreement are conditioned on, among other things, the execution
and delivery by the parties of this Agreement, which grants registration rights
to the Investors;
NOW, THEREFORE, in consideration of the promises and covenants
contained herein, the parties hereto agree as follows:
1. Definitions. For purposes of this Section:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of effectiveness of such registration statement or document.
(b) The term "Registrable Securities" means (1) the shares of
Common Stock issued and/or issuable upon conversion of the Series F Stock, (2)
the shares of Common Stock issued and/or issuable upon exercise of the Warrants
and (3) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such securities.
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock which
are Registrable Securities and (1) are then issued and outstanding or (2) are
issuable pursuant to then exercisable options, warrants or convertible
securities.
(d) The term "Holder" means (i) any person owning of record
Registrable Securities that have not been sold to the public and have not been
sold otherwise than in compliance with Section 8 hereof or (ii) any assignee of
record of such Registrable Securities in accordance with Section 8 hereof;
provided, however,
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that for purposes of this Agreement, a record holder of securities convertible
into such Registrable Securities shall be treated as the Holder of such
Registrable Securities; and provided, further, that the Company shall in no
event be obligated to register such securities, and that Holders of Registrable
Securities will not be required to convert such securities into Common Stock in
order to exercise registration rights granted hereunder, until immediately
before the closing of the offering to which the registration relates.
(f) The term "Form S-3" means such form under the Securities
Act as is in effect on the date hereof or any successor registration form under
the Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(g) The term "SEC" or "Commission" means the Securities and
Exchange Commission.
(h) The term "Securities Act" means the Securities Act of
1933, as amended.
2. Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans and corporate reorganizations), and will afford each such Holder an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after the giving of the above
described notice by the Company, so notify the Company in writing, which notice
shall state the number of shares the Holder desires to include and the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.
(a) Underwriting. If the registration statement under which
the Company gives notice under this Section 2 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant to
this Section 2
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shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Agreement, if the
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, the number of shares that may be
included in the underwriting shall be allocated, first, to the Company and
second, to the Holders on a pro rata basis based on the total number of
Registrable Securities held by the Holders. No such reduction shall reduce the
securities being offered by the Company for its own account to be included in
the registration and underwriting. If any Holder disapproves of the terms of any
such underwriting, such Holder may elect to withdraw therefrom by written notice
to the Company and the underwriter, delivered at least five (5) days prior to
the effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be withdrawn from the
registration.
(b) Registration Expenses. The Company shall bear all fees and
expenses incurred in connection with all registrations under this Section 2
(including but not limited to all registration and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and
reasonable fees and disbursements of a single special counsel representing all
or a majority of the participating Holders), except that each participating
Holder shall bear its proportionate share of all amounts payable to underwriters
or brokers in connection with such offering for fees and commissions.
3. Form S-3 Registration. In case the Company shall receive from any
Holder or Holders of Registrable Securities representing more than twenty-five
percent (25%) of the then outstanding Common Stock equivalents of the Company a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other Holder or Holders
joining in
3
<PAGE>
such request as are specified in a written request given within twenty (20) days
after the giving of such written notice by the Company; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 3: (1) if Form S-3 is not
available for such offering by the Holders; (2) if the Holders, together with
the holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public (net of discounts and commissions)
of less than $500,000; (3) if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement once during any twelve
month period for a period of not more than one hundred twenty (120) days after
receipt of the request of the Holder or Holders under this Section 3; (4) if the
Company has, within the twelve (12) month period preceding the date of such
request, already effected two registrations on Form 5-3 for the Holders pursuant
to this Section 3; or (5) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) All expenses incurred in connection with any registration
requested pursuant to this Section 3 shall be borne by the Holders in proportion
to the number of Registrable Securities owned by the Holders included in such
registration at the time it goes effective.
4. Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
4
<PAGE>
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration of Registrable Securities, addressed to the underwriters, if any,
and to the Holders requesting such registration.
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<PAGE>
5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2, 3, or 4
that the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
6. Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.
7. Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2 or 3:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended, (the
"Exchange Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law in connection with the offering covered by such
registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 8(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation that occurs in
reliance
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<PAGE>
upon and in conformity with written information furnished expressly for use in
connection with such registration by such Holder, partner, officer, director,
underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such registration statement or any
of such other Holder's partners, directors or officers or any person who
controls such Holder, against any losses, claims, damages or liabilities (joint
or several) to which the Company or any such director, officer, controlling
person, underwriter or other such Holder, partner or director, officer or
controlling person of such other Holder may become subject under the Securities
Act, the Exchange Act or other federal or state law, insofar as such losses
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, partner, officer, director or
controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 7(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 7(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests
7
<PAGE>
between such indemnified party and any other party represented by such counsel
in such proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
7, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 7.
(d) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act.
(e) The obligations of the Company and Holders under this
Section 7 shall survive the completion of any offering of Registrable Securities
in a registration statement, and otherwise.
8. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned by
a Holder to a transferee or assignee of Registrable Securities provided,
however, that no such transferee or assignee shall be entitled to registration
rights under this Agreement unless (i) immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act; and (ii) such assignment is approved by the
Company, which approval will not be unreasonably withheld. The Company shall be,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned. Notwithstanding
the foregoing, rights to cause the Company to register securities may be
assigned to any constituent partner of a Holder without Company approval and
without regard to any minimum amount of Registrable Securities.
9. "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company or an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities (other than to donees who agree to be
similarly bound) for up to ninety (90) days following the effective date of a
registration statement of the Company filed under the Securities Act; provided,
however, that:
8
<PAGE>
(a) such agreement shall be applicable only to the first next
such registration statement of the Company which covers securities to be sold on
its behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
10. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section
shall be binding upon each Holder and the Company. By acceptance of any benefits
under this Agreement, Holders of Registrable Securities hereby agree to be bound
by the provisions hereunder.
11. Governing Law. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California excluding that body of law relating to
conflicts of laws. The parties hereto agree to submit to the jurisdiction of the
federal and state courts of the State of California sitting in the City and
County of San Francisco with respect to the breach or interpretation of this
Agreement or the enforcement of any and all rights, duties, liabilities,
obligations, powers, and other relations between the parties arising under this
Agreement.
12. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding rights to registration
and the other subject matter hereof. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding upon
the successors, assigns, heirs, executors and administrators of the parties
hereto.
13. Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or five (5) days after
deposit with the United States mail, by registered or certified mail, postage
prepaid, addressed (a) if to an Investor, at such Investor's address as set
forth on Exhibit A, or at such other address as such Investor shall have
9
<PAGE>
furnished to the Company in writing in accordance with this Section 14, (b) if
to any other holder of any securities or any Common Stock issued upon conversion
of Preferred Stock, at such address as such holder shall have furnished the
Company in writing in accordance with this Section 14, or, until any such holder
so furnishes an address to the Company, then to and at the address of the last
holder thereof who has so furnished an address to the Company, or (c) if to the
Company, at its principal office.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Registration
Rights Agreement as of the date set forth above.
THE COMPANY: THE INVESTORS:
Instant Video Technologies, Inc. Storie Partners, a California
a Delaware corporation limited partnership
By: _________________________________ By: Storie Advisors, Inc.,
Its: General Partner
Title: ______________________________
By: _________________________________
Title: ______________________________
Mindful Partners, a California
limited partnership
By: /S/ Stuart Rudick
---------------------------------
Stuart Rudick
General Partner
Executed: _____________________, 1996
/S/ Reed Slatkin
-------------------------------------
Reed Slatkin
Executed: _____________________, 1996
Delaware Charter Guaranty and
Trust Company FBO Stuart L.
Rudick IRA Rollover
By: _________________________________
Title: ______________________________
Executed: _____________________, 1996
10
<PAGE>
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE (cont'd)
/S/ Robert London
-------------------------------------
ROBERT LONDON
Executed June ____, 1996
11
<PAGE>
EXHIBIT A
INVESTORS
Storie Partners, a California limited partnership
address: One Bush Street, Suite 1350
San Francisco, California 94104
Mindful Partners, a California limited partnership
address: 591 Redwood Highway, Suite 5295
Mill Valley, CA 94941
Attention: Stuart Rudick
Reed Slatkin
address: 890 North Kellogg Avenue
Santa Barbara, California 93111
Delaware Charter Guaranty Trust Company FBO Stuart L. Rudick IRA
Rollover
address: c/o Mindful Partners
591 Redwood Highway
Suite 5295
Mill Valley, CA 94941
Att: Stuart Rudick
Robert London
c/o Crittendon Roth & Co.
809 Presidio Avenue
Santa Barbara, CA 93101
<PAGE>
EXHIBIT E
VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT
<PAGE>
VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT
This VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT is entered into as of
the 14th day of February, 1996 by the undersigned shareholders (the
"Shareholders") of Instant Video Technologies, Inc., a Delaware corporation (the
"Company"), the Company, and the persons listed on Exhibit A and their
successors in interest (the "Investors"), for the express benefit of the
Investors.
Recitals
A. As of the date hereof, the Investors are purchasing units of
investment ("Units"), each of which consists of (i) one share of the Company's
Series F Preferred Stock ("Series F Stock") and (ii) a warrant to purchase one
share of the Company's Common Stock ("Common Stock") at a warrant exercise price
of $1.00 per share, pursuant to that certain Unit Purchase Agreement between the
Company and the Investors dated as of the date hereof (the "Purchase
Agreement"). Additional purchasers of Units may execute this Agreement as
"Investors", whereupon such purchasers will be included within the term
"Investors" as used herein.
B. The Company has a seven member Board of Directors (the "Board").
C. It is a condition to the investment by the Investors under the
Purchase Agreement that the on-going composition of the Board of Directors of
the Company be established in an agreed upon manner.
D. It is also a condition to the investment by the Investors that they
be granted a Right of First Refusal to purchase any shares of Common Stock that
are offered for sale by the Shareholders.
E. This Agreement is being made by the various Shareholders as
additional consideration for the investment by the Investors, and with the
acknowledgement of the Shareholders that the Investors are relying hereon in
making their investments.
NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Each Investor will vote all shares of capital stock of the Company
(whether Preferred, Common or otherwise) that such Investor may own, control or
have the power to vote from time to time, and, to the extent additional votes
are necessary, each Shareholder will vote a pro rata number of shares of such
capital stock (based on the ratio that the number of shares owned by such
Shareholder bears to the total number of shares owned by all Shareholders) that
such Shareholder may own, control or have the power to vote from time to time,
in such a manner as will ensure
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<PAGE>
the election of two (2) directors to the Board nominated by Investors holding a
majority of the shares of Series F Stock and/or Common Stock then held by all
Investors (the "Majority Investors").
2. Within five (5) days after receipt of notice of any meeting of
shareholders of the Company at which directors are to be elected, the Majority
Investors shall submit to the Company and to the other Investors the names of
the Investors' nominees for director and such additional information regarding
such nominees as the Company may reasonably request.
3. In the event of any resignation, removal or death of a director
nominated or elected in the manner specified in paragraph 1, above, each
Shareholder and Investor will take such action as is necessary to replace such
director with a person nominated in the manner specified in paragraph 1 which
caused the election of such director.
4. The Shareholders, the Company and the Investors will not take any
action to cause the removal of a director nominated or elected in the manner
specified in paragraph 1 without the approval of the persons who had the right
to cause such nomination as provided in paragraph 1, except where such director
has committed criminal acts, has acted in a grossly improper or negligent manner
or has committed acts in bad faith.
5. The Shareholders and Investors will take such actions as the
Majority Investors reasonably may request or as otherwise may reasonably be
required in order to effectuate the nomination and election of directors as
provided in paragraph 1.
6. This Agreement will apply to votes on the election of directors to
the Board, whether such votes involve cumulative voting or otherwise.
7. Each of the parties agree to use its best efforts to cause the
persons selected in the manner described in paragraph 1 to be nominated for
election to the Board.
8. (a) During the twelve (12) month period following the second closing
of the sale of Units by the Company (or following the first closing of such sale
in the absence of any additional closings after the first closing), each
Investor has the right of first refusal to purchase such Investor's pro rata
share (as defined below) of all, and not less than all, of any shares of Common
Stock that any Shareholder may, from time to time, propose to sell and issue. An
Investor's "pro rata share" for purposes of this right of first refusal is the
ratio of the (a) number of shares of Common Stock into which the shares of the
Company's Series F Convertible Preferred Stock ("Series F Stock") then held
2
<PAGE>
by such Investor are convertible, plus the number of shares of Common Stock held
by the Investor that were received upon conversion of the Investor's Series F
Stock and received upon exercise of the warrants issued to the Investor
concurrently with the issuance of Series F Stock ("Warrants"), to (b) the total
number of shares of Common Stock into which outstanding shares of Series F Stock
held by all Investors are convertible, plus the total number of shares of Common
Stock that were issued to Investors upon conversion of Series F Stock and
received upon exercise of Warrants.
(b) In the event that a Shareholder proposes to sell shares of
Common Stock, such Shareholder shall give to each Investor written notice of the
Shareholder's intention, describing the price and the general terms upon which
the Shareholder proposes to sell the same. Each Investor shall have ten (10)
days from the date of mailing of any such notice to agree to purchase such
Investor's pro rata share of such shares of Common Stock for the price and upon
the general terms specified in the notice by giving written notice to the
Shareholder and stating therein the quantity of such shares to be purchased.
Each purchasing Investor shall have a right of overallotment such that if any
other Investor fails to exercise such other Investor's right hereunder to
purchase such Investor's pro rata share of such shares, the purchasing Investor
may purchase the nonpurchasing Investor's unpurchased pro rata share, within
five (5) days from the date such nonpurchasing Investor fails to exercise such
Investor's right hereunder to purchase such nonpurchasing Investor's full pro
rata share of such shares of Common Stock.
(c) In the event that the Investors fail to exercise in full
the right of first refusal with respect to all shares of Common Stock being
offered for sale by a Shareholder within such ten (10) plus five (5) day period
(it being the intention of the parties that unless the right of first refusal is
exercised as to all such shares, the Shareholder may sell all or any portion of
such shares as hereinafter provided), the Shareholder shall have 120 days
thereafter to sell (or enter into an agreement pursuant to which the sale of
such shares covered thereby shall be closed, if at all, within 120 days from the
date of said agreement) all or any portion of such shares of Common Stock
respecting which the Investors' rights were not fully exercised, at a price and
upon general terms no more favorable to the purchasers thereof than specified in
the Shareholder's notice to the Investors. In the event that the Shareholder has
not sold the shares of Common Stock within such 120-day period (or sold such
shares in accordance with the foregoing within 120 days from the date of such
agreement), the Shareholder shall not thereafter sell any shares of Common Stock
without first offering such shares pursuant to this Section 8.
9. Each Shareholder and Investor represents that it has full power and
authority to vote the shares of stock of which it is
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<PAGE>
the beneficial holder on the books and records of the Company, and that it will
not alienate such power and authority separate and apart from the transfer of
beneficial ownership. Each of the Shareholders and Investors acknowledges and
agrees that this Agreement is intended to bind the successors and assigns of
such person, and accordingly that:
(a) such person will not transfer any shares of stock in the
Company or warrants, options or other rights to purchase or acquire shares of
stock in the Company (collectively, "Rights") without obtaining the transferee's
written agreement to the terms hereof; and
(b) such person will deliver to the Company the certificates
representing his shares of stock in the Company or Rights in order that the
Company may place thereon the following restrictive legend:
THESE SECURITIES ARE SUBJECT TO THE TERMS OF A VOTING AND RIGHT OF
FIRST REFUSAL AGREEMENT, THE TERMS OF WHICH ARE AVAILABLE FROM THE
SECRETARY OF THE COMPANY. SUCH VOTING AND RIGHT OF FIRST REFUSAL
AGREEMENT IS BINDING UPON ANY HOLDER OF THESE SECURITIES, AND ANY
SUCCESSOR OR ASSIGN OF ANY HOLDER OF THESE SECURITIES.
10. The Company agrees to promptly effect the legending of securities
as provided in paragraph 9(b), above.
11. Each Shareholder, each Investor and the Company acknowledge that
damages would be an insufficient remedy in the event of the breach hereof, and
hereby consents to any entry of equitable relief in the event of a breach
hereof. Each party consents to the jurisdiction and proper venue of any state or
federal court sitting in the City and County of San Francisco in any action to
enforce the terms hereof.
12. This Agreement may not be amended without the consent of a majority
in interest of the Shareholders, the Company and the Majority Investors.
13. This Agreement will terminate once there are fewer than 50% of the
greatest number of shares of Series F Stock previously outstanding, other than
by reason of a reverse stock split.
14. Each Shareholder and the Company acknowledge that the Investors are
intended third party beneficiaries of this Agreement.
15. The Company will cause each Shareholder to have notice of all
information necessary to effect the provisions of this Agreement.
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<PAGE>
16. This Agreement may be executed in multiple counterparts, each of
which will be an original hereof. This Agreement will be governed by the
substantive laws of the State of California.
17. Each party to this Agreement agrees not to take any action, or in
any way encourage, condone, solicit, or support any action, that would have the
effect of producing a Board composed other than as specified in paragraph 1, but
rather to take all actions necessary to encourage and promote such Board
composition.
[remainder of page intentionally left blank]
5
<PAGE>
THIS VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT has been executed as of the
date above written.
THE COMPANY: SHAREHOLDERS:
Instant Video Technologies, Inc.
By: _____________________________ ________________________________
[signature]
Its: ____________________________
________________________________
[print name]
INVESTORS: ________________________________
[signature]
Storie Partners, a California
limited partnership ________________________________
[print name]
By: Storie Advisors, Inc.,
General Partner
________________________________
[signature]
By: /s/
-------------------------- ________________________________
[print name]
Title: __________________________
________________________________
Mindful Partners, a California [signature]
limited partnership
________________________________
[print name]
By: /s/ Stuart Rudick
------------------------------
Stuart Rudick
General Partner
/s/ Reed Slatkin
- ---------------------------------
Reed Slatkin
Delaware Charter Guaranty and Trust Company
FBO Stuart L. Rudick IRA Rollover
By: ___________________________
Its: _________________________
Executed April ___, 1996
/s/ Robert London
- ---------------------------------
ROBERT LONDON
Executed June __ , 1996
6
<PAGE>
EXHIBIT A
INVESTORS
Storie Partners
Mindful Partners
Reed Slatkin
Delaware Charter Guaranty and Trust Company
FBO Stuart L. Rudick IRA Rollover
Robert London
[OBJECT OMITTED] 500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
RESELLER LICENSE AGREEMENT
between
INSTANT VIDEO TECHNOLOGIES, INC.
and
REMOVABLE MEDIA SOLUTIONS, INC.
This Agreement, entered into this 15th day of October 1999 is between
INSTANT VIDEO TECHNOLOGIES, INC. ("IVT"), a Delaware corporation, with its
principal place of business at 500 Sansome Street, Suite 503, San Francisco, CA
94111, and REMOVABLE MEDIA SOLUTIONS, INC. ("Reseller"), a California
corporation, with its principal place of business at 3235 Sunrise Boulevard,
Rancho Cordova, CA 95742.
1. Whereas, IVT is the developer and owner of certain proprietary
software ("Licensed Software") to enable "Faster-Than-Real-Time"(TM) delivery of
full motion video and CD-quality audio over networks;
2. Whereas, Reseller is in the business of marketing and distributing
computer hardware, software and related services and desires to distribute the
Licensed Software to End-Users; and
3. Whereas, IVT is willing to grant and Reseller is willing to accept a
non-exclusive license to market and distribute the Licensed Software under the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1
DEFINITIONS
When used in this Agreement:
1.1 "Affiliate" means with respect to each party any legal entity that
directly or indirectly controls, is controlled by, or is under common control
with the party, but only for so long as such control continues. For purposes of
this definition, "control" means the power, whether or not normally exercised,
to direct the management and affairs of an entity. No entity shall be deemed to
control a party unless such entity owns directly or indirectly fifty-one percent
(51%) or more of its voting shares.
1.2 "Agreement" means this Reseller Agreement, including all exhibits
hereto and all Purchase Orders submitted hereunder.
1.3 "Burstware Conductor(TM)" means the computer program included among
the Licensed Software that is designed to operate on a single computing device
and that manages the distribution of audio and/or video content from one or more
hardware servers on which the Burstware Server software has been installed to
Burstware Players installed on client computers. Each Burstware Conductor
requires a Burstware License Key configured for the host name or IP address of
the computer on which the Burstware Conductor is installed.
1.4 "Burstware License Key" means the unique, encrypted software
program provided by IVT (only upon payment of the applicable license fees) that
is designed to prevent use of the Licensed Software beyond the scope of the
license paid for by Licensee by limiting, as appropriate, and in addition to
other limits, the number of Concurrent Burstware Player Connections, the amount
of Managed Bandwidth, and the number of Burstware Servers that the Burstware
Conductor can manage.
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
1.5 "Burstware Player(TM)" means the computer program included among
the Licensed Software that operates on a single-user client computer and permits
that computer to receive and play audio and/or video content delivered by the
Burstware Server software.
1.6 "Burstware Server(TM)" means the computer program included among
the Licensed Software that stores audio and/or video content and delivers it to
client computers for viewing with the Burstware Player.
1.7 "Removable Media Solutions, Inc. (RMSI)" or "Reseller" means
Removable Media Solutions, Inc. and its Affiliates.
1.8 "Concurrent Burstware Player Connections" means the number of
simultaneous connections between Burstware Players installed on client computers
and Burstware Servers installed on hardware servers that the Burstware License
Key enables the Burstware Conductor to manage simultaneously.
1.9 "Documentation" means all materials in written, computer readable
or other form containing information about the Licensed Software that accompany
the Licensed Software or that IVT may deliver to Reseller during the term of
this Agreement for use in the marketing and distribution of the Licensed
Software and for distribution to End-Users.
1.10 "Effective Date" means October 15, 1999.
1.11 "End-User Software License Agreement" means the form of End-User
Software License Agreement attached to this Agreement as Exhibit D.
1.12 "End-Users" means any prospective customers to whom Reseller may
offer Licensed Software for personal use or use in the regular course of the
customer's business, but not for resale.
1.13 "Intellectual Property Rights" means all intellectual property
rights under the laws of the United States, any of its states or territories and
any other nation, including without limitation all patent rights, copyrights,
trade secrets, trademarks, trade names and other proprietary rights.
1.14 "Licensed Software" means IVT's Burstware Conductor, Burstware
Server and Burstware Player (collectively "Burstware(R)") computer programs
described in the Product and Price List attached as Exhibit A to this Agreement.
Licensed Software does not include any modifications or additions to the
Licensed Software, including without limitation, any new versions, updates, or
enhancements created or procured by IVT after the Effective Date of this
Agreement, but does include corrections of Program Errors developed by IVT
pursuant to paragraph 9.3.
1.15 "Licensed Territory" means the United States and its territories
and possessions.
1.16 "Managed Bandwidth" means the total bandwidth, measured in
megabits per second, used by the Burstware Server software to deliver audio
and/or video content to Burstware Players.
1.17 "Program Error" means a program defect or "bug" sufficiently
material that it results in a version of the Licensed Software, in the form
delivered by IVT to Reseller, at the time it is delivered by IVT to Reseller,
failing to substantially conform to the Documentation for that version. A
respect in which the Licensed Software fails to substantially conform to the
Documentation shall not be considered a Program Error unless IVT is able to
replicate it on a computer system already in its possession or on a computer
system supplied to IVT by Reseller.
1.18 "Purchase Order" means the form attached to this Agreement as
Exhibit C that IVT may modify at any time.
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
1.19 "Product and Price List" means the list attached as Exhibit A to
this Agreement and any substitute list IVT may issue during the term of this
Agreement.
1.20 "Trademarks" means the trademarks listed in Exhibit E, which IVT
may amend at any time upon thirty (30) days prior written notice to Reseller.
Section 2
DISTRIBUTION & TRADEMARK LICENSES AND LIMITATIONS
2.1 Distribution License. On the terms and conditions of this
Agreement, IVT grants to Reseller a non-exclusive, non-transferable license to
distribute Licensed Software solely to End-Users within the Licensed Territory.
2.2 Trademark License. On the terms and conditions of this Agreement,
IVT also grants to Reseller a non-exclusive, non-transferable license without
the right to sublicense to use the Trademarks in connection with the promotion
and distribution of the Licensed Software in accordance with this Agreement.
2.3 No Exclusivity. This Agreement does not constitute an exclusive
grant to Reseller of any specific customer, territory, or geographic area. IVT
may in its sole discretion and without obligation, notice or liability to
Reseller, add and/or terminate other resellers, distributors, value added
resellers, original equipment manufacturers, licensees or agents of the Licensed
Software, and/or license Licensed Software directly to End-Users.
2.4 Reservation of Rights. IVT reserves all rights in the Licensed
Software and Documentation not expressly granted to Reseller by this Agreement.
2.5 Licensed Software Changes. IVT retains the right, in its sole
discretion, to upgrade or modify the Licensed Software from time to time. Upon
receipt of any such notice of an upgrade or modification, Reseller shall within
thirty (30) days cease to market and distribute earlier versions of the Licensed
Software.
Section 3
ORDERING AND SHIPMENT OF LICENSED SOFTWARE
3.1 Submission of Purchase Orders. Reseller shall order Licensed
Software by delivering a completed Purchase Order to IVT. An Addendum to the
Purchase Order shall be completed by Reseller to identify: (a) the End-User (by
company name, address, telephone number and contact name); (b) the computer
system (by type/model, serial number, host ID and/or IP address) on which the
Burstware Conductor portion of each copy of the Licensed Software being ordered
is to be installed, and used; (c) the number of copies of the Licensed Software
being ordered; (d) the configuration for each copy of the Licensed Software
being ordered, including the amount of Managed Bandwith, the number of
Concurrent Burstware Player Connections and number of Burstware Servers; (e) the
price for each copy of the Licensed Software; and (f) the total amount payable
to IVT under that Purchase Order.
3.2 Acceptance of Purchase Orders Upon Delivery to IVT. Completed
Purchase Orders delivered to IVT shall be deemed accepted and shall become
binding on IVT only when accepted in writing by IVT, or when IVT ships the
Licensed Software ordered under that Purchase Order. If IVT accepts a Purchase
Order by shipment, the order shall bind IVT only as to the Licensed Software
actually shipped. Failure of IVT to accept a Purchase Order within ten (10) days
shall constitute rejection of the Purchase Order.
3.3 Controlling Terms. The terms and conditions of this Agreement shall
apply to each Purchase Order accepted and/or Licensed Software shipped by IVT
hereunder. Any terms or conditions appearing on the face or reverse side of any
Purchase Order, purchase order, acknowledgment, or confirmation that are
different from or in addition to those required hereunder shall not be binding
on the parties, even if signed and returned, unless both parties hereto
expressly agree in a separate writing to be bound by such separate or additional
terms and conditions.
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
3.4 Cancellation. IVT reserves the right to cancel or suspend any
orders placed by Reseller and accepted by IVT, or to refuse or to delay shipment
of any Licensed Software described in those orders, if Reseller fails: (a) to
pay when due any amount required by this Agreement or any invoice; (b) to meet
any credit or financial requirements that IVT, in its reasonable discretion, may
establish; or (c) to comply with the terms and conditions of this Agreement.
Once IVT accepts an order, Reseller may not cancel the order unless IVT fails to
ship the Licensed Software described in the Purchase Order within thirty (30)
days after accepting the order, and Reseller provides written notice of
cancellation to IVT before IVT ships any of the Licensed Software described in
the order that Reseller desires to cancel.
3.4.1 Cancellation (where a federal governmental agency is the
End-User). In instances where a federal governmental
agency is the End-User of Burstware(R) as described in
paragraphs 1.12 and 3.7, and RMSI is the Reseller and
bound by a "Cancel at Will" clause, RMSI can cancel an
order at any time prior to shipment of that order by IVT.
3.5 Shipment of Licensed Software. IVT shall ship all Licensed Software
ordered under this Agreement F.O.B. from IVT's San Francisco facility, or other
point of shipment within the United States designated by IVT. Risk of loss or
damage to copies of the Licensed Software shall pass to Reseller at the point of
shipment. All shipping and in transit insurance charges shall be paid by
Reseller. Reseller shall specify in its Purchase Order the mode of shipment
and/or carrier for each order. In the absence of written instructions from
Reseller, IVT shall determine the carrier and/or mode of shipment.
3.6 IVT Product Delivery Schedule and Delays. Although IVT shall use
reasonable efforts to meet Reseller's requested delivery schedules for Licensed
Software, IVT shall not be liable for any loss, damage or expense due to late
delivery.
3.7 Delivery of Burstware License Key. IVT shall be solely responsible
for delivery of Burstware License Keys to End-Users. IVT shall deliver a License
Key to an End-User only upon receipt of a duly executed End-User Software
License Agreement by the End-User.
Section 4
MINIMUM COMMITMENTS, DISCOUNTS AND PAYMENTS
4.1 Product and Price List. A copy of IVT's current Product and Price
List for the Licensed Software is attached as Exhibit A. IVT agrees to provide
to Reseller the pricing reflected in Exhibit A during the initial Term of this
Agreement. Reseller acknowledges and accepts that IVT may thereafter change its
prices to Reseller at any time on sixty (60) days written notice to Reseller. No
price change shall affect any completed Purchase Order that Reseller has
submitted and IVT has accepted in accordance with this Agreement before IVT has
notified Reseller of the price change. Further, no price change shall affect any
written bid or proposal for or including the Licensed Software submitted by
Reseller to an End-User before IVT has notified Reseller of the price change.
4.2 Minimum Commitment. Reseller agrees to order during the initial
term of this Agreement the number of copies of the Licensed Software, net of
cancellations and returns, set forth in the Value Added Reseller Discount
Schedule attached as Exhibit B-1 to this Agreement.
4.3 Price to Reseller. Subject to Paragraph 4.4, the price payable by
Reseller for Licensed Software ordered pursuant to this Agreement during the
initial term of this Agreement shall be the applicable price in the then-current
Product and Price List, less the discount specified in the Discount Schedule.
4.4 Periodic Review of Progress Toward Minimum Commitment. During each
annual term of the Agreement, IVT will review quarterly the volume of orders by
Reseller, net of cancellations and returns, against the Minimum Commitment for
that period. If the cumulative net dollar volume ordered, as a percentage of the
Minimum Commitment for that period, does not equal or exceed the applicable
value from the following table, IVT
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
shall so notify Reseller. If Reseller does not within thirty (30) days of such
notification order sufficient volumes of Licensed Software to meet or exceed the
applicable value from the table below for that period, IVT may, in its
discretion, reduce Reseller's discount to levels (including no discount)
commensurate with the actual volume of Reseller's orders.
Percentage of Commitment
Three-Month Period Year 1 for given year
------------------------- --------------
1st 4%
2nd 20%
3rd 56%
4th 100%
Percentage of Commitment
Three-Month Period Year 2 for given year
------------------------- --------------
1st 17%
2nd 40%
3rd 67%
4th 100%
IVT will discuss at any time with Reseller adjustment of the Minimum
Commitment and applicable discounts, based on Reseller's forecasted orders, but
any adjustment requires IVT's prior written consent. For any renewal term of
this Agreement, IVT and Reseller shall agree on the applicable Minimum
Commitment and discounts. Reseller may not assume any discount will be continued
for any renewal term.
4.5 Initial Order. IVT shall ship and invoice for Licensed Software
only upon receipt of a completed Purchase Order as provided in this Agreement.
4.6 Payment. Reseller shall pay for all Licensed Software within sixty
(60) days after the date of IVT's invoice for such products. In addition to all
other available rights or remedies, IVT reserves the right to declare all sums
immediately due and payable upon written notice to Reseller if Reseller fails to
pay when due any amounts due under this Agreement or any invoice. Interest shall
accrue on any amounts not paid when due at an annual rate of eighteen (18)
percent.
4.7 Taxes. With the sole exception of taxes based on IVT's net income,
Reseller shall pay all sales, use, excise, value added or other taxes that may
arise out of Reseller's distribution or installation of Licensed Software.
4.8 End-User Pricing. Reseller is free to determine its own End-User
prices for the Licensed Software. Although IVT may publish suggested End-User
prices, these are suggestions only and are not binding in any way on Reseller.
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
Section 5
PAYMENTS AND COMMISSIONS FOR FEDERAL GOVERNMENT CONTRACTS
5.1 Product and Price List. A copy of IVT's current Product and Price
List for the Licensed Software is attached as Exhibit A. IVT agrees to provide
to Reseller the pricing reflected in Exhibit A during the initial Term of this
Agreement. Reseller acknowledges and accepts that IVT may thereafter change its
prices to Reseller at any time on sixty (60) days written notice to Reseller. No
price change shall affect any completed Purchase Order that Reseller has
submitted and IVT has accepted in accordance with this Agreement before IVT has
notified Reseller of the price change. Further, no price change shall affect any
written bid or proposal for or including the Licensed Software submitted by
Reseller to an End-User before IVT has notified Reseller of the price change.
5.2 Commission Schedule for Federal Government Contracts. IVT agrees to
pay Reseller commissions based on the schedule attached as Exhibit B-2 during
the initial term of this Agreement.
5.3 Price to Reseller. The price payable by Reseller for Licensed
Software ordered pursuant to this Agreement during the initial term of this
Agreement shall be the applicable price in the then-current Product and Price
List, attached as Exhibit A.
5.4 Payment. Reseller shall pay for all Licensed Software within thirty
(60) days after the date of IVT's invoice for such products. In addition to all
other available rights or remedies, IVT reserves the right to declare all sums
immediately due and payable upon written notice to Reseller if Reseller fails to
pay when due any amounts due under this Agreement or any invoice. Interest shall
accrue on any amounts not paid when due at an annual rate of eighteen (18)
percent.
5.5 Taxes. With the sole exception of taxes based on IVT's net income,
Reseller shall pay all sales, use, excise, value added or other taxes that may
arise out of Reseller's distribution or installation of Licensed Software.
5.6 End-User Pricing. Reseller is free to determine its own End-User
prices for the Licensed Software. Although IVT may publish suggested End-User
prices, these are suggestions only and are not binding in any way on Reseller.
Section 6
PROPERTY RIGHTS AND RESTRICTIONS
6.1 Ownership. Reseller acknowledges that the Licensed Software, all
enhancements, corrections and modifications to the Software (regardless whether
made by IVT, Reseller or anyone else), all Intellectual Property Rights
protecting or pertaining to any aspect of the Software (or any enhancements,
corrections or modifications), the Documentation, all Trademarks and all
goodwill associated with the Trademarks are and shall remain the sole and
exclusive property of IVT and, where applicable, IVT's suppliers. This Agreement
does not convey title or ownership to Reseller or any of its customers, but
instead gives Reseller only the limited rights set forth in Section 2. IVT
reserves all rights not expressly granted by this Agreement.
6.2 Use Restrictions. Except as set forth in Section 2, Reseller has no
right to use, make, sublicense, modify, distribute or copy originals or copies
of the Software or the Documentation or to permit anyone else to do so, except
one (1) copy for backup purposes.
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
6.3 Proprietary Notices. Reseller shall not remove or obscure any
patent, copyright or trademark or other intellectual property notices that may
appear on any part of the Licensed Software or the Documentation.
6.4 Trade Secrets. Reseller acknowledges that the Licensed Software, in
its source code form, contains valuable trade secrets belonging to IVT. Reseller
may not reverse engineer, decompile, disassemble or otherwise translate any
Software. Reseller may not copy any concepts, ideas or techniques demonstrated
by the use of the Software.
6.5 IVT Name and Trademarks. Reseller shall make no representations
concerning IVT or the Licensed Software that are not set forth in the
Documentation. Reseller shall indicate IVT's ownership of all Trademarks in any
advertising, promotional or other written or readable material containing any
Trademarks that Reseller may create during the Term of this Agreement. If
Reseller reproduces IVT's logo, it shall do so only in the format furnished by
IVT. Reseller may use the Trademarks only for purposes of promoting and selling
Reseller products and services that use the Licensed Software and shall make no
other use of the Trademarks, or use any trademark or trade name that may be
confusingly similar to any of the Trademarks, without IVT's prior written
approval. Reseller may not apply for registration of the Trademarks, or any
trademark or trade name that may be confusingly similar to any of the
Trademarks, under the laws of any jurisdiction. Reseller shall obtain IVT's
prior approval, which IVT shall not deny unreasonably, of all advertising,
publicity or promotion that uses any Trademarks or discusses the Licensed
Software in any way.
6.6 Irreparable Harm. Reseller acknowledges that money damages may not
be an adequate remedy for any breach or violation of any requirement set forth
in Section 6 of this Agreement and that any such breach or violation may leave
IVT without an adequate remedy at law. Reseller therefore agrees that, in
addition to any other remedies available at law, in equity or under this
Agreement, IVT shall be entitled to obtain temporary, preliminary and permanent
injunctive relief, without bond, from a court of competent jurisdiction to
restrain any such breach or violation.
Section 7
RESPONSIBILITIES OF RESELLER
7.1 Level of Effort. Reseller shall at all times during this Agreement
use reasonable efforts to market and promote the Licensed Software effectively
and in a manner reasonably calculated to maximize their licensing to End-Users.
7.2 Trained Reseller Employees. Reseller shall employ, train and
maintain sufficient personnel with technical and sales experience to
demonstrate, sell and support the Licensed Software distributed under this
Agreement.
7.3 Maintenance and Support. Except as expressly stated in paragraphs
8.1 and 8.2, Reseller shall be solely responsible for providing all
installation, training, maintenance, service and support to End-Users relating
to the Licensed Software. Reseller shall not permit or encourage its customers
to contact IVT directly without IVT's prior consent.
7.4 Protection of IVT Intellectual Property. Reseller shall use
reasonable efforts to ensure that IVT's intellectual property rights in the
Licensed Software are protected, and shall fully cooperate with IVT's efforts to
protect IVT's rights. Reseller shall notify IVT within ten (10) days of learning
of any actual or suspected violation of IVT's intellectual property rights in
the Licensed Software. Reseller shall notify IVT of any claim, judicial
proceeding or governmental proceeding involving the Licensed Software no later
than ten (10) days after learning of such claim or proceeding.
7.5 End-User License Agreements. Reseller shall ensure that the
Licensed Software is distributed only to persons or entities that have received,
executed and returned to Reseller an End-User Software License Agreement in the
form of Exhibit D. Reseller shall forward to IVT a copy of each executed
End-User Software License Agreement.
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
7.6 Representations and Warranties to End-Users. Reseller shall not,
under any circumstances, make any representations or warranties to any End-User
or other person or entity that are inconsistent with or in addition to the
warranties and representations contained in the End-User Software License
Agreement.
7.7 Compliance with Applicable Laws. Reseller shall comply with all
laws and regulations of the United States and the states in which Licensed
Software are distributed to the extent that non-compliance could possibly
subject IVT to any liability or impair any right or interest of IVT.
7.8 Conduct. Reseller shall at all times refrain from engaging in any
illegal, unfair or deceptive trade practices or unethical business practices
whatsoever with respect to its marketing, distribution and support of the
Licensed Software.
Section 8
RESPONSIBILITIES OF IVT
8.1 Warranty Service. IVT shall provide Reseller's End-Users with the
warranty services as described in, and subject to the terms and conditions of,
the End-User Software License Agreement. IVT reserves the right to modify such
terms and conditions from time to time, in IVT's sole discretion.
8.2 Consultation with Reseller. IVT shall provide to Reseller, at no
charge, a reasonable amount of telephone or electronic mail consultation to
Reseller's employees in order for Reseller to meet its obligations under
paragraph 7.3.
8.3 Training. Upon Reseller's request, and at mutually agreeable times,
IVT will provide sales and technical support training as outlined in Exhibit F
on the Licensed Software to Reseller's employees at IVT's San Francisco offices.
Reseller shall be entitled to up to twenty (20) person days (in no more than 4
sessions) of training during the initial twelve-month period of this Agreement,
and up to twenty (20) person days (in no more than 4 sessions) of training
during the second twelve-month period of this Agreement. Reseller shall be
responsible for all travel, lodging, meal and other expenses for the attendance
of its employees at such training. Reseller may request additional training that
IVT may, subject to the availability of IVT resources, provide on terms to be
negotiated.
8.4 Demonstration Copies of the Licensed Software. IVT shall provide to
Reseller at no charge five (5) copies of the Licensed Software and ten (10)
copies of the Documentation for Reseller's use in the marketing, promotion and
demonstration of the Licensed Software. These demonstration copies may not be
sold or otherwise transferred or disposed of by Reseller and must be returned to
IVT upon the expiration or termination of this Agreement.
Section 9
LIMITED WARRANTY
9.1 Ownership. IVT warrants that it owns or has the right and authority
to license the Licensed Software, the Documentation and the Trademarks to
Reseller on the terms and conditions of this Agreement.
9.2 Media and Documentation. IVT warrants that if the Licensed
Software's media or Documentation is in a damaged or physically defective
condition at the time it is delivered to Reseller, and if it is returned to IVT
(postage prepaid) within ninety (90) days of delivery, IVT will provide Reseller
with replacements at no charge.
9.3 Performance. IVT also warrants that, in the form delivered to
Reseller by IVT, the Licensed Software shall perform substantially in accordance
with the Documentation and be free of Program Errors for ninety (90) days after
Reseller delivers a copy of the Licensed Software to an End-User. IVT's warranty
is conditioned upon: (a) the use of the Licensed Software in accordance with the
Documentation and other instructions provided by IVT and shall be null and void
if Reseller or any End-User alters or modifies the Licensed Software without
IVT's prior written approval, does not use the Licensed Software in accordance
with the Documentation and IVT's instructions, or if the Licensed Software fails
because of any accident, abuse or misapplication; and (b) Reseller
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
notifying IVT in writing of the claimed nonconformance within ninety (90) days
after Delivery of Licensed Software to Reseller. As IVT's sole liability and
Reseller's sole remedy respecting the Licensed Software's nonconformance with
the limited warranty set forth in this Paragraph 9.3, IVT may at its sole
option: (i) use reasonable efforts to correct the Licensed Software to make it
conform with the specifications set forth in the Documentation; (ii) replace the
Licensed Software; or (iii) upon return of the Licensed Software and
Documentation to IVT, refund the license fees paid by Reseller under this
Agreement. IVT DOES NOT REPRESENT OR WARRANT THAT THE LICENSED SOFTWARE WILL
OPERATE PROPERLY WITH OTHER HARDWARE OR SOFTWARE, THAT THE LICENSED SOFTWARE
WILL MEET LICENSEE'S REQUIREMENTS OR EXPECTATIONS, OR THAT OPERATION OF THE
LICENSED SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE.
9.4 No Other Warranties. EXCEPT AS SET FORTH IN PARAGRAPHS 9.1, 9.2 AND
9.3, IVT IS PROVIDING THE LICENSED SOFTWARE AND THE DOCUMENTATION "AS IS," AND
IVT SPECIFICALLY DISCLAIMS ANY AND ALL OTHER WARRANTIES, CONDITIONS OR
REPRESENTATIONS (WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN) WITH RESPECT TO
THE LICENSED SOFTWARE OR DOCUMENTATION INCLUDING ANY AND ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE (WHETHER OR NOT IVT KNOWS,
HAS REASON TO KNOW, HAS BEEN ADVISED OR IS OTHERWISE IN FACT AWARE OF ANY SUCH
PURPOSE) OR CONDITIONS OF TITLE OR NONINFRINGEMENT WHETHER ALLEGED TO ARISE BY
OPERATION OF LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF
DEALING. IVT ALSO EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OR
REPRESENTATION TO ANY PERSON OTHER THAN RESELLER.
Section 10
LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IVT'S CUMULATIVE
LIABILITY FOR ALL CLAIMS OF ANY NATURE RELATED TO THE LICENSED SOFTWARE OR
DOCUMENTATION OR OTHERWISE ARISING FROM THIS AGREEMENT, INCLUDING ANY CAUSE OF
ACTION BASED ON WARRANTY, CONTRACT, TORT, STRICT LIABILITY, PATENT OR COPYRIGHT
INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY, SHALL NOT EXCEED THE
TOTAL AMOUNT OF ALL LICENSE FEES THAT RESELLER HAS ACTUALLY PAID UNDER THIS
AGREEMENT. NEITHER IVT NOR ANY OF ITS SUPPLIERS OR LICENSORS SHALL BE LIABLE FOR
ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES,
WHETHER IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, OR FOR ANY
LOSS OF PROFITS, LOSS OF SAVINGS, LOSS OF DATA OR LOSS OF USER DAMAGES ARISING
OUT OF THIS AGREEMENT OR THE USE (OR INABILITY TO USE) OF THE LICENSED SOFTWARE
EVEN IF IVT OR RESELLER, SUPPLIER OR LICENSOR HAS BEEN AWARE OF THE POSSIBILITY
OF SUCH POTENTIAL LOSS OR DAMAGE. IN NO EVENT WILL IVT BE LIABLE FOR ANY CLAIM
BROUGHT MORE THAN ONE (1) YEAR AFTER THE CAUSE OF ACTION AROSE OR SHOULD HAVE
BEEN DISCOVERED. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF
LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT
APPLY.
Section 11
CONFIDENTIALITY
11.1 Reseller Confidentiality Obligations. Reseller shall maintain the
confidentiality of any confidential information regarding the Licensed Software,
IVT, or IVT's past, present or future products, business plans or strategies.
Information shall be deemed confidential only if it is marked "confidential" in
writing or if it is expressly identified as "confidential" orally. Reseller
shall indemnify IVT for any loss or damage IVT may sustain as a result of the
wrongful use or disclosure by Reseller (or any employee, agent, licensee, or
contractor of Reseller) of confidential information regarding the Licensed
Software, IVT, or IVT's past, present or future products.
11.2 IVT Confidentiality Obligations. IVT shall maintain the
confidentiality of any confidential information regarding Reseller, or
Reseller's past, present or future products, business plans or strategies.
Information
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shall be deemed confidential only if it is marked "confidential" in
writing or if it is expressly identified as "confidential" orally. IVT shall
indemnify Reseller for any loss or damage Reseller may sustain as a result of
the wrongful use or disclosure by IVT (or any employee, agent, licensee, or
contractor of IVT) of confidential information regarding Reseller or Reseller's
past, present or future products.
11.3 Exceptions. The obligations set forth in paragraphs 11.1 and 11.2
shall not apply with respect to any Confidential Information that (a) is or
becomes publicly known under circumstances involving no breach of the terms of
paragraph 11.1 or 11.2; (b) is generally disclosed to third parties by the owner
of such Confidential Information without restrictions on its use or disclosure;
(c) is independently developed by the party to whom it was disclosed; or (d) is
approved for use or disclosure in writing by the owner of such Confidential
Information.
11.4 Agreement is Confidential. This Agreement is strictly
confidential. Neither party shall disclose any of the terms of this Agreement to
any third party without the prior written consent of the other, except as may be
necessary to comply with applicable law. If either party intends to disclose any
of the terms of this Agreement, it shall provide the other with ten (10) days
prior written notice of the intended disclosure. Neither party's consent to a
proposed disclosure shall be unreasonably withheld.
Section 12
INDEMNITY
Except for claims arising solely as a result of any breach of the
limited warranties set forth in Section 9 of this Agreement, Reseller shall
indemnify, defend and hold IVT harmless against all claims, actions or
liabilities of any nature that may arise from Reseller's marketing,
distribution, installation, use or execution of the Licensed Software.
Section 13
TERM AND TERMINATION
13.1 Term. The Term of this Agreement shall begin on the Effective Date
and, unless renewed in accordance with Paragraph 13.2, or terminated in
accordance with Paragraph 13.3, end two calendar years later.
13.2 Renewal. Unless either party gives the other written notice of its
intention not to renew at least sixty (60) days before the end of the initial
term, this Agreement will renew itself automatically for successive one year
renewal terms until either party gives the other written notice of its intention
not to renew this Agreement for another terms at least sixty (60) days before
the end of any renewal term. A party's decision to renew or not renew this
Agreement shall be within that party's sole and exclusive discretion, with or
without cause.
13.3 Default. Either party may, at its option and in addition to all
other available rights or remedies, terminate this Agreement if the other party
fails to comply with its obligations under this Agreement in any material
respect and then fails to cure that noncompliance within thirty (30) days after
receiving a written notice describing the noncompliance in reasonable detail.
13.4 Bankruptcy or Insolvency. Either party may immediately terminate
this Agreement in the event either party becomes bankrupt, insolvent or
generally unable to pay its debts as they become due.
13.5 Effect of Termination. After any termination or expiration of this
Agreement, IVT shall continue to be entitled to all license fees payable under
this Agreement. Both parties' rights and obligations under Sections 6, 9, 10,
11, 13 and 15 of this Agreement shall survive the termination or expiration of
this Agreement.
13.6 No Effect on End-Users. Termination of this Agreement shall not
affect the rights or obligations of properly licensed End-Users.
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
Section 14
CO-MARKETING AND PROMOTION
14.1 General. IVT and Reseller shall participate in joint marketing and
promotion efforts reasonably acceptable to IVT and Reseller. Such activities may
include (subject to the parties agreements and IVT personnel availability and
adequate notice), IVT's support of and participation in trade shows and customer
visits with Reseller's sales teams and IVT's participation in Reseller's
national sales meeting(s) to present and discuss Burstware and value add within
Reseller's customer network. IVT and Reseller shall meet on a quarterly basis to
discuss and agree on the scope, scheduling, and expenditures regarding such
joint marketing initiatives and programs.
14.2 Market Development Funds. For the purposes described below and
under the conditions described below, IVT shall make available to Reseller
Market Development Funds.
14.2.1 Reseller shall not be eligible to accrue Market
Development Funds until the calendar quarter in which it
has met or exceeded fifty percent (50%) of the Minimum
Commitment set forth in Exhibit B. Thereafter, Reseller
shall be eligible to accrue and receive Market
Development Funds only in calendar quarters in which
Reseller's progress toward meeting its Minimum Commitment
under this Agreement meets or exceeds the milestones set
forth in the table in Paragraph 4.4.
14.2.2 Market Development Funds shall accrue at a rate equal to
two (2) percent of the Reseller's net payments to IVT in
each qualifying calendar quarter, not to exceed $25,000
for any such quarter.
14.2.3 Market Development Funds shall be used solely for
marketing, promotional and/ or advertising activities
relating to the Licensed Software and shall be mutually
agreed upon in advance by IVT and Reseller.
14.2.4 Market Development Funds are and shall remain the sole
and exclusive property of IVT unless and until paid to
Reseller for mutually agreed upon activities. Upon
termination of this Agreement, IVT shall retain all
Market Development Funds.
14.3 Press Release. IVT and Reseller will issue a joint press release
promptly after the Effective Date to announce the relationship created by this
Agreement.
14.4 Identification of Reseller as Burstware Reseller. Reseller agrees
that IVT may use Reseller's name as an IVT Reseller in any advertising or
promotional materials for Licensed Software upon approval by Reseller of which
shall not be unreasonably withheld.
14.5 Website Links. IVT and Reseller each agrees to maintain at least
one marketing-related link on its website(s) during the term of this Agreement.
Section 15
MISCELLANEOUS
15.1 Export Regulations. The Licensed Software and Documentation,
including technical data, is subject to U.S. export control laws, including the
U.S. Export Administration Act and its associated regulations, and may be
subject to export or import regulations in other countries. Licensee agrees to
comply strictly with all such regulations and acknowledges that it has the
responsibility to obtain licenses to export, re-export, or import the Licensed
Software or Documentation. Neither the Software nor Documentation may be
downloaded, or otherwise exported or re-exported (i) into or to a national or
resident of any country to which the U.S. has embargoed goods; or (ii) to anyone
on the U.S. Treasury Department's list of Specially Designated Nations or the
U.S. Commerce Department's Table of Denial Orders. By installing or using the
Licensed Software, Licensee is warranting that it is not located in or under the
control of, or a national or resident of any such country or on any such list.
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
15.2 Absence of Third Party Beneficiaries. Unless otherwise expressly
provided, no provisions of this Agreement are intended or shall be construed to
confer upon or give to any person other than IVT and Reseller any rights,
remedies or other benefits under or by reason of this Agreement.
15.3 Assignment. Reseller may not assign any of its rights or delegate
any of its obligations under this Agreement without the prior written consent of
IVT, which IVT shall not withhold unreasonably. IVT may assign or delegate its
obligations under this Agreement as part of a sale or transfer of a substantial
portion of its business to which this Agreement relates.
15.4 Complete Understanding. This Agreement constitutes the entire
agreement between the parties with respect to its subject matter and supersedes
and replaces all prior or contemporaneous understandings or agreements, written
or oral, regarding its subject matter. No amendment to or modification of this
Agreement will be binding unless in writing and signed by duly authorized
representatives of both parties. Terms of a purchase order or similar document
issued by Reseller or an End-User shall not modify this Agreement.
15.5 Construction. This Agreement was executed after arms-length
negotiations between the parties, and its terms are not to be construed against
either party.
15.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
15.7 Disclaimer of Agency. IVT and Reseller each acknowledge that the
parties to this Agreement are independent. Neither party is authorized or
empowered to act as agent or legal representative for the other for any purpose
and shall not on behalf of the other enter into any contract, warranty or
representation as to any matter. Neither party shall be bound by the acts or
conduct of the other and nothing herein shall be construed as creating a
partnership or joint venture.
15.8 Governing Law and Forum. This Agreement will be governed by and
construed in accordance with the laws of the State of California without
reference to conflicts of laws principles. IVT and Reseller consent to the
jurisdiction and venue of the Superior Court of San Francisco County,
California, or the United States District Court for the Northern District of
California as the exclusive forum for all disputes concerning this Agreement.
15.9 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach of this Agreement, shall be settled by
arbitration administered by the San Francisco, California Regional Office of the
American Arbitration Association in accordance with its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator may be entered in
any court identified in paragraph 15.8. The arbitration shall be conducted by a
single arbitrator. The arbitrator shall follow and be bound by applicable state
and federal law. The parties shall cooperate in the expeditious conduct of the
arbitration, and shall do everything reasonably possible to ensure that the
arbitration proceeding is concluded within sixty (60) days of service of a
notice of request for arbitration. Each party shall be limited to a total of
thirty-two (32) hours to present to the arbitrator all evidence and arguments in
support of its position. All fees and costs related to the arbitration shall be
apportioned between the parties by the arbitrator in accordance with paragraph
15.10.
15.10 Attorneys' Fees. The prevailing party in any action arising from
this Agreement shall be entitled to recover from the losing party its reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled from the losing party.
15.11 Notices. All notices and other communications that this Agreement
requires or permits shall be in writing and shall be considered effective when
deposited in the U.S. mail, postage prepaid, and addressed to the appropriate
party at the address noted on the first page of this Agreement, unless by such
notice the receiving party designates a different address in writing.
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
15.12 No Waiver. The failure of either party to enforce any provision
of this Agreement shall not be deemed a waiver of that provision or any other
available right or remedy.
15.13 Severability. In the event that any provision of this Agreement
is found to be invalid, illegal or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.
15.14 Warranty of Authority. By signing this Agreement, each person
executing this Agreement on behalf of any party warrants that he or she has the
full authority to do so.
INSTANT VIDEO TECHNOLOGIES, INC. REMOVABLE MEDIA SOLUTIONS, INC.
By: /s/ Thomas Koshy By: /s/ Thomas Lusi
---------------------------------- -------------------------------
Name: Thomas Koshy Name: Thomas Lusi
-------------------------------- -----------------------------
Title: Chief Operating Officer Title: Chairman
------------------------------- ----------------------------
Date: October 15, 1999 Date: October 15, 1999
-------------------------------- -----------------------------
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<PAGE>
Reseller License Agreement IVT--Removable Media Solutions, Inc.
EXHIBIT A
PRODUCT AND PRICE LIST
Burstware(R) Product Suggested Pricing
- --------------------------------------------------------------------------------
Burstware(R) Enterprise Configuration
The Enterprise configuration is IVT's primary configuration for advanced
scalability, reliability, and no single-point-of-failure for video applications.
The fail-over server and conductor can only be used for fail-over services
within the same Burstware domain.
- --------------------------------------------------------------------------------
Burstware(R) Enterprise Configuration US$55,000
- --------------------------------------------------------------------------------
Two Burstware Servers(TM), two Burstware Conductors(TM)
and one fail-over server 100 Mbps of managed bandwidth
- --------------------------------------------------------------------------------
Burstware(R) Silver Configuration
The Silver Configuration provides load balancing and server fail-over for
reliable midrange video applications.
- --------------------------------------------------------------------------------
Burstware(R) Silver Configuration US$35,000
- --------------------------------------------------------------------------------
Two Burstware Servers and two Burstware Conductors
50 Mbps of managed bandwidth
Burstware(R) Bronze Configuration
IVT's Bronze Configuration provides a single entry-level Burstware Server
architecture for smaller applications. Additional concurrent connections and
fail-over servers may be added to the Bronze configuration.
- --------------------------------------------------------------------------------
Burstware(R) Bronze Configuration US$10,000
- --------------------------------------------------------------------------------
One Burstware Server and one Burstware Conductor
15 Mbps of managed bandwidth
Burstware(R) Additional Bandwidth Module
Additional 50Mbps modules can be added to the Enterprise and Silver
Configurations to create highly scalable video applications. Each module
increases the number of concurrent connections by fifty and the amount of total
managed bandwidth by 50Mbps.
- --------------------------------------------------------------------------------
Burstware(R) Additional Bandwidth Module US$20,000
- --------------------------------------------------------------------------------
One Burstware Server
50 Mbps of managed bandwidth
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
Additional Concurrent Connections
Additional Concurrent Connections where applicable can be purchased in blocks of
50 connections at $2500 per a 50-block connection for all of the above
configurations.
Burstware(R) Additional Fail-Over Server Module
Multiple Fail-Over Server modules can be added to all configurations to create
extremely reliable Burstware server architectures. Each module increases the
total number of Burstware servers in a Burstware domain by one.
- --------------------------------------------------------------------------------
Burstware(R) Additional Fail-Over Server Module US$10,000
- --------------------------------------------------------------------------------
One Burstware Server
- --------------------------------------------------------------------------------
Product Upgrade
The next revision of Burstware is expected to be released in the Fall of 1999. A
Burstware Product Upgrade Agreement Pack can be purchased for 15% of the total
purchase price. The product upgrade pack includes free upgrades to the next
major release of the Burstware suite of products.
- --------------------------------------------------------------------------------
Burstware(R) Product Upgrade Agreement Pack 15% of
Suggested
Total Price
- --------------------------------------------------------------------------------
Upgrades to Burstware 2.x at no charge
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<PAGE>
Reseller License Agreement IVT--Removable Media Solutions, Inc.
EXHIBIT B-1
Value Added Reseller Discount Schedule
Type Annual Minmum Order Discount*
- ---- ------------------- ---------
Level 1 $250K 15%
Level 2 $250-750K 20%
Level 3 $750-1.5 Mln 25%
Level 4 $1.5-3.0Mln 28%
Level 5 Over 3.0Mln 30%
* Includes MDA.
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<PAGE>
Reseller License Agreement IVT--Removable Media Solutions, Inc.
EXHIBIT B-2
Value Added Reseller (Government Contracts) Schedule
- --------------------------------------------------------------------------------
Type Sales Volumes Commission Rate
- --------------------------------------------------------------------------------
Level 1 Up to $33,500 12%
- --------------------------------------------------------------------------------
Level 2 $33,500 to $75,000 13%
- --------------------------------------------------------------------------------
Level 3 $75,001 to $150,000 14%
- --------------------------------------------------------------------------------
Level 4 $150,001 to $300,000 15%
- --------------------------------------------------------------------------------
Level 5 $300,001 to $500,000 17%
- --------------------------------------------------------------------------------
[ $500,000 and up To be negotiated ]
- ---------------------------------------------------------------- ---------------
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Reseller License Agreement IVT--Removable Media Solutions, Inc.
EXHIBIT C
PURCHASE ORDER
[To be supplied at a later date]
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<PAGE>
Reseller License Agreement IVT--Removable Media Solutions, Inc.
EXHIBIT D
END-USER SOFTWARE LICENSE AGREEMENT
between
INSTANT VIDEO TECHNOLOGIES, INC.
500 Sansome Street, Suite 503
San Francisco, California 94111
and
LICENSEE
Company Name:___________________________________________
Principal Address:______________________________________
Contact Person:_________________________________________
Phone Number:___________________________________________
Facsimile Number:_______________________________________
By executing this Agreement, Instant Video Technologies, Inc. ("IVT")
and____________________ ("Licensee") are agreeing to a license of certain
computer programs in accordance with the terms and conditions contained in this
Agreement.
This Agreement consists of (1) this cover page; (2) the attached Terms and
Conditions; (3) the Purchase Order attached as Exhibit A, as well as additional
Purchase Orders accepted from time to time with respect to this Agreement; (4) a
listing of IVT Trademarks attached as Exhibit B; (5) a description of Training
available attached as Exhibit C; and (6) IVT's Year 2000 Statement attached as
Exhibit D [Exhibits A through D are not attached to this Agreement, but are
included as exhibits to the Reseller Agreement, of which this Exhibit D is a
part.]
Licensee has read, understands and agrees to the terms and conditions of this
Agreement and has duly authorized the individual signing this Agreement on its
behalf to do so.
INSTANT VIDEO TECHNOLOGIES, INC. [Click HERE and type COMPANY NAME]
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
(Print Name) (Print Name)
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
(Print Name) (Print Name)
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Reseller License Agreement Exhibit D
TERMS AND CONDITIONS
1. DEFINITIONS
1.1 "Burstware Conductor(TM)" means the computer program included among
the Licensed Software that is designed to operate on a hardware server and that
manages the distribution of audio and/or video content from one or more hardware
servers on which the Burstware Server software has been installed to Burstware
Players installed on client computers. Each Burstware Conductor requires a
Burstware(R) License Key configured for the host name or IP address of the
computer on which the Burstware Conductor is installed.
1.2 "Burstware License Key" means the unique, encrypted software
program provided by IVT (only upon payment of the applicable license fees) that
is designed to prevent use of the Licensed Software beyond the scope of the
license paid for by Licensee by limiting, as appropriate, and in addition to
other limits, the number of Concurrent Burstware Player Connections, the amount
of Managed Bandwidth, and the number of Burstware Servers that the Burstware
Conductor can manage and the number of copies of the Burstware Conductor that
can be used.
1.3 "Burstware Player(TM)" means the computer program included among
the Licensed Software that operates on a single-user client computer, permitting
that computer to receive and play audio and/or video content delivered by the
Burstware Server software.
1.4 "Burstware Server(TM)" means the computer program included among
the Licensed Software that stores audio and/or video content and delivers it to
client computers for viewing with the Burstware Player.
1.5 "Concurrent Burstware Player Connections" means the number of
simultaneous connections between Burstware Players installed on client computers
and Burstware Servers installed on hardware servers that the Burstware License
Key enables the Burstware Conductor to manage simultaneously.
1.6 "Documentation" means all materials in written, computer readable
or other form containing information about the Licensed Software that accompany
the Licensed Software or that IVT may provide during the term of this Agreement.
1.7 "Licensed Software" means the IVT Burstware Conductor, Burstware
Server and Burstware Player software for which Licensee is granted a license
under this Agreement.
1.8 "Managed Bandwidth" means the total bandwidth, measured in megabits
per second, used by the Burstware Server software to deliver audio and/or video
content to Burstware Players.
2. GRANT OF LICENSE
On the terms and conditions of this Agreement, and upon payment of all
applicable license fees, IVT grants to Licensee and Licensee accepts the
non-exclusive licenses and the restrictions set forth below.
2.1 Software License. IVT grants to Licensee a non-exclusive license to
install and use the Licensed Software in machine-readable object code form only
in the configuration and to the scope identified in the Program Order attached
as Exhibit A, or such other Program Order(s) as IVT might accept at a later
date.
2.2 Documentation. IVT grants to Licensee a non-exclusive license to
use the Documentation in connection with Licensee's use of the Licensed
Software.
2.3 Limitation on Use. Licensee understands and acknowledges that use
of the Licensed Software is controlled by the Burstware License Key. Licensee
may not use the Licensed Software beyond the scope enabled by the Burstware
License Key provided by IVT to Licensee upon payment of the applicable license
fee. The
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Reseller License Agreement Exhibit D
Licensed Software functions as three separate programs, the Burstware Conductor,
Burstware Server, and Burstware Player, that operate cooperatively. Licensee may
install and use only the number of copies of the Burstware Conductor and
Burstware Server software specifically enabled by the Burstware License Key
provided to Licensee by IVT. Licensee may install an unlimited number of copies
of the Burstware Player software for use by Licensee, provided Licensee does not
receive any direct payment for doing so, but may simultaneously use only the
number of copies of the Burstware Player specifically enabled by the Burstware
License Key provided to Licensee by IVT. Licensee may not modify or alter the
Licensed Software or Burstware License Key to increase the scope of its use of
the Licensed Software. Further, Licensee may not use any device, process or
computer program that increases, directly or indirectly, the scope of use of the
Licensed Software enabled by the Burstware License Key provided to Licensee by
IVT. If Licensee wishes to increase the scope of its licensed use of the
Licensed Software, Licensee must purchase an additional Burstware License Key
from IVT.
2.4 Back-Up Copies. Licensee may make one copy of the Licensed Software
solely for the back-up or archival purposes, provided that such copy must
contain all proprietary notices affixed to or appearing in the original copy.
2.5 Sun Microsystems Java(TM) Runtime Environment Provisions. Licensee
may not modify the Java Platform Interface ("JPI", identified as classes
contained with the "java" package or any subpackages of the "java" package), by
creating additional classes within the JPI or otherwise causing the addition to
or modification of the classes in the JPI. In the event that Licensee creates
any Java-related API and distributes such API to others for application
development, Licensee must promptly publish broadly, an accurate specification
for such API for free use by all developers of Java-based software.
2.6 Hazardous Environments. The Licensed Software is not designed or
intended for use in online control equipment in environments requiring fail-safe
performance, such as the operation of nuclear facilities, aircraft communication
or control systems or life support systems, in which software failure could lead
to personal injury or severe property or environmental damage. Licensee warrants
that it will not use or allow the use of the Licensed Software for such purposes
3. OWNERSHIP AND USE RESTRICTIONS
3.1 Ownership. Licensee acknowledges that the Licensed Software, all
enhancements, corrections and modifications to the Licensed Software (regardless
whether made by IVT, Licensee or anyone else), all copyrights, patents, trade
secrets, or trademarks or other intellectual property rights protecting or
pertaining to any aspect of the Licensed Software (or any enhancements,
corrections or modifications) and the Documentation, are and shall remain the
sole and exclusive property of IVT and, where applicable, IVT's suppliers. This
Agreement does not convey title or ownership to Licensee, but instead gives
Licensee only the limited rights set forth in Section 2. IVT reserves all rights
not expressly granted by this Agreement.
3.2 Restrictions. Except as expressly set forth in this Agreement,
Licensee has no right to use, make, sublicense, modify, transfer, rent, lease,
sell, display, distribute or copy originals or copies of any Licensed Software
or Documentation, or to permit anyone else to do so.
3.3 Transfer. Licensee may not assign or transfer its rights under this
Agreement or its rights to the Licensed Software without the prior written
consent of IVT. Upon any such transfer or assignment, Licensee must transfer all
copies of the Licensed Software and Documentation and assignee must agree in
writing to all the terms of this Agreement.
3.4 Proprietary Notices. Licensee shall not remove any patent,
copyright or trademark or other intellectual property notices that may appear on
any part of the Licensed Software or the Documentation.
3.5 Trade Secrets. Licensee acknowledges that the Licensed Software, in
its source code form, contains valuable trade secrets belonging to IVT. Licensee
may not reverse engineer, unencrypt, decompile, disassemble or otherwise
translate the Licensed Software or allow anyone else to do so.
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Reseller License Agreement Exhibit D
3.6 Audit Rights. Licensee authorizes IVT or its designee to audit its
compliance with this Agreement, as IVT deems reasonable.
3.7 Notice to Employees and Agents. Licensee will use commercially
reasonable efforts to inform its employees, agents and others using the Licensed
Software under this Agreement that it may not be used, copied or transferred in
violation of this Agreement.
3.8 Irreparable Harm. Licensee acknowledges that money damages may not
be an adequate remedy for any breach or violation of any requirement set forth
in Section 3 of this Agreement and that any such breach or violation may leave
IVT without an adequate remedy at law. Licensee therefore agrees that, in
addition to any other remedies available at law, in equity or under this
Agreement, IVT shall be entitled to obtain temporary, preliminary and permanent
injunctive relief, without bond, from a court of competent jurisdiction to
restrain any such breach or violation.
4. SHIPMENT AND PAYMENT
4.1 Shipment of Licensed Software. IVT shall ship all Licensed Software
ordered under this Agreement F.O.B. from IVT's San Francisco facility, or other
point of shipment within the United States designated by IVT. Risk of loss or
damage to copies of the Licensed Software shall pass to Licensee at the point of
shipment. All shipping and in transit insurance charges shall be paid by
Licensee. Licensee shall specify in its Program Order the mode of shipment
and/or carrier for each order. In the absence of written instructions from
Licensee, IVT shall determine the carrier and/or mode of shipment.
4.2 IVT Product Delivery Schedule and Delays. Although IVT shall use
reasonable efforts to meet Licensee's requested delivery schedules for Licensed
Software, IVT shall not be liable for any loss, damage or expense due to late
delivery.
4.3 Payment. Licensee shall pay for all Licensed Software within thirty
(30) days after the date of IVT's invoice for such products. In addition to all
other available rights or remedies, IVT reserves the right to declare all sums
immediately due and payable upon written notice to Licensee if Licensee fails to
pay when due any amounts due under this Agreement or any invoice. Interest shall
accrue on any amounts not paid when due at an annual rate of eighteen (18)
percent.
4.4 Taxes. With the sole exception of taxes based on IVT's net income,
Licensee shall pay all sales, use, excise, value added or other taxes that may
arise out of Licensee's installation or use of the Licensed Software.
5. NO PRODUCT MAINTENANCE AND SUPPORT
Licensee is not entitled to any maintenance or support for the Licensed
Software or any upgrades or enhancements under this Agreement. Licensee may
purchase from IVT maintenance and support pursuant to the terms, conditions and
pricing of IVT's maintenance and support agreement as in effect on the date of
Licensee's purchase. All upgrades and enhancements made available to Licensee
shall become part of the Licensed Software and become subject to this Agreement.
6. LIMITED WARRANTY
6.1 Ownership. IVT warrants that it owns or has the right and authority
to license the Licensed Software and Documentation to Licensee on the terms and
conditions of this Agreement.
6.2 Media and Documentation. IVT warrants that if the Licensed
Software's media or Documentation is in a damaged or physically defective
condition at the time it is delivered to Licensee, and if it is returned to IVT
(postage prepaid) within ninety (90) days of delivery, IVT will provide Licensee
with replacements at no charge.
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<PAGE>
Reseller License Agreement Exhibit D
6.3 Licensed Software. IVT warrants that, in the form delivered to
Licensee by IVT, the Licensed Software shall perform substantially in accordance
with the Documentation for ninety (90) days after delivery to Licensee. IVT's
warranty is conditioned upon: (a) the use of the Licensed Software in accordance
with the Documentation and other instructions provided by IVT and shall be null
and void if Licensee alters or modifies the Licensed Software without IVT's
prior written approval, does not use the Licensed Software in accordance with
the Documentation and IVT's instructions, or if the Licensed Software fails
because of any accident, abuse or misapplication; and (b) Licensee notifying IVT
in writing of the claimed nonconformity within ninety (90) days after delivery
of the Licensed Software to Licensee. As IVT's sole liability and Licensee's
sole remedy respecting the Licensed Software's nonconformance with the limited
warranty set forth in this Section 6.3, IVT may at its option: (i) use
reasonable efforts to correct the Licensed Software to make it conform
substantially with the specifications set forth in the Documentation; (ii)
replace the Licensed Software; or (iii) upon return of the Licensed Software and
Documentation to IVT, refund the license fees paid by Licensee under this
Agreement and terminate this Agreement. IVT DOES NOT REPRESENT OR WARRANT THAT
THE LICENSED SOFTWARE WILL OPERATE PROPERLY WITH OTHER HARDWARE OR SOFTWARE,
THAT THE LICENSED SOFTWARE WILL MEET LICENSEE'S REQUIREMENTS OR EXPECTATIONS OR
THAT OPERATION OF THE LICENSED SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE.
7. NO OTHER WARRANTY
EXCEPT AS SET FORTH IN SECTION 6, IVT IS PROVIDING THE LICENSED
SOFTWARE AND THE DOCUMENTATION "AS IS," AND, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, IVT SPECIFICALLY DISCLAIMS ANY AND ALL OTHER WARRANTIES,
CONDITIONS OR REPRESENTATIONS (WHETHER EXPRESS, IMPLIED OR STATUTORY, OR ORAL OR
WRITTEN) WITH RESPECT TO THE LICENSED SOFTWARE OR DOCUMENTATION INCLUDING
WITHOUT LIMITATIONANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE (WHETHER OR NOT IVT KNOWS, HAS REASON TO KNOW, HAS BEEN
ADVISED OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE) OR CONDITIONS OF
TITLE OR NONINFRINGEMENT WHETHER ALLEGED TO ARISE BY OPERATION OF LAW, BY REASON
OF CUSTOM OR USAGE IN THE TRADE OR BY COURSE OF DEALING. IVT ALSO EXPRESSLY
DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION TO ANY PERSON OTHER
THAN LICENSEE. THIS LIMITED WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY
HAVE OTHERS, WHICH VARY FROM STATE/JURISDICTION TO STATE/JURISDICTION.
8. LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE CUMULATIVE
LIABILITY OF IVT FOR ALL CLAIMS OF ANY NATURE RELATED TO THE LICENSED SOFTWARE
OR DOCUMENTATION OR OTHERWISE ARISING FROM THIS AGREEMENT, INCLUDING ANY CAUSE
OF ACTION BASED ON WARRANTY, CONTRACT, TORT, STRICT LIABILITY PATENT OR
COPYRIGHT INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY, SHALL NOT
EXCEED THE TOTAL AMOUNT OF ALL LICENSE FEES THAT LICENSEE HAS ACTUALLY PAID
UNDER THIS AGREEMENT. NEITHER IVT NOR ANY OF ITS RESELLERS, SUPPLIERS OR
LICENSORS SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL,
EXEMPLARY OR PUNITIVE DAMAGES, WHETHER IN CONTRACT, IN TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, OR FOR ANY LOSS OF PROFITS, LOSS OF SAVINGS, LOSS OF
DATA OR LOSS OF USER DAMAGES ARISING OUT OF THIS AGREEMENT OR THE USE (OR
INABILLITY TO USE) OF THE LICENSED SOFTWARE EVEN IF IVT OR RESELLER, SUPPLIER OR
LICENSOR HAS BEEN AWARE OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE. IN
NO EVENT WILL IVT BE LIABLE FOR ANY CLAIM BROUGHT MORE THAN ONE (1) YEAR AFTER
THE CAUSE OF ACTION AROSE OR SHOULD HAVE BEEN DISCOVERED. BECAUSE SOME STATES DO
NOT ALLOW THE EXCLUSION OR LIMITATION
-23-
<PAGE>
Reseller License Agreement Exhibit D
OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY
NOT APPLY. BECAUSE SOME STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE
LIMITATIONS MAY NOT APPLY TO YOU.
9. TERMINATION
Without prejudice to any other rights it may have under this Agreement
or at law or equity, IVT may terminate this Agreement if Licensee fails to
comply with the terms of this Agreement. Upon termination of this Agreement for
any reason, Licensee will immediately discontinue use of the Licensed Software,
destroy or return to IVT all copies of the Licensed Software and Documentation
in whatever form they exist, including all back-up copies, and certify in
writing to IVT that all copies have been destroyed.
10. INDEMNIFICATION
The Licensed Software is intended for use only with properly licensed
media, content, and content creation tools. It is Licensee's responsibility to
ascertain whether any copyright, patent or other licenses are necessary and to
obtain any such licenses to serve and/or create or compress such media and
content. Licensee agrees to transmit and/or compress only those materials for
which it has the necessary patent, copyright or other permissions, licenses
and/or clearances. Licensee agrees to hold harmless, indemnify and defend IVT,
its officers, directors and employees, from and against any losses, damages,
fines and expenses (including attorneys' fees and costs) arising out of or
relating to any claims that Licensee has encoded, compressed, copied or
transmitted any materials (other than materials provided by IVT) in connection
with the Licensed Software in violation of another party's rights or in
violation of any law. If Licensee is importing the Licensed Software from the
United States, it shall indemnify and hold IVT harmless from and against any
import and export duties or other claims arising from such importation.
11. GENERAL TERMS
11.1 Export Regulations. The Licensed Software and Documentation,
including technical data, is subject to U.S. export control laws, including the
U.S. Export Administration Act and its associated regulations, and may be
subject to export or import regulations in other countries. Licensee agrees to
comply strictly with all such regulations and acknowledges that it has the
responsibility to obtain licenses to export, re-export, or import the Licensed
Software or Documentation. Neither the Software nor Documentation may be
downloaded, or otherwise exported or re-exported (i) into, or to a national or
resident of Cuba, Iraq, Iran, North Korea, Libya, Sudan, Syria or any country to
which the U.S. has embargoed goods; or (ii) to anyone on the U.S. Treasury
Department's list of Specially Designated Nations or the U.S. Commerce
Department's Table of Denial Orders. By installing or using the Licensed
Software, Licensee is warranting that it is not located in or under the control
of, or a national or resident of any such country or on any such list.
11.2 U.S. Government Restrictions. The use, duplication or disclosure
by the United States Government of the Licensed Software and Documentation is
subject to the restrictions as set forth in the Rights in Technical Data and
Computer Software Clauses in DFARs 252.227-7013(c)(1)(ii) and FAR 52.227-19(c)
11.3 Governing Law and Forum. This Agreement shall be governed by and
construed in accordance with the laws of the State of California and the United
States without reference to conflicts of laws principles. Licensee consents to
the exclusive jurisdiction and venue of the federal and state courts in San
Francisco County, California for resolution of any disputes concerning this
Agreement.
11.4 Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to recover from the losing party its reasonable attorney's fees, costs
and necessary disbursements in addition to any other relief to which such party
may be entitled.
11.5 Complete Understanding. This Agreement constitutes the entire
agreement between the parties with respect to its subject matter and supersedes
and replaces all prior or contemporaneous understandings or agreements, written
or oral, regarding its subject matter. No amendment to or modification of this
Agreement will be binding unless in writing and signed by duly authorized
representatives of both IVT and Licensee.
-24-
<PAGE>
Reseller License Agreement Exhibit D
11.6 Survival. The following provisions of this Agreement shall survive
termination of this Agreement, along with any other terms which by their nature
require survival: Section 3, Section 5, Section 6, Section 7, Section 9 and
Section 10.
11.7 Absence of Third Party Beneficiaries. Unless otherwise expressly
provided, no provisions of this Agreement are intended or shall be construed to
confer upon or give to any person other than IVT and Licensee any rights,
remedies or other benefits under or by reason of this Agreement.
11.8 Disclaimer of Agency. IVT and Licensee each acknowledge that the
parties to this Agreement are independent. Neither party is authorized or
empowered to act as agent or legal representative for the other for any purpose
and shall not on behalf of the other enter into any contract, warranty or
representation as to any matter. Neither party shall be bound by the acts or
conduct of the other and nothing herein shall be construed as creating a
partnership or joint venture.
11.9 No Waiver. The failure of either party to enforce any provision of
this Agreement shall not be deemed a waiver of that provision or any other
available right or remedy.
11.10 Headings. The section headings used in this Agreement are
intended for convenience only and shall not be deemed to modify, limit or
supersede any provision.
11.11 Severability. In the event that any provision of this Agreement
is found to be invalid, illegal or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.
Burstware, Instant Video, Burstware Server, Burstware Conductor, Burstware
Player, "Faster Than Real Time," and "Why Stream When You Can Burst?" are
registered trademarks or trademarks of Instant Video Technologies, Inc., in the
United States and other countries. Use of this software may also be protected by
one or more of the following U.S. patents: 4,963,995; 5,057,932; 5,164,839;
5,262,875; 5,440,334; and 5,710,970. Additional U.S. patents pending.
International patents and patents pending may also be applicable in their
respective countries. Sun Microsystems, Java, and all Java-based trademarks and
logos are trademarks or registered trademarks of Sun Microsystems, Inc. in the
United States and other countries.
All contents Copyright (C) 1998-1999 by Instant Video Technologies, Inc. All
rights reserved.
-25-
<PAGE>
Reseller License Agreement IVT Removable Media Solutions, Inc.
EXHIBIT E
IVT TRADEMARKS
Instant Video(R)
Burstware(R)
Burstware Conductor(TM)
Burstware Server(TM)
Burstware Player(TM)
"Faster Than Real Time"(TM)
"Why Stream When You Can Burst?"(TM)
-26-
<PAGE>
Reseller License Agreement IVT--Removable Media Solutions, Inc.
EXHIBIT F
TRAINING
Training Programs:
Module 1: General Operations Overview
This module would be intended to provide the student with high-level
general knowledge on Burstware. The student would have a general
understanding of Burstware's components, network hardware requirements, and
applications. Additionally, the student would be familiar with how to
operate the overall system, demonstrate capabilities, install the software
for the server, conductor, and player, including how to add additional
servers, conductors, players, etc. to an existing network.
Module 2: Technical Support, Maintenance, & Troubleshooting
This module would be intended to provide advanced technical training to be
used to support their customers. This may be viewed as some type of
technical support certification. The student would have to be trained on
all detailed technical aspects of how to install, troubleshoot, how to
identify and isolate Burstware from network problems, etc. Prerequisite
would be Module 1.
-27-
<PAGE>
Reseller License Agreement IVT--Removable Media Solutions, Inc.
EXHIBIT G
IVT YEAR 2000 STATEMENT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Fiscal Year
ended: December 31, 1998
OR
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to _______.
Commission File No. 33-35580-D
INSTANT VIDEO TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer as Specified in its Charter)
Delaware 84-1141967
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
500 Sansome Street, Suite 503
San Francisco, California 94111
------------------------- -----
(Address of Principal Executive Offices, (Zip Code)
(415) 391-4455
(Issuer's Telephone Number, Including Area Code)
Securities Registered Under Section 12(b) of the Exchange Act: None. Securities
Registered Under Section 12(g) of the Exchange Act: None
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 past 90 days. [N/A]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and will not 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. [N/A]
State Issuer's revenues for its most recent fiscal year: $15,000.
The aggregate market value of the Registrant's Common Stock held by
non-affiliates on March 31, 1999 (based upon the last reported price of the
Common Stock on the NASDAQ OTC Bulletin Board Exchange on such date) was
approximately $63,100,000.
As of April 9, 1999, there were approximately 9,018,228 shares of the
Registrant's Common Stock outstanding.
-28-
<PAGE>
Documents incorporated by reference Part III of this Report incorporates
information by reference from the definitive Proxy statement for the
Registrant's annual meeting of stockholders, to be filed within 120 days after
the end of the fiscal year ended December 31, 1998.
This Form 10-KSB consists of 41 pages.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the application year. Programs or products
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. In addition, the year 2000 is a leap year, which
may also lead to incorrect calculations, functions or systems failure. As a
result, this year, computer systems and software used by many companies may need
to be upgraded to comply with such Year 2000 requirements. In 1998, the Company
began a project to determine if any actions were required regarding date-related
effects to: (i) the Company's software products; (ii) the Company's internal
operating and desktop computer systems and non-information technology systems;
and (iii) the readiness of the Company's third-party vendors and business
partners.
The Company has formed a team consisting of operations, development, marketing,
and finance members to determine the impact of Year 2000 and to take corrective
action. As of February 1999, the Company had completed testing of its suite of
Burstware(R) software products and has found no known Year 2000 issues. The
Company has also tested its internal operating and desktop hardware and software
and has found that all its software is Year 2000 compliant and appears to have
no known Year 2000 issues. The Company has also confirmed with its third-party
vendors and business partners to ensure that their software and hardware will
not impact IVT operations. At this time, the Company knows of no known Year 2000
issues or problems with its vendors, or business partners.
The majority of the costs associated with this project is not incremental to the
Company, but represents a reallocation of existing resources. The Company
believes that modifications deemed necessary will be made on a timely basis and
does not believe that the cost of such modifications will have a material effect
on the Company's operating results. To date, the Company's costs related to the
year 2000 issues have not been material, and the Company does not expect the
aggregate amount spent on the year 2000 issue to be material. In addition, the
Company is in the process of evaluating the need for contingency plans with
respect to year 2000 requirements. The necessity of any contingency plan must be
evaluated on a case-by-case basis and may vary considerably in nature depending
on the year 2000 issue it may address.
The Company's expectations as to the extent and timeliness of modifications
required in order to achieve year 2000 compliance is a forward-looking statement
subject to risks and uncertainties. Actual results may vary materially as a
result of a number of factors, including, among others, those described above in
this section. There can be no assurance that unexpected delays or problems,
including the failure to ensure year 2000 compliance by systems or products
supplied to the Company by third parties, will not have an adverse effect on the
Company, its financial performance and results of operations. In addition, the
Company cannot predict the effect of the year 2000 issues on its customers or
other third party business partners or the resulting effect on the Company. As a
result, if such third parties do not take preventative and/or corrective actions
in a timely manner, the year 2000 issue could have an adverse effect on their
operations and accordingly have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, the
Company's current understanding of expected costs is subject to change as the
project progresses and does not include the cost of internal software and
hardware replaced in the normal course of business whose installation otherwise
may be accelerated to provide solutions to year 2000 compliance issues.
-29-
END-USER SOFTWARE LICENSE AGREEMENT
between
INSTANT VIDEO TECHNOLOGIES, INC.
500 Sansome Street, Suite 503
San Francisco, California 94111
and
RMSI
Company Name: RMSI
Principal Address: 2700 Mercantile Drive, Suite 100
Sacramento, California 95742
Contact Person: Thomas Lusi
Chairman and Founder
Phone Number: (916) 858-3313
Facsimile Number: (916) 858-3300
By executing this Agreement, Instant Video Technologies, Inc. ("IVT") and RSMI
("Licensee") are agreeing to a license of certain computer programs in
accordance with the terms and conditions contained in this Agreement.
This Agreement consists of (1) this cover page; (2) the attached Terms and
Conditions; and (3) the Program Order attached as Exhibit A, as well as
additional Program Orders accepted from time to time with respect to this
Agreement.
Licensee has read, understands and agrees to the terms and conditions of this
Agreement and has duly authorized the individual signing this Agreement on its
behalf to do so.
INSTANT VIDEO TECHNOLOGIES, INC. RMSI
By: By:
------------------------------------ ---------------------------------
Thomas Koshy
- --------------------------------------- ------------------------------------
(Print Name)
Title: Senior VP Strategic Planning Title:
------------------------------- ------------------------------
Date: August 27, 1999 Date: , 19
--------------- --------------------- -----
<PAGE>
End-User Software License Agreement RMSI
TERMS AND CONDITIONS
I. DEFINITIONS
A. "Burstware Conductor(TM)" means the computer program included
among the Licensed Software that is designed to operate on a
hardware server and that manages the distribution of audio
and/or video content from one or more hardware servers on
which the Burstware Server software has been installed to
Burstware Players installed on client computers. Each
Burstware Conductor requires a Burstware License Key
configured for the host name or IP address of the computer on
which the Burstware Conductor is installed.
B. "Burstware(R) License Key" means the unique, encrypted
software program provided by IVT (only upon payment of the
applicable license fees) that is designed to prevent use of
the Licensed Software beyond the scope of the license paid for
by Licensee by limiting, as appropriate, and in addition to
other limits, the number of Concurrent Burstware Player
Connections, the amount of Managed Bandwidth, and the number
of Burstware Servers that the Burstware Conductor can manage
and the number of copies of the Burstware Conductor that can
be used.
C. "Burstware Player(TM)" means the computer program included
among the Licensed Software that operates on a single-user
client computer, permitting that computer to receive and play
audio and/or video content delivered by the Burstware Server
software.
D. "Burstware Server(TM)" means the computer program included
among the Licensed Software that stores audio and/or video
content and delivers it to client computers for viewing with
the Burstware Player.
E. "Concurrent Burstware(R) Player Connections" means the number
of simultaneous connections between Burstware Players
installed on client computers and Burstware Servers installed
on hardware servers that the Burstware License Key enables the
Burstware Conductor to manage simultaneously.
F. "Documentation" means all materials in written, computer
readable or other form containing information about the
Licensed Software that accompany the Licensed Software, or
that IVT may provide during the term of this Agreement.
G. "Licensed Software" means the IVT Burstware Conductor,
Burstware Server and Burstware Player software for which
Licensee is granted a license under this Agreement.
H. "Managed Bandwidth" means the total bandwidth, measured in
megabits per second, used by the Burstware Server software to
deliver audio and/or video content to Burstware Players.
2
<PAGE>
End-User Software License Agreement RMSI
II. GRANT OF LICENSE
On the terms and conditions of this Agreement, and upon payment of all
applicable license fees, IVT grants to Licensee and Licensee accepts the
non-exclusive licenses and the restrictions set forth below.
A. Software License. IVT grants to Licensee a non-exclusive
license to install and use the Licensed Software in
machine-readable object code form only in the configuration
and to the scope identified in the Program Order attached as
Exhibit A, or such other Program Order(s) as IVT might accept
at a later date.
B. Documentation. IVT grants to Licensee a non-exclusive license
to use the Documentation in connection with Licensee's use of
the Licensed Software.
C. Limitation on Use. Licensee understands and acknowledges that
use of the Licensed Software is controlled by the Burstware
License Key. Licensee may not use the Licensed Software beyond
the scope enabled by the Burstware License Key provided by IVT
to Licensee upon payment of the applicable license fee. The
Licensed Software functions as three separate programs, the
Burstware Conductor, Burstware Server, and Burstware Player,
that operate cooperatively. Licensee may install and use only
the number of copies of the Burstware Conductor and Burstware
Server software specifically enabled by the Burstware License
Key provided to Licensee by IVT. Licensee may install an
unlimited number of copies of the Burstware Player software
for use by Licensee, provided Licensee does not receive any
direct payment for doing so, but may simultaneously use only
the number of copies of the Burstware Player specifically
enabled by the Burstware License Key provided to Licensee by
IVT. Licensee may not modify or alter the Licensed Software or
Burstware License Key to increase the scope of its use of the
Licensed Software. Further, Licensee may not use any device,
process or computer program that increases, directly or
indirectly, the scope of use of the Licensed Software enabled
by the Burstware License Key provided to Licensee by IVT. If
Licensee wishes to increase the scope of its licensed use of
the Licensed Software, Licensee must purchase an additional
Burstware License Key from IVT.
D. Back-Up Copies. Licensee may make one copy of the Licensed
Software solely for the back-up or archival purposes, provided
that such copy must contain all proprietary notices affixed to
or appearing in the original copy.
E. Sun Microsystems Java(TM) Runtime Environment Provisions.
Licensee may not modify the Java Platform Interface ("JPI",
identified as classes contained with the "java" package or any
subpackages of the "java" package), by creating additional
classes within the JPI or otherwise causing the addition to or
modification of the classes in the JPI. In the event that
Licensee creates any Java-related API and distributes such API
to others for application development, Licensee must promptly
publish broadly, an accurate specification for such API for
free use by all developers of Java-based software.
F. Hazardous Environments. The Licensed Software is not designed
or intended for use in online control equipment in
environments requiring fail-safe performance, such as the
operation of nuclear facilities, aircraft communication or
control systems or life support systems, in which software
failure could lead to
3
<PAGE>
End-User Software License Agreement RMSI
personal injury or severe property or environmental damage.
Licensee warrants that it will not use or allow the use of the
Licensed Software for such purposes.
III. OWNERSHIP AND USE RESTRICTIONS
A. Ownership. Licensee acknowledges that the Licensed Software,
all enhancements, corrections and modifications to the
Licensed Software (regardless whether made by IVT, Licensee or
anyone else), all copyrights, patents, trade secrets, or
trademarks or other intellectual property rights protecting or
pertaining to any aspect of the Licensed Software (or any
enhancements, corrections or modifications) and the
Documentation, are and shall remain the sole and exclusive
property of IVT and, where applicable, IVT's suppliers. This
Agreement does not convey title or ownership to Licensee, but
instead gives Licensee only the limited rights set forth in
Section II. IVT reserves all rights not expressly granted by
this Agreement.
B. Restrictions. Except as expressly set forth in this Agreement,
Licensee has no right to use, make, sublicense, modify,
transfer, rent, lease, sell, display, distribute or copy
originals or copies of any Licensed Software or Documentation,
or to permit anyone else to do so.
C. Transfer. Licensee may not assign or transfer its rights under
this Agreement or its rights to the Licensed Software without
the prior written consent of IVT. Upon any such transfer or
assignment, Licensee must transfer all copies of the Licensed
Software and Documentation and assignee must agree in writing
to all the terms of this Agreement.
D. Proprietary Notices. Licensee shall not remove any patent,
copyright or trademark or other intellectual property notices
that may appear on any part of the Licensed Software or the
Documentation.
E. Trade Secrets. Licensee acknowledges that the Licensed
Software, in its source code form, contains valuable trade
secrets belonging to IVT. Licensee may not reverse engineer,
unencrypt, decompile, disassemble or otherwise translate the
Licensed Software or allow anyone else to do so.
F. Audit Rights. Licensee authorizes IVT or its designee to audit
its compliance with this Agreement, as IVT deems reasonable.
G. Notice to Employees and Agents. Licensee will use commercially
reasonable efforts to inform its employees, agents and others
using the Licensed Software under this Agreement that it may
not be used, copied or transferred in violation of this
Agreement.
H. Irreparable Harm. Licensee acknowledges that money damages may
not be an adequate remedy for any breach or violation of any
requirement set forth in Section III of this Agreement and
that any such breach or violation may leave IVT without an
adequate remedy at law. Licensee therefore agrees that, in
addition to any other remedies available at law, in equity or
under this Agreement, IVT shall be entitled to obtain
temporary, preliminary and permanent injunctive relief,
without bond, from a court of competent jurisdiction to
restrain any such breach or violation.
4
<PAGE>
End-User Software License Agreement RMSI
IV. SHIPMENT AND PAYMENT
A. Shipment of Licensed Software. IVT shall ship all Licensed
Software ordered under this Agreement F.O.B. IVT's San
Francisco facility, or other point of shipment within the
United States designated by IVT. Risk of loss or damage to
copies of the Licensed Software shall pass to Licensee at the
point of shipment. All shipping and in transit insurance
charges shall be paid by Licensee. Licensee shall specify in
its Program Order the mode of shipment and/or carrier for each
order. In the absence of written instructions from Licensee,
IVT shall determine the carrier and/or mode of shipment.
B. IVT Product Delivery Schedule and Delays. Although IVT shall
use reasonable efforts to meet Licensee's requested delivery
schedules for Licensed Software, IVT shall not be liable for
any loss, damage or expense due to late delivery.
C. Payment. Licensee shall pay for all Licensed Software within
thirty (30) days after the date of IVT's invoice for such
products. In addition to all other available rights or
remedies, IVT reserves the right to declare all sums
immediately due and payable upon written notice to Licensee if
Licensee fails to pay when due any amounts due under this
Agreement or any invoice. Interest shall accrue on any amounts
not paid when due at an annual rate of eighteen (18) percent.
D. Taxes. With the sole exception of taxes based on IVT's net
income, Licensee shall pay all sales, use, excise, value added
or other taxes that may arise out of Licensee's installation
or use of the Licensed Software.
V. NO PRODUCT MAINTENANCE AND SUPPORT
Licensee is not entitled to any maintenance or support for the Licensed
Software or any upgrades or enhancements under this Agreement. Licensee may
purchase from IVT maintenance and support pursuant to the terms, conditions and
pricing of IVT's maintenance and support agreement as in effect on the date of
Licensee's purchase. All upgrades and enhancements made available to Licensee
shall become part of the Licensed Software and become subject to this Agreement.
VI. LIMITED WARRANTY
A. Ownership. IVT warrants that it owns or has the right and
authority to license the Licensed Software and Documentation
to Licensee on the terms and conditions of this Agreement.
B. Media and Documentation. IVT warrants that if the Licensed
Software's media or Documentation is in a damaged or
physically defective condition at the time it is delivered to
Licensee, and if it is returned to IVT (postage prepaid)
within ninety (90) days of delivery, IVT will provide Licensee
with replacements at no charge.
C. Licensed Software. IVT warrants that, in the form delivered to
Licensee by IVT, the Licensed Software shall perform
substantially in accordance with the Documentation for ninety
(90) days after delivery to Licensee. IVT's warranty is
conditioned upon: (a) the use of the Licensed Software in
accordance with the
5
<PAGE>
End-User Software License Agreement RMSI
Documentation and other instructions provided by IVT and shall
be null and void if Licensee alters or modifies the Licensed
Software without IVT's prior written approval, does not use
the Licensed Software in accordance with the Documentation and
IVT's instructions, or if the Licensed Software fails because
of any accident, abuse or misapplication; and (b) Licensee
notifying IVT in writing of the claimed nonconformity within
ninety (90) days after delivery of the Licensed Software to
Licensee. As IVT's sole liability and Licensee's sole remedy
respecting the Licensed Software's nonconformance with the
limited warranty set forth in this Section VI.C, IVT may at
its option: (i) use reasonable efforts to correct the Licensed
Software to make it conform substantially with the
specifications set forth in the Documentation; (ii) replace
the Licensed Software; or (iii) upon return of the Licensed
Software and Documentation to IVT, refund the license fees
paid by Licensee under this Agreement and terminate this
Agreement. IVT DOES NOT REPRESENT OR WARRANT THAT THE LICENSED
SOFTWARE WILL OPERATE PROPERLY WITH OTHER HARDWARE OR
SOFTWARE, THAT THE LICENSED SOFTWARE WILL MEET LICENSEE'S
REQUIREMENTS OR EXPECTATIONS OR THAT OPERATION OF THE LICENSED
SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE.
VII. NO OTHER WARRANTY
EXCEPT AS SET FORTH IN SECTION VI, IVT IS PROVIDING THE LICENSED
SOFTWARE AND THE DOCUMENTATION "AS IS," AND, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, IVT SPECIFICALLY DISCLAIMS ANY AND ALL OTHER WARRANTIES,
CONDITIONS OR REPRESENTATIONS (WHETHER EXPRESS, IMPLIED OR STATUTORY, OR ORAL OR
WRITTEN) WITH RESPECT TO THE LICENSED SOFTWARE OR DOCUMENTATION INCLUDING
WITHOUT LIMITATIONANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE (WHETHER OR NOT IVT KNOWS, HAS REASON TO KNOW, HAS BEEN
ADVISED OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE) OR CONDITIONS OF
TITLE OR NONINFRINGEMENT WHETHER ALLEGED TO ARISE BY OPERATION OF LAW, BY REASON
OF CUSTOM OR USAGE IN THE TRADE OR BY COURSE OF DEALING. IVT ALSO EXPRESSLY
DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION TO ANY PERSON OTHER
THAN LICENSEE. THIS LIMITED WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY
HAVE OTHERS, WHICH VARY FROM STATE/JURISDICTION TO STATE/JURISDICTION.
VIII. LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE CUMULATIVE
LIABILITY OF IVT FOR ALL CLAIMS OF ANY NATURE RELATED TO THE LICENSED SOFTWARE
OR DOCUMENTATION OR OTHERWISE ARISING FROM THIS AGREEMENT, INCLUDING ANY CAUSE
OF ACTION BASED ON WARRANTY, CONTRACT, TORT, STRICT LIABILITY PATENT OR
COPYRIGHT INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY, SHALL NOT
EXCEED THE TOTAL AMOUNT OF ALL LICENSE FEES THAT LICENSEE HAS ACTUALLY PAID
UNDER THIS AGREEMENT. NEITHER IVT NOR ANY OF ITS RESELLERS, SUPPLIERS OR
LICENSORS SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL,
EXEMPLARY OR PUNITIVE DAMAGES, WHETHER IN CONTRACT, IN TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, OR FOR ANY
6
<PAGE>
End-User Software License Agreement RMSI
LOSS OF PROFITS, LOSS OF SAVINGS, LOSS OF DATA OR LOSS OF USER DAMAGES ARISING
OUT OF THIS AGREEMENT OR THE USE (OR INABILLITY TO USE) OF THE LICENSED SOFTWARE
EVEN IF IVT OR RESELLER, SUPPLIER OR LICENSOR HAS BEEN AWARE OF THE POSSIBILITY
OF SUCH POTENTIAL LOSS OR DAMAGE. IN NO EVENT WILL IVT BE LIABLE FOR ANY CLAIM
BROUGHT MORE THAN ONE (1) YEAR AFTER THE CAUSE OF ACTION AROSE OR SHOULD HAVE
BEEN DISCOVERED. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF
LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT
APPLY. BECAUSE SOME STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE
LIMITATIONS MAY NOT APPLY TO YOU.
IX. TERMINATION
Without prejudice to any other rights it may have under this Agreement
or at law or equity, IVT may terminate this Agreement if Licensee fails to
comply with the terms of this Agreement. Upon termination of this Agreement for
any reason, Licensee will immediately discontinue use of the Licensed Software,
destroy or return to IVT all copies of the Licensed Software and Documentation
in whatever form they exist, including all back-up copies, and certify in
writing to IVT that all copies have been destroyed.
X. INDEMNIFICATION
The Licensed Software is intended for use only with properly licensed
media, content, and content creation tools. It is Licensee's responsibility to
ascertain whether any copyright, patent or other licenses are necessary and to
obtain any such licenses to serve and/or create or compress such media and
content. Licensee agrees to transmit and/or compress only those materials for
which it has the necessary patent, copyright or other permissions, licenses
and/or clearances. Licensee agrees to hold harmless, indemnify and defend IVT,
its officers, directors and employees, from and against any losses, damages,
fines and expenses (including attorneys' fees and costs) arising out of or
relating to any claims that Licensee has encoded, compressed, copied or
transmitted any materials (other than materials provided by IVT) in connection
with the Licensed Software in violation of another party's rights or in
violation of any law. If Licensee is importing the Licensed Software from the
United States, it shall indemnify and hold IVT harmless from and against any
import and export duties or other claims arising from such importation.
XI. GENERAL TERMS
A. Export Regulations. The Licensed Software and Documentation,
including technical data, is subject to U.S. export control
laws, including the U.S. Export Administration Act and its
associated regulations, and may be subject to export or import
regulations in other countries. Licensee agrees to comply
strictly with all such regulations and acknowledges that it
has the responsibility to obtain licenses to export,
re-export, or import the Licensed Software or Documentation.
Neither the Software nor Documentation may be downloaded, or
otherwise exported or re-exported (i) into, or to a national
or resident of Cuba, Iraq, Iran, North Korea, Libya, Sudan,
Syria or any country to which the U.S. has embargoed goods; or
(ii) to anyone on the U.S. Treasury Department's list of
Specially Designated Nations or the U.S. Commerce Department's
Table of Denial Orders. By installing or using the Licensed
Software, Licensee is
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End-User Software License Agreement RMSI
warranting that it is not located in or under the control of,
or a national or resident of any such country or on any such
list.
B. U.S. Government Restrictions. The use, duplication or
disclosure by the United States Government of the Licensed
Software and Documentation is subject to the restrictions as
set forth in the Rights in Technical Data and Computer
Software Clauses in DFARs 252.227-7013(c)(1)(ii) and FAR
52.227-19(c)
C. Governing Law and Forum. This Agreement shall be governed by
and construed in accordance with the laws of the State of
California and the United States without reference to
conflicts of laws principles. Licensee consents to the
exclusive jurisdiction and venue of the federal and state
courts in San Francisco County, California for resolution of
any disputes concerning this Agreement.
D. Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to recover from the
losing party its reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to
which such party may be entitled.
E. Complete Understanding. This Agreement constitutes the entire
agreement between the parties with respect to its subject
matter and supersedes and replaces all prior or
contemporaneous understandings or agreements, written or oral,
regarding its subject matter. No amendment to or modification
of this Agreement will be binding unless in writing and signed
by duly authorized representatives of both IVT and Licensee.
F. Survival. The following provisions of this Agreement shall
survive termination of this Agreement, along with any other
terms which by their nature require survival: Section III,
Section V, Section VI, Section VII, Section IX and Section X.
G. Absence of Third Party Beneficiaries. Unless otherwise
expressly provided, no provisions of this Agreement are
intended or shall be construed to confer upon or give to any
person other than IVT and Licensee any rights, remedies or
other benefits under or by reason of this Agreement.
H. Disclaimer of Agency. IVT and Licensee each acknowledge that
the parties to this Agreement are independent. Neither party
is authorized or empowered to act as agent or legal
representative for the other for any purpose and shall not on
behalf of the other enter into any contract, warranty or
representation as to any matter. Neither party shall be bound
by the acts or conduct of the other and nothing herein shall
be construed as creating a partnership or joint venture.
I. No Waiver. The failure of either party to enforce any
provision of this Agreement shall not be deemed a waiver of
that provision or any other available right or remedy.
J. Headings. The section headings used in this Agreement are
intended for convenience only and shall not be deemed to
modify, limit or supersede any provision.
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End-User Software License Agreement RMSI
K. Severability. In the event that any provision of this
Agreement is found to be invalid, illegal or unenforceable
pursuant to judicial decree or decision, the remainder of this
Agreement shall remain valid and enforceable according to its
terms.
Burstware, Instant Video, Burstware Server, Burstware Conductor, Burstware
Player, "Faster Than Real Time," and "Why Stream When You Can Burst?" are
registered trademarks or trademarks of Instant Video Technologies, Inc., in the
United States and other countries. Use of this software may also be protected by
one or more of the following U.S. patents: 4,963,995; 5,057,932; 5,164,839;
5,262,875; 5,440,334; and 5,710,970. Additional U.S. patents pending.
International patents and patents pending may also be applicable in their
respective countries. Sun Microsystems, Java, and all Java-based trademarks and
logos are trademarks or registered trademarks of Sun Microsystems, Inc. in the
United States and other countries.
All contents Copyright (C) 1998-1999 by Instant Video Technologies, Inc. All
rights reserved.
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End-User Software License Agreement RMSI
EXHIBIT A
PROGRAM ORDER
Burstware Enterprise Software Package includes:
o Two (2) Burstware Servers
o Two (2) Burstware Conductors
o 100 Mbps of managed bandwidth
o 100 concurrent connections maximum
o Additional failover Burstware Server
Sixty- (60) day evaluation required. At the end of the 60-day evaluation period,
RMSI may return above product to IVT at no charge to RMSI. If RSMI decides to
keep the above, terms will become net 30 with payments.
TOTAL: $28,000
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End-User Software License Agreement RMSI
EXHIBIT B
IVT TRADEMARKS
--------------
Instant Video(R)
Burstware(R)
Burstware Conductor(TM)
Burstware Server(TM)
Burstware Player(TM)
"Faster Than Real Time"(TM)
"Why Stream When You Can Burst?"(TM)
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End-User Software License Agreement RMSI
EXHIBIT C
TRAINING
Training Programs:
Module 1: General Operations Overview
This module would be intended to provide the student with high-level
general knowledge on Burstware. The student would have a general
understanding of Burstware's components, network hardware requirements, and
applications. Additionally, the student would be familiar with how to
operate the overall system, demonstrate capabilities, install the software
for the server, conductor, and player, including how to add additional
servers, conductors, players, etc. to an existing network.
Module 2: Technical Support, Maintenance, & Troubleshooting
This module would be intended to provide advanced technical training to be
used to support their customers. This may be viewed as some type of
technical support certification. The student would have to be trained on
all detailed technical aspects of how to install, troubleshoot, how to
identify and isolate Burstware from network problems, etc. Prerequisite
would be Module 1.
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End-User Software License Agreement RMSI
EXHIBIT D
IVT YEAR 2000 STATEMENT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year ended: December 31, 1998
OR
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ___________.
Commission File No. 33-35580-D
INSTANT VIDEO TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer as Specified in its Charter)
Delaware 84-1141967
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
500 Sansome Street, Suite 503
San Francisco, California 94111
------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(415) 391-4455
(Issuer's Telephone Number, Including Area Code)
Securities Registered Under Section 12(b) of the Exchange Act: None. Securities
Registered Under Section 12(g) of the Exchange Act: None
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 past 90 days. [N/A]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and will not 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. [N/A]
State Issuer's revenues for its most recent fiscal year: $15,000.
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End-User Software License Agreement RMSI
The aggregate market value of the Registrant's Common Stock held by
non-affiliates on March 31, 1999 (based upon the last reported price of the
Common Stock on the NASDAQ OTC Bulletin Board Exchange on such date) was
approximately $63,100,000.
As of April 9, 1999, there were approximately 9,018,228 shares of the
Registrant's Common Stock outstanding.
Documents incorporated by reference Part III of this Report incorporates
information by reference from the definitive Proxy statement for the
Registrant's annual meeting of stockholders, to be filed within 120 days after
the end of the fiscal year ended December 31, 1998.
This Form 10-KSB consists of 41 pages.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the application year. Programs or products
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. In addition, the year 2000 is a leap year, which
may also lead to incorrect calculations, functions or systems failure. As a
result, this year, computer systems and software used by many companies may need
to be upgraded to comply with such Year 2000 requirements. In 1998, the Company
began a project to determine if any actions were required regarding date-related
effects to: (i) the Company's software products; (ii) the Company's internal
operating and desktop computer systems and non-information technology systems;
and (iii) the readiness of the Company's third-party vendors and business
partners.
The Company has formed a team consisting of operations, development, marketing,
and finance members to determine the impact of Year 2000 and to take corrective
action. As of February 1999, the Company had completed testing of its suite of
Burstware(R) software products and has found no known Year 2000 issues. The
Company has also tested its internal operating and desktop hardware and software
and has found that all its software is Year 2000 compliant and appears to have
no known Year 2000 issues. The Company has also confirmed with its third-party
vendors and business partners to ensure that their software and hardware will
not impact IVT operations. At this time, the Company knows of no known Year 2000
issues or problems with its vendors, or business partners.
The majority of the costs associated with this project is not incremental to the
Company, but represents a reallocation of existing resources. The Company
believes that modifications deemed necessary will be made on a timely basis and
does not believe that the cost of such modifications will have a material effect
on the Company's operating results. To date, the Company's costs related to the
year 2000 issues have not been material, and the Company does not expect the
aggregate amount spent on the year 2000 issue to be material. In addition, the
Company is in the process of evaluating the need for contingency plans with
respect to year 2000 requirements. The necessity of any contingency plan must be
evaluated on a case-by-case basis and may vary considerably in nature depending
on the year 2000 issue it may address.
The Company's expectations as to the extent and timeliness of modifications
required in order to achieve year 2000 compliance is a forward-looking statement
subject to risks and uncertainties. Actual results may vary materially as a
result of a number of factors, including, among others, those described above in
this section. There can be no assurance that unexpected delays or problems,
including the failure to ensure year 2000 compliance by systems or products
supplied to the Company by third parties, will not have an adverse effect on the
Company, its financial
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End-User Software License Agreement RMSI
performance and results of operations. In addition, the Company cannot predict
the effect of the year 2000 issues on its customers or other third party
business partners or the resulting effect on the Company. As a result, if such
third parties do not take preventative and/or corrective actions in a timely
manner, the year 2000 issue could have an adverse effect on their operations and
accordingly have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, the Company's current
understanding of expected costs is subject to change as the project progresses
and does not include the cost of internal software and hardware replaced in the
normal course of business whose installation otherwise may be accelerated to
provide solutions to year 2000 compliance issues.
15
[LOGO OMITTED]
500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
RESELLER LICENSE AGREEMENT
between
INSTANT VIDEO TECHNOLOGIES, INC.
and
I Stream TV
This Agreement, entered into this 4th day of October, 1999 is between
INSTANT VIDEO TECHNOLOGIES, INC. ("IVT"), a Delaware corporation, with its
principal place of business at 500 Sansome Street, Suite 503, San Francisco, CA
94111, and I Stream TV ("Reseller"), a New York corporation, with its principal
place of business at 135 West 20th Street, Suite 401, New York, NY 10011.
1. Whereas, IVT is the developer and owner of certain proprietary
software ("Licensed Software") to enable "Faster-Than-Real-Time"(TM) delivery of
full motion video and CD-quality audio over networks;
2. Whereas, Reseller is in the business of marketing and distributing
computer hardware, software and related services and desires to distribute the
Licensed Software to End-Users; and.
3. Whereas, IVT is willing to grant and Reseller is willing to accept a
non-exclusive license to market and distribute the Licensed Software under the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1
DEFINITIONS
When used in this Agreement:
1.1 "Affiliate" means with respect to each party any legal entity that
directly or indirectly controls, is controlled by, or is under common control
with the party, but only for so long as such control continues. For purposes of
this definition, "control" means the power, whether or not normally exercised,
to direct the management and affairs of an entity. No entity shall be deemed to
control a party unless such entity owns directly or indirectly fifty-one percent
(51%) or more of its voting shares.
1.2 "Agreement" means this Reseller Agreement, including all exhibits
hereto and all Program Orders submitted hereunder.
1.3 "Burstware Conductor(TM)" means the computer program included among
the Licensed Software that is designed to operate on a single computing device
and that manages the distribution of audio and/or video content from one or more
hardware servers on which the Burstware Server software has been installed to
Burstware Players installed on client computers. Each Burstware Conductor
requires a Burstware License Key configured for the host name or IP address of
the computer on which the Burstware Conductor is installed.
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Reseller Agreement IVT -- I Stream TV
1.4 "Burstware License Key" means the unique, encrypted software
program provided by IVT (only upon payment of the applicable license fees) that
is designed to prevent use of the Licensed Software beyond the scope of the
license paid for by Licensee by limiting, as appropriate, and in addition to
other limits, the number of Concurrent Burstware Player Connections, the amount
of Managed Bandwidth, and the number of Burstware Servers that the Burstware
Conductor can manage.
1.5 "Burstware Player(TM)" means the computer program included among
the Licensed Software that operates on a single-user client computer and permits
that computer to receive and play audio and/or video content delivered by the
Burstware Server software.
1.6 "Burstware Server(TM)" means the computer program included among
the Licensed Software that stores audio and/or video content and delivers it to
client computers for viewing with the Burstware Player.
1.7 "I Stream TV" or "Reseller" means I Stream TV and its Affiliates.
1.8 "Concurrent Burstware Player Connections" means the number of
simultaneous connections between Burstware Players installed on client computers
and Burstware Servers installed on hardware servers that the Burstware License
Key enables the Burstware Conductor to manage simultaneously.
1.9 "Documentation" means all materials in written, computer readable
or other form containing information about the Licensed Software that accompany
the Licensed Software or that IVT may deliver to Reseller during the term of
this Agreement for use in the marketing and distribution of the Licensed
Software and for distribution to End-Users.
1.10 "Effective Date" means October 4th, 1999.
1.11 "End-User License Agreement" means the form of End-User License
Agreement attached to this Agreement as Exhibit D.
1.12 "End-Users" means any prospective customers to whom Reseller may
offer Licensed Software for personal use or use in the regular course of the
customer's business, but not for resale.
1.13 "Intellectual Property Rights" means all intellectual property
rights under the laws of the United States, any of its states or territories and
any other nation, including without limitation all patent rights, copyrights,
trade secrets, trademarks, trade names and other proprietary rights.
1.14 "Licensed Software" means IVT's Burstware Conductor, Burstware
Server and Burstware Conductor (collectively "Burstware(R)") computer programs
described in the Product & Price List attached as Exhibit A to this Agreement.
Licensed Software does not include any modifications or additions to the
Licensed Software, including without limitation, any new versions, updates, or
enhancements created or procured by IVT after the Effective Date of this
Agreement, but does include corrections of Program Errors developed by IVT
pursuant to paragraph 8.3.
1.15 "Licensed Territory" means the United States and its territories
and possessions.
1.16 "Managed Bandwidth" means the total bandwidth, measured in
megabits per second, used by the Burstware Server software to deliver audio
and/or video content to Burstware Players.
1.17 "Program Error" means a program defect or "bug" sufficiently
material that it results in a version of the Licensed Software, in the form
delivered by IVT to Reseller, at the time it is delivered by IVT to Reseller,
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Reseller Agreement IVT -- I Stream TV
failing to substantially conform to the Documentation for that version. A
respect in which the Licensed Software fails to substantially conform to the
Documentation shall not be considered a Program Error unless IVT is able to
replicate it on a computer system already in its possession or on a computer
system supplied to IVT by Reseller.
1.18 "Program Order" means the form attached to this Agreement as
Exhibit C that IVT may modify at any time.
1.19 "Product & Price List" means the list attached as Exhibit A to
this Agreement and any substitute list IVT may issue during the term of this
Agreement.
1.20 "Trademarks" means the trademarks listed in Exhibit E, which IVT
may amend at any time upon thirty (30) days prior written notice to Reseller.
Section 2
DISTRIBUTION & TRADEMARK LICENSES AND LIMITATIONS
2.1 Distribution License. On the terms and conditions of this
Agreement, IVT grants to Reseller a non-exclusive, non-transferable license to
distribute Licensed Software solely to End-Users within the Licensed Territory.
2.2 Trademark License. On the terms and conditions of this Agreement,
IVT also grants to Reseller a non-exclusive, non-transferable license without
the right to sublicense to use the Trademarks in connection with the promotion
and distribution of the Licensed Software in accordance with this Agreement.
2.3 No Exclusivity. This Agreement does not constitute an exclusive
grant to Reseller of any specific customer, territory, or geographic area. IVT
may in its sole discretion and without obligation, notice or liability to
Reseller, add and/or terminate other resellers, distributors, value added
resellers, original equipment manufacturers, licensees or agents of the Licensed
Software, and/or license Licensed Software directly to End-Users, including
customers of Reseller.
2.4 Reservation of Rights. IVT reserves all rights in the Licensed
Software and Documentation not expressly granted to Reseller by this Agreement.
2.5 Licensed Software Changes. IVT retains the right, in its sole
discretion, to upgrade or modify the Licensed Software from time to time. Upon
receipt of any such notice of an upgrade or modification, Reseller shall within
thirty (30) days cease to market and distribute earlier versions of the Licensed
Software.
Section 3
ORDERING AND SHIPMENT OF LICENSED SOFTWARE
3.1 Submission of Program Orders. Reseller shall order Licensed
Software by delivering a completed Program Order to IVT. The Program Order shall
be completed by Reseller to identify: (a) the End-User (by company name, address
and telephone number and contact name); (b) the computer system (by type/model,
serial number, host ID and/or IP address) on which the Burstware Conductor
portion of each copy of the Licensed Software being ordered is to be installed,
and used; (c) the number of copies of the Licensed Software being ordered; (d)
the configuration for each copy of the Licensed Software being ordered,
including the amount of Managed Bandwith, the number of Concurrent Burstware
Player Connections and number of Burstware Servers; (e) the price for each copy
of the Licensed Software; and (f) the total amount payable to IVT under that
Program Order.
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Reseller Agreement IVT -- I Stream TV
3.2 Acceptance of Program Orders. Completed Program Orders delivered to
IVT shall be deemed accepted and shall become binding on IVT only when accepted
in writing by IVT, or when IVT ships the Licensed Software ordered under that
Program Order. If IVT accepts a Program Order by shipment, the order shall bind
IVT only as to the Licensed Software actually shipped. Failure of IVT to accept
a Program Order within ten (10) days shall constitute rejection of the Program
Order.
3.3 Controlling Terms. The terms and conditions of this Agreement shall
apply to each Program Order accepted and/or Licensed Software shipped by IVT
hereunder. Any terms or conditions appearing on the face or reverse side of any
Program Order, purchase order, acknowledgment, or confirmation that are
different from or in addition to those required hereunder shall not be binding
on the parties, even if signed and returned, unless both parties hereto
expressly agree in a separate writing to be bound by such separate or additional
terms and conditions.
3.4 Cancellation. IVT reserves the right to cancel or suspend any
orders placed by Reseller and accepted by IVT, or to refuse or to delay shipment
of any Licensed Software described in those orders, if Reseller fails: (a) to
pay when due any amount required by this Agreement or any invoice; (b) to meet
any credit or financial requirements that IVT, in its reasonable discretion, may
establish; or (c) to comply with the terms and conditions of this Agreement.
Once IVT accepts an order, Reseller may not cancel the order unless IVT fails to
ship the Licensed Software described in the Program Order within thirty (30)
days after accepting the order, and Reseller provides written notice of
cancellation to IVT before IVT ships any of the Licensed Software described in
the order that Reseller desires to cancel.
3.5 Shipment of Licensed Software. IVT shall ship all Licensed Software
ordered under this Agreement F.O.B. from IVT's San Francisco facility, or other
point of shipment within the United States designated by IVT. Risk of loss or
damage to copies of the Licensed Software shall pass to Reseller at the point of
shipment. All shipping and in transit insurance charges shall be paid by
Reseller. Reseller shall specify in its Program Order the mode of shipment
and/or carrier for each order. In the absence of written instructions from
Reseller, IVT shall determine the carrier and/or mode of shipment.
3.6 IVT Product Delivery Schedule and Delays. Although IVT shall use
reasonable efforts to meet Reseller's requested delivery schedules for Licensed
Software, IVT shall not be liable for any loss, damage or expense due to late
delivery.
3.7 Delivery of Burstware License Key. IVT shall deliver Burstware
License Keys only to Reseller, who shall be solely responsible for delivery of
Burstware License Keys to End-Users. Reseller shall deliver a License Key to an
End-User only upon receipt of a duly executed End-User License Agreement by that
End-User.
Section 4
MINIMUM COMMITMENTS, DISCOUNTS AND PAYMENTS
4.1 Product and Price List. A copy of IVT's current Product and Price
List for the Licensed Software is attached as Exhibit A. IVT agrees to provide
to Reseller the pricing reflected in Exhibit A during the initial Term of this
Agreement. Reseller acknowledges and accepts that IVT may thereafter change its
prices to Reseller at any time, on sixty (60) days written notice to Reseller.
No price change shall affect any completed Program Order that Reseller has
submitted and IVT has accepted in accordance with this Agreement before IVT has
notified Reseller of the price change. Further, no price change shall affect any
written bid or proposal for or including the Licensed Software submitted by
Reseller to an End-User before IVT has notified Reseller of the price change.
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Reseller Agreement IVT -- I Stream TV
4.2 Minimum Commitment. Reseller agrees to order during the initial
term of this Agreement the minimum amount of Licensed Software, net of
cancellations and returns, set forth in the Minimum Commitment and Resellers
Discount Schedule attached as Exhibit B to this Agreement.
4.3 Price to Reseller. Subject to Paragraph 4.4, the price payable by
Reseller for Licensed Software ordered pursuant to this Agreement during the
initial term of this Agreement shall be the applicable price in the then-current
Product and Price List, less the discount specified in the Minimum Commitment
and Discount Schedule and specified here as Partner Reseller, identified in
Exhibit B.
4.4 Periodic Review of Progress Toward Minimum Commitment. During each
annual term of the Agreement, IVT will review quarterly the volume of orders by
Reseller, net of cancellations and returns, against the Minimum Commitment for
that period. If the cumulative net dollar volume ordered, as a percentage of the
Minimum Commitment for that period, does not equal or exceed the applicable
value from the following table, IVT shall so notify Reseller. If Reseller does
not within thirty (30) days of such notification order sufficient volumes of
Licensed Software to meet or exceed the applicable value from the table below
for that period, IVT may, in its discretion, reduce Reseller's discount to
levels (including no discount) commensurate with the actual volume of Reseller's
orders.
Percentage of Commitment
Three-Month Period Year 1 for given year
------------------------- --------------
1st 4%
2nd 20%
3rd 56%
4th 100%
Percentage of Commitment
Three-Month Period Year 2 for given year
------------------------- --------------
1st 17%
2nd 40%
3rd 67%
4th 100%
IVT will discuss at any time with Reseller adjustment of the Minimum
Commitment and applicable discounts, based on Reseller's forecasted orders, but
any adjustment requires IVT's prior written consent. For any renewal term of
this Agreement, IVT and Reseller shall agree on the applicable Minimum
Commitment and discounts. Reseller may not assume any discount will be continued
for any renewal term.
4.5 Initial Order. Within fifteen (15) days of the Effective Date of
this Agreement, Reseller shall submit to IVT a blanket purchase which will
remain in effect for the duration of the agreement and will authorize IVT to
supply the reseller copies of the Licensed Software. IVT shall ship and invoice
for Licensed Software only upon receipt of a completed Program Order as provided
in this Agreement.
4.6 Payment. Reseller shall pay for all Licensed Software within
forty-five (45) days after the date of IVT's invoice for such products. In
addition to all other available rights or remedies, IVT reserves the right to
declare all sums immediately due and payable upon written notice to Reseller if
Reseller fails to pay when due any amounts due under this Agreement or any
invoice. Interest shall accrue on any amounts not paid when due at an annual
rate of eighteen (18) percent.
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Reseller Agreement IVT -- I Stream TV
4.7 Taxes. With the sole exception of taxes based on IVT's net income,
Reseller shall pay all sales, use, excise, value added or other taxes that may
arise out of Reseller's distribution or installation of Licensed Software.
4.8 End-User Pricing. Reseller is free to determine its own End-User
prices for the Licensed Software. Although IVT may publish suggested End-User
prices, these are suggestions only and are not binding in any way on Reseller.
Section 5
PROPERTY RIGHTS AND RESTRICTIONS
5.1 Ownership. Reseller acknowledges that the Licensed Software, all
enhancements, corrections and modifications to the Software (regardless whether
made by IVT, Reseller or anyone else), all Intellectual Property Rights
protecting or pertaining to any aspect of the Software (or any enhancements,
corrections or modifications), the Documentation, all Trademarks and all
goodwill associated with the Trademarks are and shall remain the sole and
exclusive property of IVT and, where applicable, IVT's suppliers. This Agreement
does not convey title or ownership to Reseller or any of its customers, but
instead gives Reseller only the limited rights set forth in Section 2. IVT
reserves all rights not expressly granted by this Agreement.
5.2 Use Restrictions. Except as set forth in Section 2, Reseller has no
right to use, make, sublicense, modify, distribute or copy originals or copies
of the Software or the Documentation or to permit anyone else to do so.
5.3 Proprietary Notices. Reseller shall not remove or obscure any
patent, copyright or trademark or other intellectual property notices that may
appear on any part of the Licensed Software or the Documentation.
5.4 Trade Secrets. Reseller acknowledges that the Licensed Software, in
its source code form, contains valuable trade secrets belonging to IVT. Reseller
may not reverse engineer, decompile, disassemble or otherwise translate any
Software. Reseller may not copy any concepts, ideas or techniques demonstrated
by the use of the Software.
5.5 IVT Name and Trademarks. Reseller shall make no representations
concerning IVT or the Licensed Software that are not set forth in the
Documentation. Reseller shall indicate IVT's ownership of all Trademarks in any
advertising, promotional or other written or readable material containing any
Trademarks that Reseller may create during the Term of this Agreement. If
Reseller reproduces IVT's logo, it shall do so only in the format furnished by
IVT. Reseller may use the Trademarks only for purposes of promoting and selling
Reseller products and services that use the Licensed Software and shall make no
other use of the Trademarks, or use any trademark or trade name that may be
confusingly similar to any of the Trademarks, without IVT's prior written
approval. Reseller may not apply for registration of the Trademarks, or any
trademark or trade name that may be confusingly similar to any of the
Trademarks, under the laws of any jurisdiction. Reseller shall obtain IVT's
prior approval, which IVT shall not deny unreasonably, of all advertising,
publicity or promotion that uses any Trademarks or discusses the Licensed
Software in any way.
5.6 Irreparable Harm. Reseller acknowledges that money damages may not
be an adequate remedy for any breach or violation of any requirement set forth
in Section 5 of this Agreement and that any such breach or violation may leave
IVT without an adequate remedy at law. Reseller therefore agrees that, in
addition to any other remedies available at law, in equity or under this
Agreement, IVT shall be entitled to obtain temporary, preliminary and permanent
injunctive relief, without bond, from a court of competent jurisdiction to
restrain any such breach or violation.
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Reseller Agreement IVT -- I Stream TV
Section 6
RESPONSIBILITIES OF RESELLER
6.1 Level of Effort. Reseller shall at all times during this Agreement
use reasonable efforts to market and promote the Licensed Software effectively
and in a manner reasonably calculated to maximize their licensing to End-Users.
6.2 Trained Reseller Employees. Reseller shall employ, train and
maintain sufficient personnel with technical and sales experience to
demonstrate, sell and support the Licensed Software distributed under this
Agreement.
6.3 Maintenance and Support. Except as expressly stated in paragraphs
7.1 and 7.2, Reseller shall be solely responsible for providing all
installation, training, maintenance, service and support to End-Users relating
to the Licensed Software. Reseller shall not permit or encourage its customers
to contact IVT directly without IVT's prior consent.
6.4 Protection of IVT Intellectual Property. Reseller shall use
reasonable efforts to ensure that IVT's intellectual property rights in the
Licensed Software are protected, and shall fully cooperate with IVT's efforts to
protect IVT's rights. Reseller shall notify IVT within ten (10) days of learning
of any actual or suspected violation of IVT's intellectual property rights in
the Licensed Software. Reseller shall notify IVT of any claim, judicial
proceeding or governmental proceeding involving the Licensed Software no later
than ten (10) days after learning of such claim or proceeding.
6.5 End-User License Agreements. Reseller shall ensure that the
Licensed Software is distributed only to persons or entities that have received,
executed and returned to Reseller an End-User License Agreement in the form of
Exhibit D. Reseller shall forward to IVT a copy of each executed End-User
License Agreement.
6.6 Representations and Warranties to End-Users. Reseller shall not,
under any circumstances, make any representations or warranties to any End-User
or other person or entity that are inconsistent with or in addition to the
warranties and representations contained in the End-User License Agreement.
6.7 Compliance with Applicable Laws. Reseller shall comply with all
laws and regulations of the United States and the states in which Licensed
Software are distributed to the extent that non-compliance could possibly
subject IVT to any liability or impair any right or interest of IVT.
6.8 Conduct. Reseller shall at all times refrain from engaging in any
illegal, unfair or deceptive trade practices or unethical business practices
whatsoever with respect to its marketing, distribution and support of the
Licensed Software.
Section 7
RESPONSIBILITIES OF IVT
7.1 Warranty Service. IVT shall provide Reseller's End-Users with the
warranty services as described in, and subject to the terms and conditions of,
the End-User License Agreement. IVT reserves the right to modify such terms and
conditions from time to time, in IVT's sole discretion.
7.2 Consultation with Reseller. IVT shall provide to Reseller, at no
charge, a reasonable amount of telephone or electronic mail consultation to
Reseller's employees in order for Reseller to meet its obligations under
paragraph 6.3.
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Reseller Agreement IVT -- I Stream TV
7.3 Training. Upon Reseller's request, and at mutually agreeable times,
IVT will provide sales and technical support training as outlined in Exhibit F
on the Licensed Software to Reseller's employees at IVT's San Francisco offices.
Reseller shall be entitled to up to twenty (20) person days (in no more than 4
sessions) of training during the initial twelve month period of this Agreement,
and up to twenty (20) person days (in no more than 4 sessions) of training
during the second twelve-month period of this Agreement. Reseller shall be
responsible for all travel, lodging, meal and other expenses for the attendance
of its employees at such training. Reseller may request additional training that
IVT may, subject to the availability of IVT resources, provide on terms to be
negotiated.
7.4 Demonstration Copies of the Licensed Software. IVT shall provide to
Reseller at no charge five (5) copies of the Licensed Software and ten (10)
copies of the Documentation for Reseller's use in the marketing, promotion and
demonstration of the Licensed Software. These demonstration copies may not be
sold or otherwise transferred or disposed of by Reseller and must be returned to
IVT upon the expiration or termination of this Agreement.
Section 8
LIMITED WARRANTY
8.1 Ownership. IVT warrants that it owns or has the right and authority
to license the Licensed Software, the Documentation and the Trademarks to
Reseller on the terms and conditions of this Agreement.
8.2 Media and Documentation. IVT warrants that if the Licensed
Software's media or Documentation is in a damaged or physically defective
condition at the time it is delivered to an End-User, and if it is returned to
IVT (postage prepaid) within ninety (90) days of delivery, IVT will provide
End-User with replacements at no charge.
8.3 Performance. IVT also warrants that, in the form delivered to
Reseller by IVT, the Licensed Software shall perform substantially in accordance
with the Documentation and be free of Program Errors for ninety (90) days after
Reseller delivers a copy of the Licensed Software to an End-User. IVT's warranty
is conditioned upon: (a) the use of the Licensed Software in accordance with the
Documentation and other instructions provided by IVT and shall be null and void
if Reseller or any End-User alters or modifies the Licensed Software without
IVT's prior written approval, does not use the Licensed Software in accordance
with the Documentation and IVT's instructions, or if the Licensed Software fail
because of any accident, abuse or misapplication; and (b) Reseller notifying IVT
in writing of the claimed nonconformance within ninety (90) days after Delivery
of Licensed Software to Reseller. As IVT's sole liability and Reseller's sole
remedy respecting the Licensed Software's nonconformance with the limited
warranty set forth in this Paragraph 8.3, IVT may at its sole option: (i) use
reasonable efforts to correct the Licensed Software to make it conform with the
specifications set forth in the Documentation; (ii) replace the Licensed
Software; or (iii) upon return of the Licensed Software and Documentation to IVT
refund the license fees paid by Reseller under this Agreement and terminate the
Agreement. IVT DOES NOT REPRESENT OR WARRANT THAT THE LICENSED SOFTWARE WILL
OPERATE PROPERLY WITH OTHER HARDWARE OR SOFTWARE, THAT THE LICENSED SOFTWARE
WILL MEET LICENSEE'S REQUIREMENTS OR EXPECTATIONS, OR THAT OPERATION OF THE
LICENSED SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE.
8.4 No Other Warranties. EXCEPT AS SET FORTH IN PARAGRAPHS 8.1, 8.2 AND
8.3, IVT IS PROVIDING THE LICENSED SOFTWARE AND THE DOCUMENTATION "AS IS," AND
IVT SPECIFICALLY DISCLAIMS ANY AND ALL OTHER WARRANTIES, CONDITIONS OR
REPRESENTATIONS (WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN) WITH RESPECT TO
THE LICENSED SOFTWARE OR DOCUMENTATION INCLUDING ANY AND ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE (WHETHER OR NOT IVT KNOWS,
HAS REASON TO KNOW, HAS BEEN ADVISED OR IS OTHERWISE IN FACT AWARE OF ANY SUCH
PURPOSE) OR CONDITIONS OF TITLE OR NONINFRINGEMENT WHETHER ALLEGED TO ARISE BY
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Reseller Agreement IVT -- I Stream TV
OPERATION OF LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF
DEALING. IVT ALSO EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OR
REPRESENTATION TO ANY PERSON OTHER THAN RESELLER.
Section 9
LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IVT'S CUMULATIVE
LIABILITY FOR ALL CLAIMS OF ANY NATURE RELATED TO THE LICENSED SOFTWARE OR
DOCUMENTATION OR OTHERWISE ARISING FROM THIS AGREEMENT, INCLUDING ANY CAUSE OF
ACTION BASED ON WARRANTY, CONTRACT, TORT, STRICT LIABILITY, PATENT OR COPYRIGHT
INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY, SHALL NOT EXCEED THE
TOTAL AMOUNT OF ALL LICENSE FEES THAT RESELLER HAS ACTUALLY PAID UNDER THIS
AGREEMENT. NEITHER IVT NOR ANY OF ITS SUPPLIERS OR LICENSORS SHALL BE LIABLE FOR
ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES,
WHETHER IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, OR FOR ANY
LOSS OF PROFITS, LOSS OF SAVINGS, LOSS OF DATA OR LOSS OF USER DAMAGES ARISING
OUT OF THIS AGREEMENT OR THE USE (OR INABILITY TO USE) OF THE LICENSED SOFTWARE
EVEN IF IVT OR RESELLER, SUPPLIER OR LICENSOR HAS BEEN AWARE OF THE POSSIBILITY
OF SUCH POTENTIAL LOSS OR DAMAGE. IN NO EVENT WILL IVT BE LIABLE FOR ANY CLAIM
BROUGHT MORE THAN ONE (1) YEAR AFTER THE CAUSE OF ACTION AROSE OR SHOULD HAVE
BEEN DISCOVERED. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF
LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT
APPLY.
Section 10
CONFIDENTIALITY
10.1 Reseller Confidentiality Obligations. Reseller shall maintain the
confidentiality of any confidential information regarding the Licensed Software,
IVT, or IVT's past, present or future products, business plans or strategies.
Information shall be deemed confidential only if it is marked "confidential" in
writing or if it is expressly identified as "confidential" orally. Reseller
shall indemnify IVT for any loss or damage IVT may sustain as a result of the
wrongful use or disclosure by Reseller (or any employee, agent, licensee, or
contractor of Reseller) of confidential information regarding the Licensed
Software, IVT, or IVT's past, present or future products.
10.2 IVT Confidentiality Obligations. IVT shall maintain the
confidentiality of any confidential information regarding Reseller, or
Reseller's past, present or future products, business plans or strategies.
Information shall be deemed confidential only if it is marked "confidential" in
writing or if it is expressly identified as "confidential" orally. IVT shall
indemnify Reseller for any loss or damage Reseller may sustain as a result of
the wrongful use or disclosure by IVT (or any employee, agent, licensee, or
contractor of IVT) of confidential information regarding Reseller or Reseller's
past, present or future products.
10.3 Exceptions. The obligations set forth in paragraphs 10.1 and 10.2
shall not apply with respect to any Confidential Information that (a) is or
becomes publicly known under circumstances involving no breach of the terms of
paragraph 10.1 or 10.2; (b) is generally disclosed to third parties by the owner
of such Confidential Information without restrictions on its use or disclosure;
(c) is independently developed by the party to whom it was disclosed; or (d) is
approved for use or disclosure in writing by the owner of such Confidential
Information.
10.4 Agreement is Confidential. This Agreement is strictly
confidential. Neither party shall disclose any of the terms of this Agreement to
any third party without the prior written consent of the other, except as may be
necessary to comply with applicable law. If either party intends to disclose any
of the terms of this Agreement, it
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Reseller Agreement IVT -- I Stream TV
shall provide the other with ten (10) days prior written notice of the intended
disclosure. Neither party's consent to a proposed disclosure shall be
unreasonably withheld.
Section 11
INDEMNITY
Except for claims arising solely as a result of any breach of the
limited warranties set forth in Section 8 of this Agreement, Reseller shall
indemnify, defend and hold IVT harmless against all claims, actions or
liabilities of any nature that may arise from Reseller's marketing,
distribution, installation, use or execution of the Licensed Software.
Section 12
TERM AND TERMINATION
12.1 Term. The Term of this Agreement shall begin on the Effective Date
and, unless renewed in accordance with this Paragraph 12.2, or terminated in
accordance with Paragraph 12.3, end two calendar years later.
12.2 Renewal. Unless either party gives the other written notice of its
intention not to renew at least sixty (60) days before the end of the initial
term, this Agreement will renew itself automatically for successive one year
renewal terms until either party gives the other written notice of its intention
not to renew this Agreement for another terms at least sixty (60) days before
the end of any renewal term. A party's decision to renew or not renew this
Agreement shall be within that party's sole and exclusive discretion, with or
without cause.
12.3 Default. Either party may, at its option and in addition to all
other available rights or remedies, terminate this Agreement if the other party
fails to comply with its obligations under this Agreement in any material
respect and then fails to cure that noncompliance within thirty (30) days after
receiving a written notice describing the noncompliance in reasonable detail.
12.4 Bankruptcy or Insolvency. Either party may immediately terminate
this Agreement in the event either party becomes bankrupt, insolvent or
generally unable to pay its debts as they become due.
12.5 Effect of Termination. After any termination or expiration of this
Agreement, IVT shall continue to be entitled to all license fees payable under
this Agreement. Both parties' rights and obligations under Paragraphs 5, 8, 9,
10, 11, 12 and 14 of this Agreement shall survive the termination or expiration
of this Agreement.
12.6 No Effect on End-Users. Termination of this Agreement shall not
affect the rights or obligations of properly licensed End-Users.
Section 13
CO-MARKETING AND PROMOTION
13.1 General. IVT and Reseller shall participate in joint marketing and
promotion efforts reasonably acceptable to IVT and Reseller. Such activities may
include (subject to the parties agreements and IVT personnel availability and
adequate notice), IVT's support of and participation in trade shows and customer
visits with Reseller's sales teams and IVT's participation in Reseller's
national sales meeting(s) to present and discuss Burstware and value added
within Reseller's customer network. ITV and Reseller shall meet on a quarterly
basis to discuss and agree on the scope, scheduling, and expenditures regarding
such joint marketing initiatives and programs.
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Reseller Agreement IVT -- I Stream TV
13.2 Market Development Funds. For the purposes described below and
under the conditions described below, IVT shall make available to Reseller
Market Development Funds.
13.2.1 Reseller shall not be eligible to accrue Market
Development Funds until the calendar quarter in which it has met or
exceeded fifty percent (50%) of the Minimum Commitment set forth in
Exhibit B. Thereafter, Reseller shall be eligible to accrue and receive
Market Development Funds only in calendar quarters in which Reseller's
progress toward meeting its Minimum Commitment under this Agreement
meets or exceeds the milestones set forth in the table in Paragraph
4.4.
13.2.2 Market Development Funds shall accrue at a rate equal
to two (2) percent of the Reseller's net payments to IVT in each
qualifying calendar quarter, not to exceed $25,000 for any such
quarter.
13.2.3 Market Development Funds shall be used solely for
marketing, promotional and/ or advertising activities relating to the
Licensed Software and shall be mutually agreed upon in advance by IVT
and Reseller.
13.2.4 Market Development Funds are and shall remain the sole
and exclusive property of IVT unless and until paid to Reseller for
mutually agreed upon activities. Upon termination of this Agreement,
IVT shall retain all Market Development Funds.
13.3 Press Release. IVT and Reseller will issue a joint press release
promptly after the Effective Date to announce the relationship created by this
Agreement.
13.4 Identification of Reseller as Burstware Reseller. Reseller agrees
that IVT may use Reseller's name as an IVT Reseller in any advertising or
promotional materials for Licensed Software.
13.5 Website Links. IVT and Reseller each agrees to maintain at least
one marketing-related link on its website(s) during the term of this Agreement.
Section 14
MISCELLANEOUS
14.1 Export Regulations. The Licensed Software and Documentation,
including technical data, is subject to U.S. export control laws, including the
U.S. Export Administration Act and its associated regulations, and may be
subject to export or import regulations in other countries. Licensee agrees to
comply strictly with all such regulations and acknowledges that it has the
responsibility to obtain licenses to export, re-export, or import the Licensed
Software or Documentation. Neither the Software nor Documentation may be
downloaded, or otherwise exported or re-exported (i) into, or to a national or
resident of any country to which the U.S. has embargoed goods; or (ii) to anyone
on the U.S. Treasury Department's list of Specially Designated Nations or the
U.S. Commerce Department's Table of Denial Orders. By installing or using the
Licensed Software, Licensee is warranting that it is not located in or under the
control of, or a national or resident of any such country or on any such list.
14.2 Absence of Third Party Beneficiaries. Unless otherwise expressly
provided, no provisions of this Agreement are intended or shall be construed to
confer upon or give to any person other than IVT and Reseller any rights,
remedies or other benefits under or by reason of this Agreement.
14.3 Assignment. Reseller may not assign any of its rights or delegate
any of its obligations under this Agreement without the prior written consent of
IVT, which IVT shall not withhold unreasonably. IVT may
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Reseller Agreement IVT -- I Stream TV
assign or delegate its obligations under this Agreement as part of a sale or
transfer of a substantial portion of its business to which this Agreement
relates.
14.4 Complete Understanding. This Agreement constitutes the entire
agreement between the parties with respect to its subject matter and supersedes
and replaces all prior or contemporaneous understandings or agreements, written
or oral, regarding its subject matter. No amendment to or modification of this
Agreement will be binding unless in writing and signed by duly authorized
representatives of both parties. Terms of a purchase order or similar document
issued by Reseller or an End-User shall not modify this Agreement.
14.5 Construction. This Agreement was executed after arms-length
negotiations between the parties, and its terms are not to be construed against
either party.
14.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
14.7 Disclaimer of Agency. IVT and Reseller each acknowledge that the
parties to this Agreement are independent. Neither party is authorized or
empowered to act as agent or legal representative for the other for any purpose
and shall not on behalf of the other enter into any contract, warranty or
representation as to any matter. Neither party shall be bound by the acts or
conduct of the other and nothing herein shall be construed as creating a
partnership or joint venture.
14.8 Governing Law and Forum. This Agreement will be governed by and
construed in accordance with the laws of the State of California without
reference to conflicts of laws principles. IVT and Reseller consent to the
jurisdiction and venue of the Superior Court of San Francisco County,
California, or the United States District Court for the Northern District of
California as the exclusive forum for all disputes concerning this Agreement.
14.9 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach of this Agreement, shall be settled by
arbitration administered by the San Francisco, California Regional Office of the
American Arbitration Association in accordance with its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator may be entered in
any court identified in paragraph 14.8. The arbitration shall be conducted by a
single arbitrator. The arbitrator shall follow and be bound by applicable state
and federal law. The parties shall cooperate in the expeditious conduct of the
arbitration, and shall do everything reasonably possible to ensure that the
arbitration proceeding is concluded within sixty (60) days of service of a
notice of request for arbitration. Each party shall be limited to a total of
thirty-two (32) hours to present to the arbitrator all evidence and arguments in
support of its position. All fees and costs related to the arbitration shall be
apportioned between the parties by the arbitrator in accordance with paragraph
14.10.
14.10 Attorneys' Fees. The prevailing party in any action arising from
this Agreement shall be entitled to recover from the losing party its reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled from the losing party.
14.11 Notices. All notices and other communications that this Agreement
requires or permits shall be in writing and shall be considered effective when
deposited in the U.S. mail, postage prepaid, and addressed to the appropriate
party at the address noted on the first page of this Agreement, unless by such
notice the receiving party designates a different address in writing.
14.12 No Waiver. The failure of either party to enforce any provision
of this Agreement shall not be deemed a waiver of that provision or any other
available right or remedy.
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Reseller Agreement IVT -- I Stream TV
14.13 Severability. In the event that any provision of this Agreement
is found to be invalid, illegal or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.
14.14 Warranty of Authority. By signing this Agreement, each person
executing this Agreement on behalf of any party warrants that he or she has the
full authority to do so.
INSTANT VIDEO TECHNOLOGIES, INC. I Stream TV
By /s/ Thomas Koshy By /s/ Chip Ruhnke
-------------------------------- ------------------------------
Name Thomas Koshy Name: Chip Ruhnke
- ----------------------------------- ------------------------------
Title Chief Operating Officer Title: President
- ----------------------------------- ------------------------------
Date October 13, 1999 Date: 10/04/99
- ----------------------------------- ------------------------------
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500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
EXHIBIT A
Burstware(R) Product Suggested Pricing
- --------------------------------------------------------------------------------
Burstware(R) Enterprise Configuration
The Enterprise configuration is IVT's primary configuration for advanced
scalability, reliability, and no single-point-of-failure for video applications.
The fail-over server and conductor can only be used for fail-over services
within the same Burstware domain.
-----------------------------------------------------------------------------
Burstware(R) Enterprise Configuration US$55,000
-----------------------------------------------------------------------------
Two Burstware Servers(TM)and two Burstware
Conductors(TM)(TM) $ 45,000
100 Mbps of managed bandwidth
Additional fail-over Burstware Server $ 10,000
-----------------------------------------------------------------------------
Burstware(R) Silver Configuration
The Silver Configuration provides load balancing and server fail-over for
reliable midrange video applications.
-----------------------------------------------------------------------------
Burstware(R) Silver Configuration US$35,000
-----------------------------------------------------------------------------
Two Burstware Servers and two Burstware Conductors(TM)
50 Mbps of managed bandwidth
Burstware(R) Bronze Configuration
IVT's Bronze Configuration provides a single entry-level Burstware Server
architecture for smaller applications. Additional concurrent connections and
fail-over servers may be added to the Bronze configuration.
-----------------------------------------------------------------------------
Burstware(R) Bronze Configuration US$10,000
-----------------------------------------------------------------------------
One Burstware Server and one Burstware Conductor
15 Mbps of managed bandwidth
Burstware(R) Additional Bandwidth Module
Additional 50Mbps modules can be added to the Enterprise and Silver
Configurations to create highly scalable video applications. Each module
increases the number of concurrent connections by fifty and the amount of total
managed bandwidth by 50Mbps.
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500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
-----------------------------------------------------------------------------
Burstware(R) Additional Bandwidth Module US$20,000
-----------------------------------------------------------------------------
One Burstware Server
50 Mbps of managed bandwidth
Additional Concurrent Connections
Additional Concurrent Connections where applicable can be purchased in blocks of
50 connections at $2500 per a 50-block connection for all of the above
configurations.
Burstware(R) Additional Fail-Over Server Module
Multiple Fail-Over Server modules can be added to all configurations to create
extremely reliable Burstware server architectures. Each module increases the
total number of Burstware servers in a Burstware domain by one.
-----------------------------------------------------------------------------
Burstware(R) Additional Fail-Over Server Module US$10,000
-----------------------------------------------------------------------------
One Burstware Server
-----------------------------------------------------------------------------
Product Upgrade
The next revision of Burstware is expected to be released in the Fall of 1999. A
Burstware Product Upgrade Agreement Pack can be purchased for 15% of the total
purchase price. The product upgrade pack includes free upgrades to the next
major release of the Burstware suite of products.
-----------------------------------------------------------------------------
Burstware(R) Product Upgrade Agreement Pack 15% of
Suggested
Total Price
-----------------------------------------------------------------------------
Upgrades to Burstware 2.x at no charge
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500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
EXHIBIT B
DISCOUNT SCHEDULE #4
Discount Lever #4 1.5MM-3MM annually
Description Discount
----------- --------
Burstware(R) Enterprise Configuration 28%
Additional 50Mbps of Bandwidth (for Enterprise Config.) 28%
Burstware(R) Silver Configuration 28%
Burstware(R) Bronze Configuratoin 28%
Additional Fail-Over Server 28%
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500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
EXHIBIT C
PROGRAM ORDER
[To be supplied at a later date]
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500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
EXHIBIT D
END-USER SOFTWARE LICENSE AGREEMENT
between
INSTANT VIDEO TECHNOLOGIES, INC.
500 Sansome Street, Suite 503
San Francisco, California 94111
and
LICENSEE
Company Name: _______________________________________
Principal Address: _______________________________________
_______________________________________
_______________________________________
Contact Person: _______________________________________
Phone Number: _______________________________________
Facsimile Number: _______________________________________
Email address: _______________________________________
By executing this Agreement, Instant Video Technologies, Inc. ("IVT") and
___________________________ ("Licensee") are agreeing to a license of certain
computer programs in accordance with the terms and conditions contained in this
Agreement.
This Agreement consists of (1) this cover page; (2) the attached Terms and
Conditions; and (3) the Program Order attached as Exhibit A, as well as
additional Program Orders accepted from time to time with respect to this
Agreement.
Licensee has read, understands and agrees to the terms and conditions of this
Agreement and has duly authorized the individual signing this Agreement on its
behalf to do so.
INSTANT VIDEO TECHNOLOGIES, INC. ___________________________________
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500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
By: _______________________________ By: _______________________________
Name: _____________________________ Name:______________________________
(Print Name) (Print Name)
Title: ____________________________ Title: ____________________________
Date: _____________________________ Date:______________________________
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End-User Software License Agreement
TERMS AND CONDITIONS
1. DEFINITIONS
1.1 "Burstware Conductor(TM)" means the computer program included among
the Licensed Software that is designed to operate on a hardware server and that
manages the distribution of audio and/or video content from one or more hardware
servers on which the Burstware Server software has been installed to Burstware
Players installed on client computers. Each Burstware Conductor requires a
Burstware(R) License Key configured for the host name or IP address of the
computer on which the Burstware Conductor is installed.
1.2 "Burstware License Key" means the unique, encrypted software
program provided by IVT (only upon payment of the applicable license fees) that
is designed to prevent use of the Licensed Software beyond the scope of the
license paid for by Licensee by limiting, as appropriate, and in addition to
other limits, the number of Concurrent Burstware Player Connections, the amount
of Managed Bandwidth, and the number of Burstware Servers that the Burstware
Conductor can manage and the number of copies of the Burstware Conductor that
can be used.
1.3 "Burstware Player(TM)" means the computer program included among
the Licensed Software that operates on a single-user client computer, permitting
that computer to receive and play audio and/or video content delivered by the
Burstware Server software.
1.4 "Burstware Server(TM)" means the computer program included among
the Licensed Software that stores audio and/or video content and delivers it to
client computers for viewing with the Burstware Player.
1.5 "Concurrent Burstware Player Connections" means the number of
simultaneous connections between Burstware Players installed on client computers
and Burstware Servers installed on hardware servers that the Burstware License
Key enables the Burstware Conductor to manage simultaneously.
1.6 "Documentation" means all materials in written, computer readable
or other form containing information about the Licensed Software that accompany
the Licensed Software or that IVT may provide during the term of this Agreement.
1.7 "Licensed Software" means the IVT Burstware Conductor, Burstware
Server and Burstware Player software for which Licensee is granted a license
under this Agreement.
1.8 "Managed Bandwidth" means the total bandwidth, measured in megabits
per second, used by the Burstware Server software to deliver audio and/or video
content to Burstware Players.
2. GRANT OF LICENSE
On the terms and conditions of this Agreement, and upon payment of all
applicable license fees, IVT grants to Licensee and Licensee accepts the
non-exclusive licenses and the restrictions set forth below.
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2.1 Software License. IVT grants to Licensee a non-exclusive license to
install and use the Licensed Software in machine-readable object code form only
in the configuration and to the scope identified in the Program Order attached
as Exhibit A, or such other Program Order(s) as IVT might accept at a later
date.
2.2 Documentation. IVT grants to Licensee a non-exclusive license to
use the Documentation in connection with Licensee's use of the Licensed
Software.
2.3 Limitation on Use. Licensee understands and acknowledges that use
of the Licensed Software is controlled by the Burstware License Key. Licensee
may not use the Licensed Software beyond the scope enabled by the Burstware
License Key provided by IVT to Licensee upon payment of the applicable license
fee. The Licensed Software functions as three separate programs, the Burstware
Conductor, Burstware Server, and Burstware Player, that operate cooperatively.
Licensee may install and use only the number of copies of the Burstware
Conductor and Burstware Server software specifically enabled by the Burstware
License Key provided to Licensee by IVT. Licensee may install an unlimited
number of copies of the Burstware Player software for use by Licensee, provided
Licensee does not receive any direct payment for doing so, but may
simultaneously use only the number of copies of the Burstware Player
specifically enabled by the Burstware License Key provided to Licensee by IVT.
Licensee may not modify or alter the Licensed Software or Burstware License Key
to increase the scope of its use of the Licensed Software. Further, Licensee may
not use any device, process or computer program that increases, directly or
indirectly, the scope of use of the Licensed Software enabled by the Burstware
License Key provided to Licensee by IVT. If Licensee wishes to increase the
scope of its licensed use of the Licensed Software, Licensee must purchase an
additional Burstware License Key from IVT.
2.4 Back-Up Copies. Licensee may make one copy of the Licensed Software
solely for the back-up or archival purposes, provided that such copy must
contain all proprietary notices affixed to or appearing in the original copy.
2.5 Sun Microsystems Java(TM) Runtime Environment Provisions. Licensee
may not modify the Java Platform Interface ("JPI", identified as classes
contained with the "java" package or any subpackages of the "java" package), by
creating additional classes within the JPI or otherwise causing the addition to
or modification of the classes in the JPI. In the event that Licensee creates
any Java-related API and distributes such API to others for application
development, Licensee must promptly publish broadly, an accurate specification
for such API for free use by all developers of Java-based software.
2.6 Hazardous Environments. The Licensed Software is not designed or
intended for use in online control equipment in environments requiring fail-safe
performance, such as the operation of nuclear facilities, aircraft communication
or control systems or life support systems, in which software failure could lead
to personal injury or severe property or environmental damage. Licensee warrants
that it will not use or allow the use of the Licensed Software for such purposes
3. OWNERSHIP AND USE RESTRICTIONS
3.1 Ownership. Licensee acknowledges that the Licensed Software, all
enhancements, corrections and modifications to the Licensed Software (regardless
whether
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made by IVT, Licensee or anyone else), all copyrights, patents, trade secrets,
or trademarks or other intellectual property rights protecting or pertaining to
any aspect of the Licensed Software (or any enhancements, corrections or
modifications) and the Documentation, are and shall remain the sole and
exclusive property of IVT and, where applicable, IVT's suppliers. This Agreement
does not convey title or ownership to Licensee, but instead gives Licensee only
the limited rights set forth in Section 2. IVT reserves all rights not expressly
granted by this Agreement.
3.2 Restrictions. Except as expressly set forth in this Agreement,
Licensee has no right to use, make, sublicense, modify, transfer, rent, lease,
sell, display, distribute or copy originals or copies of any Licensed Software
or Documentation, or to permit anyone else to do so.
3.3 Transfer. Licensee may not assign or transfer its rights under this
Agreement or its rights to the Licensed Software without the prior written
consent of IVT. Upon any such transfer or assignment, Licensee must transfer all
copies of the Licensed Software and Documentation and assignee must agree in
writing to all the terms of this Agreement.
3.4 Proprietary Notices. Licensee shall not remove any patent,
copyright or trademark or other intellectual property notices that may appear on
any part of the Licensed Software or the Documentation.
3.5 Trade Secrets. Licensee acknowledges that the Licensed Software, in
its source code form, contains valuable trade secrets belonging to IVT. Licensee
may not reverse engineer, unencrypt, decompile, disassemble or otherwise
translate the Licensed Software or allow anyone else to do so.
3.6 Audit Rights. Licensee authorizes IVT or its designee to audit its
compliance with this Agreement, as IVT deems reasonable.
3.7 Notice to Employees and Agents. Licensee will use commercially
reasonable efforts to inform its employees, agents and others using the Licensed
Software under this Agreement that it may not be used, copied or transferred in
violation of this Agreement.
3.8 Irreparable Harm. Licensee acknowledges that money damages may not
be an adequate remedy for any breach or violation of any requirement set forth
in Section 3 of this Agreement and that any such breach or violation may leave
IVT without an adequate remedy at law. Licensee therefore agrees that, in
addition to any other remedies available at law, in equity or under this
Agreement, IVT shall be entitled to obtain temporary, preliminary and permanent
injunctive relief, without bond, from a court of competent jurisdiction to
restrain any such breach or violation.
4. SHIPMENT AND PAYMENT
4.1 Shipment of Licensed Software. IVT shall ship all Licensed Software
ordered under this Agreement F.O.B. from IVT's San Francisco facility, or other
point of shipment within the United States designated by IVT. Risk of loss or
damage to copies of the Licensed Software shall pass to Licensee at the point of
shipment. All shipping and in transit insurance charges shall be paid by
Licensee. Licensee shall specify in its Program Order the mode of shipment
and/or
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carrier for each order. In the absence of written instructions from Licensee,
IVT shall determine the carrier and/or mode of shipment.
4.2 IVT Product Delivery Schedule and Delays. Although IVT shall use
reasonable efforts to meet Licensee's requested delivery schedules for Licensed
Software, IVT shall not be liable for any loss, damage or expense due to late
delivery.
4.3 Payment. Licensee shall pay for all Licensed Software within thirty
(30) days after the date of IVT's invoice for such products. In addition to all
other available rights or remedies, IVT reserves the right to declare all sums
immediately due and payable upon written notice to Licensee if Licensee fails to
pay when due any amounts due under this Agreement or any invoice. Interest shall
accrue on any amounts not paid when due at an annual rate of eighteen (18)
percent.
4.4 Taxes. With the sole exception of taxes based on IVT's net income,
Licensee shall pay all sales, use, excise, value added or other taxes that may
arise out of Licensee's installation or use of the Licensed Software.
5. NO PRODUCT MAINTENANCE AND SUPPORT
Licensee is not entitled to any maintenance or support for the Licensed
Software or any upgrades or enhancements under this Agreement. Licensee may
purchase from IVT maintenance and support pursuant to the terms, conditions and
pricing of IVT's maintenance and support agreement as in effect on the date of
Licensee's purchase. All upgrades and enhancements made available to Licensee
shall become part of the Licensed Software and become subject to this Agreement.
6. LIMITED WARRANTY
6.1 Ownership. IVT warrants that it owns or has the right and authority
to license the Licensed Software and Documentation to Licensee on the terms and
conditions of this Agreement.
6.2 Media and Documentation. IVT warrants that if the Licensed
Software's media or Documentation is in a damaged or physically defective
condition at the time it is delivered to Licensee, and if it is returned to IVT
(postage prepaid) within ninety (90) days of delivery, IVT will provide Licensee
with replacements at no charge.
6.3 Licensed Software. IVT warrants that, in the form delivered to
Licensee by IVT, the Licensed Software shall perform substantially in accordance
with the Documentation for ninety (90) days after delivery to Licensee. IVT's
warranty is conditioned upon: (a) the use of the Licensed Software in accordance
with the Documentation and other instructions provided by IVT and shall be null
and void if Licensee alters or modifies the Licensed Software without IVT's
prior written approval, does not use the Licensed Software in accordance with
the Documentation and IVT's instructions, or if the Licensed Software fails
because of any accident, abuse or misapplication; and (b) Licensee notifying IVT
in writing of the claimed nonconformity within ninety (90) days after delivery
of the Licensed Software to Licensee. As IVT's sole liability and Licensee's
sole remedy respecting the Licensed Software's nonconformance with the limited
warranty set forth in this Section 6.3, IVT may at its option: (i) use
reasonable efforts to correct the Licensed Software to make it conform
substantially with
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the specifications set forth in the Documentation; (ii) replace the Licensed
Software; or (iii) upon return of the Licensed Software and Documentation to
IVT, refund the license fees paid by Licensee under this Agreement and terminate
this Agreement. IVT DOES NOT REPRESENT OR WARRANT THAT THE LICENSED SOFTWARE
WILL OPERATE PROPERLY WITH OTHER HARDWARE OR SOFTWARE, THAT THE LICENSED
SOFTWARE WILL MEET LICENSEE'S REQUIREMENTS OR EXPECTATIONS OR THAT OPERATION OF
THE LICENSED SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE.
7. NO OTHER WARRANTY
EXCEPT AS SET FORTH IN SECTION 6, IVT IS PROVIDING THE LICENSED
SOFTWARE AND THE DOCUMENTATION "AS IS," AND, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, IVT SPECIFICALLY DISCLAIMS ANY AND ALL OTHER WARRANTIES,
CONDITIONS OR REPRESENTATIONS (WHETHER EXPRESS, IMPLIED OR STATUTORY, OR ORAL OR
WRITTEN) WITH RESPECT TO THE LICENSED SOFTWARE OR DOCUMENTATION INCLUDING
WITHOUT LIMITATIONANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE (WHETHER OR NOT IVT KNOWS, HAS REASON TO KNOW, HAS BEEN
ADVISED OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE) OR CONDITIONS OF
TITLE OR NONINFRINGEMENT WHETHER ALLEGED TO ARISE BY OPERATION OF LAW, BY REASON
OF CUSTOM OR USAGE IN THE TRADE OR BY COURSE OF DEALING. IVT ALSO EXPRESSLY
DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION TO ANY PERSON OTHER
THAN LICENSEE. THIS LIMITED WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY
HAVE OTHERS, WHICH VARY FROM STATE/JURISDICTION TO STATE/JURISDICTION.
8. LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE CUMULATIVE
LIABILITY OF IVT FOR ALL CLAIMS OF ANY NATURE RELATED TO THE LICENSED SOFTWARE
OR DOCUMENTATION OR OTHERWISE ARISING FROM THIS AGREEMENT, INCLUDING ANY CAUSE
OF ACTION BASED ON WARRANTY, CONTRACT, TORT, STRICT LIABILITY PATENT OR
COPYRIGHT INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY, SHALL NOT
EXCEED THE TOTAL AMOUNT OF ALL LICENSE FEES THAT LICENSEE HAS ACTUALLY PAID
UNDER THIS AGREEMENT. NEITHER IVT NOR ANY OF ITS RESELLERS, SUPPLIERS OR
LICENSORS SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL,
EXEMPLARY OR PUNITIVE DAMAGES, WHETHER IN CONTRACT, IN TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, OR FOR ANY LOSS OF PROFITS, LOSS OF SAVINGS, LOSS OF
DATA OR LOSS OF USER DAMAGES ARISING OUT OF THIS AGREEMENT OR THE USE (OR
INABILLITY TO USE) OF THE LICENSED SOFTWARE EVEN IF IVT OR RESELLER, SUPPLIER OR
LICENSOR HAS BEEN AWARE OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE. IN
NO EVENT WILL IVT BE LIABLE FOR ANY CLAIM BROUGHT MORE THAN ONE (1) YEAR AFTER
THE CAUSE OF ACTION AROSE OR SHOULD HAVE BEEN DISCOVERED. BECAUSE SOME STATES DO
NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR
INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY. BECAUSE SOME
STATES/JURISDICTIONS
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DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR
INCIDENTAL DAMAGES, THE ABOVE LIMITATIONS MAY NOT APPLY TO YOU.
9. TERMINATION
Without prejudice to any other rights it may have under this Agreement
or at law or equity, IVT may terminate this Agreement if Licensee fails to
comply with the terms of this Agreement. Upon termination of this Agreement for
any reason, Licensee will immediately discontinue use of the Licensed Software,
destroy or return to IVT all copies of the Licensed Software and Documentation
in whatever form they exist, including all back-up copies, and certify in
writing to IVT that all copies have been destroyed.
10. INDEMNIFICATION
The Licensed Software is intended for use only with properly licensed
media, content, and content creation tools. It is Licensee's responsibility to
ascertain whether any copyright, patent or other licenses are necessary and to
obtain any such licenses to serve and/or create or compress such media and
content. Licensee agrees to transmit and/or compress only those materials for
which it has the necessary patent, copyright or other permissions, licenses
and/or clearances. Licensee agrees to hold harmless, indemnify and defend IVT,
its officers, directors and employees, from and against any losses, damages,
fines and expenses (including attorneys' fees and costs) arising out of or
relating to any claims that Licensee has encoded, compressed, copied or
transmitted any materials (other than materials provided by IVT) in connection
with the Licensed Software in violation of another party's rights or in
violation of any law. If Licensee is importing the Licensed Software from the
United States, it shall indemnify and hold IVT harmless from and against any
import and export duties or other claims arising from such importation.
11. GENERAL TERMS
11.1 Export Regulations. The Licensed Software and Documentation,
including technical data, is subject to U.S. export control laws, including the
U.S. Export Administration Act and its associated regulations, and may be
subject to export or import regulations in other countries. Licensee agrees to
comply strictly with all such regulations and acknowledges that it has the
responsibility to obtain licenses to export, re-export, or import the Licensed
Software or Documentation. Neither the Software nor Documentation may be
downloaded, or otherwise exported or re-exported (i) into, or to a national or
resident of Cuba, Iraq, Iran, North Korea, Libya, Sudan, Syria or any country to
which the U.S. has embargoed goods; or (ii) to anyone on the U.S. Treasury
Department's list of Specially Designated Nations or the U.S. Commerce
Department's Table of Denial Orders. By installing or using the Licensed
Software, Licensee is warranting that it is not located in or under the control
of, or a national or resident of any such country or on any such list.
11.2 U.S. Government Restrictions. The use, duplication or disclosure
by the United States Government of the Licensed Software and Documentation is
subject to the restrictions as set forth in the Rights in Technical Data and
Computer Software Clauses in DFARs 252.227-7013(c)(1)(ii) and FAR 52.227-19(c)
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11.3 Governing Law and Forum. This Agreement shall be governed by and
construed in accordance with the laws of the State of California and the United
States without reference to conflicts of laws principles. Licensee consents to
the exclusive jurisdiction and venue of the federal and state courts in San
Francisco County, California for resolution of any disputes concerning this
Agreement.
11.4 Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to recover from the losing party its reasonable attorney's fees, costs
and necessary disbursements in addition to any other relief to which such party
may be entitled.
11.5 Complete Understanding. This Agreement constitutes the entire
agreement between the parties with respect to its subject matter and supersedes
and replaces all prior or contemporaneous understandings or agreements, written
or oral, regarding its subject matter. No amendment to or modification of this
Agreement will be binding unless in writing and signed by duly authorized
representatives of both IVT and Licensee.
11.6 Survival. The following provisions of this Agreement shall survive
termination of this Agreement, along with any other terms which by their nature
require survival: Section 3, Section 5, Section 6, Section 7, Section 9 and
Section 10.
11.7 Absence of Third Party Beneficiaries. Unless otherwise expressly
provided, no provisions of this Agreement are intended or shall be construed to
confer upon or give to any person other than IVT and Licensee any rights,
remedies or other benefits under or by reason of this Agreement.
11.8 Disclaimer of Agency. IVT and Licensee each acknowledge that the
parties to this Agreement are independent. Neither party is authorized or
empowered to act as agent or legal representative for the other for any purpose
and shall not on behalf of the other enter into any contract, warranty or
representation as to any matter. Neither party shall be bound by the acts or
conduct of the other and nothing herein shall be construed as creating a
partnership or joint venture.
11.9 No Waiver. The failure of either party to enforce any provision of
this Agreement shall not be deemed a waiver of that provision or any other
available right or remedy.
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11.10 Headings. The section headings used in this Agreement are
intended for convenience only and shall not be deemed to modify, limit or
supersede any provision.
11.11 Severability. In the event that any provision of this Agreement
is found to be invalid, illegal or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.
Burstware, Instant Video, Burstware Server, Burstware Conductor, Burstware
Player, "Faster Than Real Time," and "Why Stream When You Can Burst?" are
registered trademarks or trademarks of Instant Video Technologies, Inc., in the
United States and other countries. Use of this software may also be protected by
one or more of the following U.S. patents: 4,963,995; 5,057,932; 5,164,839;
5,262,875; 5,440,334; and 5,710,970. Additional U.S. patents pending.
International patents and patents pending may also be applicable in their
respective countries. Sun Microsystems, Java, and all Java-based trademarks and
logos are trademarks or registered trademarks of Sun Microsystems, Inc. in the
United States and other countries.
All contents Copyright (C) 1998-1999 by Instant Video Technologies, Inc. All
rights reserved.
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EXHIBIT E
IVT TRADEMARKS
Instant Video(R)
Burstware(R)
Burstware Conductor(TM)
Burstware Server(TM)
Burstware Player(TM)
"Faster Than Real Time"(TM)
"Why Stream When You Can Burst?"(TM)
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EXHIBIT F
TRAINING
Training Programs:
Module 1: General Operations Overview
This module would be intended to provide the student with high-level
general knowledge on Burstware. The student would have a general
understanding of Burstware's components, network hardware requirements, and
applications. Additionally, the student would be familiar with how to
operate the overall system, demonstrate capabilities, install the software
for the server, conductor, and player, including how to add additional
servers, conductors, players, etc. to an existing network.
Module 2: Technical Support, Maintenance, & Troubleshooting
This module would be intended to provide advanced technical training to be
used to support their customers. This may be viewed as some type of
technical support certification. The student would have to be trained on
all detailed technical aspects of how to install, troubleshoot, how to
identify and isolate Burstware from network problems, etc. Prerequisite
would be Module 1.
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EXHIBIT G
IVT YEAR 2000 STATEMENT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Fiscal Year ended: December 31,
1998
OR
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________to ___________.
Commission File No. 33-35580-D
INSTANT VIDEO TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer as Specified in its Charter)
Delaware 84-1141967
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
500 Sansome Street, Suite 503
San Francisco, California 94111
(Address of Principal Executive Offices, (Zip Code)
(415) 391-4455
(Issuer's Telephone Number, Including Area Code)
Securities Registered Under Section 12(b) of the Exchange Act: None. Securities
Registered Under Section 12(g) of the Exchange Act: None
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 past 90 days. [N/A]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and will not 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. [N/A]
State Issuer's revenues for its most recent fiscal year: $15,000.
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The aggregate market value of the Registrant's Common Stock held by
non-affiliates on March 31, 1999 (based upon the last reported price of the
Common Stock on the NASDAQ OTC Bulletin Board Exchange on such date) was
approximately $63,100,000.
As of April 9, 1999, there were approximately 9,018,228 shares of the
Registrant's Common Stock outstanding.
Documents incorporated by reference Part III of this Report incorporates
information by reference from the definitive Proxy statement for the
Registrant's annual meeting of stockholders, to be filed within 120 days after
the end of the fiscal year ended December 31, 1998.
This Form 10-KSB consists of 41 pages.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the application year. Programs or products
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. In addition, the year 2000 is a leap year, which
may also lead to incorrect calculations, functions or systems failure. As a
result, this year, computer systems and software used by many companies may need
to be upgraded to comply with such Year 2000 requirements. In 1998, the Company
began a project to determine if any actions were required regarding date-related
effects to: (i) the Company's software products; (ii) the Company's internal
operating and desktop computer systems and non-information technology systems;
and (iii) the readiness of the Company's third-party vendors and business
partners.
The Company has formed a team consisting of operations, development, marketing,
and finance members to determine the impact of Year 2000 and to take corrective
action. As of February 1999, the Company had completed testing of its suite of
Burstware(R) software products and has found no known Year 2000 issues. The
Company has also tested its internal operating and desktop hardware and software
and has found that all its software is Year 2000 compliant and appears to have
no known Year 2000 issues. The Company has also confirmed with its third-party
vendors and business partners to ensure that their software and hardware will
not impact IVT operations. At this time, the Company knows of no known Year 2000
issues or problems with its vendors, or business partners.
The majority of the costs associated with this project is not incremental to the
Company, but represents a reallocation of existing resources. The Company
believes that modifications deemed necessary will be made on a timely basis and
does not believe that the cost of such modifications will have a material effect
on the Company's operating results. To date, the Company's costs related to the
year 2000 issues have not been material, and the Company does not expect the
aggregate amount spent on the year 2000 issue to be material. In addition, the
Company is in the process of evaluating the need for contingency plans with
respect to year 2000 requirements. The necessity of any contingency plan must be
evaluated on a case-by-case basis and may vary considerably in nature depending
on the year 2000 issue it may address.
The Company's expectations as to the extent and timeliness of modifications
required in order to achieve year 2000 compliance is a forward-looking statement
subject to risks and uncertainties. Actual results may vary materially as a
result of a number of factors, including, among others, those described above in
this section. There can be no assurance that unexpected delays or problems,
including the failure to ensure year 2000 compliance by systems or products
supplied to the Company by third parties, will not have an adverse effect on the
Company, its financial performance and results of operations. In addition, the
Company cannot predict the effect of the year 2000 issues on its customers or
other third party business partners or the resulting effect on the Company. As a
result, if such third parties do not take preventative and/or corrective actions
in a timely manner,
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the year 2000 issue could have an adverse effect on their operations and
accordingly have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, the Company's current
understanding of expected costs is subject to change as the project progresses
and does not include the cost of internal software and hardware replaced in the
normal course of business whose installation otherwise may be accelerated to
provide solutions to year 2000 compliance issues.
[IVT-CLOVER CONFIDENTIAL]
ORIGINAL
RESELLER LICENSE AGREEMENT BETWEEN
INSTANT VIDEO TECHNOLOGIES, INC.
&
CLOVER TECHNOLOGIES, INC.
This Agreement, entered into this 7th day of September, 1999 is between
Instant Video Technologies, Inc. ("IVT"), a Delaware corporation, with its
principal place of business at 500 Sansome Street, Suite 503, San Francisco, CA
94111, and Clover Technologies, Inc. ("Reseller"), a Michigan corporation, with
its principal place of business at One Clover Court, Wixom, MI 48393.
1. Whereas, IVT is the developer and owner of certain proprietary
software ("Licensed Software") to enable "Faster-Than-Real-Time"(TM)delivery of
full motion video and CD-quality audio over networks;
2. Whereas, Reseller is in the business of marketing and distributing
computer hardware, software and related services and desires to distribute the
Licensed Software to End Users; and.
3. Whereas, IVT is willing to grant and Reseller is willing to accept a
non-exclusive license to market and distribute the Licensed Software under the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1
DEFINITIONS
When used in this Agreement:
1.1 "Affiliate" means with respect to each party any legal entity that
directly or indirectly controls, is controlled by, or is under common control
with the party, but only for so long as such control continues. For purposes of
this definition, "control" means the power, whether or not normally exercised,
to direct the management and affairs of an entity. No entity shall be deemed to
control a party unless such entity owns directly or indirectly fifty-one percent
(51%) or more of its voting shares.
1.2 "Agreement" means this Reseller Agreement, including all exhibits
hereto and all Program Orders submitted hereunder.
1.3 "Burstware Conductor" means the computer program included among the
Licensed Software that is designed to operate on a single computing device and
that manages the distribution of audio and/or video content from one or more
hardware servers on which the Burstware Server software has been installed to
Burstware Players installed on client computers. Each Burstware Conductor
requires a Burstware License Key configured for the host name or IP address of
the computer on which the Burstware Conductor is installed.
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[IVT-CLOVER CONFIDENTIAL]
1.4 "Burstware License Key" means the unique, encrypted software
program provided by IVT (only upon payment of the applicable license fees) that
is designed to prevent use of the Licensed Software beyond the scope of the
license paid for by Licensee by limiting, as appropriate, and in addition to
other limits, the number of Concurrent Burstware Player Connections, the amount
of Managed Bandwidth, and the number of Burstware Servers that the Burstware
Conductor can manage.
1.5 "Burstware Player" means the computer program included among the
Licensed Software that operates on a single-user client computer, permitting
that computer to receive and play audio and/or video content delivered by the
Burstware Server software.
1.6 "Burstware Server" means the computer program included among the
Licensed Software that stores audio and/or video content and delivers it to
client computers for viewing with the Burstware Player.
1.7 "Clover" or "Reseller" means Clover Technologies, Inc. and its
Affiliates.
1.8 "Concurrent Burstware Player Connections" means the number of
simultaneous connections between Burstware Players installed on client computers
and Burstware Servers installed on hardware servers that the Burstware License
Key enables the Burstware Conductor to manage simultaneously.
1.9 "Documentation" means all materials in written, computer readable
or other form containing information about the Licensed Software that accompany
the Licensed Software, or that IVT may deliver to Reseller during the term of
this Agreement for use in the marketing and distribution of the Licensed
Software and for distribution to End Users.
1.10 "Effective Date" means September 7, 1999.
1.11 "End User License Agreement" means the form of End User License
Agreement attached to this Agreement as Exhibit D.
1.12 "End Users" means any prospective customers to whom Reseller may
offer Licensed Software for personal use or use in the regular course of the
customer's business but not for resale.
1.13 "Intellectual Property Rights" means all intellectual property
rights under the laws of the United States, any of its states or territories and
any other nation, including without limitation all patent rights, copyrights,
trade secrets, trademarks, trade names and other proprietary rights.
1.14 "Licensed Software" means IVT's Burstware Conductor, Burstware
Server and Burstware Conductor (collectively "Burstware") computer programs
described in the Product & Price List attached as Exhibit A to this Agreement.
Licensed Software does not include any modifications or additions to the
Licensed Software, including without limitation, any new versions, updates, or
enhancements created or procured by IVT after the Effective Date of this
Agreement, but does include corrections of Program Errors developed by IVT
pursuant to paragraph 8.3.
1.15 "Licensed Territory" means the United States and its territories
and possessions.
1.16 "Managed Bandwidth" means the total bandwidth, measured in
megabits per second, used by the Burstware Server software to deliver audio
and/or video content to Burstware Players.
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1.17 "Program Error" means a program defect or "bug" sufficiently
material that it results in a version of the Licensed Software, in the form
delivered by IVT to Reseller, at the time it is delivered by IVT to Reseller,
failing to substantially conform to the Documentation for that version. A
respect in which the Licensed Software fails to substantially conform to the
Documentation shall not be considered a Program Error unless IVT is able to
replicate it on a computer system already in its possession or on a computer
system supplied to IVT by Reseller.
1.18 "Program Order" means the form attached to this Agreement as
Exhibit C, which IVT may modify at any time.
1.19 "Product & Price List" means the list attached as Exhibit A to
this Agreement and any substitute list IVT may issue during the term of this
Agreement.
1.20 "Trademarks" means the trademarks listed in Exhibit E, which IVT
may amend at any time upon thirty (30) days prior written notice to Reseller.
Section 2
DISTRIBUTION & TRADEMARK LICENSES AND LIMITATIONS
2.1 Distribution License. On the terms and conditions of this
Agreement, IVT grants to Reseller a non-exclusive, non-transferable license to
distribute Licensed Software solely to End Users within the Licensed Territory.
2.2 Trademark License. On the terms and conditions of this Agreement,
IVT also grants to Reseller a nonexclusive, nontransferable license without the
right to sublicense to use the Trademarks in connection with the promotion and
distribution of the Licensed Software in accordance with this Agreement.
2.3 No Exclusivity. This Agreement does not constitute an exclusive
grant to Reseller of any specific customer, territory, or geographic area. IVT
may in its sole discretion and without obligation, notice or liability to
Reseller, add and/or terminate other resellers, distributors, value added
resellers, original equipment manufacturers, licensees or agents of the Licensed
Software, and/or license Licensed Software directly to End Users, including
customers of Reseller.
2.4 Reservation of Rights. IVT reserves all rights in the Licensed
Software and Documentation not expressly granted to Reseller by this Agreement.
2.5 Licensed Software Changes. IVT retains the right, in its sole
discretion, to upgrade or modify the Licensed Software from time to time. Upon
receipt of any such notice of an upgrade or modification, Reseller shall within
thirty (30) days cease to market and distribute earlier versions of the Licensed
Software.
Section 3
ORDERING AND SHIPMENT OF LICENSED SOFTWARE
3.1 Submission of Program Orders. Reseller shall order Licensed
Software by delivering a completed Program Order to IVT. The Program Order shall
be completed by Reseller to identify: (a) the End User (by company name, address
and telephone number and contact name); (b) the computer system (by type/model,
serial number, host ID and/or IP address) on which the Burstware Conductor
portion of each copy of the Licensed Software being ordered is to be installed,
and used; (c) the number of copies of the Licensed Software being ordered;
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(d) the configuration for each copy of the Licensed Software being ordered,
including the amount of Managed Bandwith, the number of Concurrent Burstware
Player Connections and number of Burstware Servers; (e) the price for each copy
of the Licensed Software; and (f) the total amount payable to IVT under that
Program Order.
3.2 Acceptance of Program Orders. Completed Program Orders delivered to
IVT shall be deemed accepted and shall become binding on IVT only when accepted
in writing by IVT, or when IVT ships the Licensed Software ordered under that
Program Order. If IVT accepts a Program Order by shipment, the order shall bind
IVT only as to the Licensed Software actually shipped. Failure of IVT to accept
a Program Order within ten (10) days shall constitute rejection of the Program
Order.
3.3 Controlling Terms. The terms and conditions of this Agreement shall
apply to each Program Order accepted and/or Licensed Software shipped by IVT
hereunder. Any terms or conditions appearing on the face or reverse side of any
Program Order, purchase order, acknowledgment, or confirmation that are
different from or in addition to those required hereunder shall not be binding
on the parties, even if signed and returned, unless both parties hereto
expressly agree in a separate writing to be bound by such separate or additional
terms and conditions.
3.4 Cancellation. IVT reserves the right to cancel or suspend any
orders placed by Reseller and accepted by IVT, or to refuse or to delay shipment
of any Licensed Software described in those orders, if Reseller fails to: (a) to
pay when due any amount required by this Agreement or any invoice; (b) to meet
any credit or financial requirements that IVT, in its reasonable discretion, may
establish; or (c) to comply with the terms and conditions of this Agreement.
Once IVT accepts an order, Reseller may not cancel the order unless IVT fails to
ship the Licensed Software described in the Program Order within thirty days
after accepting the order, and Reseller provides written notice of cancellation
to IVT before IVT ships any of the Licensed Software described in the order that
Reseller desires to cancel.
3.5 Shipment of Licensed Software. IVT shall ship all Licensed Software
ordered under this Agreement F.O.B. IVT's San Francisco facility, or other point
of shipment within the United States designated by IVT. Risk of loss or damage
to copies of the Licensed Software shall pass to Reseller at the point of
shipment. All shipping and in transit insurance charges shall be paid by
Reseller. Reseller shall specify in its Program Order the mode of shipment
and/or carrier for each order. In the absence of written instructions from
Reseller, IVT shall determine the carrier and/or mode of shipment.
3.6 IVT Product Delivery Schedule and Delays. Although IVT shall use
reasonable efforts to meet Reseller's requested delivery schedules for Licensed
Software, IVT shall not be liable for any loss, damage or expense due to late
delivery.
3.7 Delivery of Burstware License Key. IVT shall deliver Burstware
License Keys only to Reseller, who shall be solely responsible for delivery of
Burstware License Keys to End Users. Reseller shall deliver a License Key to an
End User only upon receipt of a duly executed End User License Agreement by that
End User.
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Section 4
MINIMUM COMMITMENTS, DISCOUNTS AND PAYMENTS
4.1 Product and Price List. A copy of IVT's current Product and Price
List for the Licensed Software is attached as Exhibit A. IVT agrees to provide
to Reseller the pricing reflected in Exhibit A during the initial Term of this
Agreement. Reseller acknowledges and accepts that IVT may thereafter change its
prices to Reseller at any time, on sixty (60) days written notice to Reseller.
No price change shall affect any completed Program Order that Reseller has
submitted and IVT has accepted in accordance with this Agreement before IVT has
notified Reseller of the price change. Further, no price change shall affect any
written bid or proposal for or including the Licensed Software submitted by
Reseller to an End-User before IVT has notified Reseller of the price change.
4.2 Minimum Commitment. Reseller agrees to order during the initial
term of this Agreement the number of copies of the Licensed Software, net of
cancellations and returns, set forth in the Minimum Commitment and Discount
Schedule attached as Exhibit B to this Agreement.
4.3 Price to Reseller. Subject to Section 4.4, the price payable by
Reseller for Licensed Software ordered pursuant to this Agreement during the
initial term of this Agreement shall be the applicable price in the then-current
Product and Price List, less the discount specified in the Minimum Commitment
and Discount Schedule.
4.4 Periodic Review of Progress Toward Minimum Commitment. During each
annual term of the Agreement, IVT will review quarterly the volume of orders by
Reseller, net of cancellations and returns, against the Minimum Commitment for
that period. If the cumulative net dollar volume ordered, as a percentage of the
Minimum Commitment for that period, does not equal or exceed the applicable
value from the following table, IVT shall so notify Reseller. If Reseller does
not within thirty (30) days of such notification order sufficient volumes of
Licensed Software to meet or exceed the applicable value from the table below
for that period, IVT may, in its discretion, reduce Reseller's discount to
levels (including no discount) commensurate with the actual volume of Reseller's
orders.
Percentage of Commitment
Three-Month Period Year 1 for given year
------------------------- --------------
1st 4%
2nd 20%
3rd 56%
4th 100%
Percentage of Commitment
Three-Month Period Year 2 for given year
------------------------- --------------
1st 17%
2nd 40%
3rd 67%
4th 100%
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IVT will discuss at any time with Reseller adjustment of the Minimum Commitment
and applicable discounts, based on Reseller's forecasted orders, but any
adjustment requires IVT's prior written consent. For any renewal term of this
Agreement, IVT and Reseller shall agree on the applicable Minimum Commitment and
discounts. Reseller may not assume any discount will be continued for any
renewal term.
4.5 Initial Order. Within fifteen (15) days of the Effective Date of
this Agreement, Reseller shall submit to IVT a blanket purchase order for fifty
(50) copies of the Licensed Software. IVT shall ship and invoice for Licensed
Software only upon receipt of a completed Program Order as provided in this
Agreement.
4.6 Payment. Reseller shall pay for all Licensed Software within
forty-five (45) days after the date of IVT's invoice for such products. In
addition to all other available rights or remedies, IVT reserves the right to
declare all sums immediately due and payable upon written notice to Reseller if
Reseller fails to pay when due any amounts due under this Agreement or any
invoice. Interest shall accrue on any amounts not paid when due at an annual
rate of eighteen (18) percent.
4.7 Taxes. With the sole exception of taxes based on IVT's net income,
Reseller shall pay all sales, use, excise, value added or other taxes that may
arise out of Reseller's distribution or installation of Licensed Software.
4.8 End User Pricing. Reseller is free to determine its own End User
prices for the Licensed Software. Although IVT may publish suggested End User
prices, these are suggestions only and are not binding in any way on Reseller.
Section 5
PROPERTY RIGHTS AND RESTRICTIONS
5.1 Ownership. Reseller acknowledges that the Licensed Software, all
enhancements, corrections and modifications to the Software (regardless whether
made by IVT, Reseller or anyone else), all Intellectual Property Rights
protecting or pertaining to any aspect of the Software (or any enhancements,
corrections or modifications), the Documentation, all Trademarks and all
goodwill associated with the Trademarks are and shall remain the sole and
exclusive property of IVT and, where applicable, IVT's suppliers. This Agreement
does not convey title or ownership to Reseller or any of its customers, but
instead gives Reseller only the limited rights set forth in Section 2. IVT
reserves all rights not expressly granted by this Agreement.
5.2 Use Restrictions. Except as set forth in Section 2, Reseller has no
right to use, make, sublicense, modify, distribute or copy originals or copies
of the Software or the Documentation or to permit anyone else to do so.
5.3 Proprietary Notices. Reseller shall not remove or obscure any
patent, copyright or trademark or other intellectual property notices that may
appear on any part of the Licensed Software or the Documentation.
5.4 Trade Secrets. Reseller acknowledges that the Licensed Software, in
its source code form, contains valuable trade secrets belonging to IVT. Reseller
may not reverse engineer, decompile, disassemble or otherwise translate any
Software. Reseller may not copy any concepts, ideas or techniques demonstrated
by the use of the Software.
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5.5 IVT Name and Trademarks. Reseller shall make no representations
concerning IVT or the Licensed Software that are not set forth in the
Documentation. Reseller shall indicate IVT's ownership of all Trademarks in any
advertising, promotional or other written or readable material containing any
Trademarks that Reseller may create during the Term of this Agreement. If
Reseller reproduces IVT's logo, it shall do so only in the format furnished by
IVT. Reseller may use the Trademarks only for purposes of promoting and selling
Reseller products and services that use the Licensed Software and shall make no
other use of the Trademarks, or use any trademark or trade name that may be
confusingly similar to any of the Trademarks, without IVT's prior written
approval. Reseller may not apply for registration of the Trademarks, or any
trademark or trade name that may be confusingly similar to any of the
Trademarks, under the laws of any jurisdiction. Reseller shall obtain IVT's
prior approval, which IVT shall not deny unreasonably, of all advertising,
publicity or promotion that uses any Trademarks or discusses the Licensed
Software in any way.
5.6 Irreparable Harm. Reseller acknowledges that money damages may not
be an adequate remedy for any breach or violation of any requirement set forth
in Section 5 of this Agreement and that any such breach or violation may leave
IVT without an adequate remedy at law. Reseller therefore agrees that, in
addition to any other remedies available at law, in equity or under this
Agreement, IVT shall be entitled to obtain temporary, preliminary and permanent
injunctive relief, without bond, from a court of competent jurisdiction to
restrain any such breach or violation.
Section 6
RESPONSIBILITIES OF RESELLER
6.1 Level of Effort. Reseller shall at all times during this Agreement
use reasonable efforts to market and promote the Licensed Software effectively
and in a manner reasonably calculated to maximize their licensing to End Users.
6.2 Trained Reseller Employees. Reseller shall employ, train and
maintain sufficient personnel with technical and sales experience to
demonstrate, sell and support the Licensed Software distributed under this
Agreement.
6.3 Maintenance and Support. Except as expressly stated in paragraphs
7.1 and 7.2, Reseller shall be solely responsible for providing all
installation, training, maintenance, service and support to End Users relating
to the Licensed Software. Reseller shall not permit or encourage its customers
to contact IVT directly without IVT's prior consent.
6.4 Protection of IVT Intellectual Property. Reseller shall use
reasonable efforts to ensure that IVT's intellectual property rights in the
Licensed Software are protected, and shall fully cooperate with IVT's efforts to
protect IVT's rights. Reseller shall notify IVT within ten (10) days of learning
of any actual or suspected violation of IVT's intellectual property rights in
the Licensed Software. Reseller shall notify IVT of any claim, judicial
proceeding or governmental proceeding involving the Licensed Software no later
than ten (10) days after learning of such claim or proceeding.
6.5 End User License Agreements. Reseller shall ensure that the
Licensed Software is distributed only to persons or entities that have received,
executed and returned to Reseller an End User License Agreement in the form of
Exhibit D. Reseller shall forward to IVT a copy of each executed End User
License Agreement.
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6.6 Representations and Warranties to End Users. Reseller shall not,
under any circumstances, make any representations or warranties to any End User
or other person or entity that are inconsistent with or in addition to the
warranties and representations contained in the End User License Agreement.
6.7 Compliance with Applicable Laws. Reseller shall comply with all
laws and regulations of the United States and the states in which Licensed
Software are distributed to the extent that non-compliance could possibly
subject IVT to any liability or impair any right or interest of IVT.
6.8 Conduct. Reseller shall at all times refrain from engaging in any
illegal, unfair or deceptive trade practices or unethical business practices
whatsoever with respect to its marketing, distribution and support of the
Licensed Software.
Section 7
RESPONSIBILITIES OF IVT
7.1 Warranty Service. IVT shall provide Reseller's End Users with the
warranty services as described in, and subject to the terms and conditions of,
the End User License Agreement. IVT reserves the right to modify such terms and
conditions from time to time, in IVT's sole discretion.
7.2 Consultation with Reseller. IVT shall provide to Reseller, at no
charge, a reasonable amount of telephone or electronic mail consultation to
Reseller's employees in order for Reseller to meet its obligations under
paragraph 6.3.
7.3 Training. Upon Reseller's request, and at mutually agreeable times,
IVT will provide sales and technical support training as outlined in Exhibit F
on the Licensed Software to Reseller's employees at IVT's San Francisco offices.
Reseller shall be entitled to up to twenty (20) person days (in no more than 4
sessions) of training during the initial twelve month period of this Agreement,
and up to twenty (20) person days (in no more than 4 sessions) of training
during the second twelve month period of this Agreement. Reseller shall be
responsible for all travel, lodging, meal and other expenses for the attendance
of its employees at such training. Reseller may request additional training,
which IVT may, subject to the availability of IVT resources, provide on terms to
be negotiated.
7.4 Demonstration Copies of the Licensed Software. IVT shall provide to
Reseller at no charge five (5) copies of the Licensed Software and ten (10)
copies of the Documentation for Reseller's use in the marketing, promotion and
demonstration of the Licensed Software. These demonstration copies may not be
sold or otherwise transferred or disposed of by Reseller and must be returned to
IVT upon the expiration or termination of this Agreement.
Section 8
LIMITED WARRANTY
8.1 Ownership. IVT warrants that it owns or has the right and authority
to license the Licensed Software, the Documentation and the Trademarks to
Reseller on the terms and conditions of this Agreement.
8.2 Media and Documentation. IVT warrants that if the Licensed
Software's media or Documentation is in a damaged or physically defective
condition at the time it is delivered to an End User, and if
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[IVT-CLOVER CONFIDENTIAL]
it is returned to IVT (postage prepaid) within ninety (90) days of delivery, IVT
will provide End User with replacements at no charge.
8.3 Performance. IVT also warrants that, in the form delivered to
Reseller by IVT, the Licensed Software shall perform substantially in accordance
with the Documentation and be free of Program Errors for ninety (90) days after
Reseller delivers a copy of the Licensed Software to an End User. IVT's warranty
is conditioned upon: (a) the use of the Licensed Software in accordance with the
Documentation and other instructions provided by IVT and shall be null and void
if Reseller or any End User alters or modifies the Licensed Software without
IVT's prior written approval, does not use the Licensed Software in accordance
with the Documentation and IVT's instructions, or if the Licensed Software fail
because of any accident, abuse or misapplication; and (b) Reseller notifying IVT
in writing of the claimed nonconformance within ninety (90) days after Delivery
of Licensed Software to Reseller. As IVT's sole liability and Reseller's sole
remedy respecting the Licensed Software's nonconformance with the limited
warranty set forth in this Section 8.3, IVT may at its sole option: (i) use
reasonable efforts to correct the Licensed Software to make it conform with the
specifications set forth in the Documentation; (ii) replace the Licensed
Software; or (iii) upon return of the Licensed Software and Documentation to IVT
refund the license fees paid by Reseller under this Agreement and terminate the
Agreement. IVT DOES NOT REPRESENT OR WARRANT THAT THE LICENSED SOFTWARE WILL
OPERATE PROPERLY WITH OTHER HARDWARE OR SOFTWARE, THAT THE LICENSED SOFTWARE
WILL MEET LICENSEE'S REQUIREMENTS OR EXPECTATIONS OR THAT OPERATION OF THE
LICENSED SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE.
8.4 No Other Warranties. EXCEPT AS SET FORTH IN SECTIONS 8.1, 8.2 AND
8.3, IVT IS PROVIDING THE LICENSED SOFTWARE AND THE DOCUMENTATION "AS IS," AND
IVT SPECIFICALLY DISCLAIMS ANY AND ALL OTHER WARRANTIES, CONDITIONS OR
REPRESENTATIONS (WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN) WITH RESPECT TO
THE LICENSED SOFTWARE OR DOCUMENTATION INCLUDING ANY AND ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE (WHETHER OR NOT IVT KNOWS,
HAS REASON TO KNOW, HAS BEEN ADVISED OR IS OTHERWISE IN FACT AWARE OF ANY SUCH
PURPOSE) OR CONDITIONS OF TITLE OR NONINFRINGEMENT WHETHER ALLEGED TO ARISE BY
OPERATION OF LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE OR BY COURSE OF
DEALING. IVT ALSO EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OR
REPRESENTATION TO ANY PERSON OTHER THAN RESELLER.
Section 9
LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IVT'S CUMULATIVE
LIABILITY FOR ALL CLAIMS OF ANY NATURE RELATED TO THE LICENSED SOFTWARE OR
DOCUMENTATION OR OTHERWISE ARISING FROM THIS AGREEMENT, INCLUDING ANY CAUSE OF
ACTION BASED ON WARRANTY, CONTRACT, TORT, STRICT LIABILITY, PATENT OR COPYRIGHT
INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY, SHALL NOT EXCEED THE
TOTAL AMOUNT OF ALL LICENSE FEES THAT RESELLER HAS ACTUALLY PAID UNDER THIS
AGREEMENT. NEITHER IVT NOR ANY OF ITS SUPPLIERS OR LICENSORS SHALL BE LIABLE FOR
ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES,
WHETHER IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, OR FOR ANY
LOSS OF PROFITS, LOSS OF SAVINGS, LOSS OF DATA OR LOSS OF USER DAMAGES ARISING
OUT OF THIS AGREEMENT OR THE USE (OR INABILITY TO USE) OF THE
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[IVT-CLOVER CONFIDENTIAL]
LICENSED SOFTWARE EVEN IF IVT OR RESELLER, SUPPLIER OR LICENSOR HAS BEEN AWARE
OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE. IN NO EVENT WILL IVT BE
LIABLE FOR ANY CLAIM BROUGHT MORE THAN ONE (1) YEAR AFTER THE CAUSE OF ACTION
AROSE OR SHOULD HAVE BEEN DISCOVERED. BECAUSE SOME STATES DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES,
THE ABOVE LIMITATION MAY NOT APPLY.
Section 10
CONFIDENTIALITY
10.1 Reseller Confidentiality Obligations. Reseller shall maintain the
confidentiality of any confidential information regarding the Licensed Software,
IVT, or IVT's past, present or future products, business plans or strategies.
Information shall be deemed confidential only if it is marked "confidential" in
writing or if it is expressly identified as "confidential" orally. Reseller
shall indemnify IVT for any loss or damage IVT may sustain as a result of the
wrongful use or disclosure by Reseller (or any employee, agent, licensee, or
contractor of Reseller) of confidential information regarding the Licensed
Software, IVT, or IVT's past, present or future products.
10.2 IVT Confidentiality Obligations. IVT shall maintain the
confidentiality of any confidential information regarding Reseller, or
Reseller's past, present or future products, business plans or strategies.
Information shall be deemed confidential only if it is marked "confidential" in
writing or if it is expressly identified as "confidential" orally. IVT shall
indemnify Reseller for any loss or damage Reseller may sustain as a result of
the wrongful use or disclosure by IVT (or any employee, agent, licensee, or
contractor of IVT) of confidential information regarding Reseller or Reseller's
past, present or future products.
10.3 Exceptions. The obligations set forth in paragraphs 10.1 and 10.2
shall not apply with respect to any Confidential Information that (a) is or
becomes publicly known under circumstances involving no breach of the terms of
paragraph 10.1 or 10.2; (b) is generally disclosed to third parties by the owner
of such Confidential Information without restrictions on its use or disclosure;
(c) is independently developed by the party to whom it was disclosed; or (d) is
approved for use or disclosure in writing by the owner of such Confidential
Information.
10.4 Agreement is Confidential. This Agreement is strictly
confidential. Neither party shall disclose any of the terms of this Agreement to
any third party without the prior written consent of the other, except as may be
necessary to comply with applicable law. If either party intends to disclose any
of the terms of this Agreement, it shall provide the other with ten (10) days
prior written notice of the intended disclosure. Neither party's consent to a
proposed disclosure shall be unreasonably withheld.
Section 11
INDEMNITY
Except for claims arising solely as a result of any breach of the
limited warranties set forth in Section 8 of this Agreement, Reseller shall
indemnify, defend and hold IVT harmless against all claims, actions or
liabilities of any nature that may arise from Reseller's marketing,
distribution, installation, use or execution of the Licensed Software.
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Section 12
TERM AND TERMINATION
12.1 Term. The Term of this Agreement shall begin on the Effective Date
and, unless renewed in accordance with this Section 12.2, or terminated in
accordance with Section 12.3, end two calendar years later.
12.2 Renewal. Unless either party gives the other written notice of its
intention not to renew at least sixty (60) days before the end of the initial
term, this Agreement will renew itself automatically for successive one year
renewal terms until either party gives the other written notice of its intention
not to renew this Agreement for another terms at least sixty (60) days before
the end of any renewal term. A party's decision to renew or not renew this
Agreement shall be within that party's sole and exclusive discretion, with or
without cause.
12.3 Default. Either party may, at its option and in addition to all
other available rights or remedies, terminate this Agreement if the other party
fails to comply with its obligations under this Agreement in any material
respect and then fails to cure that noncompliance within thirty (30) days after
receiving a written notice describing the noncompliance in reasonable detail.
12.4 Bankruptcy or Insolvency. Either party may immediately terminate
this Agreement in the event either party becomes bankrupt, insolvent or
generally unable to pay its debts as they become due.
12.5 Effect of Termination. After any termination or expiration of this
Agreement, IVT shall continue to be entitled to all license fees payable under
this Agreement. Both parties' rights and obligations under Sections 5, 8, 9, 10,
11, 12 and 14 of this Agreement shall survive the termination or expiration of
this Agreement.
12.6 No Effect on End-Users. Termination of this Agreement shall not
affect the rights or obligations of properly licensed End-Users.
Section 13
CO-MARKETING AND PROMOTION
13.1 General. IVT and Reseller shall participate in joint marketing and
promotion efforts reasonably acceptable to IVT and Reseller. Such activities may
include (subject to the parties agreements and IVT personnel availability and
adequate notice), IVT's support of and participation in trade shows and customer
visits with Reseller's sales teams and IVT's participation in Reseller's
national sales meeting(s) to present and discuss Burstware and value added
within Reseller's customer network. ITV and Reseller shall meet on a quarterly
basis to discuss and agree on the scope, scheduling, and expenditures regarding
such joint marketing initiatives and programs.
13.2 Market Development Funds. For the purposes described below and
under the conditions described below, IVT shall make available to Reseller
Market Development Funds.
13.2.1 Reseller shall not be eligible to accrue Market Development
Funds until the calendar quarter in which has met or exceeded fifty
percent (50%) of the Minimum Commitment set forth
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[IVT-CLOVER CONFIDENTIAL]
in Exhibit B. Thereafter, Reseller shall be eligible to accrue and
receive Market Development Funds only in calendar quarters in which
Reseller's progress toward meeting its Minimum Commitment under this
Agreement meets or exceeds the milestones set forth in the table in
Section 4.4.
13.2.2 Market Development Funds shall accrue at a rate equal to
two (2) percent of the Reseller's net payments to IVT in each
qualifying calendar quarter, not to exceed $25,000 for any such
quarter. 13.2.3 Market Development Funds shall be used solely for
marketing, promotional and/ or advertising activities relating to the
Licensed Software and shall be mutually agreed upon in advance by IVT
and Reseller.
13.2.4 Market Development Funds are and shall remain the sole and
exclusive property of IVT unless and until paid to Reseller for
mutually agreed upon activities. Upon termination of this Agreement,
IVT shall retain all Market Development Funds.
13.3 Press Release. IVT and Reseller will issue a joint press release
promptly after the Effective Date to announce the relationship created by this
Agreement.
13.4 Identification of Reseller as Burstware Reseller. Reseller agrees
that IVT may use Reseller's name as an IVT Reseller in any advertising or
promotional materials for Licensed Software.
13.5 Website Links. IVT and Reseller each agrees to maintain at least
one marketing-related link on its website(s) during the term of this Agreement.
Section 14
MISCELLANEOUS
14.1 Export Regulations. The Licensed Software and Documentation,
including technical data, is subject to U.S. export control laws, including the
U.S. Export Administration Act and its associated regulations, and may be
subject to export or import regulations in other countries. Licensee agrees to
comply strictly with all such regulations and acknowledges that it has the
responsibility to obtain licenses to export, re-export, or import the Licensed
Software or Documentation. Neither the Software nor Documentation may be
downloaded, or otherwise exported or re-exported (i) into, or to a national or
resident of any country to which the U.S. has embargoed goods; or (ii) to anyone
on the U.S. Treasury Department's list of Specially Designated Nations or the
U.S. Commerce Department's Table of Denial Orders. By installing or using the
Licensed Software, Licensee is warranting that it is not located in or under the
control of, or a national or resident of any such country or on any such list.
14.2 Absence of Third Party Beneficiaries. Unless otherwise expressly
provided, no provisions of this Agreement are intended or shall be construed to
confer upon or give to any person other than IVT and Reseller any rights,
remedies or other benefits under or by reason of this Agreement.
14.3 Assignment. Reseller may not assign any of its rights or delegate
any of its obligations under this Agreement without the prior written consent of
IVT, which IVT shall not withhold unreasonably. IVT may assign or delegate its
obligations under this Agreement as part of a sale or transfer of a substantial
portion of its business to which this Agreement relates.
12
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
14.4 Complete Understanding. This Agreement constitutes the entire
agreement between the parties with respect to its subject matter and supersedes
and replaces all prior or contemporaneous understandings or agreements, written
or oral, regarding its subject matter. No amendment to or modification of this
Agreement will be binding unless in writing and signed by duly authorized
representatives of both parties. Terms of a purchase order or similar document
issued by Reseller or an End-User shall not modify this Agreement.
14.5 Construction. This Agreement was executed after arms-length
negotiations between the parties, and its terms are not to be construed against
either party.
14.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
14.7 Disclaimer of Agency. IVT and Reseller each acknowledges that the
parties to this Agreement are independent. Neither party is authorized or
empowered to act as agent or legal representative for the other for any purpose
and shall not on behalf of the other enter into any contract, warranty or
representation as to any matter. Neither party shall be bound by the acts or
conduct of the other and nothing herein shall be construed as creating a
partnership or joint venture.
14.8 Governing Law and Forum. This Agreement will be governed by and
construed in accordance with the laws of the State of California without
reference to conflicts of laws principles. Subject to paragraph 16.9, IVT and
Reseller consent to the jurisdiction and venue of the Superior Court of San
Francisco County, California, or the United States District Court for the
Northern District of California as the exclusive forum for all disputes
concerning this Agreement.
14.9 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach of this Agreement, shall be settled by
arbitration administered by the San Francisco, California Regional Office of the
American Arbitration Association in accordance with its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator may be entered in
any court identified in paragraph 15.8. The arbitration shall be conducted by a
single arbitrator. The arbitrator shall follow and be bound by applicable state
and federal law. The parties shall cooperate in the expeditious conduct of the
arbitration, and shall do everything reasonably possible to ensure that the
arbitration proceeding is concluded within sixty (60) days of service of a
notice of request for arbitration. Each party shall be limited to a total of
thirty-two (32) hours to present to the arbitrator all evidence and arguments in
support of its position. All fees and costs related to the arbitration shall be
apportioned between the parties by the arbitrator in accordance with paragraph
14.10.
14.10 Attorneys' Fees. The prevailing party in any action arising from
this Agreement shall be entitled to recover from the losing party its reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled from the losing party.
14.11 Notices. All notices and other communications that this Agreement
requires or permits shall be in writing and shall be considered effective when
deposited in the U.S. mail, postage prepaid, and addressed to the appropriate
party at the address noted on the first page of this Agreement, unless by such
notice the receiving party designates a different address in writing.
14.12 No Waiver. The failure of either party to enforce any provision
of this Agreement shall not be deemed a waiver of that provision or any other
available right or remedy.
14.13 Severability. In the event that any provision of this Agreement
is found to be invalid, illegal or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.
13
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
14.14 Warranty of Authority. By signing this Agreement, each person
executing this Agreement on behalf of any party warrants that he or she has the
full authority to do so.
INSTANT VIDEO TECHNOLOGIES, INC. CLOVER TECHNOLOGIES, INC.
By /s/ Thomas Koshy By /s/ Leonard A. Kruszewski
----------------------------- --------------------------------
Name Thomas Koshy Name Leonard A. Kruszewski
--------------------------- --------------------------------
Title Chief Operating Officer Title President
-------------------------- --------------------------------
Date September 8, 1999 Date September 7, 1999
--------------------------- --------------------------------
14
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
"EXHIBIT A"
Burstware(R) Product Suggested Pricing
Burstware(R) Enterprise Configuration
The Enterprise configuration is IVT's primary configuration for advanced
scalability, reliability, and no single-point-of-failure for video applications.
The fail-over server and conductor can only be used for fail-over services
within the same Burstware domain.
Burstware(R) Enterprise Configuration US$55,000
Two Burstware Servers and two Burstware Conductors $ 45,000
100 Mbps of managed bandwidth
100 concurrent connections maximum
Additional fail-over Burstware Server $10,000
Burstware(R) Silver Configuration
The Silver Configuration provides load balancing and server fail-over for
reliable midrange video applications.
Burstware(R) Silver Configuration US$35,000
Two Burstware Servers and two Burstware Conductors
50 Mbps of managed bandwidth
50 concurrent connections maximum
Burstware(R) Bronze Configuration
IVT's Bronze Configuration provides a single entry-level Burstware Server
architecture for smaller applications. Additional concurrent connections and
fail-over servers may be added to the Bronze configuration.
Burstware(R) Bronze Configuration US$10,000
One Burstware Server and one Burstware Conductor
15 Mbps of managed bandwidth
15 concurrent connections maximum
Burstware(R) Additional Bandwidth Module
Additional 50Mbps modules can be added to the Enterprise and Silver
Configurations to create highly scalable video applications. Each module
increases the number of concurrent connections by fifty and the amount of total
managed bandwidth by 50Mbps.
Burstware(R) Additional Bandwidth Module US$20,000
One Burstware Server
50 Mbps of managed bandwidth
50 concurrent connections maximum
<PAGE>
Additional Concurrent Connections
Additional Concurrent Connections where applicable can be purchased in blocks of
50 connections at $2500 per a 50-block connection for all of the above
configurations.
Burstware(R) Additional Fail-Over Server Module
Multiple Fail-Over Server modules can be added to all configurations to create
extremely reliable Burstware server architectures. Each module increases the
total number of Burstware servers in a Burstware domain by one.
Burstware(R) Additional Fail-Over Server Module US$10,000
One Burstware Server
Product Upgrade
The next revision of Burstware is expected to be released in the Fall of 1999. A
Burstware Product Upgrade Agreement Pack can be purchased for 15% of the total
purchase price. The product upgrade pack includes free upgrades to the next
major release of the Burstware suite of products.
Burstware(R) Product Upgrade Agreement Pack 15%
Total
Price
Upgrades to Burstware 2.x at no charge
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
"EXHIBIT B"
MINIMUM COMMITMENT & DISCOUNT SCHEDULE
--------------------------------------
1. Discount Level
Description Discount
----------- --------
Burstware(R) Enterprise Configuration 28%
Additional 50Mbps of Bandwidth (for Enterprise Config.) 28%
Burstware(R) Silver Configuration 28%
Burstware(R) Bronze Configuration 28%
Additional Fail-Over Server 28%
2. Clover Technologies Commitment Level
Year 1 Qty. Description
------ ---- -----------
First quarter 2 Burstware(R)Enterprise Configuration
Second quarter 8 Burstware(R)Enterprise Configuration
Third quarter 18 Burstware(R)Enterprise Configuration
Fourth quarter 22 Burstware(R)Enterprise Configuration
----
Year 1 total commitment: 50
Year 2 Qty. Description
------ ---- -----------
First quarter 25 Burstware(R)Enterprise Configuration
Second quarter 35 Burstware(R)Enterprise Configuration
Third quarter 40 Burstware(R)Enterprise Configuration
Fourth quarter 50 Burstware(R)Enterprise Configuration
----
Year 1 total commitment: 150
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
"EXHIBIT C"
PROGRAM ORDER
[To be supplied at a later date]
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
"EXHIBIT D"
END-USER SOFTWARE
LICENSE AGREEMENT
BETWEEN
Instant Video Technologies, Inc.
500 Sansome Street, Suite 503
San Francisco, California 94111
AND
LICENSEE
Company Name: ______________________________
Principal Address: ______________________________
______________________________
Contact Person: ______________________________
Phone Number: ______________________________
Facsimile Number: ______________________________
By executing this Agreement, Instant Video Technologies, Inc. ("IVT")
and ________________________ ("Licensee") are agreeing to a license of certain
computer programs in accordance with the terms and conditions contained in this
Agreement.
This Agreement consists of (1) this cover page; (2) the attached Terms
and Conditions; and (3) the Program Order attached as Exhibit A, as well as
additional Program Orders accepted from time to time with respect to this
Agreement.
Licensee has read, understands and agrees to the terms and conditions
of this Agreement and has duly authorized the individual signing this Agreement
on its behalf to do so.
INSTANT VIDEO TECHNOLOGIES, INC. [LICENSEE]
By:_____________________________ By:_____________________________
________________________________ ________________________________
(Print Name) (Print Name)
Title:__________________________ Title:__________________________
Date:___________________, 19____ Date:___________________, 19____
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
TERMS AND CONDITIONS
1. DEFINITIONS
1.1 "Burstware Conductor" means the computer program included among the
Licensed Software that is designed to operate on a hardware server and that
manages the distribution of audio and/or video content from one or more hardware
servers on which the Burstware Server software has been installed to Burstware
Players installed on client computers. Each Burstware Conductor requires a
Burstware License Key configured for the host name or IP address of the computer
on which the Burstware Conductor is installed.
1.2 "Burstware License Key" means the unique, encrypted software
program provided by IVT (only upon payment of the applicable license fees) that
is designed to prevent use of the Licensed Software beyond the scope of the
license paid for by Licensee by limiting, as appropriate, and in addition to
other limits, the number of Concurrent Burstware Player Connections, the amount
of Managed Bandwidth, and the number of Burstware Servers that the Burstware
Conductor can manage and the number of copies of the Burstware Conductor that
can be used.
1.3 "Burstware Player" means the computer program included among the
Licensed Software that operates on a single-user client computer, permitting
that computer to receive and play audio and/or video content delivered by the
Burstware Server software.
1.4 "Burstware Server" means the computer program included among the
Licensed Software that stores audio and/or video content and delivers it to
client computers for viewing with the Burstware Player.
1.5 "Concurrent Burstware Player Connections" means the number of
simultaneous connections between Burstware Players installed on client computers
and Burstware Servers installed on hardware servers that the Burstware License
Key enables the Burstware Conductor to manage simultaneously.
1.6 "Documentation" means all materials in written, computer readable
or other form containing information about the Licensed Software that accompany
the Licensed Software, or that IVT may provide during the term of this
Agreement.
1.7 "Licensed Software" means the IVT Burstware Conductor, Burstware
Server and Burstware Player software for which Licensee is granted a license
under this Agreement.
1.8 "Managed Bandwidth" means the total bandwidth, measured in megabits
per second, used by the Burstware Server software to deliver audio and/or video
content to Burstware Players.
2. GRANT OF LICENSE
On the terms and conditions of this Agreement, and upon payment of all
applicable license fees, IVT grants to Licensee and Licensee accepts the
non-exclusive licenses and the restrictions set forth below.
2.1 Software License. IVT grants to Licensee a non-exclusive license to
install and use the Licensed Software in machine-readable object code form only
in the configuration and to the scope identified in the Program Order attached
as Exhibit A, or such other Program Order(s) as IVT might accept at a later
date.
<PAGE>
2.2 Documentation. IVT grants to Licensee a non-exclusive license to
use the Documentation in connection with Licensee's use of the Licensed
Software.
2.3 Limitation on Use. Licensee understands and acknowledges that use
of the Licensed Software is controlled by the Burstware License Key. Licensee
may not use the Licensed Software beyond the scope enabled by the Burstware
License Key provided by IVT to Licensee upon payment of the applicable license
fee. The Licensed Software functions as three separate programs, the Burstware
Conductor, Burstware Server, and Burstware Player, that operate cooperatively.
Licensee may install and use only the number of copies of the Burstware
Conductor and Burstware Server software specifically enabled by the Burstware
License Key provided to Licensee by IVT. Licensee may install an unlimited
number of copies of the Burstware Player software for use by Licensee, provided
Licensee does not receive any direct payment for doing so, but may
simultaneously use only the number of copies of the Burstware Player
specifically enabled by the Burstware License Key provided to Licensee by IVT.
Licensee may not modify or alter the Licensed Software or Burstware License Key
to increase the scope of its use of the Licensed Software. Further, Licensee may
not use any device, process or computer program that increases, directly or
indirectly, the scope of use of the Licensed Software enabled by the Burstware
License Key provided to Licensee by IVT. If Licensee wishes to increase the
scope of its licensed use of the Licensed Software, Licensee must purchase an
additional Burstware License Key from IVT.
2.4 Back-Up Copies. Licensee may make one copy of the Licensed Software
solely for the back-up or archival purposes, provided that such copy must
contain all proprietary notices affixed to or appearing in the original copy.
2.5 Sun Microsystems Java(TM)Runtime Environment Provisions. Licensee
may not modify the Java Platform Interface ("JPI", identified as classes
contained with the "java" package or any subpackages of the "java" package), by
creating additional classes within the JPI or otherwise causing the addition to
or modification of the classes in the JPI. In the event that Licensee creates
any Java-related API and distributes such API to others for application
development, Licensee must promptly publish broadly, an accurate specification
for such API for free use by all developers of Java-based software.
2.6 Hazardous Environments. The Licensed Software is not designed or
intended for use in online control equipment in environments requiring fail-safe
performance, such as the operation of nuclear facilities, aircraft communication
or control systems or life support systems, in which software failure could lead
to personal injury or severe property or environmental damage. Licensee warrants
that it will not use or allow the use of the Licensed Software for such purposes
3. OWNERSHIP AND USE RESTRICTIONS
3.1 Ownership. Licensee acknowledges that the Licensed Software, all
enhancements, corrections and modifications to the Licensed Software (regardless
whether made by IVT, Licensee or anyone else), all copyrights, patents, trade
secrets, or trademarks or other intellectual property rights protecting or
pertaining to any aspect of the Licensed Software (or any enhancements,
corrections or modifications) and the Documentation, are and shall remain the
sole and exclusive property of IVT and, where applicable, IVT's suppliers. This
Agreement does not convey title or ownership to Licensee, but instead gives
Licensee only the limited rights set forth in Section 2. IVT reserves all rights
not expressly granted by this Agreement.
3.2 Restrictions. Except as expressly set forth in this Agreement,
Licensee has no right to use, make, sublicense, modify, transfer, rent, lease,
sell, display, distribute or copy originals or copies of any Licensed Software
or Documentation, or to permit anyone else to do so.
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
3.3 Transfer. Licensee may not assign or transfer its rights under this
Agreement or its rights to the Licensed Software without the prior written
consent of IVT. Upon any such transfer or assignment, Licensee must transfer all
copies of the Licensed Software and Documentation and assignee must agree in
writing to all the terms of this Agreement.
3.4 Proprietary Notices. Licensee shall not remove any patent,
copyright or trademark or other intellectual property notices that may appear on
any part of the Licensed Software or the Documentation.
3.5 Trade Secrets. Licensee acknowledges that the Licensed Software, in
its source code form, contains valuable trade secrets belonging to IVT. Licensee
may not reverse engineer, unencrypt, decompile, disassemble or otherwise
translate the Licensed Software or allow anyone else to do so.
3.6 Audit Rights. Licensee authorizes IVT or its designee to audit its
compliance with this Agreement, as IVT deems reasonable.
3.7 Notice to Employees and Agents. Licensee will use commercially
reasonable efforts to inform its employees, agents and others using the Licensed
Software under this Agreement that it may not be used, copied or transferred in
violation of this Agreement.
3.8 Irreparable Harm. Licensee acknowledges that money damages may not
be an adequate remedy for any breach or violation of any requirement set forth
in Section 3 of this Agreement and that any such breach or violation may leave
IVT without an adequate remedy at law. Licensee therefore agrees that, in
addition to any other remedies available at law, in equity or under this
Agreement, IVT shall be entitled to obtain temporary, preliminary and permanent
injunctive relief, without bond, from a court of competent jurisdiction to
restrain any such breach or violation.
4. SHIPMENT AND PAYMENT
4.1 Shipment of Licensed Software. IVT shall ship all Licensed Software
ordered under this Agreement F.O.B. IVT's San Francisco facility, or other point
of shipment within the United States designated by IVT. Risk of loss or damage
to copies of the Licensed Software shall pass to Licensee at the point of
shipment. All shipping and in transit insurance charges shall be paid by
Licensee. Licensee shall specify in its Program Order the mode of shipment
and/or carrier for each order. In the absence of written instructions from
Licensee, IVT shall determine the carrier and/or mode of shipment.
4.2 IVT Product Delivery Schedule and Delays. Although IVT shall use
reasonable efforts to meet Licensee's requested delivery schedules for Licensed
Software, IVT shall not be liable for any loss, damage or expense due to late
delivery.
4.3 Payment. Licensee shall pay for all Licensed Software within thirty
(30) days after the date of IVT's invoice for such products. In addition to all
other available rights or remedies, IVT reserves the right to declare all sums
immediately due and payable upon written notice to Licensee if Licensee fails to
pay when due any amounts due under this Agreement or any invoice. Interest shall
accrue on any amounts not paid when due at an annual rate of eighteen (18)
percent.
4.4 Taxes. With the sole exception of taxes based on IVT's net income,
Licensee shall pay all sales, use, excise, value added or other taxes that may
arise out of Licensee's installation or use of the Licensed Software.
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
NO PRODUCT MAINTENANCE AND SUPPORT
Licensee is not entitled to any maintenance or support for the Licensed
Software or any upgrades or enhancements under this Agreement. Licensee may
purchase from IVT maintenance and support pursuant to the terms, conditions and
pricing of IVT's maintenance and support agreement as in effect on the date of
Licensee's purchase. All upgrades and enhancements made available to Licensee
shall become part of the Licensed Software and become subject to this Agreement.
6. LIMITED WARRANTY
6.1 Ownership. IVT warrants that it owns or has the right and authority
to license the Licensed Software and Documentation to Licensee on the terms and
conditions of this Agreement.
6.2 Media and Documentation. IVT warrants that if the Licensed
Software's media or Documentation is in a damaged or physically defective
condition at the time it is delivered to Licensee, and if it is returned to IVT
(postage prepaid) within ninety (90) days of delivery, IVT will provide Licensee
with replacements at no charge.
6.3 Licensed Software. IVT warrants that, in the form delivered to
Licensee by IVT, the Licensed Software shall perform substantially in accordance
with the Documentation for ninety (90) days after delivery to Licensee. IVT's
warranty is conditioned upon: (a) the use of the Licensed Software in accordance
with the Documentation and other instructions provided by IVT and shall be null
and void if Licensee alters or modifies the Licensed Software without IVT's
prior written approval, does not use the Licensed Software in accordance with
the Documentation and IVT's instructions, or if the Licensed Software fails
because of any accident, abuse or misapplication; and (b) Licensee notifying IVT
in writing of the claimed nonconformity within ninety (90) days after delivery
of the Licensed Software to Licensee. As IVT's sole liability and Licensee's
sole remedy respecting the Licensed Software's nonconformance with the limited
warranty set forth in this Section 6.3, IVT may at its option: (i) use
reasonable efforts to correct the Licensed Software to make it conform
substantially with the specifications set forth in the Documentation; (ii)
replace the Licensed Software; or (iii) upon return of the Licensed Software and
Documentation to IVT, refund the license fees paid by Licensee under this
Agreement and terminate this Agreement. IVT DOES NOT REPRESENT OR WARRANT THAT
THE LICENSED SOFTWARE WILL OPERATE PROPERLY WITH OTHER HARDWARE OR SOFTWARE,
THAT THE LICENSED SOFTWARE WILL MEET LICENSEE'S REQUIREMENTS OR EXPECTATIONS OR
THAT OPERATION OF THE LICENSED SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE.
7. NO OTHER WARRANTY
EXCEPT AS SET FORTH IN SECTION 6, IVT IS PROVIDING THE LICENSED
SOFTWARE AND THE DOCUMENTATION "AS IS," AND, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, IVT SPECIFICALLY DISCLAIMS ANY AND ALL OTHER WARRANTIES,
CONDITIONS OR REPRESENTATIONS (WHETHER EXPRESS, IMPLIED OR STATUTORY, OR ORAL OR
WRITTEN) WITH RESPECT TO THE LICENSED SOFTWARE OR DOCUMENTATION INCLUDING
WITHOUT LIMITATIONANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE (WHETHER OR NOT IVT KNOWS, HAS REASON TO KNOW, HAS BEEN
ADVISED OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE) OR CONDITIONS OF
TITLE OR NONINFRINGEMENT WHETHER ALLEGED TO ARISE BY OPERATION OF LAW, BY REASON
OF CUSTOM OR USAGE IN THE TRADE OR BY COURSE OF DEALING. IVT ALSO EXPRESSLY
DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION TO ANY PERSON
<PAGE>
OTHER THAN LICENSEE. THIS LIMITED WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU
MAY HAVE OTHERS, WHICH VARY FROM STATE/JURISDICTION TO STATE/JURISDICTION.
8. LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE CUMULATIVE
LIABILITY OF IVT FOR ALL CLAIMS OF ANY NATURE RELATED TO THE LICENSED SOFTWARE
OR DOCUMENTATION OR OTHERWISE ARISING FROM THIS AGREEMENT, INCLUDING ANY CAUSE
OF ACTION BASED ON WARRANTY, CONTRACT, TORT, STRICT LIABILITY PATENT OR
COPYRIGHT INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY, SHALL NOT
EXCEED THE TOTAL AMOUNT OF ALL LICENSE FEES THAT LICENSEE HAS ACTUALLY PAID
UNDER THIS AGREEMENT. NEITHER IVT NOR ANY OF ITS RESELLERS, SUPPLIERS OR
LICENSORS SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL,
EXEMPLARY OR PUNITIVE DAMAGES, WHETHER IN CONTRACT, IN TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, OR FOR ANY LOSS OF PROFITS, LOSS OF SAVINGS, LOSS OF
DATA OR LOSS OF USER DAMAGES ARISING OUT OF THIS AGREEMENT OR THE USE (OR
INABILLITY TO USE) OF THE LICENSED SOFTWARE EVEN IF IVT OR RESELLER, SUPPLIER OR
LICENSOR HAS BEEN AWARE OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE. IN
NO EVENT WILL IVT BE LIABLE FOR ANY CLAIM BROUGHT MORE THAN ONE (1) YEAR AFTER
THE CAUSE OF ACTION AROSE OR SHOULD HAVE BEEN DISCOVERED. BECAUSE SOME STATES DO
NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR
INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY. BECAUSE SOME
STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATIONS MAY NOT APPLY TO YOU.
9. TERMINATION
Without prejudice to any other rights it may have under this Agreement
or at law or equity, IVT may terminate this Agreement if Licensee fails to
comply with the terms of this Agreement. Upon termination of this Agreement for
any reason, Licensee will immediately discontinue use of the Licensed Software,
destroy or return to IVT all copies of the Licensed Software and Documentation
in whatever form they exist, including all back-up copies, and certify in
writing to IVT that all copies have been destroyed.
10. INDEMNIFICATION
The Licensed Software is intended for use only with properly licensed
media, content, and content creation tools. It is Licensee's responsibility to
ascertain whether any copyright, patent or other licenses are necessary and to
obtain any such licenses to serve and/or create or compress such media and
content. Licensee agrees to transmit and/or compress only those materials for
which it has the necessary patent, copyright or other permissions, licenses
and/or clearances. Licensee agrees to hold harmless, indemnify and defend IVT,
its officers, directors and employees, from and against any losses, damages,
fines and expenses (including attorneys' fees and costs) arising out of or
relating to any claims that Licensee has encoded, compressed, copied or
transmitted any materials (other than materials provided by IVT) in connection
with the Licensed Software in violation of another party's rights or in
violation of any law. If Licensee is importing the Licensed Software from the
United States, it shall indemnify and hold IVT harmless from and against any
import and export duties or other claims arising from such importation.
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
11. GENERAL TERMS
11.1 Export Regulations. The Licensed Software and Documentation,
including technical data, is subject to U.S. export control laws, including the
U.S. Export Administration Act and its associated regulations, and may be
subject to export or import regulations in other countries. Licensee agrees to
comply strictly with all such regulations and acknowledges that it has the
responsibility to obtain licenses to export, re-export, or import the Licensed
Software or Documentation. Neither the Software nor Documentation may be
downloaded, or otherwise exported or re-exported (i) into, or to a national or
resident of Cuba, Iraq, Iran, North Korea, Libya, Sudan, Syria or any country to
which the U.S. has embargoed goods; or (ii) to anyone on the U.S. Treasury
Department's list of Specially Designated Nations or the U.S. Commerce
Department's Table of Denial Orders. By installing or using the Licensed
Software, Licensee is warranting that it is not located in or under the control
of, or a national or resident of any such country or on any such list.
11.2 U.S. Government Restrictions. The use, duplication or disclosure
by the United States Government of the Licensed Software and Documentation is
subject to the restrictions as set forth in the Rights in Technical Data and
Computer Software Clauses in DFARs 252.227-7013(c)(1)(ii) and FAR 52.227-19(c)
11.3 Governing Law and Forum. This Agreement shall be governed by and
construed in accordance with the laws of the State of California and the United
States without reference to conflicts of laws principles. Licensee consents to
the exclusive jurisdiction and venue of the federal and state courts in San
Francisco County, California for resolution of any disputes concerning this
Agreement.
11.4 Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to recover from the losing party its reasonable attorney's fees, costs
and necessary disbursements in addition to any other relief to which such party
may be entitled.
11.5 Complete Understanding. This Agreement constitutes the entire
agreement between the parties with respect to its subject matter and supersedes
and replaces all prior or contemporaneous understandings or agreements, written
or oral, regarding its subject matter. No amendment to or modification of this
Agreement will be binding unless in writing and signed by duly authorized
representatives of both IVT and Licensee.
11.6 Survival. The following provisions of this Agreement shall survive
termination of this Agreement, along with any other terms which by their nature
require survival: Section 3, Section 5, Section 6, Section 7, Section 9 and
Section 10.
11.7 Absence of Third Party Beneficiaries. Unless otherwise expressly
provided, no provisions of this Agreement are intended or shall be construed to
confer upon or give to any person other than IVT and Licensee any rights,
remedies or other benefits under or by reason of this Agreement.
11.8 Disclaimer of Agency. IVT and Licensee each acknowledges that the
parties to this Agreement are independent. Neither party is authorized or
empowered to act as agent or legal representative for the other for any purpose
and shall not on behalf of the other enter into any contract, warranty or
representation as to any matter. Neither party shall be bound by the acts or
conduct of the other and nothing herein shall be construed as creating a
partnership or joint venture.
11.9 No Waiver. The failure of either party to enforce any provision of
this Agreement shall not be deemed a waiver of that provision or any other
available right or remedy.
11.10 Headings. The section headings used in this Agreement are
intended for convenience only and shall not be deemed to modify, limit or
supersede any provision.
<PAGE>
11.11 Severability. In the event that any provision of this Agreement
is found to be invalid, illegal or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.
Burstware, Instant Video, Burstware Server, Burstware Conductor, Burstware
Player, "Faster Than Real Time," and "Why Stream When You Can Burst?" are
registered trademarks or trademarks of Instant Video Technologies, Inc., in the
United States and other countries. Use of this software may also be protected by
one or more of the following U.S. patents: 4,963,995; 5,057,932; 5,164,839;
5,262,875; 5,440,334; and 5,710,970. Additional U.S. patents pending.
International patents and patents pending may also be applicable in their
respective countries. Sun Microsystems, Java, and all Java-based trademarks and
logos are trademarks or registered trademarks of Sun Microsystems, Inc. in the
United States and other countries.
All contents Copyright(C)1998-1999 by Instant Video Technologies, Inc. All
rights reserved.
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
"EXHIBIT E"
IVT TRADEMARKS
Instant Video(R)
Burstware(R)
Burstware Conductor(TM)
Burstware Server(TM)
Burstware Player(TM)
"Faster Than Real Time"(TM)
"Why Stream When You Can Burst?"(TM)
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
"EXHIBIT F"
TRAINING
Training Programs.
Module 1: General Operations Overview
This module would be intended to provide the student with high level
general knowledge on Burstware. The student would have a general
understanding of Burstware's components, network hardware requirements, and
applications. Additionally, the student would be familiar with how to
operate the overall system, demonstrate capabilities, install the software
for the server, conductor, and player, including how to add additional
servers, conductors, players, etc. to an existing network.
******FILE DOES NOT MATCH COPY******
Module 2: Technical Support, Maintenance, & Troubleshooting
This module would be intended to provide advanced technical training to be
used to support their customers. This may be viewed as some type of
technical support certification. The student would have to be trained on
all detailed technical aspects of how to install, troubleshoot, how to
identify and isolate Burstware from network problems, etc. Prerequisite
would be Module 1.
******FILE DOES NOT MATCH COPY******
<PAGE>
[IVT-CLOVER CONFIDENTIAL]
"EXHIBIT G"
IVT YEAR 2000 STATEMENT
-----------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the Fiscal Year ended: December 31, 1998
OR
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _________________ to _________________ .
Commission File No. 33-35580-D
INSTANT VIDEO TECHNOLOGIES, INC.
-----------------------------------------------------------
(Name of Small Business Issuer as Specified in its Charter)
Delaware 84-1141967
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
500 Sansome Street, Suite 503
San Francisco, California 94111
------------------------- ----------
(Address of Principal Executive Offices, (Zip Code)
(415) 391-4455
(Issuer's Telephone Number, Including Area Code)
Securities Registered Under Section 12(b) of the Exchange Act: None. Securities
Registered Under Section 12(g) of the Exchange Act: None
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 past 90 days. [N/A]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and will not 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. [N/A]
State Issuer's revenues for its most recent fiscal year: $15,000.
<PAGE>
The aggregate market value of the Registrant's Common Stock held by
non-affiliates on March 31, 1999 (based upon the last reported price of the
Common Stock on the NASDAQ OTC Bulletin Board Exchange on such date) was
approximately $63,100,000.
As of April 9, 1999, there were approximately 9,018,228 shares of the
Registrant's Common Stock outstanding.
Documents incorporated by reference Part III of this Report incorporates
information by reference from the definitive Proxy statement for the
Registrant's annual meeting of stockholders, to be filed within 120 days after
the end of the fiscal year ended December 31, 1998.
This Form 10-KSB consists of 41 pages.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the application year. Programs or products
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. In addition, the year 2000 is a leap year, which
may also lead to incorrect calculations, functions or systems failure. As a
result, this year, computer systems and software used by many companies may need
to be upgraded to comply with such Year 2000 requirements. In 1998, the Company
began a project to determine if any actions were required regarding date-related
effects to: (i) the Company's software products; (ii) the Company's internal
operating and desktop computer systems and non-information technology systems;
and (iii) the readiness of the Company's third-party vendors and business
partners.
The Company has formed a team consisting of operations, development, marketing,
and finance members to determine the impact of Year 2000 and to take corrective
action. As of February 1999, the Company had completed testing of its suite of
Burstware(R) software products and has found no known Year 2000 issues. The
Company has also tested its internal operating and desktop hardware and software
and has found that all its software is Year 2000 compliant and appears to have
no known Year 2000 issues. The Company has also confirmed with its third-party
vendors and business partners to ensure that their software and hardware will
not impact IVT operations. At this time, the Company knows of no known Year 2000
issues or problems with its vendors, or business partners.
The majority of the costs associated with this project are not incremental to
the Company, but represents a reallocation of existing resources. The Company
believes that modifications deemed necessary will be made on a timely basis and
does not believe that the cost of such modifications will have a material effect
on the Company's operating results. To date, the Company's costs related to the
year 2000 issues have not been material, and the Company does not expect the
aggregate amount spent on the year 2000 issue to be material. In addition, the
Company is in the process of evaluating the need for contingency plans with
respect to year 2000 requirements. The necessity of any contingency plan must be
evaluated on a case-by-case basis and may vary considerably in nature depending
on the year 2000 issue it may address.
The Company's expectations as to the extent and timeliness of modifications
required in order to achieve year 2000 compliance is a forward-looking statement
subject to risks and uncertainties. Actual results may vary materially as a
result of a number of factors, including, among others, those described above in
this section. There can be no assurance that unexpected delays or problems,
including the failure to ensure year 2000 compliance by systems or products
supplied to the Company by third parties, will not have an adverse effect on the
Company, its financial performance and results of operations. In addition, the
Company cannot predict the effect of the year 2000 issues on its customers or
other third party business partners or the resulting effect on the Company. As a
result, if such third parties do not take preventative and/or corrective actions
in a timely manner, the year 2000
<PAGE>
issue could have an adverse effect on their operations and accordingly have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, the Company's current understanding of
expected costs is subject to change as the project progresses and does not
include the cost of internal software and hardware replaced in the normal course
of business whose installation otherwise may be accelerated to provide solutions
to year 2000 compliance issues.
SERVICES AGREEMENT BETWEEN
THE EMS GROUP LTD. AND INSTANT VIDEO TECHNOLOGIES INC.
This Agreement, entered into this 18th day of March 1999 and is between The EMS
Group, Limited (EMS) of Aldwych House, Madeira Road, West Byfleet, Surrey KT14
6DA, United Kingdom; and Instant Video Technologies, Inc., a Delaware
Corporation, with its principal place of business at 500 Sansome Street, Suite
503, San Francisco, CA 94111. ("IVT").
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein and for other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows
DEFINITIONS
For the purposes of this Agreement, the parties agree on the following
definitions.
"Customer(s)" means all resellers, end users or OEMs of
product(s) including, but not limited to,
any joint venture or strategic alliance
where the Customer holds twenty percent
(20%) or greater equity interest (including
educational, charitable and governmental
institutions in the territory).
"Net Sales" means revenues (when recognized by IVT for
financial accounting purposes) to IVT from
customers after deduction of applicable
discounts, duties, taxes and shipping costs.
"End User" means any third party, which purchases or
obtains the product(s) solely in order to
fulfill its own data processing or other
needs.
"OEM" means the original equipment manufacturer
that incorporates the product(s) (in whole
or in part) into its product line.
"Reseller(s)" means any organization that purchases or
otherwise obtains the product(s) in order to
resell it or them to an end user (in whole
or in part) with or without any other
product or part of any other product.
AGREEMENT
1. OBJECTIVE
The Parties have agreed that the Objective of this Agreement is for EMS to
assist IVT in the identification and development, in the Territory (as defined
below), of qualified opportunities for use or reselling of IVT software products
(including any enhancements thereof) by a European Customer.
1
<PAGE>
2. TERRITORY
Territory shall mean the countries of The United Kingdom, France, Germany,
Switzerland, Italy, Spain, Benelux (Belgium, Netherlands, and Luxembourg), and
Scandinavia (Norway, Sweden, Denmark & Finland).
3. EMS OBLIGATIONS
EMS shall employ its best efforts to undertake the following activities to
accomplish the following Objectives.
3.1. Within fifteen (15) days of signing this agreement:
3.1.1. EMS will assign a project team consisting of a project director and a
project manager to manage the IVT project;
3.1.2. EMS shall be responsible for all travel and other travel related expenses
for the training for its own personnel;
3.1.3. Salaries and Taxes. All personnel assigned by EMS to perform Services
will be employees of EMS and EMS will pay all salaries and expenses of, and all
federal, social security, federal and state unemployment taxes, and any other
payroll or withholding taxes relating to such employees.
3.1.4. Independent Contractor. EMS will be considered, for all purposes an
independent contractor, and will not directly act as an agent, servant, or
employee of IVT, or make any commitments or incur any liabilities on behalf of
IVT without its prior written consent.
3.1.5. Supervision. EMS is responsible for the direct management and supervision
of its personnel through its designated representative, and such representative
will in turn be available at all reasonable times to report and confer with the
designated representative of IVT with respect to the Services being rendered.
3.1.6. Qualifications and Removal. EMS agrees that the Services to be provided
will be performed by qualified, careful and efficient employees in strict
conformity with the best practices and highest applicable standards. EMS further
agrees that upon request of client it will remove from the performance of
Services, hereunder, any of its employees who, in the reasonable opinion of
Client, is guilty of improper conduct or is not qualified to perform assigned
work.
3.1.7. Risk of Loss. EMS will provide for all proper safeguards and shall assume
all risk of loss to EMS and its employees incurred in performing services under
this agreement,
3.1.8. Insurance. EMS will bear all responsibility for insurance coverage for
its employees including: comprehensive liability and worker's compensation
2
<PAGE>
3.2. Within thirty (30) days of completion of training:
3.2.1. Sales Strategy. EMS will Develop a European Sales Strategy; subject to
the final approval of IVT management;
3.2.2. Standard Agreements. EMS will provide IVT a sample of its: standard
Software Licensing Agreement, OEM Agreement and Intellectual Property Licensing
Agreement for review;
3.2.3. Communication Document. EMS will draft an introductory communication
document, subject to the approval of IVT, to be used to describe IVT's software
products and business opportunity to Targeted Customers;
3.2.4. Contact List. EMS will access, search and sort its proprietary database
to arrive at a list of contacts at each target Customer; subject to the approval
of IVT;
3.2.5. Initial Contacts. EMS will establish initial contacts with the
Customer(s).
3.3.1. Within one hundred and twenty (120) days of the completion of training
EMS will:
3.3.2. Targeted Customers. EMS will Visit the targeted Customer(s) to further
qualify their suitability, interest, technical fit, authority, budget and
urgency;
3.3.3. Qualified Customers. EMS will provide IVT a list of qualified Customers
which meet the criteria in 3.3.2.; along with a short company profile and
detailed description of the application and opportunity for IVT;
3.3.4. European Business Trip. EMS will arrange and coordinate a round trip
business tour in Europe with a senior executive representative(s) (as defined in
Section 4) for a series of high level technical and commercial presentations to
qualified Customer(s), as determined by IVT;
3.3.5. Account Responsibility. Maintain account responsibility from development
to closure leading to technical confirmation by the Customer(s), through visits
by Customer(s) to IVT facilities;
3.3.6. Contract Negotiations. In support of IVT management and at the sole
discretion and direction of IVT management, EMS shall initiate contract
negotiations with the prospective Customer(s); this shall include, but not be
limited to the discussion of business terms and conditions for purchase and
licensing arrangements, where appropriate;
3.3.7. Customer Meetings. Arrange meetings with Customer(s), with or without IVT
management present, as appropriate, to conduct such negotiations with
Customer(s) on behalf of IVT;
3.3.8. Project Reports. Provide IVT with project execution reports in writing on
an ongoing basis in the form of a bi-weekly status report of progress made with
each of the targeted accounts for management use by IVT. A bi-monthly compendium
report will be issued which includes details such as telephone numbers, fax
numbers, email numbers of specific contacts within each targeted account and a
list of actions developed for each given account.
3
<PAGE>
4. IVT'S OBLIGATIONS
4.1. Customer Agreement. IVT, at its option, can decide to use or not use the
sample Sales, OEM or Licensing Agreements provided by EMS.
4.2. Software License Agreement: IVT will supply to EMS (at the written request
of EMS), within thirty (30) days of completion of training, a sample of the
Customer Software License Agreement approved by IVT to be used in securing
Customer(s) within the Territory.
4.3 Demonstration products: IVT shall provide, or make available, free of charge
to EMS, Burstware(R) product(s) and three laptop computers, for the purposes of
demonstration and establishing benchmarks by prospective Customers.
4.4. Marketing materials: IVT shall provide EMS with suitable quantities of
documents as agreed during the training to raise interest from Customer(s).
4.5. Technical Support: IVT shall provide appropriate product technical support
to the Customer(s) identified by EMS, when required.
4.6. Management Support: IVT shall designate in writing to EMS a management
employee of IVT who shall coordinate with the Project Director and/or Project
Manager the obligations of each party as to this Agreement
4.7. Trip(s) to Europe:
4.7.1. During the training at IVT headquarters, IVT and EMS will agree, if
appropriate, on the dates projected for a first trip in Europe to visit the
Customer(s) identified. These dates can only be changed, or the trip canceled,
in writing by IVT with a minimum notice of thirty (30) days prior to the date
agreed for the trip to start or in a case of Force Majeure. IVT will require an
acknowledgment from EMS to such notification. EMS will generate this
acknowledgment within forty-eight (48) hours upon receipt of notification.
Should such cancellation occur, EMS reserves the right to increase the total
contract length by the time lost between the canceled visit and its replacement,
to a maximum of thirty (30) days per incident and to invoice IVT for the extra
time and effort.
4.7.2. Joint Expenses. Joint expenses incurred during the execution of joint
trips, such as meals, entertainment, etc. will be equally shared between EMS and
IVT as appropriate.
4.7.3. Quarterly Visits. IVT agrees that EMS' fee structure budgets a maximum of
one joint IVT visit to Europe every three (3) months.
4.7.4. Exchange of Information. Client will provide EMS with information
obtained by IVT during meetings or discussions with prospective Customers when
EMS is not present. IVT recognizes that this information may be critical for EMS
to perform its obligations under the terms of this Agreement.
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<PAGE>
4.8 EMS and IVT's Joint Obligations.
4.8.1. EMS and IVT will mutually agree on the actual date for initial EMS staff
training and consulting at IVT headquarters;
4.8.2. EMS and IVT will jointly develop the definition of a "Qualified Customer"
and an initial "Targeted Account List"; final approval to be made by IVT.
4.8.3. EMS and IVT will jointly develop a "Targeted Account List" based on a
minimum deal size; final approval to be made by IVT.
CONSIDERATION
5. FEES
5.1. Initial Fee. IVT shall pay to EMS an Initial First Month Fee of eighteen
thousand dollars ($18,000). The payment of this Fee is due and payable on the
date this Agreement is signed by IVT. The Initial Fee shall represent advance
payment for EMS' first month of activities.
5.2. Monthly Fee. Additionally, IVT shall pay to EMS a Monthly Fee of twelve
thousand dollars ($12,000) per month following the first month, payable monthly
in advance, for a minimum period of five (5) further months.
5.3. Draw against fees. IVT shall also provide a monthly draw against
Performance Fees in the amount of six thousand dollars ($6,000) for the a
minimum period of five (5) further months. This draw will be applied against
Performance Fees in accordance with Clause 5.6.
5.4. Signing Fee. IVT shall pay EMS a signing fee of $10,000 per revenue bearing
Customer Agreement signed as a result of the efforts of EMS (as determined in
paragraph 5.6).
5.5. Extension. IVT may extend this Agreement in twelve (6) month segments upon
the same terms and conditions herein by confirming such extension in writing
thirty (30) days prior to the end of a given term.
5.6. Performance Fees. IVT shall pay a quarterly Performance Fee within thirty
(30) days of the end of each quarter, according to the schedule below, on Net
Sales of each Customer secured through EMS' efforts where EMS has been actively
involved in the selling process and the Qualified Customer has appeared on the
IVT approved target list and has been addressed in the EMS bi-weekly status
report and the bi-monthly compendium as determined in paragraph 3.3.7.
At the option of IVT, quarterly performance fees can be based on either three
percent (3%) of net Sales for the first forty-eight (48) months from date of
first invoice or the schedule below (which is not time limited) Either method
can be chosen on a per client basis before contract negotiations with a client
are completed:
$0 - $2 Million in net Sales: 6%
5
<PAGE>
$2 - $4 Million in net Sales: 5%
$4 - $6 Million in net Sales: 4%
$6 - $8 Million in net Sales: 3%
$8 - $10 Million in net Sales: 2%
$10 - $12 Million in net Sales: 1%
Over $12 Million in net Sales: 0%
5.7.1. Quarterly Performance Fee Withholding. During the term of this Agreement,
the payment of the Performance Fees for each quarter shall be made after
withholding up to fifty percent (50%) of the amount of Performance Fees due EMS
for that quarter, which withheld amount shall be applied by IVT as an offset
against the accumulated balance of the Monthly draw against Performance Fees
paid to EMS. Such withholding shall occur in any quarter where the cumulative
amounts withheld by IVT, under this Agreement, are less than or equal to the
cumulative Monthly draw amounts paid to EMS under this Agreement.
5.7.2. Buyout Provision. EMS will negotiate in good faith at or after the final
month of this Agreement a buyout of any fees due or anticipated under Clause
5.6. based upon best estimate of a present value analysis of Performance Fees
due in the future.
5.8. Interest On Past Due Amounts. IVT shall pay on any fees outstanding from
thirty (30) days of the date of invoice, an interest rate of one and one-half
percent (1.5%) per month, eighteen per cent (18%) per annum or the maximum
interest allowed by law, whichever is the lesser of the two amounts. Payment of
all fees, etc. shall be remitted to EMS by check to EMS Group, at 111 Pine
Street, Suite 1620, San Francisco, CA 94111.
5.9. EMS Expenses. EMS shall pay all of its own expenses relating to its duties
in carrying out this Agreement. These shall include, but not be limited to, all
hotel charges, all airfares, meals, accommodations, communication and mailing
expenses.
5.9.1. Customs, Duties, Excise Tax and Insurance. Exceptional expenses such as
Customs, Excise Taxes, Insurance and Shipping, which might be applicable on
marketing materials and/or demonstration/evaluation products, will be re-billed
to IVT by EMS. Therefore, EMS strongly recommends IVT declare a minimum value
"FOR DEMONSTRATION PURPOSE ONLY" every time it is possible on any pro forma
invoice.
5.9.2. Termination Payment. In the event that IVT desires to terminate this
agreement before completion of the initial six (6) month term, (unless a major
breach has occurred under paragraph 7.3. on the Special Termination clause in
paragraph 7.5. has been invoked), IVT shall owe to EMS any remaining monthly
fees of twelve thousand dollars ($12,000) per month for the minimum monthly
period set forth in Clause 5.2.
6. FINANCIAL INFORMATION
6.1 Documentation. IVT shall document purchase orders received from, and
invoices sent to Customer(s) originated by EMS in accordance with this
Agreement, on a monthly basis.
6.2. Fee Certification. IVT shall, if EMS deems necessary, authorize EMS to
certify the Performance Fee calculation at reasonable intervals. This
certification will be accomplished
6
<PAGE>
through IVT's auditor/accountant or the appointment of an independent auditor.
The third party performing the certification will verify the accounts of IVT
during normal business hours. The cost of any such certification will be borne
by EMS.
7. TERM AND TERMINATION
7.1. Term. The Term of this Agreement will be initially six (6) months from the
signing of this Agreement by IVT. Earned Performance Fees shall survive the
completion of the term or the termination of this Agreement and remain payable
as defined in Clause 5.3. above.
7.2. Written Notice. Either party upon thirty (30) day's prior written notice
following the initial term and any extension thereof may terminate this
Agreement. In the event that the Agreement is not terminated by either party at
the end of the initial term or any extension thereof, the Agreement shall
automatically be extended in thirty (30) day periods until a formal termination
in writing is issued by either party. In the event of termination by IVT, EMS
shall be entitled to all outstanding Initial Fees, Monthly Fees, and any
Performance Fees due to EMS from IVT for relationships secured through the
efforts of EMS but signed by IVT within one (1) year of the date that the actual
termination is effective.
7.3. Material Breach. EMS or IVT shall be entitled to terminate this agreement
upon either parties breach of a material provision of this Agreement, which
breach has not been cured within Forty - five (45) days of the non breaching
party giving written notice of such breach.
7.4. Force Majeure. Nonperformance by either party shall be excused to the
extent that performance is rendered impossible by strike, fire, flood,
earthquake, governmental acts or orders or restrictions, failure of suppliers,
or any other reason where failure to perform is beyond the control and not
caused by the negligence of the non-performing party; provided that any such
nonperformance shall not be cause for termination of this Agreement by the other
party if the nonperformance continues for more than forty - five (45) days.
GENERAL TERMS
8. CONFIDENTIALITY
8.1. Information and Material. EMS agrees that information or material received
by EMS, its employees, agents, and or consultants is to be held in strictest
confidence and not revealed to others without prior written consent from IVT.
This obligation of EMS will survive termination or expiration of this agreement.
8.2. Copyright and Trademark. EMS recognizes that the IVT name and products are
copyrighted and trademarked and agrees to sign a confidentiality agreement and
cause the same confidentiality agreement to be signed by any employee, agent,
consultant or OEM involved within this agreement. The parties agree that all
confidential information held by the other at the time of termination of this
agreement shall be returned immediately to its owner.
7
<PAGE>
9. ASSIGNABILITY.
9.1. Change in Ownership. This Agreement shall be binding on and be for the
benefit of EMS and IVT and their successors and/or assignees. IVT shall, within
thirty (30) days, notify EMS of any change in ownership (i.e., control) of IVT
and IVT agrees to exercise its right to buy out the Performance Fees in
accordance with the terms in Clause 5.6 of this Agreement. EMS shall, within
thirty (30) days, notify IVT of any change in ownership of EMS.
9.2. No Assignment. Neither party may assign this Agreement without the prior
written consent of the other party, which will not be unreasonably withheld.
9.3. Delegation of Duties. Not withstanding the foregoing, EMS shall not
delegate its obligations to any person without the express prior written consent
of IVT, which consent may be refused for any reason or no reason; however, EMS
may use such employees, agents, and contractors as is reasonable and customary,
provided that a senior EMS employee shall be actively engaged and supervising
all services hereunder. The sale or transfer of more than 50% of the value or
voting control of EMS shall be treated as an assignment of this Agreement
requiring such consent by IVT.
10. EMPLOYMENT AND PERSONNEL
10.1. No Recruitment. Both EMS and IVT hereby agree not to attempt to employ the
employees of each other during the term of this Agreement and for a period of
six (6) months after the termination of this Agreement. In the event that any
employment does occur during the period set forth herein, the said party shall
be liable for a sum consisting of six (6) month's total target salary of the
employee so hired, at the current rate applicable to the employee at the time of
the employee's resignation or re-employment.
10.2. Personnel Changes. EMS agrees to notify IVT in advance of any change in
the key personnel assigned to perform the obligation of EMS hereunder, and no
such change will be made without the prior consent of IVT, which will not
unreasonably be withheld.
11. GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the State of
California without regard to choice of law principles. The sole jurisdiction and
venue for actions related to the subject matter hereof shall be the state of
California and Federal District Courts of the Northern District of California,
located in San Francisco, California. Both parties consent to the personal
jurisdiction of such courts and agree that process may be served in the manner
provided herein for giving of notices or otherwise as allowed by law.
12. PUBLICITY
12.1. Press Release. At its sole discretion, IVT will make, in good faith,
efforts to mention EMS in press releases it issues which announce a successful
conclusion of business that resulted from the efforts of EMS as a result of this
Agreement.
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12.2. Customer Announcements. With the approval of the Customer(s) IVT will
authorize EMS to announce successful business relationships that results from
the efforts of EMS. IVT shall have final approval of any publicity of such
successful completion of business announced by EMS.
13. NOTICES
Any notice required or permitted under the terms of this Agreement shall be
effective on: (a) personal delivery ten (10) days [or fifteen (15) days in the
case of international correspondence] after mailing, certified, return receipt
requested, addressed and postage prepaid to the addresses appearing on the face
page of this Agreement; (b) facsimile transmission using means calculated to
reasonably verify the successful transmission of the notice shall be effective
on transmission, if followed within one business day by mailing in the foregoing
manner; (c) International air courier with proof of delivery shall be effective
on delivery to the specified address. Either party may change the addresses by
giving the other party notice complying with this section.
14. DISPUTE RESOLUTION
14.1. Arbitration. In the event of a difference of opinion or dispute relating
to any aspect of this Agreement, the Parties shall first attempt to resolve such
differences by good faith negotiation. If such negotiation fails to reach a
mutually agreed resolution, either Party may initiate a mediation proceeding
using a single mediator appointed by the American Arbitration Association in San
Francisco, California. Each Party agrees to devote at least eight consecutive
business hours of a senior executive to such mediation proceeding.
14.2. Litigation. In the event mediation is not successful each party shall be
free to pursue its remedies at law.
14.3. Attorneys' Fees. The prevailing party in any legal action brought by one
party against the other and arising out of this Agreement shall be entitled, in
addition to any other rights and remedies it may have, to reimbursement for its
expenses, including court costs and reasonable attorneys' fees.
15. ENTIRE AGREEMENT & MODIFICATION
15.1. Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter herein and merges
any prior discussions between them. No modification of or amendment to this
Agreement, nor any waiver of any rights under this Agreement, shall be effective
unless in writing signed by the parties.
15.1. Waiver. No waiver of any term or condition of this Agreement shall be
valid or binding on either party unless the same shall have been mutually
assented to in writing by both parties. The failure of either party to enforce
at any time any of the provisions of this Agreement, or the failure to require
at any time performance by the other party of any of the provisions of this
Agreement, shall in no way be construed to be a present or future waiver of such
provisions, nor in any way effect the ability of either party to enforce each
and every such provision thereafter.
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15.2. Partial Invalidity. If any provision of this Agreement is held to be
invalid, then the remaining provisions shall nevertheless remain in full force
and effect, and the invalid or unenforceable provision shall be replaced by a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of such invalid or unenforceable term or provision.
15.3. No Agency. The parties hereto are independent contractors. Nothing
contained herein or done in pursuance of this Agreement shall constitute either
party the agent of the other party for any purpose or in any sense whatsoever,
or constitute the parties as partners or joint ventures.
[The remainder of the page has been left blank and the signature page follows]
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IN WITNESS HEREOF, the undersigned have executed this Service Agreement as of
the 18th day of March, 1999.
Agreed By:
Instant Video Technology, Inc. The EMS Group
/s/ Richard Lang /s/ Carter F. Alexander
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Richard Lang Carter F. Alexander
Chaiman and CEO President
3-17-99 3/18/99
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Date Date
/s/ D. M. Smith
-------------------
Name
D. M. Smith
-------------------
Director, EMS Group
18 March 1999
-------------------
Date
11
LEASE
Feberuary 15, 1993
By and Between
500 SANSOME STREET COMPANY,
a limited partnership,
Landlord
and
INSTANT VIDEO TECHNOLOGIES, INC.,
a Delaware corporation
Tenant
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INDEX TO LEASE
Headings PAGE
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1. Parties 1
2. Term 1
3. Use 1
4. Rent 1
5. Services 4
6. Landlord's Title 5
7. Certain Rights Reserved Landlord 5
8. Default Under Other Lease 6
9. Waiver Of Certain Claims 6
10. Holding Over 7
11. Assignment And Subletting 7
12. Condition Of Premises 9
13. Alterations 9
14. Use Of Premises 10
15. Repairs 11
16. Untenantability 12
17. Eminent Domain 13
18. Compliance With Law 13
19. Default 14
20. Insolvency Or Bankruptcy 15
21. Notices 15
22. Subordination Of Lease 16
23. Taxes Payable By Tenant 17
24. Miscellaneous 17
25. Alterations By Landlord 18
26. Insurance 18
27. Attorney's Fees 19
28. Successors And Assigns 19
29. Surrender Of Lease 19
30. Captions 20
31. Sale By Landlord 20
32. Improvements To Premises 20
33. Energy Conservation 20
34. Late Charges 20
35. Additional Charges 21
36. Right to Expand 21
37. Landlord's Right To Terminate 21
38. Landlord's Right to Relocate 21
39. Security Deposit 21
Attachments
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Exhibit "A" Premises
Exhibit "B" Work Letter
Exhibit "C" Rules and Regulations
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1. Parties. 500 Sansome Street Company, (a limited partnership),
Landlord, leases to Instant Video Technologies, Inc. (a Delaware corporation),
Tenant, those premises consisting of Suite 503 containing an aggregate of
approximately 2,328 rentable square feet, of that certain eight-story building
known as 500 Sansome Street, San Francisco, California, which premises are
designated on Exhibit "A" attached hereto and made a part hereof. Said remises
are hereinafter called "premises".
2. Term. The term of this lease shall be for one (1) year commencing
February 16, 1993, and terminating February 15, 1994, inclusive. Tenant shall,
at least ninety (90) days before the expiration of the term of this lease, give
to Landlord written notice of Tenant's intention to surrender the premises upon
expiration of the term of this lease.
3. Use. The premises are to be used for business offices and for no
other business or purpose without the prior written consent of Landlord.
4. Rent And Other Payments. Tenant shall pay to Landlord without
deduction or offset, at 500 Sansome Street, San Francisco, Suite 303, California
94111, or elsewhere as designated from time to time by Landlord's notice:
(a) Basic Rental.
(i) Upon execution of the lease, Twelve Thousand Four
Hundred Sixteen Dollars ($12,416.00 shall be deposited with Landlord, Three
Thousand One Hundred Four Dollars ($3,104.00) of which is to be applied as
rental for the first month's rent due and the balance held as security deposit
for the term of the lease.
(ii) Tenant shall pay to Landlord, without deduction
or offset, the sum of Three Thousand One Hundred Four Dollars ($3,104.00), as
basic rental for the premises, payable in advance promptly on the first day of
every calendar month of the term, and a pro rata
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portion thereof at the current rent for fractions of a month if the term shall
be commenced or terminated on any day other than the first or last day of any
month.
(b) Operating Costs and Taxes.
(i) Operating Costs. Tenant shall pay to Landlord, at
the time hereinafter set forth in this subparagraph (b), 1.577 percent (1.577%)
of any increase in Landlord's "operating costs" (as that term is hereinafter
defined) for the building in which the premises is located over such operating
costs for the calendar year 1993 ("base cost year").
The term "operating costs" shall mean those costs and
expenses of Landlord which, in accordance with generally accepted accounting
principles as applied to the management, operation and maintenance of office
building, are properly chargeable to the management, operation and maintenance
of the building in which the premises is located. Such expenses shall include
but not be limited to, all management office expenses and management fees,
repairs other than repairs constituting capital expenditures, garbage and waste
disposal, energy savings devices, insurance premiums (including earthquake
insurance premiums), license, permit and inspection fees, utility and sewer
usage taxes and charges (as distinguished from charges for utilities), heat,
light, water, power, steam, air conditioning and other services, janitorial
services, elevator and other maintenance contracts, security guards, and
facilities and contracts relating thereto.
(ii) Taxes. Tenant shall pay to Landlord, at the time
hereinafter set forth in this subparagraph (b), 1.577 percent (1.577%) of any
increase in property taxes (as that term is hereinafter defined) for the
building in which the premises is located over and above such property taxes for
the base year July 1, 1992 to June 30, 1993.
The term "property taxes" shall include but not be
limited to real and personal property taxes (secured and unsecured), any tax or
charge levied wholly or partly in lieu of real or personal property taxes,
general and special assessments, business taxes, gross receipts taxes, taxes or
charges on rentals (as distinguished from rents), governmental charges or levies
of any kind and nature for public improvements, services or benefits whether or
not such charges or levies became a lien on the premises and the cost of
contesting by appropriate proceedings the amount or validity of any of the
aforementioned taxes and charges; only
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excluding from the foregoing those taxes on the net income of Landlord commonly
referred to as income taxes, unless such income tax is in lieu of any of the
aforementioned taxes or charges, and taxes otherwise included in operating
costs. Should, at any time during the term of this lease, property taxes
decrease below the 1992-93 base year, Landlord shall adjust property tax base
rate to the then current tax base rate.
(iii) Estimated Monthly Payments. Tenant shall pay to
Landlord an amount estimated by Landlord to be Tenant's share of operating costs
and property taxes payable pursuant to this subparagraph (b) for the then
current year. Such payment shall be made on the first day of each month during
the term, commencing on the date the term commences or on the first day of the
month following the month the term commences if the term commences on a day
other than the first day of the month, and shall be one-twelfth (1/12th) of the
operating costs and property taxes which are estimated to be payable for the
then current year.
Landlord shall calculate such sum payable hereunder
based upon the operating costs and property taxes paid by Landlord during the
respective year immediately preceding the year in which the payment is to be
made hereunder. Landlord shall have the right to increase such calculations from
time to time based upon any changes in operating costs and property taxes.
(iv) Annual Determination and Adjustment. Within one
hundred-twenty (120) days after the end of each calendar year, including the
calendar year in which this lease expires or terminates, Landlord shall furnish
to Tenant a statement of the total operating costs and property taxes for the
calendar year and Tenant's share of any increases payable pursuant to this
subparagraph (b). If Tenant's share of any such increases exceeds the monthly
payments made by Tenant pursuant to this subparagraph (b), Tenant shall pay
Landlord the deficiency within ten (10) days after receipt of such statement;
and if Tenant's share of any such increases is less than the monthly payments
made by Tenant pursuant to this subparagraph (b), Landlord shall pay Tenant the
excess at the time Landlord furnished such statement to Tenant. Tenant shall
make such payments whether or not Tenant occupies the premises when such
payments are due.
The annual determination and statement of operating
costs and property taxes shall be made by a certified public accountant selected
by Landlord. The
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statement of said certified public accountant shall be final and binding upon
Landlord and Tenant.
(c) Tenant shall pay as additional rent, within ten (10) days
after Landlord renders statements of account therefore, any and all other sums
required to be paid under this lease whether or not the same may be designated
as additional rent.
5. Landlord shall provide:
(a) Janitorial Service. Janitorial service in and about the
premises. If Tenant or tenants who occupy an entire floor so desire, and if
Landlord agrees, said Tenant or tenants may provide his or their own janitorial
service subject always to the supervision of Landlord, but at the sole
responsibility and cost of Tenant or tenants.
(b) Heat, Air-Conditioning. When in Landlord's reasonable
judgment heat and/or air-conditioning is necessary for comfortable occupation of
the premises, it will be furnished during normal business hours, except on
Saturdays, Sundays and holidays, subject, however, to applicable governmental
laws, rules and regulations. Holidays are defined to include all of those days
so indicated in the contract negotiated by Building Owners and Managers
Association with the representative unions during the year, so long as such
holidays are reasonable in number and duration and heat and/or air-conditioning
will be provided on those days that the general business community of the area
is open for business. If Tenant desires HVAC during other than regular business
hours, Landlord shall use reasonable efforts to furnish such service upon a
twenty-four hour notice from Tenant and Tenant shall pay Landlord's charges
therefor on demand.
(c) Water. Water for ordinary purposes connected with Tenant's
stated use of the premises, drawn through fixtures installed by Landlord or by
Tenant with Landlord's written consent. Tenant shall pay at prevailing rates for
water used for any purpose other than ordinary purposes.
(d) Elevator Service. Elevator service will be furnished at
all times except when closed for repairs, maintenance or cleaning.
(e) Electricity. Except as provided in subparagraph (b) of
Paragraph 4, Landlord will make no charge for reasonable use of electric current
for lighting purposes,
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ordinary office machines and computer systems. Tenant shall pay for the quantity
used by Tenant beyond the normal business hours at rates fixed by the public
utility company furnishing electric current to the building in which the
premises is located. Tenant's failure to pay promptly Landlord's proper charges
for electricity shall entitle Landlord upon not less than ten (10) days' notice
to discontinue furnishing electric current to Tenant and no such discontinuance
shall be deemed an eviction or disturbance of Tenant's use of the premises, or
render Landlord liable for damages or relieve Tenant from performance of
Tenant's obligations.
(f) Toilet Facilities. Toilet facilities for both men and
women. Landlord does not warrant that any of the above mentioned, or Tenant's
possession, occupation or use of the premises will be free from interruptions
caused by repairs, renewals, improvements, alterations, strikes, lockouts,
accidents, inability of Landlord to obtain fuel or supplies, or other cause or
causes beyond the reasonable control of Landlord. Any such interruption of
service, or Tenant's possession, occupation or use of the premises, shall never
be deemed an eviction or disturbance of Tenant's use and possession of the
premises or any part thereof, or render Landlord liable to Tenant for damages,
or relieve Tenant from performance of Tenant's obligations under this lease.
(g) Normal Business Hours. Normal business hours for the
building are 7:00 a.m. to 6:00 p.m. Monday through Friday. Excepting legal
holidays, Landlord reserves the right to close and keep locked all entrance and
exit doors of the building at all other times and during such further hours as
Landlord may deem advisable for the adequate protection of the building and the
property of its Tenants.
6. Landlord's Title. Landlord's title is and always will be paramount
to the title of Tenant, and nothing herein contained shall empower Tenant to do
any act which can, shall or may encumber the title of Landlord.
7. Certain Rights Reserved Landlord. Landlord reserves the following
rights: (a) to change the name or street address of the premises without notice
or liability of Landlord to Tenant; (b) to designate all sources furnishing sign
painting and lettering, mineral water, towels and toilet supplies used on the
premises; (c) during the last ninety (90) days of the term or any
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<PAGE>
part thereof, if during or prior to that time Tenant vacates the premises, to
decorate, remodel, repair, alter or otherwise prepare the premises for
occupancy; (d) to at all times have pass keys to the premises; (e) to grant the
exclusive right to conduct any particular business or undertaking in the
premises; (f) to provide such security in the building in which the premises is
located during normal business hours as in its discretion Landlord deems
necessary; (g) to enter the premises at all reasonable hours for inspections,
repairs, alterations or additions to the premises, and during the last one
hundred-eighty (180) days of this lease to exhibit the premises to others and to
display "For Rent" signs; and (h) to enter the premises for any purpose
whatsoever related to the safety, protection, and preservation of the premises
or Landlord's interest and to require temporary evacuation of all personnel from
the premises in the event of any emergency, whether real or threatened, all
without being deemed guilty of an eviction or disturbance of Tenant's use and
possession and without being liable in any manner to Tenant.
8. Default Under Other Lease. If the term of any lease, other than this
lease, made by Tenant in the premises, shall be terminated or terminable, after
the making of this lease, because of any default by Tenant under such other
lease, such fact shall empower Landlord, at Landlord's sole option, to terminate
this lease by notice to Tenant.
9. Waiver of Certain Claims. Landlord shall not be liable, and Tenant
waives all claims, for damages to person or property sustained by Tenant or any
occupant or visitor of or to the premises, resulting from the premises or any
part of it or any equipment or appurtenance becoming out of repair, or resulting
from any accident in or about the premises, or resulting directly or indirectly
from any act or neglect of any tenant or occupant of the premises or of any
other person including any act of Landlord or his agent in connection with
security in the building in which the premises is located, except that due to
Landlord's or his agents' willful misconduct or negligence. Without limiting the
generality of the foregoing, such limitation and waiver shall include damage
caused by water, snow, frost, steam, excessive heat or cold, sewage, gas odors
or noise or the bursting or leaking of pipes or plumbing fixtures and shall
apply equally whether any such damage results from the act or neglect of other
tenants, occupants or servants of the premises or of any other person, and
whether such damage be
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caused or result from any thing or circumstance above mentioned or referred to,
or any other thing or circumstance whether of a like nature or of a wholly
different nature. If any such damage results from any willful misconduct or
negligence of Tenant, Landlord may, at Landlord's option, repair such damage,
whether caused to the premises or to tenants thereof, and Tenant shall thereupon
pay to Landlord the total cost of such repairs and damages, both to the premises
and to the tenants thereof. Tenant covenants and agrees to indemnify and save
Landlord harmless against and from any and all loss, cost, damage, claim,
liability or expense including, but not limited to, reasonable attorney's fees,
arising out of or resulting from any injury or claim of injury of any nature or
sort whatsoever to any person or property suffered or received in or about the
premises at any time during the term hereof including any damage in connection
with security in the building in which the premises is located, or resulting
from any willful misconduct or negligence of Tenant in the premises which may
cause injury to persons or property outside of the premises, or arising out of
any failure of Tenant in any respect to comply with any of the requirements or
provisions of this lease; provided, however, such indemnity shall exclude
matters resulting from Landlord's willful misconduct or negligence. All personal
property belonging to Tenant or any occupant of the premises shall be there at
the risk of Tenant or such other person only, and Landlord shall not be liable
for any damage thereto or the theft or misappropriation thereof.
10. Holding Over. If tenant holds possession hereunder after expiration
of the terms of this lease, without prior written consent of Landlord, Tenant
shall, at the option of Landlord, become a tenant from month to month at a
monthly rate 50 percent (50%) higher than the then prevailing rental paid by
Tenant at the expiration of the term of this lease. The foregoing shall not be
considered a waiver of Landlord's rights of reentry or any other right
hereunder.
11. Assignment and Subletting.
(a) Tenant shall not (i) assign or convey this lease or any
interest under it; (ii) allow any transfer hereof or any lien upon Tenant's
interest by operation of law; (iii) sublet the premises or any part thereof, or
(iv) permit the use or occupancy of the premises or any part thereof by any one
other than Tenant; provided, however, Tenant may assign a Tenant's interest
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in this lease with the prior written consent of Landlord, which consent shall
not be unreasonably withheld. Landlord, as a condition for Landlord's consent to
any assignment, may require the assignee to assume in writing all of the terms
and conditions of this lease on the part of Tenant to be performed. If Landlord
shall consent to any assignment, neither Tenant nor any assignee shall be
relieved of any liability hereunder and in the event of default by any assignee
in the performance of any of the terms hereof, no notice of such default or
demand of any kind need be served on Tenant or assignee to hold him or them
liable to Landlord. Landlord may consent to subsequent assignments without
notifying Tenant or any assignee and without obtaining his or their consent
thereto. Consent to any such assignment shall not operate as a waive of the
requirement of the consent of Landlord to any subsequent assignment.
(b) (i) In the event that Tenant shall, at any time or times
during the term of this lease, assign this lease or sublet all or part of the
premises, Tenant shall pay to Landlord an amount equal to 50 percent (50%) of
all bonus rent received by Tenant directly or indirectly in respect of such
assignment or sublease. For this purpose, "bonus rent" shall mean, in the case
of an assignment, all consideration so received in excess of the rents and
charges reserved under this lease, as reduced by the following costs and
expenses incurred in connection with the assignment or sublease: a reasonable
brokerage commission, reasonable attorneys' fees, reasonable advertising and
other costs, the cost of improvements installed by Tenant at its sole cost in
connection with a sublease, which cost shall, for purposes of calculating the
amount of bonus rent and the installments thereof payable to Landlord, be
amortized over a period beginning upon the effective date of the sublease and
ending upon the expiration of the term hereof, or if later, upon the date that
the term would end if Tenant exercised each and all of the options to extend the
term herein provided.
(ii) The aforesaid percentage of each payment or
installment of bonus rent shall be paid to Landlord at the time such payment or
installment is payable pursuant to the terms of the assignment, sublease or
other agreement or arrangement. The assignee or sublessee shall, upon assuming
the obligations of Tenant under this lease, become jointly and severally liable
to Landlord for the payment of Landlord's share of Bonus Rent.
(iii) In the event that Landlord and Tenant are
unable to agree on the amount of bonus rent, the amount thereof shall be
determined by an appraisal of 100 percent
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(100%) of the then fair market rental value of the premises or, in the event of
a sublease of less than all of the premises, the then fair market rental value
of the portion of the premises subleased.
12. Condition of Premises. Within fifteen (15) days after Tenant's
taking possession of the premises it shall be considered conclusive evidence as
against Tenant that the premises were in good order and satisfactory condition
when Tenant took possession. No promise of Landlord to alter, remodel or improve
the premises and no representation respecting the condition of the premises has
been made by Landlord to Tenant, unless the same is contained herein, or made a
part hereof by attachment as Exhibit "B", entitled "Work Letter". Tenant waives
all right to make repairs at the expense of Landlord, or to deduct the cost
thereof from the rent. This lease does not grant any rights to light, air or
view over property. At the termination of this lease by lapse of time or
otherwise, Tenant shall return the premises in as good condition as when Tenant
took possession, ordinary wear and loss by fire excepted; failing which,
Landlord shall restore to such condition and Tenant shall pay the cost thereof.
Tenant may remove any floor covering laid by Tenant, provided (a) Tenant also
removes all nails, tacks, paper, glue, bases and other vestiges of the floor
covering, and restores the floor surface to the condition existing before such
floor covering was laid, or (b) Tenant pays to Landlord, upon request, the cost
of restoring the floor surface to such condition. If Tenant does not remove
Tenant's floor coverings, radiator covers, drapes, built-in furniture and/or
appliances and other like equipment from the premises prior to the end of the
term, Tenant shall be conclusively presumed to have abandoned the same and title
thereto shall thereby pass to Landlord without payment or credit by Landlord to
Tenant.
13. Alterations. Tenant shall not make any alterations in or additions
to the premises without Landlord's prior written consent in each and every
instance, and, if such consent be sought, shall comply, before any work is done
or any materials are delivered on the premises or into the building in which the
premises is located, with Landlord's request for plans, specifications, names of
contractors, copies of contracts, necessary permits, and indemnification against
liens, costs, damages and expense of all kinds, and shall submit to Landlord's
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supervision over operations during construction. Tenant shall notify Landlord in
writing at least five (5) days in advance of commencement of construction in
order to give Landlord time to post Notices of Non-responsibility, and Tenant
shall keep the premises free of any liens or encumbrances in any event. Tenant
shall carry adequate liability insurance to protect Landlord against any and all
damage or loss suffered by anyone resulting from any such alterations or
construction work; and said insurance policy or policies shall name Landlord as
an additional insured. All additions, hardware, fixtures or improvements,
temporary or permanent, except movable furniture and equipment belonging to
Tenant, in or upon the premises, whether installed by Tenant or Landlord, shall
be Landlord's property and shall remain upon the premises upon termination of
the term of this lease by lapse of time or otherwise, all without compensation,
allowance or credit to Tenant. Tenant shall have the right to remove said
movable furniture and equipment belonging to Tenant prior to the termination of
the term or Tenant's right of possession only if Tenant is then not in default.
Landlord shall have a lien on said moveable furniture and equipment to secure
the performance of Tenant's covenants hereunder, but such lien shall not deprive
Landlord of the right to attachment or any other creditor's rights given by law
in the absence of security, or other remedies provided in this lease.
14. Use of Premises. Tenant will occupy and use the premises during the
term for the purpose above specified and none other; will not exhibit, sell or
offer for sale on the premises any article or thing whatsoever (except those
articles and things essentially connected with the stated use of the premises)
without the prior written consent of Landlord; will not make or permit any use
of the premises which, directly or indirectly, is forbidden by public law,
ordinance or governmental regulation or which may be dangerous to life, limb or
property; will not use or permit the use of any loud speakers or other similar
devices or system or of any equipment or apparatus which may be heard outside
the premises and will comply with the rules and regulations attached hereto as
Exhibit "C" and made a part hereof, and such other reasonable rules and
regulations as Landlord may hereafter adopt and make known to Tenant by written
notice.
Tenant shall not do or permit anything to be done in or about the
premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any
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fire or other insurance upon the building in which the premises is located or
any of its contents, or cause any cancellation of any insurance policy covering
said building or any part thereof of any of its contents. Tenant shall not do or
permit anything to be done in or about the premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
building in which the premises is located or injure or annoy them or use or
allow the premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the premises. Tenant shall not commit or suffer to be committed
any waste in or upon the premises. The provisions of this Paragraph 14 are for
the benefit of Landlord only and are not nor shall they be construed to be for
the benefit of any tenant or occupant of the building in which the premises is
located.
15. Repairs. Subject to the terms and provisions of Paragraph 16
hereof, Tenant shall, at Tenant's own expense, keep the premises in good order,
condition and repair during the term, including the replacement of all broken
glass with glass of the same size and quality, under the supervision and with
the approval of Landlord. If tenant does not make repairs promptly and
adequately, Landlord may, but need not, make repairs and Tenant shall pay
promptly the reasonable cost thereof. At any time or times, Landlord, either
voluntarily or pursuant to government requirement, may, at Landlord's own
expense, make repairs, alterations or improvements in or to the premises or any
part thereof, and, during operations, may close entrances, doors, corridors,
elevator or other facilities, all without any liability to Tenant by reason of
interference, inconvenience or annoyance. Landlord shall not be liable to tenant
for any expense, injury, loss or damage resulting from work done in or upon, or
the use of any adjacent or nearby building, land, street or alley. Tenant shall
pay Landlord for overtime and for other expense incurred in the event repairs,
alterations, decorating or other work in the premises are not made during
ordinary business hours at Tenant's request.
The foregoing provisions of this Paragraph 15 are subject to this
qualification: Tenant's obligation to replace broken glass shall be limited to
instances in which the breakage is caused by Tenant, Tenant's employees or other
persons under the control or supervision of Tenant.
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Notwithstanding the provisions above, Landlord shall repair and
maintain the structural portions of the building, including basic plumbing,
heating, air conditioning, ventilation and electrical systems.
16. Untenantability. In the event the premises or the building in which
the premises is located is damaged by fire or other casualty, Landlord shall
forthwith repair the same provided such repairs can be made within sixty (60)
days under the laws and regulations of the state, federal, county and municipal
authorities and this lease shall remain in full force and effect except that
Tenant shall be entitled to a proportionate reduction of rent while such repairs
are being made, such proportionate reduction to be based upon the extent to
which the making of such repairs shall interfere with the business carried on by
Tenant in the premises. If such repairs cannot be made within sixty (60) days,
Landlord shall have the option to either (a) repair and restore such damage,
this lease continuing in full force and effect, but the rent to be
proportionately reduced as hereinabove in this Paragraph 16 provided, or (b)
give notice to Tenant at any time within thirty (30) days after such damage
terminating this lease as of a date to be specified in such notice, which date
shall not be less than thirty (30) days nor more than sixty (60) days after the
giving of such notice. In the event of the giving of such notice, this lease
shall terminate on such date so specified in such notice and the rent, reduced
by any proportionate reduction based upon the extent, if any, to which same
damage interfered with the business carried on by Tenant in the premises, shall
be paid up to the date of such termination, Landlord agreeing to refund to
Tenant any rent theretofore paid for any period of time subsequent to such date.
Landlord shall not be required to repair any injury or damage by fire or other
cause to the property of Tenant, or to make any repairs or replacement of any
panelling, decorations, partitions, railing, ceilings, floor covering, or any
improvements installed on the premises by Tenant.
During the last twelve (12) months of the term of this Lease in the
event that the premises are damaged to such extent that they cannot reasonably
be repaired and restored within six (6) months following the casualty, then
Tenant shall have the right to terminate this Lease by written notice given to
Landlord not later than thirty (30) days after such casualty.
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The provisions of Section 1932, Subdivision 2, and 1933, Subdivision 4
of the Civil Code of California are hereby waived by Tenant.
17. Eminent Domain. If the whole or any substantial part of the
premises shall be taken or condemned by any competent authority for any public
use or purpose, the term of this lease shall end upon, and not before, the date
when the possession of the part so taken shall be required for such use or
purpose. Current rent shall be apportioned as of the date of such termination
but the entire award shall be the property of Landlord without apportionment and
Tenant shall have no claim against Landlord or the condemning authority for the
value of the unexpired term of this lease. Notwithstanding, Landlord will have
no interest in any award for Tenant's personal property, moving expenses, or
interruption of Tenant's business. Tenant waives the provisions of Sections
1265.110 through 1265.160 of the Code of Civil Procedure of California.
18. Compliance With Law.
(a) Tenant shall, at its sole cost and expense, comply with
all of the requirements of all municipal, state and federal authorities now in
force, or which may hereafter be in force, pertaining to the premises, and shall
faithfully observe in the use of the premises all municipal ordinances and state
and federal statutes now in force or which may hereafter be in force. The
judgement of any court of competent jurisdiction, or the admission of Tenant in
any action or proceeding against Tenant whether Landlord be a party thereto or
not, that Tenant has violated any such ordinance or statute in the use of the
premises, shall be conclusive of that fact as between Landlord and Tenant.
(b) Tenant shall, at its sole cost and expense, comply with
all federal, state or local laws from time to time in effect ("Environmental
Laws") concerning hazardous, toxic or radioactive materials ("Hazardous
Materials"), including but not limited to, chemicals known to cause cancer or
reproductive toxicity. Tenant shall not cause or permit the use, generation,
storage or disposal in or about the premises or the building in which the
premises is located of any Hazardous Materials, unless Tenant shall have
received Landlord's prior written consent therefor, which Landlord may withhold
or revoke at any time in its sole discretion. Tenant shall
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<PAGE>
advise Landlord in writing of any use, generation, storage or disposal of
Hazardous Materials, and Tenant shall immediately notify Landlord of any
violation, inspection or enforcement proceeding under any Environmental Laws,
concerning Tenant or the premises, of which Tenant becomes aware. Tenant shall
make available to Landlord such information and records as Landlord may request
concerning the matters described in this subparagraph (b), and Tenant shall
permit Landlord to inspect the premises and any and all governmental agency
files and records relating to Tenant or the premises that concern Hazardous
Materials and to conduct investigations and tests concerning Hazardous
Materials. Tenant shall pay to Landlord as additional rental under this Lease,
within ten (10) days after Landlord sends Tenant an invoice therefor, the amount
of all costs and expenses incurred by Landlord by reason of Tenant's breach of
its obligations under this subparagraph or any investigation or tests done by
Landlord by reason of Tenant's use and occupancy of the premises.
19. Default.
(a) Except as otherwise provided in subparagraph (b) of this
paragraph 19, if Tenant breaches this lease or abandons the premises before the
end of the term or if Tenant's right to possession of the premises is terminated
by Landlord because of a breach of this lease by Tenant, this lease shall
terminate. Upon such termination Landlord may recover from Tenant (i) the worth
at the time of award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent, which would have been earned after termination until the time of
award, exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; (iii) the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform Tenant's obligations under the
lease or which in the ordinary course of events would be likely to result
therefrom.
Efforts by Landlord to mitigate the damage caused by Tenant's
breach of this lease shall not waive Landlord's right to recover damages under
this subparagraph (a).
14
<PAGE>
(b) Should Landlord, following any breach or default under
this lease by Tenant, elect to keep this lease in full force and effect, with
Tenant retaining the right to possession of the premises (notwithstanding the
fact Tenant may have abandoned the premises), then besides all other rights and
remedies Landlord may have at law or equity, Landlord shall have the right to
enforce all of Landlord's rights and remedies under this lease, including, but
not limited to, Landlord's right to recover the rent as it becomes due under
this lease. Notwithstanding any such election to have this lease remain in full
force and effect, Landlord may at any time thereafter elect to terminate
Tenant's right to possession of the premises and thereby terminate this lease
for any previous breach or default which remains uncured or for any subsequent
breach or default.
For the purpose of this subparagraph (b), the following shall
not constitute termination of Tenant's right to possession; (i) acts of
maintenance or preservation or efforts to relet the premises; or (ii) the
appointment of a receiver upon initiative of Landlord to protect Landlord's
interest under this lease.
20. Insolvency or Bankruptcy. Either (a) the appointment of a receiver
to take possession of all or substantially all of the assets of Tenant or (b) an
assignment by Tenant for the benefit of creditors or (c) any action taken or
suffered by Tenant under any insolvency, bankruptcy or reorganization act, shall
constitute a breach of this lease by Tenant. Upon the happening of any such
event, this lease shall terminate five (5) days after written notice of
termination from Landlord to Tenant. In no event shall this lease be assigned or
assignable by operation of law or by voluntary or involuntary bankruptcy
proceedings or otherwise in no event shall this lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings.
21. Notices. All notices and demands which may or are required to be
given to Tenant shall be in writing and shall be delivered personally or sent by
United States Registered or Certified Mail, postage prepaid, addressed to Tenant
at the premises, or to such other address as may be designated by written notice
delivered by Tenant to Landlord. All notices and demands by Tenant to Landlord
shall be in writing and shall be delivered personally or sent by
15
<PAGE>
United States Registered or Certified Mail, postage prepaid, addressed to
Landlord at 500 Sansome Street, Suite 303, San Francisco, California 94111, or
at such other address as may be designated by written notice delivered by
Landlord to Tenant.
22. Subordination of Lease. This lease shall be subject and subordinate
at all times to all ground or underlying leases which may now exist or hereafter
be executed affecting the premises or any building in which the premises is
located or the land upon which the premises or said building is situated and to
the lien of any mortgages and deeds of trust (and any amendments thereof or
thereto) in any amount or amounts whatsoever now or hereafter placed on or
against the premises or building in which the premises is located or land on
which the premises or said building is situated, or on or against Landlord's
interest or estate herein or on or against any ground or underlying lease,
without the necessity of having further instruments on the part of Tenant to
effectuate such subordination. Notwithstanding the foregoing, Tenant covenants
and agrees to execute and deliver upon demand such further instruments
evidencing such subordination of this lease to such ground or underlying leases
and to the lien of any such mortgages or deeds of trust as may be required by
Landlord. If any mortgagee or beneficiary under a deed of trust elects to have
this lease superior to its mortgage or deed of trust, then upon delivery of
notice thereof to Tenant by Landlord, this lease shall be superior to the lien
of any such mortgage or deed of trust. Tenant hereby appoints Landlord the
Attorney-in-Fact of Tenant irrevocably to execute and deliver any instrument or
instruments for or in the name of Tenant required to effectuate any of the
foregoing.
Tenant agrees upon not less than ten (10) days prior request by
Landlord to execute, acknowledge and deliver to Landlord a statement in writing
certifying that this lease is unmodified and in full force and effect, (or if
there have been modifications that the same are in full force and effect as
modified and stating the modifications) and, if so, the dates to which the rent
and other charges have been paid in advance, if any, it being intended that any
such statement delivered pursuant to this paragraph 22 may be relied upon by any
prospective purchaser, mortgagee, or beneficiary under any deed of trust or any
assignee or successor to any thereof.
16
<PAGE>
23. Taxes Payable by Tenant. Tenant shall pay, before delinquency, any
and all taxes levied or assessed and which become payable during the term hereof
upon Tenant's equipment, furniture, fixtures and other personal property located
in the premises.
24. Miscellaneous.
(a) No receipt of money by Landlord from Tenant after the
termination of this lease or after the service of any notice or after the
commencement of any suit, or after final judgment for possession of the
premises, shall reinstate, continue or extend the term of this lease or affect
any such notice, demand or suit.
(b) No waiver of any default of Tenant hereunder shall be
implied from any omission by Landlord to take any action on account of such
default if such default persists or be repeated, and no express waiver shall
affect any default other than the default specified in the express waiver and
that only for the time and to the extent therein stated. The validity or
unenforceability of any provision hereof shall not affect or impair any other
provision.
(c) In the absence of fraud, no person, firm or corporation,
or the heirs, legal representatives, successors and assigns, respectively,
thereof executing this lease as agent, trustee or in any other representative
capacity shall ever be deemed or held individually liable hereunder for any
reason or cause whatsoever.
(d) The words "Landlord" and "Tenant" wherever used in this
lease shall be construed to mean Landlords or Tenants in all cases where there
is more than one Landlord or Tenant, and the necessary grammatical changes
required to make the provisions hereof apply either to corporation or
individuals, men or women, shall in all cases be assumed as though in each case
fully expressed.
(e) Submission of this instrument for examination does not
constitute a reservation of or option for the premises. The instrument becomes
effective as a lease upon execution and delivery by both Landlord and Tenant.
(f) Tenant shall not allow any liens nor encumbrances to be
placed or remain against his property on the premises or against the premises,
insofar as such liens or encumbrances may be asserted by reason of Tenant's acts
or occupation or use of the premises. In case any taxing authority shall, during
the term of this lease or any extension thereof, levy
17
<PAGE>
or assess against the above described area or space occupied by Tenant or
against the rent herein reserved or the interest of Tenant hereunder, any
character of tax (except income tax), assessment against the same by such taxing
authority, then and in that event, Tenant shall, in addition to the rent herein
reserved pay to Landlord on demand the amount of such tax, assessment or
license.
(g) Tenant covenants and agrees that if the display of any
article exhibited by him in the show windows on the outside, in or about said
premises, or the display of any signs or placards in or on the premises at any
time or times during the term hereof shall be objected to by Landlord, and if
notice in writing is given by Landlord or its agents of said objection or
objections, Tenant will immediately and as often as such notices are received,
remove such display or such articles or signs or placards objected to and
failing so to do, expressly agrees that Landlord or its agents may enter the
premises, remove the article, sign or placard objected to, using such force as
may be necessary so to do without being deemed guilty of any forcible entry,
detainer or trespass.
(h) Provisions inserted herein or affixed hereto shall not be
valid unless appearing in the duplicate original hereof held by Landlord. In the
event of variation or discrepancy, Landlord's duplicate shall control.
(i) Time is of the essence in this lease.
25. Alterations by Landlord. Landlord is not obligated to make any
alterations or improvements in the premises for the benefit of Tenant (except as
hereinafter expressly provided in Paragraph 32).
26. Insurance. Throughout the term hereof, Tenant shall procure and
maintain public liability insurance, naming Landlord and Landlord's Agent as
coinsured, in the sum of $500,000 for injury or death to any one person and
$1,000,000 for injury or death to more than one person or damage to the property
in any one occurrence covering the premises. In the event Tenant fails to
procure and maintain such insurance in force through the term hereof, Landlord
may, at its election, procure insurance of such coverage at the expense of
Tenant, and the sums
18
<PAGE>
paid by Landlord therefor shall be considered as rent and added to the rental
due for the month immediately following the procurement thereof.
All insurance required hereunder shall:
(a) Contain an endorsement requiring twenty (20) days' written
notice from the insurance company to both Landlord and Tenant before
cancellation or change in the coverage, scope or amount of any policy;
(b) Be issued by insurance companies authorized to do business
in the State of California with a financial rating of at least an A-X status as
rated in the most recent edition of Best's Insurance Reports; and
(c) Be issued as a primary policy. Each policy, or a
certificate of the policy, together with evidence of payment of premiums, shall
be delivered to Landlord and Landlord's Agent at the commencement of the term,
and on renewal of the policy not less than twenty (20) days before expiration of
the term of the policy.
27. Attorney's Fees. In case suit shall be brought for any unlawful
detainer of the premises or for the recovery of any rent due under the
provisions of this lease or because of the breach of any other covenant herein
contained on the part of Tenant or Landlord to be performed, the party
prevailing in such suit shall be entitled to its reasonable attorneys' fees to
be paid by the unsuccessful party which fee shall be fixed by the court.
28. Successors and Assigns. The covenants and conditions herein
contained shall, subject to the provisions as to assignment, apply to and bind
the heirs, successors, executors, administrators and assigns of all the parties
hereto; and the respective parties hereto shall be jointly and severally liable
hereunder.
29. Surrender of Lease. The voluntary or other surrender of this lease
by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of Landlord, terminate all or any existing subleases or
subtenancies, or may, at the option of Landlord, operate as an assignment to
Landlord of any or all such subleases or subtenancies.
19
<PAGE>
30. Captions. The captions of this lease are for convenience only and
are not a part of this lease and do not in any way limit or amplify the terms
and provisions of this lease.
31. Sale by Landlord. In the event of a sale or conveyance by Landlord
of the building in which the premises is located, the same shall operate to
release and relieve Landlord from any future liability upon any of the covenants
or conditions, express or implied, herein contained in favor of Tenant, and in
such event, Tenant agrees to look solely to the responsibility of the successor
in interest of Landlord in and to this lease.
32. Improvements to Premises. Space to be taken in "as is" condition.
33. Energy Conservation. Tenant and Tenant's employees and agents shall
participate in any energy conservation program established by Landlord, which
program may include such procedures as turning off lighting when not needed and
office machines when not used. In the event of a mandatory conservation program,
Tenant shall comply with such program.
34. Late Charges. Tenant acknowledges that late payment by Tenant to
Landlord of rent will cause Landlord to incur costs not contemplated by this
lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs may include, without limitation, processing and
accounting charges and late charges that may be imposed on Landlord by the terms
of any note or encumbrance covering the premises. Accordingly, if any
installment of rent due from Tenant is not received by Landlord when due, Tenant
shall pay to Landlord an additional sum of 6 percent (6%) of any such overdue
rent payment as a late charge. The parties agree that the late charge represents
a fair and reasonable estimate of the cost that Landlord will incur by reason of
late payment by Tenant. Acceptance of any late charge by Landlord shall not
constitute a waiver of Tenant's default with respect to the overdue amount or
prevent Tenant from exercising any of the other rights and remedies available to
Landlord.
35. Additional Charges. Tenant shall pay to Landlord upon demand, but
no later than the next rental payment, any charges occasioned by Tenant's
business or use of the premises
20
<PAGE>
which result in additional costs or charges to Landlord not otherwise provided
hereunder. Such costs and charges shall include, but not be limited to, the
charges for security services in addition to those otherwise provided by
Landlord.
36. Right to Expand. Lessor will make its best effort to accommodate
Lessee's possible expansion desires during the term of the lease. In the event
larger accommodations are secured within the 500 Sansome Street Building during
the term of this lease, the lease for this larger space will supersede the lease
for Suite 503 and the lease for Suite 503 will become null and void.
37. Landlord's Right to Terminate. If Landlord determines to demolish
the building in which the premises is located, or undertake a major remodeling
of 50 percent (50%) or more of the office space in such building, then, in
either event, Landlord shall have the right, exercisable at any time, to
terminate and cancel this lease without penalty or compensation. Landlord shall
exercise its right to terminate by written notice to Tenant given at least
one-hundred-eighty (180) days prior to the effective date of termination, which
notice shall be accompanied by a copy of a building or demolition permit
authorizing Landlord to demolish or remodel the building.
38. Landlord's Right to Relocate. Landlord, at Landlord's sole cost and
expense, shall reserve the right to relocate Tenant to a different location
within the building.
39. Security Deposit. As stated in Paragraph 4 (a) above, the Tenant
shall deposit with Landlord a security deposit in the amount of Nine Thousand
Three Hundred Twelve Dollars ($9,312.00) for the performance by Tenant of the
provisions of this lease. If Tenant is in default, Landlord can use security
deposit, or any portion of it, to cure the default or to compensate Landlord for
any damage sustained by Landlord resulting from Tenant's default. Tenant shall
immediately on demand pay to Landlord a sum equal to the portion of the security
deposit expended or applied by Landlord as provided in this paragraph so as to
maintain the security deposit in the sum initially deposited with Landlord.
Landlord's obligations with
21
<PAGE>
respect to the security deposit are those of a debtor and not a trustee.
Landlord can maintain the security deposit separate and apart from Landlords's
general funds or can commingle the security deposit with Landlord's general and
other funds. Landlord shall not be required to pay Tenant interest on the
security deposit.
IN WITNESS WHEREOF, the parties have executed and delivered this Lease
as of the day and year first above written.
LANDLORD:
500 SANSOME STREET COMPANY,
a limited partnership
By: L&B INSTITUTIONAL PROPERTY
MANAGERS OF CALIFORNIA, INC.,
a California corporation, Its
Managing Agent
By: /s/ Kathy Hannon
-----------------------------------------
Its: Senior Vice President
----------------------------------------
Name: Kathy Hannon
---------------------------------------
TENANT:
INSTANT VIDEO TECHNOLOGIES, INC.
a Delaware co ration,
By: /s/ Wayne Van Dyck
-----------------------------------------
Its: Chief Executive Officer
----------------------------------------
Name: Wayne Van Dyck
---------------------------------------
22
<PAGE>
EXHIBIT "A"
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "B"
WORK LETTER
Space to be taken in "as is" condition.
<PAGE>
EXHIBIT "C"
RULES AND REGULATIONS
A. The Tenant shall not display, inscribe, print, paint, maintain or
affix on any place in or about the premises any sign, notice, legend, direction,
figure or advertisement, except on the doors of the premises and on the
Directory Boards of the building and floors and then only such name or names and
matter, and in such color, size, style, place and material as shall first have
been approved by the Landlord in writing.
B. The Tenant shall not advertise the business, profession, or
activities of the Tenant conducted in the building in any manner which violates
the letter or spirit of any code of ethics adopted by any recognized association
or organization pertaining to such business, profession or activities, and shall
not use the address of the premises for any purpose other than that of the
business address of the Tenant and shall never use any picture or likeness of
the premises in any circulars, notices, advertisements or correspondence without
the Landlord's express consent in writing. Any violation of this Rule may be
restrained by injunction.
C. The Tenant shall not obstruct, or use for storage, or for any
purpose other than ingress and egress, the sidewalks, entrances, passages,
courts, corridors, vestibules, halls, elevators, and stairways of the building.
D. No bicycle or other vehicle and no animal or bird shall be brought
or permitted to be in the building or any part thereof.
E. The Tenant shall not make or permit any noise or odor that is
objectionable to other occupants of the premises to emanate from the premises,
and shall not create or maintain a nuisance thereon, and shall not disturb,
solicit or canvass any occupant of the building, and shall not do any act
tending to injure the reputation of the premises.
F. The Tenant shall not install or operate any phonograph, musical
instrument or similar devise on the premises, or any antennae, aerial wires or
other equipment inside the premises, without, in each and every instance, prior
approval in writing by the Landlord to the end that others shall not be
disturbed or annoyed.
G. The Tenant shall not place or permit to be placed any article of any
kind on the outside window ledges or elsewhere on the exterior walls, and shall
not throw or drop or permit to be thrown or dropped any article from any window
of the building.
H. The Tenant shall not waste water by tying, wedging or otherwise
fastening open any faucet.
I. No additional locks or similar devises shall be attached to any door
or window. No keys for any door other than those provided by the Landlord shall
be made. If more that two keys for one lock are desired by the Tenant, the
Landlord may provide the same upon payment by the Tenant. Upon termination of
this lease or of the Tenant's possession, the Tenant shall surrender all keys of
the premises and shall make known to the Landlord the explanation of all
combination locks on safes, cabinets, and vaults.
<PAGE>
Exhibit C
Building Rules and Regulations
Page 2
J. The Tenant shall be responsible for the locking of doors and the
closing of transoms and windows in and to the premises. Any damage resulting
from neglect of this Rule shall be paid for by the Tenant.
K. If the Tenant desires telegraphic, telephonic, burglar alarm, or
signal devise, the Landlord will, upon request, direct where and how connections
and wiring for such service shall be introduced and run. Without such direction,
no boring, cutting or installation of wires or cables is permitted.
L. If the Tenant desires and the Landlord permits blinds, shades,
awnings, or other form of inside or outside covering, or window ventilation or
similar devises, they shall be furnished and installed at the expense of the
Tenant and must be of such shape, color, material, and make as are approved by
the Landlord.
M. All persons entering or leaving the premises may be required to
identify themselves to a watchman by registration or otherwise and to establish
their rights to enter and leave the premises. The Landlord may exclude or expel
any peddler, solicitor or beggar at any time.
N. Tenant shall hire furniture and equipment movers with substantial
experience and reputation in moving furniture and equipment in and out of office
buildings and Tenant shall be required to obtain Landlord's written consent
prior to such hiring. Tenant shall be liable to Landlord for all damages to the
building caused by such moving.
0. The Tenant shall not overload any floor. The Landlord may direct the
routing and location of safes and other heavy articles. Safes, furniture, and
all large articles shall be brought through the building and into the premises
at such times and in such manner as the Landlord shall direct at the Tenant's
sole risk and responsibility. The Tenant shall list all furniture, equipment,
and similar articles to be removed from the building, and the list must be
approved by the Landlord before building employees will permit any article to be
removed.
P. Unless the Landlord gives advance written consent in each and every
instance, the Tenant shall not install or operate any steam or internal
combustion engine, boiler, machinery, refrigerating or heating devise or
air-conditioning apparatus in or about the premises, or carry on any mechanical
business therein, or use the premises for lodging, sleeping purposes, or use any
illumination other than electric light, or use of permit to be brought onto the
premises any inflammable oils or explosives or other articles deemed extra
hazardous to life, limb or property.
Q. The Tenant shall not place or allow any thing to be against or near
the glass of partitions of doors of the premises which may diminish the light
in, or be unsightly from the halls or corridors.
R. Tenant shall not leave windows open when it rains, and shall be
liable to Landlord and other tenants for any damages to the building or property
of other tenants resulting from rain coming into the building through open
windows. Tenant shall see that the windows and doors of said demised premises
are closed and securely locked before leaving the building. In addition to the
waiver of any of the Landlord's liability in Paragraph 9., it is further
<PAGE>
Exhibit C
Building Rules & Regulations
Page 3
specifically provided that Landlord is not liable for any damage resulting to
Tenant's property as the result of windows being left open.
S. All deliveries to Tenant shall be made at and through the delivery
entrance and nowhere else and Tenant shall advise all parties intending to make
deliveries to Tenant to this Rule.
T. Landlord shall not be responsible to Tenant or to any other person
for the nonobservance or violation of these rules and regulations by any other
tenant or other person. Tenant shall be deemed to have read these rules and to
have agreed to abide by them as a condition to its occupancy.
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (this "First Amendment") is entered into
as of the 9th day of February, 1994 by and between 500 Sansome Street Company, a
limited partnership ("Landlord") and Instant Video Technologies, Inc., a
Delaware corporation ("Tenant"), based upon the following facts, understandings
and agreements:
A. Landlord and Tenant entered into a written lease (the "Lease") dated
February 15, 1993, whereby Landlord leased to Tenant and Tenant hired from
Landlord, certain premises on the fifth floor designated as Suite 503 containing
an aggregate of approximately 2,328 rentable square feet, of that certain
eight-story building known as 500 Sansome Street, San Francisco, California (the
"Leased Premises").
B. Landlord and Tenant now desire to further amend the Lease as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. Definitions. All defined terms not otherwise defined herein shall
have the same meaning as in the Lease.
<PAGE>
2. Amendment of Section 2. The first sentence of Section 2 is hereby
deleted and replaced with the following sentence:
Term. The term of this lease shall be extended for six (6) months
commencing February 16, 1994, and terminating August 15, 1994.
3. Conflict. In the event of any conflict between the provisions of the
Lease and this First Amendment to Lease, the provisions of the First Amendment
to Lease shall govern.
4. Ratification. The Lease as modified by this First Amendment to Lease
is ratified in all respects.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Lease as of the date first hereinabove written.
LANDLORD: 500 SANSOME STREET COMPANY,
a limited partnership
By: L&B INSTITUTIONAL PROPERTY
MANAGERS OF CALIFORNIA, INC.,
its managing agent
By: /s/ Kathy Hannon
-----------------------------------
Kathy Hannon, Sr. Vice President
TENANT: INSTANT VIDEO TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Richard Lang
-----------------------------------
Richard Lang, Chairman & CEO
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease (this "Second Amendment") is entered
into as of the 9th day of June, 1994 by and between 500 Sansome Street Company,
a limited partnership ("Landlord") and Instant Video Technologies, Inc., a
Delaware corporation ("Tenant"), based upon the following facts, understandings
and agreements:
A. Landlord and Tenant entered into a written lease (the "Lease") dated
February 15, 1993, whereby Landlord leased to Tenant and Tenant hired from
Landlord, certain premises on the fifth floor designated as Suite 503 containing
an aggregate of approximately 2,328 rentable square feet, of that certain
eight-story building known as 500 Sansome Street, San Francisco, California (the
"Leased Premises"). Landlord and Tenant also entered into a First Amendment to
Lease (the "First Amendment") dated February 9, 1994, whereby Tenant extended
the Lease by an additional six (6) months, terminating August 15, 1994.
B. Landlord and Tenant now desire to further amend the Lease as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
<PAGE>
1. Definitions. All defined terms not otherwise defined herein shall
have the same meaning as in the Lease.
2. Amendment of Section 2. The first sentence of Section 2 is hereby
deleted and replaced with the following sentence:
Term. The term of this lease shall be extended for an additional six
(6) months commencing August 16, 1994, and terminating February 15, 1995
3. Conflict. In the event of any conflict between the provisions of the
Lease, the First Amendment to Lease, or this Second Amendment to Lease, the
provisions of the Second Amendment to Lease shall govern.
4. Ratification. The Lease as modified by this Second Amendment to
Lease is ratified in all respects.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Lease as of the date first hereinabove written.
LANDLORD: 500 SANSOME STREET COMPANY,
a limited partnership
By: L&B INSTITUTIONAL PROPERTY
MANAGERS OF CALIFORNIA, INC.,
its managing agent
By: /S/ Kathy Hannon
-----------------------------------
Kathy Hannon, Sr. Vice President
TENANT: INSTANT VIDEO TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Richard Lang
-----------------------------------
Name: Richard Lang
-----------------------------------
Its: Chairman + CEO
-----------------------------------
<PAGE>
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease (this "Third Amendment") is entered into
as of the 13th day of January, 1995 by and between 500 Sansome Street Company, a
limited partnership ("Landlord") and Instant Video Technologies, Inc., a
Delaware corporation ("Tenant"), based upon the following facts, understandings
and agreements:
A. Landlord and Tenant entered into a written lease (the "Lease") dated
February 15, 1993, whereby Landlord leased to Tenant and Tenant hired from
Landlord, certain premises on the fifth floor designated as Suite 503 containing
an aggregate of approximately 2,328 rentable square feet, of that certain
eight-story building known as 500 Sansome Street, San Francisco, California (the
"Leased Premises"). Landlord and Tenant entered into a First Amendment to Lease
(the "First Amendment") dated February 9, 1994, whereby Tenant extended the
Lease by an additional six (6) months terminating August 15, 1994, and a Second
Amendment to Lease (the "Second Amendment") dated June 9, 1994, whereby Tenant
extended the Lease by an additional six (6) months terminating February 15,
1995.
B. Landlord and Tenant now desire to further amend the Lease as
hereinafter provided.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. Definitions. All defined terms not otherwise defined herein shall
have the same meaning as in the Lease.
2. Amendment of Section 2. The first sentence of Section 2 is hereby
deleted and replaced with the following sentence:
Term. The term of this lease shall be extended for an additional six
(6) months commencing February 16, 1995, and terminating August 15, 1995.
3. Conflict. In the event of any conflict between the provisions of the
Lease, the First Amendment to Lease, the Second Amendment to Lease, or this
Third Amendment to Lease, the provisions of the Third Amendment to Lease shall
govern.
4. Ratification. The Lease as modified by this Third Amendment to Lease
is ratified in all respects.
//
//
//
//
//
//
//
//
//
//
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Third Amendment to
Lease as of the date first hereinabove written.
LANDLORD: 500 SANSOME STREET COMPANY,
a limited partnership
By: L&B INSTITUTIONAL PROPERTY
MANAGERS OF CALIFORNIA, INC.,
its managing agent
By: /s/ Kathy Hannon
---------------------------------
Kathy Hannon, Sr. Vice President
TENANT: INSTANT VIDEO TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Richard Lang
---------------------------------
Name: Richard Lang
---------------------------------
Its: Chairman + CEO
---------------------------------
<PAGE>
FOURTH AMENDMENT TO LEASE
This Fourth Amendment to Lease (this "Fourth Amendment") is entered
into as of the 12th day of June, 1995 by and between 500 Sansome Street Company,
a limited partnership ("Landlord") and Instant Video Technologies, Inc., a
Delaware corporation ("Tenant"), based upon the following facts, understandings
and agreements:
A. Landlord and Tenant entered into a written lease (the "Lease") dated
February 15, 1993, whereby Landlord leased to Tenant and Tenant hired from
Landlord, certain premises on the fifth floor designated as Suite 503 containing
an aggregate of approximately 2,328 rentable square feet, of that certain
eight-story building known as 500 Sansome Street, San Francisco, California (the
"Leased Premises"). Landlord and Tenant entered into a First Amendment to Lease
(the "First Amendment") dated February 9, 1994, whereby Tenant extended the
Lease by an additional six (6) months terminating August 15, 1994, a Second
Amendment to Lease (the "Second Amendment") dated June 9, 1994, whereby Tenant
extended the Lease by an additional six (6) months terminating February 15,
1995, and a Third Amendment to Lease (the "Third Amendment") dated January 13,
1995, whereby Tenant extended the Lease by an additional six (6) months
terminating August 15, 1995.
<PAGE>
B. Landlord and Tenant now desire to further amend the Lease as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. Definitions. All defined terms not otherwise defined herein shall
have the same meaning as in the Lease.
2. Amendment of Section 2. The first sentence of Section 2 is hereby
deleted and replaced with the following sentence:
Term. The term of this lease shall be extended for an additional six
(6) months commencing August 16, 1995, and terminating February 15, 1996.
3. Conflict. In the event of any conflict between the provisions of the
Lease, the First Amendment to Lease, the Second Amendment to Lease, the Third
Amendment to Lease, or this Fourth Amendment to Lease, the provisions of the
Fourth Amendment to Lease shall govern.
4. Ratification. The Lease as modified by this Fourth Amendment to
Lease is ratified in all respects.
//
//
//
//
//
//
//
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment to
Lease as of the date first hereinabove written.
LANDLORD: 500 SANSOME STREET COMPANY,
a limited partnership
By: L&B INSTITUTIONAL PROPERTY
MANAGERS OF CALIFORNIA, INC.,
its managing agent
By: /s/ Daniel L. Plumlee
---------------------------------
Daniel L. Plumlee
President and COO
TENANT: INSTANT VIDEO TECHNOLOGIES, INC.,
a Delaware Corporation
By: /s/ Gary R. Familian
---------------------------------
Name: Gary R. Familian
---------------------------------
Its: President/CEO
---------------------------------
<PAGE>
FIFTH AMENDMENT TO LEASE
This Fifth Amendment to Lease (this "Fifth Amendment") is entered into
as of the 13th day of February, 1996 by and between 500 Sansome Street Company,
a limited partnership ("Landlord") and Instant Video Technologies, Inc., a
Delaware corporation ("Tenant"), based upon the following facts, understandings
and agreements:
A Landlord and Tenant entered into a written lease (the "Lease") dated
February 15, 1993, whereby Landlord leased to Tenant and Tenant hired from
Landlord, certain premises on the fifth floor designated as Suite 503 containing
an aggregate of approximately 2,328 rentable square feet, of that certain
eighty-story building known as 500 Sansome Street, San Francisco, California
(the "Leased Premises"). Landlord and Tenant entered into a First Amendment to
Lease (the "First Amendment") dated February 9, 1994, whereby Tenant extended
the Lease by an additional six (6) months terminating August 15, 1994, a Second
Amendment to Lease (the "Second Amendment") dated June 9, 1994, whereby Tenant
extended the Lease by an additional six (6) months terminating February 15,
1995, a Third Amendment to Lease (the "Third Amendment") dated January 13, 1995,
whereby Tenant extended the Lease by an additional six (6) months terminating
August 25, 1995, and a Fourth
-1-
<PAGE>
Amendment to Lease (the "Fourth Amendment") dated June 12, 1995, whereby Tenant
extended the Lease by an additional six (6) months terminating February 15,
1996.
B. Landlord and Tenant now desire to further amend the lease as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. Definitions. All defined terms not otherwise defined herein shall
have the same meaning as in the lease.
2. Amendment of Section 2. The first sentence of Section 2 is hereby
deleted and replaced with the following sentence:
Term. The term of this lease shall be extended for an additional six
(6) months commencing February 16, 1996, and terminating Auguat 15, 1996.
3. Conflict. In the event of any conflict between the provisions of the
Lease, the First Amendment to Lease, the Second Amendment to Lease, the Third
Amendment to Lease, the Fourth Amendment to Lease, or this Fifth Amendment to
Lease, the provisions of the Fifth Amendment to Lease shall govern.
4. Ratification. The Lease as modified by this Fifth Amendment to Lease
is ratified in all respects.
//
//
//
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment to
Lease as of the date first hereinabove written.
LANDLORD: 500 SANSOME STREET COMPANY,
a limited partnership
By: L&B INSTITUTIONAL PROPERTY
MANAGERS OF CALIFORNIA, INC.,
its managing agent
By: /s/ Paul C. Chapman
---------------------------------
Paul C. Chapman
Authorized Signatory
TENANT: INSTANT VIDEO TECHNOLOGIES, INC.,
a Delaware Corporation
By: /s/ Gary R. Familian
---------------------------------
Name: Gary R. Familian
---------------------------------
Its: President/CEO
---------------------------------
-3-
<PAGE>
SIXTH AMENDMENT TO LEASE
This Sixth Amendment to Lease (this "Sixth Amendment") is entered into
as of the 2nd day of August, 1996 by and between 500 Sansome Street Company, a
limited partnership ("Landlord") and Instant Video Technologies, Inc., a
Delaware corporation ("Tenant"), based upon the following facts, understandings
and agreements:
A. Landlord and Tenant entered into a written lease (the "Lease") dated
February 15, 1993, whereby Landlord leased to Tenant and Tenant hired from
Landlord, certain premises on the fifth floor designated as Suite 503 containing
an aggregate of approximately 2,328 rentable square feet, of that certain
eight-story building known as 500 Sansome Street, San Francisco, California (the
"Leased Premises"). Landlord and Tenant entered into a First Amendment to Lease
(the "First Amendment") dated February 9, 1994, whereby Tenant extended the
Lease by an additional six (6) months terminating August 15, 1994, a Second
Amendment to Lease (the "Second Amendment") dated June 9, 1994, whereby Tenant
extended the Lease by an additional six (6) months terminating February 15,
1995, a Third Amendment to Lease (the "Third Amendment") dated January 13, 1995,
whereby Tenant extended the Lease by an additional six (6) months terminating
August 15, 1995, a Fourth
-1-
<PAGE>
Amendment to Lease (the "Fourth Amendment") dated June 12, 1995, whereby Tenant
extended the Lease by an additional six (6) months terminating February 15,
1996, and a Fifth Amendment to Lease (the "Fifth Amendment") dated February 13,
1996, whereby Tenant extended the Lease by an additional six (6) months
terminating August 15, 1996.
B. Landlord and Tenant now desire to further amend the Lease as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. Definitions. All defined terms not otherwise defined herein shall
have the same meaning as in the Lease.
2. Amendment of Section 2. The first sentence of Section 2 is hereby
deleted and replaced with the following sentence:
Term. The term of this lease shall be extended for an additional six
(6) months commencing august 16, 1996, and terminating February 15, 1997.
3. Conflict. In the event of any conflict between the provisions of the
Lease, the First Amendment to Lease, the Second Amendment to Lease, the Third
Amendment to Lease, the Fourth Amendment to Lease, the Fifth Amendment to Lease
or this Sixth Amendment to Lease, the provisions of the Sixth Amendment to Lease
shall govern.
-2-
<PAGE>
4. Ratification. The Lease as modified by this Sixth Amendment to Lease
is ratified in all respects.
IN WITNESS WHEREOF, the parties have executed this Sixth Amendment to
Lease as of the date first hereinabove written.
LANDLORD: 500 SANSOME STREET COMPANY,
a limited partnership
By: L&B INSTITUTIONAL PROPERTY
MANAGERS OF CALIFORNIA, INC.,
its managing agent
By: /s/ Paul C. Chapman
---------------------------------
Paul C. Chapman
Authorized Signatory
TENANT: INSTANT VIDEO TECHNOLOGIES, INC.
a Delaware corporation
BY: /s/ Gary R. Familian
---------------------------------
Name: Gary R. Familian
---------------------------------
Its: President/CEO
---------------------------------
-3-
<PAGE>
SEVENTH AMENDMENT TO LEASE
This Seventh Amendment to Lease (the "Seventh Amendment") is entered
into as of the 1st day of May, 1997 by and between 500 Sansome Street Company, a
limited partnership ("Landlord"), and Instant Video Technologies, Inc., a
Delaware corporation ("Tenant"), based upon the following facts, understandings
and agreements:
A. Landlord and Tenant entered into a written lease dated February 15,
1993, as amended by that certain First Amendment to Lease dated February 9, 1994
between Landlord and Tenant, that certain Second Amendment to Lease dated June
9, 1994 between Landlord and Tenant, that certain Third Amendment to Lease dated
January 13, 1995 between Landlord and Tenant, that certain Fourth Amendment to
Lease dated June 12, 1995 between Landlord and Tenant, that certain Fifth
Amendment to Lease dated February 13, 1996 between Landlord and Tenant, and that
certain Sixth Amendment to Lease dated August 2, 1996 between Landlord and
Tenant (as amended, the "Lease"), whereby Landlord leased to Tenant and Tenant
hired from Landlord certain premises designated as Suite 503, containing
approximately 2,328 rentable square feet (the "Original Premises") on the fifth
floor of that certain eight-story building known as 500 Sansome Street, San
Francisco, California (the "Building").
-1-
<PAGE>
B. Landlord and Tenant desire to extend the term of the Lease, Tenant
desires to expand its Original Premises into an adjacent space containing
approximately 1,140 rentable square feet known as Suite 505 in the Building (the
"Expansion Premises"), and Landlord and Tenant desire to otherwise amend the
Lease as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the parties hereinafter set forth, it is hereby agreed that the
Lease shall be amended as follows:
1. Defined Terms. All defined terms used herein and not otherwise
defined shall have the meanings given to such terms in the Lease.
2. Leasing of Expansion Premises. Landlord hereby leases to Tenant and
Tenant hereby hires from Landlord the Expansion Premises for the term, at the
rental and upon all of the conditions and agreements described herein. Unless
otherwise provided in this Seventh Amendment or required by the context of the
Lease as amended hereby, from and after the date hereof, Tenant shall observe or
perform, with respect to the Expansion Premises, all obligations of Tenant
pursuant to the Lease with respect to the Original Premises.
3. Premises. The defined term premises shall
-2-
<PAGE>
hereinafter refer to suites 503 and 505 containing an aggregate of 3,468
rentable square feet, on the fifth floor of that: certain eight-story building
known as 500 Sansome Street, San Francisco, California.
4. Term. The first sentence of Section 2 is hereby amended and restated
in its entirety as follows:
"Term. The new term of this lease shall be for six (6) months,
commencing May 15, 1997 and terminating November 14, 1997."
5. Rent. Section 4(a) (ii) is hereby amended and restated in its
entirety as follows:
"(ii) Tenant shall pay to Landlord, without deduction or offset, the
sum of seven thousand five hundred fourteen dollars ($7,514), as basic
rental for the premises, payable in advance promptly on the first day
of every calendar month of the term, and a pro rata portion thereof at
the current rent for fractions of a month if the term shall be
commenced or terminated on any day other than the first or last day of
the month."
6. Security Deposit. Upon execution of this Seventh Amendment, Tenant
shall pay to Landlord the sum of seven thousand
-3-
<PAGE>
four hundred ten dollars ($7,410), which sum shall be held by Landlord as a
security deposit for the term of the lease. Such security deposit shall be held
by Landlord in addition to any other sums already so held by Landlord.
7. Tenant Improvements. Within thirty (30) days of the date hereof,
Tenant shall, at Tenant's sole cost and expense, install new building standard
carpeting in the entire premises and repaint the Expansion Premises in a manner
reasonably acceptable to Landlord. Tenant shall submit a carpet sample to
Landlord on or before May 14, 1997. Landlord shall approve or disapprove such
carpet within two (2) business days of Tenant's submission, which approval shall
not be unreasonably withheld. Landlord shall, at Landlord's sole cost and
expense, construct either an opening or an opening and a door between the
Original Premises and the Expansion Premises subject to mutually and reasonably
agreeable specifications. Within seven (7) days of the execution of this Seventh
Amendment by Tenant and payment by Tenant of the sums due hereunder, Landlord
shall construct such opening between the Original Premises and the Expansion
Premises.
8. Option to Extend. Provided and on condition that (a) Tenant is not
in default under the Lease at the time of giving notice of exercise of the
option to extend the Lease term herein granted, and (b) Instant Video
Technologies, Inc., a Delaware corporation, shall be and have been during the
entire
-4-
<PAGE>
term the Tenant under the Lease and shall not have (i) assigned or conveyed the
Lease or any interest under it; (ii) allowed a transfer of the Lease or any lien
upon Tenant's interest by operation of law; (iii) sublet the premises or any
part thereof; or (iv) permitted the use occupancy of the premises or any part
thereof by any one other than Tenant during the Lease term, Tenant shall have an
option, exercisable upon written notice to Landlord, given not later sixty (60)
days prior to the expiration of the term of the Lease, to extend the term for
thirty-six (36) months commencing November 15, 1997 and terminating November 14,
2000 (the "Extension Term"). The lease to Tenant of the premises during the
Extension Term shall be upon all the terms and conditions set forth in the
Lease, except basic rental payable during the Extension Term shall be six
thousand nine hundred thirty-six dollars ($6,936) per month.
9. Floor Plan. Exhibit A to the Lease shall be amended to include
therein the depiction of the Expansion Premises attached to this Seventh
Amendment as Exhibit A.
10. Counterparts. This Seventh Amendment may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
11. Ratification of Lease. The Lease as amended by
-5-
<PAGE>
this Seventh Amendment is hereby ratified, confirmed and approved in all
respects. In the event of any inconsistency between the provisions of this
Seventh Amendment and the provisions of the Lease, the provisions of this
Seventh Amendment shall govern.
12. Entire Agreement. This Seventh Amendment sets forth the entire
understanding of the parties in connection with the subject matter hereof. There
are no agreements between Landlord and Tenant relating to the Lease other than
those set forth in writing and signed by the parties. Neither party hereto has
relied upon any understanding, representation or warranty not set forth herein,
either oral or written, as an inducement to enter into this Seventh Amendment.
13. Effectiveness. This Seventh Amendment shall be effective as of the
date of this Seventh Amendment.
14. Successors and Assigns. The provisions contained herein shall bind
and inure to the benefit of the heirs,
-6-
<PAGE>
representatives, successors and assigns of the parties hereto, subject to the
provisions of Section 28 of the Lease.
IN WITNESS WHEREOF, the parties have executed and delivered this
Seventh Amendment as of the day and year first above written.
LANDLORD:
500 SANSOME STREET COMPANY,
a limited partnership
By: L&B INSTITUTIONAL PROPERTY
MANAGERS OF CALIFORNIA, INC.,
a California corporation,
its Managing Agent
By: /s/ Paul C. Chapman
---------------------------------
Its: Authorized Signatory
---------------------------------
Name: Paul C. Chapman
---------------------------------
TENANT:
INSTANT VIDEO TECHNOLOGIES, INC
a Delaware corporation
By: /s/ Gary R. Familian
---------------------------------
Its:
---------------------------------
Name:
---------------------------------
-7-
<PAGE>
Commercial Use License Agreement
This COMMERCIAL USE LICENSE AGREEMENT (this "Agreement") is made and entered
into on this 20th day of August, 1998, by and between BPG SANSOME, L.L.C.
("Owner") through BARKER PACIFIC GROUP, INC. ("Managing Member") and INSTANT
VIDEO TECHNOLOGIES, lNC. ("User");
WITNESSETH:
In consideration of the mutual Premises, covenants and agreements herein set
forth, the parties hereby agree as follows:
1. LICENSE: Owner hereby grants to User a license to occupy and use, subject to
all of the terms and conditions hereinafter stated, that certain space known as
suite 504 (the "Premises") consisting of approximately 1,872 rentable square
feet located on the Fifth Floor of the property commonly known as 500 Sansome
Street, located in San Francisco, California (the "Property"), the Premises
being more particularly set forth in Exhibit "A", attached hereto and made a
part hereof.
2. USE: The Premises may be occupied and used by User solely for the following
purpose; as general office usage only, and for no other purpose.
3. TERM: The User shall use the Premises under this Agreement for the period
commencing the 21st day of August, 1998, and terminating upon receipt of thirty
(30) days written notice provided by either party to the other party.
4. RENTAL: User shall pay to Owner as follows: one thousand five hundred dollars
($1,500) per month, due on the first day of each month. A late fee equal to five
percent (5%) of the overdue amounts will be assessed on amounts not received
within five (5) days of the due date. In addition, for all amounts not paid
within 30 days of the due date, owner may charge interest on such past due
amounts equal to the lesser of (a) 3% per annum over the prime rate in effect at
Wells Fargo Bank or (b) the maximum lawful rate.
5. SUPERVISION OF EMPLOYEES: User shall at all times during its use of the
Premises provide sufficient supervision and maintain adequate control of its
employees, guests, or invitees.
6. NO PARTNERSHIP IMPLIED: Nothing contained herein shall be deemed or construed
by the parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the parties
hereto, it being understood and agreed that nothing contained herein, nor any
acts of the parties hereto, shall be deemed to create any relationship between
the parties hereto other than the relationship of licensor and licensee.
<PAGE>
7. NOTICES: All notices, requests, demands, consents, approvals or other
communications sent in accordance with the Agreement shall hereinafter be
addressed to the parties as follows:
Owner: BPG Sansome, L.L.C.
500 Sansome Street
Suite 608
San Francisco, CA 94111
and
User: Instant Video Technologies, Inc.
500 Sansome Street
Suite 503
San Francisco, CA 94111
IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and
year first hereinabove written.
BPG Sansome, L.L.C., a Delaware Limited Liability Company (Owner)
By: Barker Pacific Group, Inc., a Delaware corporation, its Managing Member
By: /s/ Michael S. Baskauskas
-------------------------
Michael S. Baskauskas
Executive Vice President
Instant Video Technologies, Inc., a Delaware corporation (User)
By: /s/ David Morgenstein
------------------------
NAME: DAVID MORGENSTEIN
------------------------
TITLE: CHIEF OPERATING OFFICER
------------------------
<PAGE>
EXHIBIT A
500 SANSOME STREET
5TH FLOOR
[GRAPHIC OMITTED]
<PAGE>
EIGHTH AMENDMENT TO LEASE
THIS EIGHTH AMENDMENT TO LEASE (hereinafter "Amendment") is made and
entered into as of Oct. 12, 1998, by and between BPG SANSOME, L.L.C., a Delaware
limited liability company, as successor-in-interest to 500 Sansome Street
Company, a limited partnership ("Landlord"), AND INSTANT VIDEO TECHNOLOGIES,
INC., a Delaware corporation ("Tenant").
RECITALS:
A. Landlord's predecessor-in-interest, 500 Sansome Street Company, and
tenant heretofore have entered into a lease dated as of February 15, 1993, as
amended by that certain First Amendment to Lease dated as of February 9, 1994,
that certain Second Amendment to Lease dated as of June 9, 1994, that certain
Third Amendment to Lease dated as of January 13, 1995, that certain Fourth
Amendment to Lease dated as of June 12, 1995, that certain Fifth Amendment to
Lease dated as of February 13, 1996, that certain Sixth Amendment to Lease dated
as of August 2, 1996, and that certain Seventh Amendment to Lease dated as of
May 1, 1997, each executed by 500 Sansome Street Company and tenant
(collectively, "Lease"), pursuant to which 500 Sansome Street Company leased to
tenant certain premises designated as Suites 503 and 505 containing an aggregate
of approximately 3,468 rentable square feet (the "Original Premises") on the
fifth floor of that certain building known as 500 Sansome Street, San Francisco,
California ("Building").
B. The Lease, as amended, is currently scheduled to expire on November
14, 2000 (the "Original Termination Date"). Landlord and Tenant now desire to
amend the Lease to provide for, inter alia, (i) the extension of the term of the
Lease for the Original Premises, commencing on November 15, 2000, and continuing
until January 31, 2002 (the "Extension Term"), all on the terms and conditions
contained in this Amendment, (ii) the expansion of the Original Premises into
space containing 1,146 rentable square feet known as Suite 506 in the Building
("Suite 506") and space containing 1,334 rentable square feet in Suite 502 in
the building (the "Suite 502 Space") (Suite 506 and the Suite 502 Space are
collectively referred to herein as the "Additional Premises"), (iii) an increase
in the Base Rental rate, (iv) the payment by Landlord to Tenant of an allowance
for improvements to the Additional Premises, and (v) the establishment of
commencement dates, a Base Year, and rental rates for the Additional Premises.
NOW, THEREFORE, the parties hereto agree as follows:
1. Defined Terms. Unless defined otherwise herein, all capitalized
terms used in this Amendment shall have the meanings attributed to such terms in
the Lease. Upon the expiration or earlier termination of the term of the Lease,
as extended hereby, Tenant shall vacate and surrender the Original Premises and
the Additional Premises to Landlord in the condition required by Section 12 of
the Lease and otherwise pursuant to the terms of the Lease.
<PAGE>
2. TERM. The term of the Lease for the Original Premises shall be
extended for the Extended Term, which shall commence on November 15, 2000 and
expire on January 31, 2002 (the "Extended Termination Date"). The term of the
lease for Suite 506 shall commence upon delivery, anticipated to occur on or
before November 15, 1998 and expire on the Extended Termination Date. The term
of the lease for the Suite 502 Space shall commence upon delivery, anticipated
to occur on or before October 15, 1998 and expire on the Extended Termination
Date. Within thirty (30) days following the determination of the respective
commencement dates for Suite 506 and the Suite 502 Space, Landlord and Tenant
shall each execute a Commencement Date Memorandum confirming the actual
commencement date for each such space.
3. Leasing of Additional Premises. Landlord hereby leases to Tenant
Suite 506 and the Suite 502 Space for the respective terms set forth in Section
2 above. Accordingly, Exhibit A to the Lease shall be deleted in its entirety
and replaced with Exhibit A attached hereto. Unless otherwise provided in this
Amendment, from and after the respective commencement dates set forth in Section
2 above, Tenant shall observe or perform, with respect to Suite 506 and the
Suite 502 Space, respectively, all obligations of Tenant pursuant to the Lease.
4. Rental Rate. From the date first written above through the
Original Termination Date, Tenant shall pay to Landlord as basic rental for its
lease of the Original Premises the sum of $24.00 per rentable square foot.
During the Extension Term, Tenant shall pay to Landlord as basic rental for its
lease of the Original Premises the sum of $31.50 per rentable square foot. From
the commencement date of the term of the lease for Suite 506 through July 31,
2000, Tenant shall pay to Landlord as basic rental for its lease of Suite 506
the sum of $30.00 per rentable square foot; from November 1, 1998 through July
31, 2000, Tenant shall pay to Landlord as basic rental for its lease of the
Suite 502 Space the sum of $30.00 per rentable square foot (i.e., if Tenant
occupies the Suite 502 Space prior to November 1, 1998, Tenant will not have to
pay basic rental for the Suite 502 Space until November 1, 1998). From August 1,
2000 through the Extended Termination Date, Tenant shall pay to Landlord as
basic rental for its lease of Suite 506 and the Suite 502 Space the sum of
$31.50 per rentable square foot.
5. Tenant Improvement Allowance. On or before their respective
commencement dates, Landlord shall deliver to Tenant Suite 506 and the Suite 502
Space in their current "As Is" condition. Landlord shall provide Tenant with an
allowance (the "Tenant Improvement Allowance") of $5.00 per rentable square foot
in the Additional Premises for Tenant's required work in the Additional
Premises. The Tenant Improvement Allowance shall be provided to Tenant within
thirty (30) days after the lien-free completion of Tenant's improvements in the
Additional Premises, provided that Tenant delivers to Landlord receipts,
invoices, purchase orders, and other documentation reasonably requested by
Landlord, including
2
<PAGE>
mechanics' and materialmens' lien releases, substantiating Tenant's expenditure
of the Tenant Improvement Allowance. In addition, Landlord shall be responsible
for installing a demising wall in the Suite 502 Space to separate such space
from the remaining space in Suite 502.
6. Base Year. The Base Year for the Additional Premises shall be the
1999 calendar year. The Base Year for the Original Premises shall remain as the
1993 calendar year through the Extended Termination Date. Tenant's percentage
share of increases in operating costs and property taxes for the Additional
Premises shall be one and seventy-three hundredths percent (1.73%). Tenant's
percentage share of increases in operating costs and property taxes for the
Original Premises shall remain two and forty-three hundredths percent (2.43%).
7. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the heirs, executors, administrators, successors and
assigns of the respective parties hereto.
8. Limitation of Amendment. Except as specifically modified by this
Amendment, all of the terms and provision of the Lease shall remain unmodified
and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
TENANT: LANDLORD:
INSTANT VIDEO TECHNOLOGIES, BPG SANSOME, L.L.C., a Delaware
INC., a Delaware corporation limited liability company
By: BARKER PACIFIC GROUP
INC., Its Managing Member
By: /s/ ???????????????
-----------------------
ITS: V.P. OPERATIONS BY: /S/ MICHAEL D. BARKER
----------------------- --------------------------
Michael D. Barker
BY: Managing Director
-----------------------
ITS:
-----------------------
3
<PAGE>
EXHIBIT A
[graphic omitted[
500 SANSOME STREET FIFTH FLOOR
- --------------------------------------------------------------------------------
SAN FRANCISCO, CA
<PAGE>
COMMENCEMENT DATE MEMORANDUM
To: Instant Video Technologies November 20, 1998
500 Sansome Street, Suite 503
San Francisco, CA 94111
Re: Eighth Amendment to Lease dated October 12, 1998, Between BPG
Sansome, LLC, Lessor, and Instant Video Technologies, Lessee,
Concerning the Additional Premises (Suites 502 & 506) located at
500 Sansome Street, San Francisco.
In accordance with the original Lease and the subject Eight Amendment to
Lease (together the "Lease"), we wish to advise and/or confirm as follows:
1) The Additional Premises have been accepted by the Tenant as being
substantially complete in accordance with the Lease and there is no
deficiency in construction.
2) Lessee has possession of the Additional Premises and acknowledges
that under the provisions of Lease, the term of said Lease for
Suite 502 shall commence as of November 1, 1998, for a term of
thirty-nine (39) months ending on January 31, 2002 and for Suite
506 shall commence as of November 23, 1998, for a term of
approximately thirty-eight (38) months ending on January 31, 2002.
3) In accordance with the Lease, Rent commenced to accrue for Suite
502 on November 1, 1998 and for Suite 506 on November 23, 1998.
4) If the commencement date of the Lease is other than the first day
of the month, the first billing will contain a pro rata adjustment.
Each billing thereafter shall be for the full amount of the monthly
installment as provided for in the Lease.
5) Rent is due and payable in advance on the first day of each and
every month. Rent checks should be made payable to BPG Sansome, LLC
and delivered to:
BPG Sansome, LLC
PO Box 8743
Los Angeles, CA 90088-8743
6) The rentable square footage in the Additional Premises is 2,480.
7) Tenant's Percentage Share for the Additional Premises is 1.73%.
Lessor: Lessee:
BPG Sansome, LLC Instant Video Technologies, Inc.
a Delaware limited liability company a Delaware Corporation
500 Sansome Street, Suite 608
San Francisco, CA 94111
By: Barker Pacific Group By: David Morgenstein
Managing Member ---------------------------
Print Name: ____________________
By: Michael D. Barker
---------------------- Title: C. O. O.
Michael D. Barker --------------------------
Managing Director
<PAGE>
Commercial Use License Agreement
This COMMERCIAL USE LICENSE AGREEMENT (this "Agreement") is made and entered
into on this 12th day of January, 1999, by and between BPG SANSOME, LLC
("Owner") through BARKER PACIFIC GROUP, lNC. ("Managing Member") and INSTANT
VIDEO TECHNOLOGIES, INC. ("User");
WITNESSETH:
In consideration of the mutual Premises, covenants and agreements herein set
forth, the parties hereby agree as follows:
1. LICENSE: Owner hereby grants to User a license to occupy and use, subject to
all of the terms and conditions hereinafter stated, the certain space known as
Storage Room S-0l (the "Premises") consisting of approximately 130 rentable
square feet located in the basement of the property commonly known as 500
Sansome Street, located in San Francisco, California (the "Property"), the
Premises being more particularly set forth in Exhibit "A", attached hereto and
made a part hereof.
2. USE: The Premises may be occupied and used by User solely for the following
purpose; as storage for non-hazardous materials only, and for no other purpose.
3. TERM: The User shall use the Premises under this Agreement for the period
commencing the first day of February, 1999, and terminating upon receipt of
thirty (30) days written notice provided by either party to the other party.
4. RENTAL: User shall pay to Owner as follows:
Fifteen and No/l00 Dollars ($15) per rentable square foot per annum, or $162.50
dollars per month, due on the first day of each month. A late fee equal to five
percent (5%) of the overdue amounts will be assessed on amounts not received
within five (5) days of the due date. In addition, for all amounts not paid
within 30 days of the due date, owner may charge interest on such past due
amounts equal to the lesser of (a) 3% per annum over the prime rate in effect at
Wells Fargo Bank or (b) the maximum lawful rate.
5. SUPERVISION OF EMPLOYEES: User shall at all times during its use of the
Premises provide sufficient supervision and maintain adequate control of its
employees, guests, or invitees.
6. NO PARTNERSHIP IMPLIED: Nothing contained herein shall be deemed or construed
by the parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the parties
hereto, it being understood and agreed that nothing contained herein, nor any
acts of the parties hereto, shall be deemed to create any relationship between
the parties hereto other than the relationship of licensor and licensee.
<PAGE>
7. NOTICES: All notices, requests, demands, consents, approvals or other
communications sent in accordance with the Agreement shall hereinafter be
addressed to the parties as follows:
Owner: BPG Sansome, LLC
500 Sansome Street
Suite 608
San Francisco, CA 94111
and
User: Instant Video Technologies, Inc.
500 Sansome Street
Suite 503
San Francisco, CA 94111
IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and
year first hereinabove written.
BPG Sansome, LLC, a Delaware Limited Liability Company (Owner)
By: Barker Pacific Group, Inc., a Delaware corporation, its Managing Member
By: Michael S. Baskauskas
-----------------------------------
Name: Michael S. Baskauskas
-----------------------------------
Title: Executive Vice President
-----------------------------------
Instant Video Technologies, Inc. (User)
By: David Morgenstein
-----------------------------------
Name: David Morgenstein
-----------------------------------
Title: C. O. O.
-----------------------------------
<PAGE>
EXHIBIT A
[Graphic Omitted
500 SANSOME STREET BASEMENT
- --------------------------------------------------------------------------------
SAN FRANCISCO, CA
<PAGE>
ORDERED BY: Purchase Order
Instant Video Technologies, Inc. Purchase Order No.
500 Sansome Street, Suite 503 1023
San Francisco, CA 94111
Date Issued
Fax: 415.391.3392/Phone 415.391.4455 1/8/99
To:
Barker Pacific Group, Inc. Ship To:
P.O. Box 8743 Instant Video Technologies, Inc.
Los Angeles, CA 90088-8743 500 Sansome Street, Suite 503
San Francisco, CA 94111
Fax: 415.421.3077 Phone: 415.421.0575
- --------------------------------------------------------------------------------
Good Thru Ship Via Account No. Terms
- --------------------------------------------------------------------------------
2/7/99 Courier 25-0503-CU Net 30 Days
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item Description Quantity Unit Price Extension
- --------------------------------------------------------------------------------
Monthly rent of Basment storage 12.00 167.50 2,010.00
- --------------------------------------------------------------------------------
TOTAL $2,010.00
-------------------------
Authorized Signature ???????????????
-------------------------
<PAGE>
Commercial Use License Agreement
This COMMERCIAL USE LICENSE AGREEMENT (this "Agreement") is made and entered
into on this 6th day of April, 1999, by and between BPG SANSOME, LLC ("Owner")
through BPG PARTNERS, LLC ("Managing Member") and INSTANT VIDEO TECHNOLOGIES,
INC. ("User");
WITNESSETH:
In consideration of the mutual Premises, covenants and agreements herein set
forth, the parties hereby agree as follows:
1. LICENSE: Owner hereby grants to User a license to occupy and use, subject to
all of the terms and conditions hereinafter stated, the certain space known as
Storage Room S-22 (the "Premises") consisting of approximately 382 rentable
square feet located in the basement of the property commonly known as 500
Sansome Street, located in San Francisco, California (the "Property"), the
Premises being more particularly set forth in Exhibit "A", attached hereto and
made a part hereof.
2. USE: The Premises may be occupied and used by User solely for the following
purpose; as storage for non-hazardous materials only, and for no other purpose.
3. TERM: The User shall use the Premises under this Agreement for the period
commencing the first day of May, 1999, and terminating upon receipt of thirty
(30) days written notice provided by either party to the other party.
4. RENTAL: User shall pay to Owner as follows:
Fifteen and No/100 Dollars ($15.00) per rentable square foot per annum, or
$477.50 dollars per month, due on the first day of each month. A late fee equal
to five percent (5%) of the overdue amounts will be assessed on amounts not
received within five (5) days of the due date. In addition, for all amounts not
paid within 30 days of the due date, owner may charge interest on such past due
amounts equal to the lesser of (a) 3% per annum over the prime rate in effect at
Wells Fargo Bank or (b) the maximum lawful rate.
5. SUPERVISION OF EMPLOYEES: User shall at all times during its use of the
Premises provide sufficient supervision and maintain adequate control of its
employees, guests, or invitees.
6. NO PARTNERSHIP IMPLIED: Nothing contained herein shall be deemed or construed
by the parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the parties
hereto, it being understood and agreed that nothing contained herein, nor any
acts of the parties hereto, shall be deemed to create any relationship between
the parties hereto other than the relationship of licensor and licensee.
<PAGE>
7. NOTICES: All notices, requests, demands, consents, approvals or other
communications sent in accordance with the Agreement shall hereinafter be
addressed to the parties as follows:
Owner: BPG Sansome, LLC
500 Sansome Street
Suite 608
San Francisco, CA 94111
and
User: Instant Video Technologies, Inc.
500 Sansome Street
Suite 503
San Francisco, CA 94111
IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and
year first hereinabove written.
BPG Sansome, LLC, a Delaware limited liability company (Owner)
By: BPG Partners, LLC, a Delaware limited liability company, its Managing Member
By: /s/ Michael S. Baskauskas
-------------------------
Name: Michael S. Baskauskas
-------------------------
Title: Exec. VP
-------------------------
Instant Video Technologies, Inc. (User)
By: /s/ David Morgenstein
----------------------------
Name: David Morgenstein
-------------------------
Title: C.O.O.
-------------------------
<PAGE>
EXHIBIT A
[Graphic Omitted]
500 SANSOME STREET BASEMENT
- --------------------------------------------------------------------------------
SAN FRANCISCO, CA
<PAGE>
NINTH AMENDMENT TO LEASE
THIS NINTH AMENDMENT TO LEASE (hereinafter "Amendment") is made and
entered into as of May 5, 1999, by and between BPG SANSOME, L.L.C., a Delaware
limited liability company, as successor-in-interest to 500 Sansome Street
Company, a limited partnership ("Landlord"), and INSTANT VIDEO TECHNOLOGIES,
INC., a Delaware corporation ("Tenant").
RECITALS:
A. Landlord's predecessor-in-interest, 500 Sansome Street Company, and
Tenant heretofore have entered into a Lease dated as of February 15, 1993, as
amended by that certain First Amendment to Lease dated as of February 9, 1994,
that certain Second Amendment to Lease dated as of June 9, 1994, that certain
Third Amendment to Lease dated as of January 13, 1995, that certain Fourth
Amendment to Lease dated as of June 12, 1995, that certain Fifth Amendment to
Lease dated as of February 13, 1996, that certain Sixth Amendment to Lease dated
as of August 2, 1996, and that certain Seventh Amendment to Lease dated as of
May 1, 1997, each executed by 500 Sansome Street Company and Tenant, and that
certain Eighth Amendment to Lease dated as of October 12, 1998 (collectively,
"Lease"), pursuant to which Tenant leases from Landlord certain premises
designated as Suites 502, 503, 505 and 506 containing an aggregate of
approximately 5,948 rentable square feet (the "Premises") on the fifth floor of
that certain building known as 500 Sansome Street, San Francisco, California
("Building").
B. The Lease, as amended, is scheduled to expire on January 31, 2002
(the "Termination Date"). Landlord and Tenant now desire to amend the Lease on
the terms and conditions contained in this Amendment to provide for (i) the
expansion of the Premises into space containing 1,872 rentable square feet known
as Suite 504 ("Suite 504") and space containing 2,842 rentable square feet known
as Suite 500 ("Suite 500") (Suite 504 and Suite 500 are collectively referred to
herein as the "Additional Premises"), (ii) the payment by Landlord to Tenant of
an allowance for improvements to the Additional Premises, and (iii) the
establishment of commencement dates, a Base Year, and rental rates for the
Additional Premises. With the expansion of the Premises contemplated hereby,
Tenant's total leased space shall comprise 10,662 rentable square feet.
NOW, THEREFORE, the parties hereto agree as follows:
1. Defined Terms. Unless defined otherwise herein, all capitalized
terms used in this Amendment shall have the meanings attributed to such terms in
the Lease.
2. Leasing of Additional Premises. Upon and subject to the terms
hereof, Landlord hereby leases to Tenant Suite 504 and Suite 500 for the
respective terms set forth in Section 3 below. Accordingly, Exhibit A to the
Lease shall be deleted in its
<PAGE>
entirety and replaced with Exhibit A attached hereto. Unless otherwise provided
in this Amendment, from and after the respective commencement dates set forth in
Section 2 above, Tenant shall observe and perform, with respect to Suite 504 and
Suite 500, respectively, all obligations of Tenant pursuant to the Lease.
3. Term. The term of the lease for Suite 504 shall commence upon
delivery, anticipated to occur on or before May 15, 1999, and expire on the
Termination Date. The term of the lease for Suite 500 shall commence upon
delivery, anticipated to occur on or before November 1, 1999, and expire on the
Termination Date. Within thirty (30) days following the determination of the
respective commencement dates for Suite 504 and Suite 500, Landlord and Tenant
shall execute a Commencement Date Memorandum confirming the commencement date
for each suite. Upon the expiration or earlier termination of the term of the
Lease, Tenant shall vacate and surrender the Premises and the Additional
Premises to Landlord in the condition required by Section 12 of the Lease and
otherwise pursuant to the terms of the Lease.
4. Rental Rate. From the respective commencement dates for Suites 504
and 500 as provided herein, Tenant shall pay to Landlord as basic rental the sum
of $35.00 per rentable square foot with respect to each suite.
5. Tenant Improvement Allowance. Landlord shall be responsible for
creating a "passthrough" in the hallway between Suite 504 and Suite 500 once
Suite 500 becomes available. On or before their respective commencement dates,
Landlord shall deliver to Tenant Suite 504 and Suite 500 in their current "As
Is" condition, and, except as provided herein, Landlord shall have no obligation
whatsoever to provide any alterations or improvements with regard to the
Additional Premises. Landlord shall provide Tenant with an allowance (the
"Tenant Improvement Allowance") of $4,680.00 for Suite 504, and $14,210.00 for
Suite 500, for Tenant's required work in those suites which may be used by
Tenant for any improvement it makes to those suites (provided the same is made
in accordance with the Lease). The aggregate Tenant Improvement Allowance amount
may be allocated by Tenant to improvement work in Suites 500 and 504 as Tenant
may elect (e.g., Tenant may elect to shift some of the allowance allocated to
Suite 500 over to Suite 504), provided that Landlord shall not be required to
make available the amounts described above until following the commencement of
the Lease for each respective Suite (i.e., Landlord shall not be required to
make available the $14,210.00 amount allocated to Suite 500 until after the
lease commences with respect to Suite 500). Tenant shall construct the tenant
improvements for the Additional Premises in accordance with all applicable laws
and codes and pursuant to plans and using such contractors as shall be approved
in advance by Landlord. Landlord shall pay out the Tenant Improvement Allowance
as any such work is completed based upon the stage of completion and provided
Landlord has received bills and lien releases from Tenant's contractor(s) and/or
suppliers, subject to a ten percent (10%) retention to be withheld until final,
lien-free completion of the work. Tenant shall
2
<PAGE>
pay all costs for constructing its improvements in excess of the Tenant
Improvement Allowance, and shall pay for all applicable fees and permits.
6. Base Year. The Base Year for the Additional Premises shall be the
1999 calendar year. Upon commencement of the term for Suite 504, Tenant's
percentage share of increases in operating costs and property taxes shall be
increased by an amount equal to one and thirty-four one hundredths percent
(1.34%), and upon commencement of the term for Suite 500, Tenant's percentage
share of increases in operating costs and property taxes shall be increased by
an amount equal to two and three one-hundredths percent (2.03%).
7. Right of First Refusal on the 5th Floor.
(a) Landlord hereby agrees that should space become available
on the 5th floor of the Building, other than the Premises and the Additional
Premises, and Landlord receives a bona fide third party offer to lease such
available space upon terms and conditions acceptable to Landlord ("third party
offer"), Landlord shall give notice to Tenant that such space is available for
lease by Tenant upon the terms and conditions set forth in such third party
offer. If Tenant desires to exercise its right to lease such space, Tenant must
give Landlord notice of its intent to exercise such right stating Tenant's
unequivocal acceptance of such offered terms and conditions no later than five
(5) business days after Landlord sends Tenant such notice of availability. If
Tenant does not timely provide Landlord with such written notice and acceptance,
then Landlord shall thereafter be free to lease such space to any third party
upon any terms Landlord deems acceptable. In the event Tenant exercises a right
to add additional space in accordance with this paragraph, Tenant's percentage
share of increases in operating expenses and taxes shall be increased
proportionately in accordance with the terms of the Lease.
(b) Space subject to this paragraph shall be deemed to become
available upon expiration or other termination of a lease to another tenant
covering such space or any part of it, taking into account any renewals or
extensions of such lease or new lease of such space to such existing tenant, and
vacation of such space by such tenant.
(c) Notwithstanding any provision of this section, it is
understood and agreed that the right of refusal described herein shall, as to
any space offered hereunder, at Landlord's option terminate and be of no further
force or effect if:
(i) Landlord gives Tenant a written notice of the
availability of such space upon the terms provided hereinabove, and Tenant does
not notify Landlord, in writing, of Tenant's acceptance of such terms when and
as hereinabove provided, time being of the essence;
3
<PAGE>
(ii) Landlord presents Tenant with an "Amendment to Lease"
to incorporate the space into the Premises upon the terms described above, and
Tenant fails to execute such Amendment within fifteen (15) days after its
receipt;
(iii) At any time that any portion of the space becomes or
is available until an "Amendment to Lease" is fully executed, Tenant is in
default in the performance of any of the covenants, conditions or agreements to
be performed under the Lease beyond any applicable cure period;
(iv) The original term of the Lease expires or is
terminated.
8. FTI Termination. Notwithstanding anything to the contrary herein,
Landlord's obligation to deliver Suite 504 shall be conditioned upon the
execution by Forensic Technologies Inc., the current tenant of Suite 504, of a
Lease Termination Agreement satisfactory to Landlord in its sole discretion. If
for any reason Landlord cannot deliver Suite 504 to Tenant on or before May 15,
1999, Landlord shall not be subject to any liability therefor, nor shall
Landlord be in default hereunder, and Tenant agrees to accept possession of
Suite 504, and the term hereof with respect to Suite 504 shall commence, at such
time as Landlord does deliver same to Tenant.
9. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the heirs, executors, administrators, successors and
assigns of the respective parties hereto.
10. Limitation of Amendment. Except as specifically modified by this
Amendment, all of the terms and provision of the Lease shall remain unmodified
and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
TENANT: LANDLORD:
INSTANT VIDEO TECHNOLOGIES, BPG SANSOME, L.L.C., a Delaware
INC., a Delaware corporation limited liability company
By: BPG PARTNERS, LLC,
Managing Member
Its: Edward H. Davis By: Richard J. Johnson
--------------------------------
By: Edward H. Davis Richard J. Johnson
--------------------------------
Its: Vice President & General Counsel
--------------------------------
4
<PAGE>
Exhibit A
[Graphic Omitted]
FIFTH FLOOR
<PAGE>
COMMENCEMENT DATE MEMORANDUM
To: Instant video Technologies May 21, 1999
500 Sansome Street, Suite 503
San Francisco, CA 94111
Re: Ninth Amendment to Lease dated May 5, 1999, between BPG Sansome, LLC,
Lessor, and Instant Video Technologies, Inc., Lessee, concerning the
Additional Premises (Suite 504) located at 500 Sansome Street, San
Francisco.
In accordance with the original Lease and the subject Ninth Amendment to Lease
(together the "Lease"), we wish to advise and/or confirm as follows:
1) The Additional Premises (Suite 504) have been accepted by the Tenant as
being substantially complete in accordance with the Lease and there is
no deficiency in construction.
2) Lessee has possession of the Additional Premises (Suite 504) and
acknowledges that under the provisions of Lease, the term of said Lease
for Suite 504 shall commence as of May 15, 1999, for a term of
thirty-two and one half (32.5) months ending on January 31, 2002.
3) In accordance with the Lease, Rent commenced to accrue for Suite 504 on
May 15, 1999.
4) If the commencement date of the Lease is other than the first day of
the month, the first billing will contain a pro rata adjustment. Each
billing thereafter shall be for the frill amount of the monthly
installment as provided for in the Lease.
5) Rent is due and payable in advance on the first day of each and every
month. Rent checks should be made payable to BPG Sansome, LLC and
delivered to:
BPG Sansome, LLC
PO Box 8743
Los Angeles, CA 90088-8743
6) The rentable square footage in the Additional Premises (Suite 504) is
1,872.
7) Tenant's Percentage Share for Suite 504 is 1.34%.
Lessor: Lessee:
BPG Sansome, LLC Instant Video Technologies, Inc.
a Delaware limited liability company a Delaware corporation
500 Sansome Street, Suite 608 500 Sansome Street, Suite 503
San Francisco, CA 94111 San Francisco CA 94111
By: BPG Partners, LLC By: /s/ David Morgenstein
Managing Member ----------------------------
Print Name: David Morgenstein
---------------------
By: /s/ Richard J. Johnson Title: C.O.O.
----------------------- --------------------------
Richard J. Johnson
Manager
<PAGE>
Commercial Use License Agreement
This COMMERCIAL USE LICENSE AGREEMENT (this "Agreement") is made and entered
into on this 7th day of May, 1999, by and between BPG SANSOME, LLC ("Owner")
through BPG PARTNERS, LLC ("Managing Member") and INSTANT VIDEO TECHNOLOGIES,
lNC. ("User");
WITNESSETH:
In consideration of the mutual Premises, covenants and agreements herein set
forth, the parties hereby agree as follows:
1. LICENSE: Owner hereby grants to User a license to occupy and use, subject to
all of the terms and conditions hereinafter stated, the certain spaces known as
Storage Rooms S-20 & S-21 (the "Premises") consisting of approximately 566
rentable square feet located in the basement of the property commonly known as
500 Sansome Street, located in San Francisco, California (the "Property"), the
Premises being more particularly set forth in Exhibit "A", attached hereto and
made a part hereof.
2. USE: The Premises may be occupied and used by User solely for the following
purpose; as storage for non-hazardous materials only, and for no other purpose.
3. TERM: The User shall use the Premises under this Agreement for the period
commencing the first day of June, 1999, and terminating upon receipt of thirty
(30) days written notice provided by either party to the other party.
4. RENTAL: User shall pay to Owner as follows:
Fifteen and No/l00 Dollars ($15.00) per rentable square foot per annum, or
$707.50 dollars per month, due on the first day of each month. A late fee equal
to five percent (5%) of the overdue amounts will be assessed on amounts not
received within five (5) days of the due date. In addition, for all amounts not
paid within 30 days of the due date, owner may charge interest on such past due
amounts equal to the lesser of (a) 3% per annum over the prime rate in effect at
Wells Fargo Bank or (b) the maximum lawful rate.
5. SUPERVISION OF EMPLOYEES: User shall at all times during its use of the
Premises provide sufficient supervision and maintain adequate control, of its
employees, guests, or invitees.
6. NO PARTNERSHIP IMPLIED: Nothing contained herein shall be deemed or construed
by the parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the parties
hereto, it being understood and agreed that nothing contained herein, nor any
acts of the parties hereto, shall be deemed to create any relationship between
the parties hereto other than the relationship of licensor and licensee.
<PAGE>
7. NOTICES: All notices, requests, demands, consents, approvals or other
communications sent in accordance with the Agreement shall hereinafter be
addressed to the parties as follows:
Owner: BPG Sansome, LLC
500 Sansome Street
Suite 608
San Francisco, CA 94111
and
User: Instant Video Technologies, Inc.
500 Sansome Street
Suite 503
San Francisco, CA 94111
IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and
year first hereinabove written.
BPG Sansome, LLC, a Delaware limited liability company (Owner)
By: BPG Partners, LLC, a Delaware limited liability company, its Managing Member
By: /s/ Michael S. Baskauskas
-------------------------
Name: Michael S. Baskauskas
-------------------------
Title: Executive Vice President
-------------------------
Instant Video Technologies, Inc. (User)
By: /s/ David Morgenstein
----------------------------
Name: David Morgenstein
-------------------------
Title: C.O.O.
-------------------------
<PAGE>
EXHIBIT A
[Graphic Omitted]
500 SANSOME STREET BASEMENT
- --------------------------------------------------------------------------------
SAN FRANCISCO, CA
<PAGE>
TENTH AMENDMENT TO LEASE
THIS TENTH AMENDMENT TO LEASE (hereinafter "Amendment") is made and
entered into as of June 24, 1999, by and between BPG SANSOME, L.L.C., a Delaware
limited liability company, as successor-in-interest to 500 Sansome Street
Company, a limited partnership ("Landlord"), and INSTANT VIDEO TECHNOLOGIES,
INC., a Delaware corporation ("Tenant").
RECITALS:
A. Landlord's predecessor-in-interest, 500 Sansome Street Company, and
Tenant heretofore have entered into a Lease dated as of February 15, 1993, as
amended by that certain First Amendment to Lease dated as of February 9, 1994,
that certain Second Amendment to Lease dated as of June 9, 1994, that certain
Third Amendment to Lease dated as of January 13, 1995, that certain Fourth
Amendment to Lease dated as of June 12, 1995, that certain Fifth Amendment to
Lease dated as of February 13, 1996, that certain Sixth Amendment to Lease dated
as of August 2, 1996, and that certain Seventh Amendment to Lease dated as of
May 1, 1997, each executed by 500 Sansome Street Company and Tenant, together
with that certain Eighth Amendment to Lease dated as of October 12, 1998, and
that certain Ninth Amendment to Lease dated as of May 5, 1999 (collectively,
"Lease"), pursuant to which Tenant leases from Landlord certain premises
designated as Suites 500, 502, 503, 504, 505 and 506 containing an aggregate of
approximately 10,662 rentable square feet (the "Premises") on the fifth floor of
that certain building known as 500 Sansome Street, San Francisco, California
("Building").
B. The Lease, as amended, is scheduled to expire on January 31, 2002
(the "Termination Date"). Landlord and Tenant now desire to amend the Lease on
the terms and conditions contained in this Amendment to provide for (i) the
expansion of the Premises into space containing 2,237 rentable square feet
located on the second floor of the Building known as Suite 201 (the "Additional
Premises"), (ii) the payment by Landlord to Tenant of an allowance for
improvements to the Additional Premises, and (iii) the establishment of a
commencement date, Base Year, and rental rate for the Additional Premises. With
the expansion of the Premises contemplated hereby, Tenant's total leased space
shall comprise 12,899 rentable square feet.
NOW, THEREFORE, the parties hereto agree as follows:
1. Defined Terms. Unless defined otherwise herein, all capitalized
terms used in this Amendment shall have the meanings attributed to such terms in
the Lease.
2. Leasing of Additional Premises. Upon and subject to the terms
hereof, Landlord hereby leases to Tenant the Additional Premises (as shown on
Exhibit A attached hereto) for the term set forth in Section 3 below. Unless
otherwise provided in this Amendment, from and after the commencement date set
forth in Section 3
<PAGE>
below, Tenant shall observe and perform, with respect to the Additional
Premises, all obligations of Tenant pursuant to the Lease.
3. Term. The term of the lease for the Additional Premises shall
commence upon delivery, anticipated to occur on or before July 1, 1999, and
expire on the Termination Date. Within thirty (30) days following the
determination of the commencement date for the Additional Premises, Landlord and
Tenant shall execute a Commencement Date Memorandum confirming. the commencement
date for the Additional Premises. Upon the expiration or earlier termination of
the term of the Lease, Tenant shall vacate and surrender the Premises and the
Additional Premises to Landlord in the condition required by Section 12 of the
Lease and otherwise pursuant. to the terms of the Lease.
4. Rental Rate. From the commencement date for the Additional Premises
as provided herein, Tenant shall pay to Landlord as basic rental the sum of
$36.00 per rentable square foot per year.
5. Tenant Improvement Allowance. On or before the commencement date,
Landlord shall deliver to Tenant the Additional Premises in its current "As Is"
condition, and, except as provided herein, Landlord shall have no obligation
whatsoever to provide any alterations or improvements with regard to the
Additional Premises. Landlord shall provide Tenant with an allowance (the
"Tenant Improvement Allowance") of $4,474.00 for the Additional Premises (equal
to $2.00 per rentable square foot of the Additional Premises), for Tenant's
required work in the Additional Premises which may be used by Tenant for any
improvement it makes to the Additional Premises (provided the same is made in
accordance with the Lease). Tenant shall construct the tenant improvements for
the Additional Premises in accordance with all applicable laws and codes and
pursuant to plans and using such contractors as shall be approved in advance by
Landlord. Landlord shall pay out the Tenant Improvement Allowance as any such
work is completed based upon the stage of completion and provided Landlord has
received bills and lien releases from Tenant's contractor(s) and/or suppliers,
subject to a ten percent (10%) retention to be withheld until final, lien-free
completion of the work. Tenant shall pay all costs for constructing its
improvements in excess of the Tenant Improvement Allowance, and shall pay for
all applicable fees and permits.
6. Base Year. The Base Year for the Additional Premises shall be the
2000 calendar year. Upon commencement of the term for the Additional Premises,
Tenant's percentage share of increases in operating costs and property taxes
shall be increased by an amount equal to one and sixty one hundredths percent
(1.60%).
7. First Month's Rent; Increase of Security Deposit. Upon execution of
this Amendment, Tenant shall deposit with Landlord the sum of $13,422.00, of
which $6,711 shall be credited towards the first month's basic rental due for
the Additional Premises, and of which $6,711 shall be added to the Security
Deposit held by Landlord
2
<PAGE>
pursuant the Lease as security for tenant's performance of its obligations under
the Lease.
8. Delay in Delivery. If for any reason Landlord cannot deliver the
Additional Premises to Tenant on or before July 1, 1999, Landlord shall not be
subject to any liability therefor, nor shall Landlord be in default hereunder,
and Tenant agrees to accept possession of the Additional Premises, and the term
hereof with respect to the Additional Premises shall commence, at such time as
Landlord does deliver same to Tenant.
9. Broker. Landlord shall be responsible, pursuant to a separate
agreement, for payment of a brokerage commission to Belvedere Associates, Inc.
(as the broker for Tenant) (the "Broker") in connection with this Amendment.
Landlord and Tenant each represent and warrants to the other that no party other
than Broker is entitled to any fee or commission in connection with the
negotiation or consummation of this Amendment. Landlord and Tenant shall each
indemnify, defend and hold the other harmless from and against liability for
compensation or charges which may be claimed by any broker, finder or other
similar party other than Broker by reason of this Amendment.
10. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the heirs, executors, administrators, successors and
assigns of the respective parties hereto.
11. Limitation of Amendment. Except as specifically modified by this
Amendment, all of the terms and provision of the Lease shall remain unmodified
and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
TENANT: LANDLORD:
INSTANT VIDEO TECHNOLOGIES, BPG SANSOME, L.L.C., a Delaware
INC., a Delaware corporation limited liability company
By: BPG PARTNERS, LLC,
Managing Member
Its: /s/ David Morgenstein By: Richard J. Johnson
---------------------- --------------------------
By: /s/ David Morgenstein Richard J. Johnson
---------------------- Manager
Its: C.O.O.
----------------------
3
<PAGE>
Exhibit A
[Graphic Omitted[
SECOND FLOOR
REFERENCE
NORTH
500
SANSOME STREET
<PAGE>
COMMENCEMENT DATE MEMORANDUM
To: Instant Video Technologies July 7, 1999
500 Sansome Street, Suite 503
San Francisco, CA 94111
Re: Tenth Amendment to Lease dated June 24, 1999, between BPG Sansome, LLC,
Lessor, and Instant Video Technologies, Inc., Lessee, concerning the
Additional Premises (Suite 201) located at 500 Sansome Street, San
Francisco.
In accordance with the original Lease and the subject Tenth Amendment to Lease
(together the "Lease"), we wish to advise and/or confirm as follows:
1) The Additional Premises (Suite 201) have been accepted by the Tenant as
being substantially complete in accordance with the Lease and there is
no deficiency in construction.
2) Lessee has possession of the Additional Premises (Suite 201) and
acknowledges that under the provisions of Lease, the term of said Lease
for Suite 201 shall commence as of July 1, 1999, for a term of
thirty-one (31) months ending on January 31, 2002.
3) In accordance with the Lease, Rent commenced to accrue for Suite 201 on
July 1, 1999.
4) If the commencement date of the Lease is other than the first day of
the month, the first billing will contain a pro rata adjustment. Each
billing thereafter shall be for the full amount of the monthly
installment as provided for in the Lease.
5) Rent is due and payable in advance on the first day of each and every
month. Rent checks should be made payable to BPG Sansome, LLC and
delivered to:
BPG Sansome, LLC
P0 Box 8743
Los Angeles, CA 90088-8743
6) The rentable square footage in the Additional Premises (Suite 201) is
2,237.
7) Tenant's Percentage Share for Suite 201 is 1.60%.
Lessor: Lessee:
BPG Sansome, LLC Instant Video Technologies, Inc.
a Delaware limited liability company a Delaware corporation
500 Sansome Street, Suite 608 500 Sansome Street, Suite 503
San Francisco, CA 94111 San Francisco, CA 94111
By: BPG Partners, LLC By: /s/ David Morgenstein
Managing Member ----------------------------
Print Name: DAVID MORGENSTEIN
--------------------
By: /s/ Richard J. Johnson Title: C.O.O.
----------------------- -------------------------
Richard J. John
Manager
<PAGE>
500 SANSOME STREET COMPANY
500 Sansome Street
San Francisco, CA 94111
ESTOPPEL CERTIFICATE (TENANT)
Re: Landlord: 500 Sansome Street Company
a California limited partnership
Tenant: Instant Video Technologies, Inc.
Premises: Office Building located at
500 Sansome Street,
Suites 503 and 505,
San Francisco, California
Lease Dated: February 15, 1993
Commencement Date Original Date: February 16, 1993
of Lease; Amended Date: May 15, 1997
Basic Lease Term: Six (6) months
Security Deposit: $9,312.00
Gentlemen:
The undersigned, Tenant under the above described lease (the "Lease"),
hereby confirms, as of the date hereof the following:
1. That Exhibit A attached hereto and by this reference
incorporated herein is a true, complete and accurate copy of
the Lease.
2. The undersigned is in full and complete possession of the
Premises; that the Premises are accurately designated and
shown on Exhibit A; and that the information hereinabove as to
Landlord, Tenant, Premises, Lease Date, Commencement Date of
Lease, Basic Lease Term and Security Deposit is true and
correct.
3. That the Lease is in full force and effect; that there are no
existing conditions on the part of the Landlord under the
terms thereof, including without limitation, any requirement
of the Landlord to install tenant improvements, nor are there
any existing defaults under the Lease, or otherwise, which
would give the undersigned the right to cancel or terminate
the Lease. None
4. That subsequent to the date thereof; the Lease has not been
amended, modified, supplemented or superseded except as
follows:
First Amendment to Lease dated February 9, 1994
Second Amendment to Lease dated June 9, 1994
Third Amendment to Lease dated January 13, 1995
Fourth Amendment to Lease dated June 12, 1995
Fifth Amendment to Lease dated February 13, 1996
Sixth Amendment to Lease dated August 2, 1996
Seventh Amendment to Lease dated May 1, 1997
EXHIBIT I
<PAGE>
5. That the undersigned has received no rental inducements, free
rent, or any other economic inducement to enter into the
lease except as follows: None
6. That no rents have been prepaid except as provided by the
Lease; and that the undersigned does not now have or hold any
claims against Landlord which might be set off or credited
against future-accruing rents, except as follows: None
7. That the undersigned has received no notice of prior sale,
transfer, assignment, hypothecation or pledge of the Lease or
of the rents secured "herein," except as follows: None
8. That the undersigned has no options with respect to the
premises except as follows: Provided that Tenant is not in
default, tenant shall have the option to extend the term of
this Lease for an additional period of three (3) years (the
"Extension Term").
9. That the undersigned is not the subject of any bankruptcy,
reorganization or insolvency proceedings.
10. That the undersigned has no option or right of first refusal
to purchase the Office Building of which the Premises are a
part. The undersigned acknowledges that it is aware that this
Estoppel Certificate may be relied upon by any prospective
purchaser, mortgagee or beneficiary under any deed of trust or
any assignee or successor to any thereof.
Dated: 22 May, 1997
INSTANT VIDEO TECHNOLOGIES, INC.
--------------------------------
--------------------------------
By: ????????????
----------------------------
Its: Chairman/CEO
---------------------------
We agree with and confirm the information contained in the foregoing
Estoppel Certificate.
LANDLORD
500 SANSOME STREET COMPANY,
a California limited partnership
By: _______________________________
Peter A. Salz, its General Partner
Dated: _______________, 1997
EXHIBIT I
<PAGE>
TENANT ESTOPPEL
August 31, 1998
Prime Capital Funding, LLC
230 Park Avenue
New York, New York
Re: Lease between BPG SANSOME, LLC, as Landlord or its assignees
("Landlord"), and INSTANT VIDEO TECHNOLOGIES, INC. as Tenant
("Tenant"), dated February 15, 1993 for approximately 3,468 square
feet of space in 500 Sansome Street, San Francisco, California (the
"Project") (the "Lease")
Gentlemen:
Tenant understands that PRIME CAPITAL FUNDING, LLC or an affiliate
(together with its successors and assigns, "Lender") intends to make a loan to
BPG SANSOME, LLC ("Borrower") to be secured by the Project. Tenant presently
leases premises within the Project pursuant to the Lease, and, in connection
with the foregoing, Tenant does hereby certify to Borrower and Lender as
follows:
(a) The Lease is in full force and effect; there are no amendments or
modifications of any kind to the Lease except the following: First Amendment
dated February 9, 1994; Second Amendment dated June 9, 1994; Third Amendment
dated January 13, 1995; Fourth Amendment dated June 12, 1995; Fifth Amendment
dated February 13, 1996; Sixth Amendment dated August 2, 1996; Seventh Amendment
dated May 1, 1997; there are no other promises, agreements, understandings, or
commitments between Landlord and Tenant relating to the premises leased under
the Lease; and Tenant has not given Landlord any notice of termination
hereunder;
(b) There has not been and is now no subletting of the leased premises,
or any part thereof, or assignment by Tenant of the Lease, or any rights
therein, to any party;
(c) A security deposit in the amount of $9,312.00 has been given by
Tenant under the terms of, or with respect to, the Lease;
(d) No uncured default, event of default, or breach by Landlord exists
under the Lease, no facts or circumstances exist that, with the passage of time,
will or could constitute a default, event of default, or breach under the Lease.
Tenant has made no claim against Landlord alleging Landlord's default under the
Lease;
<PAGE>
(e) Tenant is in full and complete possession of its leased premises in
the Project and has accepted its leased premises in the Project, including any
work of Landlord performed thereon pursuant to the terms and provisions of the
Lease, and all common areas of the Project (including, without limitation,
parking areas, sidewalks, access ways and landscaping) are in compliance with
the Lease and are satisfactory for Tenant's purposes;
(f) To the best of Tenant's knowledge and belief, there are no rental,
lease, or similar commissions payable with respect to the Lease, except as may
be expressly set forth therein;
(g) Tenant is obligated to pay rent to Landlord at the rate set forth
in the Lease. Tenant is current with respect to, and is paying the full rent and
other charges stipulated in the Lease (including, without limitation, common
area maintenance charges) with no offsets, deductions, defenses or claims; and
Tenant has not prepaid any rent or other amounts to Landlord other than rent and
other charges due and payable in the calendar month of this certification;
(h) Tenant is not entitled to any concession or rebate of rent or other
charges from time to time due and payable under the Lease, and there are no
unpaid or unreimbursed construction allowances or other offsets due Tenant under
the Lease;
(i) The current monthly estimated operating expense passthrough charge
paid by Tenant under the Lease is $292.00;
(j) The monthly storage rent under the month to month lease for storage
space is $0.00;
(k) The monthly base rent under the Lease is $6,936.00 and has been
paid by Tenant through August 31, 1998;
(l) Tenant is open for business and in operation in the Project;
(m) Tenant agrees to provide copies of all notices given to Landlord
under the Lease to Lender at the following address:
Prime Capital Funding, LLC
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attn: Victoria A. Cory, Senior Vice President
(n) The undersigned representative of Tenant is duly authorized and
fully qualified to execute this instrument on behalf of Tenant thereby binding
Tenant;
(o) Tenant agrees and acknowledges that the Lease is and shall be
subordinate to the mortgage/deed of trust in favor of Lender. Tenant agrees
that, in the event
2
<PAGE>
Lender becomes the owner of the premises by foreclosure, conveyance in lieu of
foreclosure or otherwise, then Tenant shall attorn to and recognize Lender as
the landlord under the Lease for the remainder of the term hereof, and Tenant
shall perform and observe its obligations thereunder, subject only to the terms
and conditions of the Lease. Tenant further covenants and agrees to execute and
deliver upon request of Lender an appropriate agreement of attornment to Lender
and any subsequent titleholder of the premises.
(p) Tenant acknowledges that the initial term of the Lease commenced on
February 16, 1993, and shall expire on November 14, 2000, unless sooner
terminated in accordance with the terms of the Lease. Tenant has no option to
renew or extend the lease term, except as follows: None.
(q) Tenant has no option or right to purchase the property of which the
demised premises are a part, or any part thereof.
(r) Tenant understands and acknowledges that you are about to make a
loan to Landlord and receive as part of the security for such loan (i) a
Mortgage/Deed of Trust encumbering Landlord's fee interest in the Project (of
which the demised premises are a portion) and the rents, issues and profits of
the Lease (the "Mortgage"), and (ii) an Assignment of Leases and Rents
("Assignment of Leases") which affects the Lease, and that you (and persons or
entities to whom the Mortgage and/or Assignment of Leases may subsequently be
assigned) are relying upon the representations and warranties contained herein
in making such loan. Further, Tenant has notice that the Lease and the rent and
all other sums due thereunder have been assigned or are to be assigned to you as
security for the aforesaid loan secured by the Mortgage. In the event that you
(or any person or entity to whom the Mortgage and/or Assignment of Leases may
subsequently be assigned) notify Tenant of a default under the Mortgage of
Assignment of Leases and demand that Tenant pay its rent and all other sums due
under the Lease to you (or such future lender), Tenant shall honor such demand
and pay its rent and all other sums due under the Lease directly to you (or such
future lender) or as otherwise required pursuant to such notice.
Tenant acknowledges and agrees that Landlord and Lender shall be
entitled to rely on Tenant's certifications set forth herein. Tenant hereby
further agrees for a period of thirty (30) days from the date hereof to notify
Landlord and Lender in writing at the address set forth above of any changes in
the truth and accuracy of any of the certifications contained herein promptly
upon Tenant's learning of each such change.
3
<PAGE>
IN WITNESS WHEREOF, Tenant has executed this instrument this 22nd day
of September, 1998.
TENANT:
-------
INSTANT VIDEO TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Edward H. Davis
-------------------------
Name: Edward H. Davis
-----------------------
Title: V.P. General Counsel
----------------------
4
<PAGE>
TENANT ESTOPPEL CERTIFICATE
To: FINOVA REALTY CAPITAL INC., a Delaware corporation, its
successors and assigns (collectively "Lender")
The undersigned hereby certifies and agrees as follows:
1. The undersigned is the tenant (the "Tenant") under that
certain Lease (the "Lease") by and between Tenant and BPG SANSOME, LLC, a
Delaware limited liability company (such party, together with its successors and
assigns hereinafter collectively referred to as the "Landlord") dated February
15, 1993 affecting space in the building known as Suites 502, 503 and 506,
located at 500 Sansome Street, San Francisco, California (the "Building").
2. The Lease commenced on February 16, 1993.
3. The Lease expires on January 31, 2002. Tenant has no option
or other right to extend the term of the Lease beyond January 31, 2002.
4. Tenant has accepted and is occupying the entire premises
demised to it under the Lease (the "Premises") and all improvements to the
Premises required by the Lease have been completed by Landlord in accordance
with the Lease.
5. Tenant has not paid rent or additional rent beyond the
current month and agrees not to pay rent or additional rent more than one month
in advance at anytime.
6. Rent payable in the amount of $13,136.00 per month has been
paid through December 31, 1998.
7. To Tenant's knowledge, there are no defenses to or offsets
against the enforcement of the Lease or any provision thereof by the Landlord.
8. Tenant has deposited $9,312.00 as a security deposit with
Landlord pursuant to the terms of the Lease.
9. Landlord has not agreed to grant Tenant any free rent or
rent rebate or to make any contribution to tenant improvements. Landlord has not
agreed to reimburse Tenant for or to pay Tenant's rent obligation under any
other lease.
10. Tenant has not advanced any funds for or on behalf of
Landlord for which Tenant has a right to deduct from or offset against future
rent payments.
11. The Lease is in full force and effect without default
thereunder by Tenant or, to the best knowledge of Tenant, Landlord.
12. The Lease is the entire agreement between the Landlord and
Tenant pertaining to the Premises.
<PAGE>
13. The Lease has not been amended, modified or supplemented
except the following: First Amendment dated February 9, 1994, Second Amendment
dated June 9, 1994, Third Amendment dated January 13, 1995, Fourth Amendment
dated June 12, 1995, Fifth Amendment dated February 13, 1996, Sixth Amendment
dated August 2, 1996, Seventh Amendment dated May 1, 1997 and Eighth Amendment
dated October 12, 1998.
14. Tenant does not have any purchase option or first refusal
right with respect to the Building. Tenant does not have any right or option for
additional space in the Building.
15. Since the date of the Lease, there has been no material
adverse change in the financial condition of Tenant, and there are no actions,
whether voluntary or otherwise, pending against Tenant under the bankruptcy,
reorganization, arrangement, moratorium or similar laws of the United States,
any state thereof or any other jurisdiction.
16. Tenant will not seek to terminate the Lease or seek or
assert any set-off or counterclaim against the rent or additional rent by reason
of any act or omission of the Landlord, until Tenant shall have given written
notice of such act or omission to Lender.
Tenant acknowledges that Lender will rely on this Certificate
in making a loan or otherwise extending credit to Borrower.
INSTANT VIDEO TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ David Morgenstein
----------------------------
Print Name: David Morgenstein
--------------------
Title: C.O.O.
-------------------------
OFFICE LEASE AGREEMENT AMERICENTERS
EXECUTIVE OFFICE NETWORK
THIS LEASE made this 6th day of August, 1999, between AmeriCenter of Livonia
whose address is 39111 W. Six Mile Rd. Livonia, MI 48152 (Landlord) and Instant
Video Technologies whose address is ________________________ (Tenant)
1. OFFICE
a. LEASED PREMISES. Landlord, in consideration of the performances
of the covenants contained herein and intending to be legally
binding, the parties agree as follows: Landlord does hereby
Lease unto Tenant premises situated in the City of Livonia,
County of Wayne, State of Michigan, more particularly described
as Suite(s) 111 in the AmeriCenter of Livonia as shown on the
floor plan attached hereto as Exhibit C.
b. TERM. The term shall be for a period of Twelve (12) Months
commencing September 1, 1999 (the commencement date) to expire
August 31, 2000 (the expiration date). If for any reason
Landlord is unable to deliver the leased premises or a mutually
agreed upon alternative office on the commencement date; Tenant
may either extend the commencement date until the office
becomes available, or as its sole remedy cancel and terminate
this Lease. Landlord shall not be liable to Tenant for any
damages as a result of Landlord's delay in delivering the
leased premises.
c. RENT. Such payments shall be made at the office of the Landlord
or such other place as Landlord may designate in a notice to
Tenant. If the beginning date is not the first day of the
month, the rent will be prorated for that initial partial
month. If the Tenant shall take over the premises prior to
commencement date, Tenant shall pay Landlord the prorated
rental at the rate specified below. All Lease terms shall be
applicable upon Tenant's occupancy. The office rent is premised
on the services being used by one person per office only. If
more than one person habitually uses such space or services,
the rent will be increased by a factor of 10% for each
additional person.
Rent shall be promptly paid without prior demand in U.S.
funds, in equal monthly installments, upon the first day of
each month. Overdue rent or other charges shall bear a late
charge equal to (5%) percent of each such rental or other
charge and further bear interest at the rate of fourteen (14%)
percent per annum during delinquency until paid. If a check is
returned for any reason at all; Tenant will pay an additional
charge of $25.00 per returned check. If a check is returned,
then, for the purposes of calculating late charges or events of
default, it will be as if the payment represented by the check
had never been made. Landlord shall have no obligation to
accept less than the full amount of any installment of rent and
interest thereon and all charges hereunder which are due and
owing by Tenant to Landlord, and if Landlord shall accept less
than the full amount owing, Landlord may apply the sums
received toward any of Tenant's obligations in Landlord's
discretion. If Landlord allows Tenant occupancy for a period of
time rent free, and Tenant defaults under the Terms and
Conditions of the Lease, rent for said period shall be due and
owing to Landlord for the entire period.
Tenant shall pay to the Landlord as rent for the following in
equal monthly installments of:
SUITE# 111 SUITE# SUITE#
---------- -------- -------
OFFICE(S) RENT $ 895.00 $ $
-------- -------- -------
PHONE INSTRUMENT(S) RENT. $ 70.00(2) $ $
-------- -------- -------
FURNITURE RENT. $ 150.00 $ $
-------- -------- -------
<PAGE>
Furniture Rent is based on the use of the following items: Desk, Credenza, Desk
Chair, 2 Guest Chairs
Availability of all or any of the furniture listed above shall not effect the
terms of the Agreement, however, during such time as the furniture listed shall
be unavailable the furniture rental shall be prorated or similar items will be
substituted at the Landlord's option. Rent may increase as Tenant adds
additional furniture.
d. RELOCATION. Landlord reserves the right to relocate Tenant to
another comparable space in the building upon not less than
thirty (30) days prior written notice to Tenant. Landlord shall
pay the cost of moving Tenant to the new space. If Tenant does
not wish to accept relocation, Tenant may object thereto by
written notice to Landlord within ten (10) days after the
notice from Landlord. In the event Tenant so objects, Landlord
may rescind the notice of intention to relocate Tenant or may
reaffirm said intention, in which event Tenant may terminate
this Lease by notice to Landlord at anytime effective prior to
the expiration of the original thirty (30) day period. If
Tenant decides to move, he must vacate the premises within
thirty (30) days of the written notice from the Landlord.
e. USE OF OFFICE. Tenant will use its space exclusively as an
office. The rules and regulations set forth on Exhibit D
attached hereto, together with such other reasonable rules and
regulations as Landlord shall make from time to time which are
of uniform applicability to all Tenants of the building of
which the leased premises are a part and of which Tenant shall
have received notice, shall be binding upon Tenant and are
hereby made a part of this Lease.
f. ACCESS TO PREMISES. On month to month agreements, Landlord has
the right to show Tenant's office(s), during normal business
hours on any day. If either party has given notice to the other
to terminate this Lease or if Tenant is in default under this
Lease, Landlord will have the right to show Tenant's office(s)
to prospective clients.
Tenant shall permit Landlord and its agents access to the premises at all
reasonable hours for the purpose of examining the premises, making any
repairs, alterations, or additions which the Landlord may deem necessary
for the safety, preservation or improvement of the premises or the
building.
g. ALTERATIONS. Tenant shall not make any alterations, additions
or improvements to the leased premises (whether or not the same
may be structural in nature) without Landlord's prior written
consent, and all alterations, additions or improvements made by
either party hereto to the leased premises, except movable
office furniture and equipment installed at Tenant's expense,
shall be the property of Landlord and remain upon and be
surrendered with the leased premises at the expiration of the
term hereof. All alterations shall be done only at such times
and such manner as Landlord may designate, and only by such
contractors as are approved by Landlord.
h. VACATING. At the expiration of this Lease, Tenant will promptly
vacate the premises in the same condition as when first
occupied by Tenant, normal wear and tear excepted, turn in its
keys, and provide Landlord with a forwarding address and
telephone number. In the event that Landlord shall deem it
necessary to make repairs to the leased premises or to the
building required as a result of Tenant's acts, neglect or
default, all repairs shall be done at Tenant's sole expense, at
such times and in such manner as Landlord designates and by
such contractors or mechanics as approved by Landlord. Tenant
will be charged a $150 move out fee per office on Tenant's
final bill for phone disconnect, carpet cleaning, painting,
etc. This is not a damage fee.
III SERVICES
a. While this Lease remains in effect and provided there are no
defaults thereof, Landlord agrees to provide certain services
to Tenant as described in Exhibit A attached and by this
reference made a part hereof. Provided Tenant is not in default
hereunder, Landlord shall make available to Tenant certain
other services as described in Exhibit B attached. Services on
Exhibit B shall be provided at a rate which is then prevailing
throughout the premises and which may be changed by Landlord
upon thirty (30) days written notice. Payment for any and all
services rendered shall be due on date stated on service
invoice. If Tenant shall be in default in payment of charges
for services rendered, as herein identified, all services are
subject to suspension without notice and constitutes a default
under this Lease.
2
<PAGE>
Landlord makes no warranties, expressed or implied, in regard to the
equipment utilized by Landlord or the services rendered, and Tenant hereby
specifically waives any and all claims in regard to the accuracy, quality or
timeliness of services rendered pursuant to the terms and conditions of this
Lease. Tenant specifically hereby acknowledges that the sums paid for such
services are not sufficient to permit Landlord to assume any risk of
consequential or other damages to the Tenant due to the failure of the equipment
provided, or Landlord's negligence, whether by action or inaction. If the
Landlord should be found liable for loss or damage due to a failure of
equipment, or the negligence of the Landlord or his employees or agents in
regard to any of the services herein provided, the parties agree that damages
shall be a sum equal to the cost of rendering the services in issue as
liquidated damages and not as a penalty, and this stipulated liability shall be
the exclusive remedy.
Tenant shall not offer at the premises any of the services which
Landlord provides to its Tenants including, but not limited to services
described in Exhibits A and B.
Tenant shall receive four (4) hours conference room usage at no charge
per month. If Tenant leases multiple offices, the maximum hours of free
conference room usage per company, per month is eight (8) hours. Any unused will
not carry forward. Additional conference room usage will be charged according to
the current hourly/daily rates.
b. TELECOMMUNICATlON. While in the premises of the Landlord,
Tenant will only use telephone communications systems,
equipment and services provided by Landlord. Tenant agrees to
pay to Landlord a fixed monthly phone equipment and line charge
for the use of Landlord's telephone instrument(s), voice and
data line(s) and voicemail. All changes to telecommunication
services, lines, equipment must be arranged through Landlord.
Landlord will make available to Tenant, a telecommunications
package which may consist of some combination of telephone
numbers, lines, features, etc., voicemail, long distance,
pagers, 800 service, and directory listing. All components of
the telecommunications package including any telephone numbers
used by Tenant will remain at all times the property of
Landlord and Tenant will acquire no rights in the components
beyond the terms specified by Landlord. In the event that any
toll fraud is traceable to telecommunications services employed
by Tenant, Tenant will reimburse Landlord for all charges
associated with the toll fraud. This may include, but is not
limited to, unauthorized use of calling cards or telephone
lines.
Landlord will answer Tenant's incoming telephone calls
dialed directly to the telephone number(s) assigned by Landlord
during the normal business hours. Answering services will be
provided for a reasonable volume of inbound calls. Tenant is
not permitted to use, unless by prior written permission by
Landlord, any telephone number as assigned by Landlord and/or
processed through Landlord's telephone system in advertising
(i.e. newspaper classified(s) or in the conduct of any other
activity (telemarketing, mass mailings, etc.) that would
generate a noticeable increase in the number of calls processed
through Landlord's telephone system. If Tenant violates this
restriction and the increase of phone calls negatively impacts
Landlord's ability to provide proper telephone service,
Landlord may immediately and without notice, take any or all of
the following actions; program the phone to forward calls
directly to Tenant's phone or voicemail, charge $2.00 for each
phone call answered or processed by Landlord's phone system or
discontinue and/or disconnect services for all such phone lines
and/or phone numbers violated by Tenant. Tenant agrees that
Landlord will have no liability for any consequences of such
actions per terms, conditions of the Lease.
c. COMPETING SERVICES. Tenant will not hire any secretary or
typist to work in Tenant's office, whether full or part time,
during normal business hours or after hours. Tenant will not
sell any goods or perform any services in competition with
Landlord. If Tenant desires the use of a temporary employee
from an agency, Tenant must give Landlord the first opportunity
to provide said employee at a competitive rate.
III. RENEWAL
a. RENEWAL. Upon the termination date set forth herein, or any
extension thereof, this Lease shall be extended for the same
period of time as the initial term, upon the same terms and
conditions as contained herein, at the then current market
rental rate, unless either party notifies the other in writing,
by certified or registered mail at least 60 days prior to
expiration date, that the agreement will not be extended. If
Tenant occupies three or more offices, such notice must be
given at least 90 days prior to the expiration of this Lease.
b. HOLDOVER. If Tenant retains possession of the premises or any
part thereof after termination of the Lease term without
consent of Landlord, except when automatically renewed as
provided herein, the Tenant shall pay Landlord 1.5 times the
monthly rent as set forth in this Lease or any extensions
thereof. The tenancy will be deemed month to month occupancy
and there will be no prorations thereof.
3
<PAGE>
IV. SECURITY DEPOSIT
a. SECURITY DEPOSIT. As security for the faithful performance by
Tenant of all of the terms and conditions upon the Tenant's
part to be performed, Tenant has deposited with Landlord the
sum equivalent to one (1) month's combined rental in U.S. Funds
which shall be returned to Tenant, without interest within 60
days of the expiration date of this Lease, provided that Tenant
has fully and faithfully performed all of the terms, covenants
and conditions on its part to be performed. Landlord shall have
the right (but not the obligation) to apply any part of said
deposit to cure any default of Tenant and if Landlord does so,
Tenant shall upon demand deposit with Landlord the amount so
applied so that Landlord shall have the full deposit on hand at
all times during the term of the Lease or any subsequent
renewal. Landlord shall hold such security deposit in a lawful
manner. Tenant may not apply security deposit to last months
rent. Landlord shall have the right to apply said security to
any damages to premises, other than normal wear, upon Tenant
vacating.
In the event of a sale of the building or Lease of the land on which it
stands, subject to this Lease, the Landlord shall have the right to
transfer this security to the vendee or lessee and the Landlord shall be
considered released by the Tenant from all liability for the return of such
security and Tenant shall look solely to the new Landlord for the return of
the said security, and it is agreed that this shall apply to every transfer
or assignment made of the security to a new Landlord. The security
deposited under this Lease shall not be mortgaged, assigned or encumbered
by the Tenant without the written consent of the Landlord and any attempt
to do so shall be void. In the event of any rightful and permitted
assignments of this Lease, the said security deposit shall be deemed to be
held by Landlord as a deposit to the assignor.
V. INSURANCE/DAMAGES
a. PERSONAL PROPERTY DAMAGE--PERSONAL INJURY. Landlord and its
respective agents, employees and invitees shall not, to the
extent permitted by law, be liable for, and the Tenant waives
all rights of recovery against such entities and individuals
for any damage or claim with respect to any injury to person or
damage to, or loss or destruction of any property of the
Tenant, its employees, authorized persons and invitees due to
any act, omission or occurrence in or about the office, office
premises or the building. Without limitation of any other
provision hereof, Tenant agrees to indemnify, defend, protect
and save Landlord and its respective agents, employees and
invitees harmless from and against all liability to third
parties arising out of Tenant's use and occupancy of the Office
or actions or omissions of Tenant and its agents, employees,
contractors, and invitees. Tenant further agrees that all
personal property of Tenant, its agents, employees contractors,
and invitees, shall be at the sole risk of Tenant. It is
Tenant's responsibility to maintain insurance to cover the
risks set forth in this paragraph.
b. INSURANCE. Prior to occupancy, Tenant shall procure and keep in
effect during the term public liability and property damage
insurance protecting Landlord and Tenant having minimum limits
of liability of Five Hundred Thousand ($500,000.00) Dollars for
damages resulting to one person. One Million ($1,000,000.00)
for damages resulting from one casualty, and One Hundred
Thousand ($100,000.00) Dollars for property damage resulting
from any occurrance. Tenant shall deliver policies of such
insurance or certificates thereof to Landlord.
c. CASUALTY DAMAGES. In the event the leased premises are damaged
or destroyed in whole or in part by fire or other casualty
during the term hereof, Landlord shall, at its own cost and
expense, repair and restore the same to tenantable condition
with reasonable dispatch, and the rent herein provided for
shall abate entirely in case the entire leased premises are
untenantable and prorate for the portion rendered untenantable,
in the event of partial untenantability, until such time as the
leased premises are restored to tenantable condition. If the
leased premises cannot be restored to tenantable condition
within a period of ninety (90) days, Landlord and Tenant shall
each have the right to terminate this Lease upon written notice
to the other and any rent paid for any period in advance of the
date of such damage and destruction shall be refunded to
Tenant. If the leased premises are damaged due to fire or other
casualty, Tenant shall at its own cost and expense remove such
of its furniture and other belongings from the leased premises
as Landlord shall require in order to repair and restore the
leased premises.
4
<PAGE>
VI. DEFAULT
a. EVENTS OF DEFAULT. Events of Default include, but are not
limited to the following:
1. Rent becoming past due;
2. Services becoming past due;
3. Alterations, additions or improvements to leased
premises being made without Landlord's prior written
consent;
4. Tenant's failure to keep in effect during the term of
the Lease public liability and property damage
insurance protecting Landlord and Tenant in
accordance with the requirements of Paragraph V. b.
above;
5. Default in any other terms or conditions of this
Lease or violation of the rules and regulations set
forth in Exhibit D.
b. LANDLORD'S REMEDIES. On the occurrence of an event of default
as set forth in Paragraph VI. a. above, Landlord shall give
Tenant written notice of such default, and if Tenant shall fail
to cure such default within seven (7) days after receipt of
such notice, Landlord shall, in addition to its other remedies
provided by law, have the remedies set forth in Paragraphs c.,
d. and e., and in the respective sub-paragraphs thereunder.
c. 1. If any rent shall be due and unpaid or Tenant shall
be in default under any of the other terms of this
Lease, and such default has not been cured after
notice and within the time provided in sub-paragraph
VI. b., or if the Leased premises are abandoned or
vacated, then Landlord, in addition to its other
remedies, shall have the immediate right of reentry.
Should Landlord elect to reenter or take possession
pursuant to legal proceedings or any notice provided
for by law, Landlord may either terminate this Lease
without waiving its right to damages or from time to
time, without terminating this Lease, re-let the
premises or any part thereof on such terms and
conditions Landlord in its sole discretion shall deem
suitable. The avails of such re-letting shall be
applied first to the payment of any indebtedness of
Tenant to Landlord, other than rent due hereunder,
including all collection and court costs and attorney
fees suffered in recovering and re-letting the leased
premises, second to the payment of any reasonable
costs of such re-letting, including the cost of any
reasonable alterations or repairs to the premises,
third to the payment of rent due and unpaid
hereunder, and the residue, if any, shall be held by
Landlord and applied on payment of future rent as the
same may become due and payable hereunder. Should the
avails of such re-letting during any month be less
than the monthly rent reserved hereunder, then Tenant
shall during such month pay such deficiency to
Landlord.
2. If Tenant shall fail to pay rent as due hereunder,
shall fail to perform any other terms hereunder, or
shall become insolvent, bankrupt, or cease to conduct
its normal business activity in this office, then all
installments of rent for the entire term of this
Lease shall, at the option of the Landlord, become
immediately due and payable, without demand. Any
failure of Landlord to exercise the rights of
acceleration hereunder shall not waive nor prohibit
Landlord from exercising said rights of acceleration
upon any subsequent or continuing nonpayment of rent
or other breach of Tenant hereunder.
3. Deny use of any or all of the services described in
Exhibit A and Exhibit B of this Lease.
d. ADDITIONAL CHARGES UPON DEFAULT. In the event of default,
Tenant will be liable for the following additional charges;
1. All collection and court costs and attorney fees
incurred by Landlord in recovering and re-letting the
leased premises.
2. Interest on all unpaid sums at 14% per annum.
3. Any other legally recoverable costs incurred by
Landlord as a result of Tenant's default.
e. OTHER CONSENQUENCES OF DEFAULT. In the event of default,
Landlord may immediately, without prior notice, cease providing
Tenant with any or all services described in Exhibit A and
Exhibit B, including telecommunications services.
5
<PAGE>
VII. NOTICES
a. Whenever under this Lease a provision is made for notice of any
kind, it shall be deemed sufficient notice and service thereof
if such notice to Tenant is in writing, addressed to Tenant at
his last known post office address, or at the leased premises,
and deposited in the mail, certified or registered mail, with
postage prepaid, and if such notice is to the Landlord, it is
to be in writing, addressed to the last known post office
address of the Landlord, and deposited in the mail, certified
or registered mail, with postage prepaid. Notice need be sent
to only one Tenant or Landlord, where Tenant or Landlord is
more than one person.
VIII. EMPLOYEES
a. Tenant recognizes that Landlord or Landlord's agent has
expended considerable time, effort and expense in hiring and
training its employees, and that the hiring of an employee by
Tenant would save them considerable time and expense in
training and procurement but would cause Landlord or Landlord's
agent to expend additional time and expense. Therefore, during
the term and for nine (9) months after its expiration, if
Tenant hires an employee of Landlord or Landlord's agent who
was an employee at any of Landlord's locations during any
portion of the term or for nine (9) months after expiration.
Tenant agrees to pay Landlord a procurement fee equal to four
(4) months salary of said employee, computed at his or her rate
in effect at date such employee terminated his or her
employment with Landlord. Tenant hereby acknowledges that the
stipulated sum herein set forth is a fair and equitable
estimate of the loss incurred by Landlord resulting from the
loss of its employee and payment of such sum by Tenant is
solely intended to compensate Landlord in the form of
liquidated damages for Tenants, or its employee or agents
breach of this agreement.
IX. MISCELLANEOUS TERMS & CONDITIONS
a. LANDLORD'S AGENTS. The only people who have authority to act
for Landlord, and to bind Landlord, are James Blain, President,
or those designated as officers of Landlord. Until and unless
written notice is received from either above, no one else has
any authority to act on behalf of Landlord.
b. UNENFORCEABILITY OF ANY PROVISION. Any provision of this Lease
Agreement which is prohibited or is unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without
invalidating the remaining portions of this Lease or affecting
the validity or enforceability of such provision in any other
jurisdiction.
c. AMBIGUITIES. Tenant has had an opportunity to read this Lease
and to ask questions. If Tenant asserts any ambiguities in the
Lease, those ambiguities will be interpreted in favor of
Landlord.
d. GUARANTOR. The undersigned Guarantor(s) shall be liable for all
sums due under this Lease, any extensions, any addendums
executed contemporaneously with this Lease, and for any other
sums due from Tenant to Landlord, no matter when or how
incurred, Landlord does not have to attempt to collection from
Tenant before proceeding against Guarantor. Guarantor will not
be released unless Landlord specifically releases Guarantor in
writing signed by Landlord.
e. CANCELLATION. Landlord retains the right to cancel this Lease
Agreement at any time with the payment of one months rent to
Tenant, if it is in Landlord's opinion it is in the best
interests of Landlord or its clients.
f. ASSIGNMENT AND SUBLETTING. Tenant shall not assign or transfer
this Lease or sublet the leased premises or any part thereof
without the prior written consent of Landlord.
g. WAIVER. If Landlord allows any default or variance in this
Lease, that will not constitute a waiver of its rights. No
matter how many times Landlord allows the default or variance,
or a variety of defaults or variances by Tenant or others, it
may still, without advance notice, require strict adherence to
this Lease or prohibit future variances. Nothing will change
the terms of this Lease, or extend it, or add to it, unless in
writing and signed by Landlord and Tenant.
h. CONVERSION. If Tenant vacates the premises and leaves behind
any personal property, files, or anything else, that property
will be considered abandoned by Tenant. If Tenant defaults in
the payment of sums due to Landlord, and Landlord changes the
locks, removed Tenant's property or otherwise denies access to
Tenant, Landlord will not be guilty of conversion.
6
<PAGE>
i. MAIL HANDLING AFTER LEASE EXPIRATION. At the expiration of this
Lease, it is the Tenant's responsibility to notify all persons
of its new address. Mail will be forwarded by Landlord for
period of thirty days. Tenant will pay all expenses of mail
forwarding. Thereafter, unless there is an agreement to the
contrary, mail will be returned to sender.
ALL PARTIES HAVE READ THE ABOVE PAGES AND AGREE TO ALL
TERMS AND PROVISIONS
<TABLE>
<CAPTION>
LANDLORD TENANT
<S> <C>
AmeriCenter of Livonia Company Name Instant Video Technologies
- --------------------------------------- ------------------------------
By: By: /s/ Tom Koshy
------------------------------------ ---------------------------------------
Signature Signature
James Blain, G.P. Tom Koshy, Senior V.P.
------------------------------------ ---------------------------------------
(Please Type or Print Name & Title)
Date: Date: 8-29-99
---------------------------------- -------------------------------------
Exhibits:
A & B - Services
C - Floor Plan
D - Rules & Regulations
GUARANTOR:
(Please Type or Print Name & Title)
------------------------------------------
------------------------------------------
(Print Name)
</TABLE>
7
<PAGE>
EXHIBIT "A"
-----------
Personalized Telephone Answering of Reasonable Volume of Incoming Calls
Receptionist/phone attendant
Utilities (except for telephone line charges)
Unlimited phone calls
Maintenance and janitorial services
Notary Service
Parking
Mail and package receipt
Use of spacious lobby
Kitchen
Complimentary coffee
EXHIBIT "B"
-----------
General secretarial services
Word Processing services
Administrative assistant services
Facsimile services
Copy services and binding
Outgoing mail handling
Office furniture
Office supplies
Catering and beverage services
Travel reservations
Telephone equipment
Telephone lines and service
8
<PAGE>
Exhibit C
LIVONIA
floor plan
3911 W. Six Mile o Livonia, Michigan 48152
[Graphic Omitted]
AMERICENTERS
EXECUTIVE OFFICE NETWORK
AmeriCenter of Livonia
39111 W. Six Mile
Livonia, Michigan 48152
For leasing information call:
(734) 591-7200
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
This Lease is subject to the following Rules and Regulations which are made a
part hereof. Landlord shall have no responsibility to Tenant for the violation
or nonperformance by any other Tenants of any of the following Rules and
Regulations but shall use reasonable efforts to uniformly enforce all Rules and
Regulations.
a.) Tenant and their employees will conduct themselves in a business like
manner, appropriate attire will be worn at all times. No person shall disturb
the occupants of this or adjoining buildings or premises by the noise of radios,
television sets, loudspeakers, musical instruments or by making loud or
disturbing noises.
b.) No electric or other wires for any purpose shall be brought into the demised
premises without Landlord's written permission. Electricity furnished by
Landlord shall be used only for purposes of illumination and the operation of
normal office equipment. Electricity for any other use shall be paid for by
Tenant.
c.) No bicycle or other vehicle, and no dog (unless seeing-eye dogs) or other
animal shall be allowed in offices, halls, corridors or elsewhere in the
building.
d.) Landlord reserves the right to approve fumiture and equipment being brought
in by Tenant. All furniture, equipment or other heavy articles shall be carried
in or out of the premises only at such time and in such manner as shall be
prescribed by Landlord.
e.) No additional lock or locks shall be placed on any door in the building
without Landlord's prior written consent. A reasonable number of keys will be
furnished by Landlord, and Tenant shall not make or permit any duplicated keys
to be made.
f.) Tenant will not prop open any exit door(s) or ask cleaning staff to unlock
any center doors at anytime or for any reason. Tenant shall lock exterior doors
to the building when entering or leaving after normal business hours.
g.) Tenant shall not install or operate any steam or gas engine or boiler or
carry on any mechanical business on said premises, or use oil, burning fluids,
camphor or gasoline for heating or lighting, or for any other purpose. No
article deemed extra hazardous on account of fire or other dangerous properties,
or any explosive, shall be brought into said premises.
h.) The demised premises shall not be used for lodging or sleeping or for any
immoral or illegal purposes.
i.) Landlord shall have the right to enter upon the demised premises at all
reasonable hours for the purpose of inspecting the same.
j.) Tenant shall not conduct business in hallways, lobby or corridors, or any
other areas except in it's office, without written consent of Landlord.
k.) It is Landlord's intention to provide secretarial support for our Tenants.
Therefore, Tenants are prohibited from retaining their own secretarial support.
l.) Any office equipment that typically would generate the services offered in
our Business Services Center are not allowed in the suites of the Tenants. Not
included in this are company and personal computers, printers, and fax machines.
m.) Any newspaper, magazine or other advertising done from the said demised
premises or referring to the said premises, which in the opinion of the Landlord
is objectionable shall be immediately discontinued upon notice from the
Landlord. No sign, picture, lettering, notice or advertisement of any kind shall
be painted or displayed on or from the windows, doors, roof or outside walls of
the building in which the demised premises are located.
n.) This is a non-smoking building. Smoking is prohibited in all areas of the
building included but not limited to entrances, all common areas and offices.
o.) Canvassing, soliciting and peddling in the building are prohibited and
Tenant shall not solicit other Tenants for any business or other purpose without
prior approval of Landlord.
10
<PAGE>
p.) Any property belonging to Tenant or their employee, agent or invitee, shall
be at the risk of such person only and Landlord shall not be liable for damages
thereto or for theft or misappropriation.
q.) Conference rooms are available during business hours 8:00 a.m. - 5:00 p.m.,
Monday through Friday. They are not available on weekends and holidays. Tenant
must clean up immediately after use of conference room and return the space and
equipment to the state and condition it was prior to Tenant's use. If not,
Landlord may charge Tenant a service charge and any other expenses required to
restore conference room and/or equipment to it's original state.
11
Denver West
Suites & Secretarial, Inc.
- --------------------------------------------------------------------------------
1746 Cole Boulevard o Suite 225 o Golden, Colorado 80401
Phone: (303) 233-9141 o Fax: (303) 278-0092
Office Services Agreement
<PAGE>
TABLE OF CONTENTS
1. USE OF OFFICE AND PROVISION OF SERVICES ................................ 1
2. CONDITIONS OF USE ...................................................... 1
3. TERM ................................................................... 1
4. SERVICES CHARGE ........................................................ 1
5. RECEIPT OF RETAINER .................................................... 2
6. ADDITIONAL SERVICES .................................................... 2
7. SURRENDER .............................................................. 2
8. DEFAULTS AND REMEDIES .................................................. 3
9. NOTICES ................................................................ 3
10. ASSIGNMENT ............................................................. 4
11. INSURANCE COVERAGE ..................................................... 4
12. DWSS'S LIABILITY ....................................................... 4
13. WAIVER OF BREACH ....................................................... 4
14. EMPLOYMENT OF EMPLOYEES ................................................ 4
15. RULES AND REGULATIONS .................................................. 4
16. GENERAL ................................................................ 5
17. RELOCATION OF THE OFFICE ............................................... 5
EXHIBIT "A"
ADDITIONAL SERVICES AND AMENITIES INCLUDED ............................. 6
EXHIBIT "B"
RULES AND REGULATIONS .................................................. 7
EXHIBIT "C"
ADDITIONAL SERVICES AND AMENITIES AVAILABLE ............................ 8
<PAGE>
OFFICE SERVICES AGREEMENT
DENVER WEST SUITES & SECRETARIAL, INC.
This Office Services Agreement is made on July 12, 1999, between Denver West
Suites & Secretarial, Inc., a Colorado corporation having offices at Denver West
Office Park, Building No. 21, 1746 Cole Boulevard, Suite 225, Golden, Colorado
80401 ("DWSS") and Instant Video Technologies of San Francisco, CA ("Licensee").
The parties hereto for themselves, their heirs, legal representatives,
successors and assigns, hereby agree as follows:
1. USE OF OFFICE AND PROVISION OF SERVICES
For the Term of this Agreement, as hereinafter defined, and subject to
the conditions and covenants hereinafter set forth, Licensee shall have
the right to use office number(s) 07B (the "Office") located in that
certain office building located at the Denver West Office Park,
Building No. 21, 1746 Cole Boulevard, Suite 225, Golden, Colorado,
80401 (the "Property") and to receive those services defined herein
(collectively the "Services").
2. CONDITIONS OF USE
(a) The Office shall be used by Licensee for general office
purposes only and such other use as is normally incident
thereto and for no other purpose, in accordance with the rules
and regulations attached hereto and which may be promulgated
for the mutual benefit of all parties that shall have the
right to so use the Property or any portion thereof.
Additionally, Licensee shall not offer at the Property or in
the Office any of the Services which DWSS provides or has made
available on the Property to its other users, including, but
not limited to, any of the Services provided herein or as
described in Exhibits "A" and "C" attached hereto; and
Licensee shall, under no circumstances, assign any part of its
interest under this Agreement to any other user of the
Property. In the event Licensee breaches any provision of this
paragraph, there shall be payable to DWSS the sum of $100.00
per week as liquidated damages for each such breach.
(b) Licensee will not make or permit to be made any use of the
Property, the Office or any part thereof which would violate
any of the covenants, agreements, terms, provisions and
conditions of this Agreement or which directly or indirectly
is forbidden by public law, ordinance or government
regulations or which may be dangerous to the life, limb, or
property, or which may invalidate or increase the premium of
any policy of insurance carried on the Property or covering
its operation, or which will suffer or permit the Property or
any part thereof to be used in any manner or anything to be
brought into or kept therein which, in the judgment of DWSS,
shall in any way impair or tend to impair the character,
reputation or appearance of the Property as a high quality
office building, or which will impair or interfere with or
tend to impair or interfere with any of the Services performed
by DWSS for the Property.
3. TERM
The term of this Agreement shall be for a period of 12 months and 0
days, commencing on the 1st day of July, 1999 and ending on the 30th
day of June, 2000, unless renewed as provided hereinafter.
4. SERVICES CHARGE
(a) For and during the term of this Agreement, Licensee shall pay
DWSS a monthly charge (collectively "Charges") for the use of
the Office and for the Services provided herein of Nine
Hundred Nineteen and 00/100 Dollars ($919.00), which is
comprised of the following:
PLEASE INITIAL
DWSS /s/ SW
LICENSEE /s/ DM
1
<PAGE>
(1) Monthly charge for use of the Office: Eight Hundred
Seventy-four and 00/100 Dollars ($874.00).
(2) Monthly charge for Furniture Package: (N/A) for the
following furniture:
(3) Monthly charge for Telecommunications package:
Forty-five and 00/100 Dollars ($45.00) for the
following: One speaker phone and two data lines.
The aggregate Charges are payable beginning July 1, 1999. The
amount of Nine Hundred Nineteen and 00/100 Dollars ($919.00),
plus a Retainer in the amount of Nine Hundred Nineteen and
00/100 Dollars ($919.00), is due upon execution of this
Agreement. Thereafter, equal monthly payments of Nine Hundred
Nineteen and 00/100 Dollars ($919.00), each must be made in
advance on the first day of each calendar month beginning
August 1, 1999.
(b) Should Licensee commence using any portion of the Office on a
day other than the first day of the month, the Charges shall
be prorated for the first month as follows: The aggregate
monthly Charges will be divided by 30 and the resulting number
will be multiplied by the number of days remaining in the
month.
(c) If DWSS, for any reason, cannot make the Office available to
Licensee to use on the commencement of the Term, this
Agreement shall not be void or voidable nor shall DWSS be
liable to Licensee for any loss or damage resulting therefrom,
but there shall be an abatement of Charges for the period
between the commencement of the Term and the time when DWSS is
able to make the Office available to Licensee.
5. RECEIPT OF RETAINER
Concurrent with execution hereof Licensee has deposited with DWSS the
sum of Nine Hundred Nineteen and 00/100 Dollars ($919.00), acknowledged
by DWSS, to ensure the full performance by Licensee of the terms and
conditions of this Agreement as well as for the cost of any repair or
collection of damages to the Office occasioned by Licensee's use
thereof. The Retainer or any balance thereof shall be returned within
forty-five (45) days after Licensee has ceased using the Office, so
long as the same is in an acceptable condition (following a personal
inspection by DWSS) and surrendered all keys. If DWSS determines that
any damage or injury chargeable to Licensee hereunder exceeds the
Retainer, DWSS, at its option, may retain said sum as liquidated
damages or may apply the sum against any actual damage or injury and
the balance thereof will be the responsibility of Licensee. It is
further understood that the Retainer is not to be considered a
prepayment of the last month's Charges due under this Agreement.
6. ADDITIONAL SERVICES
DWSS may make available certain services to Licensee in addition to
those described in Exhibit "A" which are included within the Charges.
Such additional services shall be offered to Licensee and all other
users of the Property, for a charge (depending upon the type and usage
of the service) as published from time to time.
7. SURRENDER
Licensee agrees to and shall, on expiration or sooner termination of
this Agreement or of any extended term hereof, promptly deliver the
Office to DWSS without demand therefore and in good condition, ordinary
wear and tear excepted. DWSS shall have the right to show the Office
during the sixty (60) day period prior to the scheduled termination
date of this Agreement. Failure to deliver the Office to DWSS as
required herein may result in damages to DWSS which are difficult if
not impossible to ascertain. Accordingly, if the Office is not timely
delivered to DWSS, Licensee will pay as damages, and not as a penalty,
an amount equal to 175% of the last monthly Charges due hereunder for
all or any part of any month during which Licensee continues to use the
Office following termination of this Agreement. Failure to remove any
personal belongings of Licensee will be deemed continued use of the
Office.
PLEASE INITIAL
DWSS /s/ SW
LICENSEE /s/ DM
2
<PAGE>
8. DEFAULTS AND REMEDIES
(a) Charges are due in advance on or before the first day of each
month and become delinquent thereafter and are subject to all
lawful late charges and/or interest.
(b) Licensee shall not allow the Charges to be in arrears more
than five (5) days after written notice of such delinquency or
if Licensee shall remain in default under any other condition
of this Agreement for a period of ten (10) days after written
notice, DWSS may terminate this Agreement and remove special
computer or communication lines installed for the benefit of
Licensee, without being deemed to have committed any manner of
trespass, and may enter into an agreement with a third party
for the use of the Office or any part thereof, at any time
thereafter, with monthly Charges as DWSS may, with reasonable
diligence, be able to secure. DWSS will be entitled to collect
damages equal to the difference between the amount which
Licensee owed for the remainder of the term of this Agreement
and the amount which Licensee proves DWSS could reasonably
receive as charges from a third party for use of the Office
and provision of the Services for such period of time. In
addition, DWSS will be entitled to recover as damages
following any such default, an amount equal to all costs and
expenses incurred in enforcing its rights hereunder, in
entering into a new agreement with a third party for use of
the Office, costs associated with making the office usable for
such third party's use, plus interest on all of the foregoing
amounts at a rate equal to 12% in excess of the prime rate of
interest charged by Norwest Bank of Denver, N.A. to its most
creditworthy clients. If Licensee has left any personal
property in the Office, DWSS may take possession of such
personal property and sell the same at public or private sale
after giving Licensee written notice of the time and place of
any public sale or of the time and place after which any
private sale is to be made, for such prices and on such terms
as DWSS deems appropriate. The proceeds of such sales shall be
applied first to the payment of any Charges past due under
this Agreement and then to necessary and proper expenses of
removing, storing and selling such property, with the balance,
if any, to be applied against damages suffered as a result of
Licensee's default hereunder. All rights and remedies of DWSS
under this Agreement shall be cumulative, and none shall
exclude any other right or remedy of law. DWSS is expressly
given the right to assign any or all of its interests under
the terms of this Agreement.
(c) It is expressly agreed that in the event of default by
Licensee hereunder, DWSS shall have a lien upon all goods,
chattels or personal property of any description belonging to
Licensee which are placed in, or become part of, the Office,
as security for Charges due and to become due for the
remainder of the Term of this Agreement, which lien shall not
be in lieu of or any way affect any statutory lien given by
law, which shall be cumulative thereof; and Licensee hereby
grants DWSS a security interest in all such personal property
placed in the Office for such purposes.
9. NOTICES
Any notice under this Agreement must be in writing and must be sent by
certified mail, return receipt requested, to the last address of the
party to whom notice is to be given, as designated by such party in
writing. DWSS hereby designates its address as:
Denver West Suites & Secretarial, Inc.
1746 Cole Boulevard, Suite 225
Golden, Colorado 80401-3210
Licensee hereby designates its address as:
Instant Video Technologies
500 Sansome, Suite 503
San Francisco, CA 94111
Phone: 415-391-4455
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Such notice shall be deemed to be duly given only if delivered
personally or mailed by certified mail, return receipt requested, in a
postage paid envelope, addressed to the other party at the address
given above. When such mail is properly addressed and mailed as above,
it shall be deemed notice for all purposes herein even if undelivered.
10. ASSIGNMENT
Any assignment or transfer (whether by present or collateral
assignment, operation of law, or otherwise) of any or all of the rights
of Licensee under this Agreement without DWSS's prior written consent
shall be null and void.
11. INSURANCE COVERAGE
Licensee shall provide proof of insurance to DWSS within thirty (30)
days of taking possession of the Office. Licensee shall, at all times
during the term of this Agreement, and at its own cost and expense
procure and continue in force the following insurance coverage: Bodily
injury and property damage liability insurance with a combined single
limit for bodily injury and property damage of not less than
$1,000,000.00. Fire and Extended coverage Insurance, including
vandalism and malicious mischief coverage, in an amount equal to the
full replacement value of all personal property, trade fixtures and
furniture of Licensee.
12. DWSS'S LIABILITY
DWSS shall not be liable or responsible to Licensee for any injury or
damage resulting from the acts or omissions of DWSS's employees,
persons using office space or services from DWSS, or other persons
using any part of the Property, or for any failure of services provided
such as water, gas or electricity, or for any injury or damage to
persons or property caused by any person (except for such loss or
damage arising from the willful or grossly negligent misconduct of
DWSS, its agents, servants or employees), or from DWSS's failure to
make repairs which it is obligated to make hereunder.
13. WAIVER OF BREACH
No failure by DWSS to insist upon the strict performance of any term or
condition of this Agreement or to exercise any right or remedy
available following a default hereunder, and no acceptance of full or
partial payment during the continuance of any default will constitute a
waiver of any such default or any such term or condition. No waiver of
any default will affect or alter any term or condition in this
Agreement, and each such term or condition shall continue in full force
and effect with respect to any other then existing or subsequent
default hereunder.
14. EMPLOYMENT OF EMPLOYEES
Licensee agrees not to offer or have offered employment to any
employees, or to employ any employees of DWSS during the Term of this
Agreement or any extension thereof or for a period of six months
following the termination of this Agreement. Because of the difficulty
of ascertaining exact damages, there shall be payable to DWSS the sum
of three thousand dollars ($3,000.00) liquidated damages for each such
breach.
15. RULES AND REGULATIONS
The rules and regulations attached to this instrument as Exhibit "B"
are made a part hereof by reference and are an integral part of this
Agreement. Licensee, its employees, contractors and agents, will
perform and abide by the rules and regulations and any amendments or
additions to said rules and regulations as DWSS may make. Failure to so
comply will constitute a default hereunder.
16. GENERAL
This Agreement embodies the entire agreement between the parties
relative to the subject matter hereof, and shall not be modified,
changed, or altered in any respect except in writing.
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17. RELOCATION OF THE OFFICE
For the purpose of maintaining an economical and proper distribution of
users throughout the Property acceptable to DWSS, DWSS has the right
from time to time during the term of this Agreement to change the
office designated as the Office for use by Licensee subject to the
following terms and conditions:
(a) The size of the new location is approximately equal to the
existing Office (subject to a variation of up to ten percent
(10%) provided the Charges payable under this Agreement are
not increased; if the size of the new location varies by more
than ten percent (10%), the Agreement may be amended by the
parties on such terms and conditions as they deem acceptable;
(b) If the then prevailing portion of the Charges attributable to
use of the new location are less than the amount being paid
for use of the existing location, the Charges will be reduced
to equal the then prevailing Charges for the new location;
(c) DWSS shall pay the cost of providing any improvements in the
new location comparable, in its opinion, to the improvements
in the existing location;
(d) DWSS shall deliver to Licensee written notice of DWSS's
election to relocate the Office, specifying the new location
and the Charges payable therefore at least 30 days prior to
the date the relocation is to be effective. If the relocation
of the Office is not acceptable to Licensee, Licensee for a
period of 10 days after receipt of DWSS's notice to relocate
shall have the right (by delivering written notice to DWSS to
terminate this Agreement effective 30 days after delivery of
written notice to DWSS).
IN WITNESS WHEREOF, DWSS and Licensee have caused this Agreement to be duly
executed as of the date first written above.
"DWSS"
Denver West Suites & Secretarial, Inc.
By: /s/ Scott E. Stevinson
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Scott E. Stevinson, Secretary
"LICENSEE"
Instant Video Technologies
By: /s/ David Morgenstein
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David Morgenstein, COO
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EXHIBIT "A"
ADDITIONAL SERVICES AND AMENITIES INCLUDED
Prestigious Denver West Office Park address as your company address
Attractive reception area with professional receptionist to greet and announce
all visitors
Personalized telephone coverage in your absence during normal business hours
Experienced on-site management
Use of two conference rooms, one with TV and VCR
Telephone line installation arrangements with U.S. West
Telephone equipment, telephone installation and programming by our vendor
Corporate identity on lobby directory and office suite
Mail and package receipt and handling
Storage facilities
Twenty-four-hour a day, seven-day a week office access
Ample free parking for tenants and guests
Complimentary coffee and tea
Kitchen/lounge area
Maintenance, utilities and janitorial services
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EXHIBIT "B"
RULES AND REGULATIONS
1) All users of offices within the Property (collectively "Users" or in
the singular "User") will conduct themselves in a businesslike manner;
proper attire will be worn at all times; the noise level will be kept
to a level so as not to interfere with or annoy other tenants.
2) Users will not affix anything to the walls of the office premises
without the prior consent of DWSS.
3) Users will not prop open any exit doors or door connecting corridors
after business hours.
4) Users using public areas can only do so with the consent of DWSS, and
those areas must be kept neat and attractive at all times.
5) All corridors, halls, elevators and stairways shall not be obstructed
by any User or used for any purpose other than egress and ingress.
6) No advertisement or identifying signs or other notices shall be
inscribed, painted or affixed on any part of the corridors, doors or
public areas.
7) Users shall not, without DWSS written consent, store or operate any
large computer or any other large business machines, reproduction
equipment, heating equipment, stove, stereo equipment or other
mechanical amplification equipment, refrigerator or coffee equipment,
or conduct a mechanical business thereon, do any cooking thereon, or
use or allow to be used in the Office oil, burning fluids, gasoline,
kerosene for heating, warming or lighting. No article deemed extra
hazardous on account of fire or any explosives shall be brought onto
said Office. No offensive gases, odors or liquids will be permitted.
8) The electrical current shall be used for ordinary purposes only
(lighting, clocks, radios, personal computers, etc.) unless written
permission to do otherwise shall first have been obtained by DWSS at an
agreed cost to the requesting User. If a User requires any special
wiring for business machines, fax machines, copiers, specialized
computers or other special use electrical or electronic equipment or
otherwise, such wiring shall be done by an electrician designated by
DWSS and at the sole cost of such User.
9) If a User requires any special wiring for telephone equipment or
otherwise, such wiring shall be done by the personnel designated by
DWSS and at the sole cost of such User.
10) DWSS and its agents shall have the right to enter into any office
within the Property at all reasonable hours for the purpose of making
any repairs, alterations or additions which shall be deemed necessary
for the preservation, safety or improvement of said office without in
any way being deemed or held to have committed an interference with a
User's right to use its office.
11) A User shall give DWSS immediate access to the offices to show said
office following User's giving notice of intent to terminate this
Agreement in accordance with the provisions hereof. User shall in no
way hinder DWSS from showing said office.
12) Users may not conduct business in the hallways or corridors or any
other areas except in its designated offices without written consent of
DWSS.
13) Other than guide dogs or assistance animals, Users will bring no
animals onto the Property.
14) Users shall not remove DWSS-owned furniture, fixtures or decorative
material, if any, from offices without written consent of DWSS.
15) Users will not, without the prior written consent of DWSS, allow anyone
other than themselves and their employee(s), or the employee(s) of
DWSS, to operate, use, move or remove any equipment furnished by DWSS
for use by Users to perform work for Users.
16) DWSS reserves the right to make such other reasonable rules and
regulations as in its judgement may from time to time be needed for the
safety, care and cleanliness of the offices.
17) The offices are subject to a lease between DWSS and the owner of the
Property. All Users will be bound by all terms and provisions of said
lease to the extent they affect the use of the offices and Property.
Upon request DWSS will provide a copy of the pertinent provisions of
the lease to Users.
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EXHIBIT "C"
ADDITIONAL SERVICES AND AMENITIES AVAILABLE
Secretarial Services/Word Processing
Desktop Publishing
Scanning
Fax & Telex
Copies
Mail Handling
Federal Express, UPS & Express Mail
Notary Public
Furniture Rental
Speaker Phone Rental
Fitness Club Membership
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[LOGO] LEASE AND SERVICE AGREEMENT
This Agreement is made this 1st Day of July 1999, by and between
ALLIANCE/INTEROFFICE/KING ST., ("Lessor") (d/b/a Vantas) having offices known
and numbered as Suite 600 (the "Facility") in the building located at 1800
Diagonal Rd., Alexandria, VA 22314-2840 (the "Building") and Instant Video
Technologies, Inc.) ("Lessee") with an address of 500 Sansome Street, Suite 503,
San Francisco, California 94111.
The parties for themselves, their heirs, legal representatives, successors and
assigns, agree as follows:
1. Demise and Description of Property.
a. Lessor leases to Lessee and Lessee leases from Lessor, the
"Premises" (defined below), being a subpart of Lessor's total leased Facility
space, for the term and subject to the conditions and covenants hereinafter set
forth and to all encumbrances, restrictions, zoning laws, regulations or
statutes affecting the Building, Facility or Premises.
b. The Premises consists of Facility office space number(s) 609 as
shown in the floor plan annexed hereto. Lessor hereby grants Lessee the
privilege to use in common with other lessees and parties that Lessor may
designate certain office amenities located in the Facility; the use of all of
which are subject to such reasonable rules and regulations as Lessor currently
has in place and may adopt from time to time. The amenities are more
particularly described in attached Exhibit "A." "The Operating Standards" as
presently in place and governing the use of the Premises and the Facility are
attached in Exhibit "B".
2. Use.
a. The Premises shall be used by Lessee solely for (voice and video
technology) and such other normally incident uses and for no other purpose, in
strict accordance with the Operating Standards. Additionally, Lessee shall not
offer at the Premises any services which Lessor provides to its lessees,
including, but not limited to those amenities or services described in attached
Exhibit "A". In the event Lessee breaches any provisions of this paragraph,
Lessor shall be entitled to exercise any rights or remedies available to the
Lessor pursuant to this Agreement together with such other rights and remedies
as the Lessor may otherwise have and choose to exercise.
b. Lessee shall not make nor permit to be made any use of the Premises
which would violate any of the terms of this Agreement or which, directly or
indirectly, is forbidden by statute, ordinance or government regulations, which
may be dangerous to life, limb or property, which may invalidate or increase the
premium of any policy of insurance carried on the Building or on the Facility,
which will suffer or permit the Premises to be used in any manner or anything to
be brought into or kept there which, in the sole judgment of Lessor, shall in
any way impair or tend to impair the high quality character, reputation or
appearance of the Building or the Facility, or which may or tend to impair or
interfere with any services performed by Lessor for Lessee or for others.
3. Term.
a. The term of this Agreement shall be for a period of 12 Months,
commencing 9:00 a.m. on the 1st day of August '99, and ending 5:00 p.m. on the
31st day of July, 2000, unless renewed as provided in paragraph "3(b)" herein.
b. Upon the ending term date set forth herein or any extension thereof,
the Agreement shall be extended for the same period of time as the initial term
and upon the same terms and conditions as herein contained except for the amount
of base rental and additional service charges, which shall each be increased by
at least ten percent (10%), unless either party notifies the other in writing by
certified or registered mail, return receipt requested, or delivered by hand
that the Agreement shall not be extended within the period hereinafter specified
or automatically renewed. If Lessee has less than three offices, such notice
shall be given at least 60 days prior to the expiration date of this Agreement.
If Lessee has three or more offices, such notice shall be given at least 90 days
prior to the expiration date of this Agreement
c. In the event the entire Premises or the Facility are damaged,
destroyed or taken by eminent domain or acquired by private purchase in lien of
eminent domain so as to render the Premises fully untenantable and unrestorable
in Lessor's sole judgment, then within 90 days thereafter by written notice to
the other party, either party shall be able to terminate this Agreement, which
will terminate as ofthe date thereof.
4. Rent.
a. For and during the term of this Agmement, Lessee shall pay Lessor an
annual amount of $11,160.00 as rent for the Premises payable in equal monthly
installments of $930.00 (or otherwise indicated on Rebate Rider attached) each
payable in advance of the first day of each calendar month after the
commencement of the term, or a daily prorated amount for any partial calendar
month during the term. If any payment of rent or other charges due under this
Agreement is not received within five (5) calendar days after its due date, the
Lessee will also pay, as additional rent, a late payment charge which shall be
an amount equal to 10% of any amount owed to Lessor or $50 whichever is greater.
b. It is additionally specifically covenanted and agreed that the
financial terms of this Agreement are strictly confidential and Lessee agrees
not to knowingly or willfully divulge this information to or any other Lessee or
potential Lessee of Lessor. Any such disclosure by the Lessee of the financial
terms of this Agreement as set forth herein above, shall constitute a material
breach of this Lease.
c. The first such payment of rental as well as the payment of the
Deposit as set forth in below shall be paid by Lessee simultaneously with
execution of this Agreement Should the Lessee
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fail to make such payment prior to the commencement of the term of this
Agreement, then, at Lessor's sole option, the Agreement shall be null and void
and of no further effect.
d. The rental payable during the term of this Agreement shall be
increased on the first day of the month following notification of any rental
increase (however designated) which the Lessor might receive from the Lessor's
over-landlord ("Building"). The term "direct expenses" as used herein shall
refer to the same items and costs as are used by the Building in its
determination of expenses and costs passed on to Lessor. Lessor shall
immediately notify Lessee in writing of any such increase, and shall bill Lessee
for its pro rata share thereof, which bill Lessee shall pay promptly upon such
notification for each and every month thereafter for the balance of the term.
e. Rent charges are based on the value of the rental Premises and
services to be used by 2 person(s) only. If more than said number of person(s)
habitually use the Premises or services, the Fixed Monthly Rental Charges will
be increased by a factor of $150 for each additional person who habitually uses
the Premises.
f. If a Lessee check is retumed for any reason, Lessee will pay an
additional charge of $100.00 per returned check and, for the purpose of
considering default and/or late charges, it will be as if the payment
represented by the returned check had never been made.
5. Security Deposit.
a. Lessee shall deposit with Lessor $1,860.00 or the equivalent of two
months rent, in good or certified funds with a domestic bank, as a non-interest
bearing security deposit. Lessor may use the security deposit to cure any
default of Lessee under this Agreement, restore the Premises including any and
all furniture, fixtures and equipment provided by Lessor and vendors at the
Premises to their original condition and configuration, reasonable wear and tear
excepted, to pay for repairs to any damage to the Premises, Executive Suite or
Building, caused by Lessee or Lessee's guests, to pay any rent or other charges
which Lessee owes Lessor at or prior to the expiration of this Agreement, and to
reimburse Lessor for costs or expenses arising from any other obligation of
Lessee which Lessee has failed to perform. If Lessor transfers control or
ownership of the Premises and Lessor transfers the security deposit to such
purchaser, Lessee will look solely to the new Lessor for the return of the
security deposit, and the Lessor named in this Agreement shall be released from
all liability for the return of the security deposit
b. The security deposit (less any sums used by Lessor in accordance
with the terms and conditions of this Agreement) will be returned within sixty
(60) days after the termination of any services rendered or expiration of the
term hereof. The security deposit shall not under any circumstance be applied in
lieu of be the final paymen(s) of Fixed Monthly Rental charges or service
charges under this Agreement.
c. In the event that, by reason of the Lessee's default in its
obligations pursuant to this Agreement or otherwise, including but not limited
to the payment of the Fixed Monthly Rental Charge, any amounts due by reason of
the Lessee's use of additional services hereto and/or by reason of the Lessee's
use of telephone services as supplied pursuant to this Agreement, Lessor shall
be entitled to apply any of the security deposited pursuant to this Agreement to
any outstanding sums due or owing to the Lessor, and Lessor shall have the right
to charge the Lessee, as additional rent, such sums as are necessaiy to
replenish any and all amounts applied so as to cause the security to be returned
to its entire amount. The failure to pay such amounts as are necessary to
replenish the security shall be considered a breach of this Agreement and shall
entitle the Lessor to exercise any of its rights pursuant to this Agreement or
otherwise.
6. Delivery of Possession.
If, for any reason whatsoever, Lessor cannot deliver possession of the
Premises to Lessee at the commencement of the term, this Agreement shall not be
void nor voidable nor shall Lessor be liable to Lessee for any loss or damage
resulting therefrom; but there shall be an abatement of rent for the period
between the stated term commencement and the time when Lessor does deliver
possession of the Premises.
7. Services.
a. So long as Lessee is not in default hereunder, Lessor shall make
available certain amenities to Lessee as more particularly described in Exhibit
"A." Such services shall be offered to Lessee, in conjunction with such services
being offered by Lessor to its other lessees, without charge for the reasonable
use of the same.
b. In addition, provided Lessee is not in default hereunder and
provided the cost thereof does not exceed the Security Deposit, Lessor shall
make available to Lessee certain other services the cost of which shall be
billed to the Lessee as additional rent and the payment of which shall be
subject to the same terms and conditions as those governing the payment of the
Fixed Monthly Rental Charge herein regardless of when such charges are billed to
the Lessee.
c. There will be a Client Services Package charge of $120.00/mo., per
office, which is non-cumulative. (Client Service Package will be waived in this
initial term only.)
8. Telephone Services.
a. Provided Lessee is not in default of any of the terms, covenants,
conditions or provisions of this Agreement, Lessor will make available to
Lessee, a telecommunications package which will consist of some combination of
telephone equipment, numbers, lines, conference calling, voice mail, local, long
distance and international service, and directory listing. All components of the
telecommunications package including any telephone numbers used by Lessee will
remain at all times the property of Lessor and Lessee will acquire no rights in
the components beyond the term specified by Lessor.
b. Upon Lessee's written request, Lessee shall be entitled to appoint
Lessor as its exclusive agent for the sole purpose of procuring and arranging
Lessee's local "white pages" listings. Lessor shall have no involvement nor
responsibility for any "yellow pages listings desired by Lessee.
c. Lessor shall not be liable for any interruption or error in the
performance of its services to Lessee under this Section. Lessee waives any
recourse as against the Lessor for any claimed liability arising from the
provision of telecommunication services including, but not limited to; injuries
to persons or property arising out of mistakes, omissions, interruptions,
delays, errors or defects in transmissions occurring in the course of furnishing
telecommunications services provided same are not caused by the willful acts of
the Lessor, as well any claim for business interruption and for consequential
damages.
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d. Lessor shall use reasonable efforts to provide Telephone Services to
Lessee in a first-class, professional manner. Telephone service charges shall be
as per Lessor's then scheduled rates for the same, or as the same may be amended
by Lessor from time to time.
e. In the event that any toll fraud is traceable to telecommunications
services employed by Lessee, such toll fraud shall be deemed to be a material
default in the Lessee's obligations hereunder. Lessee further hereby agrees to
indemnify, hold harmless and to reimburse Lessor for all charges associated with
any such toll fraud including, but not limited to, unauthorized use of calling
cards or telephone lines.
f. It is expressly acknowledged and agreed that Lessor shall be the sole
and exclusive provider of telecommunication services to Lessee. Lessee hereby
agrees and covenants that it will not use any other telephone service or
telephone carrier to provide it service in the Premises. In the event that
Lessee uses or acquires any other telephone service at the Premises, such use
and/or installation shall constitute a material default in the Lessee's
obligations hereunder.
g. Notwithstanding anything to the contrary contained herein, neither
Lessor nor any of its agents, employees, officers or directors shall be deemed
to be making any representations or warranties, whether express or implied, as
to the ability of any systems, including, without limitation, computer and
electronic based equipment, related to the Building, Premises or to any services
to be provided hereunder to process date fields relating to the Year 2000 nor
shall any of them be liable for the failure of such systems to process such date
fields.
9. Furniture and Fixtures.
At its own cost and expense, Lessor shall furnish and install furniture,
fixtures and equipment as are in Lessor's sole opinion necessary to provide
suitable office accommodations for Lessee, upon such terms and conditions
routinely applicable to the Facility. All such furniture, fixtures and equipment
shall remain Lessor's property.
10. Insurance: Waiver of Claims.
a. Lessor has no obligation to and will not carry insurance for Lessee's
benefit. Lessor will not be liable to Lessee or to any other person for damages
on account of loss, damage or theft, to any business or pesonal property of
Lessee Lessee hereby waives any claims against Lessor from any loss, cost,
liability or expense (including reasonable attorneys' fees) arising from
Lessee's use of the Premises or any common areas made available to Lessee by
Lessor or from the conduct of Lessee's business, or from any activity, work, or
thing done in the Premises or common areas by Lessee or Lessee's agents,
contractors visitors or employees. To the extent that Lessor has any liability
for any of the forgoing pursuant to any law, ordinance or statute, Lessee shall
seek recovery for such loss(es)/or damage(s) from its own insurance company as
provided for in subparagraph (c) herein prior to making any claims against
Lessor.
b. The Lessor shall not be liable or responsible to the Lessee for any
injury or damage resulting from the acts or omissions of Lessor, its employees,
persons leasing office space or obtaining services from the Lessor, or other
persons occupying any part of the Premises or Building, or for any failure of
services provided such as water, gas or electricity, HVAC or for any injury or
damage to person or property caused by any person except for such loss or damage
arising from the willful or grossly negligent misconduct of the Lessor, its
agents, servants, or employees or from the Lessor's failure to make repairs
which it is obligated to make hereunder. Neither Lessor or any of its agents,
employees, officers or directors shall be responsible for damages resulting from
any error, omission or defect in any work performed or provided as part of the
services rendered, whether uncompensated services or compensated services.
c. Lessee shall provide Lessor with a certificate of insurance
evidencing General/Public Liability coverage with liability limits of not less
than One Million Dollars ($1,000,000) per occurrence for Bodily Injury and/or
Property Damage Liability and One Hundred Thousand Dollars ($100,000) per
occurrence for Fire/Legal Liability. Said insurance coverage shall remain in
force during the term of this Agreement and renewals thereof. The Lessor,
Alliance National, Inc, and Alliance Business Centers, Inc. shall be named as an
additional named insured on each of these policies. Lessee's failure to provide
or maintain such insurance shall not reduce or otherwise alter Lessee's
liability or responsibility to pay any judgment rendered against Lessee for such
Liability and Damages Failure to maintain such insurance and/or to name the
Lessor and its designees, as set forth above, shall constitute a material breach
of this Agreement
d. Both parties hereby agree to defend, indemnify and hold the other
harmless from and against any and all claims, damages, injury, loss and expenses
to or of any person or property resulting from the acts or negligence of their
agents, employees, invitees and/or licensees while in the Building, Executive
Suite and/or Premises.
e. Any fire and extended risk casualty insurance that Lessee maintains
shall include a waiver of subrogation in favor of Lessor and Building Landlord,
and any fire and extended risk insurance carried on the Facility by Lessor shall
likewise contain a waiver of subrogation in favor of Lessee.
11. Waiver of Breach.
Should Lessor not insist upon the strict performance of any term or
condition of this Agreement or to exercise any right or remedy available for a
breach thereof, and no acceptance of full or partial payment during the
continuance of any such breach shall constitute a waiver of any such breach or
any such term or condition. No term or condition of this Agreement required to
be performed by Lessee and no breach thereof, shall be waived, altered or
modified, except by a written instrument executed by Lessor. No waiver of any
breach shall affect or alter any term or condition in this Agreement, and each
term or condition shall continue in full force and effect with respect to any
other then existing or subsequent breach thereof.
12. Operating Standards.
The Operating Standards attached to this Agreement as Exhibit "B" are
hereby made an integral part of this Agreement. Lessee, its employees, agents,
guests, invitees, visitors and/or any other persons caused to be present in and
around the Premises by the Lessee shall perform and abide by the rules and
regulations and any amendments or additions to said rules and regulations as
Lessor may make. In addition, Lessee, its employees and agents shall abide by
all applicable governmental rules, regulations, statutes and ordinances relating
in any way to the Premises or the Facility or Lessee's use or occupancy of the
Premises or the Facility; failing which Lessee shall be in default hereunder and
shall pay any fines or penalties imposed for such violation(s) directly to the
appropriate governmental authority or to Lessor, if Lessor has paid such amount
on behalf of Lessee. Such remedy shall not be exclusive. It is
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hereby further explicitly agreed and understood that full compliance with the
Operating Standards as set forth constitutes a material obligation of this
Agreement, and that the failure to so comply shall constitute a violation of
this Agreement entitling the Lessor to exercise any of its remedies pursuant to
this Agreement or otherwise.
13. Employment of Lessor's Employees.
a. Lessee agrees that it will not, during the term of this Agreement and
any renewals thereof, or for a period of one year after the expiration or sooner
termination of this Agreement, hire or issue an offer to employ any person who
is or has been an employee of Lessor or Lessor's agent without prior consent
from Lessor. If Lessee either hires an employee of Lessor or Lessor's agent; or
hires any person who has been an employee of Lessor or its agent within six
months prior to the time they are hired by Lessee, Lessee will, at Lessors sole
option, be liable to Lessor for liquidated damages equal to six months wages of
the employee, at the rate last paid that employee by Lessor.
b. If Lessor assists in hiring an employee for Lessee, Lessee shall pay
to the Lessor a commission equal to 20% of that employee's annual salary. The
provisions hereof shall survive the expiration or sooner termination of the term
thereof.
14. Alteration.
If Lessee requires any special wiring or office alterations for
extraordinary business machines or other purposes not consistent with the
current wiring, extraordinary telephone equipment or computer equipment. Such
alteration shall be done (i) only with the express written permission of the
Lessor, and if said permission is granted, then (ii) by an agent designated by
Lessor at Lessee's cost. The electrical current shall be used for ordinary
lighting purposes only, unless written permission to do otherwise shall first
have been obtained from Lessor at an agreed cost to Lessee. Lessor further
reserves the sole and exclusive right to limit the number and type of lines and
telephone equipment Lessee can install in the leased Premises.
15. Re-Entry
Lessor and its agents shall have the right to enter the Premises at any
time for the purpose of making any repairs, alterations, inspections which it
shall deem necessary for the preservation, safety or improvements of said
Premises, without in any way being deemed or held to have committed an eviction
(constructive or otherwise) of or trespass against Lessee.
16. Relocation
a. Lessee agrees that the Lessor may, in its sole discretion, relocate
the lessee from its present Premises to a like or similar office space within
the same facility upon ten (10) days notice to the Lessee. In the event that the
Lessor requires the Lessee to relocate, the Lessor hereby agrees to bear the
reasonable cost of any such relocation, which cost shall be limited to the cost
associated with the physical transfer of the Lessee's property to any different
office, which the Lessor may designate.
b. ln the event that any such relocation is effected, the Lessee hereby
acknowledges that, unless otherwise agreed in writing, that all of the terms and
conditions of this Agreement shall remain in full force and effect.
17. Assignment and Subletting
No assignment or subletting of the Premises, this Agreement or any part
thereof shall be made by Lessee without Lessor's prior written consent, which
consent may be withheld for any or no reason in Lessor's sole discretion.
Neither all nor any part of Lessee's interest in the Premises or this Agreement
shall be encumbered, assigned or transferred, in whole or in part, either by act
of the Lessee or by operation of law.
18. Surrender.
a. On expiration of the term, any extended term, or sooner termination
of this Agreement, Lessee shall promptly surrender and deliver the Premises to
Lessor, without demand, and in as good condition as when let, ordinary wear and
tear excepted.
b. Upon Lessee serving a notice of cancellation as provided in 3b herein
Lessor shall have the right to show Lessee's Premises during the 60 day period
(for one or two offices) or 90 day period (for three or more offices) as the
case may be.
c. Without prior written approval of Lessor, Lessee shall not remove any
of its property from the Premises upon termination of this Agreement or at any
other time, except during Lessor's normal business hours. In the event Lessor
consents to Lessee's removing property before or after normal business hours,
any expenses incurred by Lessor as a result, including but not limited to
expenses for personnel, security, elevator, utilities and the like shall be paid
by Lessee in advance, to the extent determinable by Lessor, by certified and/or
bank check.
d. If Lessee vacates the Premises and leaves behind any property,
whatsoever, same will be deemed abandoned by Lessee and may be disposed of by
Lessor at Lessee's expense. If Lessee defaults in the payment of sums due to
Lessor, and Lessor changes the locks, removes Lessee's property, or otherwise
denies access to Lessee, Lessor shall not be liable for conversion or partial,
actual and/or constructive eviction.
19. Holding Over.
a. In the event that Lessee, should not renew this Agreement in
accordance with the terms and conditions hereof; and/or fall to surrender the
Premises upon the expiration of the term of the Agreement as provided herein,
Lessee agrees to pay Lessor, as liquidated damages, a sum equal to twice the
monthly rent and all additional charges for services provided by Lessor to
Lessee, for each month that Lessee retains possession of the Premises or any
part thereof, provided, however, that the acceptance of such sums, representing
liquidated damages shall not be deemed to be permission to Lessee to continue in
possession of the Premises.
20. Default and Remedies.
a. If the Lessee shall default in fulfilling any of its terms,
conditions, covenants or provisions of this Agreement, including but not limited
to:
DM Intials TG Initials
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1. Payment of fixed Monthly Rental Charges and/or any other charges
hereunder within ten days of the date such charges become due;
2. Becomes insolvent, makes an assignment for benefit of creditors, or
files a voluntary petition under any bankruptcy or insolvency law, or
has filed against it an involuntary petition under any such law;
3. Defaults in fulfilling any of the terms, conditions, covenants or
provisions of this Agreement including but not limited to the breach of
any of the terms and conditions set forth in the exhibits attached
hereto;
4. The abandonment and/or vacatur of the Premises by the Lessee;
then, after five days notice of any such default(s), the Lessor may, at its sole
discretion, terminate this Agreement upon five days notice to the Lessee, and
upon the expiration of such notice period, the Lessee shall quit and surrender
the Premises to the Lessor. In the event that the Lessee fails to quit and
surrender the Premises, the Lessor may re-enter and take possession of the
Premises and remove all persons and property therefrom, as well as disconnect
any telephone lines installed for the benefit of Lessee, without any liability
whatsoever to Lessee. In addition, Lessor may elect concurrently or alternately
to accelerate all of Lessee's obligations hereunder including without limitation
the rental, direct expenses, Schedule B Costs, and Telephone Services costs,
and/or the re-letting of the Premises or any part thereof, for all or any part
of the remainder of said term, to a party satisfactory to Lessor, at any monthly
rental rate. Lessor, in its sole discretion, may accept notwithstanding the
foregoing, Lessor shall have no obligation, implied or otherwise, to mitigate
its damage(s) under such circumstances.
b. Should Lessor be unable to re-let the Premises, or should each
monthly re-rental be less than the rental, Lessee is obligated to pay under this
Agreement or any renewal thereof, at Lessor's option Lessee shall pay the amount
of such deficiency, plus the expenses of reletting, immediately in one lump sum
(if allowable under law) to Lessor upon demand and/or as such obligations
accrue.
c. If Lessee shall default in the observance or performance of any term
or covenant on Lessee's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, then, unless
otherwise provided elsewhere in this lease, Lessor may immediately or at any
time thereafter and with notice perform the obligation of Lessee thereunder, and
if Lessor, in connection therewith or in connection with any default by Lessee
in the covenant to pay rent hereunder makes any expenditures or incurs any
obligations for the payment of money, including but not limited to attorney's
fees, in instituting, prosecuting or defending any actions or proceeding, such
sums so paid or obligations incurred with interest and costs shall be deemed to
be additional rent hereunder and shall be paid by Lessee to Lessor rendition of
any bill or statement to Lessee therefor, and if Lessee's lease term shall have
expired at the time of making of such expenditures or incurring of such
obligations, such sums shall be recoverable by Lessor as damages.
21. Mail & Telephone Forwarding.
a. After termination or expiration of the term of this Agreement, Lessee
hereby agrees that it will take all reasonable steps to notify all parties of
Lessee's new address and phone numbers. Lessor shall have no obligation to
notify any person or entity of Lessee's new address and/or phone numbers, except
as expressly provided herein.
b. Lessor will, unless otherwise instructed by Lessee in writing, hold
mail for Lessee on the premises and give out new telephone number via a voice
mail message for a period of three (3) months at the rate of $ 150.00 per month,
which sums shall be deducted from any amounts deposited with the Lessor as
security hereunder and paid to the Lessor in advance. In the event that there is
not sufficient security remaining on deposit to pay for the charges set forth
herein, unless the Lessee shall pay the charges set forth herein to the Lessor
in advance, Lessor shall have no obligation to provide the services set forth
herein.
22. Notices.
Any notice under this Agreement shall be in writing and shall be either
delivered by hand or by first class mail to the party at the address set forth
below. Lessor hereby designates its address as:
ALLIANCE/INTEROFFICE/KING STREET, INC. STREET, INC.
l800 Diagonal Road
Suite 600
Alexandria, Virginia 22314-2840
Attn: Management
with a copy by regular first class mail to:
ALLIANCE
90 Park Avenue
31st Floor
New York, NY 10016
Attn. Legal Department
Lessee hereby designates its address (which address must be an address within
the United States), as
Instant Video Techonologies
----------------------------------------------
Attn: David Morgenstein
----------------------------------------
500 Sansome St. #503, San Francisco, CA 94111
----------------------------------------------
Phone: 415 391-4455
---------------------------------------
Fax: 415 391-3392
---------------------------------------
If such mail is properly addressed and mailed, as above, it shall be deemed
notice for all purposes, given when sent or delivered, even if returned as
undelivered.
23. Landlord's Election Under This Agreement
Upon early termination of the main Building lease, this Agreement shall
terminate unless the Building Landlord under the main lease elects to have this
Agreement assigned to the Building Landlord or another entity as provided in the
main lease. Upon notice to Lessor of the termination of the main lease and such
election, (i) the Agreement shall be deemed to have been assigned by Lessor to
the Building Landlord or to such other entity as is designated in such notice by
the Building Landlord, (ii) the Building Landlord shall be deemed to be the
Lessor under this Agreement and shall assume all rights and responsibilities of
Lessor under this Agreement, and (iii) Lessee shall be deemed to have attorned
to the Building Landlord as Lessor under this Agreement.
DM Intials TG Initials
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24. Time of Essence.
Time is of the essence as to the performance by Lessee of all covenants,
terms and provisions of this Agreement.
25. Severability.
The invalidity of any one or more of the sections, subsections,
sentences, clauses or words contained in this Agreement or the application
thereof to any particular set of circumstances, shall not affect the validity of
the remaining portions of this Agreement or of their valid application to any
other set of circumstances. All of said sections, subsections, sentences,
clauses and words are inserted conditionally on being valid in law; and in the
event that one or more of the sections, subsections, sentences, clauses or words
contained herein shall be deemed invalid, this Agreement shall be construed as
if such invalid sections, subsections, sentences, clauses or words had not been
inserted. In the event that any part of this Agreement shall be held to be
unenforceable or invalid, the remaining parts of this Agreement shall
nevertheless continue to be valid and enforceable as though the invalid portions
had not been a part hereof. In addition, the parties acknowledge (i) that this
Agreement has been fully negotiated by and between the parties in good faith and
is the result of the joint efforts of both parties, (ii) that both parties have
been provided with the opportunity to consult with legal counsel regarding its
terms, conditions and provisions and (iii) that regardless of whether or not
either party has elected to consult with legal counsel, it is the intent of the
parties that in no event shall the terms, conditions or provisions of this
Agreement be construed against either party as the drafter of this Agreement.
26. Execution by Lessee.
The party or parties executing this Agreement on behalf of the Lessee
warrant(s) and represent(s): (i) that such executing party (or parties) has (or
have) complete and full authority to execute this Agreement on behalf of Lessee;
(ii) that Lessee shall fully perform its obligations hereunder.
27. Assumption Agreements and Covenants.
This Agreement is subject and subordinate to the main Building lease
governing the Facility, under which Lessor is bound as tenant, and the
provisions of the main lease, other than as to the payment of rent or other
monies, are incorporated into this Agreement as if completely herein rewritten.
Lessee shall comply with and be bound by all provisions of the main lease except
that the payment of rent shall be governed by the provisions of this Agreement,
and Lessee shall indemnify and hold Lessor harmless from and against any claim
or liability under the main lease of Lessor arising from Lessee's breach of the
Main Lease or this Agreement. Lessor covenants and warrants that the use of the
Premises as a business office is consistent with and does not violate the terms
of the main lease.
28. Covenant and Conditions.
Each term, provision and obligation of this Agreement to be performed by
Lessee shall be construed as both a covenant and condition.
29. Entire Agreement.
This Agreement embodies the entire understandings between the parties
relative to its subject matter, and shall not be modified, changed or altered in
any respect except in writing signed by all parties.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement as of
the date first above written.
LESSOR ALLIANCE/INTEROFFICE/KING STREET, INC.
(d/b/a Vantas)
By: /s/ ?????????????????????????
-----------------------------
Date: 7-20-99
-----------------------------
LESSEE: Instant Video Technologies
(If a corporation)
By: /s/ David Morgenstein
------------------------------
Title: C.O.O.
---------------------------
Date: 7/16/99
---------------------------
[Corporate Seal]
LESSEE:
(If an individual or partnership)
By:
------------------------------
By:
------------------------------
Date:
-----------------------------
DM Intials JM Initials
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6
<PAGE>
EXHIBIT "A"
o Furnished Private Office
o 24 Hour Access to Suite/Office # 609 and Building Located at 1800 Diagonal
Road
o Furnished, Decorated Reception Room with Professional Receptionist
o Personalized Telephone Answering During Office Hours
o 24 hour Voicemail
o 4 hours of Conference Room or private furnished offices, subject to prior
scheduling and use by other lessees
o Corporate Identity on Lobby Directory where Available
o Complete Mail Room Facility
o Receipt of Mail and Packages
o Complete Kitchen Facilities with Coffee Machine
o Utilities and Maintenance
o HVAC During Normal Business Hours
o Janitorial Services
o 8 hours per month courtesy use of other Alliance Business Centers
affiliated facilities. Locations subject to current affiliation and
availability.
EXHIBIT "B" OPERATING STANDARDS
1. Lessees and their guests will conduct themselves in a businesslike manner;
proper attire will be worn at all times; and the noise level will be kept
to a level so as not to interfere with or annoy other Lessees.
2. Lessee shall not provide or offer to provide any services to Lessor's
customers if such services are available from Lessor.
3. Lessee will not affix anything to the walls of the Premises without the
prior written consent of the Lessor.
4. Lessee will not prop open any corridor doors, exit doors or doors
connecting corridors during or after business hours.
5. Lessees using public areas may only do so with the consent of the Lessor,
and those areas must be kept neat and attractive at all times.
6. Lessee will not conduct any activity within the Premises, Executive Suite
or Building, which in the sole judgment of the Landlord will create
excessive traffic or is inappropriate to the executive office suite
environment.
7. Lessee may not conduct business in the corridors or any other areas except
in its designated offices or conference rooms without the written consent
of Lessor.
8. All corridors, halls, elevators and stairways shall not be obstructed by
Lessee or used for any purpose other than normal egress and ingress.
9. No advertisement, identifying signs or other notices shall be inscribed,
painted or affixed on any part of the corridors, doors, or public areas.
10. Without Lessor's specific prior written permission, Lessee is not permitted
to place "mass market", direct mail or advertising (i.e. newspaper,
classified advertisements, yellow pages, billboards) using Lessor's
assigned telephone number or take any such action that would generate a
excessive of incoming calls.
11. Lessee shall not solicit clients of Lessor or and their employees in the
Building without first obtaining Lessor's prior written approval.
12. Immediately following Lessee's use of conference room space and/or
audio/visual equipment, Lessee shall clean up and return the space and
equipment to the state and condition it was in prior to Lessee's use. If
not, Lessor may charge Lessee for any other expenses required to restore
the conference space and/or equipment to its original condition.
13. Lessor must be notified in writing if Lessee desires to utilize the
conference room or other common areas of the Executive Suite during evening
or weekend hours. Lessor may deny the Lessee access if the desired usage is
inappropriate and may disrupt normal operations.
14. Lessee shall not, without Lessor's written consent, store or operate any
computer (except a desktop/laptop computer or fax machine) or any other
large business machines, reproduction equipment, heating equipment, stove,
speakerphones, radios, stereo equipment or other mechanical amplification
equipment, refrigerator or coffee equipment, or conduct a mechanical
business, do any cooking or use or allow to be used on the Premises oil,
burning fluids, gasoline, kerosene for heating, warming or lighting. No
article deemed extra hazardous on account of fire or any explosives shall
be brought into said Premises or Facility. No offensive gases, odors on
liquids shall be permitted.
15. Lessee will bring no animals into the Premises or Facility except for those
assisting disabled individuals.
16. Lessee shall not remove furniture fixtures or decorative material from
offices or common areas without the written consent of Lessor.
DM Intials TG Initials
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7
<PAGE>
17. Lessee shall not make any additional copies of any Lessor issued keys. All
keys and security cards are the property of Lessor and must be returned
upon request or by the close of the business on the expiration or sooner
termination of the Agreement term. Any lost or unreturned keys or cards
shall incur a $25.00 per item charge and the cost to re-key the office.
18. Lessee shall not smoke nor allow smoking in any area of the Facility,
including the Premises, and shall comply with all governmental regulations
and ordinances concerning smoking.
19. Lessee shall not allow more than three visitors in the reception lobby of
the Premises at any one time.
20. Lessee's parking rights (if any) are defined by Lessor's Agreement with the
owner of the Building. Landlord reserves the right to modify parking
arrangements if required to do so by Building management.
21. Lessee shall cooperate and be courteous with all other occupants of the
Facility and Lessor's staff and personnel.
22. Lessor reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for the
safety, care, appropriate operation and cleanliness of the Facility.
DM Intials TG Initials
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<PAGE>
<TABLE>
BASIC TERMS OF AGREEMENT
Tenant: Burstware
Landlord: Alliance/InterOffice/King Street (d/b/a Vantas)
Term: 23 Days and 12 Months (7/09/99 - 7/31/2000)
Move in date: August 1st 1999
Move out date: July 31, 2000
Office/Suite No.(s): 609
<CAPTION>
Terms Quantity Amount Total
----- -------- ------ -----
<S> <C> <C> <C> <C>
Fixed Monthly Fees:
Conference Room Usage Allowance Up to 4 hours per month Per Company 4 Hrs 4 Induded
Fixed Monthly Office Rental: Suite(s): 609 160 sq ft $855.00 $855.00
Fixed Monthly Furniture Rental: Set up for two 2 occupants $75.00 $75.00
Additional Furniture Rental: Waived in initial term 2nd desk/chair $50.00 waived
Fixed Monthly Phone Charge: per set with speakerphone $125 2 $125.00 $250.00
Fixed Monthly Data lines $60 per fax/modem 1 $60.00 $60.00
Fixed Monthly Network Jacks $25 per network jack 0 $25.00 $
Fixed Monthly T1 Access $125 per computer hookup 1 $125.00 $125.00
Kitchen/Coffee Services $30/mo/person 1 $30.00 $waived
Fixed Monthly Add'l People Charge: Effective with 3rd full time person 2 occupant $150.00 $
Flxed Monthly Parking: $ll0 per month/per pass 1 $110.00 $110.00
Fixed Monthly Client Services Package $120 per office 1 Office 120.00 $waived
Other Fixed Monthly Charges: Telephone Directory listing 1 $4.00 $4.00
Total Fixed Monthly Charges: $1,479.00
Payment Due at Signing:
Pro Rated Rent Pro-Rated Rent (50% off in August)
1st Months Rent $427.50 $427.50
1st Months Furniture Furniture Rent For 2 $27.50 $27.50
1st Months Client services Package $120 per month/office 1 Office $120.00 $waived
lst Months Parking $ll0 per month/pass 1 $110.00 $110.00
lst Months Telephone Charges: $125 per set with speakerphone 2 $125.00 $250.00
1st Months T1 Access $125 per computer/hookup 1 $125.00 $125.00
1st Months Network Jacks $25 per jack 0
1st Months Data Line Charges: $60 per fax/modem 1 $60.00 $60.00
Modem Line Installation: $150 per line 1 $150.00 $150.00
Phone Installation Charges $150 per line/jack 2 $150.00 $300.00
T1/Lan Setup Charges: $150.00/drop + technical svcs @$125/hr 1 $150.00 $150.00
lst Months Add'l Person Per person 3 or more $l50 each $
Start-up Fee Per office $150.00 1 $150.00 $150.00
Refundable Service Deposit Two Month's Rent $1,860.00 $1,860.00
State Tax 4.5% Fum $3.38phn ll.25, setup $6.75 data 2.70 $24.08 $24.08
Total First Months rental, charges, deposit and set-up fees: $3,634,08
<FN>
State Tax will be calculated for the following services as provided: Production, Furniture, Copies,
Catering, Additional Furniture, Equipment Rental, Incoming Facsimile, Line Charges, Moves, Adds &
Changes, Office Supplies and Telephone Equipment Rental.
</FN>
</TABLE>
1
<PAGE>
SCHEDULE OF FURNISHINGS
FURNITURE COLOR Condition Charge
2 Executive Desk(s)
1 Credenza(s)
2 Executive Chair(s)
1 Guest Chair(s)
Secretarial Desk(s)
Secretarial Chair(s)
1 Bookcase(s)
Conference Table(s)
Lateral File(s)
1 Waste Basket(s)
2 Floor Mat(s)
Other All Boling furniture items in 609 in fair
condition to accommodate 2 occupants will be
leased as is to Lessee for a monthly rental amount
of $75.00. The cost of $50 for the second desk and
executive chair will be waived in this initial
term only.
ARTWORK ___ Framed Picture(s)
Additions/Deletions:________________________ Date: _________________
Comments on Changes: _______________________________________________
Tenant Signature: __________________________ Date: _________________
Landlord Signature ________________________ Date: __________________
2
<PAGE>
SCHEDULE OF KEYS
- ----------------
Additional keys are $25.00 each.
1 each Key(s) for office/suite (656) door
1 Security PIN Codes for Suite 600
1 Security card for building 1300 Diagonal Rd. (Card # to be determined)
Tenant Signature: ___________________________________ Date: __________________
Landlord Signature: ________________________________ Date: __________________
Initials ________
________
3
<PAGE>
[LOGO] LEASE AND SERVICE AGREEMENT
INTERNET T1 ACCESS RIDER
RE: Lease and Service Agreement between Burstware and Alliance/InterOffice King
Street (d/b/a Vantas) ("Agreement").
DATE:___________________________________ CENTER: King Street, #202
TERM OF AGREEMENT: August 1st 1999 -- July 31, 2000
a. Provided Lessee is not in default of any of the terms of the Agreement
(including, without limitation. the provisions of this Rider) Lessor will
make available to Lessee non-exclusive access to Lessor's dedicated
Internet T1 data line ("Internet Access"). Lessee shall be entitled to use
the Internet Access for web browsing, e-mail, file transfers and general
low bandwidth use of Internet technologies. Lessee's use of the Internet
Access is not to exceed 256 kbps for over 10 hours in any calendar month.
Lessor reserves the right to monitor the average and aggregate usage of the
Internet Access by Lessee. Fees and charges for the Internet Access will be
as per Lessor's scheduled rates for the same, which rates are subject to
change. Lessor reserves the right to charge additional fees and charges for
the provision of services beyond those described above, including, without
limitation, high bandwidth applications, web hosting or other Internet
services, video conferencing, streaming technologies and/or use of the
Internet Access in excess of the allotted amount at Lessor's standard rates
for same.
b. In connection with the provision of Internet Access, Lessor will provide an
Internet router and, at Lessee's request and for customary rates,
connectivity services. Unless otherwise agreed, Lessee will be responsible
for providing workstations and network interface cards. Lessor will provide
limited security in connection with the Internet Access through Network
Address Translation. Any other additional security desired by Lessee shall
be provided at Lessee's sole cost and expense and shall be installed by
Lessee only upon the prior written consent of Lessor.
c. Lessee will be responsible for any software and content displayed and
distributed by Lessee or, if permitted by, Lessee's web hosting customers,
if any. Lessee's (and Lessee's customers') use of the Internet Access will
be subject to all terms and conditions of the Agreement, this Rider and to
applicable law. Lessor reserves the right to discontinue the provision of
Internet Access at any time, without liability to Lessor, if Lessor
determined in its sole discretion that Lessee's (or Lessee's customers')
use of the Internet Access is inappropriate, illegal or otherwise
inconsistent with the provisions of the Agreement and this Rider or with
the rules of proper etiquette of Lessor's Internet services provider,
Lessee will indemnify Lessor for any claims, damages, or expenses suffered
by Lessor arising out of or relating to the improper or illegal use by
Lessee or Lessee's customers' of the Internet Access, including, without
limitation, any such claims, damages, or expenses arising out of or
relating to any termination of Lessor's Internet Access by its internet
services provider. Lessor also may, in its sole discretion and without
any cause or reason whatsoever, terminate the Internet Access upon 30 days'
written notice to Lessee.
d. Lessee waives any recourse as against lessor for any claimed liability or
damage arising from the provision of Internet Access (which for these
purposes shall include the installation by Lessor or its subcontractors of
third party software necessary for the provision of such access) as well as
any claim for business interruption (including loss of data) and for
consequential damages. All other terms of the Agreement will remain in full
force and effect. This agreement is subject and subordinate to the main
"Lease and Services Agreement"
ACCEPTED BY LESSOR: ACCEPTED BY LESSEE:
By: /s/ ??????????????? By: /s/ ????????????????????
------------------------ ---------------------------
Date: 7-20-99 Title: C.O.O.
----------------------- -------------------------
Date: 7-16-99
--------------------------
<PAGE>
[LOGO] OFFICE SERVICE AGREEMENT
REBATE RIDER
RE: Office Service Agreement ("The Agreement") between BURSTWARE. ("Client") and
ALLIANCE/INTEROFFICE KING STREET, (D/B/A VANTAS)
DATE: July 1, 1999
The Agreement in paragraph 4 provides that the Client shall pay, as Monthly
Office Charge, a sum of $930.00.
The parties agree and understand that the Monthly Office Charge reflects the
market value for the use of the Premises for the purpose described in the
Agreement
The parties have agreed, that in consideration of the following, the Center
shall accept instead and in place of the Monthly Office Charge described in
paragraph 4 of the Agreement (the "Original Monthly Office Charge"), the sum of
$465.00 for the month of August, 1999, in this initial term only. (the "Reduced
Monthly Office Charge") such that the Client's Monthly Office Charge shall be
reduced in July, 1999, by the sum of $465.00
It is hereby agreed as follows:
1. Paragraph 3 is hereby modified so that, upon the expiration of the Initial
Term of the Agreement and for the Renewal Term then beginning, if
applicable, the Client shall pay as Monthly Office Charge the Original
Monthly Office Charge.
2. Upon the expriation of any such Renewal Term, Client hereby agrees and
understands that Paragraph 3 of the Agreement shall apply to any such
renewals.
All other terms and conditions of the Agreement shall remain in full force and
effect.
ACCEPTED BY LESSOR: ACCEPTED BY LESSEE:
By: /s/ ??????????????? By: /s/ ????????????????????
------------------------ ---------------------------
Date: 7-20-99 Title: C.O.O.
----------------------- -------------------------
Date: 7-16-99
--------------------------
Consult your lawyer before signing this lease --
it has important legal consequences.
BUSINESS LEASE
The Landlord and the Tenant agree to lease the Rental Space for the
Term and at the Rent stated, as follows:
(The words Landlord and Tenant include all landlords
and all tenants under this Lease.)
Landlord Wagner, Hohns, Inglis Tenant Instant Video Technology
------------------------------ -----------------------------
print or type print or type
100 High Street 500 Sansome Street, Suite 503
- --------------------------------------- ------------------------------------
Address Address
Mount Holly, NJ 08060 San Francisco, California 94111
- --------------------------------------- ------------------------------------
Rental Space 575 sq. ft. approx.
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
in the Building at 100 High Street, Mount Holly, NJ 08060
-------------------------------------------------------------
Address
Date of Lease October 13, 1999
-------------------------------
Term 2 yes. w/ 1, 2 yr. option
----------------------------------------
Beginning November 1, 1999
------------------------------
Ending October 31, 2001
---------------------------------
Security $675.00, one month's rent
------------------------------------
Broker. The Landlord and the Tenant recognize
TERRA ASSOCIATES & RANCOCAS
-------------------------------------
VALLEY REALTY
-------------------------------------
as the Broker who brought about this Lease. The Landlord shall pay the Broker's
commission.
Liability Insurance. Minimum amounts: for each person injured $5,00,000, for any
one accident $1,000,000, for property damages $500.00
Municipal Real Estate Taxes $ N/A
-------
Base Year 19_________ Percent of Increase _____%
Rent for the Term is $17,100.00
----------
The Rent is payable in advance on the first day of each month, as follows:
$675.00 per month for the first 12 months due and payable on the first day of
the month; $750.00 per month for the second year of the term due and payable on
the first day of each month. Option Years to be increased based upon the Phila.
CPI with a minimum increase of 3% per term if exercised.
- --------------------------------------------------------------------------------
Use of Rental Space general professional office
---------------------------
Additional agreements LATE CHARGES: Tenant shall be responsible for a late
charge in the amount of $25.00 in addition to the regular monthly payment if the
rental payment is received after the 10th day of each month.
OPTION: Tenant shall be responsible to notify the landlord, in writing, of its
intent to exercise each option of the lease agreement ninety (90) days prior to
the expiration of the initial term.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
1. Possession and Use 16. No Alterations
2. Delay in Giving of Possession 17. Signs
3. No Assignment or Subletting 18. Access to Rental Space
4. Rent and Additional Rent 19. Fire and Other Casualty
5. Security 20. Eminent Domain
6. Liability Insurance 21. Subordination to Mortgage
7. Unavailability of Fire Insurance, Rate Increases 22. Tenant's Certificate
8. Water Damage 23. Violation, Eviction, Re-entry and Damages
9. Liability of Landlord and Tenant 24. Notices
10. Real Estate Taxes 25. No Waiver
11. Acceptance of Rental Space 26. Survival
12. Quiet Enjoyment 27. End of Term
13. Utilities and Services 28. Binding
14. Tenant's Repairs, Maintenance, and Compliance 29. Full Agreement
15. Landlord's Repairs and Maintenance
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
1. Possession and Use
The Landlord shall give possession of the Rental Space to the Tenant for
the Term. The Tenant shall take possession of and use the Rental Space for the
purpose stated above. The Tenant may not use the Rental Space for any other
purpose without the written consent of the Landlord.
The Tenant shall not allow the Rental Space to be used for any unlawful or
hazardous purpose. The Tenant is satisfied that the Rental Space is zoned for
the Use stated. The Tenant shall obtain any necessary certificate of occupancy
or other certificate permitting the Tenant to use the Rental Space for that Use.
The Tenant shall not use the Rental Space in any manner that results in (1)
an increase in the rate of fire or liability insurance or (2) cancellation of
any fire or liability insurance policy on the Rental Space. The Tenant shall
comply with all requirements of the insurance companies insuring the Rental
Space. The Tenant shall not abandon the Rental Space during the Term of this
Lease or permit it to become vacant for extended periods.
2. Delay in Giving of Possession
This paragraph applies if (a) the Landlord cannot give possession of the
Rental Space to the Tenant on the beginning date and (b) the reason for the
delay is not the Landlord's fault. The Landlord shall not be held liable for the
delay. The Landlord shall then have 30 days in which to give possession. If
possession is given within that time, the Tenant shall accept possession and pay
the Rent from that date. The ending date of the Term shall not change. If
possession is not given within that time this Lease may be cancelled by either
party on notice to the other.
3. No Assignment or Subletting
The Tenant may not do any of the following without the Landlord's written
consent: (a) assign this Lease (if the Tenant is a corporation, the sale of a
majority of its shares shall be treated as an assignment), (b) sublet all or any
part of the Rental Space or (c) permit any other person or business to use the
Rental Space.
4. Rent and Additional Rent.
Tenant shall pay the Rent to the Landlord at the Landlord's address.
If the Tenant fails to comply with any agreement in this Lease, the
Landlord may do so on behalf of the Tenant. The Landlord may charge the cost to
comply, including reasonable attorney's fees, to the Tenant as "additional
rent." The additional rent shall be due and payable as Rent with the next
monthly Rent payment. Non-payment of additional rent shall give the Landlord the
same rights against the Tenant as if the Tenant failed to pay the Rent.
5. Security
The Tenant has given to the Landlord the Security stated above. The
Security shall be held by the Landlord during the Term of this Lease. The
Landlord may deduct from the Security any expenses incurred in connection with
the Tenant's violation of any agreement in this Lease. For example, if the
Tenant does not leave the Rental Space in good condition at the end of the Term,
the Security may be used to put it in good condition. If the amount of damage
exceeds the Security, the Tenant shall pay the additional amount to the Landlord
on demand.
If the Landlord uses the Security or any part of it during the Term, the
Tenant shall on demand pay the Landlord for the amount used. The amount of the
Security is to remain constant throughout the Term. The Security is not to be
used by the Tenant for the payment of Rent. The Landlord shall repay to the
Tenant any balance remaining within a reasonable time after the end of the Term.
The Tenant shall not be entitled to interest on the Security.
If the Landlord's interest in the Rental Space is transferred, the Landlord
shall turn over the Security to the new Landlord. The Landlord shall notify the
Tenant of the name and address of the new Landlord. Notification must be given
within 5 days after the transfer, by registered or certified mail. The Landlord
shall then no longer be responsible to the Tenant for the repayment of the
Security. The new Landlord shall be responsible to the Tenant for the return of
the Security in accordance with the terms of this Lease.
6. Liability Insurance
The Tenant shall obtain, pay for, and keep in effect for the benefit of the
Landlord and the Tenant public liability insurance on the Rental Space. The
insurance company and the broker must be acceptable to the Landlord. This
coverage must be in at least the minimum amounts stated above.
All policies shall state that the insurance company cannot cancel or refuse
to renew without at least 10 days written notice to the Landlord.
The Tenant shall deliver the original policy to the Landlord with proof of
payment of the first year's premiums. This shall be done not less than 15 days
before the Beginning of the Term. The Tenant shall deliver a renewal policy to
the Landlord with proof of payment not less than 15 days before the expiration
date of each policy.
7. Unavailability of Fire Insurance, Rate Increases
If due to the Tenant's use of the Rental Space the Landlord cannot obtain
and maintain fire insurance on the Building in an amount and form reasonably
acceptable to the Landlord, the Landlord may cancel this Lease on 30 days notice
to the Tenant. If due to the Tenant's use of the Rental Space the fire insurance
rate is increased, the Tenant shall pay the increase in the premium to the
Landlord on demand.
8. Water Damage
The Landlord shall not be liable for any damage or injury to any persons or
property caused by the leak or flow of water from or into any part of the
Building.
9. Liability of Landlord and Tenant
The Landlord shall not be liable for injury or damage to any person or
property unless it is due to the Landlord's act or neglect. The Tenant is liable
for any loss, injury or damage to any person or property caused by the act or
neglect of the Tenant or the Tenant's employees. The Tenant shall defend the
Landlord from and reimburse the Landlord for all liability and costs resulting
from any injury or damage due to the act or neglect of the Tenant or the
Tenant's employees.
10. Real Estate Taxes N/A
11. Acceptance of Rental Space
The Tenant has inspected the Rental Space and agrees that the Rental Space
is in satisfactory condition. The Tenant accepts the Rental Space with
modifications. See Addendum No. 30.
12. Quiet Enjoyment
The Landlord has the right to enter into this Lease. If the Tenant complies
with this Lease, the Landlord must provide the Tenant with undisturbed
possession of the Rental Space.
13. Utilities and Services
The Tenant shall arrange and pay for all utilities and services required
for the Rental Space, including the following:
NONE. Telephone and cleaning service.
The Landlord shall pay for the following utilities and services: All Other
Utilities.
The Landlord is not liable for any inconvenience or harm caused by any
stoppage or reduction of utilities and services beyond the control of the
Landlord. This does not excuse the Tenant from paying Rent.
<PAGE>
14. Tenant's Repairs, Maintenance, and Compliance
The Tenant shall:
(a) Promptly comply with all laws, orders, rules and requirements of
governmental authorities, insurance carriers, board of fire underwriters, or
similar groups.
(b) Maintain the Rental Space and all equipment and fixtures in it in
good repair and appearance.
(c) Make all necessary repairs to the Rental Space and all equipment
and fixtures in it, except structural repairs.
(d) Maintain the Rental Space in a neat, clean, safe, and sanitary
condition, free of all garbage.
(f) Use all electric, plumbing and other facilities in the Rental
Space safely.
(g) Use no more electricity than the wiring or feeders to the Rental
Space can safely carry.
(h) Promptly replace all broken glass in the Rental Space.
(i) Do nothing to destroy, deface, damage, or remove any part of the
Rental Space.
(j) Keep nothing in the Rental Space which is inflammable, dangerous
or explosive or which might increase the danger of fire or other casualty.
(k) Promptly notify the Landlord when there are conditions which need
repair.
(l) Do nothing to destroy the peace and quiet of the Landlord, other
tenants or persons in the neighborhood.
(m) Avoid littering in the building or on its grounds.
The Tenant shall pay any expenses involved in complying with the above.
15. Landlord's Repairs and Maintenance
The Landlord shall:
(a) Maintain the public areas, roof and exterior walls in good
condition.
(b) Make all structural repairs unless these repairs are made
necessary by the act or neglect of the Tenant or the Tenant's employees.
(c) Make necessary replacements of the plumbing, cooling, heating and
electrical systems, except when made necessary by the act or neglect of the
Tenant or the Tenant's employees.
(d) Maintain the elevators in the Building, if any.
16. No Alterations
The Tenant may not make any changes or additions to the Rental Space
without the Landlord's written consent. Any changes or additions made without
the Landlord's written consent shall be removed by the Tenant on demand.
All changes or additions made with the Landlord's written consent shall
become the property of the Landlord when completed and paid for by the Tenant.
They shall remain as part of the Rental Space at the end of the Term. The
Landlord may demand that the Tenant remove any changes or additions at the end
of the Term. The Tenant shall promptly pay for all costs of any permitted
changes or additions. The Tenant shall not allow any mechanic's lien or other
claim to be filed against the Building. If any lien or claim is filed against
the Building, the Tenant shall have it promptly removed.
17. Signs
The Tenant shall obtain the Landlord's written consent before placing any
sign on or about the Rental Space. Signs must conform with all applicable
municipal ordinances and regulations.
18. Access to Rental Space
The Landlord shall have access to the Rental Space on reasonable notice to
the Tenant to (a) inspect the Rental Space (b) make necessary repairs,
alterations, or improvements, (c) supply services, and (d) show it to
prospective buyers, mortgage lenders, contractors or insurers.
The Landlord may show the Rental Space to rental applicants at reasonable
hours on notice to the Tenant within 6 months before the end of the Term.
The Landlord may enter the Rental Space at any time without notice to the
Tenant in case of emergency.
19. Fire and Other Casualty
The Tenant shall notify the Landlord at once of any fire or other casualty
in the Rental Space. The Tenant is not required to pay Rent when the Rental
Space is unusable. If the Tenant uses part of the Rental Space, The Tenant must
pay Rent pro-rata for the usable part.
If the Rental Space is partially damaged by fire or other casualty, the
Landlord shall repair it as soon as possible. This includes the damage to the
Rental Space and fixtures installed by the Landlord. The Landlord need not
repair or replace anything installed by the Tenant.
Either party may cancel this Lease if the Rental Space is so damaged by
fire or other casualty that it cannot be repaired within 90 days. If the parties
cannot agree, the opinion of a contractor chosen by the Landlord and the Tenant
will be binding on both parties.
This Lease shall end if the Rental Space is totally destroyed. The Tenant
shall pay Rent to the date of destruction.
If the fire or other casualty is caused by the act or neglect of the Tenant
or the Tenant's employees, the Tenants shall pay for all repairs and all other
damage.
20. Eminent Domain
Eminent domain is the right of a government to lawfully condemn and take
private property for public use. Fair value must be paid for the property. The
taking occurs either by court order or by deed to the condemning party. If any
part of the Rental Space is taken by eminent domain, either party may cancel
this lease on 30 days notice to the other. The entire payment for the taking
shall belong to the Landlord. The Tenant shall make no claim for the value of
this Lease for the remaining part of the Term.
21. Subordination to Mortgage
In a foreclosure sale all mortgages which now or in the future affect the
Building have priority over this Lease. This means that the holder of a mortgage
may end this Lease on a foreclosure sale. The Tenant shall sign all papers
needed to give any mortgage priority over this Lease. If the Tenant refuses, the
Landlord may sign the papers on behalf of the Tenant.
22. Tenant's Certificates
At the request of the Landlord, the Tenant shall sign a certificate stating
that (a) this Lease has not been amended and is in effect, (b) the Landlord has
fully performed all of the Landlord's agreements in this Lease, (c) the Tenant
has no rights to the Rental Space except as stated in this Lease, (d) the Tenant
has paid all Rent to date, and (e) the Tenant has not paid Rent for more than
one month in advance. The Certificate shall also list all the property attached
to the Rental Space owned by the Tenant.
23. Violation, Eviction, Re-entry and Damages
The Landlord reserves a right of re-entry which allows the Landlord to end
this Lease and re-enter the Rental Space if the Tenant violates any agreement in
this Lease. This is done by eviction. Eviction is a court procedure to remove a
tenant. This is done by eviction. Eviction is a court procedure to remove a
tenant. Eviction is started by the filing of a compliant in court and the
service of a summons on a tenant to appear in court. The Landlord may also evict
the Tenant for any one of the other grounds of good cause provided by law. After
a court order of eviction and compliance with the warrant of removal, the
Landlord may re-enter and take back possession of the Rental Space. If the cause
for eviction is non-payment of Rent, notice does not have to be given to the
Tenant before the Landlord
<PAGE>
files a complaint. If there is any other cause to evict, the Landlord must give
to the Tenant the notice required by law before the Landlord files a complaint
for eviction.
The Tenant is liable for all damages caused by the Tenant's violation of
any agreement in this Lease. This includes reasonable attorney's fees and costs.
After eviction the Tenant shall pay the Rent for the Term or until the
Landlord re-rents the Rental Space, if sooner. If the Landlord re-rents the
Rental Space for less than the Tenant's Rent, the Tenant shall pay the
difference until the end of the Term. The Tenant shall not be entitled to any
excess resulting from the re-renting. The Tenant shall also pay (a) all
reasonable expenses incurred by the Landlord in preparing the Rental Space for
re-renting and (b) commissions paid to a broker for finding a new tenant.
24. Notices
All notices given under this Lease must be in writing. Each party must
accept and claim the notices given by the other. Unless otherwise provided by
law, they may be given by (a) personal delivery, or (b) certified mail, return
receipt requested. Notices shall be addressed to the Landlord at the address
written at the beginning of this Lease and to the Tenant at the Rental Space.
25. No Waiver
The Landlord's failure to enforce any agreement in this Lease shall not
prevent the Landlord from enforcing the agreement for any violations occurring
at a later time.
26. Survival
If any agreement in this Lease is contrary to law, the rest of the Lease
shall remain in effect.
27. End of Term
At the end of the Term the Tenant shall (a) leave the Rental Space clean,
(b) remove all of the Tenant's property, (c) remove all signs and restore that
portion of the Rental Space on which they were placed, (d) repair all damage
caused by moving, and (e) return the Rental Space to the Landlord in the same
condition as it was at the beginning of the Term except for normal wear and
tear.
If the Tenant leaves any property in the Rental Space, the Landlord may (a)
dispose of it and charge the Tenant for the cost of disposal, or (b) keep it as
abandoned property.
28. Binding
This Lease binds the Landlord and the Tenant and all parties who lawfully
succeed to their rights or take their places.
29. Full Agreement
The parties have read this Lease. It contains their full agreement. It may
not be changed except in writing signed by the Landlord and the Tenant.
30. The landlord agrees to replace carpeting within the open outer office area,
at landlord's expense prior to tenancy.
Signatures
The Landlord and the Tenant agree to the terms of this Lease by signing
below. If a party is a corporation, this Lease is signed by its proper corporate
officers and its corporate seal is affixed.
Witnessed or attested by:
- --------------------------------------
As to Landlord
- --------------------------------------
- -------------------------------------- SEAL
Richard S. Merkhofer Landlord
WAGNER, HOHNS, INGLIS
- -------------------------------------- SEAL
Landlord
/s/ Thomas Koshy
- -------------------------------------- SEAL
Thomas Koshy Tenant
INSTANT VIDEO TECHNOLOGY
- -------------------------------------- SEAL
CHIEF OPERATING OFFICER
OCTOBER 21,1999
PAT MEIER ASSOCIATES P.R.
PAT MEIER ASSOCIATES, INC.
PUBLIC RELATIONS SERVICES AGREEMENT
(1) PARTIES: The parties to this Agreement are Pat Meier Associates, Inc., 120
Broadway Street, San Francisco, CA 94111 (PMA) and Instant Video Technologies,
Inc., 500 Sansome St, Suite 503, San Francisco, CA 94111
(2) PURPOSE OF AGREEMENT: PMA and Instant Video Technologies, Inc. desire to
enter into a contractual relationship whereby PMA acts as a public relations
agency for Instant Video Technologies, Inc. upon the terms and conditions set
forth below.
(3) TERMS AND CONDITIONS:
(a) PMA will undertake specific tasks at the direction of Instant Video
Technologies, Inc. in the area of public relations. Instant Video Technologies,
Inc. will periodically confirm the tasks in writing and present them to PMA.
These tasks will be performed to the fullest extent possible by PMA. It is also
agreed by PMA that it will maintain complete and accurate records of all
activities performed on behalf of Instant Video Technologies, Inc. PMA will
endeavor to supply reasonable supporting details as Instant Video Technologies,
Inc. may require.
(b) Instant Video Technologies, Inc. grants PMA full rights and
authority to undertake public relations activities on behalf of Instant Video
Technologies, Inc. throughout the United States. Instant Video Technologies,
Inc. provides PMA with the right and authority to solicit introductions to
Instant Video Technologies, Inc. and its product(s) from any potential editor,
industry analyst, broadcast producer, print or broadcast media, Internet web
site or other editorial interested party.
(c) The terms of reference by PMA to public relations targets shall be
the terms established by Instant Video Technologies, Inc. who shall provide PMA
with product specifications and marketing direction as may be modified from time
to time.
(d) Fees are due and payable on the first day of each month. A payment
will be deemed late, for purposes of this agreement, if not received by PMA by
the fifth day of each month. Trade shows, Media Tour and ongoing Public
Relations fees are billed on the first of the month one month ahead and are due
on the first day of the following month, e.g., May fees are billed on April 1,
and are due and payable May 1. Additional services will be individually billed
and are due and payable net thirty (30) days.
Starting December 5, 1998 Instant Video Technologies, Inc. will be billed a
public relations fee of $8,000.00. Each subsequent month the monthly public
relations fee will be $8,000.00. There are other activity fees on page 4 of the
budget that could raise the total monthly fee. Fees owed to PMA are not
conditioned upon the results of the public relations services provided by PMA.
120 BROADWAY STREET o SAN FRANCISCO o CALIFORNIA 94111
415.392.4200 o FAX 415.392.4205 o [email protected] o WWW.PATMEIER.COM
<PAGE>
Instant Video Technologies, Inc.
Public Relations Agreement
December 5, 1998
(e) The effective date of this Agreement shall be from December 5, 1998
through December 31, 1999. The Agreement may be terminated by either party upon
a 30 days notice in writing. The parties may mutually agree upon a shorter
termination notice period if in writing and signed by all parties to the
Agreement. Any cancellation of line item activities within a one-month (30-day)
advance period will be charged to the client at 50% of the full fee for that
line item activity.
(f) PMA is an independent contractor of Instant Video Technologies,
Inc., and not an employee of Instant Video Technologies, Inc.
(4) BILLING PROCEDURES:
(a) Late payments, as defined in paragraph 3(d) above, shall be
increased by a 1.5% late for each month the debt is due. This 1.5% late fee will
be compounded monthly.
{1} Out-of-pocket expenses for any given month will be billed
the month immediately after these expenses are incurred. PMA will require prior
authorization from Instant Video Technologies, Inc. on normal and customary
expenses such as travel, telephone, postage, photocopying, release production,
dissemination costs and so forth. PMA will be permitted to bill Instant Video
Technologies, Inc. immediately for these costs and expenses and these items of
expenses will be due and payable upon receipt.
{2} Fees are due and payable Net 30.
(b) Work on this account may be discontinued without notice if the
account is overdue in excess of 30 days. PMA has the option of resuming service
or terminating the account after payment of the arrearage and late fees.
(5) INDEMNITY: Instant Video Technologies, Inc. agrees to defend, indemnify and
hold PMA harmless against any loss, cost or expense PMA may sustain or incur as
the result of any claim, suit or proceeding made, brought or threatened against
PMA arising out of the Agreement herein Instant Video Technologies, Inc. or any
assertions made on behalf of Instant Video Technologies, Inc. by PMA. The
expenses indemnified against include reasonable attorneys fees and costs
incurred in any litigation identified above.
(6) DISPUTES BETWEEN THE PARTIES:
(a) Attorneys Fees and Litigation Costs: In the event of a disagreement
between the parties to this Agreement, the prevailing party shall be entitled to
recover attorneys fees and costs from the non-prevailing party. Attorneys fees
shall be awarded whether the claim for relief is based on contract law, tort
law, or both.
(b) Venue: The venue where any dispute shall be maintained is the City
and County of San Francisco, State of California.
2
<PAGE>
Instant Video Technologies, Inc.
Public Relations Agreement
December 5, 1998
(7) CONFIDENTIALITY: PMA shall maintain the confidentiality of all trade and
proprietary secrets that may be disclosed in the course of providing public
relations services. Instant Video Technologies, Inc. shall identify to PMA in
advance and in writing any information or data deemed a trade of proprietary
secret.
(8) INTEGRATED AGREEMENT: This contract constitutes the final, complete and
exclusive statement of the agreement between the parties herein. This Agreement
contains all the representations and the entire agreement between the parties
with respect to the subject matter of this Agreement. All other prior Agreements
are null and void and are superseded by this Agreement.
Dated: 12-15-98
---------------------- /s/ Pat Meier
-----------------------------------
Pat Meier, President
Pat Meier Associates, Inc.
Dated:
---------------------- /s/ Richard Lang
-----------------------------------
Richard Lang, CEO & Chairman
Instant Video Technologies, Inc.
3
<PAGE>
Instant Video Technologies, Inc.
Public Relations Agreement
December 5, 1998
SCHEDULE
BUDGET
The following budget reflects fees only and does not include out-of-pocket
costs or charges from third party vendors, nor does the budget include
expenses such as phone, printing, fax, disc duplication, etc.
- --------------------------------------------------------------------------------
Instant Video 12/1998 01/1999 02/1999
Technologies, Inc.
- --------------------------------------------------------------------------------
Ongoing Public Relations $6,709 $8,000 $8,000
$8,000
- --------------------------------------------------------------------------------
Edit/evaluate Powerpoint $500*
presentation of Burstware
- --------------------------------------------------------------------------------
Post IVT to the Pat Meier $500*
Associates PR page, maintain for
one year
- --------------------------------------------------------------------------------
Analyst/media tour $7,500
- --------------------------------------------------------------------------------
Video interview with CEO $8,000
Richard Lang about Burstware
- --------------------------------------------------------------------------------
Post Video to PMA and ITV Web $500
Sites
- --------------------------------------------------------------------------------
Review IVT's by-lined sales piece $500
What Burstware means to the user
- --------------------------------------------------------------------------------
Book New York venue for launch TBD
event
- --------------------------------------------------------------------------------
Book San Francisco venue for TBD
launch event
- --------------------------------------------------------------------------------
Develop theme/invitations for TBD
launch event
- --------------------------------------------------------------------------------
Partner News Release $750
- --------------------------------------------------------------------------------
First Major Sale News Release $750
- --------------------------------------------------------------------------------
Strategic Alliance News Release $750
- --------------------------------------------------------------------------------
Photo News release (embedded Video) $1,500
- --------------------------------------------------------------------------------
Development user story, viewpoint $3,000**
article, tips, features
- --------------------------------------------------------------------------------
Technology / Third Party News
Release standard rate $1,500
- --------------------------------------------------------------------------------
Trade Show on-site
1st day $3,000
2nd day $2,000
3rd day $1,000
- --------------------------------------------------------------------------------
* one time billable
** only payable when the article outline is accepted by an editor
4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of the 23rd day of June, 1998 (the
"Effective Date") between Instant Video Technologies, Inc. (the "Company"), a
corporation, and Richard Lang (the "Employee").
WHEREAS, the Company wishes to employ the Employee as its Chairman and C.E.O.;
and
WHEREAS, the Employee wishes to be employed by the Company in such
position.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Employment. Duties and Acceptance
1.1 Employment by the Company. The Company hereby employs the Employee
for the term (as defined herein), to render, subject to the following paragraph,
exclusive and full-time services to the Company as Chairman & C.E.O. of the
Company, subject to the direction of the Company's Board of Directors (the Board
of Directors), and in connection therewith, to perform such duties as he shall
be directed to perform by the Company's Board of Directors.
1.2 Acceptance of Employment by Employee. The Employee hereby accepts
such employment and agrees to render the services described above. The Employee
further agrees to accept election and to serve during all or any part of the
term as an officer or director of the Company and of any subsidiary or affiliate
of the Company (or of any other corporation at the Company's reasonable request)
without any compensation therefor, other than that specified in this Agreement
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate (or other corporation), as the
case may be.
1.3 Vacation. The Employee shall be entitled to twenty days of annual
vacation in accordance with the vacation policy of the Company, as in effect
from time to time.
1.4 Travel. The Employee shall be subject to reasonable travel
requirements as may be necessary or desirable to perform fully his obligations
hereunder.
2. Term of Employment. The term of the Employee's employment under this
Agreement (the "Initial Term") shall commence on the Effective Date and shall
continue for twenty-four (24) months from the Effective Date unless sooner
terminated pursuant to Article 4 of this Agreement. The term of the Employee's
employment shall automatically be extended for one additional year at the end of
the Initial Term ("Extended Term") unless, not later than 90 days preceding such
date, the Employee or the Company shall give written notice to the other that
the Employee or the Company does not wish to extend the term of employment for
such additional one-year period.
<PAGE>
3. Compensation.
3.1 Salary. As full compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Employee (or, in the
event the Employee performs services hereunder on behalf of a subsidiary of the
Company, the Company shall cause such subsidiary to pay the Employee, without
duplication and only to the extent not paid by the Company or any other
subsidiary), during the term, a salary at the fixed rate of One hundred eighty
thousand dollars ($180,000.00) per annum or such greater amount as shall be
approved by the Board of Directors in its sole discretion (the "Base Salary"),
payable in accordance with the payroll policies of the Company as from time to
time in effect, less such deductions as shall be required to be withheld by
applicable law and regulations. Additionally, Employee shall be entitled to
receive 990,000 stock options previously granted pursuant to the attached stock
option agreement. Vesting, as further described in the attached option
agreement, is subject to the company receiving a minimum of $7,000,000.00 in
equity financing. Additionally, an increase in salary to two hundred and forty
thousand dollars ($240,000.00) shall be effective upon the first pay period
immediately following the receipt of the equity financing. In the event the
Company elects not to extend the term of employment (Extended Term) following
the Initial Term, all remaining options granted in conjunction with this
agreement shall vest on the Employee's last day of employment.
3.2 Bonuses. During the term, the Employee shall be entitled to receive
a bonus (the Bonus) as a participant in the Company's incentive compensation
arrangement as approved by the Board of Directors on an annual basis.
3.3 Expenses. Subject to such policies as may from time to time be
established by the Board of Directors, applicable to its employees generally,
the Company shall pay or reimburse the Employee for all reasonable expenses
actually incurred or paid by him during the term in the performance of his
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company may require;
Provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Board of Directors of the Company.
3.4 Participation in Benefit Plans. During the term, the Employee shall
participate in each group life, hospitalization or disability insurance plan,
health program, and any other similar benefit plan and any stock option plan of
the Company which is available to other employees of the Company and for which
he qualifies. Employee understands such benefit plans may be modified from time
to time under guidelines established by the Board of Directors.
3.5 Company Automobile. During the term, Employee shall be entitled to
a car allowance or use of a Company automobile consistent with the guidelines
for employees as set forth in the Company's Policies and Procedures. Employee
agrees to
<PAGE>
maintain such records and documentation, including calculations of compensation
attributable to the personal use of a Company automobile, as may be required
from time to time by the Company's Policies and Procedures or the Internal
Revenue Service.
3.6 Stock Options. During the term, Employee shall be entitled to
participate in such stock option plans as may be established from time to time
by the Board of Directors of the Company. All stock option awards must be
approved by the Board of Directors' Compensation Committee.
3.7 Limitations Imposed by Law. The provisions of this Agreement
relating to the compensation to be paid to the Employee shall be subject to any
limitations provided by law or regulation that may from time to time limit the
compensation payable to the Employee.
4. Termination.
4.1 Termination Upon Death. If the Employee shall die during the term,
this Agreement shall terminate except that the Employee's beneficiaries shall be
entitled to receive the Employee's Base Salary for a period of six (6) months
following the last day of the month in which his death occurs.
4.2 Termination Upon Disability. If, during the term, the Employee
shall become physically or mentally disabled, whether totally or partially, so
that he is unable substantially to perform his services hereunder for (i) a
period of six (6) consecutive months, or (ii) for shorter periods aggregating
six months during any twelve (12) month period, the Company may, at any time
after the last day of the six (6) consecutive months of disability, or the day
on which the shorter periods of disability shall have equaled an aggregate of
six (6) months, by written notice to the Employee, but before the Employee has
recovered from such disability, terminate the term of the Employee's employment
hereunder. Notwithstanding such disability, the Company shall continue to pay
the Employee sixty percent (60%) of his Base Salary through the date of such
termination, and following the end of the fiscal year in which such termination
occurs, the amount of incentive or other bonuses, if any, that would otherwise
have been payable to Employee under Section 3.2 and which have accrued through
the end of the fiscal year in which such termination occurs as if the Employee
had been employed by the Company for the entire fiscal year.
4.3 Termination Without Cause. If at any time during the term, Employee
shall be terminated by the Company for reasons other than cause (as defined in
Paragraph 4.4), Employee or Employee's estate will be entitled to receive as
severance the continuation of Base Salary, at its then current rate, through and
until the later of (i) one third of the remaining period to the end of the
Initial Term, or (ii) a period of six (6) months from the effective date of
termination, but shall not be entitled to any incentive bonus for the fiscal
year during which the effective date of termination occurs, or any subsequent
year. In addition to continuation of Base Salary, one third of remaining
un-vested stock
<PAGE>
options granted in conjunction with this employment agreement shall vest on the
effective date of termination.
If Employee's employment shall be terminated during any
Extended Term, for any reason other than cause, Employee shall be entitled to
receive as severance the continuation of Base Salary for a period of three (3)
months from the effective date of termination, but shall not be entitled to any
incentive bonus for the fiscal year during which the effective date of
termination occurs, or any subsequent year.
Notwithstanding the foregoing, any payments to Employee
hereunder, whether during the Initial Term or any Extended Term, shall be
reduced by any compensation (in any form) received for services from any other
source for or during the period which Employee receives any post-termination
compensation hereunder. These severance payments shall be in full settlement of
any claim Employee may have to compensation in any form.
4.4 Termination by the Company for Cause. The Company may, at any time
during the term, terminate for cause (as hereinafter defined) the Employee's
employment hereunder, in which event the Employee shall be entitled to receive
his Base Salary accrued through the effective date of such termination. The
Employee shall have no right to receive any other compensation or benefit
hereunder after the effective date of such termination; provided, however, that
the foregoing shall not affect the Employee's right to receive any compensation
or benefit under the profit sharing/401(k) plans. As used herein, the term for
"cause" shall be deemed to mean and include with respect to the Employee (i)
conduct of the Employee at any time, which has involved criminal dishonesty,
conviction of the Employee of any felony, or of any lesser crime or offense
involving the property of the Company or any of its subsidiaries or affiliates,
significant conflict of interest, serious impropriety, or breach of corporate
duty, misappropriation of any money or other assets or properties of the Company
or its subsidiaries, (ii) willful violation of specific and lawful directions
from the Board of Directors of the Company (which directions must not be
inconsistent with the provisions of this Agreement), failure or refusal to
perform the services customarily performed by an executive officer (and such
failure or refusal continues after a written direction from the Board of
Directors), or expressly required by the terms of this Agreement, or willful
misconduct or gross negligence by the Employee in connection with the
performance of his duties hereunder, (iii) chronic alcoholism or drug addiction,
and (iv) any other acts or conduct inconsistent with the Company's Policies and
Procedures or the standards of loyalty, integrity or care reasonably required by
the Company of its executives.
5. Protection of Confidential Information: Non-Competition.
5.1 Confidential Information. In view of the fact that the Employee's
work for the Company will bring him into close contact with many confidential
affairs of the Company not readily available to the public, and plans for future
developments, the Employee agrees:
<PAGE>
5.1.1 To keep and retain in the strictest confidence all confidential
matters of the Company, including, without limitation, all trade "know how",
secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company, learned by him heretofore or hereafter, and not to
disclose them to anyone outside of the Company, either during or after his
employment with the Company, except in the course of performing his duties
hereunder or with the Company's express written consent;
5.1.2 To execute and fully comply with a confidentiality and rights
agreement or such other similar agreement which may be required by the Company
from time to time, consistent with its Policies and Procedures; and
5.1.3 To deliver promptly to the Company on termination of his
employment by the Company, or at any time the Company may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) to the Company's business and all property
associated therewith, which he may then possess or have under his control.
5.2 Non-Competition. During the term and for a period of not less than
six (6) months following the termination of such period, or for any period in
which Employee would have been eligible to receive Base Salary, the Employee
shall not in any state of the United States, or any other foreign country in
which the Company shall then be doing business, directly or indirectly, enter
the employ of, or render any services to, any person, firm or corporation
engaged in any business competitive with the business of the Company or of any
of its subsidiaries or affiliates; he shall not engage in such business on his
own account; and he shall not become interested in any such business, directly
or indirectly; as an individual, partner, shareholder, director, officer,
principal, agent, lender, employee, trustee, consultant, or any other
relationship or capacity; provided, however, that nothing contained in this
Paragraph 5.2 shall be deemed to prohibit the Employee from acquiring, solely as
an investment, not more than 1% of the shares of capital stock of any public
corporation.
In addition, Employee agrees that he shall not during such period
solicit, induce or attempt to solicit or induce any employee of the Company to
terminate such employee's employment with the Company in order to become
employed by any other person or entity, without the consent of a majority of the
Company's Board of Directors.
5.3 Remedies of the Company Upon Employee Breach. If the Employee
commits a breach, or threatens to commit a breach, of any of the provisions of
Paragraphs 5.1 or 5.2 hereof, the Company shall have the following rights and
remedies:
5.3.1 The right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that
<PAGE>
any such breach or threatened breach will cause irreparable injury to the
Company and that money damages may not provide an adequate remedy to the
Company; and
5.3.2 The right and remedy to require the Employee to account for and
pay over to the Company all compensation, profits, monies, accruals, increments
or other benefits (collectively, "Benefits") derived or received by the Employee
as the result of any transactions constituting a breach of any of the provisions
of the Paragraphs 5.1 or 5.2, and the Employee hereby agrees to account for and
pay over such Benefits to the Company.
Each of the rights and remedies of the company shall be independent of
the other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under the law or in equity.
5.4 Construction and Enforceability.
5.4.1 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.4.2 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.5 Enforceability in Jurisdictions. The parties hereto intend to and
hereby confer jurisdiction to enforce the covenants contained in Sections 5.1
and 5.2 upon federal or state courts or the courts of any foreign jurisdiction
within the geographical scope of such covenants. In the event that the courts of
any one or more of such state, federal or foreign jurisdictions shall hold such
covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other state, federal or foreign jurisdictions within the
geographical scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, the above covenants as they relate to each state
and foreign country being for this purpose, severable into diverse and
independent covenants.
5.6 Customer Lists. The Employee recognizes and agrees (i) that all
existing lists of customers of the Company, and all lists of customers of the
Company developed during the course of the Employee's employment by the Company,
are and shall be the sole exclusive property of the Company, and that the
Employee neither has nor shall have any right, title or interest therein; (ii)
that such lists of customers are and must continue to be confidential; (iii)
that such lists are not readily accessible to competitors
<PAGE>
of the Company; (iv) that the Company's present and future business is and will
continue to be of a type that customers will normally patronize principally one
concern; and (v) that the Company's present and future business relationship
with its customers is and will continue to be of a type which normally continues
unless interfered with by others.
6. Inventions and Patents.
6.1 The Employee agrees that all processes, computer software,
technologies and inventions ("Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the term, shall be the exclusive
property of the Company and shall belong to the Company provided that such
Inventions grew out of the Employee's work with the Company or any of its
subsidiaries or affiliates, are related in any manner to the business
(commercial or experimental) of the Company or any of its subsidiaries or
affiliates or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Employee shall further: (i) promptly
disclose such Inventions to the Company; (ii) assign to the Company, without
additional compensation, all patent and other rights to such Inventions in the
United States and foreign countries; (iii) sign all papers necessary to carry
out the foregoing; and (iv) give testimony in support of his inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Employee within two
years after the termination of his employment by the Company, it is to be
presumed that the Invention was conceived or made during the period of the
Employee's employment by the Company.
6.3 The Employee agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in Exhibit A.
All Inventions, Patents and ideas set forth in Exhibit A shall remain the sole
property of Employee.
7. Intellectual Property. The Company shall be the sole owner of all the
products and proceeds of the Employee's services hereunder, including, but not
limited to, all materials, ideas, concepts, formats, suggestions, computer
software, developments, arrangements, packages, programs and other intellectual
properties that the Employee may acquire, obtain, develop or create in
connection with and during the term of the Employee's employment hereunder, free
and clear of any claims by the Employee (or anyone claiming under the Employee)
of any kind or character whatsoever (other than the Employee's right to receive
payments hereunder). The Employee shall, at the request of the Company, execute
such assignments, certificates or other instruments as the Company may from time
to time deem necessary or desirable to evidence, establish, maintain, perfect,
protect, enforce or defend its right, or title and interest in or to any such
properties.
<PAGE>
8. Indemnification. Where, in the determination of the Board of Directors, the
Employee has acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, the Company will indemnify
the Employee to the maximum extent permitted by applicable law, against all
costs, charges and expenses incurred or sustained by him in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being an employee of the Company or an officer, director or employee of any
subsidiary or affiliate of the Company or any other corporation for which the
Employee serves as an officer, director or employee, at the Company's request.
9. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Rules of the American Arbitration Association then pertaining, in the
County of San Francisco, State of California, and judgment upon the award
rendered by the Arbitrator may be entered in any court having jurisdiction
thereof. The Arbitrator shall be deemed to possess the power to issue mandatory
orders and restraining orders in connection with such arbitration; provided,
however, that nothing in this Article 9 shall be construed so as to deny the
Company the right and power to seek and obtain injunctive relief in a court of
equity for any breach or threatened breach by the Employee of any of his
covenants contained in Articles 5, 6 and 7 hereof.
10. Attorneys Fees. In the event either party hereto commences any action, suit
or other proceeding in law or in equity, or any arbitration, to enforce the
provisions of this Agreement or for any remedy for breach of this Agreement, the
non-prevailing party in such action shall pay the prevailing party's costs and
expenses, including reasonable attorneys' fees incurred in such action or
arbitration proceeding.
11. Notices. All notices, requests, consents and other communications, required
or permitted to be given hereunder, shall be in writing and shall be deemed to
have been duly given if delivered by registered or certified mail (notices shall
be deemed to have been given on the date sent), as follows (or to such other
address as either party shall designate by notice in writing to the other in
accordance herewith):
11.1 If to the Company, to it at:
c/o Instant Video Technologies, Inc.
500 Sansome Street, Suite 503
San Francisco, CA 94111
Attention: Laura Wagerman
<PAGE>
11.2 If to the Employee, to him at:
12. General.
12.1 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely in California.
12.2 Headings. The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.3 Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof as of the Effective Date. No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement, and neither party shall be bound by or liable for
any alleged representation, promise or inducement not so set forth.
12.4 Assignability: Successors. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee. The Company may
assign its rights, together with its obligations hereunder to any subsidiary or
affiliate Company or in connection with any sale, transfer or other disposition
of all or substantially all of its business or assets; in any event, the
obligations of the Company hereunder shall be binding on its successors or
assigns, whether by assignment to a subsidiary or affiliate of the Company or by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
12.5 Modifications: Waivers. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
<PAGE>
13. Subsidiaries and Affiliates. As used herein, the term "subsidiary" shall
mean any corporation or other business entity controlled by the corporation in
question, and the term "affiliate" shall mean and include any corporation or
other business entity controlling, controlled by or under common control with
the corporation in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
By: ???? ? ????????????
--------------------------------
Title: Director
-----------------------------
EMPLOYEE
Richard Lang
- ------------------------------------
[EXHIBITS A.1 & A.2 -- CONFIDENTIAL -- NOT ON DISK]
[LOGO OMITTED]
500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of the 16th day of August, 1999 (the
"Effective Date") between Instant Video Technologies, Inc. (the "Company"), a
Delaware corporation, and Thomas Koshy (the "Employee").
WHEREAS, the Company wishes to employ the Employee as its Chief Operating
Officer and
WHEREAS, the Employee wishes to be employed by the Company in such position.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Employment. Duties and Acceptance
1.1 Employment by the Company. The Company hereby employs the Employee
for the term (as defined herein), to render, subject to the following paragraph,
exclusive and full-time services to the Company as Chief Operating Officer of
the Company, subject to the direction of the Company's Board of Directors (the
Board of Directors), and in connection therewith, to perform such duties as he
shall be directed to perform by the Company's Board of Directors.
1.2 Acceptance of Employment by Employee. The Employee hereby accepts
such employment and agrees to render the services described above. The Employee
further agrees to accept election and to serve during all or any part of the
term as an officer or director of the Company and of any subsidiary or affiliate
of the Company (or of any other corporation at the Company's reasonable request)
without any compensation therefor, other than that specified in this Agreement
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate (or other corporation), as the
case may be.
1.3 Vacation. The Employee shall be entitled to annual vacation in
accordance with the vacation policy of the Company, as in effect from time to
time.
1.4 Travel. The Employee shall be subject to reasonable travel
requirements as may be necessary or desirable to perform fully his obligations
hereunder.
2. Term of Employment. The term of the Employee's employment under this
Agreement (the "Initial Term") shall commence on the Effective Date and shall
continue for twenty-four (24) months from the Effective Date unless sooner
terminated pursuant
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Employment Agreement Thomas Koshy
to Article 4 of this Agreement. The term of the Employee's employment shall
automatically be extended for one additional year at the end of the Initial Term
("Extended Term") unless, not later than 90 days preceding such date, the
Employee or the Company shall give written notice to the other that the Employee
or the Company does not wish to extend the term of employment for such
additional one-year period.
3. Compensation.
3.1 Salary. As full compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Employee (or, in the
event the Employee performs services hereunder on behalf of a subsidiary of the
Company, the Company shall cause such subsidiary to pay the Employee, without
duplication and only to the extent not paid by the Company or any other
subsidiary), during the term, a salary at the fixed rate of One Hundred Eighty
Thousand Dollars ($180,000) per annum or such greater amount as shall be
approved by the Board of Directors in its sole discretion (the "Base Salary"),
payable in accordance with the payroll policies of the Company as from time to
time in effect, less such deductions as shall be required to be withheld by
applicable law and regulations.
3.2 Options. Employee shall be entitled to receive 200,000 stock options
previously granted pursuant to the attached stock option agreement. Vesting will
be as follows: (i) 20% (40,000 options) upon signing; (ii) 25% (50,000 options)
at the end of 12 months (August 16, 2000); (iii) the remander to vest monthly at
a rate of 3,055.6 options per month for 36 months. In the event the Company
elects not to extend the term of employment (Extended Term) following the
Initial Term, all remaining options granted in conjunction with this agreement
shall vest on the Employee's last day of employment.
Nothing in this Agreement will affect the rights, obligations or
vesting of the options granted under the existing Options Agreement dated April
7, 1999.
3.3 Bonuses. During the term, the Employee shall be entitled to receive
a bonus (the Bonus) as a participant in the Company's incentive compensation
arrangement as approved by the Board of Directors on an annual basis.
3.4 Expenses. Subject to such policies as may from time to time be
established by the Board of Directors, applicable to its employees generally,
the Company shall pay or reimburse the Employee for all reasonable expenses
actually incurred or paid by him during the term in the performance of his
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company may require;
Provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Board of Directors of the Company.
3.5 Participation in Benefit Plans. During the term, the Employee shall
participate in each group life, hospitalization or disability insurance plan,
health
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Employment Agreement Thomas Koshy
program, and any other similar benefit plan and any stock option plan of the
Company which is available to other employees of the Company and for which he
qualifies. Employee understands such benefit plans may be modified from time to
time under guidelines established by the Board of Directors.
3.6 Company Automobile. During the term, Employee may be entitled to a
car allowance or use of a Company automobile consistent with the guidelines for
employees as set forth in the Company's Policies and Procedures. Employee agrees
to maintain such records and documentation, including calculations of
compensation attributable to the personal use of a Company automobile, as may be
required from time to time by the Company's Policies and Procedures or the
Internal Revenue Service.
3.7 Stock Option Plans. During the term, Employee shall be entitled to
participate in such stock option plans as may be established from time to time
by the Board of Directors of the Company. All stock option awards must be
approved by the Board of Directors' Compensation Committee.
3.8 Limitations Imposed by Law. The provisions of this Agreement
relating to the compensation to be paid to the Employee shall be subject to any
limitations provided by law or regulation that may from time to time limit the
compensation payable to the Employee.
4. Termination.
4.1 Termination Upon Death. If the Employee shall die during the term,
this Agreement shall terminate except that the Employee's beneficiaries shall be
entitled to receive the Employee's Base Salary for a period of six (6) months
following the last day of the month in which his death occurs.
4.2 Termination Upon Disability. If, during the term, the Employee
shall become physically or mentally disabled, whether totally or partially, so
that he is unable substantially to perform his services hereunder for (i) a
period of six (6) consecutive months, or (ii) for shorter periods aggregating
six months during any twelve (12) month period, the Company may, at any time
after the last day of the six (6) consecutive months of disability, or the day
on which the shorter periods of disability shall have equaled an aggregate of
six (6) months, by written notice to the Employee, but before the Employee has
recovered from such disability, terminate the term of the Employee's employment
hereunder. Notwithstanding such disability, the Company shall continue to pay
the Employee sixty percent (60%) of his Base Salary through the date of such
termination, and following the end of the fiscal year in which such termination
occurs, the amount of incentive or other bonuses, if any, that would otherwise
have been payable to Employee under Section 3.2 and which have accrued through
the end of the fiscal year in which such termination occurs as if the Employee
had been employed by the Company for the entire fiscal year.
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Employment Agreement Thomas Koshy
4.3 Termination Without Cause. If at any time during the term, Employee
shall be terminated by the Company for reasons other than cause (as defined in
Paragraph 4.4), Employee or Employee's estate will be entitled to receive as
severance the continuation of Base Salary, at its then current rate, through and
until the later of (i) one third of the remaining period to the end of the
Initial Term, or (ii) a period of six (6) months from the effective date of
termination, but shall not be entitled to any incentive bonus for the fiscal
year during which the effective date of termination occurs, or any subsequent
year. In addition to continuation of Base Salary, one third of remaining
un-vested stock options granted in conjunction with this employment agreement
shall vest on the effective date of termination.
If Employee's employment shall be terminated during any
Extended Term, for any reason other than cause, Employee shall be entitled to
receive as severance the continuation of Base Salary for a period of three (3)
months from the effective date of termination, but shall not be entitled to any
incentive bonus for the fiscal year during which the effective date of
termination occurs, or any subsequent year.
Notwithstanding the foregoing, any payments to Employee
hereunder, whether during the Initial Term or any Extended Term, shall be
reduced by any compensation (in any form) received for services from any other
source for or during the period which Employee receives any post-termination
compensation hereunder. These severance payments shall be in full settlement of
any claim Employee may have to compensation in any form.
4.4 Termination by the Company for Cause. The Company may, at any time
during the term, terminate for cause (as hereinafter defined) the Employee's
employment hereunder, in which event the Employee shall be entitled to receive
his Base Salary accrued through the effective date of such termination. The
Employee shall have no right to receive any other compensation or benefit
hereunder after the effective date of such termination; provided, however, that
the foregoing shall not affect the Employee's right to receive any compensation
or benefit under the profit sharing/401(k) plans. As used herein, the term for
"cause" shall be deemed to mean and include with respect to the Employee (i)
conduct of the Employee at any time, which has involved criminal dishonesty,
conviction of the Employee of any felony, or of any lesser crime or offense
involving the property of the Company or any of its subsidiaries or affiliates,
significant conflict of interest, serious impropriety, or breach of corporate
duty, misappropriation of any money or other assets or properties of the Company
or its subsidiaries, (ii) willful violation of specific and lawful directions
from the Board of Directors of the Company (which directions must not be
inconsistent with the provisions of this Agreement), failure or refusal to
perform the services customarily performed by an executive officer (and such
failure or refusal continues after a written direction from the Board of
Directors), or expressly required by the terms of this Agreement, or willful
misconduct or gross negligence by the Employee in connection with the
performance of his duties hereunder, (iii) chronic alcoholism or drug addiction,
and (iv) any other acts or conduct inconsistent with the Company's Policies and
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Employment Agreement Thomas Koshy
Procedures or the standards of loyalty, integrity or care reasonably required by
the Company of its executives.
5. Protection of Confidential Information: Non-Competition.
5.1 Confidential Information. In view of the fact that the Employee's
work for the Company will bring him into close contact with many confidential
affairs of the Company not readily available to the public, and plans for future
developments, the Employee agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, all trade
"know how", secrets, customer lists, pricing policies, operational methods,
technical processes, formulae, inventions and research projects, and other
business affairs of the Company, learned by him heretofore or hereafter, and not
to disclose them to anyone outside of the Company, either during or after his
employment with the Company, except in the course of performing his duties
hereunder or with the Company's express written consent;
5.1.2 To execute and fully comply with a confidentiality and
rights agreement or such other similar agreement which may be required by the
Company from time to time, consistent with its Policies and Procedures; and
5.1.3 To deliver promptly to the Company on termination of his
employment by the Company, or at any time the Company may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) to the Company's business and all property
associated therewith, which he may then possess or have under his control.
5.2 Non-Competition. During the term and for a period of not less than
six (6) months following the termination of such period, or for any period in
which Employee would have been eligible to receive Base Salary, the Employee
shall not in any state of the United States, or any other foreign country in
which the Company shall then be doing business, directly or indirectly, enter
the employ of, or render any services to, any person, firm or corporation
engaged in any business competitive with the business of the Company or of any
of its subsidiaries or affiliates; he shall not engage in such business on his
own account; and he shall not become interested in any such business, directly
or indirectly; as an individual, partner, shareholder, director, officer,
principal, agent, lender, employee, trustee, consultant, or any other
relationship or capacity; provided, however, that nothing contained in this
Paragraph 5.2 shall be deemed to prohibit the Employee from acquiring, solely as
an investment, not more than 1% of the shares of capital stock of any public
corporation.
In addition, Employee agrees that he shall not during such period
solicit, induce or attempt to solicit or induce any employee of the Company to
terminate such
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Employment Agreement Thomas Koshy
employee's employment with the Company in order to become employed by any other
person or entity, without the consent of a majority of the Company's Board of
Directors.
5.3 Remedies of the Company Upon Employee Breach. If the Employee
commits a breach, or threatens to commit a breach, of any of the provisions of
Paragraphs 5.1 or 5.2 hereof, the Company shall have the following rights and
remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages may not provide
an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Employee to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively, "Benefits") derived or received by
the Employee as the result of any transactions constituting a breach of any of
the provisions of the Paragraphs 5.1 or 5.2, and the Employee hereby agrees to
account for and pay over such Benefits to the Company.
Each of the rights and remedies of the company shall be independent of
the other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under the law or in equity.
5.4 Construction and Enforceability.
5.4.1 If any of the covenants contained in Section 5.1 or 5.2,
or any part thereof, is hereafter construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.4.2 If any of the covenants contained in Section 5.1 or 5.2,
or any part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.5 Enforceability in Jurisdictions. The parties hereto intend to and
hereby confer jurisdiction to enforce the covenants contained in Sections 5.1
and 5.2 upon federal or state courts or the courts of any foreign jurisdiction
within the geographical scope of such covenants. In the event that the courts of
any one or more of such state, federal or foreign jurisdictions shall hold such
covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief
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Employment Agreement Thomas Koshy
provided above in the courts of any other state, federal or foreign
jurisdictions within the geographical scope of such covenants, as to breaches of
such covenants in such other respective jurisdictions, the above covenants as
they relate to each state and foreign country being for this purpose, severable
into diverse and independent covenants.
5.6 Customer Lists. The Employee recognizes and agrees (i) that all
existing lists of customers of the Company, and all lists of customers of the
Company developed during the course of the Employee's employment by the Company,
are and shall be the sole exclusive property of the Company, and that the
Employee neither has nor shall have any right, title or interest therein; (ii)
that such lists of customers are and must continue to be confidential; (iii)
that such lists are not readily accessible to competitors of the Company; (iv)
that the Company's present and future business is and will continue to be of a
type that customers will normally patronize principally one concern; and (v)
that the Company's present and future business relationship with its customers
is and will continue to be of a type which normally continues unless interfered
with by others.
6. Inventions and Patents.
6.1 The Employee agrees that all processes, computer software,
technologies and inventions ("Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the term, shall be the exclusive
property of the Company and shall belong to the Company provided that such
Inventions grew out of the Employee's work with the Company or any of its
subsidiaries or affiliates, are related in any manner to the business
(commercial or experimental) of the Company or any of its subsidiaries or
affiliates or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Employee shall further: (i) promptly
disclose such Inventions to the Company; (ii) assign to the Company, without
additional compensation, all patent and other rights to such Inventions in the
United States and foreign countries; (iii) sign all papers necessary to carry
out the foregoing; and (iv) give testimony in support of his inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Employee within two
years after the termination of his employment by the Company, it is to be
presumed that the Invention was conceived or made during the period of the
Employee's employment by the Company.
6.3 The Employee agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in Exhibit A.
All Inventions, Patents and ideas set forth in Exhibit A shall remain the sole
property of Employee.
7. Intellectual Property. The Company shall be the sole owner of all the
products and proceeds of the Employee's services hereunder, including, but not
limited to, all materials, ideas, concepts, formats, suggestions, computer
software, developments,
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Employment Agreement Thomas Koshy
arrangements, packages, programs and other intellectual properties that the
Employee may acquire, obtain, develop or create in connection with and during
the term of the Employee's employment hereunder, free and clear of any claims by
the Employee (or anyone claiming under the Employee) of any kind or character
whatsoever (other than the Employee's right to receive payments hereunder). The
Employee shall, at the request of the Company, execute such assignments,
certificates or other instruments as the Company may from time to time deem
necessary or desirable to evidence, establish, maintain, perfect, protect,
enforce or defend its right, or title and interest in or to any such properties.
8. Indemnification. Where, in the determination of the Board of Directors, the
Employee has acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, the Company will indemnify
the Employee to the maximum extent permitted by applicable law, against all
costs, charges and expenses incurred or sustained by him in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being an employee of the Company or an officer, director or employee of any
subsidiary or affiliate of the Company or any other corporation for which the
Employee serves as an officer, director or employee, at the Company's request.
9. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Rules of the American Arbitration Association then pertaining, in the
County of San Francisco, State of California, and judgment upon the award
rendered by the Arbitrator may be entered in any court having jurisdiction
thereof. The Arbitrator shall be deemed to possess the power to issue mandatory
orders and restraining orders in connection with such arbitration; provided,
however, that nothing in this Article 9 shall be construed so as to deny the
Company the right and power to seek and obtain injunctive relief in a court of
equity for any breach or threatened breach by the Employee of any of his
covenants contained in Articles 5, 6 and 7 hereof.
10. Attorneys Fees. In the event either party hereto commences any action, suit
or other proceeding in law or in equity, or any arbitration, to enforce the
provisions of this Agreement or for any remedy for breach of this Agreement, the
non-prevailing party in such action shall pay the prevailing party's costs and
expenses, including reasonable attorneys' fees incurred in such action or
arbitration proceeding.
11. Notices. All notices, requests, consents and other communications, required
or permitted to be given hereunder, shall be in writing and shall be deemed to
have been duly given if delivered by registered or certified mail (notices shall
be deemed to have been given on the date sent), as follows (or to such other
address as either party shall designate by notice in writing to the other in
accordance herewith):
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Employment Agreement Thomas Koshy
11.1 If to the Company, to it at:
c/o Instant Video Technologies, Inc.
500 Sansome Street, Suite 503
San Francisco, CA 94111
Attention: Edward H. Davis, Vice President and General Counsel
11.2 If to the Employee, to him at:
Thomas Koshy
500 Beale Street, Suite 320
San Francisco, CA 94105
12. General.
12.1 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California applicable
to agreements made and to be performed entirely in California.
12.2 Headings. The article and section headings contained herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.3 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof as of the Effective Date. No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement, and neither party shall be bound by or liable for
any alleged representation, promise or inducement not so set forth.
12.4 Assignability: Successors. This Agreement, and the Employee's
rights and obligations hereunder, may not be assigned by the Employee. The
Company may assign its rights, together with its obligations hereunder to any
subsidiary or affiliate Company or in connection with any sale, transfer or
other disposition of all or substantially all of its business or assets; in any
event, the obligations of the Company hereunder shall be binding on its
successors or assigns, whether by assignment to a subsidiary or affiliate of the
Company or by merger, consolidation or acquisition of all or substantially all
of its business or assets.
12.5 Modifications: Waivers. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any
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Employment Agreement Thomas Koshy
term or covenant contained in this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
13. Subsidiaries and Affiliates. As used herein, the term "subsidiary" shall
mean any corporation or other business entity controlled by the corporation in
question, and the term "affiliate" shall mean and include any corporation or
other business entity controlling, controlled by or under common control with
the corporation in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
By: /s/ Richard Lang
- ------------------------------------
Name: Richard Lang
Title: Chairman, CEO and President
- ------------------------------------
EMPLOYEE:
/s/ Thomas Koshy
- ------------------------------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of the 30th day of July, 1998 (the
"Effective Date") between Instant Video Technologies, Inc. (the "Company"), a
corporation, and Edward Davis (the "Employee").
WHEREAS, the Company wishes to employ the Employee as its Vice President,
Strategic Development & General Counsel; and
WHEREAS, the Employee wishes to be employed by the Company in such
position.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Employment. Duties and Acceptance
1.1 Employment by the Company. The Company hereby employs the Employee
for the term (as defined herein), to render, subject to the following paragraph,
exclusive and full-time services to the Company as Vice President, Strategic
Development & General Counsel, subject to the direction of the Company's Board
of Directors (the Board of Directors), and in connection therewith, to perform
such duties as he shall be directed to perform by the Company's Board of
Directors.
1.2 Acceptance of Employment by Employee. The Employee hereby accepts
such employment and agrees to render the services described above. The Employee
further agrees to accept election and to serve during all or any part of the
term as an officer or director of the Company and of any subsidiary or affiliate
of the Company (or of any other corporation at the Company's reasonable request)
without any compensation therefor, other than that specified in this Agreement
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate (or other corporation), as the
case may be.
1.3 Vacation. The Employee shall be entitled to four weeks of annual
vacation in accordance with the vacation policy of the Company, as in effect
from time to time.
1.4 Travel. The Employee shall be subject to reasonable travel
requirements as may be necessary or desirable to perform fully his obligations
hereunder.
2. Term of Employment. The term of the Employee's employment under this
Agreement (the "Initial Term") shall commence on the Effective Date and shall
continue for twenty-four (24) months from the Effective Date unless sooner
terminated pursuant to Article 4 of this Agreement. The term of the Employee's
employment shall automatically be extended for one additional year at the end of
the Initial Term ("Extended Term") unless, not later than 90 days preceding such
date, the Employee or
<PAGE>
the Company shall give written notice to the other that the Employee or the
Company does not wish to extend the term of employment for such additional
one-year period.
3. Compensation.
3.1 Salary. As full compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Employee (or, in the
event the Employee performs services hereunder on behalf of a subsidiary of the
Company, the Company shall cause such subsidiary to pay the Employee, without
duplication and only to the extent not paid by the Company or any other
subsidiary), during the term, a salary at the rate of one hundred fifty thousand
dollars ($150,000.00) per annum for the first year of the contract and one
hundred seventy five thousand dollars ($175,000.00) per annum for the second
year of the contract, payable in accordance with the payroll policies of the
Company as from time to time in effect, less such deductions as shall be
required to be withheld by applicable law and regulations. Additionally,
Employee shall be entitled to receive 150,000 stock options previously granted
pursuant to the attached stock option agreement. A portion of the vesting, as
further described in the attached option agreement, is subject to the company
receiving equity financing. In the event the Company elects not to extend the
term of employment (Extended Term) following the Initial Term, all remaining
options granted in conjunction with this agreement shall vest on the Employee's
last day of employment.
3.2 Bonuses. During the term, the Employee shall be entitled to receive
a bonus (the Bonus) as a participant in the Company's incentive compensation
arrangement as approved by the Board of Directors on an annual basis.
3.3 Expenses. Subject to such policies as may from time to time be
established by the Board of Directors, applicable to its employees generally,
the Company shall pay or reimburse the Employee for all reasonable expenses
actually incurred or paid by him during the term in the performance of his
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company may require;
Provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Board of Directors of the Company.
3.4 Participation in Benefit Plans. During the term, the Employee shall
participate in each group life, hospitalization or disability insurance plan,
health program, and any other similar benefit plan and any stock option plan of
the Company which is available to other employees of the Company and for which
he qualifies. Employee understands such benefit plans may be modified from time
to time under guidelines established by the Board of Directors.
The Company agrees to work with Employee to identify benefits
corresponding to his objectives, obtain pricing for such benefits, and offer the
benefits to Employee (and other employees) with the difference between the
standard benefits and the
<PAGE>
enhanced benefits to be borne by Employee. IVT will work in good faith, where
economically reasonable, to incorporate certain enhanced benefits into the
standard benefits package.
3.5 Company Automobile. If, during the term, Employee becomes entitled
to a car allowance or use of a Company automobile consistent with the guidelines
for employees as set forth in the Company's Policies and Procedures, Employee
agrees to maintain such records and documentation, including calculations of
compensation attributable to the personal use of a Company automobile, as may be
required from time to time by the Company's Policies and Procedures or the
Internal Revenue Service.
3.6 Stock Options. During the term, Employee shall be entitled to
participate in such stock option plans as may be established from time to time
by the Board of Directors of the Company. All stock option awards must be
approved by the Board of Directors' Compensation Committee. Employee has
identified areas for improvement in the existing stock option agreement.
The Company agrees to evaluate changes to the option agreement in good
faith, and to amend documents as appropriate to incorporate all mutually agreed
upon modifications to the document and stock option plan.
3.7 Limitations Imposed by Law. The provisions of this Agreement
relating to the compensation to be paid to the Employee shall be subject to any
limitations provided by law or regulation that may from time to time limit the
compensation payable to the Employee.
4. Termination.
4.1 Termination Upon Death. If the Employee shall die during the term,
this Agreement shall terminate except that the Employee's beneficiaries shall be
entitled to receive the Employee's Base Salary for a period of six (6) months
following the last day of the month in which his death occurs.
4.2 Termination Upon Disability. If, during the term, the Employee
shall become physically or mentally disabled, whether totally or partially, so
that he is unable to perform with reasonable continuity the material duties of
the position of Vice President, Strategic Development & General Counsel for (i)
a period of six (6) consecutive months, or (ii) for shorter periods aggregating
six months during any twelve (12) month period, the Company may, at any time
after the last day of the six (6) consecutive months of disability, or the day
on which the shorter periods of disability shall have equaled an aggregate of
six (6) months, by written notice to the Employee, but before the Employee has
recovered from such disability, terminate the term of the Employee's employment
hereunder. Notwithstanding such disability, the Company shall continue to pay
the Employee sixty percent (60%) of his Base Salary through the date of such
<PAGE>
termination, and following the end of the fiscal year in which such termination
occurs, the amount of incentive or other bonuses, if any, that would otherwise
have been payable to Employee under Section 3.2 and which have accrued through
the end of the fiscal year in which such termination occurs as if the Employee
had been employed by the Company for the entire fiscal year.
4.3 Termination Without Cause. If at any time during the term, Employee
shall be terminated by the Company for reasons other than cause (as defined in
Paragraph 4.4), Employee or Employee's estate will be entitled to receive as
severance the continuation of Base Salary, at its then current rate, through and
until the later of (i) one third of the remaining period to the end of the
Initial Term, or (ii) a period of six (6) months from the effective date of
termination, but shall not be entitled to any incentive bonus for the fiscal
year during which the effective date of termination occurs, or any subsequent
year. In addition to continuation of Base Salary, one third of remaining
un-vested stock options granted in conjunction with this employment agreement
shall vest on the effective date of termination.
If Employee's employment shall be terminated during any
Extended Term, for any reason other than cause, Employee shall be entitled to
receive as severance the continuation of Base Salary for a period of three (3)
months from the effective date of termination, but shall not be entitled to any
incentive bonus for the fiscal year during which the effective date of
termination occurs, or any subsequent year.
Notwithstanding the foregoing, any payments to Employee
hereunder, whether during the Initial Term or any Extended Term, shall be
reduced by any compensation (in any form) received for services from any other
source for or during the period which Employee receives any post-termination
compensation hereunder. These severance payments shall be in full settlement of
any claim Employee may have to compensation in any form.
4.4 Termination by the Company for Cause. The Company may, at any time
during the term, terminate for cause (as hereinafter defined) the Employee's
employment hereunder, in which event the Employee shall be entitled to receive
his Base Salary accrued through the effective date of such termination. The
Employee shall have no right to receive any other compensation or benefit
hereunder after the effective date of such termination; provided, however, that
the foregoing shall not affect the Employee's right to receive any compensation
or benefit under the profit sharing/401(k) plans. As used herein, the term for
"cause" shall be deemed to mean and include with respect to the Employee (i)
conduct of the Employee at any time, which has involved criminal dishonesty,
conviction of the Employee of any felony, or of any lesser crime or offense
involving the property of the Company or any of its subsidiaries or affiliates,
significant conflict of interest, serious impropriety, or breach of corporate
duty, misappropriation of any money or other assets or properties of the Company
or its subsidiaries, (ii) willful violation of specific and lawful directions
from the Board of Directors of the Company (which directions must not be
inconsistent with the
<PAGE>
provisions of this Agreement), failure or refusal to perform the services
customarily performed by an executive officer (and such failure or refusal
continues after a written direction from the Board of Directors), or expressly
required by the terms of this Agreement, or willful misconduct or gross
negligence by the Employee in connection with the performance of his duties
hereunder, (iii) chronic alcoholism or drug addiction, and (iv) any other acts
or conduct inconsistent with the Company's Policies and Procedures or the
standards of loyalty, integrity or care reasonably required by the Company of
its executives.
5. Protection of Confidential Information: Non-Competition.
5.1 Confidential Information. In view of the fact that the Employee's
work for the Company will bring him into close contact with many confidential
affairs of the Company not readily available to the public, and plans for future
developments, the Employee agrees:
5.1.1 To keep and retain in the strictest confidence all confidential
matters of the Company, including, without limitation, all trade "know how",
secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company, learned by him heretofore or hereafter, and not to
disclose them to anyone outside of the Company, either during or after his
employment with the Company, except in the course of performing his duties
hereunder or with the Company's express written consent;
5.1.2 To execute and fully comply with a confidentiality and rights
agreement or such other similar agreement which may be required by the Company
from time to time, consistent with its Policies and Procedures; and
5.1.3 To deliver promptly to the Company on termination of his
employment by the Company, or at any time the Company may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) to the Company's business and all property
associated therewith, which he may then possess or have under his control.
5.2 Non-Competition. During the term and for a period of not less than
six (6) months following the termination of such period, or for any period in
which Employee would have been eligible to receive Base Salary, the Employee
shall not in any state of the United States, or any other foreign country in
which the Company shall then be doing business, directly or indirectly, enter
the employ of, or render any services to, any person, firm or corporation
engaged in any business competitive with the business of the Company or of any
of its subsidiaries or affiliates; he shall not engage in such business on his
own account; and he shall not become interested in any such business, directly
or indirectly; as an individual, partner, shareholder, director, officer,
principal, agent, lender, employee, trustee, consultant, or any other
relationship or capacity; provided, however, that nothing contained in this
Paragraph 5.2 shall be deemed to
<PAGE>
prohibit the Employee from acquiring, solely as an investment, not more than 2%
of the shares of capital stock of any public corporation.
In addition, Employee agrees that he shall not during such period
solicit, induce or attempt to solicit or induce any employee of the Company to
terminate such employee's employment with the Company in order to become
employed by any other person or entity, without the consent of a majority of the
Company's Board of Directors.
5.3 Remedies of the Company Upon Employee Breach. If the Employee
commits a breach, or threatens to commit a breach, of any of the provisions of
Paragraphs 5.1 or 5.2 hereof, the Company shall have the following rights and
remedies:
5.3.1 The right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages may not provide an
adequate remedy to the Company; and
5.3.2 The right and remedy to require the Employee to account for and
pay over to the Company all compensation, profits, monies, accruals, increments
or other benefits (collectively, "Benefits") derived or received by the Employee
as the result of any transactions constituting a breach of any of the provisions
of the Paragraphs 5.1 or 5.2, and the Employee hereby agrees to account for and
pay over such Benefits to the Company.
Each of the rights and remedies of the company shall be independent of
the other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under the law or in equity.
5.4 Construction and Enforceability.
5.4.1 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.4.2 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.5 Enforceability in Jurisdictions. The parties hereto intend to and
hereby confer jurisdiction to enforce the covenants contained in Sections 5.1
and 5.2 upon federal or
<PAGE>
state courts or the courts of any foreign jurisdiction within the geographical
scope of such covenants. In the event that the courts of any one or more of such
state, federal or foreign jurisdictions shall hold such covenants wholly
unenforceable by reason of the breadth of such scope or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the Company's right to the relief provided above in the courts of any
other state, federal or foreign jurisdictions within the geographical scope of
such covenants, as to breaches of such covenants in such other respective
jurisdictions, the above covenants as they relate to each state and foreign
country being for this purpose, severable into diverse and independent
covenants.
5.6 Customer Lists. The Employee recognizes and agrees (i) that all
existing lists of customers of the Company, and all lists of customers of the
Company developed during the course of the Employee's employment by the Company,
are and shall be the sole exclusive property of the Company, and that the
Employee neither has nor shall have any right, title or interest therein; (ii)
that such lists of customers are and must continue to be confidential; (iii)
that such lists are not readily accessible to competitors of the Company; (iv)
that the Company's present and future business is and will continue to be of a
type that customers will normally patronize principally one concern; and (v)
that the Company's present and future business relationship with its customers
is and will continue to be of a type which normally continues unless interfered
with by others.
6. Inventions and Patents.
6.1 The Employee agrees that all processes, computer software,
technologies and inventions ("Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the term, shall be the exclusive
property of the Company and shall belong to the Company provided that such
Inventions grew out of the Employee's work with the Company or any of its
subsidiaries or affiliates, are related in any manner to the business
(commercial or experimental) of the Company or any of its subsidiaries or
affiliates or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Employee shall further: (i) promptly
disclose such Inventions to the Company; (ii) assign to the Company, without
additional compensation, all patent and other rights to such Inventions in the
United States and foreign countries; (iii) sign all papers necessary to carry
out the foregoing; and (iv) give testimony in support of his inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Employee within two
years after the termination of his employment by the Company, it is to be
presumed that the Invention was conceived or made during the period of the
Employee's employment by the Company.
6.3 The Employee agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for
<PAGE>
Inventions, if any, disclosed to the Company in Exhibit A. All Inventions,
Patents and ideas set forth in Exhibit A shall remain the sole property of
Employee.
7. Intellectual Property. The Company shall be the sole owner of all the
products and proceeds of the Employee's services hereunder, including, but not
limited to, all materials, ideas, concepts, formats, suggestions, computer
software, developments, arrangements, packages, programs and other intellectual
properties that the Employee may acquire, obtain, develop or create in
connection with and during the term of the Employee's employment hereunder, free
and clear of any claims by the Employee (or anyone claiming under the Employee)
of any kind or character whatsoever (other than the Employee's right to receive
payments hereunder). The Employee shall, at the request of the Company, execute
such assignments, certificates or other instruments as the Company may from time
to time deem necessary or desirable to evidence, establish, maintain, perfect,
protect, enforce or defend its right, or title and interest in or to any such
properties.
8. Indemnification. Where, in the determination of the Board of Directors, the
Employee has acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, the Company will indemnify
the Employee to the maximum extent permitted by applicable law, against all
costs, charges and expenses incurred or sustained by him in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being an employee of the Company or an officer, director or employee of any
subsidiary or affiliate of the Company or any other corporation for which the
Employee serves as an officer, director or employee, at the Company's request.
9. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Rules of the American Arbitration Association then pertaining, in the
County of San Francisco, State of California, and judgment upon the award
rendered by the Arbitrator may be entered in any court having jurisdiction
thereof. The Arbitrator shall be deemed to possess the power to issue mandatory
orders and restraining orders in connection with such arbitration; provided,
however, that nothing in this Article 9 shall be construed so as to deny the
Company the right and power to seek and obtain injunctive relief in a court of
equity for any breach or threatened breach by the Employee of any of his
covenants contained in Articles 5, 6 and 7 hereof.
10. Attorneys Fees. In the event either party hereto commences any action, suit
or other proceeding in law or in equity, or any arbitration, to enforce the
provisions of this Agreement or for any remedy for breach of this Agreement, the
non-prevailing party in such action shall pay the prevailing party's costs and
expenses, including reasonable attorneys' fees incurred in such action or
arbitration proceeding.
11. Notices. All notices, requests, consents and other communications, required
or permitted to be given hereunder, shall be in writing and shall be deemed to
have been
<PAGE>
duly given if delivered by registered or certified mail (notices shall be deemed
to have been given on the date sent), as follows (or to such other address as
either party shall designate by notice in writing to the other in accordance
herewith):
11.1 If to the Company, to it at:
c/o Instant Video Technologies, Inc.
500 Sansome Street, Suite 503
San Francisco, CA 94111
Attention: Laura Wagerman
11.2 If to the Employee, to him at:
Mr. Edward H. Davis
3616 20th Street
San Francisco, CA 94110
12. General.
12.1 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely in California.
12.2 Headings. The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.3 Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof as of the Effective Date. No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement, and neither party shall be bound by or liable for
any alleged representation, promise or inducement not so set forth.
12.4 Assignability: Successors. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee. The Company may
assign its rights, together with its obligations hereunder to any subsidiary or
affiliate Company or in connection with any sale, transfer or other disposition
of all or substantially all of its business or assets; in any event, the
obligations of the Company hereunder shall be binding on its successors or
assigns, whether by assignment to a subsidiary or affiliate of the Company or by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
<PAGE>
12.5 Modifications: Waivers. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
13. Subsidiaries and Affiliates. As used herein, the term "subsidiary" shall
mean any corporation or other business entity controlled by the corporation in
question, and the term "affiliate" shall mean and include any corporation or
other business entity controlling, controlled by or under common control with
the corporation in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
By: /s/ Richard Lang
-------------------------------------
Title: Chairman & CEO
- -----------------------------------------
EMPLOYEE
/s/ Edward H. Davis
- -----------------------------------------
September 14, 1999
Richard B. Jones
6435 Camino Verde Dr.,
San Jose, CA 95119
RE: Offer of Employment
Dear Richard:
On behalf of Instant Video Technologies Inc., it is my pleasure to make you an
offer of employment as our Chief Financial Officer. In this capacity you will be
reporting to the Chief Operating Officer or his designated representative and
will be responsible for the following duties:
o Organize, build and manage our accounting department including
account payable and receivable, tax cmpliance, audit requirements,
and other accounting functions.
o Responsible for all financial matters including the various
filings with SEC and other regulatory agencies.
o Support the CEO in all funding and financing matters as required.
o Create business plans, pro-forma financial statements and make
presentations to potential investors.
o Conduct "road shows" in an effort to show the viability of IVT to
the financial community as needed.
o Any other duties related to accounting and financial needs of the
company.
As an exempt employee, your compensation and benefits are as follows:
Salary $150,000 per year.
Stock Options Subject to Board approval, you will be granted as
soon as practicable after you start as an employee
with the Company, 70,000 common stock options. The
options will vest over a period of four years, as
follows: 17,500 options will vest at the end of
twelve months after the date of grant; Following the
12 month anniversary date, 1458 options will vest
monthly thereafter for 35 months and 1470 options
will vest in the 36th month. The options will have a
term of five years from the date of grant. The
options will also be subject to the terms and
conditions of an option agreement to be signed at the
time the option is granted.
Vacation 15 days of personal time.
<PAGE>
Benefits Eligible for the standard package as offered to
employees of Instant Video Technologies.
Options Eligible for all ISO programs as approved by the
Board periodically.
All properly documented and normal business expenses will be reimbursed by the
company, and must conform to IRS and company policies and procedures.
You will be eligible for a performance and salary review every twelve (12)
months. As you know, we are anxious to fill this position as soon as possible.
This offer valid until September 17th, 1999 and is contingent upon your review
and signature of this letter and receipt of satisfactory proof of identification
and work authorization as required by the Immigration Reform and Control Act.
IVT reserves the right to perform background verifications of information and
previous employment at company expense.
Your employment and compensation with Instant Video Technologies are "at will"
in that they can be terminated with or without cause, and with or without
notice, at any time, at the option of either yourself or Instant Video
Technologies, except as otherwise provided by law. The terms of this offer
letter, therefore, do not and are not intended to create an expressed or implied
contract of employment with Instant Video Technologies. No manager or
representative of Instant Video Technologies other than an Officer of the
company has authority to enter into any agreement for employment for any
specified period of time or to make any agreement or contract to the foregoing,
and any promises to the contrary may only be relied upon by you if they are in
writing and signed by an Officer of Instant Video Technologies.
Richard, let me close by reaffirming our belief that the skill and background
you have brought to Instant Video Technologies will be instrumental to the
future success of the company. The single most important factor in the success
of Instant Video Technologies will be our people. We look forward to your
joining us. Please confirm your acceptance of this offer by signing on the space
provided below and returning the copy to me.
Sincerely,
Thomas Koshy
Chief Operating Officer
ACCEPTED:
- ------------------------------- --------------------------
Richard B. Jones Date
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of the 13th day of November, 1998 (the
"Effective Date") between Instant Video Technologies, Inc. (the "Company"), a
corporation, and Kyle Faulkner (the "Employee").
WHEREAS, the Company wishes to employ the Employee as its Chief Technology
Officer; and
WHEREAS, the Employee wishes to be employed by the Company in such
position.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Employment. Duties and Acceptance
1.1 Employment by the Company. The Company hereby employs the Employee
for the term (as defined herein), to render, subject to the following paragraph,
exclusive and full-time services to the Company as Chief Technology Officer of
the Company, reporting to the Chief Executive Officer, subject to the direction
of the Company's Board of Directors (the Board of Directors), and in connection
therewith, to perform such duties as he shall be directed to perform by the
Company's Board of Directors.
1.2 Acceptance of Employment by Employee. The Employee hereby accepts
such employment and agrees to render the services described above. The Employee
further agrees to accept election and to serve during all or any part of the
term as an officer or director of the Company and of any subsidiary or affiliate
of the Company (or of any other corporation at the Company's reasonable request)
without any compensation therefor, other than that specified in this Agreement
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate (or other corporation), as the
case may be.
1.3 Vacation. The Employee shall be entitled to annual vacation in
accordance with the vacation policy of the Company, as in effect from time to
time.
1.4 Travel. The Employee shall be subject to reasonable travel
requirements as may be necessary or desirable to perform fully his obligations
hereunder.
2. Term of Employment. The term of the Employee's employment under this
Agreement (the "Initial Term") shall commence on the Effective Date and shall
continue for twenty-four (24) months from the Effective Date unless sooner
terminated pursuant to Article 4 of this Agreement. The term of the Employee's
employment shall automatically be extended for one additional year at the end of
the Initial Term
<PAGE>
("Extended Term") unless, not later than 90 days preceding such date, the
Employee or the Company shall give written notice to the other that the Employee
or the Company does not wish to extend the term of employment for such
additional one-year period.
3. Compensation.
3.1 Salary. As full compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Employee (or, in the
event the Employee performs services hereunder on behalf of a subsidiary of the
Company, the Company shall cause such subsidiary to pay the Employee, without
duplication and only to the extent not paid by the Company or any other
subsidiary), during the term, a salary at the fixed rate of Two hundred Thousand
Dollars ($200,000.00) per annum or such greater amount as shall be approved by
the Board of Directors in its sole discretion (the "Base Salary"), payable in
accordance with the payroll policies of the Company as from time to time in
effect, less such deductions as shall be required to be withheld by applicable
law and regulations. Additionally, Employee shall be entitled to receive 320,000
stock options previously granted pursuant to the attached stock option
agreement.
3.2 Bonuses. During the term, the Employee shall be entitled to receive
a bonus (the Bonus) as a participant in the Company's incentive compensation
arrangement as approved by the Board of Directors on an annual basis.
3.3 Expenses. Subject to such policies as may from time to time be
established by the Board of Directors, applicable to its employees generally,
the Company shall pay or reimburse the Employee for all reasonable expenses
actually incurred or paid by him during the term in the performance of his
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company may require;
Provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Board of Directors of the Company.
3.4 Participation in Benefit Plans. During the term, the Employee shall
participate in each group life, hospitalization or disability insurance plan,
health program, and any other similar benefit plan and any stock option plan of
the Company which is available to other employees of the Company and for which
he qualifies. Employee understands such benefit plans may be modified from time
to time under guidelines established by the Board of Directors.
3.5 Company Automobile. During the term, Employee may be entitled to a
car allowance consistent with the guidelines for employees as set forth in the
Company's Policies and Procedures. Employee agrees to maintain such records and
documentation, including calculations as may be required from time to time by
the Company's Policies and Procedures or the Internal Revenue Service.
<PAGE>
3.6 Stock Options. During the term, Employee shall be entitled to
participate in such stock option plans as may be established from time to time
by the Board of Directors of the Company. All stock option awards must be
approved by the Board of Directors' Compensation Committee.
3.7 Limitations Imposed by Law. The provisions of this Agreement
relating to the compensation to be paid to the Employee shall be subject to any
limitations provided by law or regulation that may from time to time limit the
compensation payable to the Employee.
4. Termination.
4.1 Termination Upon Death. If the Employee shall die during the term,
this Agreement shall terminate except that the Employee's beneficiaries shall be
entitled to receive the Employee's Base Salary for a period of three (3) months
following the last day of the month in which his death occurs.
4.2 Termination Upon Disability. If, during the term, the Employee
shall become physically or mentally disabled, whether totally or partially, so
that he is unable substantially to perform his services hereunder for (i) a
period of six (6) consecutive months, or (ii) for shorter periods aggregating
six months during any twelve (12) month period, the Company may, at any time
after the last day of the six (6) consecutive months of disability, or the day
on which the shorter periods of disability shall have equaled an aggregate of
six (6) months, by written notice to the Employee, but before the Employee has
recovered from such disability, terminate the term of the Employee's employment
hereunder. Notwithstanding such disability, the Company shall continue to pay
the Employee sixty percent (60%) of his Base Salary, not to exceed $72,000 per
annum, through the date of such termination, and following the end of the fiscal
year in which such termination occurs, the amount of incentive or other bonuses,
if any, that would otherwise have been payable to Employee under Section 3.2 and
which have accrued through the end of the fiscal year in which such termination
occurs as if the Employee had been employed by the Company for the entire fiscal
year. The company is currently in the process of renegotiating disability
coverage. If and when such coverage occurs, Employee's coverage shall be raised
to the same percentage as that of other senior executives of the Company.
4.3 Termination Without Cause. If at any time during the term, Employee
shall be terminated by the Company for reasons other than cause (as defined in
Paragraph 4.4), Employee or Employee's estate will be entitled to receive as
severance the continuation of Base Salary, at its then current rate, through and
until the later of (i) one fourth of the remaining period to the end of the
Initial Term, or (ii) a period of three (3) months from the effective date of
termination, but shall not be entitled to any incentive bonus for the fiscal
year during which the effective date of termination occurs, or any subsequent
year. [SENTENCE MISSING--NOT ON DISK]
<PAGE>
If Employee's employment shall be terminated during any
Extended Term, for any reason other than cause, Employee shall be entitled to
receive as severance the continuation of Base Salary for a period of three (3)
months from the effective date of termination, but shall not be entitled to any
incentive bonus for the fiscal year during which the effective date of
termination occurs, or any subsequent year.
Notwithstanding the foregoing, any payments to Employee
hereunder, whether during the Initial Term or any Extended Term, shall be
reduced by any compensation (in any form) received for services from any other
source for or during the period which Employee receives any post-termination
compensation hereunder. These severance payments shall be in full settlement of
any claim Employee may have to compensation in any form.
4.4 Termination by the Company for Cause. The Company may, at any time
during the term, terminate for cause (as hereinafter defined) the Employee's
employment hereunder, in which event the Employee shall be entitled to receive
his Base Salary accrued through the effective date of such termination. The
Employee shall have no right to receive any other compensation or benefit
hereunder after the effective date of such termination; provided, however, that
the foregoing shall not affect the Employee's right to receive any compensation
or benefit under the profit sharing/401(k) plans. As used herein, the term for
"cause" shall be deemed to mean and include with respect to the Employee (i)
conduct of the Employee at any time, which has involved criminal dishonesty,
conviction of the Employee of any felony, or of any lesser crime or offense
involving the property of the Company or any of its subsidiaries or affiliates,
significant conflict of interest, serious impropriety, or breach of corporate
duty, misappropriation of any money or other assets or properties of the Company
or its subsidiaries, (ii) willful violation of specific and lawful directions
from the Board of Directors of the Company (which directions must not be
inconsistent with the provisions of this Agreement), failure or refusal to
perform the services customarily performed by an executive officer (and such
failure or refusal continues after a written direction from the Board of
Directors), or expressly required by the terms of this Agreement, or willful
misconduct or gross negligence by the Employee in connection with the
performance of his duties hereunder, (iii) chronic alcoholism or drug addiction,
and (iv) any other acts or conduct inconsistent with the Company's Policies and
Procedures or the standards of loyalty, integrity or care reasonably required by
the Company of its executives.
5. Protection of Confidential Information: Non-Competition.
5.1 Confidential Information. In view of the fact that the Employee's
work for the Company will bring him into close contact with many confidential
affairs of the Company not readily available to the public, and plans for future
developments, the Employee agrees:
<PAGE>
5.1.1 To keep and retain in the strictest confidence all confidential
matters of the Company, including, without limitation, all trade "know how",
secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company, learned by him heretofore or hereafter, and not to
disclose them to anyone outside of the Company, either during or after his
employment with the Company, except in the course of performing his duties
hereunder or with the Company's express written consent;
5.1.2 To execute and fully comply with a confidentiality and rights
agreement or such other similar agreement which may be required by the Company
from time to time, consistent with its Policies and Procedures; and
5.1.3 To deliver promptly to the Company on termination of his
employment by the Company, or at any time the Company may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) to the Company's business and all property
associated therewith, which he may then possess or have under his control.
5.2 Non-Competition. During the term and for a period of not less than
six (6) months following the termination of such period, or for any period in
which Employee would have been eligible to receive Base Salary, the Employee
shall not in any state of the United States, or any other foreign country in
which the Company shall then be doing business, directly or indirectly, enter
the employ of, or render any services to, any person, firm or corporation
engaged in any business competitive with the business of the Company or of any
of its subsidiaries or affiliates; he shall not engage in such business on his
own account; and he shall not become interested in any such business, directly
or indirectly; as an individual, partner, shareholder, director, officer,
principal, agent, lender, employee, trustee, consultant, or any other
relationship or capacity; provided, however, that nothing contained in this
Paragraph 5.2 shall be deemed to prohibit the Employee from acquiring, solely as
an investment, not more than 1% of the shares of capital stock of any public
corporation.
In addition, Employee agrees that he shall not during such period
solicit, induce or attempt to solicit or induce any employee or consultant of
the Company to terminate such employee's or consultant's relationship with the
Company in order to become employed by any other person or entity, without the
consent of a majority of the Company's Board of Directors.
5.3 Remedies of the Company Upon Employee Breach. If the Employee
commits a breach, or threatens to commit a breach, of any of the provisions of
Paragraphs 5.1 or 5.2 hereof, the Company shall have the following rights and
remedies:
5.3.1 The right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that
<PAGE>
any such breach or threatened breach will cause irreparable injury to the
Company and that money damages may not provide an adequate remedy to the
Company; and
5.3.2 The right and remedy to require the Employee to account for and
pay over to the Company all compensation, profits, monies, accruals, increments
or other benefits (collectively, "Benefits") derived or received by the Employee
as the result of any transactions constituting a breach of any of the provisions
of the Paragraphs 5.1 or 5.2, and the Employee hereby agrees to account for and
pay over such Benefits to the Company.
Each of the rights and remedies of the company shall be independent of
the other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under the law or in equity.
5.4 Construction and Enforceability.
5.4.1 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.4.2 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.5 Enforceability in Jurisdictions. The parties hereto intend to and
hereby confer jurisdiction to enforce the covenants contained in Sections 5.1
and 5.2 upon federal or state courts or the courts of any foreign jurisdiction
within the geographical scope of such covenants. In the event that the courts of
any one or more of such state, federal or foreign jurisdictions shall hold such
covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other state, federal or foreign jurisdictions within the
geographical scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, the above covenants as they relate to each state
and foreign country being for this purpose, severable into diverse and
independent covenants.
5.6 Customer Lists. The Employee recognizes and agrees (i) that all
existing lists of customers of the Company, and all lists of customers of the
Company developed during the course of the Employee's employment by the Company,
are and shall be the sole exclusive property of the Company, and that the
Employee neither has nor shall have any right, title or interest therein; (ii)
that such lists of customers are and must
<PAGE>
continue to be confidential; (iii) that such lists are not readily accessible to
competitors of the Company; (iv) that the Company's present and future business
is and will continue to be of a type that customers will normally patronize
principally one concern; and (v) that the Company's present and future business
relationship with its customers is and will continue to be of a type which
normally continues unless interfered with by others.
6. Inventions and Patents.
6.1 The Employee agrees that all processes, computer software,
technologies and inventions ("Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the term, shall be the exclusive
property of the Company and shall belong to the Company provided that such
Inventions grew out of the Employee's work with the Company or any of its
subsidiaries or affiliates, are related in any manner to the business
(commercial or experimental) of the Company or any of its subsidiaries or
affiliates or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Employee shall further: (i) promptly
disclose such Inventions to the Company; (ii) assign to the Company, without
additional compensation, all patent and other rights to such Inventions in the
United States and foreign countries; (iii) sign all papers necessary to carry
out the foregoing; and (iv) give testimony in support of his inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Employee within two
years after the termination of his employment by the Company, it is to be
presumed that the Invention was conceived or made during the period of the
Employee's employment by the Company.
6.3 The Employee agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in Exhibit A.
All Inventions, Patents and ideas set forth in Exhibit A shall remain the sole
property of Employee.
7. Intellectual Property. The Company shall be the sole owner of all the
products and proceeds of the Employee's services hereunder, including, but not
limited to, all materials, ideas, concepts, formats, suggestions, computer
software, developments, arrangements, packages, programs and other intellectual
properties that the Employee may acquire, obtain, develop or create in
connection with and during the term of the Employee's employment hereunder, free
and clear of any claims by the Employee (or anyone claiming under the Employee)
of any kind or character whatsoever (other than the Employee's right to receive
payments hereunder). The Employee shall, at the request of the Company, execute
such assignments, certificates or other instruments as the Company may from time
to time deem necessary or desirable to evidence, establish, maintain, perfect,
protect, enforce or defend its right, or title and interest in or to any such
properties.
<PAGE>
8. Indemnification. Where, in the determination of the Board of Directors, the
Employee has acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, the Company will indemnify
the Employee to the maximum extent permitted by applicable law, against all
costs, charges and expenses incurred or sustained by him in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being an employee of the Company or an officer, director or employee of any
subsidiary or affiliate of the Company or any other corporation for which the
Employee serves as an officer, director or employee, at the Company's request.
9. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Rules of the American Arbitration Association then pertaining, in the
County of San Francisco, State of California, and judgment upon the award
rendered by the Arbitrator may be entered in any court having jurisdiction
thereof. The Arbitrator shall be deemed to possess the power to issue mandatory
orders and restraining orders in connection with such arbitration; provided,
however, that nothing in this Article 9 shall be construed so as to deny the
Company the right and power to seek and obtain injunctive relief in a court of
equity for any breach or threatened breach by the Employee of any of his
covenants contained in Articles 5, 6 and 7 hereof.
10. Attorneys Fees. In the event either party hereto commences any action, suit
or other proceeding in law or in equity, or any arbitration, to enforce the
provisions of this Agreement or for any remedy for breach of this Agreement, the
non-prevailing party in such action shall pay the prevailing party's costs and
expenses, including reasonable attorneys' fees incurred in such action or
arbitration proceeding.
11. Notices. All notices, requests, consents and other communications, required
or permitted to be given hereunder, shall be in writing and shall be deemed to
have been duly given if delivered by registered or certified mail (notices shall
be deemed to have been given on the date sent), as follows (or to such other
address as either party shall designate by notice in writing to the other in
accordance herewith):
11.1 If to the Company, to it at:
c/o Instant Video Technologies, Inc.
500 Sansome Street, Suite 503
San Francisco, CA 94111
Attention: Ed Davis
<PAGE>
11.2 If to the Employee, to him at:
Kyle Faulkner
5690 Ocean View Drive
Oakland, CA 94618
12. General.
12.1 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely in California.
12.2 Headings. The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.3 Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof as of the Effective Date. No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement, and neither party shall be bound by or liable for
any alleged representation, promise or inducement not so set forth.
12.4 Assignability: Successors. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee. The Company may
assign its rights, together with its obligations hereunder to any subsidiary or
affiliate Company or in connection with any sale, transfer or other disposition
of all or substantially all of its business or assets; in any event, the
obligations of the Company hereunder shall be binding on its successors or
assigns, whether by assignment to a subsidiary or affiliate of the Company or by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
12.5 Modifications: Waivers. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
<PAGE>
13. Subsidiaries and Affiliates. As used herein, the term "subsidiary" shall
mean any corporation or other business entity controlled by the corporation in
question, and the term "affiliate" shall mean and include any corporation or
other business entity controlling, controlled by or under common control with
the corporation in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
By: /s/ David Morgenstein
--------------------------------
Title: Chief Operating Officer
-----------------------------
EMPLOYEE
/s/ Kyle Faulkner
- ------------------------------------
[EMPLOYMENT AGREEMENT ADDENDUM MISSING -- NOT ON DISK]
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of the 21st day of July, 1998 (the
"Effective Date") between Instant Video Technologies, Inc. (the "Company"), a
corporation, and David Morgenstein (the "Employee").
WHEREAS, the Company wishes to employ the Employee as its Chief Operating
Officer; and
WHEREAS, the Employee wishes to be employed by the Company in such
position.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Employment. Duties and Acceptance
1.1 Employment by the Company. The Company hereby employs the Employee
for the term (as defined herein), to render, subject to the following paragraph,
exclusive and full-time services to the Company as Chief Operating Officer of
the Company, subject to the direction of the Company's Board of Directors (the
Board of Directors), and in connection therewith, to perform such duties as he
shall be directed to perform by the Company's Board of Directors.
1.2 Acceptance of Employment by Employee. The Employee hereby accepts
such employment and agrees to render the services described above. The Employee
further agrees to accept election and to serve during all or any part of the
term as an officer or director of the Company and of any subsidiary or affiliate
of the Company (or of any other corporation at the Company's reasonable request)
without any compensation therefor, other than that specified in this Agreement
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate (or other corporation), as the
case may be.
1.3 Vacation. The Employee shall be entitled to annual vacation in
accordance with the vacation policy of the Company, as in effect from time to
time.
1.4 Travel. The Employee shall be subject to reasonable travel
requirements as may be necessary or desirable to perform fully his obligations
hereunder.
2. Term of Employment. The term of the Employee's employment under this
Agreement (the "Initial Term") shall commence on the Effective Date and shall
continue for twenty-four (24) months from the Effective Date unless sooner
terminated pursuant to Article 4 of this Agreement. The term of the Employee's
employment shall automatically be extended for one additional year at the end of
the Initial Term ("Extended Term") unless, not later than 90 days preceding such
date, the Employee or the Company shall give written notice to the other that
the Employee or the Company does not wish to extend the term of employment for
such additional one-year period.
<PAGE>
3. Compensation.
3.1 Salary. As full compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Employee (or, in the
event the Employee performs services hereunder on behalf of a subsidiary of the
Company, the Company shall cause such subsidiary to pay the Employee, without
duplication and only to the extent not paid by the Company or any other
subsidiary), during the term, a salary at the fixed rate of ninety thousand
dollars ($90,000.00) per annum or such greater amount as shall be approved by
the Board of Directors in its sole discretion (the "Base Salary"), payable in
accordance with the payroll policies of the Company as from time to time in
effect, less such deductions as shall be required to be withheld by applicable
law and regulations. Additionally, Employee shall be entitled to receive 320,000
stock options previously granted pursuant to the attached stock option
agreement. Vesting, as further described in the attached option agreement, is
subject to the company receiving a minimum of $7,000,000.00 in equity financing.
Additionally, an increase in salary to one hundred and twenty thousand dollars
($120,000.00) shall be effective upon the first pay period immediately following
the receipt of the equity financing. In the event the Company elects not to
extend the term of employment (Extended Term) following the Initial Term, all
remaining options granted in conjunction with this agreement shall vest on the
Employee's last day of employment.
3.2 Bonuses. During the term, the Employee shall be entitled to receive
a bonus (the Bonus) as a participant in the Company's incentive compensation
arrangement as approved by the Board of Directors on an annual basis.
3.3 Expenses. Subject to such policies as may from time to time be
established by the Board of Directors, applicable to its employees generally,
the Company shall pay or reimburse the Employee for all reasonable expenses
actually incurred or paid by him during the term in the performance of his
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company may require;
Provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Board of Directors of the Company.
3.4 Participation in Benefit Plans. During the term, the Employee shall
participate in each group life, hospitalization or disability insurance plan,
health program, and any other similar benefit plan and any stock option plan of
the Company which is available to other employees of the Company and for which
he qualifies. Employee understands such benefit plans may be modified from time
to time under guidelines established by the Board of Directors.
3.5 Company Automobile. During the term, Employee may be entitled to a
car allowance or use of a Company automobile consistent with the guidelines for
employees as set forth in the Company's Policies and Procedures. Employee agrees
to
<PAGE>
maintain such records and documentation, including calculations of compensation
attributable to the personal use of a Company automobile, as may be required
from time to time by the Company's Policies and Procedures or the Internal
Revenue Service.
3.6 Stock Options. During the term, Employee shall be entitled to
participate in such stock option plans as may be established from time to time
by the Board of Directors of the Company. All stock option awards must be
approved by the Board of Directors' Compensation Committee.
3.7 Limitations Imposed by Law. The provisions of this Agreement
relating to the compensation to be paid to the Employee shall be subject to any
limitations provided by law or regulation that may from time to time limit the
compensation payable to the Employee.
4. Termination.
4.1 Termination Upon Death. If the Employee shall die during the term,
this Agreement shall terminate except that the Employee's beneficiaries shall be
entitled to receive the Employee's Base Salary for a period of six (6) months
following the last day of the month in which his death occurs.
4.2 Termination Upon Disability. If, during the term, the Employee
shall become physically or mentally disabled, whether totally or partially, so
that he is unable substantially to perform his services hereunder for (i) a
period of six (6) consecutive months, or (ii) for shorter periods aggregating
six months during any twelve (12) month period, the Company may, at any time
after the last day of the six (6) consecutive months of disability, or the day
on which the shorter periods of disability shall have equaled an aggregate of
six (6) months, by written notice to the Employee, but before the Employee has
recovered from such disability, terminate the term of the Employee's employment
hereunder. Notwithstanding such disability, the Company shall continue to pay
the Employee sixty percent (60%) of his Base Salary through the date of such
termination, and following the end of the fiscal year in which such termination
occurs, the amount of incentive or other bonuses, if any, that would otherwise
have been payable to Employee under Section 3.2 and which have accrued through
the end of the fiscal year in which such termination occurs as if the Employee
had been employed by the Company for the entire fiscal year.
4.3 Termination Without Cause. If at any time during the term, Employee
shall be terminated by the Company for reasons other than cause (as defined in
Paragraph 4.4), Employee or Employee's estate will be entitled to receive as
severance the continuation of Base Salary, at its then current rate, through and
until the later of (i) one third of the remaining period to the end of the
Initial Term, or (ii) a period of six (6) months from the effective date of
termination, but shall not be entitled to any incentive bonus for the fiscal
year during which the effective date of termination occurs, or any subsequent
year. In addition to continuation of Base Salary, one third of remaining
un-vested stock
<PAGE>
options granted in conjunction with this employment agreement shall vest on the
effective date of termination.
If Employee's employment shall be terminated during any
Extended Term, for any reason other than cause, Employee shall be entitled to
receive as severance the continuation of Base Salary for a period of three (3)
months from the effective date of termination, but shall not be entitled to any
incentive bonus for the fiscal year during which the effective date of
termination occurs, or any subsequent year.
Notwithstanding the foregoing, any payments to Employee
hereunder, whether during the Initial Term or any Extended Term, shall be
reduced by any compensation (in any form) received for services from any other
source for or during the period which Employee receives any post-termination
compensation hereunder. These severance payments shall be in full settlement of
any claim Employee may have to compensation in any form.
4.4 Termination by the Company for Cause. The Company may, at any time
during the term, terminate for cause (as hereinafter defined) the Employee's
employment hereunder, in which event the Employee shall be entitled to receive
his Base Salary accrued through the effective date of such termination. The
Employee shall have no right to receive any other compensation or benefit
hereunder after the effective date of such termination; provided, however, that
the foregoing shall not affect the Employee's right to receive any compensation
or benefit under the profit sharing/401(k) plans. As used herein, the term for
"cause" shall be deemed to mean and include with respect to the Employee (i)
conduct of the Employee at any time, which has involved criminal dishonesty,
conviction of the Employee of any felony, or of any lesser crime or offense
involving the property of the Company or any of its subsidiaries or affiliates,
significant conflict of interest, serious impropriety, or breach of corporate
duty, misappropriation of any money or other assets or properties of the Company
or its subsidiaries, (ii) willful violation of specific and lawful directions
from the Board of Directors of the Company (which directions must not be
inconsistent with the provisions of this Agreement), failure or refusal to
perform the services customarily performed by an executive officer (and such
failure or refusal continues after a written direction from the Board of
Directors), or expressly required by the terms of this Agreement, or willful
misconduct or gross negligence by the Employee in connection with the
performance of his duties hereunder, (iii) chronic alcoholism or drug addiction,
and (iv) any other acts or conduct inconsistent with the Company's Policies and
Procedures or the standards of loyalty, integrity or care reasonably required by
the Company of its executives.
5. Protection of Confidential Information: Non-Competition.
5.1 Confidential Information. In view of the fact that the Employee's
work for the Company will bring him into close contact with many confidential
affairs of the Company not readily available to the public, and plans for future
developments, the Employee agrees:
<PAGE>
5.1.1 To keep and retain in the strictest confidence all confidential
matters of the Company, including, without limitation, all trade "know how",
secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company, learned by him heretofore or hereafter, and not to
disclose them to anyone outside of the Company, either during or after his
employment with the Company, except in the course of performing his duties
hereunder or with the Company's express written consent;
5.1.2 To execute and fully comply with a confidentiality and rights
agreement or such other similar agreement which may be required by the Company
from time to time, consistent with its Policies and Procedures; and
5.1.3 To deliver promptly to the Company on termination of his
employment by the Company, or at any time the Company may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) to the Company's business and all property
associated therewith, which he may then possess or have under his control.
5.2 Non-Competition. During the term and for a period of not less than
six (6) months following the termination of such period, or for any period in
which Employee would have been eligible to receive Base Salary, the Employee
shall not in any state of the United States, or any other foreign country in
which the Company shall then be doing business, directly or indirectly, enter
the employ of, or render any services to, any person, firm or corporation
engaged in any business competitive with the business of the Company or of any
of its subsidiaries or affiliates; he shall not engage in such business on his
own account; and he shall not become interested in any such business, directly
or indirectly; as an individual, partner, shareholder, director, officer,
principal, agent, lender, employee, trustee, consultant, or any other
relationship or capacity; provided, however, that nothing contained in this
Paragraph 5.2 shall be deemed to prohibit the Employee from acquiring, solely as
an investment, not more than 1% of the shares of capital stock of any public
corporation.
In addition, Employee agrees that he shall not during such period
solicit, induce or attempt to solicit or induce any employee of the Company to
terminate such employee's employment with the Company in order to become
employed by any other person or entity, without the consent of a majority of the
Company's Board of Directors.
5.3 Remedies of the Company Upon Employee Breach. If the Employee
commits a breach, or threatens to commit a breach, of any of the provisions of
Paragraphs 5.1 or 5.2 hereof, the Company shall have the following rights and
remedies:
5.3.1 The right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that
<PAGE>
any such breach or threatened breach will cause irreparable injury to the
Company and that money damages may not provide an adequate remedy to the
Company; and
5.3.2 The right and remedy to require the Employee to account for and
pay over to the Company all compensation, profits, monies, accruals, increments
or other benefits (collectively, "Benefits") derived or received by the Employee
as the result of any transactions constituting a breach of any of the provisions
of the Paragraphs 5.1 or 5.2, and the Employee hereby agrees to account for and
pay over such Benefits to the Company.
Each of the rights and remedies of the company shall be independent of
the other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under the law or in equity.
5.4 Construction and Enforceability.
5.4.1 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.4.2 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.5 Enforceability in Jurisdictions. The parties hereto intend to and
hereby confer jurisdiction to enforce the covenants contained in Sections 5.1
and 5.2 upon federal or state courts or the courts of any foreign jurisdiction
within the geographical scope of such covenants. In the event that the courts of
any one or more of such state, federal or foreign jurisdictions shall hold such
covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other state, federal or foreign jurisdictions within the
geographical scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, the above covenants as they relate to each state
and foreign country being for this purpose, severable into diverse and
independent covenants.
5.6 Customer Lists. The Employee recognizes and agrees (i) that all
existing lists of customers of the Company, and all lists of customers of the
Company developed during the course of the Employee's employment by the Company,
are and shall be the sole exclusive property of the Company, and that the
Employee neither has nor shall have any right, title or interest therein; (ii)
that such lists of customers are and must continue to be confidential; (iii)
that such lists are not readily accessible to competitors
<PAGE>
of the Company; (iv) that the Company's present and future business is and will
continue to be of a type that customers will normally patronize principally one
concern; and (v) that the Company's present and future business relationship
with its customers is and will continue to be of a type which normally continues
unless interfered with by others.
6. Inventions and Patents.
6.1 The Employee agrees that all processes, computer software,
technologies and inventions ("Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the term, shall be the exclusive
property of the Company and shall belong to the Company provided that such
Inventions grew out of the Employee's work with the Company or any of its
subsidiaries or affiliates, are related in any manner to the business
(commercial or experimental) of the Company or any of its subsidiaries or
affiliates or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Employee shall further: (i) promptly
disclose such Inventions to the Company; (ii) assign to the Company, without
additional compensation, all patent and other rights to such Inventions in the
United States and foreign countries; (iii) sign all papers necessary to carry
out the foregoing; and (iv) give testimony in support of his inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Employee within two
years after the termination of his employment by the Company, it is to be
presumed that the Invention was conceived or made during the period of the
Employee's employment by the Company.
6.3 The Employee agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in Exhibit A.
All Inventions, Patents and ideas set forth in Exhibit A shall remain the sole
property of Employee.
7. Intellectual Property. The Company shall be the sole owner of all the
products and proceeds of the Employee's services hereunder, including, but not
limited to, all materials, ideas, concepts, formats, suggestions, computer
software, developments, arrangements, packages, programs and other intellectual
properties that the Employee may acquire, obtain, develop or create in
connection with and during the term of the Employee's employment hereunder, free
and clear of any claims by the Employee (or anyone claiming under the Employee)
of any kind or character whatsoever (other than the Employee's right to receive
payments hereunder). The Employee shall, at the request of the Company, execute
such assignments, certificates or other instruments as the Company may from time
to time deem necessary or desirable to evidence, establish, maintain, perfect,
protect, enforce or defend its right, or title and interest in or to any such
properties.
<PAGE>
8. Indemnification. Where, in the determination of the Board of Directors, the
Employee has acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, the Company will indemnify
the Employee to the maximum extent permitted by applicable law, against all
costs, charges and expenses incurred or sustained by him in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being an employee of the Company or an officer, director or employee of any
subsidiary or affiliate of the Company or any other corporation for which the
Employee serves as an officer, director or employee, at the Company's request.
9. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Rules of the American Arbitration Association then pertaining, in the
County of San Francisco, State of California, and judgment upon the award
rendered by the Arbitrator may be entered in any court having jurisdiction
thereof. The Arbitrator shall be deemed to possess the power to issue mandatory
orders and restraining orders in connection with such arbitration; provided,
however, that nothing in this Article 9 shall be construed so as to deny the
Company the right and power to seek and obtain injunctive relief in a court of
equity for any breach or threatened breach by the Employee of any of his
covenants contained in Articles 5, 6 and 7 hereof.
10. Attorneys Fees. In the event either party hereto commences any action, suit
or other proceeding in law or in equity, or any arbitration, to enforce the
provisions of this Agreement or for any remedy for breach of this Agreement, the
non-prevailing party in such action shall pay the prevailing party's costs and
expenses, including reasonable attorneys' fees incurred in such action or
arbitration proceeding.
11. Notices. All notices, requests, consents and other communications, required
or permitted to be given hereunder, shall be in writing and shall be deemed to
have been duly given if delivered by registered or certified mail (notices shall
be deemed to have been given on the date sent), as follows (or to such other
address as either party shall designate by notice in writing to the other in
accordance herewith):
11.1 If to the Company, to it at:
c/o Instant Video Technologies, Inc.
500 Sansome Street, Suite 503
San Francisco, CA 94111
Attention: Laura Wagerman
<PAGE>
11.2 If to the Employee, to him at:
David Morgenstein
350 Hermann Street
San Francisco, CA 94117
12. General.
12.1 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely in California.
12.2 Headings. The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.3 Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof as of the Effective Date. No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement, and neither party shall be bound by or liable for
any alleged representation, promise or inducement not so set forth.
12.4 Assignability: Successors. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee. The Company may
assign its rights, together with its obligations hereunder to any subsidiary or
affiliate Company or in connection with any sale, transfer or other disposition
of all or substantially all of its business or assets; in any event, the
obligations of the Company hereunder shall be binding on its successors or
assigns, whether by assignment to a subsidiary or affiliate of the Company or by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
12.5 Modifications: Waivers. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
<PAGE>
13. Subsidiaries and Affiliates. As used herein, the term "subsidiary" shall
mean any corporation or other business entity controlled by the corporation in
question, and the term "affiliate" shall mean and include any corporation or
other business entity controlling, controlled by or under common control with
the corporation in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
By: /s/ Richard Lang
- ------------------------------------
Title: Chairman & CEO
- ------------------------------------
EMPLOYEE
/s/ David Morgenstein
- ------------------------------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of the 28th day of September, 1998 (the
"Effective Date") between Instant Video Technologies, Inc. (the "Company"), a
corporation, and Frank Schwartz (the "Employee").
WHEREAS, the Company wishes to employ the Employee as its Vice President,
Marketing & Technology; and
WHEREAS, the Employee wishes to be employed by the Company in such
position.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Employment. Duties and Acceptance
1.1 Employment by the Company. The Company hereby employs the Employee
for the term (as defined herein), to render, subject to the following paragraph,
exclusive and full-time services to the Company as Vice President, Marketing &
Technology of the Company, subject to the direction of the Company's Board of
Directors (the Board of Directors), and in connection therewith, to perform such
duties as he shall be directed to perform by the Company's Board of Directors.
1.2 Acceptance of Employment by Employee. The Employee hereby accepts
such employment and agrees to render the services described above. The Employee
further agrees to accept election and to serve during all or any part of the
term as an officer or director of the Company and of any subsidiary or affiliate
of the Company (or of any other corporation at the Company's reasonable request)
without any compensation therefor, other than that specified in this Agreement
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate (or other corporation), as the
case may be.
1.3 Vacation. The Employee shall be entitled to annual vacation in
accordance with the vacation policy of the Company, as in effect from time to
time.
1.4 Travel. The Employee shall be subject to reasonable travel
requirements as may be necessary or desirable to perform fully his obligations
hereunder.
2. Term of Employment. The term of the Employee's employment under this
Agreement (the "Initial Term") shall commence on the Effective Date and shall
continue for twenty-four (24) months from the Effective Date unless sooner
terminated pursuant to Article 4 of this Agreement. The term of the Employee's
employment shall automatically be extended for one additional year at the end of
the Initial Term ("Extended Term") unless, not later than 90 days preceding such
date, the Employee or
<PAGE>
the Company shall give written notice to the other that the Employee or the
Company does not wish to extend the term of employment for such additional
one-year period.
3. Compensation.
3.1 Salary. As full compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Employee (or, in the
event the Employee performs services hereunder on behalf of a subsidiary of the
Company, the Company shall cause such subsidiary to pay the Employee, without
duplication and only to the extent not paid by the Company or any other
subsidiary), during the term, a salary at the fixed rate of One hundred fifty
thousand dollars ($150,000.00) per annum or such greater amount as shall be
approved by the Board of Directors in its sole discretion (the "Base Salary"),
payable in accordance with the payroll policies of the Company as from time to
time in effect, less such deductions as shall be required to be withheld by
applicable law and regulations. Additionally, Employee shall be entitled to
receive 200,000 stock options previously granted pursuant to the attached stock
option agreement. Thirty-five thousand (35,000) of the afforementioned options
vest immediately upon contract signing. A portion of the options will fall under
the company's current option plan. The balance will be allocated from the
company's new option plan, to be filed upon completion of our current financing.
3.2 Bonuses. During the term, the Employee shall be entitled to receive
a bonus (the Bonus) as a participant in the Company's incentive compensation
arrangement as approved by the Board of Directors on an annual basis.
3.3 Expenses. Subject to such policies as may from time to time be
established by the Board of Directors, applicable to its employees generally,
the Company shall pay or reimburse the Employee for all reasonable expenses
actually incurred or paid by him during the term in the performance of his
services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as the Company may require;
Provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Board of Directors of the Company.
3.4 Participation in Benefit Plans. During the term, the Employee shall
participate in each group life, hospitalization or disability insurance plan,
health program, and any other similar benefit plan and any stock option plan of
the Company which is available to other employees of the Company and for which
he qualifies. Employee understands such benefit plans may be modified from time
to time under guidelines established by the Board of Directors.
3.5 Company Automobile. During the term, Employee may be entitled to a
car allowance or use of a Company automobile consistent with the guidelines for
employees as set forth in the Company's Policies and Procedures. Employee agrees
to maintain such records and documentation, including calculations of
compensation
<PAGE>
attributable to the personal use of a Company automobile, as may be required
from time to time by the Company's Policies and Procedures or the Internal
Revenue Service.
3.6 Stock Options. During the term, Employee shall be entitled to
participate in such stock option plans as may be established from time to time
by the Board of Directors of the Company. All stock option awards must be
approved by the Board of Directors' Compensation Committee.
3.7 Limitations Imposed by Law. The provisions of this Agreement
relating to the compensation to be paid to the Employee shall be subject to any
limitations provided by law or regulation that may from time to time limit the
compensation payable to the Employee.
4. Termination.
4.1 Termination Upon Death. If the Employee shall die during the term,
this Agreement shall terminate except that the Employee's beneficiaries shall be
entitled to receive the Employee's Base Salary for a period of six (6) months
following the last day of the month in which his death occurs.
4.2 Termination Upon Disability. If, during the term, the Employee
shall become physically or mentally disabled, whether totally or partially, so
that he is unable substantially to perform his services hereunder for (i) a
period of six (6) consecutive months, or (ii) for shorter periods aggregating
six months during any twelve (12) month period, the Company may, at any time
after the last day of the six (6) consecutive months of disability, or the day
on which the shorter periods of disability shall have equaled an aggregate of
six (6) months, by written notice to the Employee, but before the Employee has
recovered from such disability, terminate the term of the Employee's employment
hereunder. Notwithstanding such disability, the Company shall continue to pay
the Employee sixty percent (60%) of his Base Salary, through the date of such
termination, and following the end of the fiscal year in which such termination
occurs, the amount of incentive or other bonuses, if any, that would otherwise
have been payable to Employee under Section 3.2 and which have accrued through
the end of the fiscal year in which such termination occurs as if the Employee
had been employed by the Company for the entire fiscal year.
4.3 Termination Without Cause. If at any time during the term, Employee
shall be terminated by the Company for reasons other than cause (as defined in
Paragraph 4.4), Employee or Employee's estate will be entitled to receive as
severance the continuation of Base Salary, at its then current rate, through and
until the later of (i) one third of the remaining period to the end of the
Initial Term, or (ii) a period of four (4) months from the effective date of
termination, but shall not be entitled to any incentive bonus for the fiscal
year during which the effective date of termination occurs, or any subsequent
year.
<PAGE>
If Employee's employment shall be terminated during any
Extended Term, for any reason other than cause, Employee shall be entitled to
receive as severance the continuation of Base Salary for a period of three (3)
months from the effective date of termination, but shall not be entitled to any
incentive bonus for the fiscal year during which the effective date of
termination occurs, or any subsequent year.
Notwithstanding the foregoing, any payments to Employee
hereunder, whether during the Initial Term or any Extended Term, shall be
reduced by any compensation (in any form) received for services from any other
source for or during the period which Employee receives any post-termination
compensation hereunder. These severance payments shall be in full settlement of
any claim Employee may have to compensation in any form.
4.4 Termination by the Company for Cause. The Company may, at any time
during the term, terminate for cause (as hereinafter defined) the Employee's
employment hereunder, in which event the Employee shall be entitled to receive
his Base Salary accrued through the effective date of such termination. The
Employee shall have no right to receive any other compensation or benefit
hereunder after the effective date of such termination; provided, however, that
the foregoing shall not affect the Employee's right to receive any compensation
or benefit under the profit sharing/401(k) plans. As used herein, the term for
"cause" shall be deemed to mean and include with respect to the Employee (i)
conduct of the Employee at any time, which has involved criminal dishonesty,
conviction of the Employee of any felony, or of any lesser crime or offense
involving the property of the Company or any of its subsidiaries or affiliates,
significant conflict of interest, serious impropriety, or breach of corporate
duty, misappropriation of any money or other assets or properties of the Company
or its subsidiaries, (ii) willful violation of specific and lawful directions
from the Board of Directors of the Company (which directions must not be
inconsistent with the provisions of this Agreement), failure or refusal to
perform the services customarily performed by an executive officer (and such
failure or refusal continues after a written direction from the Board of
Directors), or expressly required by the terms of this Agreement, or willful
misconduct or gross negligence by the Employee in connection with the
performance of his duties hereunder, (iii) chronic alcoholism or drug addiction,
and (iv) any other acts or conduct inconsistent with the Company's Policies and
Procedures or the standards of loyalty, integrity or care reasonably required by
the Company of its executives.
5. Protection of Confidential Information: Non-Competition.
5.1 Confidential Information. In view of the fact that the Employee's
work for the Company will bring him into close contact with many confidential
affairs of the Company not readily available to the public, and plans for future
developments, the Employee agrees:
<PAGE>
5.1.1 To keep and retain in the strictest confidence all confidential
matters of the Company, including, without limitation, all trade "know how",
secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company, learned by him heretofore or hereafter, and not to
disclose them to anyone outside of the Company, either during or after his
employment with the Company, except in the course of performing his duties
hereunder or with the Company's express written consent;
5.1.2 To execute and fully comply with a confidentiality and rights
agreement or such other similar agreement which may be required by the Company
from time to time, consistent with its Policies and Procedures; and
5.1.3 To deliver promptly to the Company on termination of his
employment by the Company, or at any time the Company may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) to the Company's business and all property
associated therewith, which he may then possess or have under his control.
5.2 Non-Competition. During the term and for a period of not less than
six (6) months following the termination of such period, or for any period in
which Employee would have been eligible to receive Base Salary, the Employee
shall not in any state of the United States, or any other foreign country in
which the Company shall then be doing business, directly or indirectly, enter
the employ of, or render any services to, any person, firm or corporation
engaged in any business competitive with the business of the Company or of any
of its subsidiaries or affiliates; he shall not engage in such business on his
own account; and he shall not become interested in any such business, directly
or indirectly; as an individual, partner, shareholder, director, officer,
principal, agent, lender, employee, trustee, consultant, or any other
relationship or capacity; provided, however, that nothing contained in this
Paragraph 5.2 shall be deemed to prohibit the Employee from acquiring, solely as
an investment, not more than 1% of the shares of capital stock of any public
corporation.
In addition, Employee agrees that he shall not during such period
solicit, induce or attempt to solicit or induce any employee of the Company to
terminate such employee's employment with the Company in order to become
employed by any other person or entity, without the consent of a majority of the
Company's Board of Directors.
5.3 Remedies of the Company Upon Employee Breach. If the Employee
commits a breach, or threatens to commit a breach, of any of the provisions of
Paragraphs 5.1 or 5.2 hereof, the Company shall have the following rights and
remedies:
5.3.1 The right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that
<PAGE>
any such breach or threatened breach will cause irreparable injury to the
Company and that money damages may not provide an adequate remedy to the
Company; and
5.3.2 The right and remedy to require the Employee to account for and
pay over to the Company all compensation, profits, monies, accruals, increments
or other benefits (collectively, "Benefits") derived or received by the Employee
as the result of any transactions constituting a breach of any of the provisions
of the Paragraphs 5.1 or 5.2, and the Employee hereby agrees to account for and
pay over such Benefits to the Company.
Each of the rights and remedies of the company shall be independent of
the other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under the law or in equity.
5.4 Construction and Enforceability.
5.4.1 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.4.2 If any of the covenants contained in Section 5.1 or 5.2, or any
part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.5 Enforceability in Jurisdictions. The parties hereto intend to and
hereby confer jurisdiction to enforce the covenants contained in Sections 5.1
and 5.2 upon federal or state courts or the courts of any foreign jurisdiction
within the geographical scope of such covenants. In the event that the courts of
any one or more of such state, federal or foreign jurisdictions shall hold such
covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other state, federal or foreign jurisdictions within the
geographical scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, the above covenants as they relate to each state
and foreign country being for this purpose, severable into diverse and
independent covenants.
5.6 Customer Lists. The Employee recognizes and agrees (i) that all
existing lists of customers of the Company, and all lists of customers of the
Company developed during the course of the Employee's employment by the Company,
are and shall be the sole exclusive property of the Company, and that the
Employee neither has nor shall have any right, title or interest therein; (ii)
that such lists of customers are and must
<PAGE>
continue to be confidential; (iii) that such lists are not readily accessible to
competitors of the Company; (iv) that the Company's present and future business
is and will continue to be of a type that customers will normally patronize
principally one concern; and (v) that the Company's present and future business
relationship with its customers is and will continue to be of a type which
normally continues unless interfered with by others.
6. Inventions and Patents.
6.1 The Employee agrees that all processes, computer software,
technologies and inventions ("Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the term, shall be the exclusive
property of the Company and shall belong to the Company provided that such
Inventions grew out of the Employee's work with the Company or any of its
subsidiaries or affiliates, are related in any manner to the business
(commercial or experimental) of the Company or any of its subsidiaries or
affiliates or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Employee shall further: (i) promptly
disclose such Inventions to the Company; (ii) assign to the Company, without
additional compensation, all patent and other rights to such Inventions in the
United States and foreign countries; (iii) sign all papers necessary to carry
out the foregoing; and (iv) give testimony in support of his inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Employee within two
years after the termination of his employment by the Company, it is to be
presumed that the Invention was conceived or made during the period of the
Employee's employment by the Company.
6.3 The Employee agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in Exhibit A.
All Inventions, Patents and ideas set forth in Exhibit A shall remain the sole
property of Employee.
7. Intellectual Property. The Company shall be the sole owner of all the
products and proceeds of the Employee's services hereunder, including, but not
limited to, all materials, ideas, concepts, formats, suggestions, computer
software, developments, arrangements, packages, programs and other intellectual
properties that the Employee may acquire, obtain, develop or create in
connection with and during the term of the Employee's employment hereunder, free
and clear of any claims by the Employee (or anyone claiming under the Employee)
of any kind or character whatsoever (other than the Employee's right to receive
payments hereunder). The Employee shall, at the request of the Company, execute
such assignments, certificates or other instruments as the Company may from time
to time deem necessary or desirable to evidence, establish, maintain, perfect,
protect, enforce or defend its right, or title and interest in or to any such
properties.
<PAGE>
8. Indemnification. Where, in the determination of the Board of Directors, the
Employee has acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, the Company will indemnify
the Employee to the maximum extent permitted by applicable law, against all
costs, charges and expenses incurred or sustained by him in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being an employee of the Company or an officer, director or employee of any
subsidiary or affiliate of the Company or any other corporation for which the
Employee serves as an officer, director or employee, at the Company's request.
9. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Rules of the American Arbitration Association then pertaining, in the
County of San Francisco, State of California, and judgment upon the award
rendered by the Arbitrator may be entered in any court having jurisdiction
thereof. The Arbitrator shall be deemed to possess the power to issue mandatory
orders and restraining orders in connection with such arbitration; provided,
however, that nothing in this Article 9 shall be construed so as to deny the
Company the right and power to seek and obtain injunctive relief in a court of
equity for any breach or threatened breach by the Employee of any of his
covenants contained in Articles 5, 6 and 7 hereof.
10. Attorneys Fees. In the event either party hereto commences any action, suit
or other proceeding in law or in equity, or any arbitration, to enforce the
provisions of this Agreement or for any remedy for breach of this Agreement, the
non-prevailing party in such action shall pay the prevailing party's costs and
expenses, including reasonable attorneys' fees incurred in such action or
arbitration proceeding.
11. Notices. All notices, requests, consents and other communications, required
or permitted to be given hereunder, shall be in writing and shall be deemed to
have been duly given if delivered by registered or certified mail (notices shall
be deemed to have been given on the date sent), as follows (or to such other
address as either party shall designate by notice in writing to the other in
accordance herewith):
11.1 If to the Company, to it at:
c/o Instant Video Technologies, Inc.
500 Sansome Street, Suite 503
San Francisco, CA 94111
Attention: Ed Davis
<PAGE>
11.2 If to the Employee, to him at:
Frank Schwartz
351 W. Oakwood Blvd.
Redwood City, CA 94061
12. General.
12.1 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely in California.
12.2 Headings. The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.3 Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof as of the Effective Date. No
representation, promise or inducement has been made by either party that is not
embodied in this Agreement, and neither party shall be bound by or liable for
any alleged representation, promise or inducement not so set forth.
12.4 Assignability: Successors. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee. The Company may
assign its rights, together with its obligations hereunder to any subsidiary or
affiliate Company or in connection with any sale, transfer or other disposition
of all or substantially all of its business or assets; in any event, the
obligations of the Company hereunder shall be binding on its successors or
assigns, whether by assignment to a subsidiary or affiliate of the Company or by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
12.5 Modifications: Waivers. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
<PAGE>
13. Subsidiaries and Affiliates. As used herein, the term "subsidiary" shall
mean any corporation or other business entity controlled by the corporation in
question, and the term "affiliate" shall mean and include any corporation or
other business entity controlling, controlled by or under common control with
the corporation in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
By: /s/ David Morgenstein
----------------------------------
Title: Chief Operating Officer
-------------------------------
EMPLOYEE
/s/ Frank Schwartz
- --------------------------------------
[LOGO] 500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco, fax 415.391.3392
California 94111 http.//www.burst.com
Instant Video Technologies, Inc.
September 25, 1998
Ms. June White
20 Plaid Place
Hillsborough, CA 94010
RE: Offer of Employment
June:
On behalf of Instant Video Technologies Inc., it is my pleasure to make you
an offer of employment as our Vice President, Engineering. In this capacity
you will be reporting to the Chief Technology Officer and will be
responsible for the following duties:
o Manage the day to day operations of the Engineering department.
o Interface with other departments to define product
requirements and develop schedules and other materials to
deliver on product releases.
o Work to increase staff to meet product development and support
needs.
As an exempt employee, your compensation and benefits are as follows:
Salary $120,000 per year.
Bonus Subject to the approval of the Board at a later
Stock date.
Subject to Board approval, 65,000 common stock
options with 4 year vesting with one-fourth
(1/4) to vest at the end of the first year
"cliff" period. The remaining three-quarters
(3/4) to vest monthly on a prorata basis over
the remaining 3 years.
Vacation 15 days of personal time.
Benefits Eligible for the standard package as offered
Options to employees of Instant Video Technologies.
Eligible for all ISO programs as approved by
the Board periodically.
You will be eligible for a performance and salary review every twelve (12)
months. As you know, we are anxious to fill this position as soon as
possible and we would like your start date to be September, 1998. This offer
is contingent upon your review and signature of this letter and receipt of
satisfactory proof of identification and work authorization as required by
the Immigration Reform and Control Act.
Your employment and compensation with Instant Video Technologies are "at
will" in that they can be terminated with or without cause, and with or
without notice, at any time, at the option of either yourself or Instant
Video Technologies, except as otherwise provided by law.
<PAGE>
The terms of this offer letter, therefore, do not and are not intended to
create an expressed or implied contract of employment with Instant Video
Technologies. No manager or representative of Instant Video Technologies
other than an Officer of the company has authority to enter into any
agreement for employment for any specified period of time or to make any
agreement or contract to the foregoing, and any promises to the contrary may
only be relied upon by you if they are in writing and signed by an Officer
of Instant Video Technologies.
June, let me close by reaffirming our belief that the skill and background
you bring to Instant Video Technologies will be instrumental to the future
success of the company. Without hesitation, the single most important factor
in the success of Instant Video Technologies will be our people. We look
forward to your joining us. Please confirm your acceptance of this offer by
signing on the space provided below and returning the copy to me.
Sincerely,
/s/ David Morgenstein
David Morgenstein
Chief Operating Officer
ACCEPTED:
/s/ June White 9/25/98
- ------------------------------------- ---------------------------
June White Date
