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As filed with the Securities and Exchange Commission on April 17, 2000
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Registration Statement No. 333-_____
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<S> <C> <C> <C>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BURST.COM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 7372 84-1141967
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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500 Sansome Street, Suite 503
San Francisco, California 94111
(650) 391-4455
(Address, Including Zip Code, and Telephone Number
Including Area Code, of Registrant's Principal Executive Offices)
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Richard Lang
Chief Executive Officer and President
Burst.com, Inc.
500 Sansome Street, Suite 503
San Francisco, California 94111
(415) 391-4455
(Name, Address, Including Zip Code, and Telephone Number
Including Area Code, of Agent for Service)
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Copies to:
Donald C. Reinke, Esq. Edward H. Davis, Esq.
James L. Berg, Esq. General Counsel
Nicola R. Knight, Esq. Burst.com
500 Sansome Street, Suite 500
Bay Venture Counsel, LLP San Francisco, California 94111
1999 Harrison Street, Suite 1300 (415) 391-4455
Oakland, California 94612
(510) 273-8750
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis
pursuant under Rule 415 of the Securities Act of 1933, check the following box. |X|
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to Be Registered Registered(1) Offering Price Per Share(2) Aggregate Offering Price Registration Fee
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Common stock, par value
$0.00001 per share............ 9,752,178 shares $7.75 $75,579,379 $19,953
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<FN>
(1) Includes (a) 4,808,375 shares of Common Stock (b) 4,943,803 shares of Common Stock issuable upon exercise of
warrants to purchase shares of Common Stock and (b) an indeterminate number of additional shares of Common Stock
as may from time to time become issuable upon exercise of such warrants by reason of stock splits, stock dividends
and other similar transactions, which shares are registered hereunder pursuant to Rule 416 under the Securities
Act.
(2) The price of $7.75 per share, which was the average of the bid and asked prices for the Common Stock on April 13,
2000, is set forth solely for the purpose of calculating the registration fee in accordance with Rule 475(c) of the
Securities Act.
</FN>
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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 said Section 8(a), may
determine.
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<PAGE>
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 17, 2000
Up to 9,752,178 Shares
Common Stock
This is a public offering of up to 9,752,178 shares of common stock of
Burst.com, Inc. All of these shares are being offered by the selling
stockholders identified in this prospectus. Burst.com will not receive any of
the proceeds from the sale of shares by the selling stockholders. The shares
offered by this prospectus may be sold from time to time by the selling
stockholders in the national over-the-counter market (or upon listing of the
common stock on the Nasdaq SmallCap Market, on that market) at their prevailing
prices, or in negotiated transactions.
Burst.com's common stock is traded on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board ("OTC Bulletin Board") under
the symbol "IVDO". On April 13, 2000, the OTC Bulletin Board reported that the
bid price per share was $7.625 and the asked price per share was $7.875. We have
applied for listing of our common stock on the Nasdaq SmallCap Market.
The shares of common stock offered by this prospectus consist of
4,808,375 shares owned by the selling stockholders, 4,943,803 shares that may be
issued upon the exercise of warrants held by the selling stockholders and an
indeterminate number of additional shares of common stock as may from time to
time become issuable upon exercise of the warrants by reason of stock splits,
stock dividends and antidilution provisions. These shares and warrants were
purchased from Burst.com by the selling stockholders in connection with private
placements in December 1999 and January 2000.
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Investing in the common stock involves risks.
See "Risk Factors" beginning on page 5.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any presentation to the contrary is a
criminal offense.
The shares of common stock offered by this prospectus have not been
registered under the blue sky or securities laws of any jurisdiction, and any
broker or dealer should assure itself of the existence of an exemption from
registration or the effect of such registration in connection with the offer and
sale of such shares.
The date of this prospectus is ______, 2000
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TABLE OF CONTENTS
Page
Prospectus Summary......................................................... 1
The Offering............................................................... 3
Summary Consolidated Financial Data........................................ 4
Risk Factors............................................................... 5
Cautionary Note on Forward-Looking Statements.............................. 17
Use of Proceeds............................................................ 18
Dividend Policy............................................................ 18
Capitalization............................................................. 19
Selected Consolidated Financial Data....................................... 21
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 22
Business................................................................... 29
Management................................................................. 49
Plan of Distribution....................................................... 59
Selling Stockholders....................................................... 61
Certain Relationships and Related Transactions............................. 63
Principal Stockholders..................................................... 70
Description of Capital Stock............................................... 72
Shares Eligible for Future Sale............................................ 76
Legal Matters.............................................................. 77
Experts.................................................................... 77
Where You Can Get More Information......................................... 79
Consolidated Financial Statements.......................................... F1
You should rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell, and
seeking offers to buy, shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of our common stock.
"Burstware(R)," "Burstaid(R)" and "Instant Video(R)" are our registered
trademarks. We have filed an application for the trademarks
"Faster-Than-Real-Time(TM)," "Burst Enabled(TM)," "Burst Hosting(TM),"
"Burst.com(TM)" and "Burstware Bridge(TM)." Other service marks, trademarks and
trade names referred to in this prospectus are the property of their respective
owners.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete and does not contain all the
information you should consider before buying shares in this offering. You
should read the entire prospectus carefully, including the risk factors and
consolidated financial statements and related notes appearing elsewhere in this
prospectus. The prospectus contains forward-looking statements, which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of the factors
described under "Risk Factors" and elsewhere in this prospectus. See "Cautionary
Note on Forward-Looking Statements."
Our Company
We are an independent provider of client/server network software for the
delivery of video and audio information over networks. Our principal executive
offices are located in San Francisco, California and we have seven additional
sales offices in several domestic metropolitan areas. Our software manages the
delivery of video and audio content over various networks, including the
Internet and corporate intranets, optimizing network efficiency and quality of
service. Our Burstware(R) suite of software products enables companies to
transmit video and audio files at Faster-Than-Real-Time(TM) speed, which is
accomplished by utilizing available bandwidth capacity to send more video or
audio data to users than the players are demanding. This data is stored on the
users' machine for playing on demand, thus isolating the user from noise and
other network interference. The result is high quality, full-motion video and
CD-quality audio to the end-user. Burstware(R) utilizes several components of
our international patent portfolio, including the Faster-Than-Real-Time(TM)
delivery method.
As network bandwidth, data storage, processing power and compression
technologies have become increasingly available, the demand for high-quality
video and audio over the Internet, intranet and extranet has expanded rapidly.
According to Paul Kagan Associates, in 1999, the number of households with
high-speed access was estimated to be 1.9 million with service revenue of $574.0
million; by 2002, these figures are expected to reach 12.0 million and $3.6
billion, respectively. As businesses have begun to recognize the cost,
inconvenience and inefficiency of business communication tools such as audio and
videoconferencing, online business-to-business, business-to-consumer and
business-to-employee communications have become commonplace. Frost & Sullivan, a
leading market research firm, reports that video server market revenue for 1999
is expected to reach $722.7 million, growing to $2.1 billion by 2002.
As current real-time streaming technology expands rapidly online, content
delivery becomes increasingly susceptible to network congestion and disruption
causing interruption or degradation of the client's multimedia experience.
Additionally, the number of real-time connections that can be maintained
simultaneously by the server is limited by processing power as well as bandwidth
availability. This, along with the fact that a server tends to devote
disproportionate resources to the client with the most available bandwidth, also
reduces the quality as well as the availability of the audio-visual content. As
a result of these limitations, and including the fact that most streaming
technology involves proprietary encoding schemes
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and limited platform acceptance, widespread dissemination of high-quality
streaming content has yet to occur within either the business-to-business or
business-to-consumer market. Escalating demand for audio-visual content as well
as quality enhancement in its delivery has created a need for a software
solution capable of eliminating network disruptions and utilizing client
bandwidth efficiently.
Our Java-based Burstware(R) architecture delivers consistent,
high-quality multimedia content with open standard flexibility through
optimization of network resources and superior isolation from network
disturbances. In a Burst-Enabled(TM) network, the server sends multiplexed
"bursts" of content into the network at rates faster than real-time consumption,
providing a local reserve in the event that data across the network slows or
ceases. During all phases of content delivery, Burstware(R) provides continuous
monitoring of consumption rates, multiple end-user needs and changes in network
conditions. With a need-based delivery model and the ability to service the same
number of real-time streaming clients using fewer network resources, our
Burstware(R) Network Simulator has shown improvements of up to 60% in network
efficiency, or throughput, when compared to real-time streaming.
Burstware(R) intelligence allows for multiple end-user applications as
well. With the capacity to deliver data in a clear, efficient and cost-effective
manner, Burstware(R) enables powerful business-to-business, business-to-consumer
and business-to-employee communication. Burstware(R) also gives producers,
aggregators and developers the ability to reach new markets with virtually
unlimited access to vast libraries of content. Finally, Burstware(R)'s network
delivery mechanism is ideally suited for numerous industries including news,
entertainment, retail and advertising as well as local, state and federal
governments and agencies.
Our principal executive offices are located at 500 Sansome Street, Suite
503, San Francisco, California, 95111, and our telephone number is (415)
391-4455.
In this prospectus, the terms "Burst.com," "we," "us," and "our" refer to
Burst.com and our subsidiaries Timeshift-TV, Inc. and Explore Technology, Inc.
unless the context otherwise requires.
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THE OFFERING
Common Stock offered by the selling
stockholders................................... 9,752,178 shares (1)
Common stock to be outstanding after this
offering....................................... 18,953,065 shares (2)
Use of proceeds................................ We will not receive any of the
proceeds from the shares sold
by the selling stockholders. See
"Selling Stockholders".
OTC Bulletin Board symbol...................... IVDO
(1) Includes 4,808,875 outstanding shares of our common stock and 4,943,803
shares of our common stock issuable on exercise of outstanding warrants.
(2) Common stock outstanding on March 31, 2000. It excludes (A) 6,926,375 shares
of common stock issuable upon exercise of outstanding options granted under our
1992, 1998 and 1999 Stock Option Plans plus an additional 2,338,767 shares
reserved for issuance under our 1999 Stock Option Plan, and (B) 5,828,251 shares
issuable upon exercise of outstanding warrants.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
The following table summarizes the consolidated financial data of our
business.
Year ended December 31,
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1997 1998 1999
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Statement of Operations Data:
Sales...................................... $ 248 $ 15 $ ---
Gross profit................................. $ 18 $ 15 $ ---
Operating loss............................... $(1,929) $(4,664) $(11,510)
Net loss..................................... $(2,062) $(6,916) $(12,978)
Net loss applicable to common
Stockholders............................... $(2,062) $(15,679) $(12,978)
Net loss per share of common stock:
Basic and diluted.......................... $(0.39) $ (2.35) $ (1.42)
Weighted average number of shares of
common stock outstanding................... 5,259 6,659 9,122
The following table summarizes our balance sheet data as of December
31, 1999. This balance sheet data is presented:
o on an actual basis; and
o on a pro forma basis to give effect to:
o our sale of 3,474,625 shares of our common stock in January 2000
(less offering costs of $1,046,000), resulting in net proceeds of
$12,853,000;
o the conversion of our preferred stock into 4,496,609 shares of our
common stock in January 2000; and
o the conversion of $5,335,000 of notes payable (including $430,000
in notes issued in January 2000) into 1,333,750 shares of our
common stock in January 2000.
As of December 31, 1999
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(in thousands)
Actual ProForma
Balance Sheet Data:
Cash and cash equivalents............................. $ 303 $13,585
Working capital (deficit)............................. (6,227) 11,960
Total assets.......................................... 1,129 14,411
Long-term obligations, net of current portion......... -- --
Stockholders' equity (deficit)..................... (5,465) 12,722
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RISK FACTORS
You should carefully consider the following risks and all other
information contained in this prospectus before you decide to buy our common
stock. We have included a discussion of each material risk that we have
identified as of the date of this prospectus. However, additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations. If any of the following risks actually
occur, our business, financial condition or operating results could suffer. If
this occurs, the trading price of our common stock could decline, and you could
lose all or part of the money you paid to buy our common stock.
Risks Relating to Burst.Com, Inc.
We are not currently profitable and may not achieve profitability.
We have a history of losses and expect to continue to incur net losses
at least through the year 2001. We expect to incur significant operating
expenses and, as a result, will need to generate significant revenues to achieve
profitability, which may not occur. Even if we achieve profitability, we may be
unable to sustain or increase profitability on a quarterly or annual basis in
the future.
We will need additional financing, and may not be able to raise additional
financing on favorable terms, or at all, which could increase our costs and
limit our ability to grow.
We will need to raise additional capital in the future to continue our
longer term expansion plans to respond to competitive pressures, or otherwise to
respond to unanticipated requirements. We are currently offering shares of our
common stock in a private placement directed to strategic investors. The terms
of such financing, including the number of shares and the price per share, have
not yet been determined and will be subject to negotiations between us and the
prospective investors. If consummated, this financing could adversely affect the
market price of our common stock. In addition, we cannot be certain that we will
be able to obtain this or any other future additional financing on commercially
reasonable terms or at all. Our failure to obtain additional financing, or
inability to obtain financing on acceptable terms, could require us to limit our
plans for expansion, incur indebtedness that has high rates of interest or
substantial restrictive covenants, issue equity securities that will dilute your
holdings, or discontinue a portion of our operations.
Our future success depends on our ability to keep pace with technological
changes, which could result in a loss of revenues.
The emerging video streaming and content delivery and hosting industry
is characterized by:
o rapidly changing technologies;
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o frequent new product introductions; and
o rapid changes in customer requirements.
Video streaming technologies have reached commercially acceptable
levels only in the last several years and are continuing to experience numerous
changes. As a result, we must be able to maintain and extend our technological
edge in order to ensure that our products remain commercially viable.
Our future success will depend on our ability to enhance our existing
products and to develop and introduce new products and product features. These
products and features must be cost-effective and keep pace with technological
developments and address the increasingly sophisticated needs of our customers.
We may not be successful at these tasks. We may also experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these new products and features.
We may not be able to timely adopt emerging industry standards, which may make
our products unacceptable to potential customers, delay our product
introductions or increase our costs.
Our products must comply with a number of current industry standards
and practices established by various international bodies. Our failure to comply
with evolving standards, including industry standard CODECS, will limit
acceptance of our products by market participants. If new standards are adopted
in our industry, we may be required to adopt those standards in our products. It
may take us a significant amount of time to develop and design products
incorporating these new standards. We may also become dependent upon
technologies developed by third parties and have to pay royalty fees, which may
be substantial, to the developers of the technology that constitutes the newly
adopted standards.
If we do not develop new products or new product features in response to
customer requirements or in a timely way, customers may not buy our products,
which would seriously harm our business.
The software media delivery industry is rapidly evolving and subject to
technological change and innovation. We must continue to enhance our products by
adding new product features and introduce new products in response to customer
requirements. If we fail to do so or in a timely manner, our customers may not
buy our products, resulting in serious harm to our business.
We will not be able to sell sufficient quantities of our products to sustain a
viable business if the market for software media delivery products does not
develop or if a competing technology displaces our products.
The software media delivery market is in the early stage of development
and is still evolving. Our lack of product diversification exposes us to a
substantial risk of loss in the event that the software media delivery market
does not develop or if a competing technology
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replaces our software. If a competing technology replaces or takes significant
market share from the products that our software support, we will not be able to
sell our products in quantities sufficient to grow our business.
We rely upon our sales of a small number of products, and the failure of any one
of our products to be successful in the market could substantially reduce our
revenue.
We rely on sales of a small number of products to generate
substantially all of our revenue. We are developing additional software
products, but there can be no assurance that we will be successful in doing so.
Consequently, if our existing products are not successful, our sales could
decline materially, which harm our financial performance.
Our products generally have long sales cycles and implementation periods, which
increase our costs in obtaining orders and reduce the predictability of our
earnings.
Our products are technologically complex. Prospective customers
generally must make a significant commitment to test and evaluate our software
and to integrate it into their products. As a result, our sales process is often
subject to delays associated with lengthy approval processes. For these and
other reasons, the initial sales cycles of our new software products has been
lengthy, recently averaging approximately four to six months from initiation in
late 1999 to completion in 2000. We expect that future sales will also
experience lengthy sales cycles.
Long sales cycles are also subject to a number of significant risks
over which we have little or no control and which are not usually encountered in
a short sales span. These risks include our customers' budgetary constraints,
internal acceptance reviews and cancellation. In addition, orders expected in
one quarter could shift to another because of the timing of our customers'
procurement decisions. The time required to implement our products can vary
significantly with the needs of our customers and generally lasts for several
months; larger implementations can take several calendar quarters. This
complicates our planning process and reduces the predictability of our financial
results.
We may be subject to potential legal liabilities for distributing information
from our Website.
We may be subjected to claims based on negligence or other theories
relating to the information we distribute from our Website hosting service.
Similarly, we may be subjected to claims for defamation or copyright or
trademark infringement relating to the information we provide in our products.
These types of claims have been brought, sometimes successfully, against on-line
services as well as print publications in the past. We could also be subjected
to claims based upon the content that is accessible from our products through
links to other websites. These types of claims could be time-consuming and
expensive to defend, and could result in the diversion of our management's time
and attention. In addition, if our products provide faulty or inaccurate
information, or fail to provide all the information a user expects, we could be
subject to legal liability. Our insurance and contractual provisions with users
and information providers may not protect us against these types of claims.
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We may not be successful in protecting our intellectual property
Our success will depend, in part, on our ability to protect the
intellectual property that we have developed through patents, trademarks, trade
secrets, copyrights, licenses and other intellectual property rights. We cannot
guarantee that we will be able to protect our intellectual property. We are
subject to a number of risks relating to intellectual property rights, including
the following:
o the means by which we seek to protect our proprietary rights
may not be adequate to prevent others from misappropriating
our technology or from independently developing or selling
technology or products with features based on or similar to
ours;
o Legal standards relating to the validity, enforceability and
scope of protection of proprietary rights in Internet-related
businesses are uncertain and still evolving.
o our products may be sold in foreign countries that provide
less protection to intellectual property than is provided
under U.S., Japanese or European community laws;
o our intellectual property rights may be challenged,
invalidated, violated or circumvented and may not provide us
with any competitive advantage; and
o our patents pending may not be approved or may be only
partially approved.
As a result, we cannot predict the future viability or value of our
proprietary rights and those of other companies within the industry.
If our proprietary technology infringes upon the intellectual property rights of
others, our costs could increase and our ability to sell our products could be
limited.
We are not aware of any activity that may be infringing any proprietary
right of a third party. There can be no assurance, however, that aspects of our
technology would not be found to violate the intellectual property rights of
other parties. The resulting risks include the following:
o other companies may hold or obtain patents or may otherwise
claim proprietary rights to technology that is necessary to
our business;
o if we violate the intellectual property rights of other
parties, we may be required to modify our products or
intellectual property or to obtain a license to permit their
continued use; and
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o any future litigation to defend us against allegations that we
have infringed upon the rights of others could result in
substantial costs to us, even if we ultimately prevail.
There are a number of companies that hold patents for various aspects
of the technology incorporated in our industry's standards. We expect that
companies seeking to gain competitive advantages will increase their efforts to
enforce any patent rights that they may have. The holders of patents from which
we have not obtained licenses may take the position that we are required to
obtain a license from them. We cannot be certain that we would be able to
negotiate any license at an acceptable price. Our inability to do so could
substantially increase our operating expenses or require us to seek and obtain
alternative sources of technology necessary to produce our products.
We began our current product line of software only recently and, as a result,
your ability to evaluate our prospects may be limited.
Although we have been operating since 1993, we have only recently
commenced sales of our present product line of media delivery software. Prior to
that time, we sold custom designed software products, which we do not anticipate
selling in the future. Our limited operating history with respect to our current
software may limit your ability to evaluate our prospects because of:
o our limited historical financial data relating to sales of our
current software;
o our unproven potential to generate profits; and
o our limited experience in addressing emerging trends that may
affect our software business.
As a young company that recently commenced a new product line, we face
risks and uncertainties relating to our ability to implement our business plan
successfully. You should consider our prospects in light of the risks, expenses
and difficulties we may encounter.
Our inability to manage effectively our recent growth, and our expected
continuing increased growth, could materially harm our performance.
The growth in our research, development, sales and marketing operations
has placed, and is expected to continue to place, a significant strain on our
management and operations. To manage our growth, we must continue to implement
and improve our operational, financial and management information systems and
expand, train and manage our employees. The anticipated increase in product
development and sales and marketing expenses, together with our reliance on
value added resellers to market products that incorporate our software, could
materially harm our performance if we do not manage these factors effectively.
We may not have made adequate allowances for the costs and risks associated with
this expansion, and our systems, procedures or controls may not be adequate to
support our operations. Our failure to manage growth effectively could cause us
to incur substantial additional costs, lose opportunities to generate revenues
or impair our ability to maintain our customers.
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Future acquisitions by us could divert substantial management resources, give
rise to unknown or unanticipated liabilities and lead to adverse market
consequences for our stock.
We may acquire or make substantial investments in other companies or
businesses in order to maintain our technological leadership or to obtain other
commercial advantages. Identifying and negotiating these transactions may divert
substantial management resources. An acquisition could require us to expend
substantial cash resources, to incur or assume debt obligations, or to issue
additional common or preferred stock. These additional equity securities would
dilute your holdings, and could have rights that are senior to or greater than
the shares that you purchase in this offering. An acquisition that could involve
significant one-time non-cash write offs, or could involve the amortization of
goodwill over a number of years, which would adversely affect earnings in those
years. Acquisitions outside our current business may be viewed by market
analysts as a diversion of our focus. For these and other reasons, the market
for our stock may react negatively to the announcement of any acquisition. An
acquisition will continue to require attention from our management to integrate
the acquired entity into our operations, may require us to develop expertise in
fields outside our current area of focus, and may result in departures of
management of the acquired entity. An acquired entity may have unknown
liabilities, and its business may not achieve the results anticipated at the
time of the acquisition. Furthermore, we have no experience in making
acquisitions and we may not be successful in executing an acquisition
transaction or integrating an acquisition.
We are subject to risks from international sales, including the risk that the
prices of our products may become less competitive because of foreign exchange
fluctuations.
We expect that revenue from international sales will be a significant
part of our revenue in the future. International sales are subject to a variety
of risks, including risks arising from currency fluctuations, trading
restrictions, tariffs, trade barriers and taxes. Because most of our sales are
denominated in dollars, our products will become less price competitive in
countries with currencies that are low or are declining in value against the
dollar. In addition, future international customers may not continue to place
orders denominated in dollars. If they do not, our reported revenue and earnings
will be subject to foreign exchange fluctuations.
We may experience fluctuations in our future operating results, which will make
predicting our future results difficult.
These fluctuations may result from a variety of factors, including:
o market acceptance of our products, including changes in order
flow from our largest customers, and our customers' ability to
forecast their needs;
o the timing of new product announcements by us and our
competitors;
o the lengthy sales cycle of our products;
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o increased competition, including changes in pricing by us or
our competitors;
o delays in deliveries by our suppliers and subcontractors;
o currency exchange rate fluctuations; and
o general economic conditions in the geographic areas in which
we operate.
Accordingly, any revenues or net income in any particular period may be
lower than our revenues and net income in a preceding or comparable period.
Period-to-period comparisons of our results of operations may not be meaningful,
and you should not rely upon them as indications of our future performance. In
addition, our operating results may be below the expectations of securities
analysts and investors in future periods. Our failure to meet these expectations
will likely cause our share price to decline.
Our products could contain defects, which would reduce sales of those products
or result in claims against us.
We develop complex software for media delivery, content management and
storage. Despite testing, errors may be found in our existing or future
products. This could result in, among other things, a delay in recognition or
loss of revenues, loss of market share, failure to achieve market acceptance or
substantial damage to our reputation. We could be subject to material claims by
customers, and we may need to incur substantial expenses to correct any product
defects. We do not have product liability insurance to protect us against losses
caused by defects in our products, and we do not have "errors and omissions"
insurance. As a result, any payments that we may need to make to satisfy our
customers may be substantial.
We depend on a limited number of key personnel who would be difficult to
replace, and we may not be able to attract and retain management and technical
personnel.
Because our products are complex and our market is new and evolving,
the success of our business depends in large part upon the continuing
contributions of our management and technical personnel. The loss of the
services of several of our key officers, including Richard Lang, our Chairman of
the Board and Chief Executive Officer, and Kyle Faulkner, our Chief Technical
Officer, could substantially interfere with our operations. We do not have key
person life insurance policies covering any of our employees other than Richard
Lang. The insurance coverage that we have on Mr. Lang may be insufficient to
compensate us for the loss of his services.
Our success depends upon our ability to attract, train and retain qualified
engineers, sales and marketing and technical support personnel.
We will need to hire additional engineers and highly trained technical
support personnel in order to succeed. We will need to increase our technical
staff to support new customers and the expanding needs of existing customers, as
well as our continued research
11
<PAGE>
and development operations. We will need to hire additional sales and marketing
personnel to target our potential customers. Hiring engineers, sales and
marketing and technical support personnel is very competitive in our industry
because of the limited number of people available with the necessary skills and
understanding of our products. This is particularly true in California where the
competition for qualified personnel is intense. If we are unable to hire and
retain necessary personnel, our business will not develop and our operating
results will be harmed.
Risks Relating to Our Industry
If software media technology or our method of implementing this technology is
not accepted, we will not be able to sustain or expand our business.
Our future success depends on the growing use and acceptance of video
applications for PCs, including the growth of video on the Internet. The market
for these applications is new, and may not develop to the extent necessary to
enable us to expand our business. We have recently invested and expect to
continue to invest significant time and resources in the development of new
products for this market. If the target market for our solution does not grow,
we may not obtain any benefits from these investments.
The markets in which we operate are highly competitive, and many of our
competitors have much greater resources than we do, which may make it difficult
for us to become profitable.
Competition in our industry is intense, and we expect competition to
increase. Competition could force us to charge lower prices for our products,
reduce demand for our products and reduce our ability to recover development and
manufacturing costs.
Some of our competitors:
o have greater financial, personnel and other resources than
ours;
o offer a broader range of products and services than ours;
o may be able to respond faster to new or emerging technologies
or changes in customer requirements than we can;
o may have a more substantial distribution network than ours;
o benefit from greater purchasing economies than we do;
o offer more aggressive pricing than we do; and
o devote greater resources to the promotion of their products
than we do.
12
<PAGE>
We will not be able to compete effectively if we are not able to
develop and implement appropriate strategies to address these factors.
Internal development efforts by our customers and new entrants to the market may
increase competition.
In the future, some of our customers may internally develop products
that will replace the products that we currently sell to them. In addition, some
leading companies, with substantially greater resources than we have, may
attempt to enter our market. The recent growth in the market for media delivery
and related technologies is attracting large entrants.
We depend on the continued growth and commercial acceptance of the Internet.
Our business will be adversely affected if usage of the Internet and
broadband access does not continue to grow as anticipated. This growth may be
inhibited by a number of factors, such as:
o inadequate network infrastructure;
o inconsistent quality of service;
o lack of cost-effective broadband high-speed services;
o lack of cost-effective storage; and
o security concerns.
Even if Internet use and broadband access grows, the Internet
infrastructure may not be able to support future growth adequately and its
reliability and quality of service may suffer. In addition, numerous websites
have experienced service interruptions due to outages and other delays occurring
internally and throughout the Internet network infrastructure. If these outages
or delays occur frequently in the future, Internet usage, as well as usage of
our products, could grow more slowly or decline.
We may face government regulation and legal uncertainties relating to the
Internet
Currently, there are few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted that address issues such as user privacy, pricing and the
characteristics and quality of products and services. For example, recent
federal legislation prohibits the transmission of certain types of information
and content over the Internet. In addition, several telecommunications companies
have petitioned the Federal Communications Commission to regulate Internet and
on-line service providers in a manner similar to long distance telephone
carriers and to impose access fees on such providers. This could increase the
cost of transmitting data over the Internet. Moreover, it may take years to
determine the extent to which existing laws relating to issues such as property
ownership, libel and personal privacy apply to the Internet. Finally, state tax
13
<PAGE>
laws and regulations relating to the provision of products and services over the
Internet are still developing. If individual states impose taxes on products and
services provided over the Internet, the cost of our products and services may
increase and we may not be able to increase the price we charge for our products
to cover these costs. Any new laws or regulations or new interpretations of
existing laws and regulations relating to the Internet could adversely affect
our business.
Risks Relating to this Offering
If the warrants held by the selling stockholders are exercised, additional
shares of our common stock will be outstanding, which could reduce the market
price of our common stock.
If the warrants held by the selling stockholders are exercised,
additional shares of our common stock will be outstanding that are not subject
to restrictions on resale. Sales of substantial amounts of shares in the public
market following exercise of the warrants, or the prospect of such sales, could
adversely affect the market price of our common stock.
There has been a limited market for our common stock, an active market may not
develop, the market price of our common stock may fluctuate significantly, and
the market price may not exceed the initial public offering price.
Before this offering, our common stock traded on the OTC Electronic
Bulletin Board. Securities traded on the OTC Bulletin Board are for the most
part thinly traded. While we have applied to have our common stock listed for
trading on the Nasdaq SmallCap Market, we cannot be certain that our application
will be accepted. Even if our common stock becomes listed for trading on the
Nasdaq SmallCap Market, we cannot be certain that an active market will develop.
Numerous factors, many of which are beyond our control, may cause the market
price of the common stock to fluctuate significantly. These factors include, but
are not limited to, the following:
o fluctuations in our quarterly revenues and operating results;
o shortfalls in our operating results from levels forecast by
securities analysts;
o announcements concerning us, our competitors or our customers;
o announcements of technological innovations, new industry
standards or changes in product price by us or our
competitors; or
14
<PAGE>
o market conditions in the industry and the general state of the
securities markets.
In addition, the stock prices of many technology companies fluctuate
significantly for reasons that may be unrelated to operating results. These
fluctuations, as well as general economic, political and market conditions,
including recession, international instability or military tension or conflicts
may adversely affect the market price of our common stock. If we are named as a
defendant in any securities-related litigation as a result of decreases in the
market price of our shares, we may incur substantial costs, and our management's
attention may be diverted, for lengthy periods of time. The market price of our
common stock may not increase above the initial public offering price or
maintain its price at or above any particular level.
We do not expect to pay cash dividends in the foreseeable future.
We have not declared or paid any cash dividends in the past and do not
expect to pay cash dividends in the foreseeable future. We intend to retain our
future earnings, if any, to finance the development of our business. The board
of directors will determine any future dividend policy in light of then existing
conditions, including our earnings, financial condition and financial
requirements. You may never receive dividend payments from us.
Future sales of our common stock in the public market may depress our stock
price.
We have outstanding 18,953,065 shares of common stock. Sales of a
substantial number of shares of our common stock in the public market following
this offering could cause our stock price to decline. All the shares sold in
this offering will be freely tradable. An additional 3,747,614 shares of common
stock are eligible for sale in the public market and the remaining 10,397,076
additional shares will be eligible for sale in the public market at various
times after the date of this prospectus, including 10,223,744 shares that are
subject to lock-up agreements that will expire 180 days after the date of this
prospectus. In addition, the sale of these shares could impair our ability to
raise capital through the sale of additional stock. See "Shares Eligible for
Future Sale."
Our principal stockholders, executive officers and directors have substantial
control over most matters submitted to a vote of the stockholders, thereby
limiting your power to influence corporate action.
Our officers, directors and principal stockholders will beneficially
own approximately 69% of our common stock. As a result, these stockholders will
have the power to control the outcome of most matters submitted to a vote of
stockholders, including the election of members of our board, and the approval
of significant corporate transactions. The stockholders purchasing shares in
this offering will have little influence on these matters. This concentration of
ownership may also have the effect of making it more difficult to obtain the
15
<PAGE>
needed approval for some types of transactions that these stockholders oppose,
and may result in delaying, deferring or preventing a change in control of our
company.
The effects of anti-takeover provisions in our charter and bylaws could inhibit
the acquisition of us by others.
Several provisions of our certificate of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of our company. For example, only one-third of our board of directors
will be elected at each of our annual meetings of stockholders, which will make
it more difficult for a potential acquirer to change the management of our
company, even after acquiring a majority of the shares of our common stock.
These provisions, which cannot be amended without the approval of 2/3 of our own
stockholders, could diminish the opportunities for a stockholder to participate
in tender offers, including tender offers at a price above the then current
market value of our common stock. In addition, our board of directors, without
further stockholder approval, may issue preferred stock, with such terms as the
board of directors may determine, that could have the effect of delaying or
preventing a change in control of our company. The issuance of preferred stock
could also adversely affect the voting powers of the holders of common stock,
including the loss of voting control to others. We are also afforded the
protections of section 203 of the Delaware General Corporation Law, which could
delay or prevent a change in control of our company or could impede a merger,
consolidation, takeover or other business combination involving our company or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.
16
<PAGE>
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including, among
other things:
o implementing our business strategy;
o attracting and retaining customers;
o obtaining and expanding market acceptance of the products and
services we offer;
o forecasts of Internet usage and the size and growth of
relevant markets;
o rapid technological changes in our industry and relevant
markets; and
o competition in our market.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "predicts," "potential,"
"continue," "expects," "anticipates," "future," "intends," "plans," "believes,"
"estimates" and similar expressions. These statements are based on our current
beliefs, expectations and assumptions and are subject to a number of risks and
uncertainties. Actual results, levels of activity, performance, achievements and
events may vary significantly from those implied by the forward-looking
statements. A description of risks that could cause our results to vary appears
under the caption "Risk Factors" and elsewhere in this prospectus. These
forward-looking statements are made as of the date of this prospectus, and
except as required under applicable securities law, we assume no obligation to
update them or to explain the reasons why actual results may differ.
17
<PAGE>
USE OF PROCEEDS
All proceeds from any sale of shares of common stock offered by the
selling stockholders will be received by the selling stockholders and not by us.
The shares being offered include shares that may be issued under
currently outstanding warrants held by the selling stockholders. We would
receive proceeds of up to $25,058,880 from the exercise of the selling
stockholders' warrants currently exercisable into up to 4,943,,803 shares of our
common stock. Any proceeds from the exercise of the warrants will be used for
general corporate purposes. The exercise price of the warrants is less than the
current market price for our shares of common stock and, accordingly, the
selling stockholders could choose to exercise the warrants so long as the market
price for our shares of common stock remains higher than the exercise price of
the warrants. If no warrants are exercised, however, none of the shares
registered in this offering issuable on exercise of the warrants would become
available for sale. See "Selling Stockholders".
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
retain any future earnings to fund the development and expansion our business.
Therefore, we do not anticipate paying cash dividends on our common stock in the
foreseeable future.
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<PAGE>
CAPITALIZATION
The following table summarizes our balance sheet data as of December
31, 1999. This balance sheet data is presented:
o on an actual basis; and
o on a pro forma capitalization, giving effect to:
o our sale of 3,474,625 shares of common stock in January
2000 (less offering costs of $1,046,000);
o the conversion of our preferred stock into 4,496,609
shares of common stock in January 2000; and
o the conversion of $5,335,000 of notes payable (including
$430,000 in new January 2000 notes) into 1,333,750
shares of common stock in January 2000.
We sold our shares of common stock in January 2000 at a price of $4.00
per share, and for each share sold, we issued one warrant to purchase our common
stock at an exercise price $5.00 per share and with a term of five years.
<TABLE>
This information should be read together with our Consolidated
Financial Statements and the related Notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
<CAPTION>
As of December 31, 1999
-----------------------
Actual Pro Forma
------ ---------
(in thousands except share data)
<S> <C> <C>
Convertible Preferred Stock; $0.00001 par value; 20,000,000 shares authorized:
Series A Convertible Preferred Stock; 2,020,000 shares issued and
outstanding, actual; no shares issued and outstanding, pro forma $ -- $ --
Series B Convertible Preferred Stock; 2,476,609 shares issued and
outstanding, actual; no shares issued and outstanding, pro forma -- --
Common stock, $0.00001 par value; 100,000,000 shares
authorized; 9,535,527shares issued and outstanding, actual;
18,953,065 shares issued and outstanding, pro forma -- --
Additional paid-in-capital 31,971 50,158
Accumulated deficit (37,436) (37,436)
Total stockholders' equity (deficit) $ (5,465) $ 12,722
</TABLE>
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<PAGE>
The shares of common stock outstanding in the actual and pro forma columns
exclude:
o 6,926,375 shares of common stock issuable as of March 31, 2000
upon the exercise of outstanding stock options issued under
our stock option plans at a weighted average exercise price of
$ 3.45 per share;
o 2,338,767 additional shares of common stock reserved for
issuance under our 1999 Stock Option Plan; and
o 5,828,251 shares of common stock issuable as of March 31, 2000
upon the exercise of outstanding warrants with a weighted
average exercise price of $4.54 per share.
20
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
The following selected financial data should be read in conjunction
with our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this document. The statement of operations and balance sheet data for the year
ended December 31, 1995 are derived from financial statements that Evers &
Company, Ltd, independent accountants, have audited but are not included in this
registration statement. The statement of operations data for the year ended
December 31, 1996 and the balance sheet data for December 31, 1996 and 1997 are
derived from financial statements that KPMG LLP have audited but are not
included in this registration statement. The statement of operations data for
each of the two years in the two-year period ended December 31, 1998, and the
balance sheet data at December 31, 1998, are derived from financial statements
that KPMG LLP, independent accountants, have audited and are included elsewhere
in this registration statement. The reports of KPMG LLP contained explanatory
paragraphs that state that there is substantial doubt about our ability to
continue as a going concern. The statement of operations data for the year ended
December 31, 1999 and the balance sheet data as of December 31, 1999 are derived
from financial statements audited by BDO Seidman, LLP, independent certified
public accountants, and are included elsewhere in this registration statement.
Historical results are not necessarily indicative of the results to be expected
in the future.
<CAPTION>
1995 1996 1997 1998 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue $ 665,781 $1,457,597 $ 247,879 $ 15,000 $ --
============ ========== =========== ============
Loss from operations $ (372,254) $ (346,351) $(1,928,637) $ (4,663,867) $(11,509,619)
============ ========== =========== ============ ============
Net loss $ (456,633) $ (404,367) $(2,062,373) $ (6,916,420) $(12,977,729)
Beneficial conversion
feature of Series B -- -- -- (8,762,425) --
Preferred Stock --
------------------------------------------------------------------------------
Net loss applicable to
Common Stockholders $ (456,633) $ (404,367) $(2,062,373) $(15,678,845) $(12,977,729)
==============================================================================
Basic and diluted net loss
per common share: $(0.11) $(0.09) $(0.39) $(2.35) $(1.42)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 1999 Pro
Forma
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents $ 4,346 $ 208,613 $ 20,551 $ 2,212,141 $ 302,979 $13,585,039
Total assets $ 238,855 $ 601,182 $ 155,191 $ 3,249,622 $ 1,091,826 $14,410,801
Long-term
obligations $ 141,000 $ -- $ 16,833 $ -- $ -- $ --
Stockholders'
equity (deficit) $ (1,307,057) $ 60,106 $ (983,267) $ 2,793,358 $(5,464,646) $12,722,414
- --------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction
with the financial statements and related notes included elsewhere in this
prospectus. Except for historical information, the discussion in this prospectus
contains certain forward-looking statements that involve risks and
uncertainties. The principal factors that could cause or contribute to
differences in our actual results are discussed in the section titled "Risk
Factors."
General
We remain optimistic about our future, but our prospects must be
considered and evaluated in light of the risks, operating and capital
expenditures required, and uncertainty of economic conditions that may impact
our customers. Emerging companies are characterized by a high degree of market
and financial risk that should be considered in evaluating our financial results
and future prospects. To achieve and sustain profitability, we must successfully
launch, market, and establish our software products, successfully develop new
products and services, meet the demands of our customers, respond quickly to
changes in our markets, attract and retain qualified employees, and control
expenses and cash usage, as well as continue to attract significant capital
investments.
We believe that period-to-period comparisons of our operating results,
including our revenues, cost of sales, gross margins, expenses, and capital
expenditures may not necessarily provide meaningful results and should not be
relied upon as indications of future performance. We do not believe that our
historical results are indicative of future growth or trends.
We have incurred significant losses since inception, and as of December
31, 1999, had an accumulated deficit of $37,435,900. There can be no assurance
that we will achieve or sustain profitability and we believe that we will incur
a net loss in 2000.
Results of Operations
Year ended December 31, 1999 compared to 1998
We had no revenue or cost of revenue for the year ended December 31,
1999 compared with $15,000 revenue for the same period in 1998. These minimal
revenues were the result of our redirecting our product and market activity to
the Burstware(R) family of products. We released our first product, Burstware(R)
Version 1.1, to the public in February 1999 and in November 1999, we released
Burstware(R) Version 1.2, which contained the Burst-Enabled(TM)Windows Media
Player. In 1999, we recruited key sales, marketing and development contributors
and signed six reseller agreements. Customer evaluations were undertaken during
the second half of 1999 and initial sales commenced in February 2000.
During the year ended December 31, 1999 costs and expenses increased to
$11,509,600 as compared to $4,678,900 during the year ended December 31, 1998.
This $6,830,800 increase was a result of an overall expansion in business
activity, including growth in the research and development, sales and marketing
departments as well as a non-recurring charge to expense related to the
acquisition of Timeshift-TV.
22
<PAGE>
The $3,276,200, or 409% increase in Research & Development
expenditures, resulted from the ramp-up in preparation for the initial
commercial release and development and testing of enhanced features planned for
subsequent releases of our product as well as $1,330,000 of in-process research
and development acquired from Timeshift-TV which was charged to expense. The
Quality Assurance and Release Management Department was established in 1999 to
support subsequent releases of Burstware(R) products. Personnel were added to
develop, test and complete documentation of the product releases. Major
development activities began in the areas of player scripting, incorporation of
a database for replication, and various other features to be included in
subsequent releases.
The $3,354,500 or 404% increase in Sales & Marketing was primarily a
result of increased expenditures relating to the commercial release of our
Burstware(R) product suite. We have added marketing staff and have engaged in a
targeted marketing campaign, including print, radio and billboard advertising,
public relations, collateral development, and participation in a number of major
trade shows. We believe that these promotional activities will allow us to reach
specific vertical markets cost-effectively, to support the efforts of the direct
sales force, and to generate publicity for us as a whole.
The marketing campaign's objectives are to build brand awareness,
facilitate name recognition, educate the market, generate sales leads and
develop relationships with technology partners, systems integrators and
resellers. These expenditures will continue as part of an overall plan to build
upon and expand the brand awareness we have created in the marketplace.
Sales expenditures have increased as a result of the expansion of our
sales force in conjunction with the launch of the Burstware(R) suite of
products. We currently have a sales and business development office in Southern
California, and sales offices in Virginia, Colorado, Michigan, Metropolitan New
York and Florida. We have also partnered with The EMS Group, Limited, to develop
sales and marketing channels in Europe.
We incurred a $200,100, or 7% increase in General and Administrative
expense, which resulted from additional personnel, equipment and facilities
costs to support the increased operations.
We had a net loss from operations of $11,509,600 during the year ended
December 31, 1999, as compared to $4,663,900, a 247% increase over the year
ended 1998. The increased loss resulted from the increased expenditures and
charges discussed above. Net interest expense was $1,468,100, as compared to
$2,252,600 net interest expense for the years ended December 31, 1999 and 1998,
respectively. This $784,400 decrease was principally due to the decrease in
interest expense associated with debt converted to equity or debt that was
retired during the latter part of 1998. In addition, $2,228,900 was charged to
interest expense in 1998 for non-cash amounts related to beneficial conversion
features, warrants and stock grants issued with debt. In 1999, such non-cash
interest charges decreased to $1,397,000.
23
<PAGE>
Year ended December 31, 1998 compared to 1997
Revenue
During the year ended December 31, 1998, we earned revenue in the
amount of $15,000 compared to $247,900 for 1997. The 1998 revenue was from a
single domestic transaction relating to a field trial. Revenue in 1997 was from
consulting services for a different domestic customer.
Cost of Revenue
We had no cost of revenue for the year ended December 31, 1998, since
the above-mentioned field trial had no costs associated with it. Cost of revenue
in 1997 consisted of costs of services related to customization of software for
the domestic customer referred to above.
Operating Expenses
Costs and expenses during the year ended December 31, 1998, totaled
$4,678,900 as compared to $1,946,300 during 1997. The increase was primarily due
to increased software development expense, increased labor expense, increased
sales and marketing expenses, and non-cash compensation expense relating to
stock options.
Software research and development ("R&D") expenses for 1998 increased
322% from $189,700 in 1997 to $800,600 in 1998. R&D expenditures accounted for
17% of total operating expenses in 1998. All R&D costs have been expensed as
incurred since no significant amounts qualified for capitalization. The majority
of R&D expenses were labor-related for employee salaries and benefits and
expenses for consultants as the result of our decision to expand our internal
product development team.
Sales and marketing expenses increased 103% from $408,400 in 1997 to
$831,000 in 1998 and accounted for 18% of total operating expenses in 1998. The
increase in 1998 was due to expenditures for developing and producing marketing
collateral materials, developing a public relations and promotion campaign
strategy, travel expenses, and labor expenses due to increased headcount in
1998.
General and administrative expenses increased from $1,348,200 in 1997
to $3,047,300 in 1998 and accounted for 65% of total operating expenses in 1998.
The 126% increase from 1997 to 1998 was due to $1,865,200 non-cash, stock-based
compensation in addition to increased labor and consultant expenses and
increased legal expenses for our patent filings.
24
<PAGE>
Interest Expense
Total interest expense for 1998 was $2,252,600 versus $139,000 in 1997.
This 1,520% increase was due to interest expense recognized for beneficial
conversion features on notes issued during 1998, discount amortized and interest
accrued on these notes during 1998, and interest expense recognized for the fair
value of warrants issued upon conversion of these notes and related accrued
interest to common and Series B Preferred Stock during 1998. Actual cash
expenditures for interest in 1998 totaled $65,900.
Net Loss and Net Loss Applicable to Common Shareholders
We incurred a net loss of $6,916,400 and a net loss to common
shareholders of $15,678,800, ($2.35 per common share) for the year ended
December 31, 1998, as compared to a net loss and net loss to common shareholders
of $2,062,400 ($0.39 per share) for 1997. The 1998 loss is primarily caused by
minimal revenue, increased operating expenses, non-cash interest expense
relating to now retired debt, and compensation expense relating to stock options
granted to employees and consultants.
The additional loss of $8,762,400 to common shareholders in 1998
resulted from beneficial conversion terms for our Series B preferred stock. The
beneficial conversion feature resulted from price differences between the $2.00
conversion price for the Series B offering and the closing price for our common
stock on the dates the Series B preferred stock was purchased. Our Series B
preferred stock offering was sold over a period of time, and had a fixed $2.00
per share conversion price, while our common stock price fluctuated widely
during that period. Any excess of the closing price of our common stock over the
fixed conversion price of our Series B preferred stock on the date of purchase
represented a benefit to the purchaser of the Series B preferred stock, and
consequently was recognized as a loss due to beneficial conversion feature of
Series B convertible Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1999 vs. December 31, 1998
Liquidity
Although we have been successful in our fundraising efforts to meet
previous operating requirements, there can be no guarantee that we will be
successful in future fundraising efforts. In January 2000, we raised $12,853,000
in cash, net of $1,046,000 in costs, and converted $5,335,000 of debt (including
$430,000 in new debt raised in January 2000), by issuing 4,808,395 shares of our
common stock. At the time of this registration statement we had cash reserves of
$9 million, which we believe will meet current operating requirements. We are
currently in negotiations to obtain additional outside funding through the sale
of shares of our common stock in a private placement. Any new funding raised may
have a dilutive effect on our existing shareholders. In the event we were to be
unsuccessful in our additional fundraising efforts and projected revenues were
significantly lower than expected, we would be required to significantly reduce
cash outflows through the reduction or elimination of marketing and sales,
development, capital, and administrative expenditures resulting in decreased
potential revenue and potential profitability.
25
<PAGE>
We expect to have material capital expenditures for computer and
network equipment of approximately $1,500,000 in 2000 as we add employees and
expand our software, test lab and training capabilities. We will continue to
incur increasing research and development costs as we continue to develop our
Burstware(R) product line and follow-on products.
Changes in Financial Condition
As of December 31, 1999, the Company had a working capital deficiency
of $6,226,500 as compared to working capital of $2,591,900 at December 31, 1998.
This $8,818,400 decrease was due to a $2,681,300 reduction in current assets,
and an increase in current liabilities of $6,137,100, principally due to an
increase in notes payable of $4,812,100. These uses of current assets were
partially offset by the $1,537,500 proceeds from the exercise of warrants to
purchase our common stock and the $810,000 collection of a receivable related to
the issuance of Series B preferred stock.
Net cash used in operating activities totaled $8,476,500 during the
year ended December 31, 1999, as compared to net cash used in operating
activities of $2,488,800 during the year ended December 31, 1998, principally
because of the increase in net loss during 1999.
Net cash used in investing activities during the year ended December
31, 1999 totaled $750,000 as compared to $162,700 during the year ended December
31, 1998, because of the increase in capital purchases (primarily increases in
computer equipment in 1999). Cash flow provided by financing activities during
the year ended December 31, 1999 totaled $7,317,300 as compared to $4,843,000
during the same period in 1998. This increase was primarily as a result of the
use of funds to retire debt during 1998 versus the additional proceeds from new
debt and equity in 1999 over 1998. We retired a $22,700 note during the year
ended December 31, 1999, while retiring $891,200 in debt during the year ended
December 31, 1998.
During the year ended December 31, 1999 the Company received $4,905,000
(including $25,000 in services received, exchanged for a note) evidenced by
notes payable convertible into our common stock, due in one year. The conversion
rate was the lower of (1) $6.50, (2) 80% of the average closing price of the
Company's publicly traded shares in the 20 trading days immediately preceding
the conversion date, or (3) the price agreed in any subsequent private placement
financing completed prior to the payment of the note. These notes contained
beneficial conversion features which resulted in recording incremental, non-cash
interest expense of $1,397,000 during the year ended December 31, 1999. The
notes were converted to common stock in January 2000.
Management expects to continue to incur losses for 2000 as we establish
our brand, commence sales and establish market share.
December 31, 1998 vs. December 31, 1997
As of December 31, 1998, we had working capital of $2,591,900 as
compared to a working capital deficiency of $1,069,600 at December 31, 1997. The
increase was primarily due to cash balances resulting from the sale of Series B
Convertible Preferred Stock and
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<PAGE>
warrants that raised $4,210,000 in new funds, as well as the exercise of
$750,000 in warrants to purchase Series A convertible preferred stock in 1998.
Cash used in operating activities totaled $2,488,800 during the year
ended December 31, 1998, as compared to $1,760,500 during 1997. The 41% increase
was primarily a result of increased spending for labor, development, and sales
and marketing.
Cash used in investing activities during the year ended December 31,
1998, was $162,700 as compared to $85,400 for 1997. The increase of 91% was due
to spending on computer and network equipment.
Cash flows provided by financing activities during the year ended
December 31, 1998, were $4,843,000 as compared to $1,657,800 during the year
ended December 31,1997. The 192% increase was due to the proceeds from the sale
of Series B convertible preferred stock and additional convertible debt and
proceeds from the exercise of warrants. We repaid $891,200 of debt in 1998.
$500,000 of this amount was for the repayment of the line of credit from
Imperial Bank. We raised approximately $6,697,000 of equity in 1998. This is
comprised of $750,000 received from the exercise of warrants, $4,210,000 in a
private placement of Series B Convertible Preferred Stock and warrants, and
$1,737,000 in debt and accrued interest that was converted into equity by the
end of 1998.
Deferred Tax Asset Valuation
Because of our history of operating losses, management is unable to
determine whether it is more likely than not that deferred tax assets will be
realized. Accordingly, a 100% valuation allowance has been provided for all
periods presented.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits 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 had to be upgraded to comply with such Year 2000 requirements. In
1998, we began a project to determine if any actions were required regarding
date-related effects to: (i) our software products; (ii) our internal operating
and desktop computer systems and non-information technology systems; and (iii)
the readiness of our third-party vendors and business partners. We formed a team
consisting of operations, development, marketing, and finance members to
determine the impact of Year 2000 and to take corrective action. We completed
testing of our suite of Burstware(R) software products and found no known Year
2000 issues. We have also tested our internal operating and desktop hardware and
software and have found that all our software is Year 2000 compliant and appears
to have no known Year 2000 issues. We also confirmed with our third-party
vendors and business partners to ensure that their software and hardware will
not impact our operations. As of the date of this filing, we know of
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<PAGE>
no known Year 2000 issues or problems with our vendors or business partners, nor
did we experience any such problems with the advent of the year 2000.
Recently Issued Accounting Standards
In March 1998, The American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
that certain costs related to the development or purchase if internal-use
software be capitalized and amortized over the estimated useful life of the
software. The adoption of SOP No. 98-1 as of January 1, 1999 did not have a
material impact on its results of operations.
The FASB recently issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 addresses the accounting for
derivative instruments, including derivative instruments embedded in other
contracts. Under SFAS No. 133, entities are required to carry all derivative
instruments in the balance sheet at fair value. The accounting for changes in
the fair value (i.e., gains or losses) of a certain derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship, and, if so, the reason for holding it. SFAS No. 133, as amended,
is effective for years beginning after July 15, 2000. The Company historically
has not used derivatives or hedges, and thus believes adoption of this standard
will have little or no effect.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999 we had approximately $300,000 invested in two
different money market funds. The primary objective of our investment activities
is to preserve our capital until it is required to fund operations while at the
same time achieving a market rate of return without significant risk. Since
these funds are available immediately, a 10% movement in market interest rates
would not have a material impact on the total fair value of our portfolio as of
December 31, 1999.
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BUSINESS
Overview
We are an independent provider of client/server network software for
the delivery of video and audio information over networks. Our headquarters is
located in San Francisco, California, with additional offices in several
domestic metropolitan areas. Our software manages the delivery of video and
audio content over a variety of networks; optimizing network efficiency and
quality of service. Our Burstware(R) suite of software products enables
companies to transmit video and audio files at Faster-Than-Real-Time(TM) speed,
which is accomplished by utilizing available bandwidth capacity to send more
video or audio data to users than the players are demanding. This data is stored
on the users' machine for playing on demand, thus isolating the user from noise
and other network interference. The result is high quality, full-motion video
and CD-quality audio to the end-user. Burstware(R) utilizes several components
of our international patent portfolio, including the Faster-Than-Real-Time(TM)
delivery method.
We began as a research and development partnership in 1988; with
initial activities focused upon technical investigations, patent development and
research pertaining to the viability of transmitting and receiving video and
audio programming in faster-than-real-time over a variety of networks.
In 1990, we incorporated, changed our name to Explore Technology, and
secured $2.0 million in funding in order to develop prototype hardware and
software for demonstrating faster-than-real-time transmission and reception of
audio and video programming; we described this type of communication as "burst".
We hired an engineering firm in Palo Alto, California to construct a pair of
"burst" video/audio transceivers. At the time this work was undertaken, networks
capable of providing "burst speeds" at practical prices were not available.
During the second quarter of 1992, we were acquired by Catalina Capital
Corporation, a small public company organized as a Delaware corporation on April
27, 1990. As a result of this transaction, our original shareholders received
85% of the outstanding shares of Catalina Capital Corporation, which was renamed
Instant Video Technologies, Inc. Our stock trades on the NASDAQ OTC Bulletin
Board under the symbol "IVDO".
In the first half of 1995, we began development of a software product
that would incorporate our patented intellectual property for
faster-than-real-time burst transmissions of multimedia content over computer
networks. At that time, we contracted with a consulting firm to develop this
software product. A prototype was created to run on a variety of networks. In
1996, we entered into agreements with three customers for use of the software in
their products and services. We continued our product development through 1997
by contracting with a third-party consulting firm.
In September 1997, our co-founder, Richard Lang, returned as Chairman,
CEO and President. As a result, in the last quarter of 1997 we restructured our
management team,
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obtained funding to continue operations, refocused our product development, and
brought technology development in-house.
At the end of the third quarter of 1997, we suspended sales of our
prototype software to customers in order to concentrate our efforts on
developing a new suite of Burstware(R) software products to position us for
future growth. Resources were directed at product development to facilitate our
new strategy and resulted in no software license sales in 1998.
In 1998, we focused on developing a commercially marketable suite of
software products; raising the capital necessary to meet operating requirements,
and building our management team. We released a test version of the Burstware(R)
suite of software products on schedule in March 1998 and began testing with
selected companies in April 1998. New versions of the test software were
released in June and November 1998.
We released our first product, Burstware(R) Version 1.1, to the public
in February 1999 and in November 1999, we released Burstware(R) Version 1.2,
which contained the Burst-Enabled(TM)Windows Media Player. In 1999, we recruited
key sales, marketing and development contributors and signed six reseller
agreements. Customer evaluations were undertaken during the second half of 1999
and initial sales commenced in February 2000.
In January 2000, we changed our name from "Instant Video Technologies,
Inc." to "Burst.com, Inc."
Industry Background
In recent years, several related technologies have converged to enable
the distribution of video and audio content over electronic communications
networks. As network bandwidth, data storage, processing power, and compression
technologies have become increasingly available, the demand for high quality
video and audio over the Internet and intranet and extranet networks has
expanded rapidly. According to Paul Kagan Associates, a market research firm, in
1999, the number of households with high-speed access is estimated to be 1.9
million with service revenue of $574.0 million; by 2002, these figures are
expected to reach 12.0 million and $3.6 billion, respectively. The result of
such developments has been the transition of the Internet from a static,
text-oriented network to an interactive environment filled with graphical and
audio-visual content.
Distributing audio-visual content over the Internet, or within an
intranet, offers certain advantages and capabilities not generally available
through traditional media, including targeted, geographically dispersed and
interactive viewership at relatively low cost. As businesses have begun to
recognize the cost, inconvenience and inefficiency of business communication
tools such as audio and videoconferencing, online communications between
business-to-business, business-to-consumer and business-to-employee have become
commonplace. Frost & Sullivan, a leading market research firm, reports that
video server market revenue for 1999 is expected to reach $722.7 million,
growing to $2.1 billion by 2002.
In order to capitalize on this explosion in Web-based content and the
large and growing number of Web-based communication channels in both the
business-to-business and business-
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to-consumer markets, a number of companies have developed first generation
software solutions intended to deliver such content to the end user. These first
generation solutions have commonly been referred to as real-time streaming
solutions that allow for the transmission and remote playback of continuous
"streams" of media content, including live video and audio broadcasts. These
technologies were designed to deliver audio and video content over widely used
28.8 kbps narrow bandwidth modems and, to a limited extend, are capable of
utilizing higher speed access provided by digital subscriber lines, cable modems
and other broadband emerging technologies.
Market Opportunity
Although current streaming technology represents a significant advancement over
earlier technologies, it remains unable to provide the client with reliable,
uninterrupted, full-motion, studio-quality video, particularly video-on-demand,
or VOD, and CD-quality audio. That is, first generation solutions rely upon a
network design in which various client computers are connected to centralized
server computers. Typically, one server is intended to service a multitude of
clients. During a typical session, a server must deliver data in frequent and
regular intervals, or just-in-time, for the length of any real-time play of
content. For example, a 30-minute video requires that constant communication
between servers and clients be maintained for 30 minutes of real-time viewing.
Moreover, in all cases involving real-time streaming, as the number of end users
expands, the number of server connections must also increase at a ratio of 1 to
1. Real-time streaming through such a network cannot scale efficiently and,
given the infrastructure requirements, remains costly.
As real-time streaming expands rapidly online with growing demand for
audio-visual content, client-centric delivery becomes increasingly susceptible
to congestion and disruption within the established client-server universe. As a
result, a client's multimedia experience typically is interrupted or degraded.
Additionally, the number of real-time connections that can be maintained
simultaneously by the server is limited by processing power as well as bandwidth
availability. This, along with the fact that a server tends to devote
disproportionate resources to the client with the most available bandwidth, also
reduces the quality as well as the availability of the video and audio content
to most users on the network.
Real-Time Streaming Delivery Solution
[GRAPHIC OMITTED]
Network disruptions cause the video
to jitter and sometimes stop
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As a result of these limitations, and including the fact that most
streaming technology involves proprietary encoding schemes and limited platform
acceptance, widespread dissemination of high-quality streaming content has yet
to occur within either the business-to-business or business-to-consumer market.
Escalating demand within these markets as well as the need for quality
enhancement of content delivery have created a need for a software solution
capable of eliminating network disruptions and utilizing client bandwidth
efficiently.
Our Solution
With our patented Burstware(R) technology, we provide a server-based
intelligent network management system delivering "Faster-Than-Real-Time"(TM)
content across a variety of networks. Our software is designed to work equally
well with content created using any data compression/decompression (CODEC)
methodology. The Java-script Burstware(R) solution ensures a consistent,
high-quality experience over multiple platforms through optimization of network
resources and superior isolation of clients from network disturbances.
Burstware(R) Delivery System
[GRAPHIC OMITTED]
Burstware(R)protects the viewing experience from network disruptions,
ensuting a TV-quality viewing experience
In a Burst-Enabled(TM) network, the server delivers "bursts" of content
of various sizes and frequencies, as required, into a client-side buffer at a
Faster-Than-Real-Time(TM) rate of consumption. On the client side, the local
buffer of stored, or cached, data acts as a reserve providing continuous play in
the event that data flow across the network is disrupted. Once the network
recovers, the local buffer is rapidly "topped off" at a
Faster-Than-Real-Time(TM) rate. Upon delivery completion, the server disengages
from the client and is free to address other clients awaiting content delivery,
with service prioritized based on the client's buffer level, rate of
consumption, available bandwidth and other variables.
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Real-Time Streaming's Use of Bandwidth
[GRAPHIC OMITTED]
Burstware's Use of Bandwidth
[GRAPHIC OMITTED]
Burstware(R)supports more users with less infrastructure
With a need-based delivery model and the ability to service the same
number of clients using fewer network resources, Burstware(R) technology also
offers quantifiable savings over a wide variety of end user environments.
Simulations have shown that Burstware's(R) intelligent network management system
can provide significant improvement in network efficiency, or throughput, when
compared to real-time streaming.
During all phases of content delivery, Burstware's(R) network-based
architecture allows for continuous monitoring of consumption rates, multiple
end-user needs, and changes in network conditions. Using connection acceptance
criteria, Burstware(R) can determine which network legs or servers are
overburdened and then shift the load accordingly. In addition, through
synchronizing content delivery across backup servers and conductors, the
Burstware(R) system creates a reliable failover for uninterrupted service in the
event of component or network failure, thereby eliminating the need for the
client to request that the server resend the entire file.
Developed with the flexibility of open standards, the Burstware(R)
network management elements are focused exclusively on content delivery without
regard to proprietary CODEC or rendering technologies, leaving application
developers free to use whichever CODEC is required of their application.
Burstware(R) architecture currently supports numerous encoding schemes,
including MPEG1, MPEG2, MP3, ASF, AVI and QuickTime, with the ability to adapt
quickly to new technologies as they are brought to market. Moreover, the
Burstware(R)
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solution is platform and player neutral. Burstware(R) operates on Microsoft
Windows NT, Solaris and Linux platforms as well as a Burst-Enabled(R) Windows
Media Player and a Java-based player, or JMF.
The intelligent Burstware(R) network resource management features
enable multiple end user applications as well. With the capacity to deliver data
in a clear, efficient and cost-effective manner, the Burstware(R) solution
creates a high-quality audio-visual experience for the end-user and enables
powerful business-to-business, business-to-customer and business-to-employee
communication. Burstware(R) also gives producers, aggregators and developers the
ability to reach new markets with virtually unlimited access to vast libraries
of content. With these various applications, Burstware's(R) network delivery
mechanism is ideally-suited for numerous industries including news,
entertainment, retail and advertising as well as local, state and federal
governments and agencies.
Strategy
We intend to be the leader in providing network software solutions,
intellectual property, and services for the delivery of multimedia content over
high-speed networks. To achieve these objectives, our strategy includes the
following key factors:
Leverage First-Mover Advantage to Expand Business Model
We believe that we have significant first-mover and time-to-market
advantages that will allow us to expand our product and service offerings in
areas such as hosting and applications development. We intend to partner with
Internet bandwidth providers such as Exodus and GTE to offer a high-quality,
cost-efficient hosting service across the large, peripheral infrastructure
currently being created through streaming media technology companies and global
alliances between Internet caching services including Akami, Sandpiper,
RealNetworks, Inktomi, Digital Island and iBeam.
Enhance Technology Platform
We continue to focus on developing new intellectual property and
patents for the delivery of multimedia content over networks. We expect to
release the next major version of Burstware(R), with significant feature
enhancements that enable our hosting effort. These features include support for
the Apple QuickTime Player for Windows, improved firewall support, enhancements
for low bit rate content, including extensible authentication. Shortly
thereafter, we anticipate release of Burstware(R) extensions supporting live
events. This will permit delivery of live events to Windows Media Player and
other industry-standard players with pausing and "rewinding" functionality. We
will also focus on expanding our CODEC-, platform- and player-neutrality
applications, including new, non-PC platforms as well as support for additional
CODECs, network appliances and set-top boxes. Development has begun on
additional Burstware(R) versions to offer new and improved functions and
features. We will also focus on continuing our CODEC, Platform and
Player-neutrality including new, non-PC platforms, additional CODECs, network
appliances and set-top boxes.
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Build Brand Aggressively
We intend to establish the Burstware(R) brand as the leading enabler of
reliable, high-quality audio-visual content delivery. We believe that building
brand awareness of our product suite is critical to attracting new customers as
well as retaining our current installed base. We will endeavor to increase our
brand recognition through a variety of marketing and promotional techniques,
including advertising, tradeshows, direct mail, and relationships with
professional associations. Our branding campaign will target the following
market segments across both business-to-business and business-to-consumer
applications: broadcasting and media, corporate, retail and education.
Strengthen Existing and Establish New Strategic Relationships
In 1998, we became a member of the IP Multicast Initiative Group to
fortify our strategic and licensing relationships in sales, marketing,
promotion, and technology. We are currently pursuing discussions or have
negotiations in process with value-added resellers, original equipment
manufacturers, and other technology companies including Internet broadband
providers and caching service companies. To date, we have entered into reseller
agreements with RMSI, Clover Corporation, (a subsidiary of Ameritech/SBC),
iStream TV and Datanext Ltd. We intend to leverage further these relationships
as our technology and end-user applications evolve in the near future.
Create Hosting Service
We have created a hosting service that enables our customers to store
their audio-video content on our Burstware servers for delivery to their
employees, customers or other end-users over broadband networks. Because
Burstware(R) has been demonstrated to do a superior job of delivering data
across the Internet, our strategy will be to host content for broadband
distribution to homes with high-speed, broadband access. According to Paul Kagan
Associates, there are currently, 1.9 million homes with high-speed access; in
2000 that number is expected to rise to 4.3 million homes and increase to over
30 million in the next 8 years.
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Burstware(R) Product Family
<TABLE>
Our suite of Burstware(R) software is summarized below:
<CAPTION>
------------------------------------------------ ---------------------------------------------------
Burstware Component Features
------------------------------------------------ ---------------------------------------------------
<S> <C>
Conductor: o Central management service
The Conductor manages the o Monitors all servers
distribution of player requests over o Centralized point of control for video
multiple servers, providing and audio on network
scalability, load balancing, and o Scalable deployment of servers
reliable failover o Add and Remove servers as needed
o Asynchronous
o No performance bottlenecks
o Reliable failover mechanism
o Load balancing
o Replicated conductors
o Audit trail logging
------------------------------------------------ ---------------------------------------------------
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------------------------------------------------ ---------------------------------------------------
Server: o Patented buffer management system
The server "bursts" media files to o Provides significant network
player memory or disk buffers in efficiencies and enhanced
Faster-Than-Real-Time(TM), tracking viewer experience
buffer levels and allocating o Faster-Than-Real-Time(TM)delivery
bandwidth accordingly. o Provides isolation from network problems
o Traffic shaping
o Limits bandwidth usage to the allocated
bandwidth
o Controls impact of video and audio on
the network
o Utilizes optimized connection acceptance
criteria for guaranteed
quality-of-service
o CODEC-neutral
o Replicated server for load balancing and
reliable failover
o Extensive logging of client session
statistics
------------------------------------------------ ---------------------------------------------------
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------------------------------------------------ ---------------------------------------------------
Player: Burst-Enabled(TM)Windows Media Player
Plays data out of the local buffer to o Burstware(R)Server delivers content to
the end user, shielding the end user Windows Media Player
from network disruptions. o Provides both disk-based and RAM-based
caching
o Supports player scripting and high
interactivity
o Existing Windows Media Player
applications can easily be
burst-enabled
o Works in a browser or in a standalone
application
o VCR-like functionality and controls
o CODECS supported include: MPEG-1,
MPEG-2, MP3, Windows Media
Audio, and Apple Quicktime ASF
Burstware(R) Java Based (JMF) Player
o Player scripting
o Works in a browser or in a standalone
application
o VCR-like functionality and controls
o Supports many industry standard CODECs
------------------------------------------------ ---------------------------------------------------
</TABLE>
Architecture
Burstware(R) employs a multi-tier, distributed architecture to provide a fully
scalable and fault-tolerant platform for high-quality multimedia delivery and
management. The architecture is designed to take advantage of the benefits, and
minimize the shortcomings, of using an unreliable, heterogeneous, IP-based
network--such as the Internet--for reliable multimedia delivery to a mass
audience.
Component Overview
The central management component of the architecture is the
Burstware(R) Conductor, which manages and monitors the Burstware(R) servers and
provides the point of contact for burst-enabled client applications, such as the
Windows Media Player.
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The Burstware(R) Server provides reliable media delivery to clients,
and uses flow optimization algorithms to maximize overall bandwidth throughput,
while ensuring that each client is allocated sufficient bandwidth for
uninterrupted playback of video.
Burst-enabled client applications provide an intelligently managed
client-side cache, and co-operate with the conductor and server to provide the
playback of video and audio exactly as the file was encoded, with no jitter,
dropped frames, or signal degradation.
Media Delivery Procedure
When a Burst-Enabled(TM) client requests a media file, it contacts a
conductor with a request for service. The conductor intelligently routes the
client to the server that offers the best point of service for the request. The
client then establishes a two-way reliable TCP/IP connection to the server, and
delivery and playback of the media file begins.
The client continuously provides feedback to the server about how fast
the media file is being consumed, the state of the client buffer, and other
information. This data from all clients is fed into the server's flow
optimization algorithm described above, and the server uses the flow algorithm
to schedule delivery of data to clients at the rate that maximizes use of
network resources and minimizes the likelihood of buffer starvation. Flow rates
are continuously adjusted as network conditions and server loads change.
Advantages
Burstware(R)'s multi-tiered architecture offers two key advantages over
the traditional two-tier streaming architecture: enterprise-class scalability,
and mission-critical fault tolerance.
Scalability
The Burstware(R) system is highly scalable, and can grow from one
server to hundreds of servers in a manner that is completely transparent to
clients. Since only the conductors are aware of the location and number of
servers, new servers can be added and existing ones moved or removed without any
updates to client applications. One conductor can support and manage hundreds of
servers. The conductor continually monitors server loads and routes incoming
client requests to the least loaded eligible server, providing intelligent load
balancing that goes far beyond such simple schemes as round-robin routing.
Because client interaction with the conductor is limited to the initial
request for service, a single conductor domain can easily scale to support tens
of thousands of concurrent client connections. Additionally scalability can be
achieved by employing multiple conductor domains, which can be integrated with
third-party IP routing solutions.
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Fault Tolerance
Burstware(R) achieves complete fault-tolerance, including no single
point of failure, by fully replicating all components in the system. The
conductor is replicated in kind, and burst-enabled clients can contact either
conductor for service. Additionally, each server is automatically configured to
provide failover protection for all other servers containing the same media
content. Servers and conductors can be added and subtracted at runtime without
shutting down other system components.
If a server fails or becomes unavailable for any reason, including the
failure of a network link from the client to the server, all clients that have
lost contact with the server are automatically routed to other servers.
Burstware(R) establishes a new connection to an available server for each
client, and the new server picks up multimedia delivery exactly where the failed
server left off. Since the client-side buffer provides the ability for clients
to disconnect and re-connect without impacting the viewing experience, the
viewer is unaware that any failure has occurred.
Technology
The design mission for Burstware(R) technology is to provide the
premier platform for the management and delivery of digital video and audio
content. Burst.com has recognized the needs of the marketplace for a product
that provides quality, reliability, and manageability far beyond what existing
streaming solutions can deliver.
Burstware(R)'s design takes advantage of emerging trends in technology
such as available client-side storage and network bandwidth to provide a
forward-thinking, flexible, and highly effective approach to multimedia delivery
and management. Our engineering team has extensive experience in network
protocols, distributed multi-tiered architectures, digital video, real-time
control systems, and optimization algorithms. As a result, we believe
Burstware(R) is well equipped to address the escalating demand for multimedia
applications.
Architected for Industry Trends
By taking the caching model all the way to the client, Burstware(R) is
the first adopter in a new paradigm for multimedia delivery, and is uniquely
positioned to take advantage of the trends toward broadband networks and
inexpensive client storage. Designed to optimize expensive resources such as
bandwidth and server-side hardware by utilizing freely available client-side
storage resources, Burstware(R) provides an advanced network management and
optimization platform for audio and video content delivery.
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Sophisticated Scheduling of Data Delivery
[GRAPHIC OMITTED]
Central to the Burstware(R) technology are the scheduling algorithms in
the Burstware(R) Server, which schedule bursts of data of varying size and time
intervals to each client. The Burstware(R) Scheduler employs proprietary
algorithms to guarantee each client quality of service while optimizing the use
of bandwidth and other network resources.
The Burstware(R) Server Scheduling Engine consists of a Call Admission
Control System, or CAC, a Flow Optimizer and a Flow Engine. The CAC ensures that
a new client is accepted onto the network only if its admission will not
compromise quality of service to existing clients or to the new client. It is
worth noting that a configurable "burst margin" of bandwidth is held in reserve
by the CAC for use by the Flow Optimizer as described below. Clients that are
rejected by one Burstware(R) Server are transparently routed to another, making
the end user unaware that one of the Burstware(R) Servers has reached its
maximum utilization.
The Flow Optimizer calculates the amount of data to deliver, or the
flow rate, to each client in order to maximize Burstware(R) Server throughput
while ensuring that each client receives sufficient data flow for uninterrupted,
continuous playback. The burst margin that is held in reserve by the CAC
algorithm is available for allocation by the Flow Optimizer, which forces
delivery of content in faster-than-real-time even under heavy network load
scenarios. Overall, this process exerts upward pressure on client-side buffer
levels, ensuring a jitter-free viewing experience.
The Flow Engine is a low level sub-system responsible for achieving the
session flow rates imposed by the Flow Optimizer. It advances through disk or
cache resident content files and paces the transmission of the video data as
bursts over the outgoing transmission control protocol connections linking the
server to each player. Incoming status notifications from each player provide
any needed feedback on actual flow rates and downstream buffer conditions.
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These optimization algorithms enable a single Burstware(R) Server to
simultaneously deliver files ranging the full spectrum of encoded bit rates,
from ASF files designed for 28.8 modems to MPEG-2 files encoded at 8 Mbps or
more, to a wide variety of clients with radically different connectivity and
other capabilities, while maintaining the highest quality viewing experience for
each client.
Application-Level Quality of Service in Unpredictable Networks
One of the challenges of IP-based video delivery systems is to provide
a smooth, uninterrupted video experience in the face of the variable bandwidth
capacities and network latencies of a packet-switched network. Traditional
streaming solutions, by delivering data just in time for display to the client,
are highly sensitive to moment-to-moment variations in the network capacities at
each link between the client and server. Whenever bandwidth capacities fall
below the encoding rate of the video, even briefly, video quality will suffer.
As described in the above section, Burstware(R) is able to provide a
high quality of service by employing a sophisticated client cache-management
scheme and delivering video data faster-than-real-time consumption. This
application-level quality of service is far less expensive than network-layer
quality of service, or QoS, schemes, which require that every router between the
client and server be able to guarantee that bandwidth and latency fall within a
narrow, specified range. Application-level QoS has the additional advantage of
working across network segments that are not capable of providing network-layer
QoS.
Application-level QoS also enables the use of higher-quality video
encodings across channels with variable bandwidth capacity. Real-time streaming
architecture requires that videos be encoded at a rate less than the minimum
bandwidth between the client and the server. Burstware(R), on the other hand, is
resilient to the average bandwidth between client and server, allowing delivery
of higher bit rate encodings.
Network Management Capabilities
A significant barrier to widespread adoption of streaming technologies
has been reluctance on the part of network managers to subject their networks to
the unpredictable and demanding requirements of traditional streaming solutions.
With Burstware(R), bandwidth use can be controlled at various levels, including
the entire Burstware domain, an individual Burstware(R) Server or locally on the
client side. Bandwidth limits can be adjusted dynamically at runtime, allowing
sophisticated traffic shaping over time and space. Content-specific caching and
routing controls also provide users with the flexibility needed for today's
applications.
Client configuration parameters include those for network optimization
and control, content protection, and player behavior. These parameters can be
centralized in a web page or customized by individual clients, giving
application developers a high degree of control over their video-enabled
applications.
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Open Architecture
One of the keys to adoption of new technologies is a high degree of
interoperability with existing hardware and software. Burstware(R) has been
designed from the ground up to have open architecture at every product level,
allowing easy integration with a wide variety of third-party solutions.
The ability to interoperate with other applications is accomplished at
several different levels. A wide variety of industry-standard players, as well
as other applications, can be Burst-enabled using our Player Software
Development Kit. Burst-enabled players retain all of their existing
functionality, thus facilitating integration of an existing Windows Media Player
web application, for example, to the Burstware(R) delivery system. Integration
with third-party automated billing and report generation tools is accomplished
with the Burstware(R) Log Toolkit, which provides both an XML-based and an
ODBC-based data transfer capability. We also believe that external cache
management systems such as those offered by Akamai and Inktomi can integrate
with Burstware(R) through our directory-based media management system.
Portability is another important aspect of an open architecture.
Burstware(R) is a software-only solution and the Burstware Servers and
Conductors are written almost entirely in Java, allowing easy porting as new
hardware and OS platforms become available. Additionally, interprocess
communication is 100% IP-based and runs on nearly all modern networks, both
wired and wireless. This highly portable implementation allows Burstware to take
immediate advantage of new advances in hardware such as multiprocessor,
multi-NIC, SMP Servers, advanced storage systems and wireless technologies.
Engineering and Product Development
We believe that our future success will depend in large part on our
ability to enhance Burstware(R), develop new products, maintain technological
leadership and satisfy an evolving range of customer requirements for the
delivery of audio and video. Our product development organization is responsible
for product architecture, core technology and functionality, product testing,
user interface development and expanding Burstware(R) to operate with leading
hardware platforms, operating systems, and network and communication protocols.
This organization is also responsible for new product development.
During the past three years, we have made substantial investments in
product development and related activities ($189,700 in 1997, $800,600 in 1998
and $4,076,700 in 1999). The current version of Burstware(R) has been developed
primarily by our internal development staff and, in some instances, with the
assistance of external consultants. In March 1998, we released a test version of
Burstware(R), followed by subsequent modifications during the year. We released
our first commercial Burstware(R) product suite in February 1999. This release
is a client-server software product that manages and optimizes the delivery of
high quality video and audio across broadband networks. The servers become
intelligent network managers, efficiently allocating bandwidth and scheduling
burst delivery of multimedia content among multiple users. Microsoft
Corporation's Windows NT/95/98 operating systems
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are supported on client machines, with Windows NT and Sun Microsystems' Solaris
operating systems supported on servers in client-server networks. In August
1999, we released support for the Linux platform in our Version 1.1.3. Also in
August 1999, we acquired Timeshift-TV, Inc. in a stock-only transaction from
Richard Lang, our Chairman and CEO, Earl Mincer and Eric Walters, who are
employees of ours. Timeshift-TV holds assets, including intellectual property,
in the area of time-shifted real-time broadcasting, which we plan to integrate
into our advanced video and audio delivery solutions. We also plan to license
the Timeshift-TV intellectual property to other parties for various
applications. We recorded $1,333,000 in expense for in-process research and
development costs purchased in connection with this acquisition In November
1999, we released the capability to Burst-Enable(TM) the Windows Media Player in
Version 1.2.
As of March 31, 2000, our product development organization consisted of
24 individuals. We expect to devote substantial resources to our product
development activities, including the continued support of existing and emerging
hardware platforms, operating systems, and networking and communication
protocols.
The Burstware(R) Partners Program: Building A Solutions-Oriented Platform
Our Burstware(R) Partners Program is designed to create a total systems
solution with Burstware(R). The Program forms a network of partners to provide a
total systems solution for various vertical application categories. Partners
offer Burstware(R)-compatible solutions around their products: encoding, asset
management, cataloguing, front-end development, routing/switching, storage
solutions, systems integration, set-top implementation, and other specialty
applications. Following are some of the partners with whom we are currently
working.
Minerva Systems, Inc. is a provider of carrier quality video networking
platforms and services that enable the delivery of rich-media content over the
broadband Internet and intranets. The company combines its unique expertise in
video processing and media authoring to scale Internet Protocol, or IP, networks
into robust rich-media delivery systems. Minerva delivers end-to-end solutions
for a wide range of applications, such as distance learning, corporate training,
business-to-business e-commerce, telemedicine, video conferencing and digital
television.
Virage provides video and image search products. The Virage VideoLogger
software sets the standard for real-time indexing and distribution of video
across the Internet or corporate intranets and has been named the market winner
by industry analyst group Frost & Sullivan. Virage customers include ABC News,
AltaVista, BBC, CBS News, CNN, CNN Interactive, Compaq, Federal Bureau of
Investigations, General Motors, Harvard Business School, Lockheed Martin, Lucent
Technologies, NASA, NBC News, Reuters and several classified U.S. government
agencies. These companies rely on the Virage VideoLogger as the critical
foundation technology for more effectively deploying video within their
operations.
InnovaCom, Inc. is a Silicon Valley manufacturer of video compression
based transmission and DVD PreMastering Systems. The company's MPEG-2 based
product line
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targets the digital television, communications and DVD production marketplaces.
Digital OutPost, based in Carlsbad California, provides digital video
compression and production services. Digital OutPost's services include complete
multimedia design and production for DVD Video, DVD-ROM, CD-ROM, Internet and
Broadband channels. The Digital OutPost team is a pioneer in the MPEG video
compression field. Assembled in 1991 by GTE, Digital OutPost's principals were
integral in developing new interactive media technologies from interactive
television to CD-ROM video games. Digital OutPost currently serves clientele in
the following markets: digital video compression technologies, video on demand,
DVD, CD-ROM, broadband and Internet video delivery and digital video production.
Interactive Video Technologies, based in Los Angeles, provides video
application outsourcing for major corporations and specializes in developing and
managing interactive video content to support corporate strategic objectives.
The company serves clients in major vertical markets including finance,
technology, healthcare, manufacturing, entertainment, and education.
We are committed to offering program participants co-marketing and
joint sales opportunities, as well as input in future product directions and
priority technical and applications support. Partners will receive certification
of Burstware(R) compatibility and opportunities to co-sponsor events and trade
show booths, and will benefit from IVT public relations.
Sales and Marketing
Potential customers for our products include any business or other
end-user that desires to send, receive or effectively manage high-quality video
and audio content over networks. We are focusing our sales efforts in three
areas: direct sales, value-added resellers, or VARs, and other distributors, and
strategic partnerships.
Our direct sales force is organized into two regions, east and west,
including six sales offices. We currently have one general manager, five account
executives and five sales engineers in the field and will be continuing to
expand the sales force and add additional offices. The primary goals of direct
sales are to establish significant reference accounts in each key application
and vertical market segment, focusing on enterprise-wide applications, to
support existing VARs in their sales efforts and to recruit new VARs.
International sales will focus on Europe, the Pacific Rim, and
Canada/Latin America. We have retained the services of EMS, a major sales
organization located in the UK, to act as an agent for European sales.
Burstware(R) products will be marketed to businesses and end-users
through agreements with major resellers, integrators and service providers,
either directly or by incorporating into or bundling with third-party products
or services. Targeted markets include corporate communication, education,
advertising, entertainment and broadcasting. We are also engaged in developing
relationships with strategic partners, including application providers, hardware
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and software manufacturers who will distribute our products as part of their
offerings to end-users.
We do not believe that there is any significant seasonality that would
affect sales of our products or services. As of March 31, 2000, there was no
backlog of unfilled orders for our products.
Competition
We compete in markets that are rapidly evolving and intensely
competitive. We have experienced and expect to continue to experience increasing
competition from current and potential competitors, many of which have
significantly greater financial, technical, marketing and other resources.
In addition to us, there are four significant media delivery companies
that compete in similar market segments. The Burstware(R) product is priced
similarly to products offered by our major competitors, but competition is based
primarily on features and functionality. All competitors use real-time streaming
technology as opposed to our Faster-Than-Real-Time(TM) solution. RealNetworks
and Microsoft have concentrated on the consumer markets, while Tektronix and
Cisco are primarily focusing on the business-to-business markets. RealNetworks
and Microsoft are moving into the business-to-business markets with large
clients such as 3Com and Northrup Grumman. Tektronix and Cisco address the
problem of network management, although in a limited fashion. Currently, there
is limited competition in the broadband arena. Because of our patent portfolio,
we are able to offer unique network efficiency management, scalability and
reliability features and functionality, which combine to provide a competitive
advantage. While we can deliver multimedia content in a real-time mode, our
architecture is ideally suited to capitalize on the growth in broadband networks
and inexpensive storage.
RealNetworks
RealSystem G2 is a fully integrated encoder, server, splitter/cache and
player system. RealNetworks is dominant in the Internet market and the low
bandwidth applications, which have primarily centered around news and
entertainment markets. With their dominance in the consumer market and brand
awareness, they are gaining ground in the business sector with clients like
3Com, Boeing and General Electric. We believe that RealNetworks' use of
real-time streaming technology, its lack of network management and its
CODEC-dependence will give us a competitive advantage in the
business-to-business market. To effectively deploy RealNetworks for a broadband
application, the software must be bundled with Digital BitCasting, and Inktomi
(or similar caching product.).
Windows Media
Windows Media Technologies 4.0 provides an end-to-end solution for
streaming multimedia, from content authoring to delivery to playback. Microsoft
is building brand strength by bundling Windows Media with other Microsoft
Products. Windows Media's
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presence in the business-to-business market is currently not significant.
Windows Media Technologies is targeting the streaming audio segment by being the
only streaming media platform to feature FM-stereo quality over a modem and
improved piracy protection. Like RealNetworks, Microsoft is focusing on the
consumer market by attracting content providers rather than developing their
media delivery system. Windows Media is relying on streaming technology to
deliver video and audio and offers no network management solution. Consumers
with the Windows Media Player (a component of Windows Media Technologies) can
use the Burst-Enabled(TM) Windows Media Player to increase the content quality,
reliability, and the efficiency of their network.
Tektronix
Tektronix has two product lines, Profile video servers and Grass Valley
products that provide communication solutions that are used to distribute and
store broadcast and post-production information. Tektronix is focusing primarily
on Video-Centric LAN/WAN Networking and Broadcast Production Networking.
Tektronix is concentrating on the business-to-business markets primarily through
value added resellers, direct sales, service providers and Original Equipment
Manufacturers. Tektronix does perform minimal network management, but uses
streaming technology.
IP/TV
Cisco Systems, Inc.'s IP/TV claims its software offers high-quality
video broadcasting and video on demand services, industry-leading management
capabilities, built-in scalability, network-friendly technologies such as IP
Multicast, and an easy-to-use viewer interface. Cisco's IP/TV servers attempt to
provide scalable, turnkey bandwidth-efficient solutions. Their hardware
platforms are pre-configured with the IP/TV software, creating a complete
network video solution. Cisco's IP/TV is targeting the business-to-business
markets. IP/TV is combining streaming technology with its Content Manager to
balance loads and to track specific viewing and management functions. In
addition to IP/TV, Cisco recently announced that it had agreed to acquire
SightPath, Inc., a company that provides software permitting end-users to more
easily broadcast live events over the Internet and centrally manage engineering
designs or video for diagnosing medical conditions.
Others
There are other companies who offer streaming media solutions for the
Internet and corporate intranets. Many claim to have streaming media solutions
for corporate training, distance education, health care, and entertainment. Some
companies offer media servers with the ability to stream content to up to 500
desktops at one time. Others offer content management and media players.
Burstware(R)'s potential competitors offer no or limited network management.
This is a rapidly evolving market with no barriers to new entrants. Many
competitors, current and potential, may have access to more resources than are
available to us.
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Patents and Trademarks
Our business is highly dependent on our patent portfolio. We have eight
U.S. patents. The early patents describe a broad class of systems that allow a
user to view, edit, store video information, and send and receive the data
associated with that video information over networks in less time than is
normally required to view or listen to the content. The later patents describe
particular distribution methods designed to deliver video information to remote
systems.
Our core patents describe systems that are able to receive a high
quality video signal, store received information locally, manipulate that
information with editing, processing, compression and decompression tools,
display the signal for viewing, and re-send the manipulated information on to
other such machine systems in faster-than-real-time. Our current patents will
expire on various dates in 2007 through 2016.
We have one European patent that incorporates the subject matter of the
first six U.S. patents, two Australian patents, one South Korean patent, and one
Indian patent. We have filed for a number of additional domestic and
international patents.
In addition to protecting the Burstware(R) product offerings, our
patents have broader application as various market applications appear, and our
potential to license our intellectual property expands into additional vertical
market segments.
We view our portfolio as a critical component in gaining relationships
with strategic partners, strongly positioning our products' competitive
advantage. Potential licensees include companies such as server and client
manufacturers, bandwidth providers, content aggregators, copyright owners, and
other hardware manufacturers.
We have registered the trademarks "INSTANT VIDEO(R)", "BURSTWARE(R)"
and "BURSTAID(R)" in the United States, as well as in certain countries in
Europe and Asia.
Employees
As of the date of this prospectus, we have 75 full-time employees, of
which 24 work in product development, 33 are in sales, marketing and business
development and 18 work in administration, finance and operations. We have never
experienced a work stoppage and no personnel are represented under collective
bargaining agreements. We consider our relations with employees to be good.
Facilities
We presently occupy 12,900 square feet of office space at 500 Sansome
Street, Suite 503, San Francisco, California, under a lease that expires at the
end of January 2002. The lease provides for rent of $34,300 per month, fully
serviced. We rent a total of approximately 1,200 square feet of office space for
our seven regional sales offices, with leases running from month-to-month to
August 31, 2000. We believe that our facilities are suitable and adequate for
our needs.
Legal Proceedings
We are not aware of any material legal proceedings pending or
threatened against us.
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MANAGEMENT
The following table sets forth certain information with respect to our
executive officers, directors and key employees:
Name Age Position
- ---- --- --------
Richard Lang..................... 46 Chairman, President, Chief Executive
Officer, and Director
Thomas Koshy..................... 62 Chief Operating Officer
Edward H. Davis.................. 47 General Counsel, Vice President of
Strategic Alliances and Secretary
Richard Jones.................... 52 Chief Financial Officer
Kyle Faulkner.................... 43 Chief Technology Officer
David Egan 42 Vice President of Sales
June White....................... 60 Vice President of Engineering
Michael Moskowitz................ 38 Vice President of Business Development
Suzanne Lentz.................... 31 Director of Marketing
O.J. Kilkenny.................... 51 Director
John J. Micek III (1)(2)......... 47 Director
Brian Murphy..................... 44 Director
Joseph Barletta (1)(2)........... 64 Director
Douglas Glen..................... 53 Director
(1) Member of the compensation committee
(2) Member of the audit committee
Richard Lang has served as our Chairman of the Board, Chief Executive
Officer and President since September 1997. From January 31, 1997 through August
1997, Mr. Lang served as one of our directors. Mr. Lang served as our Chairman
of the Board and Treasurer until January 31, 1997. He had served as Chairman of
the Board, CEO and Treasurer from December 1993 to September 1995 and as a
Director since August 1992. He has been a Director of our subsidiary, Explore
Technology, Inc., since February 1990, and served as its President from February
1990 to August 1992. Mr. Lang has presided over the development of our patent
portfolio. He is the inventor of record for the bulk of our Intellectual
Property. Mr. Lang was also a co-founder of Go-Video, Inc., Scottsdale, Arizona
and co-inventor of Go-Video's patented dual-deck VCRs. Mr. Lang received his
A.A. degree from Scottsdale College.
Thomas Koshy has served as our Chief Operating Officer since September
1999 and brings 25 years of wide ranging operational and program management
experience in the areas of strategic planning, network capacity planning,
engineering, software development, technical training, and large engineering and
construction projects. For the five-year period prior to joining us, Mr. Koshy
was employed by MCI Telecommunications, where he was involved in various areas
of that company's backbone network and switching, and with the network
administration of local access. Mr. Koshy has successfully managed the
engineering and implementation of projects ranging in size from $50,000 to
$250,000, and has developed
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organizations to support optimum process flow. Mr. Koshy has a Bachelors degree
in Engineering, and Masters degrees in Business Administration and
Telecommunications Management.
Edward H.Davis currently serves as General Counsel, Secretary and Vice
President of Strategic Alliances and has been with us since August 1998. Mr.
Davis was elected as our Secretary in October 1999. From 1987 to July 1998 Mr.
Davis was Corporate Counsel for Pacific Telesis Group, or PTG. As Corporate
Counsel he advised PTG consolidated companies, including Pacific Bell, Nevada
Bell, Tele-TV, Pacific Bell Video Services, Pacific Bell Information Services,
and Pacific Bell Directory. He has significant experience in mergers and
acquisitions, taxation, intellectual property, and criminal prosecution. He
holds a Bachelor of Arts Degree in History and Political Science from Gonzaga
University; a Juris Doctorate Degree from the University of San Francisco, and a
post graduate Masters of Laws in Taxation from Golden Gate University.
Richard Jones became our Chief Financial Officer in September 1999
bringing over 25 years experience in financial and administrative management,
primarily with emerging growth technology companies. He has had extensive
experience with both public and private/pre-IPO concerns, including
establishment of strong accounting systems, controls and strategic plans in
order to facilitate successful growth. From July 1993 to June 1999 Mr. Jones
served as Vice President-Finance & Administration and Chief Financial Officer at
Sherpa Corporation, a $40 million enterprise software company recently acquired
by Inso Corporation. Prior to Sherpa, Mr. Jones was Vice President Finance &
Chief Financial Officer of Quest Technologies, a start-up medical device company
in Sunnyvale, for three years. During the six years prior to Quest, Mr. Jones
acquired IPO, acquisition and SEC reporting experience as Corporate Controller
of Scientific Micro Systems, a high growth computer systems manufacturer located
in Mountain View. Mr. Jones is a CPA and practiced public accounting with
Coopers & LyBrand for four years. He holds a Bachelor of Science degree in
Accounting from the University of Illinois, Champaign-Urbana.
Kyle Faulkner currently serves as Chief Technology Officer and has been
with us since November 1997. Mr. Faulkner has over 16 years experience in
client/server software development, and four years experience in hardware
development. Mr. Faulkner has been a key contributor on more than 20
commercially successful products, and was on the founding teams at Sybase and
Forte Software. From 1995 to November 1997, Mr. Faulkner was an independent
contractor for Network Equipment Technologies, responsible for that company's
core system services for its next generation ATM network switch. Mr. Faulkner
received a B.A. degree in Electrical Engineering and Applied Physics from Case
Western University.
David Egan has been our Vice President of Sales since December 1999.
Mr. Egan served as Vice President, Sales of Lincoln Software from February 1999
until November 1999. From January 1998 to January 1999, he was Vice President,
Sales of ZNYX Corporation, a network Ethernet LAN adapter and software company.
From January 1996 until December 1998, Mr. Egan served as President and Chief
Executive Officer of DGE Solutions, an e-commerce hosting company. From July
1993 until December 1995, Mr. Egan was Vice
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President - Open Systems Sales & Marketing for Hitachi Data Systems. He received
his B.A. in Economics from Stanford University.
June White currently serves as Vice President of Engineering and has
been with us since October 1998. Ms. White has managed all aspects of software
development for over 20 years, emphasizing the establishment of processes that
are required to support a product's life cycle. She has been a key contributor
to the launch of many new products including Forte's Application Development
Environment, ROLM's Phonemail, and Control Data's Operating Systems. Ms. White
has built QA and Release Management organizations in order to ship high quality
products. Ms. White received her B.A. degree in Mathematics from Harvard
University.
Michael Moskowitz currently serves as Vice President of Business
Development and has been with us since July 1999. Dr. Moskowitz has focused on
the Business and Technical aspects of transporting video and static images
across data networks for over 10 years. Prior to joining us, Dr. Moskowitz had
served as a Senior Manager at Silicon Graphics, Inc., or SGI, charged with
creating new business opportunities and product directions for their MPEG-2 and
streaming media technologies. At SGI, one of Dr. Moskowitz' initial
responsibilities centered around the VOD trials at TimeWarner-Orlando, and
Cablevision-Long Island. Prior to SGI, Dr. Moskowitz worked on new technologies
for transmitting medical images at the University of California, San Francisco.
He holds a Ph.D. in Electrical Engineering from Dartmouth College, a Masters
Degree from University of Massachusetts, Amherst, and a Bachelor of Science
degree in Physics from State University of New York, Binghamton.
Suzanne Lentz currently serves as Director of Marketing and has been
with us since September 1998. Ms. Lentz has extensive marketing and sales
experience in emerging and high-tech markets. She was one of the founding
employees of AMI's Business Consulting Group in Hong Kong. Ms. Lentz was also
the OEM Sales Manager selling and marketing to a number of semiconductor and
laser companies including Applied Materials, Coherent Laser, LAM and Silicon
Valley Group. She holds a Bachelor of Science degree in Mechanical Management
Engineering from the University of Pacific.
O. J. Kilkenny has been one of our directors since August 1992. Mr.
Kilkenny is Senior Partner of O. J. Kilkenny & Co., Chartered Accountants,
specializing in the entertainment industry with offices in London, England and
Dublin, Ireland. With his partners, he has developed the accounting practice
into one of the major accounting practices in England, specializing in the
entertainment industry. Mr. Kilkenny holds directorships in a number of
companies in the media and entertainment sector as well as positions with
non-entertainment businesses. He is also an investor in Ireland's first
independent television channel and Ardmore Studios, the National Film Studios of
Ireland. Mr. Kilkenny received a Bachelors Degree in Commerce from Dublin
University, and became a fellow of the Institute of Chartered Accountants in
Ireland, England and Wales. Mr. Kilkenny became one of our directors as a
representative of Draysec Finance Limited, one of our principal shareholders.
John J. Micek III has been one of our directors since April 1990,
Secretary and Treasurer since January 1994, and served as our President from
April 1990 to August 1992. Mr. Micek currently serves as President of Universal
Warranty Insurance located in Palo Alto,
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California, and Omaha, Nebraska. From 1994 to 1997, Mr. Micek served as general
counsel for U.S. Electricar in San Francisco, California. From January 1989 to
March 1994, Mr. Micek practiced law in Palo Alto, California. He has served as a
Director of Armanino Foods of Distinction, Inc., a publicly-held specialty food
manufacturer in Hayward, California, since February 1988. He also serves as a
Director of Universal Group, Inc., a Midwest group of insurance companies, and
Cole Publishing Company in northern California. He received a Bachelor of Arts
Degree in History from the University of Santa Clara and a Juris Doctorate from
the University of San Francisco School of Law.
Brian Murphy has been one of our directors since January 1997. He is a
partner in O.J. Kilkenny & Company, Chartered Accountants specializing in the
entertainment industry with offices in London, England and Dublin, Ireland. The
firm provides a wide range of services to their clients, consisting of major
international entertainment artists, covering all areas of financial management
and audit and accountancy advise. Mr. Murphy is involved at the executive level
with a number of companies in the media and entertainment business, particularly
in the field of digital post-production, film and television. Mr. Murphy
received a Bachelors Degree in Commerce from Dublin University, and became a
fellow of the Institute of Chartered Accountants in Ireland, England and Wales.
Mr. Murphy become one of our directors as representative of Draysec Finance
Limited, one of our principal stockholders.
Joseph Barletta has been one of our directors since September 1998. He
is of counsel with the firm Seyfarth, Shaw, Fairweather, and Geraldson in San
Francisco. He has served as the CEO or COO of six major companies in the media
industry including TV Guide magazine, Thomson Newspapers, and the San Francisco
Newspaper Agency (Chronicle and Examiner), and he currently sits on the boards
of several companies. Mr. Barletta received his Juris Doctor Degree from
Duquensne University and Bachelor of Arts Degree from Marietta College.
Douglas Glen has been a director since October 1999. Mr. Glen is
general partner of Pro Ven Private Equity's Global Rights Fund, a $250 million
investment fund focused on under-exploited brands, copyrights and media
properties. Previously, Mr. Glen was senior vice president, chief strategy
officer of Mattel, Inc. Before joining Mattel, Mr. Glen was group vice
president, business development and strategic planning for Sega of America.
Prior to joining Sega, Mr. Glen was general manager of Lucasfilm Games, the
consumer software division of George Lucas' entertainment company. Mr. Glen has
a Bachelors Degree in Business from Massachusetts Institute of Technology and a
Ph.D. from Somerset University.
Classified Board and Term of Offices
Our bylaws provide for a board of directors consisting of
seven members. There are currently six directors on the board. All directors
hold office until the next annual meeting. No family relationships exist among
our officers and directors. In the event our common stock becomes listed on the
Nasdaq National Market (we have applied to have our common stock listed on the
Nasdaq SmallCap Market), our board will be divided into three classes of
directors and the members of each class would hold their office for three-year
staggered terms. Our certificate of incorporation does not provide for
cumulative voting; therefore, our stockholders representing a majority of the
shares of common stock outstanding will be able to
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elect all of the directors. The classification of the board of directors, if
effected as indicated above, and the lack of cumulative voting will make it more
difficult for our existing stockholders to replace the board of directors or for
another party to obtain control of our company by replacing the board of
directors. Since the board of directors has the power to retain and discharge
our officers, these provisions could also make it more difficult for existing
stockholders or another party to effect a change in our management.
Board Committees
We have established an audit committee and a compensation committee.
The audit committee reviews our internal accounting procedures and considers and
reports to the board of directors with respect to other auditing and accounting
matters, including the selection of our independent auditors, the scope of
annual audits, the fees to be paid to our independent auditors and the
performance of our independent auditors. The audit committee currently consists
of Messrs. Micek and Barletta. The compensation committee reviews and recommends
to the board of directors the salaries, benefits and stock option grants for all
employees, consultants, directors and other individuals compensated by us. The
compensation committee also administers our stock option and benefit plans. The
compensation committee currently consists of Messrs. Micek and Barletta.
Director Compensation
Our directors do not receive any compensation for their services. Each
non-employee director is eligible to participate in our stock option plans.
Executive Compensation
Summary of compensation. The following table sets forth all
compensation earned or paid for services rendered to us in all capacities by our
Chief Executive Officer and by our other most highly compensated executive
officer who earned more than $100,000 in salary and bonus for the fiscal year
ended December 31, 1999. These officers are referred to collectively in this
prospectus as the named executive officers.
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<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
- ------------------------- ----------------------------------- --------------------------------------------------------
Annual Compensation Long-Term Compensation
- ------------------------- --------------------------------------------------------------- ----------------------------
- ------------------------- --------------------------------------------------------------- ----------------------------
Name and Principal Year Salary Bonus Securities Underlying All Other
------------------ ---- ------ ----- ---------------------- ---------
Position Options (#) Compensation($)
-------- ----------- ---------------
- ------------------------- ------- ------------ -------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Richard Lang, Chairman 1999 $240,000 $ -- -- --
of the Board and Chief 1998 170,000 -- 1,011,000 --
Executive Officer(1) 1997 32,000 -- 27,167 --
- ------------------------- ------- ------------ -------------- --------------------------- ----------------------------
Kyle Faulkner, Chief 1999 206,583 $10,000 -- --
Technology Officer 1998 25,000 -- 50,000 283,940(1)
1997 -- -- 392,000 6,720(1)
- ------------------------- ------- ------------ -------------- --------------------------- ----------------------------
Thomas Koshy, Chief 1999 142,000 -- -- --
Operating Officer 1998 -- -- 285,000 --
1997 -- -- 15,000 --
- ------------------------- ------- ------------ -------------- --------------------------- ----------------------------
Edward Davis, General 1999 159,375 -- -- --
Counsel, Vice President 1998 56,250 -- 150,000 --
and Secretary 1997 -- -- -- --
- ------------------------- ------- ------------ -------------- --------------------------- ----------------------------
David Morgenstein, 1999 135,000 -- -- --
former Chief Operating 1998 72,500 -- 320,000 --
Officer 1997 60,208 -- 122,292 --
- ------------------------- ------- ------------ -------------- --------------------------- ----------------------------
<FN>
(1) Represents payments made to Mr. Faulkner as a contractor prior to employment with the company.
</FN>
</TABLE>
Option grants. The following table sets forth information with respect
to stock options granted during 1999 to the executive officers named in the
summary compensation table. In accordance with the rules of the Securities and
Exchange Commission, also shown below is the potential realizable value over the
term of the option based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. We assume that:
o the fair market value of our common stock on the date of grant
appreciates at the indicated annual rate compounded annually
for the entire term of the option; and
o the option is exercised and sold on the last day of its term
for the appreciated stock price.
These amounts are based on assumed rates of appreciation and do not
represent our estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of our common
stock.
54
<PAGE>
<TABLE>
Option Grants in Last Fiscal Year
Individual Grants(1)
<CAPTION>
Potential Realizable Value at
Number of % of Total Assumed Rates of Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term($)
Options Employees in Exercise Expiration --------------
Name Granted(#)(1) 1999(%)(2) Price($) Date 5% 10%
- ---- ------------- ---------- -------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Richard Lang -- -- -- -- -- --
Thomas Koshy 76,000 5.84% $6.63 04/04 $139,213 $307,624
200,000 15.36% $6.25 08/04 $345,352 $763,138
Kyle Faulkner 50,000 3.84% $7.125 11/04 $ 98,425 $217,494
Edward Davis -- -- -- -- -- --
David Morgenstein -- -- -- -- -- --
<FN>
(1) All options were granted under our 1999 Stock Option Plan.
(2) Based on an aggregate of 1,302,000 options granted to employees, officers, directors and consultants in
fiscal 1999.
</FN>
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
<TABLE>
The following table sets forth information concerning option exercises
and the aggregate value of unexercised options for the year ended December 31,
1999, held by each executive officer named in the summary compensation table
above. None of these officers exercised any stock options in 1999.
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the Money
Unexercised Options at Options at
Shares December 31, 1999 December 31, 1999(1)
Acquired on Value ----------------- --------------------
Name Exercise(#) realized ($) Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($)
- ---- ----------- ------------ -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard Lang -- -- 1,060,417 321,750 $6,940,815 $1,850,063
Kyle Faulkner -- -- 159,708 282,292 $1,940,815 $1,445,707
Thomas Koshy -- -- 76,000 224,000 $ 303,600 $ 647,680
Edward Davis -- -- 90,600 59,400 $ 552,089 $ 361,966
David Morgenstein -- -- 337,892 104,400 $2,249,109 $ 600,300
<FN>
(1) The value realized on exercised options and the value of
unexercised in-the-money options at December 31, 1999 is based on a value of
$9.25 per share, the closing bid price of our common stock at December 31, 1999,
minus the per share exercise price, multiplied by the number of shares
underlying the options.
</FN>
</TABLE>
55
<PAGE>
Stock Option Plans
A total of 9,700,000 shares of common stock have been reserved for
issuance upon exercise of incentive and non-statutory options and stock purchase
rights granted under our 1992, 1998 and 1999 Stock Plans (the "Plans"). As of
March 31, 2000 there were 6,813,821 options outstanding to purchase shares of
common stock. No shares of common stock have been issued pursuant to stock
purchase rights, and no stock appreciation rights have been granted under the
Plans. Under the Plans options may be granted to employees, officers, directors,
and consultants (the 1992 Stock Plan also permits the grant of restricted stock
and stock appreciation rights). Only employees and officers may receive
"incentive stock options," which are intended to qualify for certain tax
treatment, and consultants may receive "nonstatutory stock options," which do
not qualify for such treatment. The exercise price of incentive stock options
under the Plans must be at least equal to the fair market value of the common
stock on the date of grant, while the exercise price of nonstatutory options
must be at least equal to 85% of such market value. A holder of more than 10% of
the outstanding voting shares may only be granted options with an exercise price
of at least 110% of the fair market value of the underlying stock on the date of
the grant, and if such holder has incentive stock options, the term of the
options must not exceed five years. Options granted under the Plans generally
vest ratably over a four year period. All options must be exercised within ten
years. The Board of Directors may amend the Plans at any time.
Employment Agreements
We have entered into employment agreements with Richard Lang, our
Chairman, President and Chief Executive Officer, Thomas Koshy, our Chief
Operating Officer, Edward H. Davis, our Vice President of Strategic Alliances,
Secretary, and General Counsel, and Kyle Faulkner, Chief Technology Officer.
Each agreement provides for an initial term of two years. The term of employment
will be automatically extended for one additional year at the end of the initial
term, unless sooner terminated by us for cause or on three months notice without
clause, or by the employee on 90 days notice. If the employee's employment is
terminated by us without cause, he is entitled to receive as severance the
continuation of his base salary at the then current rate through the later of
(i) one-third of the remaining period of the initial term, or (ii) a period of
six months from the effective date of termination. In addition to continuation
of base salary, one-third of the remaining unvested stock options granted to the
employee will vest on the effective date of termination. If the employee is
terminated during any extended term for any reason other than cause, he will be
entitled to receive continuation of base salary for a period of three months.
The employment agreement with Mr. Lang commenced on June 23, 1998 and
provides for a base salary of $20,000 per month. The employment agreement with
Mr. Koshy commenced on August 16, 1999 and provides for a base salary of $15,000
per month. The employment agreement with Mr. Davis commenced on July 30, 1998
and provides for a base salary of $14,583 per month. The employment agreement
with Mr. Faulkner commenced on November 13, 1998 and provides for a base salary
of $16,667 per month.
56
<PAGE>
Compensation Committee Interlocks and Insider Participation
The compensation committee currently consists of Directors Micek and
Barletta. Thomas Koshy, our Chief Operating Officer, participates in
deliberations of the committee concerning executive compensation. None of our
executive officers serve as members of the board of directors or compensation
committee of any entity that has one or more executive officers who serve on our
board or compensation committee.
In January 2000, Mr. Micek invested $25,000 for 6,250 shares of common
stock and 5-year warrants to purchase 6,250 shares of common stock for $5.00 per
share in connection with a private placement financing. In December 1999, we
received $50,000 from Universal Assurance, of which Mr. Micek is a principal, in
exchange for notes payable convertible into our common stock, due in one year,
and bearing interest at 7.75%. The conversion rate for the notes was the lower
of (1) $6.50, (2) 80% of the average closing price of our publicly traded shares
in the 20 trading days immediately preceding the closing of an ongoing private
placement, or (3) the price agreed in that private placement. The Universal
notes were subsequently converted to common shares in January 2000.
In January 2000, we received $100,000 from Independence Properties LLC,
of which Mr. Barletta is a principal, in exchange for notes payable convertible
into our common stock, due in one year, and bearing interest at 7.75%. The
conversion rate for the notes was the lower of (1) $6.50, (2) 80% of the average
closing price of our publicly traded shares in the 20 trading days immediately
preceding the closing of an ongoing private placement, or (3) the price agreed
in that private placement. The notes were subsequently converted to shares of
our common stock in January 2000 in connection with a private placement
financing.
Limitation on Liabilities and Indemnification Matters
Our certificate of incorporation limits the personal liability of our
directors to our stockholders to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except with respect to liability for:
o any breach of their duty of loyalty to the corporation or its
stockholders;
o acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases
or redemptions; or
o any transaction from which the director derived an improper
personal benefit.
This provision will have no effect on any non-monetary remedies that may be
available to us or our stockholders, nor will it relieve us or other officers or
directors from compliance with federal or state securities laws.
Our certificate of incorporation and bylaws also generally provide that
we will
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<PAGE>
indemnify, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding by reason of the
fact that he or she is or was a director or officer of ours, or is or was
serving at our request as a director, officer, employee or agent of another
entity, against expenses incurred by him or her in connection that proceeding.
An officer or director will not be entitled to indemnification by us if:
o the officer or director did not act in good faith and in a
manner reasonably believed to be in, or not opposed to, our
best interests; or
o with respect to any criminal action or proceeding, the officer
or director had reasonable cause to believe his or her conduct
was unlawful.
At the present time there is no pending litigation or proceeding
involving any of our directors, officers, employees or agents for which
indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding which may result in a claim for
indemnification.
58
<PAGE>
PLAN OF DISTRIBUTION
We are registering all 9,715,620 of the shares of our common stock
offered by this prospectus on behalf of the selling stockholders, and will
receive no proceeds from this offering. The selling stockholders, or pledgees,
donees, transferees or other successors-in-interest selling shares received from
a selling stockholder as a gift, partnership distribution or other non-sale
related transfer after the date of this prospectus are free to sell the shares
from time to time. The selling stockholders will act independently of us in
making decisions with respect to the timing, manner and size of each sale. The
sales may be made in the national over-the-counter market or otherwise, at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The selling stockholders may effect
such transactions by selling the shares to or through broker-dealers. The shares
may be sold by one or more of, or a combination of, the following:
o block trade in which the broker-dealer so engaged will attempt
to sell the shares as agent, but may position and resell a
portion of the block as principal to facilitate the
transaction;
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus;
o an exchange distribution in accordance with the rules of such
exchange;
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
o in privately negotiated transactions.
In effecting sales, broker-dealers engaged by the selling stockholders
may arrange for other broker-dealers to participate in the resales.
The selling stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with selling stockholders. The
selling stockholders also may sell shares short and redeliver the shares to
close out such short positions. The selling stockholders may enter into option
or other transactions with broker-dealers that require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus. The selling stockholders also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
shares so loaned, or upon a default the broker-dealer may sell the pledged
shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholders.
Broker-dealers or agents may also receive compensation from the purchasers of
the shares for whom they act as agents or to whom they sell as principals, or
both. Compensation as to a particular broker-dealer might be
59
<PAGE>
in excess of customary commissions and will be in amounts to be negotiated in
connection with the sale. Brokers-dealers or agents and any other participating
broker-dealers or the selling stockholders may be deemed to be underwriters
within the meaning of Section 2(11) of the Securities Act of 1933, in connection
with sales of the shares. Accordingly, any such commission, discount or
concession received by them and any profit on the resale of the shares purchased
by them may be deemed to be underwriting discounts or commissions under the
Securities Act. Because the selling stockholders may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, the
selling stockholders will be subject to the prospectus delivery requirements of
the Securities Act. In addition, any securities covered by this prospectus that
qualify for sale pursuant to Rule 144 promulgated under the Securities Act may
be sold under Rule 144 rather than pursuant to this prospectus. The selling
stockholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of the shares; nor is any underwriter or coordinating broker acting in
connection with the proposed sale of the shares by the selling stockholders.
The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirements is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the shares may not simultaneously engage
in market-making activities with respect to our common stock for a period of two
business days prior to the commencement of such distribution. In addition, each
selling stockholder will be subject to applicable provisions of the Exchange Act
and the associated rules and regulations under the Exchange Act, including
Regulation M, which provisions may limit the timing of purchases and sales of
shares of our common stock by the selling stockholders. We will make copies of
this prospectus available to the selling stockholders and we have informed them
of the need for delivery of copies of this prospectus to purchasers at or prior
to the time of any sale of the shares.
We will bear all costs, expenses and fees in connection with the
registration of the shares. The selling stockholders will bear all commissions
and discounts, if any, attributable to the sales of the shares. The selling
stockholders may agree to indemnify any broker-dealer or agent that participates
in transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act.
60
<PAGE>
SELLING STOCKHOLDERS
<TABLE>
The following table sets forth information, as of March 31, 2000, with
respect to the selling stockholders. We sold the shares of our common stock
being offered by the selling stockholders in private placements in December 1999
and January 2000. We sold (i) 4,808,375 shares of our common stock at a price of
$4.00 per share, (ii) warrants to purchase 4,844,933 shares of our common stock
with an exercise price of $5.00 per share and (iii) warrants to purchase 98,870
shares of our common stock with an exercise price of $8.44 per share. This
prospectus covers the resale by the selling stockholders of these shares, plus,
in accordance with Rule 416 under the Securities Act of 1933, such additional
number of shares of our common stock as may be issued on exercise of the
warrants resulting from stock splits, stock dividends or the application of
antidilution provisions in the warrants. The number of shares shown in the
following table as being offered by the selling stockholders does not include
such presently indeterminate number of additional shares of our common stock.
Any and all of the shares of common stock may be offered for sale
pursuant to this prospectus by the selling stockholders from time to time.
Accordingly, no estimate can be given as to the amounts of shares of our common
stock that will be held by the selling stockholders upon consummation of any
such sales. In addition, the selling stockholders may have sold, transferred or
otherwise disposed of all or a portion of their shares since the date on which
the information regarding their common stock was provided in transactions exempt
from the registration requirements of the Securities Act of 1933.
Except as set forth below or elsewhere in this prospectus, none of the
selling stockholders is currently an affiliate of us, and none of them has had a
material relationship with us within the past three years other than as a result
of the ownership of the shares and warrants or other securities issued by us:
<CAPTION>
Shares Beneficially Owned Prior Shares Offered
To this Offering (1) --------------
-------------------- Issuable
Selling Stockholders Number Percent Owned Under Warrants
- -------------------- ------ ------- ----- --------------
<S> <C> <C> <C> <C>
Chelsey Capital 1,500,000 7.61% 750,000 750,000
Ravinia Capital Ventures 1,187,000 6.07% 593,500 593,500
Storie Partners LLP 3,530,000 18.03% 500,000 500,000
Mercer Management, Inc. 2,536,774 12.99% 387,500 387,500
BayStar Capital, L.P. 750,000 3.81% 375,000 375,000
BayStar International Limited 750,000 3.81% 375,000 375,000
Special Situations Fund III 750,000 3.83% 375,000 375,000
Special Situations Private
Equity Fund 500,000 2.54% 250,000 250,000
Special Situations Technology
Fund 500,000 2.54% 250,000 250,000
Reed Slatkin 942,500 4.93% 130,000 130,000
Special Situations Cayman
Fund 250,000 1.31% 125,000 125,000
Robert London 1,127,623 5.88% 125,000 125,000
Dorothy Lyddon Trust 651,870 3.43% 50,000 50,000
Erik Franklin 200,000 * 100,000 100,000
Kyle Faulkner (2) 323,249 1.68% 62,500 62,500
Independence Properties LLC (3) 120,849 * 25,000 31,250
Douglas Glen (4) 177,499 * 25,000 25,000
Greg Friedman (5) 46,000 * 23,000 23,000
Ryan Allison 37,500 * 18,750 18,750
Frank Kramer 37,500 * 18,750 23,437
Arthur D. Allen (5) 37,500 * 18,750 18,750
Suzanne Lentz (6) 30,000 * 15,000 15,000
Bruce Hensel 25,000 * 12,500 12,500
Universal Assurors
Agency, Inc. (7) 25,000 * 12,500 15,625
Keith Koch 75,000 * 12,500 15,625
Donald C. Reinke (8) 25,000 * 12,500 14,063
June S. White (9) 20,000 * 10,000 10,000
Han Joo Lee 20,000 * 10,000 10,000
Yuan Meng (5) 20,000 * 10,000 10,000
Thomas Koshy (10) 175,306 * 10,000 10,000
Ann Louise Micek 17,500 * 8,750 10,937
Vince Sakowski 12,500 * 6,250 7,812
John Worthing 12,500 * 6,250 7,812
Bay Venture Counsel, LLP (11) 12,500 * 6,250 7,812
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<PAGE>
Robert Walter 12,500 * 6,250 7,812
John J. Micek III (12) 289,166 * 6,250 6,250
Reece Micek 12,500 * 6,250 7,812
Elissa Micek 12,500 * 6,250 7,812
Bradley H. Reinke 25,000 * 12,500 14,063
Michael Moskowitz (13) 12,000 * 6,000 6,000
Thomas A. Bell (5) 10,000 * 5,000 5,000
Sonja Erickson (5) 11,833 * 3,750 3,750
R&T Sheppard Family
Partners 7,500 * 3,750 3,750
James E. Landy (5) 7,500 * 3,750 3,750
James L. Berg (8) 7,500 * 3,750 4,687
Frank H. Schwartz (5) 130,874 * 3,250 3,250
Steven Heist (5) 7,000 * 2,500 2,500
Zhiping Liu (5) 5,000 * 2,500 2,500
Laura Micek 5,000 * 2,500 3,125
Stephen P. Pezzola 5,000 * 2,500 3,125
Gregory L. Beattie (8) 5,000 * 2,500 3,125
Bruce Whitley (8) 5,000 * 2,500 3,125
Roger E. Reinke 5,000 * 2,500 3,125
Kimberly L. Massingale (5) 8,918 * 2,000 2,000
Francis E. Vegliante (5) 12,750 * 2,000 2,000
Evan Zhang (5) 4,000 * 2,000 2,000
Richard P. Trevor (5) 4,000 * 2,000 2,000
Allan Ber (5) 2,250 * 1,125 1,125
Howard E. Lyons (5) 99,398 * 1,250 1,250
Karolyn Kelly 2,500 * 1,250 1,562
Bruce P. Johnson 2,500 * 1,250 1,562
Paul Boc Banh (5) 10,277 * 1,000 1,000
Reedland Capital Partners(14) 98,870 * -0- 98,870
<FN>
- ----------
* Represents beneficially ownership of less than 1% of our outstanding common
stock.
(1) The number of shares listed in these columns include all shares
beneficially owned and all options and warrants to purchase shares
held, whether or not deemed to be beneficially owned, be each selling
stockholder. The ownership percentages listed in these columns include
only shares beneficially owned by the listed selling stockholder.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the percentage of
shares beneficially owned by a selling stockholder, shares of common
stock subject to options or warrants held by that stockholder that are
exercisable now or within 60 days after March 31, 2000 are deemed
outstanding, although those shares are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. The
ownership percentages are calculated assuming that 18,953,065 shares of
common stock were outstanding immediately prior to this offering.
(2) Mr. Faulkner is our Chief Technology Officer.
(3) This entity is controlled by Joseph Barletta, one of our directors.
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<PAGE>
(4) Mr. Glen is one of our directors.
(5) The individual listed is an employee or independent contractor of us.
(6) Ms. Lentz is our Director of Marketing.
(7) Mr. John J. Micek III, one of our directors, is an affiliate of this
entity.
(8) The individual listed is an attorney with Bay Venture Counsel, LLP, our
legal counsel. See "Legal Matters."
(9) Ms. White is our Vice President of Engineering.
(10) Mr. Koshy is our Chief Operating Officer.
(11) Bay Venture Counsel, LLP is our legal counsel. See "Legal Matters."
(12) Mr. Micek is one of our directors.
(13) Mr. Moskowitz is our Vice President of Business Development.
(14) Reedland Capital Partners received 98,870 warrants as a placement fee
in connection with the private placement closed in January, 2000.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since April 1, 1997, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our common stock, or an
immediate family member of any of the foregoing, had or will have a direct or
indirect interest other than:
o compensation arrangements, which are described where required
under "Management"; and
o the transactions described below.
Sale of Common Stock and Warrants in January 2000.
In January 2000 we sold 4,808,375 shares of common stock at a purchase
price of $4.00 per share, for an aggregate purchase price of $19.2 million. We
raised $13.9 million in cash in the offering, and the remaining $5.3 million
consisted of the conversion of notes payable. The purchasers also received
warrants to purchase up to an aggregate of 4,808,375 shares of our common stock,
at an exercise price of $5.00 per share. The warrants are
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<PAGE>
exercisable for a term of five years from the date of issuance. The following
directors, executive officers and principal stockholders participated in this
transaction:
Cash Purchases:
--------------
Investor Amount Invested Common Shares Warrants
-------- --------------- ------------- --------
Special Situations Funds $ 4,000,000 1,000,000 1,000,000
Chelsey Capital 3,000,000 750,000 750,000
BayStar Capital 3,000,000 750,000 750,000
Ravinia Capital Ventures 2,374,000 593,500 593,500
Kyle Faulkner 250,000 62,500 62,500
Douglas Glen 100,000 25,000 25,000
Conversion of Notes Payable:
---------------------------
Investor Notes Converted Common Shares Warrants
-------- --------------- ------------- --------
Storie Partners $ 2,000,000 500,000 500,000
Mercer Management 1,550,000 387,500 387,500
In connection with the above financing, holders of all of our then
outstanding shares of preferred stock voluntarily converted such shares into
4,496,609 shares of our preferred stock.
Transactions with Draysec Finance Limited
During 1997, Draysec Finance Limited, one of our principal
stockholders, invested $200,000 for the purchase of investment units, consisting
of 200,000 shares of our preferred stock and warrants to purchase 200,000 shares
of our common stock at an exercise price of $1.00 per share. Our board of
directors extended the exercise date for these warrants to February 1999 and
increased the exercise price to $1.50 per share after January 1998. These
warrants were exercised in February 1999. Additionally, Draysec Finance Limited
provided a loan of $80,000 in consideration for a six month promissory note from
us with an interest rate of 10.5% and a warrant to purchase 16,000 shares of our
common stock at an exercise price of $1.00 per share.
In 1998, Draysec Finance provided us loans two loans, in the aggregate
principal amount of $50,000, convertible into our common stock at $1.00 per
share. These loans included warrants to purchase 10,000 shares of our common
stock at $1.00 per share. Draysec Finance loaned us an additional $75,000 in
1998 in the form of a line of credit at an interest rate equal to the prime rate
plus 2% and received a warrant to purchase 15,000 shares of our common stock at
$2.36 per share.
Also in 1998, Draysec Finance converted $78,596 in debt and accrued
interest into 39,298 shares of our preferred stock and warrants to purchase
5,109 shares of our common
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stock at $2.00 per share Draysec Finance also converted an additional $137,054
of convertible debt and accrued interest into 137,054 shares of our common stock
at $1.00 per share.
In February 1999, Draysec Finance exercised the warrants issued in 1997
to purchase 200,000 shares of our common stock for $300,000 cash.
In January 2000, 239,298 shares of preferred stock held by Draysec
Finance were converted to 239,298 shares of our common stock in connection with
a private placement financing.
Transactions with Mercer Management
During 1997, Mercer Management Inc., one of our principal stockholders,
converted 300,000 shares of our preferred stock into a like number of shares of
our common stock. Also in 1997, Mercer Management invested an additional
$200,000 for the purchase of investment units consisting of 200,000 shares of
our preferred stock and warrants to purchase 200,000 shares of our common stock
at an exercise price of $1.00 per share. Our board of directors extended the
exercise date for these warrants to February 1999 and increased the exercise
price to $1.50 per share after January 26, 1998. These warrants were exercised
in February 1999.
In order to provide bridge financing for us during the last quarter of
1997, Mercer Management loaned us $100,000 cash. In consideration for this loan,
we issued Mercer Management a six-month promissory note in the amount of
$100,000 at an interest rate of 10.5%. Additional consideration was provided by
us in the form of a warrant to purchase 20,000 shares of our common stock at an
exercise price of $1.00 per share.
In 1998, Mercer Management loaned us an additional $525,000. The first
$100,000 was in the form of a six-month promissory note in the amount of
$100,000 at an interest rate of 10.5%. This promissory note was convertible into
shares of our common stock at the conversion rate of $1.00 per share. An
additional $200,000 was provided in exchange for a second promissory note. This
note provided for an interest rate of prime plus 2% payable monthly in arrears
and had a due date of July 15, 1998. Additional consideration for the note
included 40,000 shares of our common stock and a warrant to purchase an
additional 40,000 shares of common stock at the exercise price of $1.00 per
share. The $200,000 note also provided for an automatic extension through
December 31, 1998 for additional consideration in the form of 40,000 shares of
our common stock and a warrant to purchase an additional 40,000 shares of common
stock at the exercise price of $1.00 per share. Also in 1998, Mercer Management
loaned us an additional $75,000 in the form of a line of credit at prime plus 2%
and was granted a warrant to purchase 15,000 shares of our common stock at $2.31
per share. Subsequently in 1998, Mercer provided additional credit of $150,000
at prime plus 2% and was granted a warrant to purchase 30,000 shares of our
common stock at $1.70 per share.
Also, during March 1998, Mercer Management elected to exercise its
200,000 warrants to purchase common stock pursuant to an offering by us to
reduce the exercise price of said warrants for the period from February 1998 to
March 1998 to $.75 per share. As a result of the
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<PAGE>
exercise of these warrants, we received $150,000 from Mercer Management Inc.,
and Mercer Management was issued an additional 200,000 shares of our common
stock. In 1998, Mercer Management converted $431,758 debt and accrued interest
into 215,879 shares of our preferred stock and 28,065 warrants to purchase
common stock at $2.00 per share.
During 1999, we received $1,550,000 from Mercer Management in exchange
for notes payable convertible into our common stock, due in one year, and
bearing interest at 7.75%. The conversion rate for the notes was the lower of
(1) $6.50, (2) 80% of the average closing price of our publicly traded shares in
the 20 trading days immediately preceding the closing of an ongoing private
placement, or (3) the price agreed in that private placement.
In connection with a private placement financing, in January, 2000 all
of the Mercer Management notes were converted into 387,500 shares of common
stock at a conversion rate of $4.00 per share and warrants to purchase 387500
shares of our common stock at an exercise price of $5.00; and 415,879 shares of
Preferred Stock were converted to common stock. (See "Item 10. Recent Sales of
Unregistered Securities")
Transactions with Storie Partners LLP
In February 1996, Storie Partners LLP, one of our principal
stockholders, invested $700,000 for the purchase of investment units consisting
of 700,000 shares of our preferred stock and warrants to purchase 700,000 shares
of our common stock at an exercise price of $1.00 per share. Our board of
directors extended the exercise date for these warrants to February 1999 and
increased the exercise price to $1.50 per share after January 1998.
In April 1997, Storie Partners exercised these warrants to purchase
400,000 shares of common stock for $400,000.
In 1998, Storie Partners 1,000,000 shares of our preferred stock, and
warrants to purchase 130,000 additional shares of our common stock at an
exercise price of $2.00 per share.
During 1999, we received $2,000,000 from Storie Partners in exchange
for notes payable convertible into our common stock, due in one year, and
bearing interest at 7.75%. The conversion rate for the notes was the lower of
(1) $6.50, (2) 80% of the average closing price of our publicly traded shares in
the 20 trading days immediately preceding the closing of an ongoing private
placement, or (3) the price agreed in that private placement.
In connection with a private placement financing in January 2000 all of
the Storie Partners notes were converted into 500,000 shares of common stock at
a conversion rate of $4.00 per share and warrants to purchase shares of our
common stock at an exercise price of $5.00 per share; and 1,700,000 shares of
preferred stock held by Storie Partners were converted to common stock.
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<PAGE>
Transactions with Stuart Rudick and Affiliates
In 1996, Mindful Partners LLP, an affiliate of Stuart Rudick, one of
our principal stockholders, invested $300,000 for the purchase of investment
units consisting of 300,000 shares of our preferred stock and warrants to
purchase 300,000 shares of our common stock at an exercise price of $1.00 per
share. Rudick Asset Management, another affiliate of Mr. Rudick received an
additional 100,000 units and warrants to purchase 100,000 shares of common stock
at an exercise price of $1.00 per share as a finders' fee relating to the
placement of this offering. Additionally, Rudick Asset Management invested
$75,000 for investment units consisting of 75,000 shares of preferred stock and
warrants to purchase 75,000 shares of common stock at $1.00 per share, issued in
the name of Delaware Charter Guaranty Trust Company. Our board of directors
extended the exercise date for these warrants to February 1999 and increased the
exercise price to $1.50 per share after January 1998.
In 1997, Mindful Partners purchased additional investment units
consisting of 150,000 shares of preferred stock and warrants to purchase 150,000
shares of our common stock at $1.00 per share for $150,000.
In 1998, Mindful Partners invested $500,000 for 250,000 shares of our
preferred stock, and warrants to purchase 32,500 additional shares of our common
stock at $2.00 per share.
In February 1999, Mindful Partners, Rudick Asset Management and
Delaware Charter Guaranty Trust Company exercised the warrants issued in 1996 to
purchase 450,000, 100,000 and 75,000 shares of our common stock for $675,000,
$150,000, and $112,500 in cash, respectively.
In January 2000, 870,000 shares of preferred stock held by Mindful
Partners and Rudick Asset Management were converted into 870,000 shares of our
common stock in connection with a private placement financing.
Transactions with Robert London
In 1996, Robert London, one of our principal stockholders, invested
$100,000 for the purchase of investment units consisting of 100,000 shares of
our preferred stock and warrants to purchase 100,000 shares of our common stock
at an exercise price of $1.00 per share. Our board of directors extended the
exercise date for the Warrants to February 1999 and increased the exercise price
to $1.50 per share after January 1998. .
In 1998, Mr. London invested $500,000 for 250,000 shares of our
preferred stock, and warrants to purchase 32,500 additional shares of our common
stock at an exercise price of $2.00 per share. Mr. London also provided us with
a $225,000 loan convertible into shares of our common stock at $0.75 per share.
This loan together with accrued interest was converted into 318,555 shares of
common stock in October 1998. Mr. London later provided us with an additional
$75,000 and $150,000 in loans in the form of a line of credit at the prime rate
plus 2%, and warrants to purchase 15,000 and 30,000 shares of our common stock
at $2.31 and $2.15 per share, respectively. Later, Mr. London converted $232,864
in loans and accrued interest into 116,432 shares of our preferred stock and
warrants to purchase 5,136 shares of our common stock at an exercise price of
$2.00 per share.
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<PAGE>
During 1999, we received $500,000 from Mr. London in exchange for
promissory notes convertible into our common stock, due in one year, and bearing
interest at 7.75%. The conversion rate for the notes was the lower of (1) $6.50,
(2) 80% of the average closing price of our publicly traded shares in the 20
trading days immediately preceding the closing of an ongoing private placement,
or (3) the price agreed in that private placement.
In connection with a private placement financing in January 2000, all
of the London notes were converted into 125,000 shares of common stock and
warrants to purchase 125,000 shares of our common stock at an exercise price of
$5.00 per share; and 366,432 shares of preferred stock held by London were
converted into 366,432 shares of our common stock.
Transactions with Richard Lang
On August 3, 1999, we acquired Timeshift-TV, Inc. in a stock-only
transaction from Richard Lang, our Chairman and CEO, Earl Mincer and Eric
Walters, who are employees of ours. Mr. Walters is Mr. Lang's brother in law.
Mr. Lang and the other parties were not employed by us at the time they formed
Timeshift-TV. Our board of directors unanimously approved our acquisition of
Timeshift-TV. Timeshift-TV holds assets, including intellectual property, in the
area of time-shifted real-time broadcasting, which we plan to integrate into our
advanced video and audio delivery solutions. We also plan to license the
Timeshift-TV intellectual property to other parties for various applications.
Transactions with Kyle Faulkner
We paid consulting fees to Kyle Faulkner, our Chief Technology Officer,
through his consulting company, DuoDesign, of $6,720 and $283,940 in 1997 and
1998, respectively, prior to his employment with us.
In January 2000, Mr. Faulkner invested $250,000 for 62,500 shares of
our common stock and 5-year warrants to purchase 62,500 shares of common stock
at an exercise price of $5.00 per share in connection with a private placement
financing.
Transactions with Thomas Koshy
In January 2000, Mr Thomas Koshy, our Chief Operating Officer, invested
$40,000 for 10,000 shares of common stock and 5-year warrants to purchase 10,000
shares of our common stock at an exercise price of $5.00 per share in connection
with a private placement financing.
Transactions with Douglas Glen
In January 2000, Douglas Glen, one of our directors, invested $100,000
for 25,000 shares of our common stock and 5-year warrants to purchase 25,000
shares of our common stock at an exercise price of $5.00 per share in connection
with a private placement financing.
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<PAGE>
Transactions with John J. Micek III
In January 2000, John J. Micek III, one of our directors, invested
$25,000 for 6,250 shares of common stock and 5-year warrants to purchase 6,250
shares of our common stock at an exercise price of $5.00 per share in connection
with a private placement financing.
In December 1999, we received $50,000 from Universal Assurance, of
which Mr. Micek is a principal, in exchange for notes payable convertible into
our common stock, due in one year, and bearing interest at 7.75%. The conversion
rate for the notes was the lower of (1) $6.50, (2) 80% of the average closing
price of our publicly traded shares in the 20 trading days immediately preceding
the closing of an ongoing private placement, or (3) the price agreed in that
private placement. The Universal notes were subsequently converted into 12,500
shares of our common stock in January 2000.
Transactions with Joseph Barletta
In January 2000, we received $100,000 from Independence Properties LLC,
of which Joseph Barletta, one of our directors, is a principal, in exchange for
notes payable convertible into our common stock, due in one year, and bearing
interest at 7.75%. The conversion rate for the notes was the lower of (1) $6.50,
(2) 80% of the average closing price of our publicly traded shares in the 20
trading days immediately preceding the closing of an ongoing private placement,
or (3) the price agreed in that private placement. The notes were subsequently
converted into 25,000 shares of our common stock at the end of January in
connection with a private placement financing.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock by:
o each person who beneficially owns more than 5% of our common
stock;
o each of our executive officers;
o each of our directors; and
o all executive officers and directors as a group.
<TABLE>
Except as otherwise noted, the address of each 5% stockholder listed in
the table is c/o Instant Video Technologies, Inc., 500 Sansome Street, Suite
503, San Francisco, CA 94111. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and includes voting and
investment power with respect to shares. To our knowledge, except under
applicable community property laws or as otherwise indicated, the persons named
in the table have sole voting and sole investment control with respect to all
shares beneficially owned. The applicable percentage of ownership for each
stockholder is based on 18,953,065 shares of common stock outstanding on March
31, 2000 together with applicable options and warrants for that stockholder.
Shares of common stock issuable upon exercise of options and other rights
beneficially owned are deemed outstanding for the purpose of computing the
percentage ownership of the person holding those options and other rights, but
are not deemed outstanding for computing the percentage ownership of any other
person.
<CAPTION>
Number of Percentage of
Name and Address of Beneficial Owner Shares Beneficially Owned Outstanding Shares
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
5% Stockholders
Draysec Finance Limited 2,081,660(1) 10.70%
Storie Partners LLP 3,530,000(2) 18.03%
Mercer Management 2,536,774(3) 12.99%
Stuart Rudick 1,533,500(4) 8.08%
Special Situations Funds 2,000,000(5) 10.02%
Chelsey Capital 1,500,000(6) 7.61%
Baystar Capital 1,500,000(7) 7.61%
Robert London 1,127,623(8) 5.88%
Ravinia Capital 1,187,000(9) 6.07%
Executive Officers and Directors
Richard Lang 2,240,888(10) 11.05%
O.J. Kilkenny 1,942,083(11) 10.05%
John J. Micek III 289,166(12) 1.51%
Brian Murphy 2,011,455(13) 10.37%
Joseph Barletta 120,849(14) *
Douglas Glen 177,499(15) *
Thomas Koshy 175,306(16) *
Edward Davis 107,100(17) *
Kyle Faulkner 323,249(18) 1.68%
David Morgenstein 578,092(19) 2.97%
All officers and directors as a group (11 persons) 6,093,810(20) 27.48%
- --------------------------------------------------------------------------------------------------------------
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<FN>
* Represents less than a one percent interest.
(1) Includes 1,575,769 shares of our common stock, options to purchase
250,000 shares of our common stock and warrants to purchase 46,109
shares of our common stock. Also includes options to purchase 70,205
shares of our common stock held by O.J. Kilkenny and options to
purchase 139,577 shares of our common stock held by Brian Murphy, each
of whom represent Draysec on our Board of Directors.
(2) Includes 2,900,000 shares held and warrants to purchase 630,000 shares
of our common stock.
(3) Includes 1,956,209 shares held and warrants to purchase 580,565 shares
of our common.
(4) Includes 1,150,000 shares held by Mindful Partners, 175,000 shares held
by Rudick Asset Management, 150,000 shares held by Delaware Charter
Guaranty Trust Company, 20,000 shares held by Stuart Rudick and 6,000
shares held by Martin Rudick. Also includes warrants to purchase 32,500
shares of our common stock held byMindful Partners.
(5) Includes 1,000,000 shares of our common stock and warrants to purchase
1,000,000 shares of our common stock.
(6) Includes 750,000 shares of our common stock and warrants to purchase
750,000 shares of our common stock.
(7) Includes 750,000 shares of our common stock and warrants to purchase
750,000 shares of our common stock.
(8) Includes 909,987 shares of our common stock and warrants to purchase
217,636 shares of our common stock.
(9) Includes 593,500 shares of our common stock and warrants to purchase
593,500 shares of our common stock.
(10) Includes 852,346 shares in the name of the Lisa Walters and Richard
Lang Revocable Trust, options to purchase 1,196,542 shares of our
common stock held by Richard Lang and options to purchase 122,000
shares of our common stock held by Lisa Walters, Mr. Lang's spouse.
Also includes 70,000 shares of our common stock held in escrow for
Richard Lang pending issuance of a patent applied for in connection
with the TimeShift-TV acquisition.
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<PAGE>
(11) Includes 1,871,878 shares of our common stock held beneficially by
Draysec Financeand options to purchase 70,205 shares of our common
stock.
(12) Includes 43,608 shares of our common stock held by Mr. Micek and 62,500
shares of our common stock held by Universal Warranty Corp. Also
includes options to purchase 154,683 shares of our common stock held by
Mr. Micek, warrants to purchase 6,250 shares of our common stock held
by Mr. Micek and warrants to purchase 22,125 shares of our common stock
held by Universal Warranty Corp.
(13) Includes 1,871,878 shares of our common stock held beneficially by
Draysec Finance and options to purchase 139,577 shares of our common
stock held by Mr. Murphy.
(14) Includes 25,000 shares of our common stock held beneficially by
Independence Properties' options to purchase 64,599 shares of our
common stock held by Mr. Barletta and warrants to purchase 31,250
shares of our common stock held by Independence Properties.
(15) Includes 25,000 shares of our common stock, options to purchase 127,499
shares of our common stock and warrants to purchase 25,000 shares of
our common stock.
(16) Includes 66,000 shares of our common stock, options to purchase 99,306
shares of our common stock and warrants to purchase 10,000 shares of
our common stock.
(17) Consists of options to purchase 107,100 shares of our common stock.
(18) Includes 62,500 shares of our common stock, options to purchase 198,249
shares of our common stock and warrants to purchase 62,500 shares of
our common stock.
(19) Includes 85,000 shares of our common stock, options to purchase 373,092
shares of our common stock and warrants to purchase 120,000 shares of
our common stock.
(20) Includes 2,867,723 shares of our common stock, options to purchase
2,902,853 shares of our common stock and warrants to purchase 323,234
shares of our common stock.
</FN>
</TABLE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock, $0.00001 par value per share, and 20,000,000 shares of preferred stock,
$0.00001 par value per share.
We currently have 18,953,065 shares of common stock outstanding and no
shares of preferred stock outstanding.
Common Stock
Voting Rights. Each outstanding share of common stock is entitled to
one vote on all matters submitted to a vote of our stockholders, including the
election of directors. There are
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no cumulative voting rights, and therefore the
holders of a plurality of the shares of common stock voting for the election of
directors may elect all of our directors standing for election. However, our
certificate of incorporation provides that actions may only be taken by our
stockholders at a duly called meeting, and may not be taken by written consent.
Dividends. Holders of common stock are entitled to receive dividends at
the same rate if and when dividends are declared by our board of directors out
of assets legally available for the payment of dividends, subject to
preferential rights or any outstanding share of preferred stock.
Liquidation. In the event of a liquidation, dissolution or winding up
our affairs, whether voluntary or involuntary, after payment of our debts or
other liabilities and making provisions for the holders of any outstanding
shares of preferred stock, our remaining assets will be distributed ratably
among the holders of shares of common stock.
Rights and Preferences. Our common stock has no preemptive, redemption,
conversion or subscription rights. The rights, powers, references and privileges
of holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we any
designate and issue in the future.
Fully Paid and Nonassessable. All of our outstanding shares of common
stock are, and the shares of common stock to be issued pursuant to this offering
will be, fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, without action by our
stockholders, to provide for the issuance of preferred stock in one or more
classes or series and to designate the rights, preferences and privileges of
each class or series, which may be greater than the rights of the common stock.
We cannot predict the effect of the issuance of any shares of preferred stock
upon the rights of holders of the common stock until the board of directors
determines the specific rights of the holders of the preferred stock. However,
the effects could include one or more of the following:
o restricting dividends on the common stock;
o diluting the voting power of the common stock;
o impairing the liquidation rights of the common stock; or
o delaying or preventing a change in control of us without
further action by the stockholders.
There are no shares of preferred stock outstanding, and we have no
present plans to issue any shares of preferred stock.
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Warrants
As of March 31, 2000, there were outstanding warrants to purchase (i)
382,000 shares of common stock at an average exercise price of $1.31 per share,
(ii) 180,488 shares of common stock at an exercise price of $1.50 per share,
(iii) 321,960 shares of common stock at an exercise price of $2.00 per share,
(iv) 4,844,933 shares of common stock at an exercise price of $5.00 (subject to
adjustment for certain anti-dilutive issuances) and (v) 98,970 shares of common
stock at an exercise price of $8.44 per share. The 4,844,933 shares of common
stock issuable on exercise of the warrants at an exercise price of $5.00 share
and the 98,870 shares of common stock issuable on exercise of the warrants at an
exercise price of 8.44 per share are being offered by this prospectus.
Dividends
The holders of our common stock are not entitled to receive any fixed
dividend.
Registration Rights
Under the terms of registration rights agreements between us and the
holders of outstanding shares of common stock issued on the conversion of their
shares of preferred stock, such holders or their transferees are entitled to
certain rights with respect to the registration under the Securities Act of
1933, as amended, of such shares of common stock and shares of common stock
issuable on conversion of warrants purchased in connection with such holder's
purchase of preferred stock. Such agreements provide that if we register any of
our common stock either for our own account or for the account of others, with
certain exceptions, the holders of such registrable securities are entitled to
include their shares of common stock in the registration. A holder's right to
include shares in an underwritten registration initiated by us is subject to the
right of the underwriters to limit the number of shares included in the
offering, subject to certain limitations. All registration expenses are to be
borne by us, and all selling expenses (such as underwriting discounts and
selling commissions) must be borne by the holders of the shares being
registered, in proportion to the number of shares so registered. Such holders
are also entitled to require us to register their registrable shares on Form S-3
in certain cases if such Form is available to us for registration. Among other
exceptions, we are not required to register such shares, in the case of holders
of shares issued on conversion of our prior Series A preferred stock, if the
aggregate offering price of the registrable shares is less than $500,000, and in
the case of the holders of shares issued on conversion of our prior Series B
preferred stock, if the aggregate offering price of the registrable shares is
less than $15,000,000. The holders of these registrations rights have agreed to
waive their rights with respect to the registration of the selling stockholders'
shares and shares issuable on exercise of warrants that are being offered by
this prospectus.
Under the terms of certain employee stock option agreements, a total of
1,578,630 shares of our common stock issued or issuable on exercise of these
stock options are entitled to certain rights with respect to registration under
the Securities Act. We intend to file a registration statement on Form S-8 with
the SEC with respect to these shares.
Under the terms of a registration rights agreement between us and the
selling stockholders, who purchased shares of our common stock and warrants to
purchase common stock in January 2000, we are required to register such
purchasers' common stock and common stock issuable on exercise of the warrants.
We have filed with the Securities and Exchange Commission the required
registration statement on Form S-1 Act with respect to the selling
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stockholders' shares of common stock and shares of common stock issuable on
exercise of their warrants. Such shares are being offered by this prospectus.
Rights of First Refusal
The selling stockholders have been granted rights of first refusal to
purchase shares of new securities that we may, from time to time, propose to
sell and issue, subject to certain exceptions.
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law,
an anti-takeover law. Generally, Section 203 of the Delaware General Corporation
Law prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:
o prior to the date of the business combination, the transaction
is approved by the board of directors of the corporation;
o upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock
of the corporation; or
o on or after the date the business combination is approved by
the board of directors of the corporation and by the
affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions that may result in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within the three-year period immediately prior to the
relevant date, did own, 15% or more of the corporation's outstanding voting
stock. The existence of this provision would be expected to have an
anti-takeover effect with respect to transactions not approved in advance by our
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
Transfer Agent and Registrar
American Securities Transfer & Trust, Inc. serves as our transfer agent
and registrar for our common stock.
Listing
Our common stock is traded on the over-the-counter market and is quoted
on the NASD's OTC Bulletin Board under the symbol "IVDO". We have applied for
listing of our common stock on the Nasdaq SmallCap Market.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
<TABLE>
Future sales of our common stock, and the availability of our common
stock for sale, may depress the market price for our common stock. Approximately
3,750,0000 shares of our common stock currently are freely tradeable and all of
the shares sold in this offering will be freely tradable except for any shares
purchased by our affiliates. The remaining shares of common stock outstanding
after this offering will be restricted as a result of securities laws or lock-up
agreements. These remaining shares will be available for sale in the public
market as follows:
<CAPTION>
Date of Availability for Sale Number of Shares
- ----------------------------- ----------------
<S> <C>
As of the date of this prospectus, _________, 2000..............................
At various times afterwards upon expiration of applicable holding periods.......
</TABLE>
Each of our directors, executive officers and certain holders of our
outstanding common stock have agreed to certain restrictions on their ability to
sell, offer, contract or grant any option to sell, pledge, transfer or otherwise
dispose of shares of our common stock for a period ending on the date that is
180 days after the date of this prospectus.
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
o 1% of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; or
o the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to
the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
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<PAGE>
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell their shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. However, approximately
_______________ Rule 701 shares are subject to lock-up agreements and will only
become eligible for sale at the expiration of the 180-day lock-up agreements
described above.
We intend to file a Registration Statement on Form S-8 registering
shares of common stock subject to outstanding options or reserved for future
issuance under our stock plans. As of March 31, 2000, options to purchase a
total of 6,813,821 shares were outstanding and 2,338,767 shares were reserved
for future issuance under our 1999 stock option plan. Common stock issued upon
exercise of outstanding vested options after the filing of this Registration
Statement on Form S-8, other than common stock issued to our affiliates, will be
available for immediate resale in the open market.
Registration Rights
The holders of an aggregate of approximately ___________ shares of our
common stock are entitled to rights with respect to the registration of these
shares under the Securities Act of 1933. See "Description of Capital Stock."
LEGAL MATTERS
The validity of the shares of common stock being offered will be passed
for the selling stockholders by Bay Venture Counsel LLP, Oakland, California.
Bay Venture Counsel, LLP and certain of its attorneys are offering by this
prospectus an aggregate of 40,000 shares of our common stock and 48,438 shares
issuable on exercise of warrants. See "Selling Stockholders."
EXPERTS
The financial statements and schedules as of December 31, 1999 and for
the year ended December 31, 1999 included in this prospectus, and in the
registration statement on Form S-1 filed with the Securities and Exchange
Commission with respect to the shares of our common stock being offered by this
prospectus, have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the period set forth in the reports of such
firm contained in this prospectus and in the registration statement. All such
financial statements and schedules have been included in reliance upon such
reports given upon the authority of such firm as experts in auditing and
accounting.
77
<PAGE>
The financial statements and schedules as of December 31, 1998 and for
each of the years in the two-year period ended December 31, 1998, have been
included in this prospectus and in the registration statement in reliance upon
the report of KPMG LLP, independent certified public accountants, contained in
this prospectus, and upon the authority of such firm as experts in auditing and
accounting.
The report of KPMG LLP covering the December 31, 1998 financial
statements contains an explanatory paragraph that states that our recurring
losses from operations and negative cash flows from operating activities raise
substantial doubt about our ability to continue as a going concern. The December
31, 1998 financial statements do not include any adjustments that might result
from the outcome of that uncertainty.
On December 17, 1999, KPMG LLP, who was previously engaged to audit our
financial statements for the years ended December 31, 1997 and 1998 as our
independent accountants resigned. During 1998 and 1999 and through the date of
resignation, there were no disagreements between us and KPMG LLP on any matter
of accounting principle or practices, financial statement disclosure or auditing
scope or procedure which if not resolved to their satisfaction would have caused
them to make reference to the subject matter of the disagreement in connection
with their report. The audit reports of KPMG LLP did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainly, audit scope or accounting principles, except as follows: KPMG LLP's
independent auditors' report on our consolidated financial statements as of
December 31, 1998 and 1997 and for the years then ended, contained a separate
paragraph stating that "the Company has suffered recurring losses from
operations and has negative cash flow from operating activities, which raise
substantial doubt about its ability to continue as going concern." KPMG LLP's
independent auditors' report on our consolidated financial statements as of
December 31, 1997 and 1996 and for the years then ended contained a separate
paragraph stating that "the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt about
its ability to continue as a going concern." The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG advised our Audit Committee in May 1998 regarding certain matters involving
internal control that it considered to be reportable conditions under standards
established by the American Institute of Certified Public Accountants. Such
matters involved the inappropriate recognition of revenue during the first
quarter of 1997 and an alleged misappropriation of funds.
We have agreed to indemnify and hold KPMG LLP harmless against and from
any and all legal costs and expenses incurred by KPMG in the successful defense
of any legal action or proceeding that arises as a result of KPMG's consent to
the inclusion of its audit report on our past financial statements.
On January 24, 2000, BDO Seidman LLP was engaged as independent
accountants to audit our financial statements. BDO Seidman LLP had not been
consulted on any application of accounting principles, audit opinion or matters
that were previously the subject of disagreements or a reportable event.
78
<PAGE>
WHERE YOU CAN GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
shares of common stock being offered. This prospectus does not contain all of
the information described in the registration statement and the related exhibits
and schedules. For further information with respect to us and the common stock
being offered, reference is made to the registration statement and the related
exhibits and schedule. Statements contained in this prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and, in each instance, reference is made to the copy
of the contract or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by the reference. A
copy of the registration statement and the related exhibits and schedule may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from these offices upon the payment
of the fees prescribed by the Commission. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov. Upon approval of our common stock for quotation on
the Nasdaq SmallCap Market, our reports, proxy statements and other information
may be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
We intend to provide our stockholders with annual reports containing
combined financial statements audited by an independent accounting firm and to
file with the Commission quarterly reports containing unaudited combined
financial data for the first three quarters of each year.
79
<PAGE>
BURST.COM, INC.
(FORMERLY INSTANT VIDEO TECHNOLOGIES, INC.)
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997, 1998 and 1999
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Burst.com, Inc. (formerly Instant Video Technologies, Inc.):
We have audited the accompanying consolidated balance sheet of Burst.com, Inc.
(formerly Instant Video Technologies, Inc.) and subsidiaries as of December 31,
1999 and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Burst.com, Inc. and
subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
San Francisco, California
March 24, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Instant Video Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Instant Video
Technologies, Inc. and subsidiary (the Company) as of December 31, 1998 and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the two-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Instant Video
Technologies, Inc. and subsidiary as of December 31, 1998, and the results of
their operations and their cash flows for the each of the years in the two-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has negative cash flows from operating activities that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG LLP
San Francisco, California
March 19, 1999
F-2
<PAGE>
<TABLE>
BURST.COM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31, 1999
---------------------------- (Proforma
1998 1999 Note 11)
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,212,141 $ 302,979 $13,585,039
Prepaid expenses 26,053 63,893 63,893
Receivables - Series B Convertible
Preferred Stock (Note 4) 810,000 -- --
------------ ------------ -----------
Total current assets 3,048,194 366,872 13,648,932
Property and equipment, net (Note 2) 184,616 725,412 725,412
Other assets 16,812 36,457 36,457
------------ ------------ -----------
$ 3,249,622 $ 1,128,741 $14,410,801
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable (Notes 3 and 11) $ 22,736 $ 4,834,847 $ --
Accounts payable 252,044 1,384,289 1,384,289
Accrued expenses (Note 5) 181,484 208,374 208,374
Accrued interest (Note 3) -- 114,277 44,124
Deferred revenue -- 51,600 51,600
------------ ------------ -----------
Total liabilities 456,264 6,593,387 1,688,387
------------ ------------ -----------
Commitments, contingencies and subsequent
events (Notes 6, 8, 10 and 11)
Stockholders' equity/deficit (Notes 4 and 11):
Convertible Preferred stock, $.00001 par value,
20,000,000 shares authorized:
Series A, 2,025,000 and 2,020,000
shares issued and outstanding
liquidation preference of $2,025,000
and $2,020,000 (proforma issued and
outstanding, zero) 20 20 --
Series B, 2,476,609 shares issued and
outstanding, Liquidation preference of
$18,574,568 and $20,803,516
(proforma issued and outstanding, zero) 25 25 --
Common stock, $.00001 par value, 100,000,000
shares authorized; 7,940,966 and 9,535,527
shares issued and outstanding (proforma
issued and outstanding, 18,840,511 shares) 79 95 188
Additional paid in capital 27,251,399 31,971,108 50,158,120
Accumulated deficit (24,458,165) (37,435,894) (37,435,894)
------------ ------------ -----------
Stockholders' equity (deficit) 2,793,358 (5,464,646) 12,722,414
------------ ------------ -----------
$ 3,249,622 $ 1,128,741 $14,410,801
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
BURST.COM, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Revenue (Note 8) $ 247,879 $ 15,000 $ --
Cost of revenues 230,210 -- --
----------- ------------ ------------
17,669 15,000 --
----------- ------------ ------------
Costs and expenses:
Research and development, including
$1,330,000 in purchased research
and development costs in 1999 (Note 4) 189,719 800,567 4,076,732
Sales and marketing 408,369 830,998 4,185,517
General and administrative 1,348,218 3,047,302 3,247,370
----------- ------------ ------------
Total costs and expenses 1,946,306 4,678,867 11,509,619
----------- ------------ ------------
Loss from operations (1,928,637) (4,663,867) (11,509,619)
----------- ------------ ------------
Other income (expense):
Interest, net (139,013) (2,252,553) (1,468,110)
Other income, net 5,277 -- --
----------- ------------ ------------
Total other expense (133,736) (2,252,553) (1,468,110)
----------- ------------ ------------
Net loss $(2,062,373) $ (6,916,420) $(12,977,729)
=========== ============ ============
Net loss applicable to Common Stockholders:
Net Loss $(2,062,373) $ (6,916,420) $(12,977,729)
Beneficial conversion feature of
Series B Preferred Stock -- (8,762,425) --
----------- ------------ ------------
Net loss applicable to Common Stockholders $(2,062,373) $(15,678,845) $(12,977,729)
=========== ============ ============
Basic and diluted net loss per common share $ (0.39) $ (2.35) $ (1.42)
=========== ============ ============
Weighted Average Shares used in per share computation 5,259,304 6,658,738 9,121,647
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
BURST.COM, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<CAPTION>
(Notes 3, 4 and 11) Common Stock Preferred Stock Additional
------------------ -------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital deficit Total
--------- ------ ---------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 4,803,553 $ 50 1,975,000 $ 20 $ 6,776,983 $ (6,716,947) $ 60,106
Preferred stock offering -- -- 650,000 7 549,993 -- 550,000
Exercise of warrants 400,000 4 -- -- 399,996 -- 400,000
Value assigned to warrants
upon issuance of debt -- -- -- -- 69,000 -- 69,000
Conversion of preferred stock
to common stock 500,000 5 (500,000) (5) -- -- --
Net loss -- -- -- -- -- (2,062,373) (2,062,373)
--------- ------ ---------- ------ ----------- ------------ ------------
Balance at December 31, 1997 5,703,553 59 2,125,000 22 7,795,972 (8,779,320) (983,267)
Series B Preferred Stock issuances -- -- 2,105,000 21 3,873,979 -- 3,874,000
Warrants issued in connection
with the issuance of Series B
Preferred Stock -- -- -- -- 336,000 -- 336,000
Common stock issuance 14,921 -- -- -- 10,000 -- 10,000
Exercise of stock options 139,501 1 -- -- 1,138,951 -- 1,138,952
Exercise of warrants 700,000 6 -- -- 749,994 -- 750,000
Conversion of debt and
accrued interest 1,082,991 10 371,609 3 1,736,983 -- 1,736,996
Warrants issued upon conversion of
convertible debt -- -- -- -- 172,000 -- 172,000
Value assigned to warrants, stock
grants, and beneficial conversion
feature upon issuance of debt 200,000 2 -- -- 1,947,369 -- 1,947,371
Stock options issued for services
performed -- -- -- -- 727,726 -- 727,726
Conversion of Series A Preferred
Stock to common stock 100,000 1 (100,000) (1) -- -- --
Beneficial conversion feature of
Series B Preferred Stock -- -- -- -- 8,762,425 (8,762,425) --
Net loss -- -- -- -- -- (6,916,420) (6,916,420)
--------- ------ ---------- ------ ----------- ------------ ------------
Balance at December 31, 1998 7,940,966 79 4,501,609 45 27,251,399 (24,458,165) 2,793,358
Exercise of stock options 111,800 1 -- -- 112,549 -- 112,550
Exercise of warrants 1,277,262 13 -- -- 1,537,487 -- 1,537,500
Value assigned to warrants and
beneficial conversion feature upon
issuance of debt -- -- -- -- 1,467,146 -- 1,467,146
Stock issued for services performed 499 -- -- -- 4,054 -- 4,054
Stock options issued for services
performed -- -- -- -- 268,475 -- 268,475
Conversion of Series A Preferred Stock
to common stock 5,000 -- (5,000) -- -- -- --
Purchased research and development
costs 200,000 2 -- -- 1,329,998 -- 1,330,000
Net loss -- -- -- -- -- (12,977,729) (12,977,729)
--------- ------ ---------- ------ ----------- ------------ ------------
Balance at December 31, 1999 9,535,527 $ 95 4,496,609 $ 45 $31,971,108 $ 37,435,894) $ (5,464,646)
========= ====== ========== ====== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
BURST.COM, INC.AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,062,373) $(6,916,420) $(12,977,729)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 92,176 58,531 209,198
Loss on disposal of equipment 5,275 5,133 --
Write off patent costs and other assets 95,735 -- --
Non-cash interest expense 69,000 2,228,940 1,396,993
Stock options issued for services
performed -- 727,726 272,529
Compensation from cashless exercise
of stock options -- 1,137,499 --
Purchased research and development -- -- 1,330,000
Payment of legal fees by issuance of
note payable -- -- 25,000
Changes in operating assets and liabilities:
Accounts receivable 1,421 -- --
Costs and estimated earnings in excess of
billings on uncompleted contracts 136,400 -- --
Prepaid expenses 6,982 5,407 (37,840)
Other assets 35,101 757 (19,645)
Accounts payable (94,237) 218,018 1,132,245
Accrued expenses (59,218) 88,702 26,890
Accrued interest 13,231 (43,044) 114,277
Deferred revenue -- -- 51,600
----------- ----------- ------------
Net cash used in operating activities (1,760,507) (2,488,751) (8,476,482)
Cash flows from investing activities:
Purchases of property and equipment (85,367) (162,669) (749,994)
----------- ----------- ------------
Cash flows from financing activities:
Payment of receivables from Series B
Convertible Stock offering -- -- 810,000
Proceeds from sale of stock 550,000 3,410,000 --
Proceeds from exercise of warrants
and stock options 400,000 751,453 1,650,050
Proceeds from debt 1,054,210 1,572,736 4,880,000
Repayment of debt (346,398) (891,179) (22,736)
----------- ----------- ------------
Net cash provided by financing activities 1,657,812 4,843,010 7,317,314
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents (188,062) 2,191,590 (1,909,162)
Cash and cash equivalents, beginning of year 208,613 20,551 2,212,141
----------- ----------- ------------
Cash and cash equivalents, end of year $ 20,551 $ 2,212,141 $ 302,979
=========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid for state franchise tax $ 800 $ 800 $ 800
=========== =========== ============
Cash paid for interest $ 56,782 $ 65,935 $ 7,374
=========== =========== ============
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
In 1999, six notes payable issued in exchange for $335,000 were issued with
front end warrants resulting in a discount to notes payable of $70,153.
In 1999, 5,000 shares of Series A (formerly Series F) Preferred Stock was
converted into 5,000 shares of common stock.
In 1998 Series B Convertible Stock was sold for $810,000 not collected until
January 1999.
In 1998, debt and accrued interest of $1,736,996 was converted to Series B
Preferred Stock and common stock.
In 1998, 100,000 shares of Series A Convertible Preferred Stock was converted to
100,000 shares of common stock.
In 1997, 500,000 shares of Series E Preferred Stock was converted to 500,000
shares of Common Stock.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BURST.COM, INC. AND SUBSIDIARIES
(formerly Instant Video Technologies, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE OF NAME
On January 27, 2000 the Company changed its name from Instant Video
Technologies, Inc. to Burst.com, Inc.
DESCRIPTION OF BUSINESS
Burst.com, Inc., formerly Instant Video Technologies, Inc. (the Company),
licenses burst transmission software for use within commercial, multimedia
and interactive environments. The burst technology allows for time
compression and burst transmission of video/audio programming that results
in time-savings, network efficiency and superior quality products.
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Explore Technology, Inc. and
Timeshift-TV. All significant intercompany transactions and accounts have
been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents consist of money market accounts and other highly liquid
investments with an original maturity of three months or less.
REVENUE RECOGNITION
In 1997, the Company primarily derived its revenues from custom software
license fees and professional services. License fees and services were
recognized as revenue ratably over the license or service period. The
Company's revenue in 1998 consisted of one, non-recurring sale of test
software that was recognized upon delivery.
Effective January 1, 1998, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position (SOP) No. 97-2, which
provided revised guidance for recognizing revenue on certain software
transactions. No revenue is recognized until evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable and
collection is probable. Adoption of the new SOP had no effect on
recognition of revenue, results of operations or financial position.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets
which range from three to five years.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred until
such time as both technological feasibility is established and future
economic benefit is assured. To date, such conditions have not been
satisfied, and, accordingly, all software engineering and development costs
have been expensed as incurred. See note 4 for certain in-process research
and development purchased in 1999.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. The Company incurred
$582,700 of advertising expense in 1999 and none in 1998 and 1997.
F-7
<PAGE>
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities, and, their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recorded
for deferred tax assets if management determines it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
LOSS PER SHARE AND DILUTIVE SECURITIES
Basic net loss per share is based on the weighted average number of shares
of common stock outstanding. Diluted net loss per share is based on the
weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options and warrant outstanding using
the treasury stock method.
The following table sets forth the computation of basic and diluted net
loss per shared for the periods indicated:
Years ended December 31,
-------------------------------------------
1997 1998 1999
----------- ------------ ------------
Numerator:
Net loss applicable to
common shareholders $(2,062,373) $(15,678,845) $(12,977,729)
Denominator:
Weighted average shares 5,259,304 6,658,738 9,121,647
Net loss per share:
Basic and diluted $ (0.39) $ (2.35) $ (1.42)
=========== ============ ============
The following is a summary of the securities that could potentially dilute basic
loss per share in the future that were not included in the computation of
diluted loss per share because to do so would be antidilutive.
Years ended December 31,
-----------------------------------
1997 1998 1999
--------- ---------- ----------
Convertible Preferred 2,125,000 4,501,609 4,496,609
Options 2,538,630 6,289,263 6,925,863
Warrants 1,961,000 2,010,210 905,384
Convertible debt 303,206 -- --
--------- ---------- ----------
Total 6,927,836 12,801,082 12,327,856
========= ========== ==========
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash equivalents, accounts
receivable, accounts payable, and debt. The Company believes the reported
amounts of its financial instruments approximates fair value, based upon
the short maturity of cash equivalents, accounts receivable and payable and
based on the current rates available to the Company or similar debt issuer.
F-8
<PAGE>
STOCK-BASED COMPENSATION
The Company accounts for its stock based compensation plans for employees
using the intrinsic value method as described in Accounting Principles
Board Opinion (APB) No. 25 "Stock Based Compensation" as permitted by
Statement of the Financial Accounting Standards Board (SFAS) No. 123
"Accounting for Stock-Based Compensation." As such, compensation expense is
recorded if on the measurement date, which is generally the date of grant,
the current fair value of the underlying stock exceeds the exercise price.
The equity instruments issued to non-employees are accounted for at fair
value. The fair value of the equity instrument is determined using either
the fair value of the underlying stock or the Black-Scholes option pricing
model.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates. The Company's most significant estimates
are those related to the valuation of stock, stock options and warrants in
connection with equity and financing transactions.
COMPREHENSIVE INCOME
The Company has no component of comprehensive income other than its
reported amounts of net loss applicable to holders of common stock.
RECLASSIFICATIONS
Certain items have been reclassified to conform to current year
presentation.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
----------------------
1998 1999
--------- ---------
Computer equipment $ 192,816 $ 671,870
Furniture 18,627 55,666
Office equipment 4,459 7,867
Software 22,016 95,724
Trade show booth -- 92,637
Leasehold improvements 8,270 72,417
--------- ---------
246,188 996,181
Less accumulated depreciation (61,572) (270,769)
--------- ---------
$ 184,616 $ 725,412
========= =========
(3) DEBT
December 31,
------------------------
1998 1999
---------- -----------
NOTES PAYABLE
7.75% notes payable to Storie Partners, $ -- $ 2,000,000
interest and principal due in varying
amounts July through October, 2000
7.75% notes payable to Mercer Management, -- 1,350,000
Inc., interest and principal due in
varying amounts September through
December, 2000
7.75% note payable to Reed Slatkin, -- 520,000
interest and principal due July, 2000
7.75% note payable to Robert S. London, -- 500,000
interest and principal due July, 2000
7.75% note payable to Don Renkie Investment -- 110,000
Group, interest and
F-9
<PAGE>
principal due December, 2000 (*)
7.75% note payable to Shirley Reynolds Rock, -- 100,000
interest and principal due September, 2000
7.75% note payable to Dana Reynolds Rock, -- 100,000
interest and principal due September, 2000
7.75% note payable to Frank Kramer, interest -- 75,000
and principal due December, 2000 (*)
7.75% note payable to Universal Assurors -- 50,000
Agency, Inc., interest and principal due
April, 2000 (*)
7.75% note payable to Keith Koch, interest -- 50,000
and principal due December, 2000 (*)
7.75% note payable to Robert Walter, interest -- 25,000
and principal due December, 2000 (*)
7.75% note payable to Bay Venture Counsel, -- 25,000
interest and principal due December, 2000 (*)
Other 22,736 --
---------- -----------
22,736 4,905,000
Less unamortized original issue discount -- (70,153)
---------- -----------
$ 22,736 $ 4,834,847
========== ===========
All of the notes issued during 1999 are convertible into common stock (see
Note 4) at a price which shall be the lower of: (1) $6.50, (2) 80% of the
average closing price of the Company's publicly traded shares in the 20
trading days immediately preceding the closing of an ongoing private
placement, or (3) the price agreed in that private placement. Accordingly,
interest expense of $1,396,993 has been recorded for the beneficial
conversion feature of these notes. In addition six (*) of the notes payable
issued in exchange for $335,000 were issued with 20,936 warrants to
purchase common stock at $5 per share, resulting in a discount to notes
payable of $70,153 based on the fair value of the warrants issued. All
notes outstanding at December 31, 1999 were converted into common stock in
January 2000 (see Note 11).
During 1998, the Company issued 10-1/2% notes totaling $1,550,000 plus
accrued interest. Certain of these notes contained beneficial conversion
features allowing immediate conversion to common and Series B Convertible
Preferred Stock (Series B Preferred Stock) at below-market rates. Similar
beneficial conversion features were later added to the remaining notes.
Additionally, 200,000 shares of common stock, plus warrants to purchase
335,000 shares of common stock at $1.00 to $2.36 per share, were granted to
various noteholders. Accordingly, $1,947,400 was charged to interest
expense for the beneficial conversion features and the fair value of the
stock and warrants issued.
During 1998, the 10-1/2% notes plus accrued interest of $164,200 were
converted into 1,082,991 and 371,609 shares of common stock and Series B
Preferred Stock, respectively (see Note 4). In connection with this
conversion, the noteholders received warrants to purchase 48,310 shares of
common stock at $2.00 per share, expiring in December 2001. Accordingly,
the resulting $172,000 value of the warrants, calculated on the
Black-Scholes option pricing model, was also charged to interest expense.
(4) EQUITY
Convertible Preferred Stock (see also Common Stock below)
In February 1996, the Company amended its articles of incorporation and
authorized the issuance of up to 5,000,000 shares of Series F Convertible
Preferred Stock and warrants to purchase common stock of the Company. As a
result, the Company obtained financing in the net amount of $1,475,000 in
1996 and $550,000 in 1997 of Series F Convertible Preferred Stock and
warrants to purchase 2,025,000 shares of common stock of the Company at $1
per share. In 1998, Series F was renamed Series A Convertible Preferred
Stock (Series A Preferred Stock).
F-10
<PAGE>
The price of each share of Series A Preferred Stock was $1.00 and may be
converted into one share of the Company's common stock. The exercise price
of the common stock warrants is $1.00 per share. The offering grants the
investors the right to appoint two directors, certain registration rights,
and the right of first refusal on new finance offerings for a limited
period of time.
During 1998, when the market prices of common stock ranged from $3.19 to
$8.44 per share, the Company issued 2,105,000 shares of $0.01 par value
Series B Preferred Stock, with warrants to purchase 321,960 shares of the
Company's common stock at $2.00 per share. As a result, the Company
recorded a charge to accumulated deficit of $8,762,425 for this beneficial
conversion feature. The Company received cash proceeds of $4,210,000. Out
of the total cash proceeds, $810,000 was collected subsequent to December
31, 1998 at various dates between January 4 and January 8, 1999 and thus
was recorded as a receivable as of December 31, 1998. The issued preferred
stock can be converted into shares of common stock on a one for one basis.
The preferred stock agreements provide for the holders of preferred stock
to participate in dividends as and if declared on common and preferred
stock and the right to elect one director to the Company's board of
Directors. The preferred stockholders have the right to convert their
shares into the Company's common stock on a 1 for 1 basis and have
liquidation preference increasing over time from $7.50 to $9.30 per share
after 3 years. The preferred stock has antidilution provisions and
registration rights.
Common Stock
During 1998, $72,300, $488,700 and $375,000 of convertible debt (see Note
3) and accrued interest of $56,800 were converted to common stock at
conversion prices of $2.00, $1.00, and $0.75 per share, respectively.
Another $725,000 of convertible debt and accrued interest of $19,200 was
converted to Series B Preferred Stock at $2.00 per share. In connection
with the conversions to Series B Preferred Stock, the Company granted the
noteholders 48,310 warrants to purchase common stock at $2.00 per share
(see Note 3).
During 1999 the Company issued 499 shares of common stock to a contractor
in lieu of services performed. An expense of $4,054 was recorded as sales
and marketing expense, based on the fair value of the shares issued.
During 1999 the Company acquired certain intellectual property owned by
Timeshift-TV Inc. for 200,000 shares of common stock. The Company recorded
$1,330,000 of expense for the in-process research and development costs
purchased in connection with this acquisition. Timeshift-TV Inc, an
inactive corporation which owned patented rights sought by the Company, was
owned at the time of purchase by the Company's president and two of the
Company's management employees.
Warrants
At December 31, 1999, warrants are outstanding as follows:
Warrants issued upon 1998 issuance of convertible debt,
$2.00 per share 382,000
Warrants issued upon 1998 conversion of convertible debt
to Series B Preferred Stock, $2.00 per share 48,310
Warrants issued upon 1998 sale of Series B Preferred Stock,
$2.00 per share 273,650
Warrants issued upon 1999 conversion of Series A Preferred
Stock to Common stock, $1.50 per share 180,488
Warrants issued upon 1999 issuance of convertible debt,
$5.00 per share 20,936
-------
905,384
=======
During 1999 the Company issued debt of $4,905,000, in the form of notes
payable, containing a beneficial conversion feature which resulted in the
Company recording an interest expense of $1,396,993 (see Note 3). Certain
of these notes were issued
F-11
<PAGE>
with warrants covering 20,936 shares of common stock with a strike price of
$5.00, expiring in five years. This resulted in an additional expense to
the Company of $70,153 based on the fair value of the warrants issued.
Stock Options
On November 6, 1992, the Board of Directors adopted the 1992 Stock
Incentive Plan. Under the plan, the Board may grant options to officers,
key employees, directors and consultants. Incentive stock options may be
granted at not less than 100% of the fair market value of the stock on the
date the option is granted. The option price of stock not intended to
qualify as incentive stock options may not be less than 85% of the fair
market value on the date of grant. The maximum term of the options cannot
exceed ten years. A total of 3,500,000 shares has been reserved for
issuance under the plan.
On April 29, 1998 the Board of Directors adopted the 1998 Stock Incentive
Plan. Under the plan, the Board may grant options to officers, key
employees, directors and consultants. Incentive stock options may be
granted at not less than 100% of the fair market value of the stock on the
date the option is granted. The option price of stock not intended to
qualify as incentive stock options may not be less than 85% of the fair
market value on the date of grant. The maximum term of the options cannot
exceed ten years. A total of 4,000,000 shares have been reserved for
issuance under the plan.
On August 23, 1999, the Board of Directors adopted the 1999 Stock Incentive
Plan. Under the plan, the Board may grant options to officers, key
employees, directors and consultants. Incentive stock options may be
granted at not less than 100% of the fair market value of the stock on the
date the option is granted. The option price of stock not intended to
qualify as incentive stock options may not be less than 85% of the fair
market value on the date of grant. The maximum term of the options cannot
exceed ten years. A total of 3,000,000 shares have been reserved for
issuance under the plan.
During 1998, the Company issued stock options in lieu of cash for services
performed, covering approximately 550,000 shares of the Company's common
stock at exercise prices ranging from $1.00 to $3.50 per share, expiring
between September 2000 and December 2003. $727,726 was recorded as a
general and administrative expense based on the fair value of the stock
options issued.
During 1999, the Company issued stock options in lieu of cash for services
performed, covering 120,621 shares of the Company's common stock at
exercise prices ranging from $2.19 to $9.72 per share, expiring between
February 2000 and December 2004. $105,805 was recorded as a general and
administrative expense, $160,588 was recorded as a sales and marketing
expense and $2,082 was recorded as a research and development expense based
on the fair value of the stock options issued.
The per share weighted average fair value of stock options granted during
1998 and 1999 was $1.73 and $5.23, respectively, on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions: volatility of 136% and 117%, respectively, expected dividend
yield 0% for both years, risk free interest rate of approximately 5% for
both years, and an expected life of 1.5 and 3.5 years, respectively.
Stock option activity for 1997, 1998 and 1999 follows:
Weighted
Number of Average
Shares Exercise Price
------ --------------
Balance on December 31, 1996 2,864,774 $ 1.52
Options granted 286,356 1.00
Options forfeited (500,000) 1.00
Options expired (112,500) 1.39
--------- --------
Balance on December 31, 1997 2,538,630 1.85
Options granted 4,117,101 3.01
Options exercised (139,501) 2.28
Options expired (105,719) 2.65
Options forfeited (121,248) 1.56
--------- --------
Balance on December 31, 1998 6,289,263 2.52
F-12
<PAGE>
Options granted 1,302,000 6.65
Options exercised (111,800) 1.01
Options expired (200,000) 1.00
Options forfeited (353,600) 2.78
--------- --------
Balance on December 31, 1999 6,925,863 $ 3.36
========= ========
Stock options outstanding and exercisable at December 31, 1999 from the 1992,
1998 and 1999 Plans consisted of:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------- -----------------------------------
Weighted Weighted
Weighted Average Weighted Average
Shares Average Remaining Shares Average Remaining
Price Outstanding Price Life Outstanding Price Life
----- ----------- ----- ---- ----------- ----- ----
<S> <C> <C> <C> <C> <C> <C>
$0.90 - $1.00 1,453,580 $1.00 4.90 1,453,580 $1.00 4.90
$1.37 - $2.91 1,166,556 $2.15 3.42 917,538 $2.11 3.34
$3.00 - $3.16 371,327 $3.07 3.62 176,126 $3.08 3.63
$3.50 2,375,400 $3.50 3.51 1,497,031 $3.50 3.47
$3.75 - $9.72 1,559,000 $6.31 4.35 478,083 $4.70 3.98
--------- ----- ---- ---------- ----- ----
Total $0.90 to $9.72 6,925,863 $3.36 3.98 4,522,358 $2.53 3.96
========= ===== ==== ========= ===== ====
</TABLE>
The Company accounts for employee and director stock options under the
intrinsic value method permitted by APB No. 25. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options consistent with the fair value method described in SFAS No. 123,
the Company's net loss applicable to common stockholders and net loss per
share would have been increased to pro forma amounts indicated below:
Years ended December 31,
-------------------------------------------
1997 1998 1999
----------- ------------ ------------
Net loss applicable to
common shareholders, as
reported $(2,062,373) $(15,678,845) $(12,977,729)
Pro forma $(2,071,358) $(16,960,138) $(17,356,452)
Net loss per share as
reported $ (0.39) $ (2.35) $ (1.42)
Pro forma $ (0.39) $ (2.55) $ (1.90)
(5) ACCRUED EXPENSES
Accrued expenses are comprised of the following:
December 31,
-------------------
1998 1999
-------- --------
Employee benefits $ 64,711 $163,828
Professional services 116,773 44,546
-------- --------
Total $181,484 $208,374
======== ========
(6) LEASE COMMITMENTS
The Company leases its office space under an operating lease expiring in
2002.
Years ended December 31,
-------------------------------
1997 1998 1999
-------- --------- --------
Rent expense $ 91,000 $ 104,969 $299,077
======== ========= ========
F-13
<PAGE>
The following is a summary of future minimum lease payments for operating
leases at December 31, 1999:
Operating
Years Ending December 31: Leases
------------------------- ------
2000 $442,100
2001 439,600
2002 36,000
--------
Total lease payments $917,700
========
(7) INCOME TAXES
At December 31, 1999 the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $21,329,000 and
$9,522,000 respectively, which, are available to offset future taxable
income, if any, through 2019 and 2004, respectively.
Actual income tax benefit differs from the benefit expected by applying the
federal statutory rate of 34% to pretax loss as follows:
Years ended December 31,
---------------------------------------
1997 1998 1999
--------- ----------- -----------
Expected tax benefit $(701,000) $(2,352,000) $(4,412,000)
State tax benefit, net of
federal effect (61,000) (207,000) (715,000)
Non deductible equity
adjustment -- -- 442,000
Research and experimentation
credit (4,000) (31,000) (289,000)
Increase in valuation
allowance 589,000 2,250,000 4,096,000
Other 177,000 340,000 (878,000)
--------- ----------- -----------
Actual tax benefit $ -- $ -- $ --
========= =========== ===========
The temporary differences that give rise to deferred tax assets and
liabilities at December 31, 1998 and 1999 are as follows:
December 31,
--------------------------
1998 1999
----------- -----------
Deferred tax assets:
Net operating loss carryforwards
for income taxes $ 5,068,400 $ 7,807,400
Accruals 10,400 62,500
Capitalized research and experimentation -- 984,400
Research and experimentation credit
carryforward 137,100 449,900
Patents 43,500 41,500
----------- -----------
Total gross deferred tax assets 5,259,400 9,345,700
Less valuation allowance (5,247,800) (9,343,600)
----------- -----------
Net deferred tax assets 11,600 2,100
----------- -----------
Deferred tax liabilities-depreciation and
amortization (11,600) (2,100)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
The net change in the valuation allowance for 1997, 1998 and 1999 was an
increase of $589,100, $2,250,300 and $4,095,800, respectively. In assessing
the amount of deferred tax assets to be recognized, management considers
whether it is more likely
F-14
<PAGE>
than not that some portion or all of the deferred tax assets will not be
realized. Management cannot determine at this time that the deferred tax
assets are more likely to be realized than not; accordingly, a full
valuation allowance has been established.
The Tax Reform Act of 1986 imposed substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change," as defined by the Internal Revenue Code. All federal
and state net operating loss carryforwards are subject to limitation as a
result of these restrictions. If there should be a subsequent ownership
change, as defined, the Company's ability to utilize its carryforwards
could be reduced.
(8) CONCENTRATIONS AND SEGMENT DISCLOSURES
The Company's primary source of future revenue is from the licensing of
burst technology and the Company's eventual success will be largely
dependent on this product. Changes in desirability of the product in the
marketplace may significantly affect the Company's future operating
results.
The Company operates in one segment and, accordingly only enterprise-wide
disclosure is presented. The Company recognized no foreign revenues in
1997, 1998 or 1999.
(9) RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, The American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1
requires that certain costs related to the development or purchase if
internal-use software be capitalized and amortized over the estimated
useful life of the software. The adoption of SOP No. 98-1 as of January 1,
1999, did not have a material impact on its results of operations
The FASB recently issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 addresses the accounting
for derivative instruments, including derivative instruments embedded in
other contracts. Under SFAS No. 133, entities are required to carry all
derivative instruments in the balance sheet at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a certain
derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship, and, if so, the reason for
holding it. SFAS No. 133, as amended, is effective for years beginning
after July 15, 2000. The Company historically has not used derivatives or
hedges and thus believes adoption of this standard will have little or no
effect.
(10) LEGAL SETTLEMENT
In October of 1996, the Company entered into a settlement agreement with
certain investors in connection with the Company's Series F convertible
stock financing pursuant to a consulting agreement. The settlement required
the Company to pay $110,000. In October 1997 the amounts outstanding were
consolidated into one convertible promissory note maturing on March 31,
1999. Monthly payments of principal and interest were made on this note
through November 1998, at which time the remaining balance of $24,333 was
converted into common stock.
(11) SUBSEQUENT EVENTS
During January, 2000 the Company received $430,000 evidenced by notes
payable convertible into common stock, due in one year. The conversion rate
was the same as the convertible notes issued in 1999 (see Note 3). Upon
completion of the private placement discussed in the following paragraph,
these and all other notes currently outstanding (see Note 3), totaling
$5,335,000, were converted as of January 31, 2000. The conversion price was
$4.00 per share of common stock plus one warrant per share of common stock
acquired by conversion. Each warrant has an exercise price of $5.00 and
expires 5 years from the date of issue.
The Company completed a purchase and sales agreement of its common stock in
January 2000. In addition to the conversion of notes outstanding referred
to above, the Company received $13,898,500 in cash from various investors,
including some directors and employees of the company, in exchange for
4,808,375 shares of common stock and 4,808,375 warrants to purchase common
stock, offset by approximately $1,046,000 in transactions costs. The price
per share of common stock was $4.00. Each warrant is exercisable for one
share of common stock at an exercise price of $5.00 per share and expires 5
years from the date of issue. Compensation expense of $79,313 was recorded
as a result of sales of stock to employees.
F-15
<PAGE>
At the same time, conditioned on the closing of the above private placement
financing, all holders of preferred stock agreed to exchange their
preferred stock for common stock at a 1:1 conversion. The proforma column
of the accompanying balance sheets gives effect to these transactions as if
they had occurred on December 31, 1999. The following table summarizes the
capitalization of the Company before and after these events.
Outstanding Fully Diluted Shares
--------------------------------
Prior to After
Financing & Financing &
Conversion Conversion
---------- ----------
Common stock 9,535,527 18,840,511
Preferred Series A 2,020,000 --
Preferred Series B 2,476,609 --
Stock Options 6,954,020 6,954,020
Warrants 921,006 5,828,251
---------- ----------
Total Fully Diluted Shares 21,907,162 31,622,782
========== ==========
The Company granted options to purchase 90,250 shares of common stock to
employees on February 1, 2000. Of these options, options to purchase 45,125
shares were issued with an exercise price of $4.00 per share and expire on
April 30, 2000. The remaining options to purchase 45,125 shares were issued
with an exercise price of $5.00 per share and expire 5 years from the issue
date. To the extent that any of the options with an exercise price of $4.00
per share are not exercised by April 30, 2000, then options to purchase a
equal number of shares at an exercise price of $5.00 will terminate. As a
result of these grants, the Company recorded compensation expense of
$22,563.
F-16
<PAGE>
II-1
PART II
[INFORMATION NOT REQUIRED IN PROSPECTUS]
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, all of which will be
paid by Nogatech. All amounts are estimates, other than the registration fee,
the NASD filing fee, and the Nasdaq National Market listing fee.
SEC Registration fee............................... $19,953
Nasdaq National Market listing fee................. *
Accounting fees and expenses....................... *
Legal fees and expenses............................ *
Director and officer insurance expenses............ *
Printing and engraving expenses.................... *
Transfer agent fees and expenses................... *
Blue sky fees and expenses......................... *
Miscellaneous fees and expenses.................... *
-------
Total ..........................................$
=
*To be completed by amendment.
Item 14. Indemnification of Directors and Officers.
Section 102 of the Delaware General Corporation Law, or the DGCL, as
amended, allows a corporation to eliminate the personal liability of directors
of a corporation to the corporation or its stockholders for monetary damages for
a breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that we may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by us or in our right) by reason of the fact that the person is or was
our director, officer, agent or employee or is or was serving at our request as
a director, officer, agent, or employee of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys'
fees, judgment, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with the action, suit or proceeding. The
power to indemnify applies (a) if the person is successful on the merits or
otherwise in defense of any action, suit or proceeding, or (b) if the person
acted in good faith and in a manner he reasonably believed to be in our best
interest, or not opposed to our best interest, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The power to indemnify applies to
II-1
<PAGE>
actions brought by us or in our
right as well, but only to the extent of defense expenses (including attorneys'
fees but excluding amounts paid in settlement) actually and reasonably incurred
and not to any satisfaction of judgment or settlement of the claim itself, and
with the further limitation that in these actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct in the
performance of his duties to us, unless the court believes that in light of all
the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director,
who willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for these actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to
these actions to be entered in the books containing the minutes of the meetings
of the board of directors at the time the action occurred or immediately after
the absent director receives notice of the unlawful acts.
Our certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach of
fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
o under the section 174 of the DGCL regarding unlawful dividends
and stock purchases; or
o for any transaction from which the director derived an
improper personal benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that:
o we must indemnify our directors and officers to the fullest
extent permitted by Delaware law;
o we may indemnify our other employees and agents to the same
extent that we indemnified our officers and directors, unless
otherwise determined by our board of directors; and
o we must advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to
the fullest extent permitted by Delaware law.
II-2
<PAGE>
The indemnification provisions contained in our certificate of
incorporation and bylaws are not exclusive of any other rights to which a person
may be entitled by law, agreement, vote of stockholders or disinterested
directors or otherwise. In addition, we maintain insurance on behalf of our
directors and executive officers insuring them against any liability asserted
against them in their capacities as directors or officers or arising out of this
status.
We intend to enter into agreements to indemnify our directors and
executive officers, in addition to indemnification provided for in our bylaws.
These agreements, among other things, will provide for indemnification of our
directors and executive officers for expenses, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding arising out of
the person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
Item 15. Recent Sales of Unregistered Securities.
2000:
As of January 31, 2000 we sold 4,808,375 shares of common stock at a
purchase price of $4.00 per share, for an aggregate purchase price of $19.2
million. We raised $13.9 million in cash in the offering, and the remaining $5.3
million was conversion of notes payable. In addition to the common shares,
purchasers also received warrants to purchase up to an aggregate of 4,808,375
shares of our common stock, at an exercise price of $5.00 per share. The
warrants are exercisable for a term of five years from the date of issuance.
Cash Purchases:
Investor Amount Invested Common Shares Warrants
-------- --------------- ------------- --------
Special Situations Funds $ 4,000,000 1,000,000 1,000,000
Chelsey Capital 3,000,000 750,000 750,000
BayStar Capital 3,000,000 750,000 750,000
Ravinia Capital Ventures 2,374,000 593,500 593,500
Erik Franklin 400,000 100,000 100,000
Dorothy Lyddon 200,000 50,000 50,000
Kyle Faulkner 250,000 62,500 62,500
Doug Glen 100,000 25,000 25,000
Others (under $100,000) 574,500 143,625 143,625
----------- --------- ---------
Total Cash Purchases $13,898,500 3,474,625 3,474,625
=========== ========= =========
II-3
<PAGE>
Conversion of Notes Payable:
---------------------------
Investor Notes Converted Common Shares Warrants
-------- --------------- ------------- --------
Storie Partners $ 2,000,000 500,000 500,000
Mercer Management 1,550,000 387,500 387,500
Reed Slatkin 520,000 130,000 130,000
Robert London 500,000 125,000 125,000
Independence Properties LLC 100,000 25,000 25,000
Others (under $100,000) 665,000 166,250 166,250
Total Note Conversions $ 5,335,000 1,333,750 1,333,750
=========== ========= =========
During January 2000, we received an additional $430,000 evidenced by
notes payable convertible into our common stock, due in one year. The conversion
rate was the lower of (1) $6.50, (2) 80% of the average closing price of our
publicly traded shares in the 20 trading days immediately preceding the closing
of an ongoing private placement, or (3) the price agreed in that private
placement.
1999:
During the period July 1999 through December 31, 1999, we received
$4,905,000 evidenced by notes payable convertible into our common stock, due in
one year. The conversion rate was the lower of (1) $6.50, (2) 80% of the average
closing price of our publicly traded shares in the 20 trading days immediately
preceding the closing of an ongoing private placement, or (3) the price agreed
in that private placement. (See Item 2. Financial Information - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources, June 30, 1999 vs. December 31, 1998" and "Item
7. Certain Relationships and Related Transactions").
On August 3, 1999, we issued 200,000 shares of common stock in exchange
for all of the outstanding stock of Timeshift-TV. We have the option to
repurchase 100,000 shares for $10.00 upon the occurrence of certain events. (See
"Item 7. Certain Relationships and Related Transactions").
In April, 1999 an employee exercised options to purchase 5,000 and
1,800 shares of our common stock at $0.88 and $1.06 per share, respectively,
resulting in $6,300 proceeds to us.
A holder of Series A, (formerly Series F) convertible preferred stock
converted 5,000 shares of that stock into 5,000 shares of common stock in
February, 1999. (See "Item 7. Certain Relationships and Related Transactions").
From February 10 to February 26, 1999, the holders of our Series A
(formerly Series F) convertible preferred stock exercised warrants issued with
that stock to purchase 1,025,000 shares of our common stock at $1.50 per share,
resulting in cash proceeds of $1,537,500.
In February, 1999, a contractor, Matt Rothman, received 499 shares of
common stock for services resulting in $4,054 of compensation expense to us.
II-4
<PAGE>
Also in February, 1999, Sales Consultants of Columbia, MD received
options to purchase 36,000 shares of common stock at $9.72 per share in exchange
for services, resulting in compensation expense of $160,588 to us.
In January, 1999, in a series of cashless exercises Imperial Bank
exercised 250,000 warrants to purchase 226,140 shares of our common stock at
$1.00 per share. This same institution also exercised 31,250 warrants to
purchase 26,122 shares of our common stock at $1.60 per share.
In January, 1999, two contractors, subsequently hired as employees,
received options to purchase 621 and 9,000 shares of common stock at prices of
$2.19 and $2.91 per share, respectively in exchange for services rendered,
resulting in compensation expense of $26,448 to us.
1998:
As of December 31, 1998, we sold 2,476,609 shares of Series B
convertible preferred stock ("Series B"), at a purchase price of $2.00 per
share, for an aggregate purchase price of $4.95 million. IVT raised $4.21
million in cash in the offering, and the remaining $743,000 was paid by
cancellation of debt. In addition to the Series B, we also issued in the
offering warrants to purchase up to an aggregate of 312,960 shares of our common
stock, at an exercise price of $2.00 per share. The warrants are exercisable for
a term of five years from the date of issuance.
Series B - Cash Purchases:
--------------------------
Investor Amount Invested Preferred Shares Warrant Shares
-------- --------------- ---------------- --------------
Storie Partners $ 2,000,000 1,000,000 130,000
John Lyddon 310,000 155,000 20,150
Robert London 500,000 250,000 32,500
Mindful Partners 500,000 250,000 32,500
Reed Slatkin 500,000 250,000 32,500
Dorothy Lyddon 100,000 50,000 6,500
Frank Kramer 100,000 50,000 6,500
Keith Koch 100,000 50,000 6,500
Universal Warranty Corp. 100,000 50,000 6,500
---------- --------- -------
TOTAL $4,210,000 2,105,000 273,650
========== ========= =======
II-5
<PAGE>
Series B - Debt Converted:
--------------------------
Investor Debt Converted Preferred Shares Warrant Shares
-------- --------------- ---------------- --------------
Mercer Management $ 431,758 215,879 28,065
Robert London 232,864 116,432 15,136
Draysec Finance Ltd. 78,596 39,298 5,109
--------- ------- ------
TOTAL $ 743,218 371,609 48,310
========= ======= ======
In 1998, Mercer Management. loaned us $100,000 in exchange for a
six-month promissory note bearing at interest 10.5%. This promissory note
provided that Mercer Management a right of conversion at the conversion rate of
$1.00 per share.
Also in 1998, David Morgenstein, our former Chief Operating Officer and
Mercer Management provided funds of $300,000 and $200,000, respectively, in
exchange for promissory notes. These funds were used to retire a line of credit
with Imperial Bank. These notes provided for interest at a rate of prime plus 2%
payable monthly in arrears and had a due date of July 15, 1998. Additional
consideration for the notes included 60,000 and 40,000 shares, respectively, of
the Company's common stock and warrants to purchase an additional 60,000 and
40,000 shares, respectively, of common stock at the exercise price of $1.00 per
share. The $500,000 in notes also provided for automatic extensions through
December 31, 1998 for additional consideration in the form of 60,000 and 40,000
shares, respectively of our common stock and warrants to purchase additional
60,000 and 40,000 shares, respectively, of Common Stock at the exercise price of
$1.00 per share.
Also during March 1998, Mercer Management elected to exercise its
200,000 warrants to purchase common stock associated with Series F (renamed
Series A) convertible preferred stock, pursuant to an offering by us to reduce
the exercise price of those warrants for the period from February 14, 1998 to
March 15, 1998 to $0.75 per share. As a result of the exercise of these
warrants, we received $150,000 from Mercer Management, and Mercer Management was
issued an additional 200,000 shares of common stock of the Company.
1997:
During 1997, Mercer Management, Mindful Partners and Draysec Finance
Limited invested an additional $550,000 for the purchase of 550,000 investment
units consisting of Series F (renamed Series A) Convertible Preferred Stock and
550,000 warrants to purchase common stock of our company at $1.00 per share.
Additionally, Rudick Asset Management received 100,000 units and 100,000
warrants to purchase our common stock at $1.00 per share as a finders' fee. (See
"Item 7. Certain Relationships and Related Transactions").
During 1997, Draysec Finance Limited invested $200,000 for the purchase
of 200,000 investment units, consisting of Series F (renamed to Series A)
convertible preferred stock and warrants to purchase 200,000 shares of our
common stock at $1.00 per share. Our board of directors extended the exercise
date for the Series F Warrants to February 26, 1999 and increased the exercise
price to $1.50 per share after January 26, 1998. Additionally, Draysec
II-6
<PAGE>
Finance Limited provided a loan of $80,000 in consideration for a six month
promissory note from us with an interest rate of 10.5% and a warrant to purchase
16,000 shares of our common stock at an exercise price of one dollar per share.
During 1997, Mercer Management Inc. converted its 300,000 shares of
Series E Convertible Preferred stock into shares of our Common Stock at the
conversion rate of one share of preferred stock to one share of common stock.
In order to provide bridge financing for us during the last quarter of
1997, Mercer Management, Inc. loaned us $100,000 cash. In consideration for this
loan, we issued Mercer Management Inc. a six-month promissory note in the amount
of $100,000 at an interest rate of 10.5%. Additional consideration was provided
by us in the form of a warrant to purchase 20,000 shares of our common stock at
the exercise price of $1.00 per share.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act of 1933, as amended (the "Act") in
reliance on Section 4(2) of the Act, Regulation D promulgated under the Act,
Regulation S promulgated under the Act, or Rule 701 promulgated under Section
3(b) of the Act. In each such transaction, the recipients of securities
represented their intentions to acquire securities for investment only and not
with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the securities issued in such transactions.
Item 16. Exhibits and Financial Statement Schedules.
a. Exhibits
Exhibit Description
- ------- -----------
2.1 State of Arizona, Articles of Merger of Video Press, Inc. into Explore
Technology, dated December 28, 1990; Agreement and Plan of Merger dated
August 29, 1993.
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.
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.
II-7
<PAGE>
3.1.3 Amended and Restated Certificate of Incorporation dated January 27,
2000.
3.2.1 Bylaws of Catalina Capital Corp. dated April 27, 1990; Amendment No. 1
dated April 5, 1993.
3.3.2 Amended and Restated Bylaws dated January 27, 2000.
3.3.3 Certificate of Status Foreign Corporation dated March 12, 1993.
4.1* Specimen common stock certificate.
4.2 Prospectus for Catalina Capital Corp. dated October 17, 1990.
4.3 SEC Form S-18 for Catalina Capital Corp. dated June 29, 1990.
4.4 Amendment No. 1 to SEC Form S-18 for Catalina Capital Corp. dated
August 10, 1990.
4.5 Amendment No. 2 to SEC Form S-18 for Catalina Capital Corp. dated
September 28, 1990.
4.6 Certificate of Designation for Catalina Capital Corp. of Series A
Preferred Stock dated Aug. 4, 1992.
4.7 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.
4.8 Certificate of Designation for Catalina Capital Corp. of Series C
Preferred Stock, dated August 4, 1992.
4.9 Certificate of Designation for Instant Video Technologies, Inc. of
Series D Convertible Preferred Stock, dated December 23, 1992.
4.10 Certificate of Designation for Instant Video Technologies, Inc. of
Series E Convertible Preferred Stock, dated May 9, 1995.
4.11 Certificate of Designation for Instant Video Technologies, Inc. of
Series F Convertible Preferred Stock, dated February 13, 1996.
4.12 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.
II-8
<PAGE>
4.13 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 1, 1999
4.14 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)
4.15 Unit Purchase Agreement between Instant Video Technologies and
Investors (Storie Partners, Mindful Partners-Stuart Rudick, Reed
Slatkin, Robert London) dated February 14, 1996.
4.16 Securities Purchase Agreement by and among the registrant and certain
investors dated as of January 27, 2000.
4.17 Registration Rights Agreement by and among the registrant and certain
investors dated as of January 27, 2000.
4.18 Form of Warrant to purchase shares of common stock issued to certain
investors on January 27, 2000.
4.19 Form of Lock-up Agreement entered into between the registrant and each
of certain officers, directors and principal shareholders in January
2000.
5.1* Opinion of Bay Venture Counsel, LLP.
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, CA 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.
II-9
<PAGE>
10.11 Pat Meir Assoc. contract.
10.12 Employment Agreement with Richard Lang.
10.13 Employment Agreement with Thomas Koshy.
10.14 Employment Agreement with Edward Davis.
10.15 Employment Agreement with Richard Jones.
10.16 Employment Agreement with Kyle Faulkner.
10.17 Employment Offer Letter to David Morgenstein.
10.18 Employment Offer Letter to Frank Schwartz.
10.19 Employment Offer Letter to June White.
- -------------------
* To be filed by amendment.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) 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; provided,
however, that (i) and (ii) do not apply if the Registration Statement is on Form
S-3 or Form S-8, and the information required to be included in a post-effective
amendment by (i) and (ii) is contained in periodic reports filed with or
furnished to the SEC by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) 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.
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 provisions described in Item 14, or otherwise,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against pubic policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
II-10
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant under Rule 424(b) (1)
or (4) or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bonafide offering thereof.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on April 14, 2000.
BURST.COM, INC.
By: /s/ Richard Lang
------------------------------------
Richard Lang, President and Chief
Executive Officer
We, the undersigned directors and/or officers of Burst.com, Inc. (the
"Registrant"), hereby severally constitute and appoint Richard Lang, Edward H.
Davis and Richard Jones, and each of them individually, with full powers of
substitution and resubstitution, our true and lawful attorneys, with full powers
to each of them to sign for us, in our names and in the capacities indicated
below, the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission, and any and all amendments to said Registration Statement
(including post-effective amendments), and any registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in
connection with the registration under the Securities Act of 1933, as amended,
of equity securities of the Registrant, and to file or cause to be filed with
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as each of them might or could do in person, and hereby
ratifying and confirming all that said attorneys, and each of them, or their
substitute or substitutes, shall do or cause to be done by virtue of this Power
of Attorney. This Power of Attorney may be executed in counterparts.
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Richard Lang President and Chief Executive April 14, 2000
- ------------------------------------
Richard Lang Officer and Chairman of the
Board (Principal Executive Officer)
/s/ Richard Jones Chief Financial Officer (Principal April 14, 2000
- ------------------------------------
Richard Jones Financial and Accounting Officer)
/s/ O. J. Kilkenny Director April 14, 2000
- ------------------------------------
O. J. Kilkenny
II-12
<PAGE>
/s/ John J. Micek, III Director April 14, 2000
- ------------------------------------
John J. Micek, III
/s/ Brian Murphy Director April 14, 2000
- ------------------------------------
Brian Murphy
/s/ Joseph Barletta Director April 14, 2000
- ------------------------------------
Joseph Barletta
/s/ Douglas Glen Director April 14, 2000
- ------------------------------------
Douglas Glen
</TABLE>
II-13
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
2.1 State of Arizona, Articles of Merger of Video Press, Inc. into Explore
Technology, dated December 28, 1990; Agreement and Plan of Merger dated
August 29, 1993.
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.
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.
3.1.3 Amended and Restated Certificate of Incorporation dated January 27,
2000.
3.2.1 Bylaws of Catalina Capital Corp. dated April 27, 1990; Amendment No. 1
dated April 5, 1993.
3.3.2 Amended and Restated Bylaws dated January 27, 2000.
3.3.3 Certificate of Status Foreign Corporation dated March 12, 1993.
4.1* Specimen common stock certificate.
4.2 Prospectus for Catalina Capital Corp. dated October 17, 1990.
4.3 SEC Form S-18 for Catalina Capital Corp. dated June 29, 1990.
4.4 Amendment No. 1 to SEC Form S-18 for Catalina Capital Corp. dated
August 10, 1990.
4.5 Amendment No. 2 to SEC Form S-18 for Catalina Capital Corp. dated
September 28, 1990.
II-14
<PAGE>
4.6 Certificate of Designation for Catalina Capital Corp. of Series A
Preferred Stock dated Aug. 4, 1992.
4.7 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.
4.8 Certificate of Designation for Catalina Capital Corp. of Series C
Preferred Stock, dated August 4, 1992.
4.9 Certificate of Designation for Instant Video Technologies, Inc. of
Series D Convertible Preferred Stock, dated December 23, 1992.
4.10 Certificate of Designation for Instant Video Technologies, Inc. of
Series E Convertible Preferred Stock, dated May 9, 1995.
4.11 Certificate of Designation for Instant Video Technologies, Inc. of
Series F Convertible Preferred Stock, dated February 13, 1996.
4.12 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.
4.13 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 1, 1999
4.14 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)
4.15 Unit Purchase Agreement between Instant Video Technologies and
Investors (Storie Partners, Mindful Partners-Stuart Rudick, Reed
Slatkin, Robert London) dated February 14, 1996.
4.16 Securities Purchase Agreement by and among the registrant and certain
investors dated as of January 27, 2000.
4.17 Registration Rights Agreement by and among the registrant and certain
investors dated as of January 27, 2000.
4.18 Form of Warrant to purchase shares of common stock issued to certain
investors on January 27, 2000.
II-15
<PAGE>
4.19 Form of Lock-up Agreement entered into between the registrant and each
of certain officers, directors and principal shareholders in January
2000.
5.1* Opinion of Bay Venture Counsel, LLP.
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, CA 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.
10.12 Employment Agreement with Richard Lang.
10.13 Employment Agreement with Thomas Koshy.
10.14 Employment Agreement with Edward Davis.
10.15 Employment Agreement with Richard Jones.
10.16 Employment Agreement with Kyle Faulkner.
10.17 Employment Offer Letter to David Morgenstein.
10.18 Employment Offer Letter to Frank Schwartz.
10.19 Employment Offer Letter to June White.
21.1 Subsidiaries of the registrant
II-16
<PAGE>
23.1 Consent of BDO Seidman, LLP, Independent Accountants
23.2 Consent of KPMG LLP, Independent Accountants
23.3* Consent of Bay Venture Counsel, LLP (included at Exhibit 5.1)
24.1 Power of Attorney (included in signature pages)
27.1 Financial Data Schedule
- -------------------
* To be filed by amendment.
II-17
??????????????????
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
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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.
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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
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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
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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
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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
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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
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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
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INSTANT VIDEO TECHNOLOGIES, INC.
INSTANT VIDEO TECHNOLOGIES, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: The name of the Corporation is Instant Video Technologies, Inc. and
the original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on April 27, 1990 under the
Corporation's original name of Catalina Capital Corp.
SECOND: Pursuant to Section 245 of the General Corporation Law of the State
of Delaware, this Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation of the Corporation.
This Amended and Restated Certificate of Incorporation was duly approved by the
Corporation's Board of Directors, and was duly approved by written consent by
the holders of the requisite number of shares of the Corporation in accordance
with Sections 228, 242 and 245 of the Delaware General Corporation Law.
THIRD: The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
I
The name of this Corporation is BURST.COM, INC.
II
The address of the registered office of this Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Trust Company.
III
The nature of the business or purposes to be conducted or promoted by this
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General
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<PAGE>
Corporation Law of the State of Delaware.
IV
A. Authorized Shares. This Corporation is authorized to issue two classes
of shares, to be designated Common Stock and Preferred Stock, respectively. This
Corporation is authorized to issue 100,000,000 shares of Common Stock with a par
value of $0.00001 per share (the "Common Stock") and 20,000,000 shares of
Preferred Stock with a par value of $0.00001 per share (the "Preferred Stock").
The Preferred Stock authorized by this Certificate of Incorporation shall be
issued from time to time in one or more series.
Upon the filing of this Amended and Restated Certificate of Incorporation,
each outstanding share of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock shall be converted into such number of fully paid
and nonassessable shares of Common Stock into which shares of Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock are
convertible as set forth in the Certificate of Incorporation in effect
immediately prior to the filing of this Amended and Restated Certificate of
Incorporation.
B. Authorized Shares - Preferred Stock. Within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series of Preferred Stock, the
Board of Directors may increase or decrease (but neither above the total number
of authorized shares of the class, nor below the number of shares of such
series, then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series. In addition, the Board of Directors is
authorized, subject to limitations prescribed by law and the provisions of this
Article IV, to provide for the issuance of the shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares to be included
in each such series, and to fix the designation, powers, preferences and rights
of the shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
i) The number of shares constituting that series and the distinctive
designation of that series;
ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
iv) Whether that series shall have conversion privileges, and, if so,
the
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terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
v) Whether or not shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or date upon
or after which they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
vi) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
vii) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of this Corporation, and
the relative rights or priority, if any, of payment of shares of that series;
and
viii) Any other relative rights, preferences and limitations of that
series.
C. Replacement of Certificates. Upon receipt of evidence reasonably
satisfactory to this Corporation of the loss, theft, destruction, or mutilation
of a certificate representing any of the outstanding shares of Common Stock or
Preferred Stock, and, in the case of loss, theft, or destruction, the execution
of an agreement and posting of any bond or other collateral satisfactory to this
Corporation to indemnify this Corporation from any loss incurred by it in
connection therewith, this Corporation will issue a new certificate representing
such shares of Common Stock or Preferred Stock in lieu of such lost, stolen,
destroyed or mutilated certificate.
V
A. Election of Directors. The election of the Directors of this Corporation
need not be by written ballot, unless the Bylaws of this Corporation shall so
provide.
B. Arrangement with Creditors. Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to
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which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
C. Fiduciary Duty. A director of this Corporation shall not be personally
liable to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to this Corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after the filing of the Certificate of Incorporation of which this Article V is
a part to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of this
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Any repeal or modification
of the foregoing paragraph by the stockholders of this Corporation shall not
adversely affect any right or protection of a director of this Corporation
existing at the time of such repeal or modification.
VI
A. Indemnification.
1. Right to Indemnification. Each person who was or is made a party,
or is threatened to be made a party to, or is involved in, any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), including, without limitation, Proceedings by or in the right of
this Corporation to procure a judgment in its favor, by reason of the fact that
he or she, or a person for whom he or she is the legal representative, is or was
a director or officer, employee or agent of this Corporation, or is or was
serving at the request of this Corporation as a director or officer, employee or
agent of another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such Proceeding is alleged action in an official capacity as a
director, officer, employee or agent, or in any other capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by this Corporation to the fullest extent authorized by the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent such amendment
permits this Corporation to provide broader indemnification rights than said law
permitted this Corporation to provide prior to such amendment) against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amount paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
right shall be a contract right and shall include the right to be paid by this
Corporation for expenses incurred in defending any such Proceeding in advance of
its final disposition; provided, however, that the payment of such expenses
incurred by a director or officer of this Corporation in his or her 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, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of such Proceeding, shall be made only upon delivery to this
Corporation of an undertaking, by or on behalf
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of such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this section, or otherwise.
2. Right of Claimant to Bring Suit. If a claim under Section 1 (above)
is not paid in full by this Corporation within ninety (90) days after a written
claim has been received by this Corporation, the claimant may at any time
thereafter bring suit against this Corporation to recover the unpaid amount of
the claim, and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking has been tendered to this
Corporation), that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
this Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on this Corporation. Neither the failure
of this Corporation (including its Board of Directors, independent legal
counsel, or 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 or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by this Corporation (including its Board of Directors, independent
legal counsel, or 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 claimant had not met the applicable standard of conduct.
B. Non-Exclusivity of Rights. The rights conferred by Section A.1 and A.2
(above) shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors, or otherwise.
C. Amendment or Repeal. Neither any amendment nor repeal of this Article
VI, nor the adoption of any provision of this Corporation's Certificate of
Incorporation inconsistent with this Article VI, shall eliminate or reduce the
effect of this Article VI, in respect of any matter occurring, or any action or
Proceeding accruing or arising, or that, but for this Article VI would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
VII
A. Corporation Existence. This Corporation is to have perpetual existence.
VIII
A. Directors' Powers. The Directors of this Corporation shall have the
power to adopt, amend or repeal the Bylaws of this Corporation. The management
of the business and the conduct of the affairs of this Corporation shall be
vested in its Board of Directors. The number of directors which shall constitute
the whole Board of Directors shall be fixed exclusively by, or in the manner
provided in, the Bylaws of this Corporation.
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B. Classified Board. For the management of the business, and for the
conduct of the affairs of this Corporation, and in further definition,
limitation and regulation of the powers of this Corporation, of its directors
and of its stockholders or any class thereof, as the case may be, it is further
provided that, at such time that this Corporation is designated as qualified for
trading as a national market system security on the National Association
Quotation System (or any successor national market system) (the "Effective
Time"):
1. Board Classes and Terms. The Board of Directors shall be divided
into three classes, designated as Class I, Class II, and Class III,
respectively. The Board of Directors shall, by one or more resolutions, assign
the Directors in office at the Effective Time to one or more Classes, and in
such equal or unequal number, as shall be set forth in such resolution or
resolutions. Following such assignment, in the event any Class shall have a
number of assigned Directors smaller than that of any other Class or Classes,
such deficiency shall be deemed newly created directorships and shall be filled
exclusively by the Board of Directors in accordance with Section B.2. hereof. At
the first annual meeting of stockholders following the date of the Effective
Time, the term of office of the Class I directors shall expire, and Class I
directors shall be elected for a full term of three (3) years. At the second
annual meeting of stockholders following the date of the Effective Time, the
term of office of the Class II directors shall expire, and Class II directors
shall be elected for a full term of three (3) years). At the third annual
meeting of stockholders following the date of the Effective Time, the term of
office of the Class III directors shall expire, and Class III directors shall be
elected for a full term of three (3) years). At each succeeding annual meeting
of stockholders, directors shall be elected for a full term of three (3) years
to succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his or her successor is duly elected and qualified,
or until his or her death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
2. Board Vacancies. Any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal, or other causes shall be
filled by either (i) the affirmative vote of the holders of a majority of the
voting power of the then-outstanding shares of voting stock of this Corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
voting together as a single class; or (ii) by the affirmative vote of a majority
of the remaining directors then in office, even though less than a quorum of the
Board of Directors. Newly created directorships resulting from any increase in
the number of directors shall, unless the Board of Directors determines by
resolution that any such newly-created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
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C. Vote.
1. The affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
for the adoption, amendment or repeal of Sections 2 (Annual Meeting) and 3
(Special Meeting) of the Corporation's Bylaws.
2. Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of
the voting stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock.
E. No Action. Effective upon the Corporation becoming subject to the
reporting requirements of the Securities Exchange Act of 1934, no action shall
be taken by the stockholders of this Corporation, except at an annual or special
meeting of the stockholders called in accordance with the Bylaws. Effective upon
the Corporation becoming subject to the reporting requirements of the Securities
Exchange Act of 1934, the Stockholders shall not take any action by written
consent.
F. Stockholder Nomination. Advance notice of stockholder nomination for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of this Corporation shall be given in the manner
provided in the Bylaws of this Corporation.
G. Amendment. Notwithstanding any other provisions of this Certificate of
Incorporation, or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, shall be required to alter, amend or repeal
this Article VIII.
IX
This Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in Article VIII of this
Certificate, and all rights conferred upon the stockholders herein are granted
subject to this right.
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IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed and attested by Richard Lang, its Chief Executive Officer and Edward H.
Davis, its Secretary, as of January 27, 2000.
INSTANT VIDEO TECHNOLOGIES, INC.
BY: /s/ RICHARD LANG
-------------------------------------
Richard Lang, Chief Executive Officer
ATTEST: /s/ EDWARD H. DAVIS
---------------------------------
Edward H. Davis, Secretary
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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-
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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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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.
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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-
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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.
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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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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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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.
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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
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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).
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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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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.
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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
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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
AMENDED AND RESTATED
BYLAWS
OF
BURST.COM, INC.
a Delaware corporation
<PAGE>
TABLE OF CONTENTS
ARTICLE 1: OFFICES........................................................... 1
Section 1. Registered Office.............................................. 1
Section 2. Other Offices.................................................. 1
ARTICLE II: MEETINGS OF STOCKHOLDERS......................................... 1
Section 1. Place of Meetings.............................................. 1
Section 2. Annual Meeting................................................. 1
Section 3. Special Meeting................................................ 1
Section 4. Notice of Stockholders' Meetings............................... 2
Section 5. List of Stockholders Entitled to Vote.......................... 2
Section 6. Quorum......................................................... 2
Section 7. Adjourned Meeting; Notice...................................... 2
Section 8. Voting......................................................... 3
Section 9. Waiver of Notice or Consent by Absent Stockholders............. 3
Section 10. Stockholder Action by Written Consent Without a Meeting........ 4
Section 11. Record Date for Stockholder Notice, Voting,
and Giving Consents.......................................... 4
Section 12. Proxies........................................................ 5
Section 13. Inspectors of Election......................................... 5
ARTICLE III: DIRECTORS....................................................... 6
Section 1. Powers......................................................... 6
Section 2. Number and Qualification of Directors.......................... 6
Section 3. Election and Term of Office of Directors....................... 7
Section 4. Vacancies...................................................... 7
Section 5. Place of Meetings.............................................. 7
Section 6. Annual Meeting................................................. 7
Section 7. Other Regular Meetings......................................... 7
Section 8. Special Meetings............................................... 7
Section 9. Quorum......................................................... 8
Section 10. Waiver of Notice............................................... 8
Section 11. Action Without Meeting......................................... 8
Section 12. Telephonic Meetings............................................ 8
Section 13. Fees and Compensation of Directors............................. 8
ARTICLE IV: COMMITTEES....................................................... 9
Section 1. Committees of Directors........................................ 9
Section 2. Meetings and Action of Committees.............................. 9
ARTICLE V: OFFICERS.......................................................... 9
Section 1. Officers....................................................... 9
Section 2. Election of Officers........................................... 9
Section 3. Subordinate Officers........................................... 10
Section 4. Removal and Resignation of Officers............................ 10
Section 5. Vacancies in Offices........................................... 10
Section 6. Chairman of the Board.......................................... 10
Section 7. President...................................................... 10
Section 8. Vice Presidents................................................ 10
Section 9. Secretary...................................................... 10
i
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Section 10. Chief Financial Officer........................................ 11
ARTICLE VI: INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS............................................... 11
Section 1. Right to Indemnification....................................... 11
Section 2. Prepayment of Expenses......................................... 12
Section 3. Claims......................................................... 12
Section 4. Non-Exclusivity of Rights...................................... 12
Section 5. Indemnification of Employees and Agents of the Corporation..... 12
Section 6. Other Indemnification.......................................... 12
Section 7. Amendment or Repeal............................................ 12
ARTICLE VII: RECORDS AND REPORTS............................................. 12
Section 1. Form of Records................................................ 12
Section 2. Inspection by Stockholders..................................... 12
Section 3. Inspection by Directors........................................ 13
ARTICLE VIII: GENERAL CORPORATE MATTERS...................................... 13
Section 1. Certificates for Shares........................................ 13
Section 2. Lost Certificates.............................................. 13
Section 3. Registered Stockholders........................................ 13
Section 4. Representation of Shares of Other Corporations................. 14
Section 5. Construction and Definitions................................... 14
ARTICLE IX: AMENDMENTS....................................................... 14
Section 1. Amendment by Stockholders...................................... 14
Section 2. Amendment by Directors......................................... 14
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AMENDED AND RESTATED
BYLAWS
OF
BURST.COM, INC.
ARTICLE 1: OFFICES
Section 1. Registered Office. The registered office shall be at such place
within the State of Delaware that the board of directors may determine from time
to time.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II: MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held at any
place within or outside the State of Delaware designated either by the board of
directors or the president (if not contrary to any action taken by the board of
directors). In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation in the City of San
Francisco, State of California.
Section 2. Annual Meeting.
a. The annual meeting of stockholders of the corporation for the
purpose of electing directors and for the transaction of such other proper
business as may come before such meetings, shall be held at such time and place
as the board of directors shall determine by resolution. Only persons who are
nominated in accordance with the procedures set forth in this Section 2 shall be
eligible for election as Directors.
b. At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors; (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors; or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than one hundred twenty
(120) calendar days in advance of the date specified in the Corporation's Proxy
Statement released to stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be so received a reasonable time before the solicitation is made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and address,
as they
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appear on the Corporation's books, of the stockholder proposing such business;
(iii) the class and number of shares of the Corporation which are beneficially
owned by the stockholder; (iv) any material interest of the stockholder in such
business; and (v) any other information that is required to be provided by the
stockholder pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act"), in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the Proxy Statement and
form of Proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
paragraph (b). The Chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph (b);
and, if he should so determine, he shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
c. Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors, or by any stockholder of the Corporation entitled to
vote in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph c. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation in accordance with
the provisions of paragraph (b) of this Section 2. Such stockholder's notice
shall set forth: (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a Director: (A) the name, age, business
address and residence address of such person; (B) the principal occupation or
employment of such person; (C) the class and number of shares of the Corporation
which are beneficially owned by such person; (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder; and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for elections of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including, without limitation,
such person's written consent to being named in the Proxy Statement, if any, as
a nominee and to serving as a Director, if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 2.2. At the request of the Board of Directors, any
person nominated by a stockholder for election as a Director shall furnish to
the Secretary of the Corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The Chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
Section 3. Special Meeting. A special meeting of the stockholders may be
called for any purpose or purposes at any time by the board of directors, or by
the chairman of the board, or by the president, or the chief executive officer,
but such special meetings may not be called by any other person or persons;
provided, however, that special meetings of the stockholders may be called by
the holders of shares entitled to cast not less than ten percent (10%) of the
votes at the meeting if such a requirement is imposed by the California
Department of Corporations ("Department") in connection with a qualification of
the sale of the corporation's stock pursuant to applicable California securities
laws, rules or regulations ("Qualification"); and provided, further, however,
that the right of such stockholders to call special meetings of the stockholders
shall in any event terminate at such time as shares of the corporation's common
stock are listed on the Nasdaq National Market or New York Stock Exchange unless
such termination is prohibited by the Department in connection with the
Qualification.
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Section 4. Notice of Stockholders' Meetings. All notices of meetings of
stockholders shall specify the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice. Unless otherwise provided by law,
the certificate of incorporation or these bylaws, the written notice of any
annual or special meeting of stockholders shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting. If mailed, notice
is given when deposited in the United States mail, postage prepaid, directed to
the stockholder at such stockholder's address as it appears on the records of
the corporation.
An affidavit of the secretary or an assistant secretary or of the transfer
agent of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
Section 5. List of Stockholders Entitled to Vote. The officer who has
charge of the stock ledger of the corporation shall prepare and make, at least
ten (10) days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 6. Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of stockholders shall
constitute a quorum for the transaction of business. The stockholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. Adjourned Meeting; Notice. Any stockholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at that meeting, except as provided in Section 6 of this Article II.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than thirty (30) days from the date set for the original
meeting, in which case the board of directors shall set a new record date.
Notice of any such adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Section 4 of this Article II. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
Section 8. Voting. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power upon the matter in question held by such stockholder, but no
proxy shall be voted on or after three years from its date, unless the proxy
provides for a longer period. Vote may be via voice or ballot; provided,
however, that elections for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
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Any holder of shares entitled to vote on any matter may vote a part of the
shares in favor of the proposal and refrain from voting the remaining shares or,
except when the matter is the election of directors, vote them against the
proposal, but, if the stockholder fails to specify the number of shares which
the stockholder is voting affirmatively, it will be conclusively presumed that
the stockholder's approving vote is with respect to all shares that the
stockholder is entitled to vote.
At all meetings of stockholders for the election of directors a plurality
of the votes cast shall be sufficient to elect. All other elections and
questions shall, unless otherwise provided by law, the certificate of
incorporation or these bylaws, be decided by the vote of the holders of shares
of stock having a majority of the votes which could be cast by the holders of
all shares of stock entitled to vote thereon which are present in person or
represented by proxy at the meeting.
Section 9. Waiver of Notice or Consent by Absent Stockholders. The
transaction of any meeting of stockholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though transacted at
a meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to a holding of the meeting, or an approval of the
minutes. Such waiver, consent or approval need not specify either the business
to be transacted or the purpose of any annual or special meeting of
stockholders, unless so provided by the certificate of incorporation or these
bylaws. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required by
law to be included in the notice of the meeting but not so included if that
objection is expressly made at the meeting.
Section 10. Stockholder Action by Written Consent Without a Meeting. Unless
otherwise provided in the certificate of incorporation, any action which may be
taken at an annual or special meeting of stockholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all shares entitled to vote on that action
were present and voted. All such consents shall be delivered to the corporation
by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded.
Any stockholder giving a written consent, or the stockholder's proxy
holder, or a transferee of the shares or a personal representative of the
stockholder or their respective proxy holders, may revoke the consent by a
writing received by the secretary of the corporation before written consents of
the number of shares required to authorize the proposed action have been
delivered to the corporation. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days after the
date of the earliest dated consent delivered to the corporation, a written
consent or consents signed by a sufficient number of holders to take action are
delivered to the corporation in the manner prescribed in the first paragraph of
this Section.
Section 11. Record Date for Stockholder Notice, Voting, and Giving
Consents. In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or
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any adjournment thereof, or entitled to express consent to corporate action
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the board of directors, and which record date:
(a) In the case of determination of stockholders entitled to vote at
any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty (60) nor less than ten (10) days before
the date of such meeting;
(b) In the case of determination of stockholders entitled to express
consent to corporate action in writing without a meeting, shall not be more than
ten (10) days after the date upon which the resolution fixing the record date is
adopted by the board of directors; and
(c) In the case of other action, shall not be more than sixty (60)
days prior to such other action.
If no record date is fixed by the board of directors:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held;
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action of
the board of directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation in accordance with applicable law, or if prior
action by the board of directors is required by law, shall be at the close of
business on the day on which the board of directors adopts the resolution taking
such prior action; and
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 12. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the corporation.
Section 13. Inspectors of Election. The corporation may, in advance of any
meeting of stockholders, appoint one (1) or more inspectors to act at the
meeting and make a written report thereof. The corporation may designate one (1)
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the chairman of the meeting may appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of such inspector's
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duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of such his or her
ability.
These inspectors shall:
(a) Ascertain the number of shares outstanding and the voting power of
each;
(b) Determine the shares represented at the meeting and the validity
of proxies and ballots;
(c) Count all votes and ballots;
(d) Determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors;
(e) Certify the determination of the number of shares represented at
the meeting, and the count of all votes and ballots; and
(f) Do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
The inspectors may appoint or retain other persons or entities to assist
the inspectors in the performance of their duties.
ARTICLE III: DIRECTORS
Section 1. Powers. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the certificate of incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal business
office from one location to another; cause the corporation to be qualified to do
business in any state, territory, dependency, or country and conduct business
within or without the State of Delaware; and designate any place within or
without the State of Delaware for the holding of any stockholders' meeting, or
meetings, including annual meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation on
any lawful terms, for such consideration as permitted by law.
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(e) Borrow money and incur indebtedness on behalf of the corporation,
and cause to be executed and delivered for the corporation's purposes, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidence of debt and securities.
Section 2. Number and Qualification of Directors. The exact number of
directors of the corporation shall consist of not less than five (5) and not
more than nine (9) until changed by a bylaw amending this Section 2, duly
adopted by the board of directors or by the stockholders. The definite number of
directors may be changed by a duly adopted amendment to the certificate of
incorporation or by an amendment to this bylaw duly adopted by the vote or
written consent of the board of directors or by the holders of a majority of the
outstanding shares entitled to vote. Directors need not be stockholders.
Section 3. Election and Term of Office of Directors. Directors shall be
elected at each annual meeting of the stockholders, but if any such annual
meeting is not held, or the directors are not elected thereat, the directors may
be elected at any special meeting of the stockholders held for that purpose. All
directors shall hold office until the expiration of the term for which elected
and until their respective successors are elected, except in the case of death,
resignation or removal of any director.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the remaining members of the board of directors, although such
majority is less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the expiration of the term for which
elected and until their successors are duly elected and shall qualify, unless
sooner displaced.
A vacancy or vacancies in the board of directors shall be deemed to exist
in the event of the death, resignation, or removal of any director, or if the
stockholders fail, at any meeting of stockholders at which any director or
directors are elected, to elect the number of directors to be voted for at that
meeting. Any director may resign at any time upon giving written notice to the
corporation. The entire board of directors or any individual director may be
removed from office, prior to the expiration of their or his term of office only
in the manner and within the limitations provided by the General Corporation Law
of Delaware
Section 5. Place of Meetings. Meetings of the board of directors may be
held at any place within or outside the State of Delaware that has been
designated in the notice of the meeting or, if not so stated or if there is no
notice, by resolution of the board or by the chairman of the board or by the
president (if not contrary to any action taken by the board of directors). In
the absence of such a designation, meetings shall be held at the principal
executive office of the corporation.
Section 6. Annual Meeting. Immediately following each annual meeting of
stockholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
Section 7. Other Regular Meetings. Other regular meetings of the board of
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Such regular meetings may be held without
notice.
Section 8. Special Meetings. Special meetings of the board of directors for
any purpose or purposes may be called at any time by the chairman of the board
or the president or any vice president or secretary or any two directors. Notice
of the time and place of special meetings shall be delivered personally or by
telephone to each director or sent by first-class mail or telegram, charges
prepaid, addressed to each director at that director's address as it is shown on
the records of the corporation. In case the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before the time of
the holding of the meeting. In case the notice is delivered personally, or by
telephone or telegram, it shall be delivered personally, or by telephone
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or to the telegraph company, at least forty-eight (48) hours before the time of
the holding of the meeting. Any oral notice given personally or by telephone may
be communicated either to the director or to a person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose of the
meeting nor the place if the meeting is to be held at the principal executive
office of the corporation.
Section 9. Quorum. At all meetings of the board of directors a majority of
the authorized number of directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
provided by, the certificate of incorporation, or other applicable law. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
Section 10. Waiver of Notice. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, either before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to said director. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. A waiver of notice need not specify the purpose of any regular or
special meeting of the board of directors.
Section 11. Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting if all members of the board or committee, as the
case may be, shall individually or collectively consent in writing to that
action. Such action by written consent shall have the same force and effect as a
unanimous vote of the board of directors. Such written consent or consents shall
be filed with the minutes of the proceedings of the board or committee.
Section 12. Telephonic Meetings. Members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting
thereof by means of, conference telephone or similar communication equipment, so
long as all persons participating in the meeting can hear one another, and all
such persons shall be deemed to be present in person at the meeting.
Section 13. Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. This Section 13 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
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ARTICLE IV: COMMITTEES
Section 1. Committees of Directors. The board of directors may designate
one or more committees, each consisting of one or more directors, to serve at
the pleasure of the board. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
Any committee, to the extent provided in the resolution of the board, shall
have and may exercise all the powers and authority of the board in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation
under Sections 251 or 252 of the General Corporation Law of Delaware,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provide, it shall not have the power
or authority to declare a dividend to authorize the issuance of stock, or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of Delaware.
Section 2. Meetings and Action of Committees. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members, except that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee; special meetings of committees may also be
called by resolution of the board of directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
ARTICLE V: OFFICERS
Section 1. Officers. The officers of the corporation shall be a president,
a secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V. Any
number of offices may be held by the same person.
Section 2. Election of Officers. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any, of
an officer under any contract of employment.
Section 3. Subordinate Officers. The board of directors may appoint, and
may empower the president to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office
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<PAGE>
for such period, have such authority and perform such duties as are provided in
the bylaws or as the board of directors may from time to time determine.
Section 4. Removal and Resignation of Officers. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors, at any regular or
special meeting of the board, or, except in case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 5. Vacancies in Offices. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause may be filled in the
manner prescribed in these bylaws for regular appointments to that office.
Section 6. Chairman of the Board. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. President. Subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if there be such
an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers of
the corporation. He shall preside at all meetings of the stockholders and, in
the absence of the chairman of the board, or if there be none, at all meetings
of the board of directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or the bylaws.
Section 8. Vice Presidents. In the absence or disability of the president,
the vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws, and the president, or the chairman of the
board.
Section 9. Secretary. The secretary shall keep or cause to be kept, at the
principal executive office or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the directors,
committees of directors, and stockholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice given,
the names of those present at directors' meetings or committee meetings, the
number of shares present or represented at stockholders' meetings, and the
proceedings.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the board of directors, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
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The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required by the bylaws or by law
to be given, and he shall keep the seal of the corporation if one be adopted, in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the bylaws.
Section 10. Chief Financial Officer. The chief financial officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the board of directors or the bylaws.
ARTICLE VI: INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
Section 1. Right to Indemnification. Each person who was or is made a
party, or is threatened to be made a party to, or is involved in, any action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), including, without limitation, Proceedings by or in the right of
this Corporation to procure a judgment in its favor, by reason of the fact that
he or she, or a person for whom he or she is the legal representative, is or was
a director or officer, employee or agent of this Corporation, or is or was
serving at the request of this Corporation as a director or officer, employee or
agent of another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such Proceeding is alleged action in an official capacity as a
director, officer, employee or agent, or in any other capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by this Corporation to the fullest extent authorized by the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent such amendment
permits this Corporation to provide broader indemnification rights than said law
permitted this Corporation to provide prior to such amendment) against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amount paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
right shall be a contract right and shall include the right to be paid by this
Corporation for expenses incurred in defending any such Proceeding in advance of
its final disposition; provided, however, that the payment of such expenses
incurred by a director or officer of this Corporation in his or her 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, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of such Proceeding, shall be made only upon delivery to this
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this section, or
otherwise.
Section 2. Right of Claimant to Bring Suit. If a claim under Section 1
(above) is not paid in full by this Corporation within ninety (90) days after a
written claim has been received by this Corporation, the claimant may at any
time thereafter bring suit against this Corporation to recover the unpaid amount
of the claim, and, if successful in whole or in part, the claimant shall be
entitled to be paid also the
11
<PAGE>
expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking has been tendered to this Corporation), that the claimant has not
met the standards of conduct which make it permissible under the General
Corporation Law of the State of Delaware for this Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on this Corporation. Neither the failure of this Corporation (including its
Board of Directors, independent legal counsel, or 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 or she has met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by this Corporation (including
its Board of Directors, independent legal counsel, or 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 claimant had not met the applicable
standard of conduct.
Section 3. Non-Exclusivity of Rights. The rights conferred by Article VI,
Sections 1 and 2 (above) shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors, or otherwise.
Section 4. Amendment or Repeal. Neither any amendment nor repeal of this
Article VI, nor the adoption of any provision of this Corporation's Bylaws
inconsistent with this Article VI, shall eliminate or reduce the effect of this
Article VI, in respect of any matter occurring, or any action or Proceeding
accruing or arising, or that, but for this Article VI would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE VII: RECORDS AND REPORTS
Section 1. Form of Records. Any records maintained by the corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 2. Inspection by Stockholders. Any stockholder, in person or by
attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours for business to inspect
for any proper purpose the corporation's stock ledger, a list of stockholders,
and its other books and records, and to make copies or extracts therefrom. A
proper purpose shall mean a purpose reasonably related to such person's interest
as a stockholder. In every instance where an attorney or other agent shall be
the person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or other such writing which authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand shall
be directed to the corporation at its registered office in Delaware or at its
principal place of business.
Section 3. Inspection by Directors. Any director shall have the right to
examine the corporation's stock ledger, a list of its stockholders and its other
books and records for a purpose reasonably related to his position as a
director.
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ARTICLE VIII: GENERAL CORPORATE MATTERS
Section 1. Certificates for Shares. Every holder of stock shall be entitled
to have a certificate signed by or in the name of the corporation by the
chairman or vice chairman of the board of directors, if any, or the president or
a vice president, and by chief financial officer or an assistant treasurer, or
the secretary or an assistant secretary, of the corporation, certifying the
number of shares owned by such stockholder in the corporation. Any of or all the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
The board of directors may authorize the issuance of shares as partly paid
and subject to call for the remainder of the consideration to be paid therefor;
provided that upon the face or back of each certificate issued to represent any
such partly paid shares or upon the books and records of the corporation in the
case of uncertificated partly paid shares, the total amount of the consideration
to be paid therefor and the amount paid thereon shall be stated. Upon the
declaration of any dividend on fully paid shares, the corporation shall declare
a dividend upon partly paid shares of the same class, but only upon the basis of
the percentage of the consideration actually paid thereon.
Section 2. Lost Certificates. Except as provided in this Section 2, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the corporation and cancelled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
Section 3. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
Section 4. Representation of Shares of Other Corporations. The chairman of
the board, the president, or any vice president, or any other person authorized
by resolution of the board of directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority granted to these officers to vote or
represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
Section 5. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
General Corporation Law of Delaware shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
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ARTICLE IX: AMENDMENTS
Section 1. Amendment by Stockholders. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote or written assent of stockholders
entitled to exercise a majority of the voting power of the corporation, except
as otherwise provided by law or by the certificate of incorporation.
Section 2. Amendment by Directors. Subject to the rights of the
stockholders as provided in Section 1 of this Article IX, to adopt, amend, or
repeal bylaws, bylaws may be adopted, amended, or repealed by the board of
directors.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of Burst.com, Inc., a
Delaware corporation; and,
2. That the foregoing bylaws, comprising fourteen (14) pages, constitute
the bylaws of said corporation as duly adopted by the Board of Directors of the
corporation on January 7, 2000.
IN WITNESS WHEREOF, I have hereto subscribed my name this 27th day of
January, 2000.
Dated: 1/27/2000 /s/ EDWARD H. DAVIS
------------- ----------------------------------------
Edward H. Davis, Secretary
15
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.
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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
=======
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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."
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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
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<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
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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."
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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
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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
9
<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.
10
<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
14
<PAGE>
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."
15
<PAGE>
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.
23
<PAGE>
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.
24
<PAGE>
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,
25
<PAGE>
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.
26
<PAGE>
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.
27
<PAGE>
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.
28
<PAGE>
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
iii
<PAGE>
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
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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.
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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.
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<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
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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
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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
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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.
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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
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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
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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
16
<PAGE>
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.
17
<PAGE>
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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<PAGE>
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
19
<PAGE>
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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<PAGE>
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,
21
<PAGE>
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
22
<PAGE>
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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<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.
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
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<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>
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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.
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
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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
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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
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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
14
<PAGE>
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.
15
<PAGE>
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.
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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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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
25
<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>
- ---------------------------
26
<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
27
<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)
29
<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
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<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
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<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.
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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.
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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.
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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
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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.
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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
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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.
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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
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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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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>
27
<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,
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<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
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<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,
2
<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
3
<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
4
<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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<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
9
<PAGE>
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
10
<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.
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
1
<PAGE>
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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<PAGE>
(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
3
<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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
10
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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
<PAGE>
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
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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
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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
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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.
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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.
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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.
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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.
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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: _________________
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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
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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
<PAGE>
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,
7
<PAGE>
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: _______________________________
8
<PAGE>
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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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
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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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<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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<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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<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
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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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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
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<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.
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(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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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
6
<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
3
<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.
4
<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
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement (the "Agreement"), dated as of January 27,
2000, by and among Instant Video Technologies, Inc., a Delaware corporation (the
"Company"), and each of the purchasers set forth on the signature pages hereto
(individually, a "Purchaser" and, collectively, the "Purchasers").
WHEREAS, the Company proposes to issue and sell to the Purchasers for cash,
or in exchange for cancellation or conversion of outstanding indebtedness, an
aggregate of 5,940,125 shares (individually, a "Share" and, collectively, the
"Shares") of common stock, par value $0.00001 per share, of the Company (the
"Common Stock") and warrants to purchase shares of Common Stock (as further
described below); and
WHEREAS, the Company, among other things, has agreed to provide certain
registration rights under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Shares and the warrants that are being
issued to the Purchasers pursuant to this Agreement.
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants set forth herein, the parties hereto agree as follows:
1. Sale of Stock and Delivery of Warrants; Closing.
(a) Purchase and Sale. Subject to the terms and conditions hereof, the
Company shall issue and sell to each of the Purchasers, and each Purchaser,
severally, shall purchase from the Company, the number of Shares set forth
opposite such Purchaser's name on Schedule 1 hereto at a purchase price of $4.00
per Share for an aggregate purchase price set forth on such Schedule 1. The
Company shall deliver to each Purchaser warrants to purchase, at an exercise
price of $5.00 per share, such number of shares of Common Stock set forth
opposite such Purchaser's name on Schedule 1 hereto (the "Warrants"). The shares
of Common Stock issued or issuable upon exercise of the Warrants are hereinafter
referred to as the "Warrant Shares." The Warrants shall be in the form of
Exhibit A hereto.
(b) First Closing. The first closing of the purchase and sale of the
Shares and Warrants (the "First Closing") shall take place at the offices of
Winston & Strawn, 200 Park Avenue, New York, New York, at 10:00 A.M. on January
27, 2000, or such later date on which the conditions set forth in Sections 7(a)
and 8(a) hereof shall have been satisfied or waived; provided, however, that the
First Closing, in no event, shall occur later than January 31, 2000. The date of
the First Closing shall be hereinafter referred to as the "First Closing Date".
(c) Second Closing. The Second Closing of the purchase and sale of the
Shares and Warrants (the "Second Closing") shall take place at the offices of
the
<PAGE>
Securities Purchase Agreement
Company, on or before January 31, 2000, or such earlier date on which the
conditions set forth in Section 7(b) and 8(b) hereof shall have been satisfied
or waived, provided that:
(i) Purchasers participating in the Second Closing shall only
include (A) Klein-Hawk ("Klein-Hawk"), (B) Ravinia Capital Ventures, LLC (which
may only participate in the Second Closing in its corporate capacity)
("Ravinia"); (C) those note holders listed on Schedule 3(y) attached hereto (the
"Second Closing Note Holders"), and (D) those Purchaser listed on Schedule 1
attached hereto who did not participate in the First Closing; notwithstanding
the foregoing, Purchasers listed on Schedule 1 may only participate in the
Second Closing in the amount set forth next to each such Purchaser's names on
Schedule 1;
(ii) the aggregate investment made by the Purchasers
participating in the Second Closing shall not exceed, in the case of (A)
Klein-Hawk, $4,000,000, (B) Ravinia, $3,000,000, (C) the Second Closing Note
Holders, $765,000 and (D) any other Purchaser listed on Schedule 1 attached
hereto who did not participate in the First Closing, $1,025,500; provided,
however, Klein-Hawk may only participate in the Second Closing if its aggregate
investment is at least $2,000,000, and provided, further, Ravinia may only
participate in the Second Closing if its aggregate investment is at least
$2,000,000; and
(iii) Purchasers participating in the Second Closing shall become
a party to and agree to be bound by the provisions of this Agreement and each
other Transaction Documents (as defined below).
The date of the Second Closing shall be hereinafter referred to
as the "Second Closing Date", the First Closing Date and the Second Closing Date
are each referred to individually as a "Closing Date" and, collectively as the
"Closing Dates".
(d) Delivery. At each Closing, the Company shall deliver to each
Purchaser a stock certificate representing the Shares purchased by such
Purchaser and the Warrants to be delivered to such Purchaser, against payment of
the purchase price therefor by check, payable to the order of the Company, by
wire transfer of immediately available funds to the Company in accordance with
the Company's wiring instructions, or by cancellation or conversion of
indebtedness, or some combination thereof. In addition, the Company shall
deliver to each Purchaser such other agreements, documents, certificates and
opinions as specified in this Agreement or as may reasonably be requested by
such Purchaser.
2. Representations and Warranties of Purchasers. Each of the Purchasers
represents and warrants, severally, to the Company as follows:
(a) Authorization. The Purchaser has the full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of, and the performance under, this Agreement by the
Purchaser
-2-
<PAGE>
Securities Purchase Agreement
will not conflict with any rule, regulation, judgment or agreement applicable to
the Purchaser.
(b) Investment Purpose. The Purchaser is purchasing the Shares and
acquiring the Warrants, and will purchase the Warrant Shares (together with the
Shares and the Warrants, the "Securities"), for investment purposes and not with
a present view to, or for sale in connection with, a distribution thereof within
the meaning of the Securities Act. The Purchaser understands that it must bear
the economic risk of this investment indefinitely, unless the Securities are
registered pursuant to the Securities Act and any applicable state securities or
blue sky laws or an exemption from such registration is available.
Notwithstanding anything in this Section 2(b) to the contrary, the Purchaser, by
making the representations herein, does not agree to hold the Securities for any
minimum or other specific term and reserves the right to dispose of such
Securities at any time in accordance with or pursuant to registration or an
exemption therefrom under the Securities Act and any applicable state securities
or blue sky laws.
(c) Reliance On Exemptions. The Purchaser understands that the
Securities are being offered and sold in reliance upon specific exemptions from
the registration requirements of Federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations and
warranties of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Securities.
(d) Information. The Purchaser has been furnished all documents
relating to the business, finances and operations of the Company which the
Purchaser requested from the Company. The Purchaser has been afforded the
opportunity to ask questions of the Company's representatives concerning the
Company in making the decision to purchase the Shares and acquire the Warrants,
and such questions have been answered to its satisfaction. However, neither the
foregoing nor any other due diligence investigation conducted by the Purchaser
or on its behalf shall limit, modify or affect the representations and
warranties of the Company in Section 3 of this Agreement or the right of the
Purchaser to rely thereon.
(e) Governmental Review. The Purchaser understands that no Federal or
state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.
(f) Purchaser's Qualifications. The Purchaser is an "accredited
investor" as defined in Rule 501 under Regulation D of the Securities Act
("Regulation D"). The Purchaser is capable of evaluating the merits and risks of
an investment in the Securities.
(g) Restrictions on Transfer. The Purchaser understands that it may
not transfer any of the Securities unless such Securities are registered under
the Securities Act or unless an exemption from registration and qualification
requirements are available under the Securities Act and applicable state
securities laws. The Purchaser understands
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Securities Purchase Agreement
that certificates representing the Shares, the Warrants, the Warrant Shares and
shares of Common Stock issued pursuant to Section 4 of this Agreement shall bear
the following, or a substantially similar, legend until such time as they have
been registered under the Securities Act or otherwise may be sold under Rule 144
under the Securities Act:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
(h) Residence. The Purchaser is a resident of the jurisdiction set
forth under its name on the signature pages hereto.
(i) Investment Experience. The Purchaser has experience as an investor
in securities of Internet - related and technology companies and acknowledges
that it is able to fend for itself, can bear the economic risk of its
investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Securities. If other than an individual, the Purchaser also represents it
has not been organized for the purpose of acquiring the Securities.
3. Representations and Warranties of the Company. The Company represents
and warrants to each Purchaser that, except as set forth on a Schedule of
Exceptions attached hereto as follows:
(a) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all necessary corporate power and authority to own or lease
its assets and to carry on its business as now being conducted and presently
proposed to be conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which its
ownership or leasing of assets, or the conduct of its business, makes such
qualification necessary, except where the failure to be so qualified would not
result in a Material Adverse Change (as defined in Section 3(h) hereof). Except
for any subsidiaries listed on Schedule 3(b) hereto, the Company has no
subsidiaries and no equity interests in any corporation, partnership, joint
venture or other entity.
(b) Subsidiaries. Schedule 3(b) hereto sets forth each subsidiary of
the Company, showing the jurisdiction of its incorporation or organization. Each
subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation and has the requisite
corporate power to own, lease and operate its properties and assets and to
conduct its business as it is now being conducted. Each subsidiary is duly
qualified to do business as a foreign corporation
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Securities Purchase Agreement
and is in good standing in each jurisdiction in which its ownership or leasing
of assets, or the conduct of its business, makes such qualification necessary,
except where the failure to be so qualified would not result in a Material
Adverse Change. All of the outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and are fully paid and
nonassessable and are owned by the Company.
(c) Requisite Power and Authorization. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, the
Registration Rights Agreement attached hereto as Exhibit B (the "Registration
Rights Agreement") and the Warrants (collectively, the "Transaction Documents")
and to perform its obligations under each of the Transaction Documents,
including without limitation the issuance of the Securities hereunder. All
corporate action of the Company required for the execution and delivery of the
Transaction Documents and the issuance and delivery of the Securities has been
duly and effectively taken, and, except as set forth on Schedule 3(g), no
further actions, authorizations or consents, including, without limitation, any
consents of the stockholders of the Company, are required. Each of the
Transaction Documents constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditor's rights,
(ii) as limited by general principles of equity that restrict the availability
of equitable remedies and (iii) as the indemnity provisions of the Registration
Rights Agreement may be limited by law. The Shares, when issued, delivered and
paid for in compliance with the provisions of this Agreement, will be validly
issued, fully paid and non-assessable, free and clear of any and all liens,
charges, claims or encumbrances. The Warrant Shares, if and when issued,
delivered and paid for in compliance with the provisions of this Agreement and
the Warrants will be validly issued, fully paid and non-assessable, free and
clear of any and all liens, charges, claims or encumbrances. The Company has
reserved a sufficient number of shares of Common Stock necessary for issuance of
the Shares and the Warrant Shares.
(d) SEC Documents. Prior to the date hereof, the Company, voluntarily
filed with the Securities and Exchange Commission (the "SEC") all reports,
statements, schedules and other documents to its knowledge required to be filed
by reporting companies pursuant to the Securities Act and the Exchange Act.
Since December 31, 1998, all such reports, statements, schedules and other
documents (collectively, the "SEC Documents") required to be filed by reporting
companies were filed by the Company. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the financial statements included in the SEC Documents (the "Financial
Statements") complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Except (i) as may be indicated
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Securities Purchase Agreement
in the notes to the Financial Statements or (ii) in the case of the unaudited
interim statements, as permitted by Form 10-Q under the Exchange Act, the
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal recurring
year-end adjustments and footnotes). Except as set forth in the Financial
Statements filed with the SEC prior to the date hereof or as set forth on
Schedule 3(d), neither the Company nor any of its subsidiaries has any
liabilities, whether absolute, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such Financial Statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such Financial
Statements, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company or any of its subsidiaries.
(e) Capitalization. The capitalization of the Company as of the date
hereof is set forth on Schedule 3(e), including (i) the authorized capital
stock, (ii) the number of shares issued and outstanding, (iii) the number of
shares reserved for issuance pursuant to stock option, employee benefit or other
plans, (iv) the number of shares reserved for issuance or issuable pursuant to
securities exercisable for, or convertible into or exchangeable for, any shares
of Common Stock, (v) the number of shares of Common Stock reserved for issuance
with respect to the sale of the Shares, and (vi) the number of shares of Common
Stock reserved for issuance upon exercise of the Warrants. All outstanding
shares of capital stock have been duly authorized and validly issued and are
fully paid and non-assessable. Except as set forth on Schedule 3(e), the Company
has (i) no outstanding securities convertible into or exchangeable for any
shares of capital stock of the Company, (ii) no rights, options, warrants, calls
or other agreements or commitments of any nature whatsoever relating to the
purchase or other acquisition of any shares of its capital stock or securities
convertible into or exchangeable for any shares of its capital stock or (iii) no
shares of its capital stock reserved for issuance. Except as set forth on
Schedule 3(e), the Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company.
(f) No Conflicts. Neither the execution, delivery and performance by
the Company of this Agreement, the other Transaction Documents, and all
instruments and documents to be delivered by the Company, nor the consummation
of the transactions contemplated by any of the foregoing (i) has constituted or
resulted in, or will constitute or result in, a default under or breach or
violation of any term or provision of the organizational documents or bylaws of
the Company or material contracts or instruments to which the Company or any of
its subsidiaries is a party or Federal, state or local laws, rules or
regulations, writs, orders, judgments or decrees which are applicable to the
Company, any of its subsidiaries or their assets, (ii) will result in the
acceleration or termination of any rights under any material contract or
instrument to which the
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Securities Purchase Agreement
Company or any of its subsidiaries is a party or (iii) will result in the
creation or imposition of any liens, charges or encumbrances upon any assets of
the Company or any of its subsidiaries.
(g) Consents. Except as set forth on Schedule 3(g), no approval,
consent, order, authorization or other action by, or notice to or filing with,
any governmental authority or regulatory agency or any other person or entity,
and no lapse of a waiting period, is required in connection with the execution,
delivery or performance by the Company of this Agreement, any other Transaction
Document, the issuance and delivery of any of the Securities or any other
transactions contemplated by any of the Transaction Documents except for (i) the
filing of a Form D with the SEC, (ii) filings required under applicable state
"blue sky" laws (which shall be duly filed) and (iii) the filing of a
registration statement or statements pursuant to the Registration Rights
Agreement.
(h) No Material Adverse Change. Since December 31, 1998, the business
of the Company and each subsidiary has been operated in the ordinary course and
substantially consistent with past practice and there has not been any material
adverse change in the business, assets, financial condition, results of
operations, affairs or prospects of the Company or any of its subsidiaries (a
"Material Adverse Change"). Since December 31, 1998, neither the Company nor its
subsidiaries has (i) paid any obligation or liability or discharged or satisfied
any liens or encumbrances other than in the ordinary course of business; (ii)
declared or made any payment or distribution to its stockholders or purchased or
redeemed any of its shares of capital stock or other securities; (iii)
mortgaged, pledged or subjected to any lien, charge or other encumbrance any of
its assets, tangible or intangible, except in the ordinary course of business;
(iv) sold, transferred or leased any of its assets except for fair value in the
ordinary course of business; (v) increased the annual compensation payable to
any of its officers or other employees, consultants or representatives by
greater than $25,000; (vi) cancelled or compromised any debt or claim, or waived
or released any right of material value; (vii) entered into any transaction
other than in the ordinary course of business; (viii) issued or sold any shares
of capital stock or other securities or granted any options, warrants or other
purchase rights with respect thereto that are not disclosed on Schedule 3(e); or
(ix) agreed to do any of the foregoing (other than pursuant hereto).
(i) Litigation. Except as set forth on Schedule 3(i), there is no
claim, action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its subsidiaries,
or any of their respective directors or officers, in their capacities as such,
(i) that questions the validity of this Agreement or any other Transaction
Document or the issuance of the Securities, or the right of the Company to enter
into this Agreement or any other Transaction Document or to consummate the
transactions contemplated by any Transaction Document or (ii) that might result,
either individually or in the aggregate, in any Material Adverse Change or in
any change in the current equity ownership of the Company. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment,
stipulation or decree
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Securities Purchase Agreement
of any court, administrative agency, commission, regulatory authority, other
government agency or instrumentality.
(j) No Default. Neither the Company nor any of its subsidiaries is in
violation of or default under any provision of its organizational documents or
bylaws or other constituent documents or is in default (or, with notice or the
lapse of time, would be in default) under any material agreement, contract,
commitment or instrument to which it is a party or by which it or its properties
or assets is bound or affected. To the Company's knowledge, no third party is in
material default under or in material breach or violation of any material
contract, commitment or instrument to which the Company or any of its
subsidiaries is a party or by which any of their properties or assets are bound
or affected.
(k) Compliance with Laws. The Company and each subsidiary is in
compliance and has conducted its business and operations so as to comply with
all laws (including, without limitation, any environmental laws), ordinances,
rules and regulations, judgments, decrees or orders of any regulatory authority
or other governmental or administrative body or instrumentality, whether
domestic or foreign, except where such failure would not result in a Material
Adverse Change. The Company has not during the past three years received any
notice relating to any violation or potential violation of applicable law or
regulations.
(l) Title. The Company and each subsidiary has good and marketable
title to all real and personal property owned by it which is material to its
business, in each case free and clear of all liens, encumbrances and defects.
Any property, real or personal, held under lease by the Company or any of its
subsidiaries, is held by it under valid and enforceable leases.
(m) Intellectual Property. The Company and each subsidiary owns or
possesses adequate and enforceable rights to use, all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, permits, domain names, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, the "Intangibles") necessary to conduct its
business as heretofore conducted by it, as now being conducted by it, and as
proposed to be conducted by it. To the Company's knowledge, neither the Company
nor any of its subsidiaries has infringed, is infringing, or is in conflict with
any right of any other person with respect to, any Intangibles. To the knowledge
of the Company, no person is infringing on or violating the Intangibles owned or
used by the Company or any of its subsidiaries. As of the date hereof, each
officer of the Company and its subsidiaries, and each other employee of the
Company and its subsidiaries involved in the development, implementation or
maintenance of the Company's or such subsidiary's technology, has entered into
non-compete, non-solicitation and proprietary information and invention
assignment agreements.
(n) Registration Rights. The only registration rights, including
piggyback rights, granted (or agreed to be granted) to any person or entity
other than the
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Securities Purchase Agreement
Purchasers are set forth on Schedule 3(n). None of the registration rights
disclosed on Schedule 3(n) are senior in priority to the registration rights
provided for in the Registration Rights Agreement.
(o) OTC Bulletin Board. The Common Stock is, as of the date hereof,
traded by means of the National Association of Securities Dealers, Inc. (the
"NASD") OTC Bulletin Board(R) service (the "OTCBB"). The sale of the Securities
as contemplated hereby will not violate any Rule of the NASD applicable to the
Company or the Common Stock. The Company has not received notification, written
or oral, that the Company has failed to satisfy any requirement of the NASD
relating to the trading of the Common Stock in the OTCBB.
(p) Registration Statement. The Company is currently eligible to
register the resale of its Common Stock under the Securities Act pursuant to a
registration statement on Form S-1. To the Company's knowledge, there exist no
facts or circumstances that would inhibit or delay the preparation and filing of
a registration statement on Form S-1 with respect to the Shares and the Warrant
Shares.
(q) No Misrepresentation. No representation or warranty by the Company
in this Agreement (including any Exhibit or Schedule hereto) and no statements
of the Company contained in any document, certificate, schedule or other
information furnished or to be furnished by or on behalf of the Company pursuant
to this Agreement or any other Transaction Document or in connection with the
transactions contemplated by any Transaction Document contains or shall contain
any untrue statement of material fact or omits or shall omit to state a material
fact required to be stated therein or necessary in order to make such
statements, in light of the circumstances under which they were made, not
misleading. There exists no event or circumstances with respect to the Company
or any of its subsidiaries which would result in a Material Adverse Change that
has not been disclosed by the Company to the Purchasers.
(r) Anti-Dilution and Other Shares. Except as set forth on Schedule
3(r), no stockholder of the Company or other person or entity has any preemptive
right of subscription or purchase or contractual right of first refusal or
similar right with respect to any of the Securities. Issuance of the Securities
will not result in the issuance of any additional shares of Common Stock or the
triggering of other anti-dilution or similar rights contained in any options,
warrants, debentures or other securities or agreements of the Company.
(s) No Brokers or Finders. Except as set forth on Schedule 3(s), no
person or entity has or will have, as a result of any act or omission by the
Company, any right, interest or valid claim against any Purchaser for any
commission, fee or other compensation as a finder or broker, or in any similar
capacity, in connection with the transactions contemplated by this Agreement.
(t) Change of Control Payments. Neither the execution, delivery and
performance by the Company of any of the Transaction Documents nor the
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Securities Purchase Agreement
consummation of any of the transactions contemplated thereby shall require any
payment by the Company, in cash or kind, under any agreement, plan, policy,
commitment or other arrangement. There are no agreements, plans, policies,
commitments or other arrangements with respect to any compensation, benefits or
consideration which will be materially increased, or the vesting of benefits of
which will be materially accelerated, as a result of the execution and delivery
of the Transaction Documents or the occurrence of any of the transactions
contemplated thereby. There are no payments or other benefits, the value of
which will be calculated on the basis of any of the transactions contemplated by
this Agreement or any other Transaction Document.
(u) Taxes. The Company and each of its subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been made
and are reflected in the Financial Statements for all current taxes and other
charges to which the Company or any subsidiary is subject and which are not
currently due and payable. None of the income tax returns of the Company or any
subsidiary is currently being audited by the Internal Revenue Service or any
other governmental entity. Neither the Company nor any subsidiary has filed with
the Internal Revenue Service or any other governmental authority any agreement
or document extending, or having the effect of extending, the period for
assessment or collection of any taxes. The Company has no knowledge of any
additional assessments, adjustments or contingent tax liability (whether Federal
or state) pending or threatened against the Company or any subsidiary for any
period, nor of any basis for any such assessment, adjustment or contingency.
(v) ERISA. All "employee benefit plans", as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
any other employee benefit arrangements or payroll practices (the "Plans"),
maintained by the Company and any of its subsidiaries or to which the Company or
any of its subsidiaries contributed or is obligated to contribute thereunder, is
and has been maintained in compliance with applicable law, including but not
limited to ERISA, the Internal Revenue Code of 1986, as amended (the "Code"),
and any applicable law of any other governmental authority and with any other
contractual obligations and their terms. Each Plan that is intended to be a tax
qualified plan under Section 401(a) of the Code has been determined by the
Internal Revenue Service to qualify under Section 401 of the Code, and the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the Code, and nothing has occurred, including the
adoption of or failure to adopt any Plan amendment, which would adversely affect
its qualification or tax-exempt status.
(w) Labor Matters. There are no strikes or other labor disputes
against the Company or any of its subsidiaries pending or, to the Company's or
its subsidiaries' knowledge, threatened. There is no organizing activity
involving the Company or any of its subsidiaries pending or, to the Company's or
its subsidiaries' knowledge, threatened by any labor union or group of
employees.
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Securities Purchase Agreement
(x) Year 2000 Compliance. Each system, comprised of software,
hardware, databases or embedded control systems (microprocessor controlled or
controlled by any robotic or other device) (collectively, a "System") that
constitutes any material part of, or is used in connection with the use,
operation or enjoyment of, any material tangible or intangible asset for real
property of the Company or any of its subsidiaries will not be materially
adversely affected by the advent of the year 2000, the advent of the
twenty-first century or the transition from the twentieth century through the
year 2000 and into the twenty-first century. The Company has no reason to
believe that it or any of its subsidiaries may incur material expenses arising
from or relating to the failure of any of their Systems as a result of the
advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the
twenty-first century. Each System of the Company and its subsidiaries is able to
accurately process, provide and/or receive all date/time data, including, but
not limited to, calculating, comparing and sequencing within, from, into and
between the twentieth century (through year 1999), the year 2000 and the
twenty-first century, including leap year calculations; and will, as to
performance and functionality, not be affected by any dates/times prior to, on,
after or spanning January 1, 2000 ("Year 2000 Compliant"). To the knowledge of
the Company and its subsidiaries, each of the Company's vendors will continue to
furnish its products or services to the Company or its subsidiaries, as
applicable, without interruption or material delay, on and after January 1,
2000.
(y) Conversion of Preferred Stock and Notes. Upon filing with the
Secretary of State of the State of Delaware, as of the date hereof, of the
Amended and Restated Certificate of Incorporation of the Company, in the form
attached hereto as Exhibit C, all outstanding shares of the Company's preferred
stock, including, without limitation, the Series A Convertible Preferred Stock,
par value $ .00001 per share (the "Series A Preferred Stock") and the Series B
Convertible Preferred Stock, par value $.00001 per share (the "Series B
Preferred Stock"), will be converted into Common Stock and there will be no
outstanding equity securities of the Company senior to the Securities. Except as
set forth on Schedule 3(y) hereto, concurrent with the First Closing, all
outstanding convertible notes of the Company, as of the date hereof, (the
"Notes") are being converted into Shares of Common Stock at $4.00 per share and
warrants to purchase, at an exercise price of $5.00 per share, Common Stock on
the terms and conditions provided herein.
(z) Lock-Up Agreement. The Company has entered into lock-up
agreements, in the form attached hereto as Exhibit D (each a "Lock-Up Agreement"
and, collectively the "Lock-Up Agreements") with (i) each of the officers and
directors of the Company, (ii) each of the holders of Series A Preferred Stock
and Series B Preferred Stock convertible into Common Stock upon filing of the
Company's Amended and Restated Certificate of Incorporation, and (iii) each
stockholder of the Company owning or having the right to acquire in excess of 1%
of the issued and outstanding Common Stock of the Company (on a fully diluted
basis).
4. Right of First Refusal for New Securities. (a) The Company hereby grants
to each Purchaser, so long as such Purchaser shall own the greater of 500,000
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Securities Purchase Agreement
shares of Common Stock (including shares issuable upon exercise of the Warrants
and adjusted for stock splits, combinations, dividends and the like) or (ii)
fifty percent (50%) of the Shares purchased by such Purchaser pursuant to this
Agreement, a right of first refusal to purchase shares of any New Securities (as
defined below) which the Company may, from time to time, propose to sell and
issue. Such right of first refusal shall allow each Purchaser to purchase its
Proportionate Share (as defined below) of the New Securities proposed to be
issued, determined with reference to the aggregate number of outstanding shares
of Common Stock (taking into account all shares of Common Stock issuable upon
exercise of the Warrants) held by such Purchasers or their permitted transferees
before the proposed issuance of New Securities. In the event that any Purchaser
shall not purchase any or all of its Proportionate Share of New Securities, the
other Purchasers shall have the right to purchase such unpurchased New
Securities, as described below. The right of first refusal granted hereunder
shall terminate if unexercised within 20 Business Days after receipt of the
notice described in Section 5(c) hereof. The Purchasers may reallocate their
right of first refusal among themselves. "Business Day" shall mean any day that
is not a Saturday, a Sunday or a day on which banks are required or permitted to
be closed in the State of New York. For the purposes hereof, any SSF Purchaser
(as hereinafter defined) may exercise rights hereunder so long as all the SSF
Purchasers, in the aggregate, hold the requisite number of Shares referred to in
the first sentence of this Section 4(a).
(b) "New Securities" shall mean any authorized but unissued shares,
and any treasury shares, of capital stock of the Company and all rights, options
or warrants to purchase or exchangeable for capital stock, and securities of any
type whatsoever that are, or may become, convertible into capital stock;
provided, however, that the term "New Securities" does not include (i)
securities issued pursuant to the acquisition of another corporation or entity
by the Company by merger, purchase of all or substantially all of the assets or
other reorganization whereby the Company shall become the owner of more than 50%
of the voting power of such corporation or entity; (ii) shares of Common Stock
issued in connection with any stock split or stock dividend of the Company;
(iii) shares of Common Stock issued pursuant to any public offering and sale of
equity securities of the Company pursuant to an effective registration statement
under the Securities Act; (iv) Warrant Shares delivered to the Purchasers upon
exercise of the Warrants; (v) shares of Common Stock issued pursuant to the
exercise of options granted or to be granted under the current stock option
plans of the Company, provided that the total number of shares of Common Stock
issuable or issued pursuant to such options does not exceed 39% of (A) the
outstanding shares of Common Stock (on a fully diluted basis) as of the date of
this Agreement and (B) any additional outstanding shares of Common Stock (on a
fully diluted basis) issued on or before January 31, 2000 pursuant to this
Agreement, (vi) shares of Common Stock issued upon the exercise or conversion of
any securities outstanding as of the date of this Agreement, (vii) securities
issued by the Company in connection with any credit, financing or leasing
agreements or similar instruments with financial institutions or equipment
lessors; and (viii) securities issued in connection with an offering pursuant to
an engagement letter dated October 5, 1999, as amended January 26, 2000, between
E*Offering and the Company (the "E*Offering Engagement Letter"), whether such
securities are issued to E*Offering or to any investor
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Securities Purchase Agreement
for which E*Offering is entitled is be compensated pursuant to the E*Offering
Engagement Letter. "Proportionate Share" shall be equal to a fraction, the
numerator of which shall equal the total number of shares of Common Stock
(taking into account all shares of Common Stock issuable upon exercise of the
Warrants) then owned by such Purchaser and the denominator of which shall equal
the total number of shares of Common Stock outstanding immediately prior to the
issuance of the New Securities on a fully diluted basis.
(c) If the Company shall propose to issue New Securities, it shall
give each Purchaser written notice thereof, describing the New Securities, the
number thereof to be issued, the purchase price therefor (which shall be payable
solely in cash) and the terms upon which the Company shall propose to issue the
same. Each Purchaser shall have 10 Business Days from the date such notice is
given to determine whether to purchase all or any portion of such Purchaser's
Proportionate Share of such New Securities for the purchase price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the number of New Securities to be purchased.
(d) If the Purchasers shall not have elected within such 10 Business
Day period to purchase all of the New Securities proposed to be issued, the
Company shall provide to each Purchaser, within five Business Days thereafter, a
schedule setting forth the following information: (i) the amount of New
Securities elected to be purchased; (ii) the purchasers thereof (the
"Participating Purchasers") and the specific amount of New Securities elected to
be purchased by each such Participating Purchaser; and (iii) the amount of New
Securities not elected to be purchased. Each Participating Purchaser shall
thereafter have an additional five Business Days after such five Business Day
period has elapsed to determine whether to purchase all or any portion of such
Participating Purchaser's Residual Proportionate Share (as defined below) of
such remaining New Securities for the purchase price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the number of New Securities to be purchased. "Residual Proportionate
Share" shall be equal to a fraction, the numerator of which shall equal the
total number of shares of Common Stock (as determined in the definition of
Proportionate Share) then owned by such Participating Purchaser and the
denominator of which shall equal the total number of such shares owned by all
Participating Purchasers.
(e) If the Purchasers shall not have elected to purchase all of the
New Securities proposed to be issued (within the time period for notifying the
Company set forth above), then the Company shall have 60-calendar days in which
to complete the proposed issuance of the portion of the New Securities not
purchased by the Purchasers at a price not less than that contained in the
notice previously given to the Purchasers and on terms and conditions not more
favorable to the third party than those contained in such notice. If, at the end
of such 60-calendar day period, the Company shall not have completed such
issuance of New Securities, the Company shall no longer be permitted to issue
such New Securities pursuant to this Section 4 without again fully complying
with all of the provisions of this Section 4.
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Securities Purchase Agreement
(f) The right of first refusal granted under this Section 4 shall
terminate upon a Termination Event (as defined in the Warrant). This Section 4
may be amended, waived or otherwise terminated by a vote or the written consent
of sixty-six and two-thirds percent (66 2/3%) of the Purchasers having rights
pursuant to this Section 4 (which 66 2/3% must include the SSF Purchasers (as
defined below), Bay Star Capital, L.P. (and its affiliate, BayStar International
Limited (together "BayStar")), and Chelsey Capital ("Chelsey")), for purposes
hereof, SSF Purchasers shall include Special Situations Fund III, L.P., Special
Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., and
Special Situations Technology Fund, L.P.
5. Buy-In Rights.
(a) In the event that (i) the Company shall fail for any reason to
deliver Warrant Shares to a Purchaser upon exercise of any Warrants within the
time period specified in paragraph (a) of such Warrants or the Company shall
fail to remove any restrictive legend on any certificates evidencing Shares,
Warrant Shares or shares of Common Stock issued pursuant to Section 5 of this
Agreement (the "Buy-In Shares") as and when required under Section 6(f) of this
Agreement and (ii) thereafter, such Purchaser shall purchase (in an open market
transaction or otherwise) shares of Common Stock to make delivery in
satisfaction of a sale by such Purchaser of (A) the Warrant Shares which such
Purchaser anticipated receiving upon such exercise or (B) such unlegended Buy-In
Shares, as the case may be (in each case, the "Sold Shares"), then the Company
shall pay to such Purchaser (in addition to any other remedies available to the
Purchaser) the amount by which (x) such Purchaser's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased shall exceed (y) the net proceeds received by such Purchaser from the
sale of the Sold Shares.
(b) The Company shall make any payments required pursuant to this
Section 5 within five (5) Business Days after receipt of written notice from the
Purchaser setting forth the calculation of the amount due hereunder. Nothing
contained herein shall relieve the Company from its continuing obligation to
deliver Warrant Shares upon any such exercise of the Warrants, or the unlegended
Buy-In Shares, as the case may be.
(c) The rights granted under this Section 5 shall be applicable only
to those Purchasers having rights under Section 4 of this Agreement.
6. Covenants of the Company. The Company hereby covenants that:
(a) Exchange Act Filings. The Company shall use its best efforts to
file in a timely manner all reports and other documents required to be filed by
it under the Exchange Act, and deliver copies of such reports not otherwise
available on the SEC's web site to each Purchaser. The Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations promulgated thereunder
would permit such termination.
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Securities Purchase Agreement
(b) Authorized Shares. The Company shall, from and at all times after
the Closing, maintain a reserve of authorized shares of Common Stock sufficient
to cover the issuance of the Warrant Shares underlying the Warrants and the
issuance of any Default Shares pursuant to the terms of the Registration Rights
Agreement.
(c) Use of Proceeds. The Company shall use the proceeds from the sale
of the Securities for general working capital purposes; provided, however, the
Company shall not use the proceeds from the sale of the Securities to the SSF
Purchasers, BayStar, Chelsey, Kline-Hawk and Ravinia to repay or retire any
outstanding indebtedness listed on Schedule 3(y) attached hereto.
(d) Listing. The Company shall, within seven business days of the
Closing Date, file an application for listing on the Nasdaq SmallCap Market
("Nasdaq SmallCap"). The Company will take all action necessary to effect the
listing of the Common Stock on the Nasdaq SmallCap and, if so listed, will use
its best efforts to maintain such listing, or in the event not listed on the
Nasdaq SmallCap then on OTCBB or any relevant market or system, if applicable,
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of NASD, the Nasdaq SmallCap system or any
relevant market or system.
(e) Certain Legal Expenses. The Company shall pay to Winston & Strawn,
counsel to certain of the Purchasers, at the Closing, its fees and expenses
relating to the negotiation and documentation of this Agreement and the other
documents and transactions contemplated hereby in an aggregate amount not to
exceed $20,000.
(f) Removal of Legends. Any legend endorsed on a certificate pursuant
to Section 2(g) and any related stop transfer instructions with respect to any
Securities shall be removed, and the Company shall issue promptly a certificate
without such legend to the holder thereof, if (i) such Securities shall be
registered under the Securities Act, (ii) such legend may be properly removed
under the terms of Rule 144 under the Securities Act or (iii) such holder shall
provide the Company with an opinion of counsel, reasonably satisfactory to the
Company, to the effect that a sale, transfer or assignment of such Securities
may be made pursuant to Rule 144(k) under the Securities Act.
(g) Maintenance of Existence and Conduct of Business. The Company
shall, and shall cause each of its subsidiaries to: (i) do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, and its rights and franchises; (ii) at all times use its best efforts
to maintain, preserve and protect all of its material intellectual property
including, but not limited to, licenses, patents, trade secrets, confidential
and proprietary information, domain names, copyrights, trademarks, service marks
and trade names, and preserve all the remainder of its material assets, in use
or useful in the conduct of its business and keep the same in good repair,
working order and condition (taking into consideration ordinary wear and tear)
and from time to time make, or cause to be made, all needful and proper repairs,
renewals and replacements, betterments and improvements thereto consistent with
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Securities Purchase Agreement
industry practices; (iii) ensure that each officer of the Company and its
subsidiaries, and each other employee of the Company and its subsidiaries
involved in the development, implementation or maintenance of the Company's or
such subsidiary's technology, enters into non-compete, non-solicitation and
proprietary information and invention assignment agreements; and (iv) continue
to conduct only the business that the Company or its subsidiaries is engaged in
on the date hereof or businesses related thereto.
(h) Director; Observer. So long as the SSF Purchasers collectively own
at least 25% of the Securities purchased by the SSF Purchasers pursuant to this
Agreement (assuming the exercise of the SSF Purchasers' Warrants and adjusted
for stock splits, combinations, dividends and the like), the SSF Purchasers
shall have the right, but not the obligation, to designate a nominee, reasonably
acceptable to the Board of Directors of the Company, to be elected as a director
of the Company and shall promptly notify the Company of such designee. Upon
receipt of such notice, the Company shall cause the SSF Purchasers' nominee to
be placed on the slate at the next annual or special meeting of stockholders of
the Company for the election of directors and shall use its best efforts to
cause such nominee to be elected at such meeting of stockholders. In the event
the SSF Purchasers elect not to designate a nominee for director, the SSF
Purchasers may designate one individual (the "SSF Observer") to attend all
meetings of the Company's Board of Directors (and any committees thereof) in a
non-voting observer capacity. The SSF Observer shall be entitled to receive all
reports, presentations and materials as if such SSF Observer were a member of
the Company's Board of Directors. The Company shall promptly reimburse, in full,
each director designated by the SSF Purchasers for any reasonable expenses
incurred in connection with meetings of the Company's Board of Directors and
committees thereof, and shall similarly reimburse the SSF Observer.
Notwithstanding the foregoing, (a) in the event the Board of Directors intends
to discuss or vote upon any matter that is subject to attorney-client privilege,
or otherwise involves confidential or proprietary information of the Company,
the SSF Observer may be excluded from the portion of the meeting at which such
matter is discussed by the vote of a majority of the directors present, and (b)
in the event any SSF Purchaser or any of its affiliates or its representatives
becomes a direct competitor of the Company, the Chairman of the Board of
Directors or a majority of the directors present may exclude the SSF Observer
from the meetings of the Board of Directors.
(i) Amendment of Lock-Up Agreement. The Company shall not amend any
Lock-Up Agreement without the consent of those Purchasers owning or having the
right to acquire sixty-six and two-thirds percent (66 2/3%) of the Shares and
the Warrant Shares (which such 66 2/3% must include the Securities held by the
SSF Purchasers).
(j) Subsequent Issuances. In the event the Company proposes to issue
Common Stock, options or rights to acquire Common Stock or securities
convertible into Common Stock to any investor during the twelve month (12)
period following the First Closing Date, the Company shall be required to obtain
the prior written consent of the SSF Purchasers if the proposed investment is
(i) for less than $10,000,000 in the
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Securities Purchase Agreement
aggregate, (ii) for less than $5,000,000 by any one purchaser, or (iii) by a
Qualified Institutional Buyer (as such term is defined in the Securities Act) (a
"QIB"), or any entity controlled by, under common control with, or affiliated
with a QIB, regardless of the investment amount made by such QIB. The Company
shall require any investor specified in clauses (i) through (iii) above, (each
an "Investor"), to execute a lock-up agreement substantially in the form of
Exhibit D attached hereto beginning on the date of such investment by the
Investor and ending 180 days after the effective date of the registration
statement filed pursuant to the Registration Rights Agreement. Notwithstanding
the foregoing, this Section 6(k) shall not apply to any issuance of securities
by the Company specified in (i), (iii), (v) through (viii) of Section 4(b) of
this Agreement. In connection with this Section 6(k), or otherwise, no party
shall be granted registration rights which would adversely impact the ability of
the Purchasers to register all of their Securities in accordance with the
Registration Rights Agreement.
7. Conditions to Obligations of the Purchasers at the Closings.
(a) First Closing. The obligation of each Purchaser purchasing Shares
at the First Closing to purchase such Shares shall be subject to the fulfillment
on or prior to the First Closing Date of the following conditions, any of which
may be waived by such Purchaser:
(i) Certificates. The Company shall have delivered to each such
Purchaser a duly executed certificate representing the Shares and the Warrants
issuable to such Purchaser.
(ii) Trading. The Common Stock shall be trading on the OTCBB.
(iii) Representations and Warranties; Performance of Obligations.
The representations and warranties of the Company set forth in this Agreement
and in any other Transaction Document shall be true and correct when made, and
shall be true and correct on the First Closing Date with the same force and
effect as if they had been made on and as of said date, except for
representations and warranties made as of a specific date which shall be true
and correct as of such date. The Company shall have performed, satisfied and
complied with all obligations and conditions required to be performed or
observed by it under this Agreement or any other Transaction Document on or
prior to the First Closing Date.
(iv) Consents and Waivers. The Company shall have made all
filings and obtained any and all consents (including, without limitation, all
governmental or regulatory consents), approvals or authorizations, permits and
waivers necessary or appropriate for consummation of the transactions
contemplated by this Agreement and any other Transaction Document.
(v) No Litigation or Legislation. No statute, rule, regulation,
decree, ruling or injunction shall have been enacted or entered, and no
litigation,
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Securities Purchase Agreement
proceeding, government inquiry or investigation shall be pending, which
challenges, prohibits or restricts, or seeks to prohibit or restrict, the
consummation of the transactions contemplated by this Agreement or any other
Transaction Document, or restricts or impairs the ability of the Purchasers to
own an equity interest in the Company.
(vi) Compliance Certificate. The Company shall have delivered to
the Purchasers a certificate, executed by the Chief Executive Officer of the
Company, dated as of the First Closing Date, certifying to the fulfillment of
the conditions set forth in Sections 7(a)(ii), (iii), (iv), (v) and (viii) and
such other matters as the Purchasers shall reasonably request.
(vii) Opinion of Counsel. Certain Purchasers shall have received
from Bay Venture Counsel, LLP, counsel to the Company, an opinion addressed only
to those Purchasers named therein, dated as of the First Closing Date, in
substantially the form attached hereto as Exhibit E.
(viii) No Material Adverse Change. There shall not have occurred
since the execution of any of the Transaction Documents any Material Adverse
Change.
(ix) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement with such Purchasers.
(x) Lock-Up Agreement. Except as otherwise provided on Section
3(z) of the Schedule of Exceptions, the Company and certain of its directors,
officers and stockholders shall have each entered into a lock-up agreement, in
substantially the form attached hereto as Exhibit D.
(xi) Amended and Restated Certificate of Incorporation. The
Company shall have executed and delivered to Winston and Strawn, counsel for the
SSF Purchasers, the Amended and Restated Certificate of Incorporation, together
with a letter of direction for filing with the Secretary of State of the State
of Delaware.
(xii) Aggregate Investment. The Company shall have issued and
sold to the Purchasers at least 2,000,000 Shares at an aggregate purchase price
of $8,000,000.
(xiii) Fees and Expenses. The Company shall have paid all fees
and expenses of Winston & Strawn pursuant to the terms of Section 6(e) hereto.
(xiv) Notes. In accordance with Section 3(y) hereof, the Notes
shall have been converted to Shares and warrants to purchase Common Stock.
(b) Second Closing. The obligation of each Purchaser purchasing Shares
at the Second Closing to purchase such Shares shall be subject to the
fulfillment
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Securities Purchase Agreement
on or prior to the Second Closing Date of the following conditions, any of which
may be waived by such Purchaser:
(i) Certificates. The Company shall have delivered to each such
Purchaser a duly executed certificate representing the Shares and the Warrants
issuable to such Purchaser.
(ii) Trading. The Common Stock shall be trading on the OTCBB.
(iii) Representations and Warranties; Performance of Obligations.
The representations and warranties of the Company set forth in this Agreement
and in any other Transaction Document shall be true and correct when made, and
shall be true and correct on the Second Closing Date with the same force and
effect as if they had been made on and as of said date, except for
representations and warranties made as of a specific date which shall be true
and correct as of such date. The Company shall have performed, satisfied and
complied with all obligations and conditions required to be performed or
observed by it under this Agreement or any other Transaction Document on or
prior to the Second Closing Date.
(iv) Consents and Waivers. The Company shall have made all
filings and obtained any and all consents (including, without limitation, all
governmental or regulatory consents), approvals or authorizations, permits and
waivers necessary or appropriate for consummation of the transactions
contemplated by this Agreement and any other Transaction Document.
(v) No Litigation or Legislation. No statute, rule, regulation,
decree, ruling or injunction shall have been enacted or entered, and no
litigation, proceeding, government inquiry or investigation shall be pending,
which challenges, prohibits or restricts, or seeks to prohibit or restrict, the
consummation of the transactions contemplated by this Agreement or any other
Transaction Document, or restricts or impairs the ability of the Purchasers to
own an equity interest in the Company.
(vi) Compliance Certificate. The Company shall have delivered to
each such Purchaser a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Second Closing Date, certifying to the fulfillment
of the conditions set forth in Sections 7(b)(ii),(iii), (iv), (v) and (viii) and
such other matters as the Purchasers shall reasonably request.
(vii) No Material Adverse Change. There shall not have occurred
since the execution of any of the Transaction Documents any Material Adverse
Change.
(viii) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement with such Purchasers.
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Securities Purchase Agreement
8. Conditions to Obligation of the Company at the Closings.
(a) First Closing. The obligation of the Company to sell and issue the
Shares and the Warrants to the Purchasers at the First Closing shall be subject
to the fulfillment on or prior to the First Closing Date of the following
conditions, any of which may be waived by the Company:
(i) Purchase Price. Each such Purchaser shall have delivered the
purchase price for the Shares to be purchased by such Purchaser hereunder.
(ii) Representations and Warranties. The representations and
warranties made by such Purchasers in this Agreement shall be true and correct
when made, and shall be true and correct on the First Closing Date with the same
force and effect as if they had been made on and as of said date.
(iii) No Litigation or Legislation. No Federal, State or local
statute, rule, regulation, decree, ruling or injunction shall have been enacted
or entered, and no litigation, proceeding, government inquiry or investigation
shall be pending, which challenges, prohibits, restricts, or seeks to prohibit
or restrict, the consummation of the transactions contemplated by this Agreement
or the other agreements referred to herein, or restricts or impairs the ability
of any Purchaser to own an equity interest in the Company.
(b) Second Closing. The obligation of the Company to sell and issue
the Shares and the Warrants to each Purchaser at the Second Closing shall be
subject to the fulfillment on or prior to the Second Date of the following
conditions, any of which may be waived by the Company:
(i) Purchase Price. Each such Purchaser shall have delivered the
purchase price for the Shares to be purchased by such Purchaser hereunder.
(ii) Representations and Warranties. The representations and
warranties made by such Purchasers in this Agreement shall be true and correct
when made, and shall be true and correct on the Second Closing Date with the
same force and effect as if they had been made on and as of said date.
(iii) No Litigation or Legislation. No Federal, State or local
statute, rule, regulation, decree, ruling or injunction shall have been enacted
or entered, and no litigation, proceeding, government inquiry or investigation
shall be pending, which challenges, prohibits, restricts, or seeks to prohibit
or restrict, the consummation of the transactions contemplated by this Agreement
or the other agreements referred to herein, or restricts or impairs the ability
of any Purchaser to own an equity interest in the Company.
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Securities Purchase Agreement
9. Miscellaneous.
(a) Survival. The representations and warranties of the Company and
the agreements and covenants set forth in this Agreement shall survive the
Closing notwithstanding any due diligence investigation conducted by or on
behalf of any Purchaser. The Company shall indemnify and hold harmless each
Purchaser and each of such Purchaser's officers, directors, employees, partners,
members, agents and affiliates for any loss, damage or expense (including
reasonable counsel fees) arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties or
covenants set forth in this Agreement, including advancement of expenses as they
are incurred.
(b) Governing Law; Jury Waiver. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York. Each of the
Company and the Purchasers irrevocably consent to the exclusive jurisdiction of
the United States Federal courts and state courts, located in New York County,
New York, in any suit or proceeding based on or arising under this Agreement and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. Service of
process on the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Purchaser to serve
process in any manner permitted by law. The parties hereto waive all right to
trial by jury in any action or proceeding to enforce or defend any rights under
this Agreement.
(c) Finder's Fee. Each party shall indemnify and hold the other
harmless from any liability for any commission or compensation in the nature of
a finder's or broker's fee (and the costs and expenses of defending against such
liability or asserted liability) for which such party or any of its officers,
partners, employees or representatives shall be responsible.
(d) Further Assurances. Each party, whether prior to or after the
Closing, shall execute, acknowledge and deliver all such other instruments and
documents, and shall take all such other actions, as may be reasonably requested
by any other party for the purpose of effecting and evidencing the consummation
of the transactions contemplated by this Agreement.
(e) Successors. This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the parties hereto; provided,
however, that the rights of any Purchaser hereunder may be transferred in
connection with a transfer by such Purchaser of all or part of the Securities in
accordance with the terms of this Agreement or the terms of the Warrants, as the
case may be, in a private transaction exempt from registration under the
Securities Act. Any transferee of any of the Securities to whom rights shall be
transferred in such a private transaction, other than
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Securities Purchase Agreement
an affiliate of the Purchaser, shall be required, as a condition precedent to
acquiring such Securities, to agree in writing to be bound by all the terms and
conditions of this Agreement. A Purchaser may not assign its rights under this
Agreement in connection with the sale of Shares or Warrant Shares pursuant to a
registration statement under the Securities Act or under Rule 144.
(f) Counterparts; Facsimile Execution. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Any counterpart or other
signature delivered by a party by facsimile shall be deemed for all purposes as
being good and valid execution and delivery of this Agreement by such party.
(g) Entire Agreement. This Agreement, including and incorporating all
Schedules and all Exhibits hereto and referred to herein, the Registration
Rights Agreement and the Warrants constitute and contain the entire agreements
and understandings of the parties regarding the subject matter of each such
agreement and supercede any and all prior negotiations, correspondence,
understandings and agreements, written or oral, among the parties with respect
to the subject matter of any of the foregoing agreements.
(h) Notices. All notices required to be given hereunder shall be given
by personal delivery, facsimile transmission, nationally recognized overnight
carrier (prepaid) or registered or certified mail, postage prepaid with return
receipt requested. Notices shall be addressed, if to the Company, at its
principal corporate offices located at 500 Sansome Street, Suite 503, San
Francisco, California 94111, Facsimile No. (415) 391-3392, Attention: Chief
Executive Officer and, if to a Purchaser, to the address set forth below such
Purchaser's name on the signature pages hereto. Notices delivered personally
shall be deemed given as of actual receipt; notices sent via facsimile
transmission shall be deemed given as of one business day following receipt by
the sender of written confirmation of transmission thereof; notices sent via
overnight courier shall be deemed given as of one business day following
sending; and notices mailed shall be deemed given as of five business days after
proper mailing. A party may change his or its address by written notice in
accordance with this Section 10(h).
(i) Amendments and Waivers. Except as otherwise provided therein, no
provision of this Agreement or any other Transaction Document may be waived or
amended other than by an instrument in writing signed by the Company and the
Purchasers owning or having the right to acquire sixty-six and two-thirds
percent (66 2/3%) of the Shares and Warrant Shares (which such 66 2/3 percent
must include the Securities held by the SSF Purchasers). Notwithstanding the
foregoing, no amendment or waiver may affect any Purchaser in any manner
differently from any other Purchaser without the written consent of such first
mentioned Purchaser.
(j) Severability. If one or more provisions of this Agreement shall be
held to be unenforceable under applicable law, such provisions shall be excluded
from this Agreement to the extent unenforceable and the balance of this
Agreement shall be
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Securities Purchase Agreement
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
(k) Expenses. Except as otherwise provided herein, the parties hereto
shall pay their own costs and expenses.
(l) Publicity. The parties shall consult with each other, to the
extent practicable, as to the form and content of any press releases and other
third party communications or disclosures relating to this Agreement or the
transactions contemplated hereby, and shall use reasonable efforts, acting in
good faith, to agree upon disclosure which shall be satisfactory to the parties
hereto.
(m) Headings. The headings of this Agreement are for convenience of
reference and shall not form a part of, or affect the interpretation of, this
Agreement.
(n) Termination of Covenants. The covenants of the Company set forth
in Section 6 of this Agreement shall terminate at such time as the Purchasers
shall not own any Securities issued pursuant to this Agreement.
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Signature Pages to Instant Video Technologies Securities Purchase Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY:
INSTANT VIDEO TECHNOLOGIES, INC.
By:
-----------------------------
Name: Richard Lang
Title: Chairman and CEO
Address: 500 Sansome Street
San Francisco, California 94111
Facsimile No.: (415) 391-3392
THE SPECIAL SITUATIONS FUNDS:
SPECIAL SITUATIONS FUND III, L.P. SPECIAL SITUATIONS CAYMAN FUND, L.P.
By: By:
----------------------------- -----------------------------
Name: David Greenhouse Name: David Greenhouse
Title: Managing Director Title: Managing Director
Address: 153 E. 53rd Street, Address: 153 E. 53rd Street,
55th Floor 55th Floor
New York, New York 10022 New York, New York 10022
Facsimile No.: (212) 207-6515 Facsimile No.: (212) 207-6515
Residence: New York Residence: Cayman Islands
SPECIAL SITUATIONS PRIVATE EQUITY SPECIAL SITUATIONS TECHNOLOGY
FUND, L.P. FUND, L.P.
By: By:
----------------------------- -----------------------------
Name: David Greenhouse Name: David Greenhouse
Title: Managing Director Title: Managing Director
Address: 153 E. 53rd Street, Address: 153 E. 53rd Street,
55th Floor 55th Floor
New York, New York 10022 New York, New York 10022
Facsimile No.: (212) 207-6515 Facsimile No.: (212) 207-6515
Residence: New York Residence: New York
S-1
<PAGE>
OTHER PURCHASERS:
BAYSTAR CAPITAL, L.P. BAYSTAR CAPITAL, L.P.
By: By:
----------------------------- -----------------------------
Name: Steven Lamar Name: Steven Lamar
Title: Managing Partner Title: Managing Partner
Address: 425 Market Street, Address: 425 Market Street,
22nd Floor 22nd Floor
San Francisco, CA 94105 San Francisco, CA 94105
Facsimile No.: (415) 512-6488 Facsimile No.: (415) 512-6488
Residence: California Residence: California
BAYSTAR INTERNATIONAL LIMITED CHELSEY CAPITAL
By: By:
----------------------------- -----------------------------
Name: Steven Lamar Name: Erik Franklin
Title: Managing Partner Title:
Address: 425 Market Street, Address: 1370 Avenue of the
22nd Floor Americas
San Francisco, CA 94105 New York, New York 10019
Facsimile No.: (415) 512-6488 Facsimile No.: (212) 399-5651
Residence: California Residence: New York
ERIK FRANKLIN
By:
-----------------------------
Name: Erik Franklin
Title:
Address: c/o Chelsey Capital
1370 Avenue of the
Americas
New York, New York 10019
Facsimile No.: (212) 399-5651
Residence:
S-2
<PAGE>
RAVINIA CAPITAL VENTURES STORIE PARTNERS L.P.
By: By:
----------------------------- -----------------------------
Name: Kevin Eilian Name: Steven A. Ledger
Title: Managing Member Title: Managing Partner
Address: 2025 Broadway, Suite 30H Address: 100 Pine Street,
New York, N.Y. 10023 Suite 2700
Facsimile No.: (212) 362-1238 San Francisco, CA 94111
Residence: New York Facsimile No.: (415) 434-8043
Residence: California
MERCER MANAGEMENT, INC. REED SLATKIN
By: By:
----------------------------- -----------------------------
Name: Gordon Rock Address: 890 North Kellogg Avenue
Title: President Santa Barbara, CA 93111
Address: 4820 East Mercer Way Facsimile No.: (805) 967-3844
Mercer Island, WA 98040 Residence: California
Facsimile No.: (206) 232-6874
Residence: Washington
KYLE FAULKNER
CHARLES SCHWAB & CO., INC.
CUSTODIAN FBO
ROBERT LONDON KYLE WILKE FAULKNER SEP-IRA
By: By:
----------------------------- -----------------------------
Address: c/o Cruttenden & Roth Title: Chief Technology Officer
809 Presidio Avenue Instant Video Technologies,
Santa Barbara, CA 93101 Inc
Facsimile No.: (805) 966-9302 Address: 5690 Ocean View Drive
Residence: California Oakland, CA 94618
Facsimile No.: __________________
Residence: California
DONALD C. REINKE
DOROTHY LYDDON TRUST (Reinke Investment Group)
By: By:
----------------------------- -----------------------------
Name: Dorothy Lyddon Address: Bay Venture Counsel, LLP
Title: Trustee Lake Merritt Plaza
Address: 11801 Dorothy Anne Way Building
Cupertino, CA 95014 1999 Harrison Street,
Facsimile No.: (408) 252-6122 Suite 1300
Residence: California Oakland, CA 94612
Facsimile No.: (510) 834-7440
Residence: California
S-3
<PAGE>
BRADLEY H. REINKE JAMES L. BERG
(Reinke Investment Group) (Reinke Investment Group)
By: By:
----------------------------- -----------------------------
Address: Bay Venture Counsel, LLP Address: Bay Venture Counsel, LLP
Lake Merritt Plaza Lake Merritt Plaza
Building Building
1999 Harrison Street, 1999 Harrison Street,
Suite 1300 Suite 1300
Oakland, CA 94612 Oakland, CA 94612
Facsimile No.: (510) 834-7440 Facsimile No.: (510) 834-7440
Residence: California Residence: California
ROGER E. REINKE, TRTE GREGORY L. BEATTIE
(Reinke Investment Group) (Reinke Investment Group)
By: By:
----------------------------- -----------------------------
Address: Bay Venture Counsel, LLP Address: Bay Venture Counsel, LLP
Lake Merritt Plaza Lake Merritt Plaza
Building Building
1999 Harrison Street, 1999 Harrison Street,
Suite 1300 Suite 1300
Oakland, CA 94612 Oakland, CA 94612
Facsimile No.: (510) 834-7440 Facsimile No.: (510) 834-7440
Residence: California Residence: California
BRUCE WHITLEY STEPHEN P. PEZZOLA
(Reinke Investment Group) (Reinke Investment Group)
By: By:
----------------------------- -----------------------------
Address: Bay Venture Counsel, LLP Address: Bay Venture Counsel, LLP
Lake Merritt Plaza Lake Merritt Plaza
Building Building
1999 Harrison Street, 1999 Harrison Street,
Suite 1300 Suite 1300
Oakland, CA 94612 Oakland, CA 94612
Facsimile No.: (510) 834-7440 Facsimile No.: (510) 834-7440
Residence: California Residence: California
BRUCE P. JOHNSON ANN LOUISE MICEK
(Reinke Investment Group) (Micek Investment Group)
By: By:
----------------------------- -----------------------------
Address: Bay Venture Counsel, LLP Address: c/o 3600 West Bayshore
Lake Merritt Plaza Suite 101
Building Palo Alto, CA 94303
1999 Harrison Street, Facsimile No.: (650) 325-0830
Suite 1300 Residence: California
Oakland, CA 94612
Facsimile No.: (510) 834-7440
Residence: California
S-4
<PAGE>
ELISSA MICEK REECE MICEK
(Micek Investment Group) (Micek Investment Group)
By: By:
----------------------------- -----------------------------
Address: c/o 3600 West Bayshore Address: c/o 3600 West Bayshore
Suite 101 Suite 101
Palo Alto, CA 94303 Palo Alto, CA 94303
Facsimile No.: (650) 325-0830 Facsimile No.: (650) 325-0830
Residence: California Residence: California
LAURA MICEK KAROLYN KELLY
(Micek Investment Group) (Micek Investment Group)
By: By:
----------------------------- -----------------------------
Address: c/o 3600 West Bayshore Address: c/o 3600 West Bayshore
Suite 101 Suite 101
Palo Alto, CA 94303 Palo Alto, CA 94303
Facsimile No.: (650) 325-0830 Facsimile No.: (650) 325-0830
Residence: California Residence: California
JOHN J. MICEK III INDEPENDENCE PROPERTIES LLC
(Micek Investment Group)
By: By:
----------------------------- -----------------------------
Address: c/o 3600 West Bayshore Name: Joseph Barletta
Suite 101 Title:
Palo Alto, CA 94303 Address: 530 Westgate Drive
Facsimile No.: (650) 325-0830 Napa, CA 94558
Residence: California Facsimile No.: (707) 256-0877
Residence: California
DOUGLAS GLEN GREG FRIEDMAN
By: By:
----------------------------- -----------------------------
Address: 507 Bayview Drive Address: 4138 Terrace Street
Manhattan Beach, CA 90266 Oakland, CA 94611
Facsimile No.: (310) 376-6248 Facsimile No.: __________________
Residence: California Residence: California
S-5
<PAGE>
FRANK KRAMER RYAN ALLISON
By: By:
----------------------------- -----------------------------
Address: 5330 E. 17th Avenue Address: 2520 West Lake Avenue North
Denver, CO 80203 Suite 200
Facsimile No.: (303) 394-1189 Seattle, WA 98109
Residence: Colorado Facsimile No.: (206) 352-6310
Residence: Washington
ARTHUR DOUGLAS ALLEN SUZANNE M. LENTZ
By: By:
----------------------------- -----------------------------
Address: 1322 Isabella Avenue Address: 3337 Broderick
Mountain View, CA 94040 San Francisco, CA 94123
Facsimile No.: (650) 948-2989 Facsimile No.: __________________
Residence: California Residence: California
KEITH KOCH BRUCE HENSEL
By: By:
----------------------------- -----------------------------
Address: 1120 Lincoln Street, Suite 900 Address: 1212 Old Orchard Road
Denver, CO 80203 Vincennes, IN 47591
Facsimile No.: (303) 863-7080 Facsimile No.: (812) 882-8279
Residence: Colorado Residence: Indiana
UNIVERSAL ASSURORS AGENCY, INC. THOMAS KOSHY
By: By:
----------------------------- -----------------------------
Name: John J. Micek III Title: Chief Operating Officer
Title: Instant Video Technologies,
-------------------------- Inc
Address: 3600 West Bayshore, Suite 101 Address: 500 Beal Street, Suite 320
Palo Alto, CA 94303 San Francisco, CA 94105
Facsimile No.: (650) 325-0830 Facsimile No.: __________________
Residence: California Residence: California
S-6
<PAGE>
JUNE S. WHITE HAN JOO LEE
By: By:
----------------------------- -----------------------------
Title: Vice President, Engineering Address: 5509 Ash Creek Lane
Instant Video Technologies, Inc. Plano, TX 75093
Address: 20 Plaid Place Facsimile No.: (972) 699-7586
Hillsborough, CA 94010 Residence: Texas
Facsimile No.: __________________
Residence: California
YUAN MENG BAY VENTURE COUNSEL, LLP
By: By:
----------------------------- -----------------------------
Address: 281 Alvarado Avenue Name: Donald C. Reinke
Los Altos, CA 94022 Title: Managing Partner
Facsimile No.: (650) 947-7168 Address: Bay Venture Counsel, LLP
Residence: California Lake Merritt Plaza
Building
1999 Harrison Street,
Suite 1300
Oakland, CA 94612
Facsimile No.: (510) 834-7440
Residence: California
VINCE SAKOWSKI JOHN WORTHING
By: By:
----------------------------- -----------------------------
Address: 845 Oak Grove Avenue Address: 845 Oak Grove Avenue,
Suite 105 Suite 105
Menlo Park, CA 94025 Menlo Park, CA 94025
Facsimile No.: (650) 327-6699 Facsimile No.: (650) 327-6699
Residence: California Residence: California
ROBERT WALTER MICHAEL MOSKOWITZ
By: By:
----------------------------- -----------------------------
Address: 1700 Lincoln Street. Title: Vice President, Business
Suite 4700 Development
Denver, CO 80203-4547 Instant Video Technologies,
Facsimile No.: (303) 830-1705 Inc.
Residence: Colorado Address: 200 Eagle Street
San Francisco, CA 94114
Facsimile No.: __________________
Residence: California
S-7
<PAGE>
R&T SHEPPARD FAMILY PARTNERS
THOMAS A. BELL ROGER SHEPPARD, General Partner
By: By:
----------------------------- -----------------------------
Address: 5536 Manila Avenue Name: Roger Sheppard,
Oakland, CA 94618 General Partner
Facsimile No.: __________________ Address: 14 Bracken Court
Residence: California San Rafael, CA 94901
Facsimile No.: (415) 456-0907
Residence: California
SONJA ERICKSON FRANK H. SCHWARTZ
By: By:
----------------------------- -----------------------------
Address: 887 Indian Rock Avenue Title: Vice President, Technology
Berkeley, CA 94707 Partnerships
Facsimile No.: __________________ Instant Video Technologies,
Residence: California Inc
Address: 351 W. Oakwood Boulevard
Redwood City, CA 94061
Facsimile No.: (650) 562-0220
Residence: California
STEVEN HEIST JAMES E. LANDY
By: By:
----------------------------- -----------------------------
Address: 30 Corwin Street, Apt. 12 Address: 8 Bond Place
San Francisco, CA 94114 Mt. Holly, NJ 08060
Facsimile No.: __________________ Facsimile No.: (609) 261-8155
Residence: California Residence: New Jersey
ZHIPING LIU KIMBERLEY L. MASSINGALE
By: By:
----------------------------- -----------------------------
Address: 36 Avalon Avenue Address: 5270 Boyd Avenue
San Francisco, CA 94112 Oakland, CA 94618
Facsimile No.: __________________ Facsimile No.: __________________
Residence: California Residence: California
S-8
<PAGE>
FRANCIS E. VEGLIANTE RICHARD P. TREVOR
By: By:
----------------------------- -----------------------------
Address: 15010 Eaglerise Drive Address: 919 Hillcroft Circle
Lithia, FL 33547 Oakland, CA 94610
Facsimile No.: (813) 662-2774 Facsimile No.: __________________
Residence: Florida Residence: California
EVAN ZHANG ED LYONS
By: By:
----------------------------- -----------------------------
Address: 1458 39th Avenue Address: 918 Jackson Street
San Francisco, CA 94122 Albany, CA 94706
Facsimile No.: __________________ Facsimile No.: __________________
Residence: California Residence: California
ALLAN BER PAUL SOC BANH
By: By:
----------------------------- -----------------------------
Address: 1259 6th Avenue Address: 3713 Langdon Common
San Francisco, CA 94122 Fremont, CA 94538
Facsimile No.: __________________ Facsimile No.: __________________
Residence: California Residence: California
S-9
<PAGE>
Securities Purchase Agreement
<TABLE>
Schedule 1
Purchasers/Purchased Shares and Warrant Shares
<CAPTION>
Number of Aggregate Form of
Purchaser Shares Warrant Shares Purchase Price Payment
--------- ------ -------------- -------------- -------
<S> <C> <C> <C> <C>
Special Situations Fund III, L.P. 375,000 375,000 $1,500,000 Wire Transfer
Warrant Shares $1,500,000
Special Situations Cayman Fund, L.P. 125,000 125,000 $500,000 Wire Transfer
Warrant Shares $500,000
Special Situations Private Equity Fund, L.P 250,000 250,000 $1,000,000 Wire Transfer
Warrant Shares $1,000,000
Special Situations Technology Fund, L.P. 250,000 250,000 $1,000,000 Wire Transfer
Warrant Shares $1,000,000
BayStar Capital, L.P. 375,000 375,000 $1,500,000 Wire Transfer
Warrant Shares $1,500,000
BayStar International Limited 375,000 375,000 1,500,000 Wire Transfer
Warrant Shares 1,500,000
Chelsey Capital 750,000 750,000 $3,000,000 Wire Transfer
Warrant Shares $3,000,000
Klein Hawk* 0 0 0 0
Erik Franklin 100,000 100,000 $400,000 Wire Transfer
Warrant Shares $400,000
Ravinia Capital Ventures LLC 593,500 593,500 $2,374,000 Wire Transfer
Warrant Shares $2,374,000
Storie Partners LLP 500,000 500,000 $2,000,000 Cancelled Notes:
Warrant Shares $1,500,000
$500,000
Mercer Management, Inc. 387,500 387,500 $1,550,000 Cancelled Notes:
Warrant Shares $450,000
$100,000
$500,000
$300,000
$200,000
Reed Slatkin 130,000 130,000 $520,000 Cancelled Note
Warrant Shares $520,000
Robert London 125,000 125,000 $500,000 Cancelled Note
Warrant Shares $500,000
Kyle Faulkner 62,500 62,500 $250,000 Wire Transfer
Warrant Shares $250,000
Dorothy Lyddon Trust 50,000 50,000 $200,000 Wire Transfer
Warrant Shares $200,000
Reinke Investment Group 40,000 40,000 $160,000 Cancelled Note
Warrant Shares $110,000
Check - $50,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of Aggregate Form of
Purchaser Shares Warrant Shares Purchase Price Payment
--------- ------ -------------- -------------- -------
<S> <C> <C> <C> <C>
Micek Investment Group 31,250 31,250 $125,000 Cancelled Note
Warrant Shares $100,000
Check - $25,000
Independence Properties LLC 25,000 25,000 $100,000 Cancelled Note
Warrant Shares $100,000
Doug Glen 25,000 25,000 $100,000 Wire Transfer
Warrant Shares $100,000
Greg Friedman 23,000 23,000 $92,000 Wire Transfer
Warrant Shares $92,000
Frank Kramer 18,750 18,750 $75,000 Cancelled Note
Warrant Shares $75,000
Ryan Allison 18,750 18,750 $75,000 Cancelled Note
Warrant Shares $75,000
Arthur Douglas Allen 18,750 18,750 $75,000 Check
Warrant Shares $75,000
Suzanne M. Lentz 15,000 15,000 $60,000 Check
Warrant Shares $60,000
Keith Koch 12,500 12,500 $50,000 Cancelled Note
Warrant Shares $50,000
Bruce Hensel 12,500 12,500 $50,000 Cancelled Note
Warrant Shares $50,000
Universal Assurors Agency, Inc. 12,500 12,500 $50,000 Cancelled Note
Warrant Shares $50,000
Thomas Koshy 10,000 10,000 $40,000 Check
Warrant Shares $40,000
June S. White 10,000 10,000 $40,000 Check
Warrant Shares $40,000
Han Joo Lee 10,000 10,000 $40,000 Cancelled Note
Warrant Shares $40,000
Yuan Meng 10,000 10,000 $40,000 Wire Transfer
Warrant Shares $40,000
Bay Venture Counsel , LLP 6,250 6,250 $25,000 Wire Transfer
Warrant Shares $25,000
Vince Sakowski 6,250 6,250 $25,000 Cancelled Note
Warrant Shares $25,000
John Worthing 6,250 6,250 $25,000 Cancelled Note
Warrant Shares $25,000
Robert Walter 6,250 6,250 $25,000 Cancelled Note
Warrant Shares $25,000
Michael Moskowitz 6,000 6,000 $24,000 Check
Warrant Shares $24,000
Tomas A. Bell 5,000 5,000 $20,000 Check
Warrant Shares $20,000
R&T Sheppard Family Partners
Roger Sheppard, Managing Partner 3,750 3,750 $15,000 Cancelled Note
Warrant Shares $15,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of Aggregate Form of
Purchaser Shares Warrant Shares Purchase Price Payment
--------- ------ -------------- -------------- -------
<S> <C> <C> <C> <C>
Sonja Erickson 3,750 3,750 $15,000 Check
Warrant Shares $15,000
James E. Landy 3,750 3,750 $15,000 Check
Warrant Shares $15,000
Frank H. Schwartz 3,250 3,250 $13,000 Check
Warrant Shares $13,000
Steven Heist 2,500 2,500 $10,000 Check
Warrant Shares $10,000
Zhiping Liu 2,500 2,500 $10,000 Check
Warrant Shares $10,000
Kimberley L. Massingale 2,000 2,000 $8,000 Check
Warrant Shares $8,000
Francis E. Vegliante 2,000 2,000 $8,000 Check
Warrant Shares $8,000
Richard P. Trevor 2,000 2,000 $8,000 Check
Warrant Shares $8,000
Evan Zhang 2,000 2,000 $8,000 Check
Warrant Shares $8,000
Ed Lyons 1,250 1,250 $5,000 Check
Warrant Shares $5,000
Allan Ber 1,125 1,125 $4,500 Check
Warrant Shares $4,500
Paul Soc Banh 1,000 1,000 $4,000 Check
Warrant Shares $4,000
--------- --------- ----------- -----------
Total 4,808,375 4,808,375 $19,233,500 $19,233,500
========= ========= =========== ===========
</TABLE>
- ----------
* While there was a provision in the Agreement to allow Klein Hawk to invest
by January 31, no investment was made.
INSTANT VIDEO TECHNOLOGIES, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated effective as
of January 27, 2000 (the "Effective Date") by and among (i) the purchasers of
certain common stock and warrants to purchase common stock of the Company
(defined below) listed on the signature pages hereto and each other Person
(defined below) who becomes a party to this Agreement simultaneously with
becoming a party pursuant to and in accordance with the terms and conditions set
forth in that certain Purchase Agreement (defined below) on, or before, January
31, 2000 (each a "Holder" and, collectively, the "Holders") and (ii) Instant
Video Technologies, Inc., a Delaware corporation (the "Company").
RECITALS
The Holders are parties to a Securities Purchase Agreement dated for
reference purposes as of even date herewith by and between the Company and the
Holders (the "Purchase Agreement") pursuant to which the Company is obligated to
enter into this Agreement. All capitalized terms not defined herein shall have
the meaning established in the Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:
1. Definitions.
"Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock" means any and all (i) common stock of the Company
issued pursuant to the Purchase Agreement; (ii) common stock of the Company
issued or issuable upon exercise of the Warrants (collectively, (i) and (ii) the
"Stock"); (iii) common stock of the Company issued as a dividend or other
distribution with respect to or in replacement of the Stock, and (iv) any common
stock issued in any combination or subdivision of the Stock. In determining the
amount of Common Stock held by any Person, the sum of (i), (ii), (iii) and (iv)
shall be used and a Person shall be deemed to "hold" all Common Stock then held
by and/or issuable to such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statue and the rules and regulations of the
Commission thereunder all as the same shall be in effect at the time.
"Person" means any individual, corporation, trust, partnership,
association, or other entity.
"Registrable Shares" means the Common Stock.
<PAGE>
Registration Rights Agreement
"Registration Statement" means the registration statement and any
additional registration statements filed with the Commission as contemplated by
Section 2, including (in each case) any prospectus, amendments and supplements
to such registration statement or Prospectus, including pre- and post- effective
amendments, all exhibits thereto, and all material incorporated by reference in
such registration statement or statements.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Untrue Statement" shall include any untrue statement or alleged
untrue statement in the Registration Statement, or any omission or alleged
omission to state in the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2.1 Registration Procedures and Expenses. The Company is obligated to do
the following:
The Company shall,
(a) within 60 days following the Closing Date, prepare and file with
the Commission a Registration Statement on Form S-1 in order to register with
the Commission under the Securities Act a sale by the Holders in accordance with
the method or methods of distribution thereof as reasonably specified by the
Holders on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act all of the Registrable Shares (notwithstanding anything to the
contrary expressed or implied herein, if a registration statement on Form S-3,
or any substitute form, becomes available for registration of the Registrable
Shares, the Company may instead prepare and file with the Commission a
registration statement on Form S-3 at any time in order to register the
Registrable Shares under the Securities Act and such registration statement will
be a "Registration Statement" for the purposes of this Agreement);
(b) use its best efforts, subject to receipt of necessary information
from the Holders, to cause such Registration Statement to become effective no
later than 120 days following the Closing Date;
(c) promptly notify each Holder, at any time when a prospectus
relating to such Registration Statement is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in or relating to such Registration Statement contains an
Untrue Statement;
(d) promptly prepare and file with the Commission, and deliver to each
Holder, such amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective and to comply with the provisions of the
-2-
<PAGE>
Registration Rights Agreement
Securities Act with respect to the sale or other disposition of all Registrable
Shares until termination of such obligation as provided in Section 2.6 below;
(e) furnish to each Purchaser such number of copies of prospectuses,
including preliminary prospectuses, in conformity with the requirements of the
Securities Act, in order to facilitate the public sale or other disposition of
all or any of the Registrable Shares by the Holders;
(f) file such documents as may be required of the Company for normal
securities law clearance for the resale of the Registrable Shares in any state
reasonably requested by the Holders provided, however, that the Company shall
not be required in connection with this paragraph (f) to (i) qualify as a
foreign corporation to do business under the laws of any jurisdiction in which
it shall not then be qualified or execute a general consent to service of
process in any jurisdiction or (ii) undertake any filing obligations in those
states where the Company does not currently meet such filing requirements;
(g) use its best efforts to cause all Registrable Shares to be listed
on each securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which equity securities by the Company are then
listed or traded;
(h) bear all expenses in connection with this Agreement, including,
without limitation, all registration and filing fees (including all expenses
incident to filing with the NASD), printing expenses, fees and disbursements of
counsel for company, expenses of any special audits incident to or required by
any such registration and expenses of complying with the securities or blue sky
laws of any jurisdiction, other than (i) fees and expenses, if any, of counsel
or other advisors to the Holders and (ii) brokers commissions, discounts or fees
and transfer taxes; and
(i) take all reasonable actions required to prevent the entry of any
stop order issued or threatened by the Commission or any state regulatory
authority with respect to any Registration Statement covering Registrable
Shares, and take all reasonable actions to remove it if entered.
2.2 Indemnification
(a) The Company agrees to indemnify and hold harmless each Holder,
such Holder's directors, officers, partners, agents, each underwriter of
Registered Shares, and each Person who controls any of the foregoing (within the
meaning of Section 15 of the Securities Act) (each an "Indemnified Party") from
and against any losses, claims, damages or liabilities to which such Indemnified
Party may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon, any Untrue Statement in the
Registration Statement, or arise out of any failure by the Company to fulfill
any undertaking included in the Registration Statement or arise under the
Securities Act or any other statute or at common law and the Company will
-3-
<PAGE>
Registration Rights Agreement
reimburse such Indemnified Party for any reasonable legal or other expenses
reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim; provided, however, that the Company shall not be
liable in any such case to the extent that such loss, claim, damage or liability
arises out of, or is based upon, an Untrue Statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Indemnified Party specifically for use in
preparation of the Registration Statement or the failure of such Holder to
comply with the covenants and agreements contained in Section 2.4 hereof
respecting the sale of the Registrable Shares or any Untrue Statement in any
prospectus that is corrected in any subsequent prospectus that was delivered to
the Holder prior to the pertinent sale or sales by the Holder.
(b) Each Holder, severally and not jointly, agrees to indemnify and
hold harmless the Company (and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, each officer of the
Company who signs the Registration Statement and each director of the Company)
from and against any losses, claims, damages or liabilities to which the Company
(or any such officer, director or controlling person) may become subject (under
the Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any failure to comply with the covenants and agreements contained in
Section 2.4 hereof respecting sale of the Registrable Shares, or any Untrue
Statement contained in the Registration Statement if, but only if, such Untrue
Statement was made in reliance upon and in conformity with written information
furnished by or on behalf of such Holder specifically for use in preparation of
the Registration Statement and such Holder will reimburse the Company (or such
officer, director or controlling person), as the case may be, for any legal or
other expenses reasonably incurred in investigating, defending or preparing to
defend any such action, proceeding or claim; provided that in no event shall any
indemnity by a Holder under this Section 2.2 exceed the net proceeds received by
such Holder from the sale of the Registrable Shares covered by such Registration
Statement.
(c) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 2.2, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and such indemnifying person shall have been notified
thereof, such indemnifying person shall be entitled to participate therein, and,
to the extent it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from the
indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof; provided, however,
that if there
-4-
<PAGE>
Registration Rights Agreement
exists or shall exist a conflict of interest that would make it inappropriate,
in the opinion of counsel to the indemnified person, for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel for all indemnified parties. No
indemnifying party in the defense of any such claim or litigation shall, except
with the consent of each indemnified party, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect of such claim or litigation, and no indemnified
party shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the indemnifying party.
(d) If the indemnification provided for in this Section 2.2 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Notwithstanding anything to the
contrary contained herein, any contribution by a Holder hereunder shall not
exceed the net proceeds received by such Holder from the sale of the Shares
covered by the Registration Statement.
2.3 Penalty Payment.
(a) In the event that the Registration Statement required to be filed
pursuant to Section 2.1 relating to Registrable Shares shall not be declared
effective by the Commission within one hundred twenty (120) days from the
Closing Date (the "Final Registration Date"), the Company shall pay each Holder,
in cash, one percent (1%) of such Holder's Purchase Price (prorated for partial
periods) with such payment made pursuant to this Section 2.3 (referred to as a
"Penalty Payment"), within ten (10) days of the end of each thirty
-5-
<PAGE>
Registration Rights Agreement
(30) day period following the Final Registration Date, for each such thirty (30)
day period, until the earlier to occur of (i) the effectiveness of the
Registration Statement covering the Registrable Shares, or (ii) until each such
Holder is permitted to publicly sell all of the shares of Common Stock owned by
such Holder during any 3 month period pursuant to Rule 144. For example, if the
Registration Statement becomes effective on the 135th day following the Closing
Date, the Penalty Payment shall equal 1/2% of such Holder's Purchase Price.
(b) The remedies provided for in this Section 2.3 shall be in addition
to any other remedies available to the Holders under this Agreement, at law or
in equity.
2.4 Transfer of Shares After Registration; Notice. The Holder hereby
covenants with the Company not to make any sale of the Registrable Shares after
registration without effectively causing the prospectus delivery requirement
under the Securities Act to be satisfied. The Holder acknowledges that there may
be times when the Company must suspend the use of the prospectus forming a part
of the Registration Statement until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by
the Commission, or until such time as the Company has filed an appropriate
report with the Commission pursuant to the Exchange Act. The Holder hereby
covenants that it will not sell any Shares pursuant to said prospectus during
the period commencing at the time at which the Company gives the Holder notice
of the suspension of the use of said prospectus and ending at the time the
Company gives the Holder notice that the Holder may thereafter effect sales
pursuant to said prospectus; provided, however, that no such postponement shall
be permitted for more than 90 days during any 12 month period. The foregoing
provisions of this Section 2.4 shall in no manner diminish or otherwise impair
the Company's obligations under Section 2.1.
2.5 Reporting Requirements.
(a) The Company agrees to use its best efforts to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(ii) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(iii) so long as any of the Holders own Registrable Shares, to
furnish to the Holders forthwith upon request (1) a written statement by the
Company as to whether it complies with the reporting requirements of said Rule
144, the Securities Act and the Exchange Act, or whether it qualifies as a
registrant whose securities may be resold pursuant to Commission Form S-3, (2) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and
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<PAGE>
Registration Rights Agreement
(3) such other information as may be reasonably requested in availing the
Holders of any rule or regulation of the Commission that would permit the
selling of the Registrable Shares without registration.
2.6 Termination of Obligations. The obligations of the Company pursuant to
Sections 2.1 through 2.5 hereof shall cease and terminate upon the earlier to
occur of (i) such time as all of the Registrable Shares have been resold or (ii)
such time as all of the Registrable Shares may be sold during any 3 month period
pursuant to Rule 144, including Rule 144 (k) or (iii) upon the second
anniversary date of the date of effectiveness of the Registration Statement.
2.7. Assignability of Registration Rights. The Registration rights set
forth in this Section 2 are assignable only to assignees acquiring the lesser of
250,000 or more Registrable Shares or all of a Holder's Registrable Shares held
at the time of assignment. Notwithstanding anything to the contrary herein, in
no event shall a Holder of less than 250,000 Registrable Securities assign any
rights herein after 30 days following the Effective Date and prior to the
effectiveness of the Registration Statement. Provided further that the Company
shall not be obligated to file any post-effective amendment to the Registration
Statement solely for the purpose of adding such assignee(s) to the Registration
Statement more than once during any consecutive six month period. For purposes
of this Section 2.7 only, the SSF Purchasers (as defined in the Purchase
Agreement) shall be considered one Holder.
3 Miscellaneous.
a. Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and/or the provisions
hereof waived, only with the written consent of the Company and of Holders
holding sixty-six and two-thirds percent (66 2/3%) or more of the Registrable
Shares at the time held by all Holders (which must include the Registrable
Shares held by the SSF Purchasers, as defined in the Purchase Agreement).
Notwithstanding the foregoing, no amendment or waiver may affect any Holder in
any manner differently from any other Holder without the written consent of such
first mentioned Holder. No course of dealing between the Company and any Holder
or any delay in exercising any rights hereunder or under the Company's
Certificate of Incorporation will operate as a waiver of any rights of any such
Holder.
b. Successors and Assigns. All covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not.
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<PAGE>
Registration Rights Agreement
c. Severability. Each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
d. Counterparts. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts when taken together shall constitute one and
the same Agreement.
e. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
f. Notices. All notices, demands, consents or other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been given (i) when personally delivered, (ii) three (3) business days following
mailing thereof, if sent by first class certified mail, return receipt
requested, or (iii) the next business day following transmission or mailing, if
sent by facsimile (receipt confirmed and followed up by one of the other
delivery methods discussed herein as well), Express Mail, Federal Express or
similar service, addressed as follows:
If to any Holder: To the applicable addresses set forth in the Purchase
Agreement
With a Copy to: Winston & Strawn
200 Park Avenue
New York, N.Y. 10166-4193
Attn. Naima K. Walker, Esq.
Fax No.: (212) 294-4700
If to the Company: Instant Video Technologies, Inc.
500 Sansome Street, Suite 503
San Francisco, CA 94111
Attn: Ed Davis, Esq.
Fax No.: (415) 391-3392
With a Copy to: Bay Venture Counsel, LLP
1999 Harrison Street, Suite 1300
Oakland, CA 94612
Attn: Donald C. Reinke, Esq.
Fax No.: (510) 834-7440
Any party may change its address for purposes hereof by notice given in
accordance with this Section 3.f to each of the other parties hereto.
g. Governing Law. The validity, meaning and effect of this Agreement,
and all amendments and supplements hereto and all waivers and consents
hereunder, shall be determined in accordance with the laws of New York,
applicable to contracts made and to be performed entirely within the State of
New York. Each of the parties hereby submits to personal jurisdiction in the
County of New York,
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<PAGE>
Registration Rights Agreement
State of New York solely for purposes of this Agreement and waives any objection
as to venue in the County of New York, State of New York.
h. Schedules and Exhibits. All schedules and exhibits are an
integral part of this Agreement.
i. Litigation Costs. Subject to Section 2.2, if any legal action or
any arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of a dispute, breach, default, or misrepresentation in
connection with any of the provisions of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled, if and only to the extent that
the applicable arbitrator or court shall so direct and such direction is final
and not subject to appeal or review.
j. Specific Performance. Each party's obligation under this
Agreement is unique. If any party should default in its obligations under this
Agreement, the parties each acknowledge that it would be extremely impracticable
to measure the resulting damages; accordingly, each non defaulting party, in
addition to any other available rights or remedies, may sue in equity for
specific performance, and the parties each expressly waive the defense that a
remedy in damages will be adequate.
k. Integration. This instrument constitutes the entire agreement of
the parties hereto respecting the registration of the Registrable Shares by the
Holders and correctly sets forth the rights, duties, and obligations of each
party hereto to the others in relation thereto as of its date. Any prior
agreements, promises, negotiations or representations concerning its subject
matter which are not expressly set forth in this Agreement.
l. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities that is inconsistent with or
violates the rights granted to the holders of Registrable Shares in this
Agreement.
(SIGNATURES FOLLOWING)
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<PAGE>
Signature Pages to Instant Video Technologies Registration Rights Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY:
INSTANT VIDEO TECHNOLOGIES, INC.
By:
-----------------------------
Name: Richard Lang
Title: Chairman and CEO
Address: 500 Sansome Street
San Francisco, California 94111
Facsimile No.: (415) 391-3392
THE SPECIAL SITUATIONS FUNDS:
SPECIAL SITUATIONS FUND III, L.P. SPECIAL SITUATIONS CAYMAN FUND, L.P.
By: By:
----------------------------- -----------------------------
Name: David Greenhouse Name: David Greenhouse
Title: Managing Director Title: Managing Director
Address: 153 E. 53rd Street, Address: 153 E. 53rd Street,
55th Floor 55th Floor
New York, New York 10022 New York, New York 10022
Facsimile No.: (212) 207-6515 Facsimile No.: (212) 207-6515
Residence: New York Residence: Cayman Islands
SPECIAL SITUATIONS PRIVATE EQUITY SPECIAL SITUATIONS TECHNOLOGY
FUND, L.P. FUND, L.P.
By: By:
----------------------------- -----------------------------
Name: David Greenhouse Name: David Greenhouse
Title: Managing Director Title: Managing Director
Address: 153 E. 53rd Street, Address: 153 E. 53rd Street,
55th Floor 55th Floor
New York, New York 10022 New York, New York 10022
Facsimile No.: (212) 207-6515 Facsimile No.: (212) 207-6515
Residence: New York Residence: New York
S-1
<PAGE>
OTHER PURCHASERS:
BAYSTAR CAPITAL, L.P. BAYSTAR CAPITAL, L.P.
By: By:
----------------------------- -----------------------------
Name: Steven Lamar Name: Steven Lamar
Title: Managing Partner Title: Managing Partner
Address: 425 Market Street, Address: 425 Market Street,
22nd Floor 22nd Floor
San Francisco, CA 94105 San Francisco, CA 94105
Facsimile No.: (415) 512-6488 Facsimile No.: (415) 512-6488
Residence: California Residence: California
BAYSTAR INTERNATIONAL LIMITED CHELSEY CAPITAL
By: By:
----------------------------- -----------------------------
Name: Steven Lamar Name: Erik Franklin
Title: Managing Partner Title:
Address: 425 Market Street, Address: 1370 Avenue of the
22nd Floor Americas
San Francisco, CA 94105 New York, New York 10019
Facsimile No.: (415) 512-6488 Facsimile No.: (212) 399-5651
Residence: California Residence: New York
ERIK FRANKLIN
By:
-----------------------------
Name: Erik Franklin
Title:
Address: c/o Chelsey Capital
1370 Avenue of the
Americas
New York, New York 10019
Facsimile No.: (212) 399-5651
Residence:
S-2
<PAGE>
RAVINIA CAPITAL VENTURES STORIE PARTNERS L.P.
By: By:
----------------------------- -----------------------------
Name: Kevin Eilian Name: Steven A. Ledger
Title: Managing Member Title: Managing Partner
Address: 2025 Broadway, Suite 30H Address: 100 Pine Street,
New York, N.Y. 10023 Suite 2700
Facsimile No.: (212) 362-1238 San Francisco, CA 94111
Residence: New York Facsimile No.: (415) 434-8043
Residence: California
MERCER MANAGEMENT, INC. REED SLATKIN
By: By:
----------------------------- -----------------------------
Name: Gordon Rock Address: 890 North Kellogg Avenue
Title: President Santa Barbara, CA 93111
Address: 4820 East Mercer Way Facsimile No.: (805) 967-3844
Mercer Island, WA 98040 Residence: California
Facsimile No.: (206) 232-6874
Residence: Washington
KYLE FAULKNER
CHARLES SCHWAB & CO., INC.
CUSTODIAN FBO
ROBERT LONDON KYLE WILKE FAULKNER SEP-IRA
By: By:
----------------------------- -----------------------------
Address: c/o Cruttenden & Roth Title: Chief Technology Officer
809 Presidio Avenue Instant Video Technologies,
Santa Barbara, CA 93101 Inc
Facsimile No.: (805) 966-9302 Address: 5690 Ocean View Drive
Residence: California Oakland, CA 94618
Facsimile No.: __________________
Residence: California
DONALD C. REINKE
DOROTHY LYDDON TRUST (Reinke Investment Group)
By: By:
----------------------------- -----------------------------
Name: Dorothy Lyddon Address: Bay Venture Counsel, LLP
Title: Trustee Lake Merritt Plaza
Address: 11801 Dorothy Anne Way Building
Cupertino, CA 95014 1999 Harrison Street,
Facsimile No.: (408) 252-6122 Suite 1300
Residence: California Oakland, CA 94612
Facsimile No.: (510) 834-7440
Residence: California
S-3
<PAGE>
BRADLEY H. REINKE JAMES L. BERG
(Reinke Investment Group) (Reinke Investment Group)
By: By:
----------------------------- -----------------------------
Address: Bay Venture Counsel, LLP Address: Bay Venture Counsel, LLP
Lake Merritt Plaza Lake Merritt Plaza
Building Building
1999 Harrison Street, 1999 Harrison Street,
Suite 1300 Suite 1300
Oakland, CA 94612 Oakland, CA 94612
Facsimile No.: (510) 834-7440 Facsimile No.: (510) 834-7440
Residence: California Residence: California
ROGER E. REINKE, TRTE GREGORY L. BEATTIE
(Reinke Investment Group) (Reinke Investment Group)
By: By:
----------------------------- -----------------------------
Address: Bay Venture Counsel, LLP Address: Bay Venture Counsel, LLP
Lake Merritt Plaza Lake Merritt Plaza
Building Building
1999 Harrison Street, 1999 Harrison Street,
Suite 1300 Suite 1300
Oakland, CA 94612 Oakland, CA 94612
Facsimile No.: (510) 834-7440 Facsimile No.: (510) 834-7440
Residence: California Residence: California
BRUCE WHITLEY STEPHEN P. PEZZOLA
(Reinke Investment Group) (Reinke Investment Group)
By: By:
----------------------------- -----------------------------
Address: Bay Venture Counsel, LLP Address: Bay Venture Counsel, LLP
Lake Merritt Plaza Lake Merritt Plaza
Building Building
1999 Harrison Street, 1999 Harrison Street,
Suite 1300 Suite 1300
Oakland, CA 94612 Oakland, CA 94612
Facsimile No.: (510) 834-7440 Facsimile No.: (510) 834-7440
Residence: California Residence: California
BRUCE P. JOHNSON ANN LOUISE MICEK
(Reinke Investment Group) (Micek Investment Group)
By: By:
----------------------------- -----------------------------
Address: Bay Venture Counsel, LLP Address: c/o 3600 West Bayshore
Lake Merritt Plaza Suite 101
Building Palo Alto, CA 94303
1999 Harrison Street, Facsimile No.: (650) 325-0830
Suite 1300 Residence: California
Oakland, CA 94612
Facsimile No.: (510) 834-7440
Residence: California
S-4
<PAGE>
ELISSA MICEK REECE MICEK
(Micek Investment Group) (Micek Investment Group)
By: By:
----------------------------- -----------------------------
Address: c/o 3600 West Bayshore Address: c/o 3600 West Bayshore
Suite 101 Suite 101
Palo Alto, CA 94303 Palo Alto, CA 94303
Facsimile No.: (650) 325-0830 Facsimile No.: (650) 325-0830
Residence: California Residence: California
LAURA MICEK KAROLYN KELLY
(Micek Investment Group) (Micek Investment Group)
By: By:
----------------------------- -----------------------------
Address: c/o 3600 West Bayshore Address: c/o 3600 West Bayshore
Suite 101 Suite 101
Palo Alto, CA 94303 Palo Alto, CA 94303
Facsimile No.: (650) 325-0830 Facsimile No.: (650) 325-0830
Residence: California Residence: California
JOHN J. MICEK III INDEPENDENCE PROPERTIES LLC
(Micek Investment Group)
By: By:
----------------------------- -----------------------------
Address: c/o 3600 West Bayshore Name: Joseph Barletta
Suite 101 Title:
Palo Alto, CA 94303 Address: 530 Westgate Drive
Facsimile No.: (650) 325-0830 Napa, CA 94558
Residence: California Facsimile No.: (707) 256-0877
Residence: California
DOUGLAS GLEN GREG FRIEDMAN
By: By:
----------------------------- -----------------------------
Address: 507 Bayview Drive Address: 4138 Terrace Street
Manhattan Beach, CA 90266 Oakland, CA 94611
Facsimile No.: (310) 376-6248 Facsimile No.: __________________
Residence: California Residence: California
S-5
<PAGE>
FRANK KRAMER RYAN ALLISON
By: By:
----------------------------- -----------------------------
Address: 5330 E. 17th Avenue Address: 2520 West Lake Avenue North
Denver, CO 80203 Suite 200
Facsimile No.: (303) 394-1189 Seattle, WA 98109
Residence: Colorado Facsimile No.: (206) 352-6310
Residence: Washington
ARTHUR DOUGLAS ALLEN SUZANNE M. LENTZ
By: By:
----------------------------- -----------------------------
Address: 1322 Isabella Avenue Address: 3337 Broderick
Mountain View, CA 94040 San Francisco, CA 94123
Facsimile No.: (650) 948-2989 Facsimile No.: __________________
Residence: California Residence: California
KEITH KOCH BRUCE HENSEL
By: By:
----------------------------- -----------------------------
Address: 1120 Lincoln Street, Suite 900 Address: 1212 Old Orchard Road
Denver, CO 80203 Vincennes, IN 47591
Facsimile No.: (303) 863-7080 Facsimile No.: (812) 882-8279
Residence: Colorado Residence: Indiana
UNIVERSAL ASSURORS AGENCY, INC. THOMAS KOSHY
By: By:
----------------------------- -----------------------------
Name: John J. Micek III Title: Chief Operating Officer
Title: Instant Video Technologies,
-------------------------- Inc
Address: 3600 West Bayshore, Suite 101 Address: 500 Beal Street, Suite 320
Palo Alto, CA 94303 San Francisco, CA 94105
Facsimile No.: (650) 325-0830 Facsimile No.: __________________
Residence: California Residence: California
S-6
<PAGE>
JUNE S. WHITE HAN JOO LEE
By: By:
----------------------------- -----------------------------
Title: Vice President, Engineering Address: 5509 Ash Creek Lane
Instant Video Technologies, Inc. Plano, TX 75093
Address: 20 Plaid Place Facsimile No.: (972) 699-7586
Hillsborough, CA 94010 Residence: Texas
Facsimile No.: __________________
Residence: California
YUAN MENG BAY VENTURE COUNSEL, LLP
By: By:
----------------------------- -----------------------------
Address: 281 Alvarado Avenue Name: Donald C. Reinke
Los Altos, CA 94022 Title: Managing Partner
Facsimile No.: (650) 947-7168 Address: Bay Venture Counsel, LLP
Residence: California Lake Merritt Plaza
Building
1999 Harrison Street,
Suite 1300
Oakland, CA 94612
Facsimile No.: (510) 834-7440
Residence: California
VINCE SAKOWSKI JOHN WORTHING
By: By:
----------------------------- -----------------------------
Address: 845 Oak Grove Avenue Address: 845 Oak Grove Avenue,
Suite 105 Suite 105
Menlo Park, CA 94025 Menlo Park, CA 94025
Facsimile No.: (650) 327-6699 Facsimile No.: (650) 327-6699
Residence: California Residence: California
ROBERT WALTER MICHAEL MOSKOWITZ
By: By:
----------------------------- -----------------------------
Address: 1700 Lincoln Street. Title: Vice President, Business
Suite 4700 Development
Denver, CO 80203-4547 Instant Video Technologies,
Facsimile No.: (303) 830-1705 Inc.
Residence: Colorado Address: 200 Eagle Street
San Francisco, CA 94114
Facsimile No.: __________________
Residence: California
S-7
<PAGE>
R&T SHEPPARD FAMILY PARTNERS
THOMAS A. BELL ROGER SHEPPARD, General Partner
By: By:
----------------------------- -----------------------------
Address: 5536 Manila Avenue Name: Roger Sheppard,
Oakland, CA 94618 General Partner
Facsimile No.: __________________ Address: 14 Bracken Court
Residence: California San Rafael, CA 94901
Facsimile No.: (415) 456-0907
Residence: California
SONJA ERICKSON FRANK H. SCHWARTZ
By: By:
----------------------------- -----------------------------
Address: 887 Indian Rock Avenue Title: Vice President, Technology
Berkeley, CA 94707 Partnerships
Facsimile No.: __________________ Instant Video Technologies,
Residence: California Inc
Address: 351 W. Oakwood Boulevard
Redwood City, CA 94061
Facsimile No.: (650) 562-0220
Residence: California
STEVEN HEIST JAMES E. LANDY
By: By:
----------------------------- -----------------------------
Address: 30 Corwin Street, Apt. 12 Address: 8 Bond Place
San Francisco, CA 94114 Mt. Holly, NJ 08060
Facsimile No.: __________________ Facsimile No.: (609) 261-8155
Residence: California Residence: New Jersey
ZHIPING LIU KIMBERLEY L. MASSINGALE
By: By:
----------------------------- -----------------------------
Address: 36 Avalon Avenue Address: 5270 Boyd Avenue
San Francisco, CA 94112 Oakland, CA 94618
Facsimile No.: __________________ Facsimile No.: __________________
Residence: California Residence: California
S-8
<PAGE>
FRANCIS E. VEGLIANTE RICHARD P. TREVOR
By: By:
----------------------------- -----------------------------
Address: 15010 Eaglerise Drive Address: 919 Hillcroft Circle
Lithia, FL 33547 Oakland, CA 94610
Facsimile No.: (813) 662-2774 Facsimile No.: __________________
Residence: Florida Residence: California
EVAN ZHANG ED LYONS
By: By:
----------------------------- -----------------------------
Address: 1458 39th Avenue Address: 918 Jackson Street
San Francisco, CA 94122 Albany, CA 94706
Facsimile No.: __________________ Facsimile No.: __________________
Residence: California Residence: California
ALLAN BER PAUL SOC BANH
By: By:
----------------------------- -----------------------------
Address: 1259 6th Avenue Address: 3713 Langdon Common
San Francisco, CA 94122 Fremont, CA 94538
Facsimile No.: __________________ Facsimile No.: __________________
Residence: California Residence: California
S-9
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. UNLESS THE SECURITIES ARE SOLD
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, 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.
--------------------------------
WARRANT TO PURCHASE COMMON STOCK
OF
BURST.COM, INC.
--------------------------------
FOR VALUE RECEIVED, ______________, or its permitted assigns (the
"Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from Burst.Com, Inc., a Delaware corporation (the "Company", formerly Instant
Video Technologies, Inc.), up to _____________ shares of Common Stock, $0.00001,
of the Company (the "Common Stock") at a price per share equal to $5.00 (the
"Exercise Price"). The number of shares of Common Stock to be received upon the
exercise of this Warrant and the Exercise Price may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon any
exercise of this Warrant are hereinafter sometimes referred to as "Warrant
Shares". This Warrant is issued by the Company pursuant to the Securities
Purchase Agreement dated January 27, 2000 (the "Purchase Agreement") among the
Company and each of the purchasers named on the signature pages thereto and
shall be entitled to the rights set forth therein, including certain
registration rights relating to the Warrant Shares. The Warrants exercisable
pursuant to the terms of the Purchase Agreement shall collectively be referred
to herein as the "Purchase Agreement Warrants".
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part
at any time or from time to time during the period commencing on the date hereof
through and including the fifth anniversary of the date hereof (the "Expiration
Date") and if the date of exercise shall be a day on which banking institutions
in the State of New York shall be authorized by law to close then the Warrant
shall be exercisable on the next succeeding day which shall not be such a day;
provided, however, that in the event of (a) the closing of the Company's sale or
transfer of all or substantially all of its assets, or (b) the closing of the
acquisition of the Company by another entity by means of merger, consolidation
or other transaction or series of related transactions, resulting in the
exchange of the outstanding shares of
<PAGE>
the Company's capital stock such that the stockholders of the Company prior to
such transaction own, directly or indirectly, less then 50% of the voting power
of the surviving entity and (c) in any such event the shareholders of the
Company shall receive consideration consisting of cash and/or marketable
securities in excess of $7.50 per share (adjusted for stock splits,
combinations, reclassifications and the like) (any such event being referred to
herein as a "Termination Event"), this Warrant shall, on the date of such
Termination Event, no longer be exercisable and become null and void. In the
event of a proposed transaction of the kind described in (a) or (b) above, the
Company shall notify the holder of the Warrant at least twenty (20) days prior
to the consummation of such Termination Event. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such Form. As soon as practicable after
each such exercise, but not later than two business (2) days following the date
of such exercise, the Company shall issue and deliver to the Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee(s). If this Warrant shall
be exercised in part, the Company shall, upon surrender of the Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
hereunder. Upon receipt by the Company of the Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise
and accompanied by proper payment, the Holder shall be deemed to be the holder
of record of the Warrant Shares issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall then be closed or that
certificates representing such shares of Common Stock shall not then have been
physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company covenants and agrees that it shall
at all times reserve for issuance and delivery upon exercise of the Warrant such
number of shares of Common Stock as shall be required for issuance and delivery
upon exercise of the Warrant. In addition, the Company further covenants and
agrees that all Warrant Shares, upon issuance, shall be duly and validly issued,
fully paid and non-assessable and no personal liability shall attach to the
holder thereof.
(c) FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued
upon exercise of this Warrant. All fractional shares shall be eliminated by
rounding any fraction to the nearest whole number of shares of Common Stock.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant shall
be exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company, or at the office of its stock transfer
agent, for other Warrants of different denominations entitling the Holder
thereof to purchase in the aggregate the same number of shares of Common Stock
purchasable hereunder. Upon surrender of this Warrant to the Company or the
office of its stock transfer agent, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company, without
charge, shall execute and deliver new Warrants in the name of the assignee named
in such instrument of assignment and this Warrant shall be cancelled promptly,
provided that the Company shall receive from the Holder an opinion of counsel
that such assignment, as contemplated by the Holder, shall not violate
applicable Federal or state securities laws. This
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<PAGE>
Warrant may be divided or combined with other Warrants which carry the same
rights upon presentation hereof at the principal office of the Company or the
office of its stock transfer agent, together with a written notice, signed by
the Holder hereof, specifying the names and denominations in which new Warrants
are to be issued. The term "Warrants" as used herein shall include any warrants
into which this warrant may be divided or exchanged. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.
(e) RIGHTS OF HOLDER. The Holder shall not, until the exercise hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder shall be limited to those expressed herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and
the number and kind of securities purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of any of
the following events:
(i) In the event that the Company shall issue or sell any shares of
Common Stock (except as provided in paragraph (f)(v) hereof) for a
consideration per share less than the greater of (A) the Exercise Price in
effect immediately prior to such issue or sale and (B) the Market Price (as
defined in paragraph (f)(ii)(G) hereof) on the date of such issue or sale,
then the Exercise Price, as of the date of such issue or sale, shall be
reduced to such lesser price (calculated to the nearest cent) as shall be
determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to the
issuance or sale of such additional shares (on a fully diluted basis) and
(y) the number of shares of Common Stock which the aggregate consideration
received for the issuance or sale of such additional shares would purchase
at the greater of the Market Price on the date of such issue or sale or the
Exercise Price then in effect, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after the issuance
or sale of such additional shares (on a fully diluted basis).
(ii) For the purposes of paragraph (f)(i) above, the following
subparagraphs (A) to (G), inclusive, shall be applicable:
(A) If at any time the Company shall issue or sell any rights to
subscribe for, or any rights or options to purchase, Common Stock or
any stock or other securities convertible into or exchangeable for
Common Stock (such convertible or exchangeable stock or securities
being hereinafter called "Convertible Securities"), whether or not
such rights or options or the right to convert or exchange any such
Convertible Securities shall be immediately exercisable, and the price
per share for which Common Stock shall be issuable upon the exercise
of such rights or options or upon conversion or exchange of such
Convertible Securities (determined by dividing (1) the total amount,
if any, received or receivable
-3-
<PAGE>
by the Company as consideration for the granting of such rights or
options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of such rights or options,
plus, in the case of any such rights or options which shall relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(2) the total number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or exchange
of all such Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the greater of (x) the Exercise
Price in effect immediately prior to the time of the issue or sale of
such rights or options and (y) the Market Price on the date of such
issue or sale, then the total number of shares of Common Stock
issuable upon the exercise of such rights or options or upon
conversion or exchange of the total amount of such Convertible
Securities issuable upon the exercise of such rights or options shall
(as of the date of granting of such rights or options) be deemed to be
outstanding and to have been issued for such price per share, and
except as provided in paragraph (f)(iv), no further adjustments of the
Exercise Price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities, upon the exercise of such
rights or options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(B) If at any time the Company shall issue or sell any
Convertible Securities, whether or not the rights to exchange or
convert thereunder shall be immediately exercisable, and the price per
share for which Common Stock shall be issuable upon such conversion or
exchange (determined by dividing (1) the total amount received or
receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (2) the total number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the greater of (x) the
Exercise Price in effect immediately prior to the time of such issue
or sale and (y) the Market Price on the date of such issue or sale,
then the total number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall (as of
the date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued for such price per
share, and, except as provided in paragraph (f)(iv) no further
adjustments of the Exercise Price shall be made upon the actual issue
of such Common Stock, upon conversion or exchange of such Convertible
Securities. In addition, if any issue or sale of such Convertible
Securities shall be made upon exercise of any rights to subscribe for
or to purchase or any option to purchase any such Convertible
Securities for which adjustments of the Exercise Price shall have been
or shall be made
-4-
<PAGE>
pursuant to other provisions of this paragraph (f)(ii), no further
adjustment of the Exercise Price shall be made by reason of such issue
or sale.
(C) If at any time the Company shall declare and pay a dividend
or make any other distribution upon the Common Stock payable in Common
Stock or Convertible Securities, any such Common Stock or Convertible
Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration; provided, that this provision shall not apply to any
shares of Common Stock issuable for additional consideration upon
conversion of such Convertible Securities.
(D) If at any time any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions or
discounts paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Company shall be deemed to be the fair value of such consideration as
determined by the Board of Directors, without deduction therefrom of
any expenses incurred or any underwriting commissions or concessions
or discounts paid or allowed by the Company in connection therewith.
In case any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such Common Stock or Convertible
Securities shall be issued in connection with any merger of another
corporation into the Company, the amount of consideration therefor
shall be deemed to be the fair value of such merged corporation as
determined by the Board of Directors reduced by all cash and other
consideration (if any) paid by the Company in connection with such
merger.
(E) If at any time the Company shall fail to set a record date of
the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (2) to subscribe for or purchase Common
Stock or Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(F) The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of
the
-5-
<PAGE>
Company, provided that such shares are neither issued, sold or
otherwise distributed by the Company.
(G) For purposes hereof, the "Market Price" shall mean the
closing bid price of the Common Stock in the over-the-counter market,
or, if the Common Stock shall be quoted on The Nasdaq National Market
or The Nasdaq SmallCap Market or listed on a national securities
exchange, the closing sale price on such principal market or exchange
on which the Common Stock may be listed, in each case on the day prior
to the date of determination of such "Market Price." If at any time
the Common Stock shall not be traded in the over-the-counter market or
quoted or listed on The Nasdaq National Market or The Nasdaq SmallCap
Market or a national securities exchange, the "Market Price" of a
share of Common Stock shall be deemed to be the higher of (x) the book
value thereof (as determined by any firm of independent public
accountants of nationally recognized standing selected by the Board of
Directors) as of the last day of any month ending within 60 days
preceding the date of determination, or (y) the fair value thereof (as
determined in good faith by the Board of Directors) as of a date which
shall be within 15 days of the date of determination.
(iii) In case at any time the Company shall subdivide its outstanding
shares of Common Stock into a greater number of shares, the Exercise Price
in effect immediately prior to such subdivision shall be proportionately
reduced. In case at any time the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be
proportionately increased.
(iv) If the purchase or exercise price provided for in any right or
option referred to in paragraph (f)(ii)(A), or the rate at which any
Convertible Securities referred to in paragraph (f)(ii)(A) or (B) shall be
convertible into or exchangeable for Common Stock, shall change or a
different purchase or exercise price or rate shall become effective at any
time or from time to time, then, upon such change becoming effective, the
Exercise Price then in effect hereunder shall forthwith be increased or
decreased to such Exercise Price as would have been in effect had the
adjustments made upon the granting or issuance of such rights or options or
Convertible Securities been made upon the basis of (A) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of
such Convertible Securities consideration received therefor and (B) the
granting or issuance at the time of such change of any such options, rights
or Convertible Securities then still outstanding for the consideration, if
any, received by the Company therefor and to be received on the basis of
such changed price.
(v) The Company shall not be required to make any adjustment to the
Exercise Price in the case of:
-6-
<PAGE>
(A) the granting, after the date hereof, by the Company of stock
options or stock awards with respect to shares of Common Stock under
stock option plans of the Company, so long as the total number of
shares of Common Stock issuable or issued pursuant to such options
does not exceed 11% of (i) the outstanding shares of Common Stock (on
a fully diluted basis) as of the date of the Purchase Agreement
together with (ii) any additional outstanding shares of Common Stock
(on a fully diluted basis) issued on or before January 31, 2000
pursuant to the Purchase Agreement;
(B) the issuance of shares of Common Stock pursuant to the
exercise of the options referred to in paragraph (f)(v)(A) above or
any other options outstanding as of the date hereof, provided, that
any such issuance does not result in the Company exceeding the 39% cap
set forth in Section 4(b) of the Purchase Agreement;
(C) the issuance of shares of Common Stock pursuant to the
exercise or conversion of any securities outstanding on the date
hereof;
(D) the issuance of shares of Common Stock pursuant to the
Purchase Agreement or the Registration Rights Agreement dated as of
January 27, 2000 among the Company and each of the purchasers named on
the signature pages thereto on, or before, January 31, 2000;
(E) the issuance of shares of Common Stock upon the exercise or
triggering of any antidilution provisions thereunder of any of the
Warrants; and
(F) the issuance of equity securities in connection with an
offering pursuant to an engagement letter, dated October 5, 1999,
between E*Offering and the Company (the "E*Offering Engagement
Letter"), whether such equity securities are issued to E*Offering or
to any investor for which E*Offering is entitled to be compensated
pursuant to the E*Offering Engagement Letter.
(vi) Whenever the Exercise Price payable upon exercise of this Warrant
shall be adjusted pursuant to this paragraph (f), the number of Warrant
Shares purchasable upon exercise hereof simultaneously shall be adjusted by
multiplying the number of Warrant Shares issuable immediately prior to such
adjustment by the Exercise Price in effect immediately prior to such
adjustment and dividing the product so obtained by the Exercise Price, as
adjusted.
(g) OFFICER'S CERTIFICATE. The Company shall give notice to each record
holder of the Warrants of any event or transaction that shall result in an
adjustment in the Exercise Price, within five (5) business days thereof, at such
Holder's address as the same appears on the books of the Company, including a
computation of such adjustment and any adjustment in the number of Warrant
Shares for which such Holder may exercise such Holder's Warrant and any further
information as shall be necessary to confirm the computation of such
adjustments.
-7-
<PAGE>
(h) CERTAIN NOTICES TO HOLDERS. So long as this Warrant shall be
outstanding, if (i) the Company shall pay any dividend or make any distribution
upon the Common Stock, (ii) the Company shall offer to the holders of the Common
Stock for subscription or purchase by them any share of any class of capital
stock or any other rights or (iii) any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation, merger or
other business combination of the Company with or into another corporation,
sale, lease or transfer of all or substantially all of the assets of the Company
to another corporation, or voluntary or involuntary dissolution, liquidation or
winding up of the Company shall be effected, then in any such case, the Company
shall cause to be mailed by certified mail to the Holder, at least twenty (20)
days prior to the date specified in (x) or (y) below, as the case may be, a
notice containing a brief description of the proposed action and stating the
date on which (x) a record date shall be established for the purpose of such
dividend, distribution or rights offering or (y) such reclassification,
reorganization, consolidation, merger, conveyance, sale, lease, transfer,
dissolution, liquidation or winding up shall take place and the date, if any to
be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION, MERGER OR OTHER BUSINESS COMBINATION.
Except in the event of a Termination Event, in case of any reclassification,
capital reorganization or other change of outstanding shares of Common Stock, or
in case of any consolidation, merger or other business combination of the
Company with or into another corporation or other entity (other than a merger
with a subsidiary in which merger the Company shall be the continuing
corporation and which shall not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of any sale, lease or
conveyance to another corporation or other entity of all or substantially all of
the assets of the Company, the Company shall cause effective provisions to be
made so that the Holder, by exercising this Warrant at any time after the
consummation of such reclassification, change, consolidation, merger, sale,
lease or conveyance, shall be entitled to receive the stock or other securities
or property to which such Holder would have been entitled upon such consummation
if such Holder had exercised this Warrant immediately prior to such
consummation. Any such provision shall include provisions for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Warrant. Except in the event of a Termination Event, the foregoing
provisions of this paragraph (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales, leases or conveyances. In the
event that, in connection with any such capital reorganization or
reclassification, consolidation, merger, sale, lease or conveyance, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock subject to
the provisions of paragraph (f) hereof.
(j) GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the law of the State of New York.
-8-
<PAGE>
(k) NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Warrant shall be in writing and addressed to the Chief
Executive Officer of the Company at its principal corporate offices. Any notice
required to be given or delivered to the Holder shall be in writing and
addressed to the Holder at the address indicated in the Purchase Agreement or to
such other address as such party may designate in writing from time to time to
the Company. All notices shall be deemed to have been given or delivered upon
any of the following: (i) personal delivery; (ii) five (5) days after deposit in
the United States mail by certified or registered mail (return receipt
requested); (iii) one (1) business day after deposit with any nationally
recognized overnight courier (prepaid); or (iv) one (1) business day after
transmission by facsimile and receipt by the sender of written facsimile
confirmation.
(l) Consent to Amendments. Except as otherwise expressly provided herein,
the provisions of the Purchase Agreement Warrants may be amended and/or waived
only with the written consent of the Company and of Holders holding Purchase
Agreement Warrants exercisable into sixty-six and two-thirds percent (66 2/3%)
or more of the Warrant Shares into which all outstanding Purchase Agreement
Warrants are then exercisable (which such 66 2/3% must include the Warrant
Shares into which the Warrants held by the SSF Purchasers (as defined in the
Purchase Agreement) are exercisable). Notwithstanding the forgoing, no amendment
or waiver may affect any Holder in any manner differently from any other Holder
without the written consent of such first mentioned Holder. No course of dealing
between the Company and any Holder or any delay in exercising any rights
hereunder or under the Company's Certificate of Incorporation, as amended, will
operate as a waiver of any rights of such Holder.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by the undersigned, each being duly authorized, as of the date below.
Dated: January 31, 2000
BURST.COM, INC.
By:
------------------------------------
Name: Richard Lang
Title: Chairman and Chief Executive
Officer
Attest:
- -----------------------------
Edward H. Davis
Vice President, Secretary, and General Counsel
-10-
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ____________ shares of Common Stock and hereby makes total
payment of $______________ in payment of the Exercise Price multiplied by such
number of shares.
----------
ASSIGNMENT FORM
FOR VALUE RECEIVED, _____________________________________ hereby sells,
assigns and transfers unto
Name: __________________________________
(print in block letters)
Social Security No. or
Federal Taxpayer Identification No.: _________________________________
Address: ________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
_________ shares of Common Stock as to which such right is exercisable and does
hereby irrevocably constitute and appoint _________________________ as Attorney,
to transfer the same on the books of the Company with full power of
substitution.
Date ____________________, 20__ Signature: _____________________________
Name:
-11-
[LETTERHEAD OF INSTANT VIDEO TECHNOLOGIES, INC.]
500 Sansome Street, Suite 503 tel 415.391.4455
San Francisco fax 415.391.3392
California 94111 http://www.burst.com
January 14, 2000
Instant Video Technologies, Inc.
500 Sansome Street, Suite 503
San Francisco, CA 94111
Re: Instant Video Technologies, Inc. (the "Company") Registration
Ladies and Gentlemen:
1. The undersigned understands that the Company has agreed to register
certain shares of Common Stock pursuant to a Registration Statement on Form S-1
to be filed by the Company with the Securities and Exchange Commission (the
"Secondary Public Offering") in connection with the Company's sale of at least
$8 million of its Common Stock and warrants (the "Private Offering") to certain
investors (the "Investors").
2. The undersigned understands further that the Investors have requested
certain directors, officers and stockholders of the Company to enter into this
Agreement because the prospect of public sales of Common Stock by these persons
during the several months after commencement of the Secondary Public Offering
would be detrimental to these Investors and that, but for this Lock-Up
Agreement, the Investors would not invest their monies in the Company.
3. The undersigned, as a director, officer or stockholder of the Company,
desires that the proposed Private Offering and subsequent proposed Secondary
Public Offering be completed, and understands that the Company and the Investors
will proceed with the proposed Private Offering in reliance on this Agreement.
4. In consideration of the foregoing and in order to induce the Investors
to consummate the Private Offering, the undersigned hereby agrees (such
agreement being referred to herein as the "Lockup") that the undersigned will
not during the period commencing on the closing date of the Private Offering and
ending 180 days after the effective date of the Final Prospectus (the
"Prospectus") relating to the Secondary Public Offering (the "Lock-Up Period"),
(A) offer, pledge, hypothecate, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any Common Stock or any securities convertible into, derivative of
<PAGE>
January 14, 2000
Page 2
Re: Instant Video Technologies, Inc.
or exercisable or exchangeable for Common Stock (collectively, the "Shares")
(whether such Shares are now owned by the undersigned or are hereafter acquired)
or (B) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Shares,
whether or not any such transaction described in clause (A) or (B) above is to
be settled by delivery of such Shares, in cash or otherwise. After the Lock-Up
Period, the undersigned shall not during any consecutive four month period until
termination of the Prospectus take any of the actions set forth in clauses (A)
and (B) above with respect to more than twenty-five percent (25%) of the shares
held by the undersigned as of the date of the Prospectus .
5. Notwithstanding anything to the contrary contained in any Registration
Rights Agreement or other agreement to which the undersigned is a party, the
undersigned agrees that it will not, during the Lock-Up Period, make any demand
for, or exercise any right, including but not limited to, piggyback registration
rights with respect to the registration of any Shares and waives any such demand
or right under such agreement. Notwithstanding the foregoing, the Lock-Up Period
shall not apply to securities acquired by the undersigned in the Private
Offering.
6. The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's registrar and transfer agent to prevent the
transfer of shares of Common Stock held by the undersigned except in compliance
with this Agreement.
7. Notwithstanding the foregoing, the following transactions shall not be
restricted hereby:
a. if the undersigned is one or more natural persons, any transfer by
gift, will or intestacy to the undersigned's immediate family or to a trust for
the benefit of the undersigned, his or her immediate family, or both; or
b. if the undersigned is a corporation or partnership, any transfer by
the undersigned in connection with the sale or other bona fide transfer in a
single transaction of all or substantially all of the undersigned's assets not
undertaken for the purpose of avoiding the restrictions imposed hereby;
provided, however, that, as a condition of any transfer pursuant to this Section
7, each transferee shall agree to be bound by the terms hereof and shall execute
an agreement substantially in the form hereof which the transferor shall cause
to be delivered to the Representatives; or
c. if the undersigned sells shares at such time (the "Release Date")
that the (i) Prospectus has been declared effective by the Securities and
Exchange Commission (ii) the Company obtains a Small Cap NASDAQ listing and
(iii) its Common Stock bid price is at or above $15 per share for thirty (30) or
more consecutive trading days after the date of the Prospectus; provided,
<PAGE>
January 14, 2000
Page 3
Re: Instant Video Technologies, Inc.
however, that the undersigned shall only sell up to 25% of such Common Stock
owned by the undersigned during each consecutive thirty (30) day period
following the Release Date.
8. The undersigned agrees that the provisions of this Agreement shall be
binding upon the undersigned and the successors, assigns, heirs and personal
representatives thereof.
9. It is understood that if the proposed Private Offering does not close by
January 31, 2000, you will release us from our obligations under this Agreement.
DATED: January 27, 2000
Very truly yours,
By:
------------------------------------
----------------------------------------
(Print Name)
----------------------------------------
----------------------------------------
(Print Address)
[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.
-1-
<PAGE>
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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Reseller License Agreement IVT--Removable Media Solutions, Inc.
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
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<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.
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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.
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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.
9
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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
10
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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
14
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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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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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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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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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End-User Software License Agreement
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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End-User Software License Agreement
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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End-User Software License Agreement
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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End-User Software License Agreement
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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End-User Software License Agreement
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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[IVT-CLOVER CONFIDENTIAL]
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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[IVT-CLOVER CONFIDENTIAL]
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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[IVT-CLOVER CONFIDENTIAL]
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.
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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.
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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
--------------------------- --------------------------------
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"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.
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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
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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.
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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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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%
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$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.
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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
- ------------------- -----------------------
Richard Lang Carter F. Alexander
Chaiman and CEO President
3-17-99 3/18/99
- ------------------- -------------------
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
<PAGE>
INDEX TO LEASE
Headings PAGE
-------- ----
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
- -----------
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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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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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).
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(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
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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
PLEASE INITIAL
DWSS /s/ SW
LICENSEE /s/ DM
3
<PAGE>
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.
PLEASE INITIAL
DWSS /s/ SW
LICENSEE /s/ DM
4
<PAGE>
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
PLEASE INITIAL
DWSS /s/ SW
LICENSEE /s/ DM
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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
PLEASE INITIAL
DWSS /s/ SW
LICENSEE /s/ DM
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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.
PLEASE INITIAL
DWSS /s/ SW
LICENSEE /s/ DM
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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
PLEASE INITIAL
DWSS /s/ SW
LICENSEE /s/ DM
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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:
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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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5
<PAGE>
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
-- --
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
-- --
<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,
Page 7
<PAGE>
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):
Page 8
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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
Page 9
<PAGE>
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
Exhibit 21.1
Subsidiaries
Explore Technology, an Arizona Corporation
Timeshift-TV, Inc., a Delaware Corporation
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Burst.com, Inc.
(formerly known as Instant Video Technologies, Inc.)
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 24, 2000, relating to the
consolidated financial statements of Burst.com, Inc. (formerly Instant Video
Technologies, Inc.), which is contained in that Prospectus and Registration
Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
San Francisco, California
April 14, 2000
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Burst.com, Inc.
(formerly known as Instant Video Technologies, Inc.)
We consent to the useof our report dated March 19, 1999 on the consolidated
financial statements of Instant Video Technologies, Inc.(the "Company") and
subsidiary as of December 31, 1998 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the two-year period ended December 31, 1998 included herein and to the
reference to our firm under the headings "Selected Financial Data" and "Experts"
in the Prospectus.
Our report dated March 19, 1999 contains an explanatory paragraph that states
that the Company's recurring losses from operations and negative cash flows from
operating activities raise substantial doubt about its ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
KPMG LLP
San Francisco, California
April 14, 2000
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
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AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10.
</LEGEND>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 366,872
<PP&E> 996,181
<DEPRECIATION> 270,769
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<TOTAL-LIABILITY-AND-EQUITY> 1,128,741
<SALES> 0
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<CGS> 0
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<OTHER-EXPENSES> 11,509,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,468,110
<INCOME-PRETAX> (12,977,729)
<INCOME-TAX> 0
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