U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
IDF INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
New York 11-3059399
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
330 West 42nd St.,
New York, New York 10036
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(Address of principal (Zip Code)
executive offices)
(212) 563-6900
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(Issuer's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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(Title of Class)
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PART I
The statements contained in Part I and Part II herein, other than historical
information, are or may be deemed to be "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and involve factors,
risks and uncertainties that may cause the actual results of IDF International,
Inc. in future periods to differ materially from such statements. These
factors, risk and uncertainties include the relatively short operating history
of IDF; rapid technological change affecting products and services offered by
IDF; the impact of competitive services, products and pricing from other
consulting, engineering and design firms; general economic conditions and the
volitility of customers' capital building plans and their ability to obtain
financing; delays and postponements in consulting and engineering projects,
including public sector projects; the ability to obtain and keep, at profitable
levels, quality personnel; and the availability of sufficient financial
resources to enable IDF to meet both current and new customer demand for
services.
ITEM 1. BUSINESS
GENERAL
IDF International, Inc. ("IDF" or the "Company"), is a holding company
with two wholly-owned subsidiaries, TechStar Communications, Inc. ("TechStar")
and Hayden-Wegman, Inc. ("Hayden-Wegman"). TechStar provides site acquisition,
zoning and planning, architectural and engineering project management and
consulting services to the wireless communications industry. Hayden-Wegman
provides design, construction management and engineering services to
municipalities and other governmental agencies and private industry.
TechStar is headquartered in Silver Spring, Maryland (the Washington,
D.C., metropolitan area). Established in 1993, TechStar's mission is to offer
its clients a blend of real estate, legal and telecommunications engineering
professionals who can produce turnkey wireless communications infrastructure
solutions from within one organization. Its current clients include AT&T
Wireless, Motorola, Omnipoint Communications, and Nextel Communications.
Hayden-Wegman is headquartered in New York, New York, and has offices in
Boston, Massachusetts, and Buffalo, New York as well as elsewhere in the
Northeast United States. Hayden-Wegman provides general engineering services to
both public and private clients. Established in 1931, it has developed a strong
reputation (among the variety of services it offers) for infrastructure design
and refurbishment, to include work on
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projects such as bridges, tunnels, roads, piers, marinas, garages, pumping and
electrical stations and solid waste facilities. Hayden-Wegman also performs
construction management and offers engineering, analysis and design services for
office buildings, planned unit developments and other development projects. Its
current clients include state and local departments of transportation and
general services administrations, the United Nations, AT&T, the New York Museum
of Natural History, utility companies and private developers.
INDUSTRY OVERVIEW
IDF is involved in two main industries through its subsidiaries. These are
the wireless communications consulting services industry, through TechStar, and
the building, infrastructure and environmental engineering industry, through
Hayden-Wegman.
WIRELESS COMMUNICATIONS INDUSTRY
TechStar typically serves wireless communications carriers. These carriers
need to develop or enhance networks of radio links/sites to allow for seamless
communications coverage in particular Federal Communications Commission ("FCC")
licensed geographic areas. Nationwide, cellular, paging and dispatch services
FCC license holders are in the process of completing their networks' coverage or
enhancing their existing networks to remain competitive with new market
entrants. Although some of these licenses are over a decade old, these systems
are still incomplete, particularly in suburban and rural areas. In addition,
since 1996, new carriers have acquired various new licenses from the FCC.
Some licenses were issued for the development of networks commonly
referred to as personal communications systems or "PCS" (which from users'
perspective operate similarly to traditional cellular networks), and are
currently in the process of being developed. PCS carriers are expected to
continue building out their systems to compete with existing cellular
carriers. Many initial markets have launched or are close to launching. Many
other license holders have not even begun to develop their systems due to
financial constraints, limits on foreign investment, changes in the availability
of financing through capital markets and other forces. Some holders are awaiting
decisions from the FCC or the courts regarding potential restructuring of their
license fee payments, business and/or other modifications. In addition to this,
the FCC plans or has completed auctions of licenses to the D, E and F blocks of
the radio frequency spectrum and the reauction of the license to the C block of
the radio frequency spectrum. The restructuring or
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repositioning of these licenses as well as the further development of emerging
technologies, such as local multipoint distribution system ("LMDS"), hold the
prospect of additional new activity in the wireless communications industry.
Regardless of the outcome, competition remains heavy within wireless
communications.
Internationally, wireless networks are developing at a rapid pace and
liberalization/privatization processes are at the various stages of
implementation, providing significant ongoing market opportunities for companies
that can offer wireless communications consulting services abroad. Some
countries, including those in Eastern Europe and Latin America, see wireless
communications as a much cheaper alternative to rebuilding obsolete or
malfunctioning landline communications infrastructures, and are encouraging
deployment of wireless communications systems.
INFRASTRUCTURE AND ENVIRONMENTAL ENGINEERING INDUSTRY
Hayden-Wegman provides building, infrastructure and environmental
engineering services, as well as structural rehabilitation of existing
structures, construction management services and real estate development
engineering. With the ongoing deterioration of infrastructure in this country
and abroad, Hayden-Wegman has opportunities to participate in the rebuilding
process. Looking at the industry in general, according to Engineering
News-Record, an industry trade journal, domestic billings of the top 500
domestic design firms aggregated approximately $33 billion in 1997. Billings
from infrastructure design projects accounted for about $5.3 billion for the top
500 domestic design firms. Billings from building projects account for
approximately $9 billion for such firms.
Currently in the United States, a strong need for public sector
infrastructure and environmental engineering services has developed. Numerous
public works projects such as bridges and water supply systems have reached the
point in their useful lives where they need to be either rehabilitated or
replaced with new construction. While municipalities have often hesitated, due
to budgetary constraints, to effect these necessary upgrades, currently a
confluence of factors is pushing them to do so. The two main factors are: (1)
necessity, due to projects reaching a critical stage of deterioration, and (2)
opportunity, due to current strong government revenue flows facilitated by the
strong national economy. Management believes that the deteriorating bridges in
the Northeast and New York City's failing water supply and waste water systems
offer opportunities for expansion of Hayden-Wegman's current services in these
areas.
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In addition to public sector projects, the current strong economy has led
to renascent commercial construction activity. Numerous waterfront
rehabilitation, commercial structure development and redevelopment and other
projects are underway. In the Northeast United States, there is an increasing
demand for waterfront reconstruction planning and design. These projects require
the environmental analysis and rehabilitation of many, formerly neglected,
structures and properties.
In June 1998, Congress enacted the Transportation Equity Act for the 21st
Century ("TEA-21"). TEA-21, an act to authorize funds for federal-aid highways,
highway safety programs, transit programs and other purposes, succeeds the
expired Intermodal Surface Transportation Efficiency Act. TEA-21 authorizes the
spending of up to $217 billion over the next six years, and is expected to
increase demand for design and engineering services.
TECHSTAR AND HAYDEN-WEGMAN OPERATIONS
The business activities of IDF are defined by the services provided by
TechStar and Hayden-Wegman.
TECHSTAR SERVICES
TechStar's services are generally sold to telecommunications operators and
equipment manufacturers. Telecommunications operators are the companies, both in
the United States and abroad, that design, build, manage and operate the
communications system infrastructure. In addition to landline service (telephone
service effected through a network that is physically wired together), many
operators have developed or are developing wireless communications networks
based on interconnection which includes radio waves. Most of the early wireless
networks were analog cellular networks. While cellular networks are still
prevalent, many operators are now developing or have developed digital PCS
networks, which from the users' perspective operate like a cellular network.
Also, FCC auctions of the D, E and F blocks of the radio frequency spectrum, the
reauctioning of the C block thereof and emerging technologies such as LMDS serve
to create new opportunities for TechStar's services within the industry.
Many of these wireless networks have been or are being constructed by
established companies in the telecommunications industry. Examples of these
companies include AT&T, GTE, Bell Atlantic, Pacific Bell, Sprint and others. In
addition, the sales of radio frequency licenses by the FCC has resulted in the
development of many new wireless communications operators.
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TechStar offers services directly to these operators to aid them in designing
and building their wireless communications networks.
Network operators must purchase significant amounts of new equipment
(switching, transmission, etc.) to develop and run their wireless communications
networks. A relatively small number of equipment vendors (Motorola, Ericsson,
Northern Telecom and others) compete vigorously to be chosen to be the equipment
suppliers for a given wireless network. As part of the bidding process, a number
of equipment vendors offer telecommunications operators fully operational,
turnkey wireless communications networks. Equipment vendors offer to sell the
necessary network operating equipment, and build the wireless communications
network, thereby offering to sell a fully operational wireless communications
network to a telecommunications operator. TechStar offers its services to
equipment manufacturers or other vendors to aid them in designing and building
such wireless communications networks for their customers.
TechStar's potential client base is limited to those telecommunications
companies that outsource their wireless communications infrastructure needs.
Three of TechStar's clients accounted for more than 90% of TechStar's revenues
in each of the fiscal years ended 1998 and 1997. The loss of any of these
customers, or a reduction in business from any of these customers, would have a
material adverse impact on TechStar. There has been and continues to be merger,
acquisition and consolidation activity in the telecommunications industry.
Mergers and consolidations in the future could reduce the number of TechStar's
clients or potential clients, which could have a material adverse impact on
TechStar's business and results of operations. Further, decreases or delays in
clients' capital spending would negatively impact TechStar's revenues and
results of operations.
HAYDEN-WEGMAN SERVICES
For over 65 years, Hayden-Wegman has been a recognized participant in the
consulting and engineering industry, providing services in improving and
rebuilding transportation systems, rebuilding the nation's infrastructure, and
cleaning up the environment. Hayden-Wegman is recognized within its industry and
is often cited by clients and trade associations as a provider of superior
consulting and engineering services. Hayden-Wegman has provided engineering
services for a variety of projects from major interstate transportation systems
to municipal structures, for clients such as public agencies, major corporations
and private developers. It has four primary design and construction management
market segments: infrastructure, waterfront services, parking garage specialist
services and environmental projects.
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Hayden-Wegman has four offices within the Northeast region of the United States.
These offices are located in New York, New York; Boston, Massachusetts; Buffalo,
New York and Parsippany, New Jersey.
Hayden-Wegman's infrastructure services involve projects dealing with the
design, inspection and construction management of roadways, viaducts, bridges,
terminals and tunnels. Its projects have included more than 500 miles of
interstate highways, more than 600 bridges and over seven miles of waterfront
facilities. In addition, Hayden-Wegman has developed a unique market niche in
the building envelope and garage rehabilitation industry and markets itself as
"The Garage Specialists", and as experts in the analysis and repair of failing
building facades and parapets. Hayden-Wegman's environmental design services
have ranged from major refuse projects to energy facilities, sewage treatment
plants, municipal and private sewer systems, water treatment plants and water
distribution systems. Hayden-Wegman's construction management services consist
primarily as acting as agents of project owners in the administration of
contracts between such owners and their general contractors.
A majority of work undertaken by Hayden-Wegman is with the public sector.
Approximately 75% of total billings for the fiscal years 1998, 1997 and 1996
have been derived from the public sector. In general, there are two types of
bids required when dealing with the public sector. One type of bid is known as a
lump sum bid; a bidder wins a contract under such a bid based on price. Another
type of bid is called reimbursable cost (usually with an upset limit). This type
of bid outlines the specific approach to be taken, the professional
qualifications of the individuals who would work on the project, the
qualifications of the bidding company and, finally, the anticipated man-hours to
complete the project.
Over the years, Hayden-Wegman has been successful in working on a number
of engineering projects for the public sector, including the New York State
Department of Transportation, the New York State Thruway Authority, the
Massachusetts Department of Public Works, New Jersey State Department of
Transportation, the Massachusetts Bay Transportation Authority and municipal
governments in the Northeastern and Southeastern states as well as the New York
City Department of Environmental Protection, the New York City Department of
Parks and Recreation, the New York City Department of Design and Construction
and the New York City Bureau of Bridges.
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Hayden-Wegman offers services to the private sector as well. In general,
private sector clients pay a premium over that charged to public sector clients.
Private sector projects are generally of shorter duration. Management believes
that Hayden-Wegman has the necessary qualities to increase revenues from private
sector clients due to its reputation for excellent, innovative and cost
effective results. The private sector clients include AT&T Corporation, Chase
Manhattan Bank, the United Nations and several major private developers and
high-rise and garage owners in New York City.
Hayden-Wegman has established strong public sector relationships, having
provided engineering services on more than 1,000 infrastructure projects
throughout the United States which have exceeded $2 billion in value. The
projects completed or in various stages of process include: the White Hall Ferry
Rehabilitation in New York; the Boston Central Artery -- one of the most
significant infrastructure projects of the 1990's; the relocation of a Route 7
section in Connecticut; the Henry Hudson Parkway, 158th Street Exit in New York,
New York; Malcom X Boulevard; Lift Bridges at 9th Street in Brooklyn, New York
and at Broadway in New York, New York; the modernization of New York Hospital
and the Hospital for Special Surgery, rehabilitation of Waterside Plaza in New
York, New York; the East Side Esplanard Project, including the replacement of
Pier No. 11 in New York Harbor; and marinas in Northport, on the Hudson River
and Oyster Bay, New York. Hayden-Wegman currently has a backlog of
infrastructure design work to perform for various projects within New York, New
Jersey and Massachusetts.
Additionally, as part of its environmental design services, Hayden-Wegman
has developed extensive experience in the engineering and design of water and
waste/water treatment facilities as well as refurbishments thereof. It also has
experience in the design and management of solid waste facilities. Hayden-Wegman
is currently engaged by the City of New York to design three separate waste
water projects.
Hayden-Wegman's completed projects include the 2,000 ton per day Municipal
Solid Waste Burning Facility that generates power for sale to Florida Power and
Light in Palm Beach County, Florida, totaling $180 million in value, and a 975
ton per day Mass-Burn Resource Recovery Plant serving residents of Alexandria
and Arlington, Virginia.
Hayden-Wegman is also active in the development of solid waste treatment
and storage solutions to critical waste disposal problems. For example,
Hayden-Wegman engineering solutions have been responsible for many improvements
in sanitary landfill design, including the creation of leachate treatment
facility designs such as the one it developed for the 400 ton-per-day
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sanitation landfill in Williamsport, Lycoming County, Pennsylvania. In addition,
Hayden-Wegman developed the first coordinated gas control and venting system for
a New York landfill. Working with New York City, the State of New York and
Brooklyn Union Gas Company, Hayden-Wegman developed a landfill
gas-to-electricity pilot project at the world's largest landfill located on
Staten Island, New York.
Each of Hayden-Wegman's offices, though they work in a coordinated fashion
on many projects, have also developed distinct service offerings, based upon
local needs.
Hayden-Wegman's New York office has developed expertise in environmental
and other utility related project engineering, including: (1) water mains, (2)
combined sewer overflow, (3) pumping stations, (4) sewage plant stabilization
work and (5) smaller sewage treatment plants. Management believes that the New
York City Department of Environmental Protection, an established client, will
continue to demand engineering services for continued maintenance and
modification of its 64 pumping stations.
Additionally, since early 1990, Hayden-Wegman's New York office has more
aggressively marketed hospital and traffic design engineering services, two
service segments which management views as continuing to expand. Engineering
services for hospitals include, but are not limited to, work on the utilities,
sewage treatment facilities, and traffic management. Significant engineering
services were recently provided by Hayden-Wegman to New York Hospital and the
Hospital for Special Surgery.
Hayden-Wegman's New York office has been recognized by garage owners and
operators in New York, New Jersey and Connecticut for its expertise in garage
engineering and its garage project clients have included the United Nations,
AT&T and the City and State of New York. Finally, the New York office is also
aggressively marketing construction management services.
Hayden-Wegman's Boston office primarily serves the Massachusetts
Department of Public Works and its large Boston Central Artery Project, a
significant infrastructure project. Public sector projects account for
approximately 95% of the Boston office billings and backlog. Since 1996, Boston
office revenues have become heavily concentrated in infrastructure engineering
services. Among other Boston office projects is a municipal incinerator project
in Florida and the Landfill Gas Recovery project in Rhode Island.
Hayden-Wegman's Buffalo office markets include the New York State Thruway
Authority, the Erie County Department of Public Works and the City of Buffalo
Department of Public Works. Recent
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clients have included the New York State Department of Transportation, Empire
State Development Corporation for Buffalo Inner Harbor Planning and the Buffalo
Sewer Authority, for construction of a 6-mile-long rock tunnel sewer overflow
relief project.
Finally, Hayden-Wegmen's New Jersey office's major client is the New
Jersey Department of Transportation. In addition to engineering, the New Jersey
office markets surveying services to developers in New Jersey and New York.
Hayden-Wegman is aggressively pursuing waterfront projects. Recently the
Buffalo office, together with the New York City office, received a contract for
study, planning preliminary design and final design services of the Buffalo
Inner Harbor. In addition, Hayden-Wegman is aggressively pursuing opportunities
for entering into the rapidly expanding telecommunication support services
market and into special niches in the bridge design and construction market.
BACKLOG
As of July 31, 1998, TechStar's and Hayden-Wegman's total backlog was
approximately $2,000,000 and $16,185,000, respectively.
MARKETING AND SALES STRATEGY
Each of the TechStar and Hayden-Wegman operating subsidiaries markets
its own services separately.
TECHSTAR
Management believes that TechStar's marketing and sales efforts benefit
from that company's excellent reputation in the telecommunications industry, as
reflected in its current client list, which includes AT&T, Motorola, Nextel and
Omnipoint.
Focusing on evolving market conditions, TechStar currently intends to
approach marketing of its services through three major avenues:
o FINANCING: TechStar intends to explore ways to arrange for third
party financing for its services in order to enhance its ability to
offer integrated services solutions. TechStar will also seek
opportunities to provide such financing together with equipment
providers and/or telecommunications operators.
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o SYNDICATIONS/JOINT VENTURES: TechStar intends to pursue aggressively
the syndication or partnering with potentially synergistic
competitors or complementary businesses offering access to new
markets, new customers or new service applications, nationally and
internationally. This approach would enable TechStar to offer more
comprehensive services and greater geographic coverage.
o NEW APPLICATIONS FOR SERVICES: As new and emerging technologies
develop, TechStar intends to target new applications for its
services. For example, TechStar will seek to market its services to
traditional customers and new customers who will be engaged in the
build out of LMDS systems.
TechStar's sales and marketing are managed by its President and other
senior officers of the company. In addition, in May 1998, TechStar established a
Vice President position to coordinate TechStar's marketing, sales and business
development efforts.
HAYDEN-WEGMAN
Hayden-Wegman's traditional clientele of public sector agencies provides,
and is expected to provide, the majority of its revenue. For over half a
century, Hayden-Wegman has established strong working relationships with various
public sector agencies (state and local). Its engineering expertise in the
design for infrastructure and environmental projects is also well known in the
private sector.
Hayden-Wegman plans to expand its marketing and sales capability by
engaging additional business development staff to supplement the business
development activities currently accomplished by its Hayden-Wegman's officers
and staff.
Hayden-Wegman obtains customers for its private sector engineering
services through client and vendor referrals and new business development
efforts of its internal marketing staff. Public sector agencies advertise new
engineering projects in national publications such as the Engineering News
Record, an engineering industry publication, and the Commerce Business Daily, a
weekly publication issued by the Federal Government, and state and local
publications such as the New York State Register. Hayden-Wegman is on the
qualified consultants list of New York City Department of Transportation and
Department of Environmental Protection.
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Hayden-Wegman's sales and marketing are managed by its President, a former
executive with the Port Authority of New York and New Jersey, the marketing
staff and project managers. A business development and marketing staff member in
Boston is a former Massachusetts Highway Department executive. In New York,
marketing staff members include former employees of public agencies.
Each Hayden-Wegman marketing representative based in a particular
Hayden-Wegman office reports to a senior marketing officer who is responsible
for that office's sales and marketing efforts. Each local office senior
marketing officer reports to the President of Hayden-Wegman.
Management believes that Hayden-Wegman can capitalize on Hayden-Wegman's
long standing presence and the proven ability of its highly trained professional
personnel to take advantage of the changing dynamics of the engineering services
marketplace.
The marketing plan for Hayden-Wegman's New York City office stresses the
growth of current private sector work through contacting new clients and
extending current projects with private clients, and continued pursuit of public
sector work, including transportation work in the rail and airport areas, as
well as services in support of design/build and private sector projects.
Hayden-Wegman's Boston office plans to continue to market its services to
municipalities in Massachusetts for additional roadway design work, to private
industry clients for industrial pretreatment project work, and intends to expand
its marketing efforts to the Maine and Vermont Departments of Transportation as
well as other agencies in those states.
COMPETITION
TECHSTAR
Competition in TechStar's line of business, wireless communications
network services, is strong and is concentrated primarily among less than twenty
companies. Some of these companies are represented by telecommunications
divisions of large engineering firms such as Fluor-Daniels and Bechtel. Others
are well established firms such as SBA and Entel. These companies have greater
financial resources than TechStar and thereby may be able to secure and/or
finance projects beyond the current capabilities of TechStar. Recently, a number
of carriers have slowed the development of their wireless communications
networks in order to preserve capital and focus on subscriber growth. As a
result, there has been a slowdown in building activity which has put pressure on
the existing companies in
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TechStar's line of business. This has resulted in two movements, a movement to
consolidate among industry players and a movement to diversify into new areas of
activity, such as build-to-suit arrangements. Under build to suit arrangements,
independent companies construct and own the transmission towers, and the
wireless service providers rent tower space thereon. While TechStar has begun
the process of evaluating build to suit services, it has not yet provided such
services to any carrier.
Management believes that TechStar's primary competitive advantage is its
ability to provide to its clients an integrated package of real estate,
(including site acquisition), legal (including municipal approvals and
permitting), and engineering system implementation consulting services. The
integration of these key services enhances efficiency, effectiveness and
accountability. Management also believes that TechStar has a strong asset in its
professional and administrative staff, which continues to provide superior
services at competitive pricing. In addition, TechStar is exploring new avenues
for business, such as license and franchise acquisition and development, site
management, construction consulting services and syndication and joint ventures.
HAYDEN-WEGMAN
Competition in Hayden-Wegman's line of business, engineering services, is
very fragmented. In the area of infrastructure design, Hayden-Wegman has
significant competition from other companies, which include Vollmer Associates,
Parsons Brinkerhoff and Urbitran, many of which have significantly greater
revenues and financial resources than Hayden-Wegman.
Within environmental design, Hayden-Wegman faces competition from, among
others, CH2M Hill, Inc., Camp Dresser and Mckee, Inc., SEA Consultants, Inc.,
and Weston & Sampson Engineers. All four companies provide significant
competition, and are believed to have significantly greater revenues and
financial resources than Hayden-Wegman.
Larger companies, such as Parsons Brinkerhoff, Vollmer Associates, CH2M
Hill and Camp Dresser and Mckee, all have a national presence and, as a result,
are competition for Hayden-Wegman in all regions where it is present. In New
York specifically, Hayden-Wegman also faces competition in waste water projects
from the URS Companies and from Gannett Fleming Company. These companies have
significantly greater revenues and financial resources than Hayden-Wegman. In
Boston, Hayden-Wegman faces competition from smaller regional firms.
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Management also believes that Hayden-Wegman has a strong asset in its
professional and administrative staff, which continues to provide superior
consulting and design services at competitive pricing. Hayden-Wegman has
collected years of detailed utility type and location information in New York
City. This information is key to the redevelopment of the existing utility
infrastructure and also critically important during new construction to minimize
the impacts on existing services. In building garage rehabilitation,
Hayden-Wegman has extensive experience with high-end finite element structural
analysis computerized tools and the application of state of the art materials
such as carbon fiber. Finally, in the waterfront area, Hayden-Wegman has
developed specific design solutions on major waterfront projects.
REGULATORY ENVIRONMENT
REGULATORY ENVIRONMENT
Certain of TechStar's and Hayden-Wegman's employees (e.g. engineers and
attorneys) are required to be licensed in the jurisdictions in which they
conduct business.
Wireless communications providers doing business with TechStar are subject
to federal regulation. Changes in laws, rules and regulations affecting such
clients could have an adverse material impact on the Company's results of
operation.
On a local level, transmission antennas and towers often require
local/municipal approval. Changes in local zoning ordinances which have the
effect of making it more difficult to obtain such approvals could reduce the
level of building activity which could adversely impact TechStar's results of
operations.
INTELLECTUAL PROPERTY
INTELLECTUAL PROPERTY AND RESEARCH AND DEVELOPMENT
Neither IDF nor its subsidiaries hold any patents, trademarks or other
intellectual property of significant commercial value. Also, neither IDF nor its
subsidiaries engage in any organized and significant research and development
activities.
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EMPLOYEES
As of October 1, 1998, IDF employed 2 senior executives.
As of October 1, 1998, TechStar employed approximately 30 persons, of
which approximately 15 are engineers.
As of October 1, 1998, Hayden-Wegman employed approximately 115 persons,
of which approximately 84 are engineers. The staff of engineers, designers and
construction managers have a wide range of technical expertise in the fields of
civil, environmental, structural, geotechnical, electrical and mechanical
engineering. The technical support personnel are comprised of planners, traffic
engineers, rehabilitation experts, surveyors, and CADD operators.
Relations with all employees is believed to be good. There are no collective
bargaining agreements with any employees of IDF or of its subsidiaries.
CORPORATE HISTORY
CORPORATE HISTORY
IDF, a New York corporation, was incorporated pursuant to the laws of the
State of New York on March 27, 1991. It was formed to seek potential business
opportunities which management believed may provide a profit for IDF. On
December 5, 1991, IDF completed a public offering of its securities pursuant to
which it sold 200,000 Units at $5.00 per Unit, each Unit consisting of one share
of the Common Stock and one common stock purchase warrant entitling the holder
to purchase one share of IDF Common Stock for a period of nine months expiring
on September 4, 1992, at a price of $15.00 per share. The expiration date was
extended but expired September 30, 1993. IDF's management evaluated various
prospective business opportunities, but it had no operations from its inception
in March 1991 through November 1993, when IDF acquired Hayden-Wegman.
Hayden-Wegman was incorporated in the State of New York in 1930 under the
name John M. Farley & Co., Inc. The name was subsequently changed to Leonard S.
Wegman & Co., Inc. Leonard S. Wegman & Co., Inc., was located in New York City
and provided engineering services for the public sector and private industrial
projects. In 1984, Leonard S. Wegman & Co., Inc., merged with Hayden, Harding &
Buchanan, an engineering and design firm, and changed its name to Hayden-Wegman,
Inc. Hayden, Harding & Buchanan, located in New England, had been founded in
1938 and principally provided engineering design services to the public sector.
In 1986, Alta Acquisition Corporation acquired Hayden-
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Wegman. On December 29, 1992, H/W Acquisition, Inc., a newly formed Delaware
corporation owned by the key management of Hayden-Wegman, acquired all of the
outstanding shares of Hayden-Wegman's capital stock.
Hayden-Wegman was formed before professional corporations, owned by
licensed professional surveyors and engineers, were provided for under New
York's Business Corporation Law. At present, a new corporation could not be
formed to perform the work that Hayden-Wegman performs, if the corporation were
not wholly owned by engineering professionals.
On November 3, 1993, IDF acquired all the outstanding common stock of H/W
Acquisition, Inc., in exchange for 550,000 shares of Common Stock of IDF. H/W
Acquisition, Inc., was the record holder of all the outstanding capital stock of
Hayden-Wegman, and IDF became the record holder of all of the outstanding
capital stock of H/W Acquisition, Inc. On December 29, 1993, H/W Acquisition,
Inc., changed its name to Hayden-Wegman International, Ltd. ("H-W Ltd."). H-W
Ltd. continues to be a wholly-owned subsidiary of IDF.
TechStar, formerly Broadcast Towers Site, Inc., was organized under the
laws of the State of Delaware on February 28, 1994. Effective December 11, 1996,
the shareholders of TechStar exchanged all their shares in TechStar for $780,000
in cash, 507,246 unregistered shares of American United Global, Inc. ("AUGI"),
common stock and three promissory notes aggregating $600,000. The transaction
was valued at $4,426,303 and was accounted for by the purchase method of
accounting. Goodwill in the amount of $3,905,639 was recorded on the books of
TechStar in accordance with the push down theory of accounting. Accordingly,
TechStar became a wholly-owned subsidiary of AUGI.
Effective August 1, 1997, TechStar was a party to a reverse triangular
merger with IDF, through its newly formed subsidiary, TechStar Acquisition Corp.
("Acquisition Corp."). TechStar emerged as the surviving corporation of the
merger with Acquisition Corp. and became a wholly-owned subsidiary of IDF. As a
result of this merger, IDF issued 6,171,553 shares to AUGI, resulting in AUGI
owning approximately 63% of the issued and outstanding common shares of IDF at
that date. In addition, certain officers of TechStar received options to acquire
an additional aggregate 8% of IDF Common Stock pursuant to their employment
agreements.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with IDF's
consolidated financial statements, and notes thereto. The discussion contains
statements which are or may be deemed to be forward looking. See the preface to
Part I hereof for a discussion of factors, risks and uncertainties which may
cause actual results to differ materially from such statements.
INTRODUCTION
IDF is a holding company with two wholly-owned subsidiaries,
Hayden-Wegman and TechStar. IDF acquired Hayden-Wegman in November 1993 and
TechStar in August 1997. In connection with the TechStar acquisition, IDF
changed its fiscal year end to July 31 from June 30. Audited financial
statements, on a consolidated basis, for prior periods do not exist. Any
comparisons in the financial analysis are made to put the financial results for
the fiscal year ended July 31, 1998 in historical perspective. Such comparisons
are made herein to the most recent unaudited "pro forma" twelve month
consolidated statement of operations for the period ended June 30, 1997.
16
<PAGE>
RESULTS OF OPERATIONS
IDF experienced a net earnings loss of $9,929,638, or $1.02 per share of
Common Stock, for the fiscal year ended July 31, 1998. The most significant
component for this loss relates to management's revaluation of its intangible
assets which resulted in a determination that the assets are impaired. The
revaluation of IDF's intangible assets has resulted in a one-time write down of
goodwill in the amount of $7,500,000. In addition to the loss related to the
goodwill write down, IDF experienced an operating net loss of $2,429,638.
The operating environment at Hayden-Wegman has changed significantly since
August 1, 1997, and the effects of such changes have become evident over the
past few months. Hayden-Wegman's ability to compete for new contracts decreased
resulting in fewer contract awards, delays in work and decreasing gross profit
margins for those contracts which are awarded. In addition, increased
competition for qualified personnel to secure new work has intensified
significantly, further eroding gross profit margins. Hayden-Wegman's operating
costs are higher than much of its competition, primarily due to higher interest
costs related to its revolving credit facility, thereby impairing its ability to
attract qualified engineering personnel and to compete as cost effectively for
new contracts. As a result of these concerns, an evaluation of Hayden-Wegman's
goodwill as of July 31, 1998 was conducted. A determination of the estimated
future undiscounted cash flows from Hayden-Wegman's goodwill revealed that the
aggregate cash flows from goodwill did not exceed the carrying value at July 31,
1998. Accordingly, these cash flows were then discounted to the present value at
July 31, 1998 and, when compared to the carrying value of $4,408,417, resulted
in a write down of $4,000,000 as impairment of goodwill.
The nature of TechStar's operations limits its potential client base to
those telecommunications companies that outsource their wireless communications
infrastructure needs. Three of TechStar's clients accounted for more than 90% of
their revenues in 1998 and 1997. Subsequent to July 31, 1998, TechStar was
notified by two of these customers that TechStar's contracts were to be
suspended until further notice, and are likely to be reduced in scope. While
both clients indicated that the stoppages were due to industry conditions and
not due to TechStar's quality of work, the resulting changes nevertheless will
adversely impact financial results. These events and other concerns relative to
TechStar's operations necessitated an evaluation of TechStar's goodwill for
possible impairment. A determination of the estimated future discounted cash
flows from TechStar's goodwill revealed that the aggregate cash flows from
goodwill did not exceed the carrying value at July 31, 1998. Accordingly, these
cash flows were then discounted to the present value at July 31, 1998 and, when
17
<PAGE>
compared to the carrying value of $3,651,773, resulted in a write down of
$3,500,000 as impairment of goodwill.
Net revenues for IDF for the fiscal year ended July 31, 1998 aggregated
$14,066,155. This result represents a decrease from the most comparable pro
forma period of approximately $2,600,000. The most significant reduction was at
Hayden-Wegman, which had net revenues of approximately $9,000,000 for the fiscal
year ended July 31, 1998, a decrease of over $2,000,000 from the most comparable
prior twelve-month pro forma period. This decrease was primarily due to
Hayden-Wegman's inability to secure new business at a time when prior projects
were being completed. Although Hayden-Wegman maintains a solid reputation for
the quality of its engineering and construction management work, Hayden-Wegman's
ability to secure new work, particularly in the public sector, was impaired by
its poor credit position, including the failure to pay taxes on a timely basis
and make timely contributions to employee benefit plans. Hayden-Wegman has taken
steps to improve its credit position, including the payment of the
aforementioned items, and management believes its past credit difficulties
should not prevent it from securing new business in the future. TechStar's net
revenues declined by approximately $600,000 in the fiscal year ended July 31,
1998 compared to the comparable prior year period. The decline was primarily
attributable to the cancellation of a contract and the reduction in the scope of
work under another contract. TechStar was unable to replace this work due to the
general slow down in its industry.
The consolidated operating expenses for the fiscal year ended July 31, 1998
was $15,389,696. This result represents an increase from the most comparable pro
forma period of approximately $1.5 million. The prior period results included a
one-time reduction in expenses of approximately $500,000 related to a gain on a
settlement of a prior obligation. The major increases in expenses in the fiscal
year ended July 31, 1998 related predominantly to extraordinary legal and
accounting expenses associated with IDF's acquisition of TechStar and IDF's
preparation and filing of a registration statement registering the Common Stock
under the Securities and Exchange Act of 1934. At TechStar, IDF also settled two
outstanding litigation matters that increased expenses approximately $200,000 in
fiscal year ended July 31, 1998. During the 1998 fiscal year, TechStar leased
larger, more expensive office space at its Silver Spring, Maryland site in
anticipation of increased needs. This new lease increased the monthly rental
expense from an average of $11,000 per month in 1997 to an average of $34,000
per month in fiscal year 1998. Management has since entered into an agreement to
sublease up to 50% of that space in fiscal year 1999 to reduce this obligation
in the future. Hayden-Wegman incurred one-time expenses of $250,000 related to
18
<PAGE>
settlements of items previously in dispute and payments for work performed by
subcontractors that were not previously paid in a timely manner. Management is
installing new accounting and information systems, designed to enhance
record-keeping and cost/payment tracking to minimize future payment disputes and
late payments.
IDF incurred interest expense in the amount of $1,124,281 for the fiscal
year ended July 31, 1998. Hayden-Wegman has a $3,000,000 revolving credit
facility with a lender (a factoring arrangement). In accordance with the
agreement, Hayden-Wegman identifies and transfers to this lender, a designated
pool of contract receivables and is advanced 80% of the aggregate face value of
such receivables. The remaining 20%, less interest, and certain reimbursable
expenses, is remitted to Hayden-Wegman once the lender receives payment for the
pooled receivables. The lender is paid interest at the rate of prime plus 1.5%
per annum and fees of approximately 1% per month based upon a sliding scale tied
to the number of days that the receivables are outstanding. The interest and
fees are computed on the full value of the receivables until all related client
payments are received. In the fiscal year ended July 31, 1998, IDF experienced
significant delays in collections which resulted in increased interest and fees
of approximately $200,000 when compared to the most recent unaudited pro forma
twelve-month period. Management believes its new accounting and information
systems will also enhance its collections.
LIQUIDITY AND CAPITAL RESOURCES
IDF ended the fiscal year ended July 31, 1998 with cash on hand of
$791,804. This amount was offset by a current liability overdraft of $264,766.
Net cash used by operating activities in the fiscal year ended July 31,
1998 was $2,639,296. This includes a decrease in receivables of
$1,780,058 offset by an increase in costs and earnings in excess of billings of
$1,028,985. The net operating cash decrease was further impacted by a decrease
in accrued wages, salaries and related costs of $1,096,710 due to changes in
personnel.
In September 1997, IDF sold approximately $3,000,000 aggregate principal
amount of 8% Senior Subordinate Convertible Notes (the "Notes") in a private
placement. The net proceeds of the sale of Notes of approximately $2,600,000
were used primarily to pay past due obligations, including but not limited to
payments to federal and state taxing authorities, employee 401K plans and
subcontractors.
19
<PAGE>
All of the outstanding Notes have been converted into Series A and Series
A-1 Preferred Stock. In addition, an affiliate of IDF converted an $800,000
principal loan to IDF into 400,000 shares of Series B Preferred Stock and
approximately $32,000 of accrued interest into Series A-1 Preferred Stock. The
Series A Preferred Stock, A-1 Preferred Stock and B Preferred Stock bear
dividends at the cumulative rate of 8%. Substantially all holders of Series A
Preferred Stock and all holders of Series A-1 Preferred Stock and Series B
Preferred Stock have agreed, in writing, that IDF may, at its option, pay
dividends in additional shares of Series A or Series A-1 Preferred Stock. To
date, substantially all dividends on the outstanding Preferred Stock have been
paid in additional shares rather than cash, and IDF anticipates continuing to do
so.
Hayden-Wegman's use of funds from its revolving credit facility increased
significantly in the fiscal year ended July 31, 1998. The amount outstanding
under the facility as of July 31, 1998 increased to $2,759,129 from $1,782,744
at June 30, 1997. Management had concentrated a significant amount of time in
pursuing new work, and did not sufficiently address problems in collecting
payments due it from prior and existing contracts. Further, in some instances,
management's collection of payments from customers was hindered by its desire to
secure new work from those customers. Delays in billing and collections for work
performed increased significantly Hayden-Wegman's revenues in excess of billing
in fiscal year 1998. These delays resulted in increased use of the credit
facility thereby increasing interest and fees thereunder. Management believes
its renewed focus on billings and collections, together with its new accounting
and information systems, will enhance its collections effort and in doing so
reduce financing charges in the future.
IDF believes its cash flows from operations and its revolving credit
facility will need to be supplemented in the next fiscal year to meet its
working capital needs. Certain members of the IDF Board of Directors and
significant shareholders have committed to loan up to $1,000,000 to IDF when
requested by IDF for its working capital needs. As of November 1998, the Company
has received $400,000 under this commitment. IDF may also need additional
financing in order to enable it to take advantage of new opportunities in its
core businesses. However, there can be no assurance that such financing, if
available, will be on terms acceptable to IDF or that such financing would not
result in dilution to existing shareholders.
YEAR 2000
Many existing computer programs use only the last two digits to refer to a
year. Those computer programs which do not properly recognize a year that begins
with "20" instead of the familiar "19" could fail or create erroneous results
(the "Year 2000" issue).
20
<PAGE>
In July 1998, TechStar began the installation of a new accounting and
information system, Timberline. This new system is Microsoft Windows based and
is certified by Timberline as being Year 2000 compliant. TechStar anticipates
installation to be completed by December 1998. The cost of the new Timberline
system, including training, was approximately $25,000. TechStar also uses
Microsoft Office 97 and Auto CAD version 14, which are also certified by the
vendor as being Year 2000 compliant. Management requires its employees to
perform proper system backups of material at regular intervals to minimize any
potential system problems.
Hayden-Wegman's Information Strategic Plan (ISP) calls for replacement of
existing account and project information systems with third-party
state-of-the-art applications and hardware, augmented with internally developed
client-server desktop applications. The third-party applications consist of
Microsoft Office 97 applications, Auto CAD version 14 and LARSA 1998 Finite
Element Analysis, all certified by the respective vendors as Year 2000
compliant. The implementation of ISP is expected to be completed by early in
1999.
The new account and project information system will use Harper and
Shuman's new Advantage accounting and project control software. This software
will reside on a new Dell PowerEdge 2300 server with a 9.1GB LVD SCSI hard drive
using Microsoft NTS 4.0 software. Hardware and software are both Year 2000
compliant. Historical accounting and project data on the legacy accounting
system, an older version of Harper and Shuman, which currently resides on a
Digital Equipment Corporation VAX, will be brought over to the new application.
The estimated total cost of this effort, including software, system development,
conversion of existing data and on-site training, is $100,000, of which $10,000
has been spent as of October 1, 1998.
IDF's subsidiaries are not materially dependent on the Year 2000
compliance of its customers or other third parties. The work performed by the
subsidiaries for its customers is performed relatively independent from third
parties. TechStar's and Hayden-Wegman's ability to meet customer commitments is
dependent upon its internal Year 2000 compliance. Given the recent and ongoing
installation of the new systems, IDF does not expect material business
interruptions from Year 2000 issues and, further, in management's evaluation,
the Company's reasonably likely worst case scenario from any Year 2000 issues is
not expected to be material.
21
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY
IDF PROPERTIES
IDF maintains its corporate headquarters at the offices of
Hayden-Wegman at 330 West 42nd Street, 20th Floor, New York, New York. IDF moved
in October, 1998 from its previous location at 155 Morris Avenue, Springfield,
New Jersey.
TECHSTAR PROPERTIES
TechStar maintains its corporate headquarters in Silver Spring,
Maryland. It has one other regional office in Wilmington, Delaware. All
facilities are leased and are considered adequate for TechStar's anticipated
operating needs through the foreseeable future.
TechStar's corporate headquarters is located at 8403 Colesville Road,
16th Floor, Silver Spring, Maryland. The office floor area is approximately
31,000 square feet. The lease runs through June 2001 and is for $ 34,104 per
month. Part of the office space is subleased.
The Delaware office is located at 501 Silverside Road, Suite 130,
Wilmington, Delaware. The lease is for $ 300 per month and is on a
month-to-month basis.
22
<PAGE>
HAYDEN-WEGMAN PROPERTIES
Hayden-Wegman maintains its corporate headquarters in New York City,
New York, and has three other regional offices which are located in Parsippany,
New Jersey; Boston, Massachusetts and Buffalo, New York. All facilities are
leased and are considered adequate for Hayden-Wegman's anticipated operating
needs through the foreseeable future.
The New York City office has been in operation since 1931. The New York
City office is located at 330 West 42nd Street, 20th Floor, New York, New York.
The office floor area is approximately 12,000 square feet. The lease runs
through November 1999 and is for $ 20,920 per month.
The New Jersey office is located at 1055 Parsippany Blvd., Parsippany,
New Jersey. The office floor area is approximately 1,350 square feet. The lease
runs through December 1998 and is for $ 1,917 per month.
The Buffalo office has been in operation since 1970. The Buffalo office
is located at 455 Commerce Drive, Amherst, New York, a suburb of Buffalo, New
York. The office floor area is approximately 4,300 square feet. The lease runs
through March 2001 and is for $ 3,938 per month.
The Boston office has been in operation since 1938. The office occupies
10,000 square feet and is located at 214 Lincoln Street, Boston, Massachusetts.
The office floor area is approximately 10,000 square feet. The lease runs
through August 2001 and is for $ 9,687 per month through August 1998, $ 10,462
per month from September 1998 to August 1999, and $ 11,238 per month from
September 1999 to August 2001.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 16, 1998, certain
information regarding the beneficial ownership of IDF's outstanding shares of
voting securities, including Common Stock as well as Series A Preferred Stock,
Series A-1 Preferred Stock and Series B Preferred Stock, by (i) each person
known to IDF beneficially to own 5% or more of the outstanding shares of its
voting securities, (ii) each of IDF's directors, (iii) each of IDF's executive
officers named in the Summary Compensation Table below, and (iv) all directors
and officers as a group. Except as indicated in the footnotes to this table, the
persons named in the table have sole voting and investment power with respect to
all shares of voting securities shown as beneficially owned by them, subject to
community property laws where applicable.
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Amount and Percent of
Nature of Outstanding
Name and Address of Beneficial Percent of Class Voting
Title of Class the Beneficial Owner Ownership(1) Securities
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock American United Global, Inc. 6,171,553 62.16% 47.64%
11130 NE 33rd Place, Suite
250, Bellevue, WA 98004 (2)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Lembit Kald 112,580 1.13% *
Hayden-Wegman, Inc., 330 West
42nd Street, New York, NY
10036
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Lawrence Kaplan 496,492 5.00% 3.83%
Gro-Vest, Inc., 150 Vanderbilt
Motor Parkway, Suite 311,
Hauppauge, NY 11788 (3)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Solon L. Kandel 71,379 * *
IDF International, Inc.,
330 West 42nd Street
New York, New York 10036 (4)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Sergio Luciani 71,379 * *
TechStar Communications, Inc.,
8403 Colesville Road, 16th
Floor, Silver Spring, MD 20910
(4)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Simantov Moskona 71,379 * *
TechStar Communications, Inc.,
8403 Colesville Road, 16th
Floor, Silver Spring, MD 20910
(4)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Robert Harvey 0 0% 0%
Hayden-Wegman, Inc.
330 West 42nd St.
New York, New York 10036
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Michael Losch 0 0% 0%
IDF International, Inc.
330 West 42nd St.
New York, New York 10036
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Robert M. Rubin 874,659 8.81% 6.76%
6060 Kings Gate Circle, Del
Rey Beach, FL 33484
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock All directors and executive 1,697,868 17.10% 13.11%
officers as a group (8 persons)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Solon L. Kandel 171,733 13.99% 1.33%
Stock IDF International, Inc.
330 West 42nd St.
New York, New York 10036 (5)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Sergio Luciani 171,733 13.99% 1.33%
Stock TechStar Communications, Inc.,
8403 Colesville Road, 16th
Floor, Silver Spring, MD 20910
(5)
---------------------- -------------------------------- ---------------- ----------------- ----------------
24
<PAGE>
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Simantov Moskona 171,733 13.99% 1.33%
Stock TechStar Communications, Inc.,
8403 Colesville Road, 16th
Floor, Silver Spring, MD 20910
(5)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Robert M. Rubin 46,933 3.82% *
Stock 6060 Kings Gate Circle, Del
Rey Beach, FL 33484 (6)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Lawrence Kaplan 135,991 11.08% 1.05%
Stock Gro-Vest, Inc., 150 Vanderbilt
Motor Parkway, Suite 311,
Hauppauge, NY 11788 (7)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred All directors and executive 698,123 56.89% 5.39%
Stock officers as a group (7 persons)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series B Preferred Robert M. Rubin 400,000 100% 3.09%
Stock 6060 Kings Gate Circle, Del
Rey Beach, FL 33484 (6)
---------------------- -------------------------------- ---------------- ----------------- ----------------
</TABLE>
* Less than one percent.
(1) Except to the extent otherwise indicated, to the best of IDF's
knowledge, each of the indicated persons exercises sole voting and
investment power with respect to all shares beneficially owned by him.
(2) Robert M. Rubin, Chairman of the Board and a director of IDF is the
Chairman of the Board and Chief Executive Officer of AUGI and, is a
principal beneficial owner of the common stock of AUGI. Lawrence
Kaplan, a director of IDF, is a director of AUGI.
(3) Includes 209,000 shares owned by Helaine Kaplan, the wife of Lawrence
Kaplan, with respect to which shares Mr. Kaplan has beneficial
ownership.
(4) Includes 71,379 shares issuable to each identified person upon exercise
of currently exercisable stock options granted under employment
agreements with IDF dated August 25, 1997.
(5) An aggregate of 496,002 shares of Series A-1 Preferred Stock were
issued to Messrs. Kandel (165,334 shares), Luciani (165,334 shares) and
Moskona (165,334 shares) upon filing the Certificate of Amendment to
IDF's Certificate of Incorporation, following stockholder approval of
the Certificate of Amendment, and each such persons' automatic
conversion of $206,668 aggregate principal and accrued interest of
indebtedness into such numbers of Series A-1 Preferred Stock. The
Series A-1 Preferred Stock votes along with the Common Stock, with each
share of Series A-1 Preferred Stock having the same number of votes as
equals the number of shares of Common Stock into which it is
convertible.
25
<PAGE>
Mr. Kandel, 171,733 votes; Mr. Luciani, 171,733 votes; and Mr. Moskona,
171,733 votes.
(6) An aggregate of 400,000 shares of Series B Preferred Stock and 21,334
shares of Series A-1 Preferred Stock were issued to Robert Rubin upon
filing the Certificate of Amendment to IDF's Certificate of
Incorporation, following stockholder approval of the Certificate of
Amendment and his automatic conversion of $826,667 aggregate principal
and accrued interest of indebtedness into such numbers of Series A-1
and Series B Preferred Stock. The Series A-1 and B Preferred Stock vote
along with the Common Stock, with each share of Series A-1 and B
Preferred Stock having the same number of votes as equals the number of
shares of Common Stock into which it is convertible.
(7) An aggregate of 130,924 shares of Series A-1 Preferred Stock were
issued to Lawrence and Helaine Kaplan upon filing the Certificate of
Amendment to IDF's Certificate of Incorporation, following stockholder
approval of the Certificate of Amendment, and automatic conversion of
$163,654 aggregate principal and accrued interest of indebtedness into
such numbers of Series A Preferred Stock shares. The Series A-1
Preferred Stock votes along with the Common Stock, with each share of
Series A-1 Preferred Stock having the same number of votes as equals
the number of shares of Common Stock into which it is convertible.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors, executive officers and key employees of IDF as of
September 15, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
NAME AGE POSITION
- ------------------------------------------ -------------------- --------------------------------------------
Robert M. Rubin 57 Chairman of the Board of Directors of IDF
- ------------------------------------------ -------------------- --------------------------------------------
Lembit Kald 74 Director, Executive Vice President of IDF;
Chief Executive Officer of
Hayden-Wegman.
- ------------------------------------------ -------------------- --------------------------------------------
Lawrence Kaplan 54 Director of IDF
- ------------------------------------------ -------------------- --------------------------------------------
26
<PAGE>
- ------------------------------------------ -------------------- --------------------------------------------
Solon L. Kandel 37 Director; President and Chief Executive
Officer of IDF
- ------------------------------------------ -------------------- --------------------------------------------
Sergio Luciani 47 Director; Executive Vice President of IDF,
Chief Executive Officer of TechStar
- ------------------------------------------ -------------------- --------------------------------------------
Simantov Moskona 47 Executive Vice President of IDF; President
and Chief Operating Officer of TechStar
- ------------------------------------------ -------------------- --------------------------------------------
Michael Losch 43 Chief Financial Officer and Chief
Operating Officer of IDF
- ------------------------------------------ -------------------- --------------------------------------------
Robert Harvey 52 President of Hayden-Wegman
- ------------------------------------------ -------------------- --------------------------------------------
</TABLE>
The Board of Directors of IDF currently consists of five members. Each
director's current term of office expires at the next Annual Meeting of
Stockholders of the Company, and until successors are duly elected and
qualified. Pursuant to an amendment to IDF's By-laws approved by IDF's
stockholders, the Board is classified into three classes. At the 1999 IDF Annual
Meeting of Stockholders, the Group I director (Lembit Kald) will stand for
election for a one year term, the Group II directors (Lawrence Kaplan and Sergio
Luciani) will stand for election for a two year term and the Group III directors
(Robert Rubin and Solon Kandel) will stand for election for a three year term.
Set forth below is a brief background of the directors, executive
officers and key employees of IDF, based on information supplied by them:
ROBERT M. RUBIN. Mr. Rubin has served as director of IDF since August 1996 and
as Chairman of the Board of IDF since September 1997. Mr. Rubin has also served
as the Chairman of the Board of Directors of AUGI since May 1991, and was its
Chief Executive Officer from May 1991 to January 1, 1994. Between October 1990
and January 1, 1994, Mr. Rubin served as the Chairman of the Board and Chief
Executive Officer of AUGI and its subsidiaries; from January 1, 1994, to January
19, 1996, he served only as Chairman of the Board of AUGI and its subsidiaries.
From January 19, 1996, Mr. Rubin has served as Chairman of the Board and
President and Chief Executive Officer of AUGI. AUGI owns approximately 62% of
the outstanding Common Stock of IDF and Mr. Rubin owns approximately 9% of IDF's
fully-diluted Common Stock. Mr. Rubin was the founder, President, Chief
Executive Officer and a director of Superior Care, Inc. ("SCI"), from its
inception in 1976 until May 1986. Mr. Rubin continued as a director of SCI (now
known as Olsten Corporation ("Olsten")) until the latter part of 1987. Olsten, a
New York Stock Exchange listed company, is engaged in providing home care and
institutional staffing services and health care management services. Mr. Rubin
is Chairman of the Board, Chief Executive Officer and a stockholder of ERD Waste
Technology, Inc. ("ERD"), a diversified waste management public company
specializing in the management and disposal of municipal solid waste, industrial
and commercial non-hazardous waste and hazardous waste. In September 1997, ERD
filed for protection under the provisions of Chapter 11 of the federal
bankruptcy act. Mr. Rubin is a former director and Vice Chairman, and currently
a minority stockholder, of American Complex Care, Incorporated, a public company
formerly engaged in providing on-site health care services, including
intra-dermal infusion therapies. In April 1995, American Complex Care,
Incorporated's, operating subsidiaries made assignments of their assets for the
benefit of creditors without resort to bankruptcy proceedings. Mr. Rubin is also
a minority stockholder of Universal Self Care, Inc., a public company
27
<PAGE>
engaged in the sale of products used by diabetics. Mr. Rubin is also the
Chairman of the Board of Western Power & Equipment Corp. ("Western"). AUGI owns
approximately 56.6% of the outstanding common stock of Western. Mr. Rubin is
also a director and a minority stockholder of Response USA, Inc., a public
company engaged in the sale and distribution of personal emergency response
systems; Diplomat Corporation, a public company engaged in the manufacture and
distribution of baby products; and Medi-Merg, Inc., a Canadian management
company for hospital emergency rooms and out-patient facilities.
SOLON L. KANDEL. Mr. Kandel has served as director of IDF since
September 1997. Mr. Kandel currently also serves as President and Chief
Executive Officer of IDF. He served as President and Chief Executive Officer of
TechStar from May 1997 until August 1997. From January 1997 to May 1997, when it
merged into AUGI, Mr. Kandel served as the President of Arcadia Consulting
Services, Inc., a company that was under exclusive contract with AUGI to assist
in developing and managing its business. From 1992 to December 1996, Mr. Kandel
served in various management capacities with AT&T Wireless (formerly McCaw
Cellular Communications, Inc.). From 1992 to 1995, Mr., Kandel served as a
Senior Attorney for AT&T Wireless, supporting all aspects of the company's
business, including its executive management, engineering, marketing, sales,
information systems, finance, human resources and customer service divisions.
Mr. Kandel was also responsible for ensuring successful leasing, zoning and
litigation management for the company's cellular system and for completing
several critical special projects. In June 1995, Mr. Kandel was appointed
Director of Real Estate for the entire AT&T Wireless Northeast Region (Maine to
Virginia). He also assumed national responsibility for the acquisition of bulk
real estate. While serving as the Regional Director, Mr. Kandel helped plan,
organize, acquire resources for, and manage, all aspects of the start-up,
budgeting, staffing, outsourcing, deployment, design, acquisition and
construction of AT&T Wireless' new PCS systems in the Boston/Rhode Island,
Philadelphia/Wilmington and Washington/Baltimore metropolitan areas.
SERGIO LUCIANI. Mr. Luciani has served as director of IDF since September 1997.
Mr. Luciani also currently serves as IDF's Executive Vice President. He also has
served as Chief Executive Officer of TechStar since August 1997. From August
1997 to December 1997, he also served as President of TechStar. Mr. Luciani has
also been Vice President and Chief Financial Officer of TechStar since its
formation as Broadcast Tower Sites, Inc., in 1994 until August 1997, and was a
principal stockholder of TechStar at the time of its December 1996 sale to AUGI.
From 1990 to 1994, Mr. Luciani was President of Nanosystems, SRL, an engineering
software company located in Italy. He is an adjunct Professor of International
Finance at The American University in Washington, D.C.
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<PAGE>
LAWRENCE E. KAPLAN. Mr. Kaplan has served as director of IDF since August 1996.
Mr. Kaplan is a registered representative, officer, director and sole
stockholder of Gro-Vest, Inc., a brokerage firm. Mr. Kaplan has served as a
director of AUGI since February 1993. He is also a director of Playorena and
PARK Group, both blank check companies which are looking for merger
opportunities. He is also an officer and director of Osteoimplant Technology, a
manufacturer of orthopedic devices and total joint implants.
SIMANTOV MOSKONA. Mr. Moskona currently serves as Executive Vice President of
IDF and, since January 1998, as President and Chief Operating Officer of
TechStar. He served as Executive Vice President of TechStar between August 1997
and December 1997. He served as Executive Vice President and Chief Operating
Officer of TechStar between December 1996 and August 1997. Prior to December
1996, Mr. Moskona served in various senior executive positions of TechStar. He
was a principal stockholder of TechStar at the time of its December 1996 sale to
AUGI. Prior to this, Mr. Moskona was a Senior Systems Analyst for Teledyne and a
consultant for A.I.D., the FDIC and the Department of Education. Mr. Moskona was
involved in the early development of wireless communications networks both
nationally and internationally. He has substantial experience in the development
and implementation of the various platforms and was involved in launching
various new systems, including one of the pioneering PCS licenses.
LEMBIT KALD. Mr. Kald has served as director of IDF since November 1993. Mr.
Kald also serves as Executive Vice President of IDF and Chief Executive Officer
of Hayden-Wegman. Mr. Kald has been associated with Hayden-Wegman since 1979.
From 1979 through April 1996, he was Chief Engineer of Hayden-Wegman. Since May
1996, he has been Chief Executive Officer and Chief Engineer of Hayden-Wegman.
Mr. Kald is licensed as a professional engineer in five states and has over 47
years of experience in all aspects of design and construction management of
structural, transportation, civil and environmental engineering projects, is a
member of numerous professional societies and has published several professional
articles.
ROBERT N. HARVEY. Mr. Harvey has served as President of Hayden-Wegman since
September 1998. Prior thereto, from 1995 to September 1998, Mr. Harvey was
employed by Professional Assistance and Consulting, Inc. a full-service
construction management firm, most recently as Executive Vice President. He
served as a member of a Steering Committee of the Working Group of the Federal
Government Interagency Committee formed in reaction to the US Embassy, Oklahoma
City and Word Trade Center bombings to set security standards/guidelines for
Federal buildings world-wide. Mr. Harvey was manager of the Executive Office of
Capital Programs at the Port Authority of New York and New Jersey from 1985-1995
and directed a review program that reported results to the Port Authority Board
of Commissioners. Mr. Harvey is a graduate of the Massachusetts Institute of
Technology and a licensed professional engineer in three (3) states and has over
28 years of experience in all aspects of design and project/program/construction
management, transportation, civil and building projects. He also is a member
of numerous professional societies and has published several professional
articles.
MICHAEL J. LOSCH. Mr. Losch has served as Chief Financial Officer and Chief
Operating Officer of IDF since September 1998. Prior to joining IDF, from 1997-
September 1998, Mr. Losch was Vice President (Finance and Administration) and
Chief Financial Officer of Cardre, Inc., a cosmetics manufacturing company.
Prior thereto, Mr. Losch was a Financial and Technical Consultant to Your First
Choice Communications, Inc., a cellular telephone company. From 1978-1997, Mr.
Losch served in various capacities with Bell Atlantic Corporation including
Executive Director for Bell Atlantic-NJ's Cable Telecom Project (1995-1996) and
Chief Financial Officer of Bell Atlantic-NJ (1993-1995). In addition, in 1996
and 1997, he served as Special Assistant to the New Jersey Government Office of
Business Ombudsman, on loan from Bell Atlantic, where he assisted in new
business development in the State of New Jersey.
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<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by IDF to the CEO,
and each of the executive officers whose compensation exceeded $100,000, for the
fiscal years ended June 30, 1996 and 1997 and July 31, 1998 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------- -------- -------------------------- -----------------------------------------
Fiscal
Name and Principal Position Year Annual Compensation Long-Term Compensation
-------------------------- -----------------------------------------
Awards Payouts
----------------------- -----------------
Salary Bonus Other Restricted Securities LTIP All
Annual Stock Under- Payouts Other
Comp. Award(s) lying Comp.
Options
/SAR
- ------------------------------------- -------- -------- -------- ------- --------- ---------- -------- --------
Solon Kandel, President 1996 -- -- -- -- -- -- --
and Chief Executive Officer of IDF (1)
- ------------------------------------- -------- -------- -------- ------- --------- ---------- -------- --------
1997 $ 30,000 -- -- -- -- -- --
- ------------------------------------- -------- -------- -------- ------- --------- ---------- -------- --------
1998 $192,880 -- -- -- 285,517 -- --
- ------------------------------------- -------- -------- -------- ------- --------- ---------- -------- --------
Sergio Luciani, Executive 1996 -- -- -- -- -- -- --
Vice President of IDF and Chief
-------- -------- -------- ------- --------- ---------- -------- --------
Executive Officer of TechStar (1) 1997 $ 95,885 -- -- -- -- -- --
- ------------------------------------- -------- -------- -------- ------- --------- ---------- -------- --------
1998 $192,880 -- -- -- 285,517 -- --
- ------------------------------------- -------- -------- -------- ------- --------- ---------- -------- --------
Simantov Moscona, Executive 1996 -- -- -- -- -- -- --
Vice President of IDF and President and
Chief Operating Officer of TechStar(1) 1997 $ 99,804 -- -- -- -- -- --
- ------------------------------------- -------- -------- -------- ------- --------- ---------- -------- --------
1998 $192,880 -- -- -- 285,517 -- --
- ------------------------------------- -------- -------- -------- ------- --------- ---------- -------- --------
Lembit Kald, President and Chief 1996 $130,400 -- -- -- -- -- --
Executive Officer of Hayden-Wegman,
Inc.
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
1997 $129,950 $8,950 -- -- -- -- --
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
1998 $175,000 -- -- -- -- -- --
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
Donald Shipley (2) 1996 $119,392 -- -- -- -- -- --
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
1997 $115,000 $8,950 -- -- -- -- --
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
1998 $115,000 -- -- -- -- -- --
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
</TABLE>
(1) Each of the officers joined IDF during the fiscal year ended June 30, 1997.
Each of the officers have executed an employment agreement dated as of
August 25, 1997. Options granted during fiscal year 1998 pursuant to such
employment agreements are subject to vesting conditions. See "Employment
and Consulting Agreements" below.
(2) Donald Shipley resigned as Chief Financial Officer of Hayden-Wegman and
Techstar in September 1998.
30
<PAGE>
OPTION GRANTS DURING THE FISCAL YEAR ENDED JULY 31, 1998
The following table sets forth individual grants of stock options by the
Company pursuant to the Company's Stock Option Plan to the Named Executive
Officers during the fiscal year ended July 31, 1998.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Granted
Underlying to Employees in Exercise
Name Options Granted (#) Fiscal Year Price ($/sh.)(3) Expiration Date
- ---- -------------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Solon Kandel(1) 285,517 33.3% $1.25 November 30, 2002
Sergio Luciani(1) 285,517 33.3% 1.25 November 30, 2002
Simantov Moskona(1) 285,517 33.3% 1.25 November 30, 2002
</TABLE>
- ------------------
(1) The options were granted pursuant to employment agreements dated as of
August 25, 1997. Options are subject to vesting conditions. As of September
15, 1998, each individual had vested options to purchase 71,379 shares of
Common Stock. See "Employment and Consulting Agreements" below.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth for each of the Named Executive Officers
information regarding stock option exercises during the fiscal year ended July
31, 1998, as well as the fiscal year end value of unexercised options for each
such person:
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------- ---------- ----------- ------------------------- -------------------------
Name
Shares Value Number of Securities Value of Unexercised
Acquired Realized Underlying Unexercised In-the-Money
on Options/SARs at Options/SARs at
Exercise Fiscal Year End Fiscal Year End
------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
Solon Kandel -- -- 71,379 -- 0 --
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
Sergio Luciani -- -- 71,379 -- 0 --
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
Simantov Moskona -- -- 71,379 -- 0 --
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
</TABLE>
No options were exercised by any of the Named Executive Officers during
the fiscal year ended July 31, 1998. The options held by the Named Executive
Officers above have an exercise price of $1.25 per share. The value of a share
of Common Stock as quoted on the OTC Electronic Bulletin Board at July 31, 1998
was $1.00.
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<PAGE>
DIRECTOR COMPENSATION
Directors of IDF, including management directors, do not receive annual
directors' fees for attendance at the Board of Directors meeting, but they are
reimbursed for actual expenses incurred in respect of such attendance.
EMPLOYMENT AND CONSULTING AGREEMENTS
Pursuant to that certain Agreement and Plan of Merger, dated July 31,
1997 (the "Merger Agreement") between AUGI, IDF, TechStar and Hayden-Wegman, and
concurrent with the consummation of the merger effected pursuant to the Merger
Agreement (the "Merger"), (i) Solon Kandel executed an employment agreement with
IDF, which superseded his employment agreement with TechStar, (ii) each of
Sergio Luciani and Simantov Moskona executed employment agreements with IDF and
TechStar, which superseded their respective employment agreements with TechStar,
and (iii) Lembit Kald executed an employment agreement with IDF and
Hayden-Wegman. The foregoing new employment agreements, each dated as of August
25, 1997, require continued service to IDF and shall continue through November
30, 2000, and thereafter shall automatically be renewed for additional terms of
one year each unless either party thereto gives written notice of termination to
the other party not less than 90 days prior to the end of any term. Under the
terms of such employment agreements, each of Messrs. Kandel, Luciani and Moskona
shall receive a base salary of $180,000 per annum through November 30, 1997, and
$200,000, $225,000 and $250,000 per annum for each of the following three years,
respectively, plus customary fringe benefits, including medical insurance and
the payment of automobile leases. The contemplated increase to $250,000 for the
period of December 1, 1999, through November 30, 2000, is subject to IDF
achieving certain performance and income targets, as set forth in the employment
agreements. Mr. Kald shall receive a base salary of $180,000 per annum for each
year of the contract through November 30, 2000, plus customary fringe benefits,
including medical insurance and the payment of an automobile lease.
In connection with the Company's acquisition of TechStar, each of Messrs.
Kandel, Luciani and Moskona received, under the terms of their respective
employment agreements, a grant of options to purchase 285,517 shares of Common
Stock (856,550 total) at an exercise price of $1.25 per share. The vesting
conditions of the options are as follows: (i) 25% of the options vested
immediately on the effective date of the employment agreements and (ii) up to a
maximum of 25% shall vest in each of June 30, 1998, June 30, 1999 and June 30,
2000, respectively, provided that certain performance and income targets are met
by the Company. The options immediately vest if (i) at any time prior to June
30, 2000, IDF shall effect a sale of all or substantially all of its shares of
capital stock or assets to any unaffiliated third party, (ii) at any time prior
to June 30, 2000, IDF shall consummate an underwritten public offering of
securities of IDF pursuant to which it shall receive gross proceeds of $15
million or more (a "Qualified Public Offering"), then the options shall vest
pursuant to a formula depending on the level of gross proceeds of the Qualified
Public Offering and (iii) prior to June 30, 2000, if pursuant to the employment
agreement, employment is terminated by the employee or employer for any reason
other than (x) for cause, (y) resignation or voluntary termination (except from
a constructive termination) of his employment with the employer for any reason
other than a breach by the employer to the employee of its obligations to the
employee or (z) upon the mutual written agreement of the employer and employee.
In addition, in the event that certain performance and income targets are met
for the cumulative three-year period ended June 30, 2000, any remaining options
not yet then vested shall vest.
No options vested in June 30, 1998 as performance and income targets were
not met.
The options shall have a term expiring on a date which shall be the earlier
to occur of (i) July 1, 2000 for those options which were not vested by July 1,
2000 or (ii) November 30, 2002 for those options which were vested.
In the event that any of such options terminate or are canceled without
having been vested and timely exercised, AUGI will be entitled to receive, in
accordance with the Merger Agreement, that number of shares of Common Stock
which shall be equal to the number of shares not issued as a result of the
termination or cancellation of these options.
32
<PAGE>
On August 25, 1997, Robert Rubin entered into a three year consulting
agreement with IDF. Under such consulting agreement, Mr. Rubin is required to
devote 10% of his business time to the provision of consulting services to IDF,
TechStar and Hayden-Wegman, and he shall receive an annual consulting fee of
$75,000. At a Board of Directors meeting held in September 1997, it was
determined that Mr. Rubin's consulting agreement should be converted into an
employment agreement with IDF based upon equivalent financial terms.
IDF executed a consulting agreement as of August 1, 1998 with a company
controlled by an officer and director of AUGI, for a term up to three years. For
the first eighteen months, IDF pays $6,250 per month. Upon the attainment of
certain performance events, IDF is obligated to issue stock options and/or
additional cash compensation.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MERGERS & ACQUISITIONS
In December 1996, AUGI acquired TechStar and issued to the former
TechStar shareholders an aggregate of 507,246 shares of AUGI common stock, paid
$780,000 in cash and delivered three year AUGI notes aggregating $600,000. In a
related transaction, in April 1997 AUGI also acquired Arcadia Consulting, Inc.,
a company formed by Solon D. Kandel for the purpose of providing consulting
services to clients in the wireless telecommunications industry. AUGI paid
$220,000 and issued to Mr. Kandel 192,754 shares of AUGI common stock.
Subsequent to such acquisitions, the former stockholders of TechStar publicly
sold an aggregate of 331,346 of their 507,246 shares of AUGI common stock and
Mr. Kandel publicly sold all of his 192,754 shares of AUGI common stock.
In August 1997, a controlling interest in IDF was acquired by AUGI (the
"Acquisition"). Prior to such transaction, IDF's sole business was its ownership
of Hayden-Wegman. Under the terms of the Acquisition, AUGI transferred to IDF,
through a merger with an IDF acquisition subsidiary, 100% of the capital stock
of TechStar in exchange for approximately 6.1 million shares of IDF Common
Stock, representing approximately 62% of the outstanding then IDF Common Stock.
As a result of the Acquisition, TechStar became a wholly-owned subsidiary of
IDF, which itself became a subsidiary of AUGI. In connection with the
Acquisition, TechStar asummed an aggregate $300,000 of promissory notes due from
AUGI to certain shareholders of TechStar, including Sergio Luciani and Simantov
Moskona. The unsecured notes bear interest at a rate of 8% per annum and are due
December 1999.
ISSUANCE OF NOTES
As a condition to the Acquisition of TechStar by IDF, IDF was required
to sell approximately $3 million principal amount of IDF's Senior Subordinate
Convertible Notes (the "Notes") in a private placement exempt from federal
securities laws. As an
33
<PAGE>
additional condition to the Acquisition, Robert Rubin converted an existing
$800,000 principal loan to IDF, plus $11,452 of accrued interest, into a
$811,452 principal note of IDF (the "Rubin Note"). The Notes and the Rubin Note
bore interest at a rate equal to eight percent (8%) per annum and were
automatically convertible into shares of IDF's Series A and Series A-1, or
Series B Preferred Stock, respectively. Principal of the Notes was converted
into Series A and Series A-1 Preferred Stock upon stockholder approval and the
filing with the Secretary of State of the State of New York of a Certificate of
Amendment to the IDF Certificate of Incorporation (the "Certificate"), at a
conversion price of $1.25 of outstanding principal per share. Accrued interest
of the Notes was not required to be converted into Series A or Series A-1
Preferred Stock, and was payable in cash by IDF at the time of automatic
conversion into shares of Series A and Series A-1 Preferred Stock. However,
substantially all holders of the Notes, including Messrs. Kandel, Luciani and
Moskona, have agreed to convert and have converted all accrued interest under
their Notes into Series A and Series A-1 Preferred Stock at the $1.25 conversion
rate. Likewise, although the Rubin Note only required conversion of outstanding
principal into shares of Series B Preferred Stock at a conversion price of $2.00
of outstanding principal per share, but did not require conversion of accrued
interest into shares of Series B Preferred Stock, Mr. Rubin agreed to convert
and has converted all accrued interest under the Rubin Note into Series A and
Series A-1 Preferred Stock at the $1.25 conversion rate.
Certain members of the IDF Board of Directors and significant shareholders have
committed to loan up to $1,000,000 to IDF when requested by IDF for
its working capital needs. As part of that commitment, Robert Rubin loaned
IDF, in October 1998, $250,000 at an interest rate of 8% per annum, and in
November 1998, AUGI loaned IDF $150,000.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
IDF is authorized by its Certificate of Incorporation to issue an
aggregate of 120,000,000 shares of capital stock, $.001 par value, of which
116,000,000 are shares of Common Stock, $.001 par value per share, and 4,000,000
of which are shares of preferred stock, of $.001 par value per share (the
"Preferred Stock"). As of September 15, 1998, 9,927,841 shares of Common stock
and 3,027,200 shares of convertible Preferred Stock were issued and outstanding,
of which 1,400,000 are shares of Series A Preferred Stock, 400,000 are shares of
Series B Preferred Stock and 1,227,200 are shares of Series A-1 Preferred Stock.
Other than the Common Stock and the Preferred Stock, IDF is not authorized to
issue any other class of capital stock. All outstanding shares of Common Stock
are of the same class and have equal rights and attributes. The shares of
Preferred Stock have the rights and attributes identified below.
The following description of certain matters relating to the securities
of IDF is a summary and is qualified in its entirety by the provisions of IDF's
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to this Form 10-SB.
34
<PAGE>
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of IDF. In addition, such holders
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of the dissolution, liquidation or winding up of IDF, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of all liabilities of IDF, as well as any liquidation preferences to
which holders of the Preferred Stock are entitled.
The holders of Common Stock do not have any subscription, redemption or
conversion rights, nor do they have any preemptive or other rights to acquire or
subscribe for additional, unissued or treasury shares.
Except for any matters which, pursuant to the New York Business
Corporation Law ("Corporate Law"), or pursuant to IDF's Certificate of
Incorporation and/or By-Laws, specifically require a greater percentage vote, or
the vote of other classes of Capital Stock, for approval, the holders of a
majority of the outstanding Common Stock, if present in person or by proxy, are
sufficient to constitute a quorum for the transaction of business at meetings of
IDF's stockholders. Further, except as to any matters which, pursuant to
Corporate Law, or pursuant to IDF's Certificate of Incorporation and/or By-Laws
require a greater percentage vote for approval, or which specifically require
the vote of holders of IDF's Preferred Stock, the affirmative vote of the
holders of a majority of the Common Stock present in person or by proxy at any
meeting (provided a quorum as aforesaid is present) is sufficient to authorize,
affirm or ratify any act or action.
PREFERRED STOCK
IDF is authorized to issue 4,000,000 shares of Preferred Stock, of
which 1,400,000 are Series A Preferred Stock, 500,000 are Series B Preferred
Stock and 2,100,000 are Series C Preferred Stock. The Certificate of
Incorporation vests in the Board of Directors of IDF the authority to divide the
2,100,000 shares of Series C Preferred Stock into separate series and to fix and
determine the relative rights and preferences of shares of any such series so
established to the full extent permitted by the laws of the State of New York
and the Certificate of Incorporation in respect of, among other things, the
number of preferred shares to constitute such series and the distinctive
designations thereof, the rate and preferences of dividends, the timing of
dividend payments, whether dividends are cumulative and the date from which
dividends accrue, whether preferred shares are redeemable and, if so, the
redemption price and the terms and conditions of redemption, the liquidation
preferences payable on preferred shares in the event of involuntary or voluntary
liquidation, sinking fund or other provisions, if any,
35
<PAGE>
for redemption or purchase of preferred shares, the terms and conditions by
which preferred shares may be converted into Common Stock and voting rights, if
any. IDF's Board of Directors has designated 1,200,000 shares of Series C
Preferred Stock as Series A-1 Preferred Stock.
Each share of the Series A Preferred Stock shall be convertible into
shares of Common Stock of IDF, without the payment of any additional
consideration by the holder, at the option of the holder and at any time after
the date of issuance of such share, into that number of shares of Common Stock
which shall be determined by dividing $1.25 by the Conversion Price. The
Conversion Price, which is subject to adjustment, is initially set at $1.25 per
share of Common Stock. In addition, each share of Series A Preferred Stock shall
automatically and without any further action on the part of the holder, be
converted into shares of Common Stock upon the occurrence of any of the
following events: (i) consummation of the first public offering of IDF's
securities resulting in aggregate gross proceeds to IDF of $5,000,000 or more at
an offering price per share (or rate of conversion or exercise for derivative
securities) equal to at least double the then effective Conversion Price, or
(ii) (A) IDF's securities shall be trading on the National Association of
Securities Dealers, Inc. Automated Quotation System ("Nasdaq") or another
national securities exchange and (B) the closing bid price of IDF's Common stock
(or the last sale price, if quoted on a national securities exchange) has been
at least double the Conversion Price effective at the time for twenty
consecutive trading days. Holders of record of Series A Preferred Stock
immediately prior to such automatic conversion shall be entitled to all
dividends which have accrued to the time of the automatic conversion, but not
paid on the Series A Preferred Stock, as follows: IDF shall declare and pay to
each such holder cash dividends aggregating each year in the amount of eight
percent of the purchase price thereof, such purchase price being the original
amount of IDF's indebtedness from which such Series A Preferred Stock was
converted (approximately $1.25 per share of Series A Preferred Stock).
Substantially all current holders of Series A Preferred Stock have agreed, in
writing, that IDF may, at its option, pay such dividends in additional shares of
Series A or Series A-1 Preferred Stock at the rate of $1.25 of cash dividends
otherwise payable per share.
Each share of Series B Preferred Stock shall be convertible into shares
of Common Stock of IDF, without the payment of any additional consideration by
the holder, at the option of the holder and at any time after the date of
issuance of such share into that number of shares of Common Stock which shall be
determined by dividing $2.00 by the Conversion Price. The Conversion Price,
which is subject to adjustment, is initially set at $2.00 per share of Common
Stock. In addition, each share of Series B Preferred Stock shall automatically
and without any further action on the part of the holder, be converted into
shares of Common Stock upon the occurrence of any of the following events: (i)
consummation of a public of offering IDF's securities resulting in aggregate
gross proceeds to IDF of $5,000,000 or more at an offering price per share (or
rate of conversion or exercise for derivative securities) equal to at least
double the then
36
<PAGE>
effective Conversion price, or (ii) (A) IDF's securities shall be trading on
Nasdaq or another national securities exchange and (B) the closing bid price of
IDF's Common Stock (or the last sale price, if quoted on a national securities
exchange) has been at least $5.00 for thirty consecutive trading days. Holders
of record of Series B Preferred Stock immediately prior to such automatic
conversion shall be entitled to all dividends which have accrued to the time of
the automatic conversion, but not paid on the Series B Preferred Stock, as
follows: IDF shall declare and pay to each such holder cash dividends
aggregating each year in the amount of eight percent of the purchase price
thereof, such purchase price being deemed to be $2.00. Each current holder of
Series B Preferred Stock has agreed, in writing, that IDF may, at its option,
pay such dividends in shares of Series A or Series A-1 Preferred Stock at the
rate of $1.25 of cash dividends otherwise payable per share.
Each share of Series A-1 Preferred Stock bears the same terms and
conditions as the Series A Preferred Stock. Each current holder of Series A-1
Preferred Stock has agreed, in writing, that IDF may, at its option, pay
dividends in shares of Series A-1 Preferred Stock at the rate of $1.25 of cash
dividends otherwise payable per share.
VOTING
Each share of Common Stock has one vote per share. Each share of Series
A Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock votes
along with the Common Stock, except as otherwise required under the Corporate
Law, with each such preferred share having that number of votes as is equal to
the number of shares of Common Stock into which each such preferred share is
then convertible.
The holders of Common Stock and Preferred Stock do not have cumulative
voting rights. Accordingly, the holders of more than half of the votes to which
the outstanding shares of Common Stock and Preferred Stock are entitled can
elect all of the Directors to be elected in any election. In such event, the
holders of the remaining shares of Common Stock and Preferred Stock would not be
able to elect any Directors. The Board is empowered to fill any vacancies on the
Board created by the resignation, death or removal of Directors.
CERTIFICATE OF INCORPORATION AND BY-LAWS
Pursuant to Corporate Law, the power to adopt, amend and repeal a
corporation's by-laws is conferred upon both the board of directors and the
stockholders unless a By-Law adopted by the stockholders expressly provides that
such By-Law may not be amended by the board of directors. The stockholders of
IDF have not adopted any such
37
<PAGE>
By-Law. IDF's By-Laws provide that each Director has one vote on each matter for
which Directors are entitled to vote.
The By-Laws and/or the Certificate of Incorporation (collectively the
"Charter Documents") of IDF provide that: (1) shareholders cannot act by written
consent by less than unanimous written consent; (2) 66.66% of the votes which
could be cast at a meeting of stockholders held to consider such matter must be
voted in favor of any proposal which would have the effect of amending IDF's
Certificate of Incorporation to permit shareholder action by less than unanimous
written consent; (3) special meetings of shareholders may not be called by
shareholders unless pursuant to a written demand by the holders of at least
66.66% of the voting power of all outstanding shares of IDF entitled to vote on
the matters to be voted upon at the special meeting; (4) any elimination of
reference to the By-Laws of IDF as determining the manner in which special
meetings of shareholders are called, to be approved by a vote of not less than
66.66% of all outstanding shares entitled to vote thereon; (5) the Board of
Directors is classified into three classes, as nearly equal in number as
possible, each of which, after an interim arrangement, will serve for three
years, with one class being elected each year; (6) directors may be removed only
with cause and the approval of the holders of at least 66.66% of the voting
power of each class or series of outstanding shares of IDF entitled to vote
generally in the election of directors; and (7) the shareholder vote required to
alter, amend or repeal the provisions of IDF's Charter Documents identified in
(1) through (6) above is at least 66.66% of the voting power of all outstanding
shares entitled to vote thereon.
These identified provisions of the Charter Documents enhance the
likelihood of continuity and stability in the composition of IDF's Board of
Directors as against "creeping" acquisitions of IDF's shares, while reducing the
possibility that a third party could effect a sudden or surprise change in
majority control of IDF's Board of Directors without the support of the
incumbent Board. Such provisions may have significant effects on the ability of
shareholders of IDF to change the composition of the incumbent Board of
Directors and to benefit from certain transactions which are opposed by the
incumbent Board.
SECTION 912 OF THE CORPORATE LAW
The Corporate Law generally prohibits a domestic corporation from
engaging in a business combination with an interested shareholder (the
beneficial owner of 20% of the corporation's voting stock or an affiliate of the
Corporation who during the prior five year period was the beneficial owner of
20% or more of the voting stock) for a period of five (5) years from the time
the shareholder acquired the stock in such domestic corporation, unless certain
conditions are met.
38
<PAGE>
A domestic corporation may engage in a business combination with an
interested shareholder within the five-year period identified above if the
interested shareholder's stock purchase was approved by the corporation's board
of directors prior to the purchase. The business combination is also permitted
if any of the following criteria is met: (1) the business combination was
approved by the board prior to the interested shareholder's stock acquisition
date; (2) the combination was approved by the disinterested shareholders at a
meeting called no earlier than five (5) years after the interested shareholder's
stock acquisition date; or (3) the price paid to all the shareholders meets
statutory criteria establishing a formula price in accordance with Section
912(c) of the Corporate Law. This anti-takeover provision could have the effect
of discouraging, delaying or preventing takeover attempts.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
As of October 1, 1998, IDF had outstanding 9,927,841 shares of Common
Stock held by approximately 163 record shareholders. Institutions, as holders
of record, may hold Common Stock as nominees (street name) on behalf of multiple
beneficial owners. IDF's Common Stock began being publicly traded on March, 19,
1998, and is currently publicly traded, on the OTC Electronic Bulletin Board
operated by The Nasdaq Stock Market, Inc., under the symbol "IDFI." Prior
thereto, IDF's Common Stock was not publicly traded.
The following table sets forth the range of high and low bid prices for
the Common Stock for the periods indicated. The quotes represent "inter-dealer"
prices
39
<PAGE>
without adjustments or mark-ups or mark-downs or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------- ---------------------------------------------
SHARES OF COMMON STOCK
- -------------------------------------------------------------- ---------------------- ----------------------
PERIOD HIGH BID LOW BID
- -------------------------------------------------------------- ---------------------- ----------------------
Third fiscal quarter ended April 30, 1998 (from March 19, $2.86 $2.11
1998) ......................................................
- -------------------------------------------------------------- ---------------------- ----------------------
Fourth fiscal quarter ending July 31, 1998 $2.86 $1.00
......................................................
- -------------------------------------------------------------- ---------------------- ----------------------
</TABLE>
IDF has not paid any dividends to date on its Common Stock and does not
anticipate that any cash dividends will be declared and paid in the foreseeable
future.
ITEM 2. LEGAL PROCEEDINGS
IDF is not a party to any material litigation other than routine
litigation incidental to the business.
TechStar is not a party to any material litigation other than routine
litigation incidental to its business.
Hayden-Wegman is not a party to any material litigation other than
routine litigation incidental to its business, other than the following
litigation:
Anthony Pasqua v. Hayden-Wegman, Inc. Queens County Supreme Court, No.
25954/95, in the State of New York. The plaintiff, a former employee of
Hayden-Wegman, commenced an action that is pending in which he is seeking
compensatory damages of $1,000,000 and punitive damages of $1,000,000 for
allowing a long term disability policy to lapse, thereby depriving the plaintiff
of disability benefits which he would otherwise have been eligible to receive
and which, he claims, he was contractually entitled to receive. Hayden-Wegman
filed an Answer denying the claim. Since that time, the plaintiff has neither
prosecuted nor attempted to resolve the claim. Hayden-Wegman filed a motion to
amend its answer and assert affirmative defenses. Hayden-Wegman initiated
discovery proceedings and is taking all action necessary to dismiss the action
with prejudice.
Kathryn M. Panda, as executive of the Estate of Robert C. Panda
and Kathryn M. Panda, individually v. Hardat Ramroot and Halmar
Corporation
Halmar Corporation v. Hayden-Wegman, Inc.
Hardat Ramroot v. Hayden-Wegman, Inc.
Supreme Court of New York, Bronx County No. 25540/95
This action involves an incident in which the decedent, Robert C.
Panda, was struck and killed at a job site by a motor vehicle owned and operated
by defendant Hardat Ramroot on August 31, 1995. The decedent was an employee of
Hayden-Wegman at the time of the incident. The plaintiff is seeking $1,000,000
for pain and suffering and $10,000,000 for compensatory and punitive damages and
lost earnings. The defendant driver and his employer have brought third party
actions against certain parties, including Hayden-Wegman. The third party action
against Hayden-Wegman alleges that it is responsible for damages for failure to
train and supervise the decedent. Hayden-Wegman filed an Answer denying the
third party claims. Discovery is pending in the case.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
40
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Except as described in this Item, no securities of IDF have been sold
by IDF within the past three years without registration under the Securities Act
of 1933, as amended (the "Act"). In the past three years, IDF has made the
following sales of unregistered securities, all of which sales were exempt from
the registration requirements of the Act pursuant to Section 4(2) thereof:
On April 15, 1996, IDF issued 418,000 shares of Common Stock to two
accredited investors in return for an aggregate equity investment of $75,000.
Each of the two purchasers were sophisticated investors who were given detailed
information concerning IDF or had it made available, were provided opportunities
to review the information concerning IDF and were permitted to ask questions of
management concerning the information provided or made available. Information
concerning the restrictions on transfer of the purchased securities was also
provided, and acknowledgement of such restrictions on received from each
purchaser.
On April 9, 1997, IDF issued 50,000 shares of Common Stock to each of
two employees upon the exercise of options to purchase such shares at an
exercise price of $0.179 per share. Each of the two purchasers were
sophisticated investors who were given detailed information concerning IDF or
had it made available, were provided opportunities to review the information
concerning IDF and were permitted to ask questions of management concerning the
information provided or made available. Information concerning the restrictions
on transfer of the purchased securities was also provided, and acknowledgement
of such restrictions received from each purchaser.
On May 30, 1997, IDF issued 259,334 shares of its Common Stock to an
affiliate of one of the members of IDF's Board of Directors as repayment for (i)
prior management fees in the amount of $90,000, and (ii) $65,600 repayment of
principal and accrued interest on a loan made to IDF. The investor was a
sophisticated person who was given detailed information concerning IDF or had it
made available, was provided opportunities to review the information concerning
IDF and was permitted to ask questions of management concerning the information
provided or made available. Information concerning the restrictions on transfer
of the purchased securities was also provided, and acknowledgement of such
restrictions received from the investor.
On May 30, 1997, IDF issued 110,334 shares of its Common Stock to the
holder of long-term Company indebtedness as payment of $66,200 accrued interest
on such indebtedness, and issued 100,000 shares to the same person for a cash
equity investment of $17,900. The investor was a sophisticated person who was
given detailed information concerning IDF or had it made available, was provided
opportunities to review the information concerning IDF and was permitted to ask
questions of management
41
<PAGE>
concerning the information provided or made available. Information concerning
the restrictions on transfer of the purchased securities was also provided, and
acknowledgement of such restrictions received from the investor.
On May 5, 1997, IDF issued 441,670 shares of its Common Stock to 8
accredited investors in a private placement. All investors in such private
offering paid cash of $1.56 per share (an aggregate purchase price of $282,900).
The investors were given detailed information concerning IDF, or had if made
available, were provided opportunities to review the information concerning IDF
or had it made available, and were permitted to ask questions of management
concerning the information provided or made available. Information concerning
the restrictions on transfer of the purchased securities was also provided, and
acknowledgement of such restrictions received from the investors.
On August 25, 1997, IDF privately issued to Laidlaw Global Securities,
Inc. ("Laidlaw"), a warrant to purchase 10,000 shares of Common Stock
exercisable at any time until August 25, 2002 at an exercise price of $1.25 per
share. The warrant was issued to Laidlaw as additional consideration for the
rendering of its fairness opinion in connection with IDF's acquisition of
TechStar.
In August 1997, in a private placement 64 individuals purchased
convertible promissory notes from IDF, of $3,000,000 aggregate principal, which
were convertible into convertible preferred stock on the basis of $1.25 of
principal and accrued interest per share of convertible preferred stock. At the
same time, an affiliate of IDF converted approximately $811,000 of principal and
accrued interest into shares of convertible preferred stock on the basis of
$2.00 of principal and $1.25 of accrued interest per share of convertible
preferred stock. All of the purchasers were sophisticated investors who were
given detailed information concerning IDF or had it made available, were
provided opportunities to review the information concerning IDF and were
permitted to ask questions of management concerning the information provided or
made available. Information concerning the restrictions on transfer of the
purchased securities was also provided, and acknowledgement of such restrictions
received from each purchaser.
In September 1997, in connection with the merger of IDF with a
wholly-owned subsidiary of AUGI, a public company, in consideration for the
transfer of control of such wholly-owned subsidiary to IDF, IDF issued 6,171,553
shares of its Common Stock to AUGI. AUGI is a sophisticated person that was
given detailed information concerning IDF and was permitted to ask questions of
management concerning the information provided or made available. Information
concerning the restrictions on transfer of the purchased securities was also
provided, and acknowledgement of such restrictions received from AUGI.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
IDF has entered into separate but identical indemnity agreements (the
"Indemnity Agreements") with each director and executive officer of IDF (the
"Indemnitees"). The Indemnity Agreements provide that IDF will indemnify each
Indemnitee generally against any amounts that he becomes legally obligated to
pay in connection with any claim against him based upon any act, omission,
neglect or breach of duty that he may
42
<PAGE>
commit, omit or suffer while acting in his capacity as a director and/or officer
of IDF; provided, that such claim: (i) is not based upon the Indemnitee's
gaining any personal profit or advantage to which he is not legally entitled;
(ii) is not for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of IDF within the meaning of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or similar provisions of any state
law; and (iii) is not based upon the Indemnitee's knowingly fraudulent,
deliberately dishonest or willful misconduct. The Indemnity Agreements also
provide that all costs and expenses incurred by the Indemnitee in defending or
investigating such claim shall be paid by IDF in advance of the final
disposition thereof, unless Special Independent Counsel determines in a writing
that the officer or director would not be entitled to be indemnified under
applicable law, and a court of competent jurisdiction approves such
determination, subsequent to Indemnitee's commencement of legal proceedings.
Upon a court's determination of such matter, IDF shall be entitled to
reimbursement by Indemnitee of all advances paid. Furthermore, IDF is not
obligated to indemnify or make expense advances to Indemnitee with respect to
any proceeding arising out of acts, omissions or transactions for which
Indemnitee is prohibited from receiving indemnification under applicable law.
Each Indemnitee has undertaken to repay IDF for any costs or expenses so
advanced if it shall ultimately be determined by a court of competent
jurisdiction in a final, nonappealable adjudication that he is not entitled to
indemnification under an Indemnity Agreement.
43
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
PAGE(S)
<S> <C>
Independent Auditors' Report F - 3
Consolidated Balance Sheet as of July 31, 1998 F - 4
Consolidated Statement of Operations for the Year Ended July 31, 1998 F - 6
Consolidated Statement of Shareholders' Equity for the Year Ended July 31, 1998 F - 7
Consolidated Statement of Cash Flows for the Year Ended July 31, 1998 F - 8
Notes to Consolidated Financial Statements F - 10
TECHSTAR COMMUNICATIONS, INC.
Independent Auditors' Report on Financial Statements F - 27
Balance Sheets as of July 31, 1997 and December 31, 1996 F - 28
Statements of Operations for the seven month period ended July 31, 1997
and for the year ended December 31, 1996 F - 29
Statements of Shareholders' Equity for the year ended December 31, 1996
and for the seven month period ended July 31, 1997 F - 30
Statements of Cash Flows for the seven month period ended July 31, 1997 and
for the year ended December 31, 1996 F - 31
Notes to Financial Statements F - 32
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Introduction to Pro Forma Consolidated Statement of Operations F - 39
Pro Forma Consolidated Statement of Operations F - 40
Notes to Pro Forma Consolidated Statement of Operations F - 41
</TABLE>
F-1
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
Independent Auditors' Report F - 3
Consolidated Financial Statements:
Consolidated Balance Sheet as of July 31, 1998 F - 4
Consolidated Statement of Operations for the Year Ended July 31, 1998 F - 6
Consolidated Statements of Shareholders_ Equity for the Year Ended July 31, 1998 F - 7
Consolidated Statements of Cash Flows for the Year Ended July 31, 1998 F - 8
Notes to Consolidated Financial Statements F - 10
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Lazar Levine & Felix LLP
Certified Public Accountants & Business Consultants
350 Fifth Avenue-Suite 6820 4 Becker Farm Road
New York, NY 10118-0170 Roseland, NJ 07068
(212) 736-1900 (973) 533-1040
Fax (212) 629-3219 Fax (973) 535-1603
- ----------
www.lazarcpa.com
INDEPENDENT AUDITORS' REPORT
To The Shareholders
IDF International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of IDF
International, Inc. and subsidiaries, as of July 31, 1998 and the related
consolidated statements of operations, shareholders' equity 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 IDF International,
Inc. and subsidiaries as of July 31, 1998 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ Lazar Levine & Felix LLP
----------------------------------
Lazar Levine & Felix LLP
New York, New York
November 10, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET Page 1 of 2
--------------------------
AS OF JULY 31, 1998
- ASSETS (NOTES 5 AND 6) -
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2f) $ 791,804
Contract receivables - less allowances for doubtful accounts and credits of $480,000
(Notes 2f, 4 and 15) 3,283,506
Costs and earnings in excess of billings on uncompleted contracts (Note 2b) 2,590,596
Prepaid expenses and other current assets 285,792
------------
TOTAL CURRENT ASSETS 6,951,698
FIXED ASSETS (NOTES 2C AND 7):
Computer equipment $ 136,343
Furniture, fixtures and equipment 402,007
Automobiles 31,649
Leasehold improvements 81,054
Computer software 26,341
Survey equipment 154,912
------------
832,306
Less: accumulated depreciation and amortization 482,943 349,363
------------
OTHER ASSETS:
Goodwill - net of accumulated amortization of $8,197,125 (Notes 2d and 3) 560,190
Licenses - net of accumulated amortization of $7,874 (Note 2d) 149,626
Deferred costs - net of accumulated amortization of $6,752 (Note 2d) 103,748
Deferred compensation (Note 11) 15,932
Security deposits and other assets 121,110 950,606
------------ ------------
$8,251,667
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET Page 2 of 2
--------------------------
AS OF JULY 31, 1998
- LIABILITIES AND SHAREHOLDERS' EQUITY -
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ 264,766
Short-term debt - subordinated (Note 5) 35,000
Revolving credit facility (Note 6) 2,759,129
Accounts payable 793,840
Billings in excess of costs and earnings on uncompleted contracts (Note 2b) 115,183
Accrued wages, salaries and related costs (Note 8) 974,610
Current portion of long-term debt (Note 7) 95,521
Income taxes payable (Notes 2e and 12) 31,838
Other current liabilities 1,147,589
-----------
TOTAL CURRENT LIABILITIES 6,217,476
LONG TERM LIABILITIES:
Long term debt-net of current portion (Note 7) 495,521
COMMITMENTS AND CONTINGENCIES (NOTES 13, 14, 15 AND 17)
SHAREHOLDERS' EQUITY (NOTES 9, 10 AND 11):
8% cumulative, Series A convertible preferred stock (aggregate liquidation
preference $1,750,000) $ 1,750,000
8% cumulative, Series B convertible preferred stock (aggregate liquidation
preference $800,000) 800,000
8% cumulative, Series C convertible preferred stock (aggregate liquidation
preference $1,534,000) 1,534,000
Common stock, $.001 par value, 120,000,000 shares authorized; 9,927,841
shares issued and outstanding 9,928
Additional paid-in capital 10,894,996
Accumulated deficit (13,432,354)
------------
1,556,570
Less: stock subscription receivable 17,900
------------ 1,538,670
---------
$8,251,667
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
<S> <C> <C> <C> <C>
CONTRACT REVENUE EARNED (NOTES 2B AND 15) $14,066,155
Cost of revenue earned 9,936,467
GROSS PROFIT 4,129,688
Selling, general and administrative expenses $ 5,453,229
Impairment of goodwill (Note 3) 7,500,000 12,953,229
------------- ------------
LOSS FROM OPERATIONS (8,823,541)
OTHER INCOME (EXPENSE):
Interest expense (1,124,281)
Other income 77,747
-------------
(1,046,534)
------------
LOSS BEFORE PROVISION FOR INCOME TAXES (9,870,075)
Provision for income taxes (Notes 2e and 12) 59,563
---------------
NET LOSS $(9,929,638)
===============
BASIC LOSS PER SHARE (NOTE 2K) $(1.02)
=====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (NOTE 2K) 9,927,841
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JULY 31, 1998
8% Convertible 8% Convertible 8% Convertible Additional
Preferred Series A Series B Series C Common Common Paid-in
Shares Preferred Stock Preferred Stock Preferred Stock Shares Stock Capital
--------- --------------- ---------------- -------------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of August 1, 1997 - $ - $ - $ - 3,620,538 $3,621 $ 3,388,111
Net loss for the year - - - - - - -
Dividends declared:
Series A, B and C preferred
dividends paid-in additional
Series C preferred stock
(Note 10d) 121,600 - - 152,000 - -
Warrants issued for services rendered
(Note 10d) - - - - - - 225
Options issued (Note 11) - - - - - - 19,302
Stock issued (Notes 1, 9 and 10) 2,905,600 1,750,000 800,000 1,382,000 6,307,303 6,307 7,487,358
---------- ----------- ---------- ----------- ---------- ----- ----------
BALANCE AS OF JULY 31, 1998 3,027,200 $1,750,000 $800,000 $1,534,000 9,927,841 $9,928 $10,894,996
========= ========== ======== ========== ========= ====== ===========
<CAPTION>
Stock
Accumulated Subscription
Deficit Receivable Total
------------ ------------ ---------
<S> <C> <C> <C> <C>
Balance as of August 1, 1997 $(3,350,716) $(17,900)$ 23,116
Net loss for the year (9,929,638) - (9,929,638)
Dividends declared:
Series A, B and C preferred
dividends paid-in additional
Series C preferred stock
(Note 10d) (152,000) - -
Warrants issued for services rendered
(Note 10d) - - 225
Options issued (Note 11) - - 19,302
Stock issued (Notes 1, 9 and 10) - - 11,425,665
-----------------------------------------
BALANCE AS OF JULY 31, 1998 $(13,432,354) $(17,900) $ 1,538,670
============ ======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 1 of 2
-------------------------------------
FOR THE YEAR ENDED JULY 31, 1998
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(9,929,638)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization 150,163
Bad debt provision 197,723
Loss on disposal of fixed assets 9,076
Amortization of goodwill 386,386
Amortization of deferred costs 119,796
Impairment of goodwill 7,500,000
Amortization of deferred compensation 3,370
Changes in operating assets and liabilities:
Decease in contract receivables 1,780,058
(Increase) in costs and earnings in excess of billings on uncompleted contracts (1,028,985)
(Increase) in prepaid expenses and other current assets (257,855)
(Increase) in other assets (37,738)
Increase in bank overdraft 5,358
Increase in accounts payable 63,066
(Decrease) in billings in excess of costs and earnings on uncompleted contracts (38,289)
(Decrease) in accrued wages, salaries and related costs (1,096,710)
(Decrease) in income taxes payable (58,657)
(Decrease) in deferred income (200,000)
(Decrease) in other current liabilities (206,420)
-------------
NET CASH (USED IN) OPERATING ACTIVITIES (2,639,296)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets $ (154,375)
Proceeds from acquisition of subsidiary 155,500
------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,125
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in revolving credit facility 976,385
Payment of long-term debt (169,804)
Proceeds from convertible and other debt 3,000,000
Fees paid to acquire debt (410,500)
Increase in long-term debt 29,175
-------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,425,256
-------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 787,085
Cash and cash equivalents, at beginning of year 4,719
-------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 791,804
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS Page 2 of 2
------------------------------------
FOR THE YEAR ENDED JULY 31, 1998
<S> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $933,235
Income taxes 399,173
NON-CASH TRANSACTIONS:
During the year ended July 31, 1998, the Company issued 6,171,553 shares of its
common stock to AUGI resulting from the reverse triangular merger (see Note 1).
During the year ended July 31, 1998, the term loan in the original amount of
$800,000, payable to a shareholder/board member, was converted into 400,000
shares of Series B convertible preferred stock. Accrued interest totaling
$32,000 on this note was also converted into 25,600 shares of Series C
convertible preferred stock.
During the year ended July 31, 1998, the holders of the 8% senior subordinated
convertible notes in the amount of $3,000,000 converted this outstanding debt
plus accrued interest of $100,000 into $1,750,000 (1,400,000) shares of Series A
convertible) and $1,350,000 (1,080,000 shares of Series C) preferred stock.
During the year ended July 31, 1998, the Board of Directors authorized the
issuance of 121,600 shares of Series C preferred stock in payment of preferred
stock dividends in the aggregate amount of $152,000.
During the year ended July 31, 1998, the Company issued 135,750 shares of its
common stock to the placement agent of the 8% senior subordinated convertible
notes. For financial statements purposes, these shares were valued at $70,590.
Accordingly, unamortized costs in the amount of $293,384 were offset against
additional paid-in capital.
During the year ended July 31, 1998, the Company assumed $300,000 of debt of
AUGI on notes payable to former shareholders of TechStar (see Note 1).
During the year ended July 31, 1998, the Company issued warrants to purchase
10,000 shares of the Company's common stock at $1.25 per share as partial
consideration for services rendered.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS:
IDF International, Inc., ("IDF"), is the parent of two
operating subsidiaries, Hayden-Wegman, Inc. "Hayden-Wegman" and
TechStar Communications, Inc. "TechStar" (collectively the
"Company"). Hayden-Wegman became a wholly-owned subsidiary of
IDF on November 30, 1993. Prior to this, IDF had been an
inactive public company.
Hayden-Wegman is the holder of a State of New York corporate
professional engineering and survey license and is in the
business of providing professional engineering services to
state and local government agencies, developers and other
clients concentrated in the northeast region of the United
States.
Effective August 1, 1997, subsequent to the Company's old
fiscal year end of June 30, IDF was a party to a reverse
triangular merger (through a newly formed subsidiary, TechStar
Acquisition Corp. ("Acquisition Corp.") with TechStar
Communications, Inc. ("TechStar") a wholly owned subsidiary of
American United Global, Inc. ("AUGI"). TechStar emerged as the
surviving corporation of the merger with Acquisition Corp. and
became a wholly-owned subsidiary of IDF. The transaction was
accounted for by the purchase method of accounting in the
aggregate value of $2,242,461. As part of this transaction IDF
issued 6,171,553 shares of its common stock to AUGI resulting
in AUGI owning approximately 63% of the issued and outstanding
shares of IDF at that date. Accordingly, these financial
statements reflect a consolidation of TechStar's assets and
liabilities using historical cost with IDF's assets and
liabilities using fair value to the extent acquired
(approximately 63%) and historical cost for the remainder. IDF
recorded 63% of the fair market value of previously unrecorded
licenses in the aggregate amount of $157,500 as an asset. The
fair market value of 63% of the liabilities acquired exceeded
the fair market value of 63% of the assets acquired (excluding
goodwill) and resulted in the recording of goodwill in the
amount of $3,693,931. In addition, certain officers of TechStar
received options to acquire an additional 8% of IDF pursuant to
their employment agreements.
TechStar, formerly Broadcast Towers Site, Inc. ("BTS") was
organized under the laws of the State of Delaware on February
28, 1994. Effective December 11, 1996, the shareholders of the
Company exchanged all their shares in BTS for $780,000 in cash,
507,246 unregistered shares of AUGI's common stock and three
promissory notes aggregating $600,000. In connection with the
IDF transaction, TechStar assumed $300,000 of AUGI's promissory
notes due in December 1999 provided that AUGI shall make the
remaining payments due the former shareholders of TechStar. The
transaction was valued at $4,426,303 and was accounted for by
the purchase method of accounting. Goodwill in the amount of
$3,905,639 was recorded on the books of TechStar in accordance
with the push down theory of accounting. At July 31, 1998,
TechStar reduced the carrying value of this goodwill in the
aggregate amount of $3,500,000 (see Notes 2d and 3).
F-10
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS (CONTINUED):
TechStar locates wireless tower sites pursuant to agreements
with clients, and further, upon successful location of each
site is responsible for negotiating leases, obtaining zoning
clearances, and other architecture and/or engineering tasks as
they arise. Presently TechStar conducts these services
primarily in the Washington, DC area, Philadelphia, PA area,
Connecticut and the southeast region of the United. States.
As a result of the above mentioned merger, the Company changed
its fiscal year end to July 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies which are considered particularly significant:
(A) PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the
accounts of IDF International, Inc. and its wholly-owned
subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
(B) REVENUE AND COST RECOGNITION:
The Company recognizes revenues from fixed-priced and modified
fixed-price construction contracts on the
percentage-of-completion method, measured by the percentage of
costs incurred to date to estimated total costs for each
contract. This method is used because management considers
total costs to be the best available measure of progress on the
contracts. Because of inherent uncertainties in estimating
costs, it is possible that the estimates used can change within
the near term.
Contract costs include all direct material and labor costs
related to contract performance. Selling, general and
administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes
in job performance, job conditions, and estimated profitability
may result in revisions of costs and income, which are
recognized in the period in which the revisions are determined.
Changes in estimated job profitability resulting from job
performance, job conditions, contract penalty provisions,
claims, change orders, and settlements, are accounted for as a
change in estimate in the current period.
The asset, "Costs and earnings in excess of billings on
uncompleted contracts," represents revenues recognized in
excess of amounts billed. The liability, "Billings in excess of
costs and earnings on uncompleted contracts," represents
billings in excess of revenues recognized.
F-11
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(C) FIXED ASSETS AND DEPRECIATION:
Fixed assets are reflected at cost. Depreciation is provided
using the straight-line method over the following useful lives:
Computer equipment 5 years
Furniture, fixtures and equipment 5 years
Automobiles 3 years
Computer software 5 years
Survey equipment 5 years
Leasehold improvements are amortized over the terms of the
leases.
(D) INTANGIBLE ASSETS:
The Company amortizes goodwill over lives ranging from 20 years
to 25 years using the straight-line method. Amortization
expense for the year ended July 31, 1998 was $386,386 (see Note
1).
The Company periodically reviews the valuation and amortization
of goodwill to determine possible impairment by comparing the
carrying value to the undiscounted future cash flows of the
related assets, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of (see Note 3).
Debt issue and discount costs, which were incurred with the
issuance of certain short-term and convertible debt, are being
amortized on a straight-line basis over the terms of these
notes. Amortization expense charged to operations for the year
ended July 31, 1998 was $97,095 (see Note 9).
Deferred costs (incurred as a result of the reverse acquisition
(see Note 1)) which were incurred when the Company entered into
automobile leases are being amortized on a straight-line basis
over the terms of the leases. Amortization expense charged to
operations for the year ended July 31, 1998 was $8,075.
Deferred acquisition costs, which were incurred as a result of
the reverse acquisition (see Note 1), are being amortized on a
straight-line basis over 15 years. Amortization expense charged
to operations for the year ended July 31, 1998 was $6,752.
In connection with the reverse acquisition (see Note 1), the
Company recorded 63% of the fair market value of
Hayden-Wegman's existing licenses acquired by AUGI at $157,500.
Licenses are being amortized on a straight-line basis over 20
years. Amortization expense charged to operations for the year
ended July 31, 1998 was $7,874.
F-12
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(E) INCOME TAXES:
The Company has elected to file a consolidated federal income
tax return with its subsidiaries. The Company utilizes
Financial Accounting Standards Board Statement No 109 (SFAS
109) "ACCOUNTING FOR INCOME TAXES". SFAS 109 requires use of
the asset and liability approach of providing for income taxes.
Deferred income taxes are provided for on the timing
differences for certain items which are treated differently for
tax and financial reporting purposes. These items include
depreciation of fixed assets, net operating losses, the
recognition of allowances for doubtful accounts and credits
and cost and earnings in excess of billings and amortization
and write off of goodwill.
Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws on the date of enactment.
(F) CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts receivable.
The Company from time-to-time, maintains cash balances which
exceed the federal depository insurance coverage limit.
Management attempts to monitor the soundness of its financial
institutions and feels that the Company_s risk is negligible.
The Company believes that risk with regards to contract and
accounts receivable is limited due to the make-up of its
customer base which consists primarily of state and local
government agencies and large corporate customers which are
concentrated in the northeast region of the United States.
(G) USE OF ESTIMATES:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that effect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results
could differ from those estimates, management does not expect
such variances, if any, to have a material effect on the
financial statements.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS:
As of July 31, 1998, the carrying amount of cash, contract
receivables, accounts payable and accrued expenses approximate
fair value because of the short-term maturities of these items.
The carrying amounts of current and long-term portions of
long-term obligations approximate fair market value since the
interest rates on most of these instruments change with market
interest rates.
F-13
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(I) STATEMENTS OF CASH FLOWS:
For purposes of the statement of cash flows, the Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents.
(J) ADVERTISING:
The Company expenses advertising as incurred. Advertising
expense was charged to operations for the year ended July 31,
1998 was $6,680.
(K) EARNINGS (LOSS) PER SHARE:
The Company has adopted SFAS 128 "EARNINGS PER SHARE" ("SFAS
128"), which is effective for periods ending after December 31,
1997 and has changed the method of calculating earnings per
share. SFAS 128 requires the presentation of "basic" and
"diluted" earnings (loss) per share on the face of the income
statement. Prior period earnings per share data has been
restated in accordance with SFAS 128.
(L) STATEMENT OF COMPREHENSIVE INCOME:
SFAS 130 "REPORTING COMPREHENSIVE INCOME" is effective for
years beginning after December 15, 1997 and early adoption is
permitted. This statement prescribes standards for reporting
comprehensive income and its components. Since the Company
currently does not have any items of comprehensive income, a
statement of comprehensive income is not yet required.
(M) IMPACT OF THE YEAR 2000 ISSUE:
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that
have date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could
potentially result in a system failure or miscalculations
causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send
invoices, or engage in other similar normal business
activities. The Company has already planned on upgrading its
computer software to increase operational efficiencies and
information analysis and intends to ensure that the new systems
properly utilize dates beyond December 31, 1999. The costs of
this upgrade project, as it relates to the year 2000 issue, are
not expected to have a material effect on the operations of the
Company and will be funded through operating cash flows.
NOTE 3 - IMPAIRMENT OF GOODWILL:
The Company recognized an impairment of goodwill in accordance
with SFAS No. 121 for Hayden- Wegman and TechStar as of July
31, 1998. A variety of factors contributed to the recognition
of these impairments.
F-14
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 3 - IMPAIRMENT OF GOODWILL (CONTINUED):
The nature of TechStar's operations limits the potential client
base to those telecommunications companies that out source
their wireless communications infrastructure needs. Three of
TechStar's clients accounted for more than 90% of TechStar's
revenues in 1998 and 1997. The loss of any of these customers,
or a reduction in business from any of these customers, would
have a material adverse impact on TechStar.
Subsequent to July 31, 1998, TechStar was notified by two of
these customers that TechStar's contracts were to be
"suspended" until further notice and are likely to be reduced
in scope.
As a result, TechStar has experienced a reduction in it's
monthly revenues subsequent to being advised of the
suspensions. These events and other concerns relative to
TechStar's operations necessitated an evaluation of TechStar's
goodwill for possible impairment. Such an evaluation requires
significant judgement. A determination of the estimated future
undiscounted cash flows from TechStar's goodwill revealed that
the aggregate cash flows from goodwill did not exceed the
carrying value at July 31, 1998. Accordingly, these cash flows
were then discounted to the present value at July 31, 1998 and
when compared to the carrying value of $3,651,773 resulted in a
write off of $3,500,000 as an impairment of goodwill.
The operating environment at Hayden-Wegman has changed
significantly since August 1, 1997. Competition for projects
has intensified resulting in reducing gross profit margins and
fewer projects. In addition, competition for qualified
engineering personnel has intensified, further eroding gross
profit margins. Hayden-Wegman's operating costs are more costly
than much of its competition primarily due to higher interest
costs which further adversely affect operating income. These
operating characteristics impact Hayden-Wegman's ability to
retain and attract qualified engineering personnel. As a result
of these concerns, an evaluation of Hayden-Wegman's goodwill as
of July 31, 1998 was conducted. A determination of the
estimated future undiscounted cash flows from Hayden-Wegman's
goodwill revealed that the aggregate cash flows from goodwill
did not exceed the carrying value at July 31, 1998.
Accordingly, these cash flows were then discounted to the
present value at July 31, 1998 and when compared to the
carrying value of $ 4,408,417 resulted in a write off of
$4,000,000 as an impairment of goodwill.
NOTE 4 - CONTRACT AND ACCOUNTS RECEIVABLE:
Contract and accounts receivable consist of the following:
Billed:
Completed contracts $1,320,352
Contracts in progress 2,249,567
Retainage 193,587
-----------
3,763,506
Less: allowances for doubtful accounts and credits 480,000
-----------
$3,283,506
===========
F-15
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 5 - SHORT-TERM DEBT - SUBORDINATED:
Short-term debt - subordinated consists of the remaining
balance of certain notes in the original amount of $800,000
issued in 1994. These notes bear interest at 8% per annum and
are secured by substantially all the assets of the Company and
are subordinated to the Company's lending institution (see Note
6). In 1997, the majority of the original noteholders agreed to
convert all or a portion of unpaid principal and interest into
such number of fully paid and non-assessable shares of common
stock of the Company at a conversion price of $1.25 per share
(as amended). The remaining noteholders chose not to convert
their notes into common stock. The Company is currently in
default to these remaining noteholders as regards to the
payment of the remaining balance of $35,000.
NOTE 6 - REVOLVING CREDIT FACILITY:
Hayden-Wegman has a $3.0 million revolving credit facility
agreement with a lender. As of July 31, 1998, the outstanding
borrowings under this facility amounted to $2,759,129. Under
this agreement, Hayden-Wegman has pledged substantially all of
its contract receivables and other tangible and intangible
assets. In accordance with the agreement Hayden-Wegman
identifies and transfers to this lender, a designated pool of
contract receivables and is advanced 80% of the aggregate face
value of such receivables. The remaining 20%, less interest,
and certain reimbursable expenses, is remitted to Hayden-Wegman
once the lender receives payment for the pooled receivables.
The lender is paid interest at the rate of prime plus 1 1/2%
per annum and fees of approximately 1% per month based on a
sliding scale tied to the number of days that the receivables
are outstanding. The interest and fees are computed on the full
value of each receivable until all related client payments are
received. Hayden-Wegman has the option to repurchase portions
of the receivable pools from the lender.
NOTE 7 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
<S> <C>
The principal amounts due are as follows:
Secured equipment notes payable in monthly installments of $6,157
through November 1999. The rate of interest on these
notes are between 7% and 8 1/4%. $ 60,239
Unsecured note payable to the former shareholders of TechStar (see
Note 1) due in December 1999. This debt bears interest at
8% per annum. 300,000
</TABLE>
F-16
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 7 - LONG-TERM DEBT (CONTINUED):
<TABLE>
<CAPTION>
<S> <C>
Unsecured promissory note payable to AUGI, which bears interest
at 8% per annum. This note is due and payable upon the earlier
of (i) the consummation of any public or private placement of
securities by IDF or any of its subsidiaries (see Note 1),
which individually or in the aggregate results in gross cash
proceeds of $2.5 million or more, or (ii) August 25, 2002.
Interest is payable quarterly commencing December 1, 1997.
During the year ended July 31, 1998, IDF reduced this debt by
$30,000 by other transactions between TechStar and AUGI. 185,000
Unsecured note payable in thirty six monthly installments of
$4,420, including interest at 9% per annum, maturing in June,
1999. This note is associated with the restructuring of Hayden-
Wegman_s obligations to its landlord (see Note 14a). 45,803
----------
591,042
Less: current maturities 95,521
----------
$495,521
==========
</TABLE>
At July 31, 1998, the annual scheduled principal payments of
long-term debt are $95,521, $310,521, $-0-, $-0- and $185,000
for each of the next five years, respectively.
NOTE 8 - ACCRUED WAGES, SALARIES AND RELATED COSTS:
Accrued wages, salaries and related costs consist of the
following:
Wages and salaries $252,096
Payroll withholding and taxes in arrears including
applicable interest and penalties (a) 486,809
Savings and investment plan including applicable
interest and penalties (b) 27,750
Benefits, fringes and other 207,955
--------
$974,610
========
F-17
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 8 - ACCRUED WAGES, SALARIES AND RELATED COSTS (CONTINUED):
(A) Prior to August 1, 1997, the Company had not been making timely
payroll withholding tax payments to the Internal Revenue
Service (IRS) and several other tax jurisdictions. As a result,
the IRS and certain state taxing authorities imposed interest
and penalties on overdue amounts along with a Federal tax lien
on all of the Company's assets. In September 1997 and pursuant
to the conditions to the merger, all past due taxes including
assessed interest and penalties that previously were being paid
under the terms of installment agreements with the Internal
Revenue Service and the New York State Department of Taxation
were paid. At July 31, 1998, the Company was again not current
with respect to payroll withholding tax payments. In August
1998 subsequent to the balance sheet date, the Company paid all
past due payroll tax liabilities.
(B) The Company sponsors a defined contribution savings and
investment plan covering substantially all full-time employees.
Participants may contribute between 2% and 15% of their
compensation. Prior to April 1, 1992, contributions (up to 2%
of earnings) were matched by the Company at a rate of 50%.
Contributions to the plan by the Company subsequent to April 1,
1992, are made at the discretion of the Company's board of
directors, but may not exceed the maximum amount deductible for
Federal income tax purposes. No Company contributions have been
made subsequent to April 1, 1992.
The Company had not made deposits of employee and employer
contributions and other payments to the plan on a timely basis,
which amounted to approximately $168,000 as of July 31, 1997.
In September 1997, and pursuant to the conditions to the
merger, the Company became current with respect to all known
outstanding obligations relative to the defined contribution
savings and investment plan. At July 31, 1998, the Company was
again not current with respect to deposits of employee
contributions. In October 1998, subsequent to the balance sheet
date, the Company paid all past due retirement liabilities.
NOTE 9 - CONVERTIBLE DEBT / PREFERRED STOCK:
(A) In September, 1997, IDF issued 8% senior subordinated
convertible notes in the amount of $3,000,000 which are
convertible into preferred stock of IDF at a conversion price
of $1.25 per share. Costs incurred (which are recorded as
deferred finance costs) with respect to this issue were
$300,000 plus the issuance of 135,750 shares of common stock to
the placement agent who is also a shareholder of IDF. IDF used
approximately $2,500,000 of the net proceeds to settle certain
past due obligations existing at July 31, 1997. In January,
1998 the holders of these notes converted the principal balance
outstanding plus accrued interest (in the amount of $100,000)
into $1,750,000 (1,400,000 shares of Series A convertible
preferred stock) and $1,350,000 (1,080,000 shares of Series C
convertible preferred stock). Accordingly, unamortized deferred
issue costs in the amount of $293,384 was offset against
additional paid-in capital (see Note 2d).
(B) Also in January 1998, a term loan payable to a
shareholder/board member in the original amount of $800,000 was
converted into 400,000 shares of Series B convertible preferred
stock. Accrued interest in the amount of $32,000 on this note
was also converted into 25,600 shares of Series C convertible
preferred stock.
F-18
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 10 - SHAREHOLDER EQUITY AND ISSUANCE OF STOCK:
During the year ended July 31, 1998, the following transactions
were authorized by the Company's Board of Directors:
(A) IDF amended its certificate of incorporation to increase the
authorized shares to 120,000,000 common stock, 1,400,000 shares
of Series A convertible preferred stock, 500,000 shares of
Series B convertible preferred stock and 2,100,000 shares of
Series C convertible preferred stock.
Each share of Series A convertible preferred stock is
convertible into common stock at a conversion price of $1.25
per share and each share of Series B convertible preferred
stock is convertible into common stock at a conversion price of
$2.00 per share.
The rights and preferences of the Series C preferred stock
shall be designated by the Board of Directors at its discretion
and without further vote of shareholders.
(B) IDF issued 135,750 shares of its common stock to the placement
agent of the 8% senior subordinated convertible notes. The
transaction was valued at $70,590 (see Note 9a).
(C) IDF issued a five year warrant to purchase 10,000 shares of the
Company's common stock at $1.25 per share as partial
consideration for professional services rendered.
(D) IDF issued 121,600 shares of Series C convertible preferred
stock in payment of preferred stock dividends in the aggregate
amount of $152,000.
See Notes 1 and 9 regarding other share issuances.
NOTE 11 - STOCK OPTIONS:
During the year ended July 31, 1998, the Company adopted SFAS
123, ACCOUNTING FOR STOCK- BASED COMPENSATION. This standard
establishes the fair value based method (the "SFAS 123 Method")
rather than the intrinsic valued base method as the preferred
accounting methodology for stock compensation agreements. The
SFAS 123 method provides for compensation cost to be charged to
results of operations at the grant date. The fair value of a
stock option is to be determined using an "option-pricing
model."
F-19
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 11 - STOCK OPTIONS (CONTINUED):
As a result of the reverse acquisition as described in Note 1,
IDF issued an aggregate of 856,550 options, exercisable over
the earlier of a five year period or November 30, 2005 to
acquire common stock of the Company for $1.25 per share to key
personnel of TechStar. The fair market value of these options
aggregated $19,302 as of the date of issuance using the
Black-Scholes model and will be amortized using the
straight-line method over five years. The Company reflected an
increase in additional paid-in capital of $19,302 in connection
with these stock options. In the event that any of these
options terminates or are canceled without having been vested
and timely exercised, AUGI will be entitled to receive, as
additional merger consideration that number of shares of IDF
common stock which shall be equal to the number of shares not
issued as a result of the termination or cancellation of these
options. No options were exercised during the year ended July
31, 1998. The Company reflected an increase in additional
paid-in capital of $19,302 in connection with these stock
options.
IDF has established an option pool consisting of performance
options for certain of its management personnel and other key
employees. During the year ended July 31, 1998, 131,777 options
were granted to employees of TechStar.
NOTE 12 - INCOME TAXES:
The provision for income taxes consists of the following:
Current taxes:
Federal $ -0-
State and local -0-
--------
Total Current Taxes -0-
Prior years federal, state and local taxes 59,563
--------
Provision for income taxes $59,563
========
At July 31, 1998, the Company has available net operating loss
carryforwards of approximately $3,623,000, which expire in
various years through 2013. As a result of the reverse
acquisition described in Note 1, $2,200,000 of these net
operating loss carryforwards are subject to annual limitations,
and can only be applied against taxable income of
Hayden-Wegman.
F-20
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 12 - INCOME TAXES (CONTINUED):
The components of the net deferred tax assets, pursuant to SFAS
109, as of July 31, 1998 are as follows:
Deferred Tax Assets:
Accounts receivable $ 231,000
Cost and earnings in excess of billings 81,000
Net operating losses 1,743,000
-----------
Total Deferred Tax Assets 2,055,000
Deferred Tax Liabilities:
Fixed assets 29,000
-----------
Net Deferred Tax Assets 2,026,000
100% Valuation Allowance (2,026,000)
-----------
$ -
===========
SFAS 109 requires the recognition of future tax benefits such
as net operating loss carryforwards to the extent that
realization of such benefits is more likely than not. Due to
the uncertainty of the Company realizing these net deferred tax
assets, a 100% valuation allowance has been established as of
July 31, 1998.
NOTE 13 - PROFIT SHARING PLAN:
During the year ended July 31, 1998, the Company established a
new 401(k) salary deferral plan for the benefit of
substantially all its employees. Participants of the plan may
contribute a portion of their annual compensation to the extent
permitted by applicable regulations. Company contributions to
the plan are discretionary. There were no Company contributions
to the plan during the year ended July 31, 1998.
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
(A) LEASES:
As a result of the merger described in Note 1, the new lease
commitments are as follows:
The Company leases office and operating facilities in New York,
Buffalo, Massachusetts, Maryland, Delaware and Connecticut
under operating leases at annual rentals plus a portion of any
increase in real estate taxes and certain other common
expenses, expiring in various years through 2002. The Company
also leases certain vehicles and equipment under operating
leases expiring in various years through 2001. Minimum future
rental payments under non-cancelable operating leases having
remaining terms in excess of one year, as of July 31, 1998, are
as follows:
F-21
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
(A) LEASES (CONTINUED):
Year Ending July 31,
1999 $ 838,290
2000 688,845
2001 552,782
2002 11,238
-------------
$2,091,155
=============
Rent expense was $727,272 for the year end of July 31, 1998.
Hayden-Wegman's lease on its New York office space was
restructured due to Hayden-Wegman being in arrears with respect
to its lease obligation. Under the terms of the restructured
lease, Hayden-Wegman rented this space on a month to month
basis through November 1997 and entered into a new lease for a
two year term commencing December 1997 (see also Note 7).
(B) LITIGATION MATTERS:
(I) A former employee of Hayden-Wegman commenced an action
that is pending before the Supreme Court of the State of
New York in which he is seeking, from Hayden-Wegman,
compensatory damages of $2,000,000 and punitive damages
of $1,000,000, for allowing a long-term disability policy
to lapse thereby depriving him of disability benefits
which he would otherwise have been eligible to receive
and which, he claims, he was contractually entitled to
receive. Hayden-Wegman has filed an answer denying the
claim. During the year ended July 31, 1998, the Company
changed counsel. Current counsel advises that they cannot
evaluate at this time whether there is a likelihood of an
unfavorable outcome.
(II) The estate of a former employee of Hayden-Wegman and his
widow have commenced an action against a third party
individual and corporation for damages caused when the
former employee was struck and killed by a motor vehicle
owned and operated by the third party individual. The
estate and his widow are seeking $1,000,000 for pain and
suffering and $10,000,000 for compensatory and punitive
damages and lost earnings. The third party individual and
corporation have commenced separate actions seeking
recovery from Hayden-Wegman in the event that a finding
is determined in favor of the estate and his widow
against the third party individual and corporation.
Counsel advises that they cannot determine whether there
is a likelihood of an unfavorable outcome in this matter.
(III) Hayden-Wegman is named as a defendant with two other
companies and the City of New York in an action commenced
by a husband and wife for bodily injury allegedly
sustained to the wife when she was caused to lose control
of her car due to alleged defects of the roadway she was
driving on. Counsel states that this matter is in its
early stages and that it is presently unknown whether
there is a likelihood of an unfavorable outcome in this
matter.
F-22
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
(B) LITIGATION MATTERS (CONTINUED):
(IV) Hayden-Wegman has been named in a discrimination suit by
a former employee who claims he was terminated in January
1998 due to an alleged disability. A statement of
position was filed on behalf of Hayden-Wegman. The
Company is presently waiting for notification by the US
Equal Employment Opportunity Commission as to their
investigation of the allegations and the Company's
response. This action is in it's earliest stages and
counsel can not comment on the possibility of an
unfavorable outcome in this matter.
(V) From time-to-time the Company is also involved in various
other litigation matters. At July 31, 1998, management
does not believe that these other pending matters are
material to the financial statements.
(C) EMPLOYMENT CONTRACTS:
(I) The Company executed an employment agreement with one of
the Executive Vice Presidents of the Company who is also
the President and Chief Executive Officer of
Hayden-Wegman for a term of three years commencing August
1, 1997, with annual compensation of $180,000 each year.
(II) Pursuant to the merger agreements (see Note 1), the prior
employment agreements of TechStar with three members of
management were terminated and replaced. The new three
year agreements have expiration dates through November
30, 2000 with automatic renewal terms of one year. In
addition to their base salaries (aggregating $600,000,
$675,000 and $750,000 for each of the three years
consecutively), these employees are entitled to options
exercisable over the earlier of a five year period or
November 30, 2005, entitling each of them to receive
285,517 shares ("performance options") of IDF at an
exercise price of $1.25 per share (see Note 11).
(D) CONSULTING AGREEMENT:
The Company executed a consulting agreement with the chairman
of the Board of Directors of the Company for a term of three
years, commencing January 1, 1998, with annual fees of $75,000
each year.
(5) Indemnification Agreements:
The Company has executed indemnification agreements with
directors and officers against claims for damages arising out
of or related to their services to the Company.
F-23
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 15 - MAJOR CUSTOMERS:
For the year ended July 31, 1998, revenue earned from three
customers was in excess of 10% of total consolidated revenues
and amounted to approximately $2,282,000, $1,600,000 and
$1,480,000, respectively. At July 31, 1998, contract
receivables from these customers amounted to approximately
$97,000, $-0- and $543,000, respectively.
NOTE 16 - BUSINESS SEGMENT INFORMATION:
The Companies operations have been classified into two business
segments: The civil engineering segment ("CE") is in the
business of providing professional engineering services to
state and local government agencies, developers, and other
clients concentrated in the northeast region of the United
States. The telecommunications consulting segment ("TC")
locates wireless tower sites pursuant to agreements with
clients. Upon successful location of each site, this business
segment also negotiates leases, obtains zoning clearances, and
performs other architecture and/or engineering tasks as they
arise.
Summarized financial statements by business segment for the
year ended July 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net sales to unaffiliated customers:
CE $ 8,822,506
TC 5,243,649
-------------
$14,066,155
=============
Operating Loss:
CE (includes $4,000,000 write off of goodwill) $ (4,608,672)
TC (includes $3,500,000 write off of goodwill) (4,355,726)
-------------
$(8,964,398)
==============
Identifiable Assets:
CE $5,048,272
TC 2,260,906
-------------
$7,309,178
=============
Depreciation and Amortization:
CE $ 53,911
TC 96,252
------------
$150,163
============
Capital Expenditures:
CE $ 58,592
TC 95,783
------------
$154,375
============
</TABLE>
The majority of work undertaken by Hayden-Wegman is with the
public sector. Approximately 75% of total billings for
Hayden-Wegman were derived from this source. Approximately 90%
of TechStar's revenues were derived from three clients.
F-24
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 17 - SUBSEQUENT EVENTS:
(A) LITIGATION SETTLEMENTS:
(I) In September 1998, subsequent to the balance sheet date,
TechStar entered into a settlement agreement with a
former employee of the Company for $125,000 for
engineering work allegedly provided by the former
employee to the Company. The Company paid an initial
$62,500 and will pay the remaining balance in seven
monthly installments of $8,928 commencing October 10,
1998. The settlement was provided for at July 31, 1998.
(II) In October 1998, subsequent to the balance sheet date,
TechStar entered into another settlement with a plaintiff
for alleged breech of contract by the Company for
engineering services provided to the Company by the
plaintiff. The settlement amount is $50,000 and is
payable in five monthly installments of $10,000. This
settlement was provided for at July 31, 1998.
(B) In November 1998, subsequent to the balance sheet date, AUGI
and certain significant shareholders of the Company formalized
a commitment to loan up to $1,000,000 to the Company when
requested by the Company for its working capital needs. Through
November 1998, the Company has received $400,000 of this
amount.
(C) Commencing August 1, 1998, subsequent to the balance sheet
date, the Company executed a consulting agreement with an
entity which is controlled by an officer/director of its major
shareholder, AUGI for a term not to exceed three years. Monthly
payment under this agreement is $6,250 for the first eighteen
months, after which time the agreement may be cancelled by the
Company. The consultant would be entitled to additional
compensation and options based on the achievement of certain
performance criteria.
F-25
<PAGE>
<TABLE>
<CAPTION>
TECHSTAR COMMUNICATIONS, INC.
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
- CONTENTS -
PAGE(S)
<S> <C>
Independent Auditors' Report on Financial Statements F - 27
Financial Statements:
Balance Sheets as of July 31, 1997 and December 31, 1996 F - 28
Statements of Operations for the seven month period ended July 31, 1997
and for the year ended December 31, 1996 F - 29
Statements of Shareholders' Equity for the year ended December 31, 1996
and for the seven month period ended July 31, 1997 F - 30
Statements of Cash Flows for the seven month period ended July 31, 1997 and
for the year ended December 31, 1996 F - 31
Notes to Financial Statements F - 32
</TABLE>
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
TechStar Communications, Inc.
Bethesda, Maryland
We have audited the accompanying balance sheets of TechStar Communications, Inc.
as of July 31, 1997 and December 31, 1996 and the related statements of
operations, shareholders' equity and cash flows for the seven month period ended
July 31,1997 and for the year ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements referred to above present
fairly, in all material respects, the financial position of TechStar
Communications, Inc. as of July 31, 1997 and December 31, 1996, and the results
of its operations and its cash flows for the seven month period ended July 31,
1997 and the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
________________________
LAZAR LEVINE & FELIX LLP
New York, New York
July 8, 1998
F-27
<PAGE>
<TABLE>
<CAPTION>
TECHSTAR COMMUNICATIONS, INC.
BALANCE SHEETS
AS OF JULY 31, 1997 AND DECEMBER 31, 1996
- ASSETS -
1997 1996
-------------- --------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash (Note 2e) $ 155,500 $ 108,140
Accounts receivable (billed and unbilled) net of allowance for doubtful accounts
of $250,000 and $120,000 for 1997 and 1996, respectively (Notes 2e and 6) 2,522,643 942,488
Prepaid expenses and other current assets 8,175 6,000
Deferred income taxes (Notes 2d and 5) 64,742 60,418
------------- -------------
TOTAL CURRENT ASSETS 2,751,060 1,117,046
----------- -----------
FIXED ASSETS (NOTES 2B AND 4B):
Computer equipment 126,780 72,144
Furniture and fixtures 22,880 22,880
Office equipment 7,699 7,699
Leasehold improvements 20,217 20,217
Survey equipment 139,423 -
------------------------------
316,999 122,940
Less: accumulated depreciation and amortization 61,679 27,766
------------- -------------
255,320 95,174
------------- -------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $98,485 and $7,354 for 1997
and 1996, respectively (Notes 1 and 2c) 3,807,154 3,898,285
Deferred costs, net of accumulated amortization of $5,742 and $2,531 for
for 1997 and 1996, respectively (Note 2c) 15,888 5,039
Security deposits and other assets 11,153 10,003
------------- -------------
3,834,195 3,913,327
------------- -------------
$6,840,575 $5,125,547
============= =============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 388,862 $ 384,406
Current portion of notes payable (Note 4) 36,837 -
Deferred income (Note 2a) 200,000 -
Income taxes payable (Note 2d) 147,586 81,312
------------ -------------
TOTAL CURRENT LIABILITIES 773,285 465,718
------------ ------------
LONG-TERM LIABILITIES:
Notes payable, net of current portion (Note 4) 265,516 -
Deferred income taxes (Notes 2d and 5) 26,856 -
-------------- ---------------
292,372 -
------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 7)
SHAREHOLDERS' EQUITY (NOTE 1):
Common stock, no par value, 1,000 shares authorized, issued and outstanding 1,000 1,000
Additional paid-in capital (Note 2d) 5,078,110 4,700,167
Retained earnings (deficit) 695,808 (41,338)
------------ -------------
5,774,918 4,659,829
------------- ------------
$6,840,575 $5,125,547
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
<TABLE>
<CAPTION>
TECHSTAR COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
1997 1996
-------------- --------------
<S> <C> <C> <C> <C>
REVENUE EARNED (NOTES 2A AND 6) $3,861,400 $4,137,857
Cost of revenue earned 1,849,112 1,843,061
----------- -----------
GROSS PROFIT 2,012,288 2,294,796
Selling, general and administrative expenses 813,250 966,247
------------ ------------
INCOME FROM OPERATIONS 1,199,038 1,328,549
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (1,872) (1,852)
Interest and other income 6,851 -
------------------------------
4,979 (1,852)
INCOME BEFORE PROVISION FOR INCOME TAXES 1,204,017 1,326,697
Provision for income taxes (Notes 2d and 5) 466,871 373,594
------------ ------------
NET INCOME $ 737,146 $ 953,103
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
<TABLE>
<CAPTION>
TECHSTAR COMMUNICATIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Common Additional Retained
--------------------- Paid-in Earnings
Shares Stock Capital (Deficit) Total
-------- ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1996 1,500 $1,500 $ - $ 477,114 $ 478,614
Net income for the period - - - 953,103 953,103
Distribution to shareholders - - - (950,453) (950,453)
Acquisition (Note 1) (500) (500) 4,427,241 (521,102) 3,905,639
Transfer of Federal tax liability as per tax
sharing agreement (Note 2d) - - 272,926 - 272,926
--------- ---------- -------------- ----------- ------------
Balance as of December 31, 1996 1,000 1,000 4,700,167 (41,338) 4,659,829
Net income for the period - - - 737,146 737,146
Transfer of Federal tax liability as per tax
sharing agreement (Note 2d) - - 377,943 - 377,943
--------- ----------- -------------- ----------- ------------
BALANCE AS OF JULY 31, 1997 1,000 $1,000 $5,078,110 $ 695,808 $5,774,918
========= =========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
<TABLE>
<CAPTION>
TECHSTAR COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
1997 1996
--------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 737,146 $ 953,103
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 27,438 10,844
Amortization of goodwill 91,131 7,354
Amortization of deferred costs 3,211 2,214
Transfer to additional paid-in capital (see Note 2d) 377,943 272,926
Bad debt provision 130,000 120,000
Deferred income taxes 22,532 (60,418)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (1,710,155) (609,596)
(Increase) in prepaid expenses and other current assets (2,175) (6,000)
Increase in accounts payable and accrued expenses 4,456 356,903
Increase in income taxes payable 66,274 81,312
Increase in deferred income 200,000 -
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (52,199) 1,128,642
-------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (187,584) (77,670)
Increase in deferred costs (14,060) (7,253)
Increase in security deposits (1,150) (5,211)
-------------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (202,794) (90,134)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 396,098 -
Payments of long-term debt (93,745) -
Distributions to shareholders - (950,453)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 302,353 (950,453)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 47,360 88,055
Cash and cash equivalents, at the beginning of the year 108,140 20,085
------------- -------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 155,500 $ 108,140
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $1,872 $ 1,852
Income tax 373 44,071
</TABLE>
NON-CASH TRANSACTION:
(1) As of December 11, 1996, the Company had federal income tax obligations of
$272,926. Pursuant to a tax sharing agreement with AUGI these federal tax
obligations in addition to current federal income taxes payable in the
amount of $377,943 associated with the seven month period ended July 31,
1997, were assumed by AUGI (see Note 2d).
(II) Goodwill in the amount of $3,905,639 was recorded in the books of the
Company resulting from the acquisition as discussed in Note 1.
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS:
TechStar Communications, Inc. (the "Company") formerly
Broadcast Towers Site, Inc. ("BTS") was organized under the
laws of the State of Delaware on February 28, 1994. Effective
December 11, 1996, the shareholders of the Company exchanged
all their shares in the Company for $780,000 in cash, 507,246
unregistered shares of American United Global, Inc.'s ("AUGI")
common stock and three promissory notes aggregating $600,000.
The transaction was valued at $4,426,303 and was accounted for
by the purchase method of accounting. Goodwill in the amount of
$3,905,639 was recorded on the books of the Company in
accordance with the push down theory of accounting.
Accordingly, the Company became a wholly-owned subsidiary of
AUGI.
The Company locates wireless tower sites pursuant to agreements
with clients, and further, upon successful location of each
site, the Company is responsible for negotiating leases,
obtaining zoning clearances, and other architecture and/or
engineering tasks as they arise. Presently the Company conducts
these services primarily in the Washington, DC area,
Philadelphia, PA, New Jersey and Connecticut and the Southeast
region of the United States.
Effective August 1, 1997, subsequent to the balance sheet date,
the Company was a party to a reverse triangular merger with IDF
International, Inc. ("IDF"), a New York Corporation, through
its newly formed subsidiary TechStar Acquisition Corp.
("Acquisition Corp."). IDF, through its other wholly-owned
subsidiary, Hayden-Wegman International, Inc., provides
professional engineering services to state and local government
agencies, developers and other clients concentrated in the
northeast region of the United States. The Company emerged as
the surviving corporation of the merger with Acquisition Corp.
and became a wholly-owned subsidiary of IDF. As a result of
this merger IDF issued 6,171,553 shares to AUGI resulting in
AUGI owning approximately 63 % of the issued and outstanding
shares of IDF at that date. In addition, certain officers of
the Company received options to acquire an additional 8% of IDF
pursuant to their employment agreements.
As a result of the above mentioned acquisition, the Company
changed its fiscal year end to July 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies which are considered particularly significant.
(A) REVENUE RECOGNITION:
The Company recognizes revenue from contracts in a manner
similar to the percentage-of-completion method of accounting.
Deferred income consists of pre-billings (not yet earned) as of
July 31, 1997.
F-32
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(B) FIXED ASSETS AND DEPRECIATION:
Fixed assets are reflected at cost. Depreciation is provided
using the straight-line method over the following useful lives:
Computer equipment 3 years
Furniture, fixtures and equipment 5 years
Survey equipment 5 years
Leasehold improvements are amortized over the terms of the
lease.
(C) INTANGIBLE ASSETS:
The excess of cost over the fair value of the business acquired
(goodwill), as described in Note 1, is being amortized using
the straight-line method over 25 years. Amortization expense
charged to operations for the seven month period ended July 31,
1997 and for the year ended December 31, 1996 was $91,131 and
$7,354, respectively.
The Company periodically reviews the valuation and amortization
of goodwill to determine possible impairment by comparing the
carrying value to the undiscounted future cash flows of the
related assets, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Term Assets and Long-Term Assets to be
disposed of.
Deferred costs which were incurred when the Company entered
into automobile leases are being amortized on a straight-line
basis over the terms of the leases. Amortization expense,
charged to operations for the seven month period ended July 31,
1997 and for the year ended December 31, 1996 was $3,211 and
$2,214, respectively.
(D) INCOME TAXES
The Company will file a consolidated Federal income tax return
with AUGI for the period from the date of acquisition, December
11, 1996 through July 31, 1997. The Company utilizes Financial
Accounting Standards Board Statement No. 109 (SFAS 109)
"ACCOUNTING FOR INCOME TAXES." SFAS 109 requires use of the
asset and liability approach of providing for income taxes on
the timing differences for certain items which are treated
differently for tax and financial reporting purposes.
Deferred income taxes are provided for on the timing
differences for certain items which are treated differently for
tax and financial reporting purposes. These items include
depreciation of fixed assets, amortization of goodwill and the
recognition of bad debt expense.
F-33
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(D) INCOME TAXES (CONTINUED):
Prior to the date of acquisition, December 11, 1996, the
Company utilized the cash method of accounting for income
taxes. As a result, no provision for federal income taxes has
been made for the period January 1, 1996 through December 10,
1996 since the Company was an S corporation for tax reporting
purposes whereby any income taxes are the personal liability of
the shareholders. The Company's S corporation status was
automatically terminated on the date of acquisition.
On the date of acquisition, the Company had reflected deferred
federal income taxes of approximately $292,000 and deferred
state and local income taxes of approximately $62,000
associated with its use of the cash method of accounting.
Effective December 11, 1996, the Company elected to change its
tax reporting method from the cash basis of accounting to the
accrual method of accounting. The effect of this change was to
accelerate the due date of the deferred taxes.
The Company has entered into a tax sharing agreement with AUGI
whereby federal taxes aggregating approximately $273,000 and
$378,000 for the year ended December 31, 1996 and for the seven
months ended July 31, 1997, respectively, which the Company
would have had to pay were it not to file a consolidated
federal tax return with AUGI, were assumed by AUGI. This
savings to the Company resulted in the transfer of
approximately $651,000 form current federal income taxes
payable to additional paid-in-capital..
(E) CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash and
accounts receivable.
The Company, from time-to-time, maintains cash balances which
exceed the federal depository insurance coverage limit.
Management attempts to monitor the soundness of its financial
institution and feels that the Company's risk is negligible.
The Company believes that concentration with regards to
accounts receivable is limited due to the sound financial
stability and reputation of its customers.
(F) USE OF ESTIMATES:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that effect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results
could differ from those estimates, management does not expect
such variances, if any, to have a material effect on the
financial statements.
F-34
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS:
At July 31, 1997, the carrying amount of cash, accounts
receivable, accounts payable and accrued expenses approximate
fair value because of the short-term maturities of these items.
The carrying amounts of current and long-term portions of
long-term obligations approximate fair market value since the
interest rates on most of these instruments change with market
interest rates.
(H) STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents.
(II ADVERTISING:
The Company expenses advertising as incurred. Advertising
expenses for the seven month period ended July 31,1997 and for
the year ended December 31, 1996 was $421 and $476,
respectively.
NOTE 3 - RELATED PARTY TRANSACTIONS:
During the period ended July 31, 1997, the Company received a
loan (as additional working capital) in the amount of $300,000
from AUGI. The Company also incurred certain expenses on behalf
of AUGI totaling $85,000, which were charged against this loan,
and the balance of $215,000 is evidenced by a promissory note.
As discussed in Note 8, this obligation has subsequently been
exchanged for a five year promissory note to IDF and has been
reflected as such retroactively (see also Note 4a).
See also Note 2 (d).
NOTE 4 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
<S> <C>
At July 31, 1997, the principal amounts due are as follows:
(A) Promissory note to IDF, (see Notes 3a and 8) which bears
interest at 8% per annum. This note is due and payable on
the earlier of (i) the consummation of any public or
private placement of securities by IDF or any of its
subsidiaries (see Note 1), which individually or in the
aggregate results in gross cash proceeds of $2.5 million
or more, or (ii) August 25, 2002. Interest is payable
quarterly com- mencing December 1, 1997. $215,000
</TABLE>
F-35
<PAGE>
<TABLE>
<CAPTION>
TECHSTAR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
NOTE 4 - LONG-TERM DEBT (CONTINUED):
<S> <C>
(B) Non-interest bearing promissory note in the original amount of
$106,675, payable in monthly installments of $3,556 over three
years through November 1999. The present value of these
payments using a 8 1/4% interest rate amounted to $96,099. This
note is secured by survey equipment. 87,353
--------
302,353
Less: current maturities 36,837
--------
$265,516
========
</TABLE>
At July 31, 1997, the annual scheduled principal payments of
long-term debt are $36,837, $39,993 and $10,523 for each of the
next three years, respectively.
NOTE 5 - INCOME TAXES:
The provision for income taxes is comprised of the following:
1997 1996
----------- -----------
Current:
Federal $377,943 $272,926
State and local 114,030 98,301
Deferred:
Federal (20,552) 1,938
State (4,500) 429
---------- ------------
$466,871 $373,594
========== ============
The components of deferred taxes, pursuant to SFAS 109 as of
July 31, 1997 are as follows:
Deferred tax asset:
Accounts receivable $64,742 $ 46,344
Net operating loss - 27,082
---------- ----------
$64,742 $ 73,426
========== =========
Deferred tax liabilities:
Fixed assets $ (9,853) $(12,612)
Goodwill (17,003) (396)
---------- -----------
Total deferred tax liabilities $(26,856) $(13,008)
========== ==========
F-36
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
NOTE 6 - ECONOMIC DEPENDENCY:
For the seven month period ended July 31, 1997, the Company had
sales to three major customers of approximately $2,500,000,
$425,000 and $400,000, respectively. At July 31, 1997, the
amounts due from these customers aggregated approximately
$1,404,000, $267,000, and $390,000, respectively.
For the year ended December 31, 1996, the Company had sales to
one customer of approximately $4,079,000. At December 31, 1996,
accounts receivable from this customer aggregated approximately
to $1,065,000.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
(A) LEASES:
The Company leases offices and operating facilities in
Bethesda, Maryland, Wilmington, Delaware, and Orange,
Connecticut under operating leases that will expire at various
times through December 1998. In addition, the Company leases
automobile and office equipment under operating leases that
will expire in various months through January 2002. Future
minimum rental payments are as follows:
For the 12 months ended July 31,
1998 $136,909
1999 47,777
2000 13,412
2001 2,248
2002 788
------------
$201,134
============
Rental expense charged to operations for the seven month period
ended July 31, 1997 and for the year ended December 31, 1996
was $68,482 and $ 52,715, respectively. In accordance with the
lease for the Bethesda premises, the Company is additionally
liable for its proportionate share of increases in real estate
taxes and other operating expenses.
(B) EMPLOYMENT CONTRACTS:
Pursuant to the merger agreements (see Note 1), the prior
employment agreements of the Company with three members of
management were terminated and replaced. The new three year
agreements have expiration dates through November 30, 2000 with
automatic renewal terms of one year. In addition to their base
salaries (aggregating $600,000, $675,000 and $750,000 for each
of the three years consecutively), these employees are entitled
to options ("performance options") exercisable over the earlier
of a five year period or November 30, 2005, entitling each of
them to receive 285,517 shares of IDF common stock at an
exercise price of $1.25 per share. In addition to the
performance options (aggregating 856,551), IDF has established
an option pool consisting of an aggregate of 131,777 additional
performance options for these and other key employees.
F-37
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
(II LITIGATION:
The Company is involved in a contract dispute with a vendor
over engineering services provided to the Company by the
vendor. According to the management of the Company, the vendor
filed a claim in the amount of $216,000 plus interest against
the Company. The Company notified the vendor (through its
attorney) that the vendor's work was unacceptable by the
customer, causing the Company to incur additional, cost to
compete the project and also causing the Company to lose the
contract with the customer. The Company's customer agrees with
these assertions and has been helpful in assisting the Company
with its investigative discovery process. Furthermore, the
Company filed a counterclaim against the vendor in the amount
of $2.5 million for vendor's negligence. As of the date of
issue of these financial statements the Company and the vendor
have agreed to enter into mediation for settlement discussions.
Mediation is tentatively scheduled for the later part of July
1998. The vendor's insurance carrier has agreed to take part in
the mediation discussions.
NOTE 8 - SUBSEQUENT EVENT:
(A) As described in Note 1, effective August 1, 1997, subsequent to
the balance sheet date, the Company consummated a reverse
triangular merger with IDF and one of its subsidiaries. As a
result of this merger, the loan balance due from the Company to
its former parent, AUGI, in the amount of $215,000, was assumed
by the Company's new parent, IDF (see Notes 3 and 4a). The
Company together with other subsidiaries have guaranteed IDF's
obligation to AUGI.
(B) In addition to the above, the merger agreement provides that
the Company will assume $300,000 of AUGI's acquisition debt,
due in December 1999, to the former TechStar shareholders (see
Note 1) provided that AUGI shall make the 1997 and 1998
principal and interest payments on the acquisition debt and
unconditionally guarantee the debt assumed by the Company.
(II In November 1997, the Company entered into a new lease for its
office facility for 43 months commencing on December 31, 1997
and ending on June 30, 2001 at a monthly base rent of $34,104.
In accordance with the lease, the Company is additionally
liable for its proportionate share of increase in real estate
taxes and other operating expenses.
F-38
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
The following unaudited pro forma consolidated statement of operations has been
prepared based upon certain pro forma adjustments (see description of pro forma
transaction below) to the historical financial statements of IDF International,
Inc. and Subsidiaries (collectively called the Company). The pro forma financial
statement of operations should be read in conjunction with the notes thereto and
the historical financial statements of the Company.
The accompanying pro forma consolidated statement of operations has been
prepared as if the combinations occurred at July 1, 1996 the beginning of the
Company's fiscal year. This pro forma consolidated statement of operations does
not purport to be indicative of future results or of the results which would
actually have been obtained had the pro forma transactions been completed as of
July 1, 1996.
The pro forma transaction is as follows:
Effective August 1, 1997, the Company was a party to a reverse
triangular merger (through a newly formed subsidiary. TechStar
Acquisition Corp. ("Acquisition Corp.") with TechStar
Communications, Inc. ("TechStar") a wholly owned subsidiary of
American United Global, Inc. ("AUGI"). TechStar emerged as the
surviving corporation of the merger with Acquisition Corp. and
became a wholly owned subsidiary of the Company. As part of this
transaction the Company issued 6,171,553 shares of its common
stock to AUGI resulting in AUGI owning approximately 63% of the
issued and outstanding shares of the Company at that date.
F-39
<PAGE>
<TABLE>
<CAPTION>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
- Historical -
- Historical - TechStar
IDF International, Inc. Communications
and Subsidiaries Inc. Pro Forma
For the Year Ended For the Year Ended Adjustments
June 30, 1997 June 30, 1997 ---------------------------- Pro Forma
Debit Credit Consolidated
--------------------- ------------------------ ----------------------------- ---------------
<S> <C> <C> <C> <C>
NET REVENUE $11,269,590 $5,407,756 $16,677,346
COST OF GOODS SOLD 5,655,732 2,958,131 8,613,863
------------- ----------- -------------
GROSS PROFIT 5,613,858 2,449,625 8,063,483
OPERATING EXPENSES
$144,000(c)
7,900(d)
3,930,232 897,472 107,000(b) 5,086,604
------------- ----------- -------------
INCOME FROM OPERATIONS 1,683,626 1,552,153 2,976,879
------------- ----------- -------------
OTHER INCOME (EXPENSES)
Interest expense (863,741) 10,834 150,000(a) (1,002,907)
Other income 98,117 (12,687) 85,430
------------- ------------ -------------
(765,624) (1,853) (917,477)
------------- ------------ -------------
INCOME BEFORE INCOME TAXES 918,002 1,550,300 2,059,402
INCOME TAXES - 620,120 620,120
------------- ------------ --------- --------------
NET INCOME $ 918,002 $ 930,180 $408,900 $ 1,439,282
============= =========== ======== ============
</TABLE>
See notes to pro forma consolidated statement of operations.
F-40
<PAGE>
NOTE (a) Reflects interest expense associated with the 8% senior
subordinated convertible notes.
NOTE (b) Reflects amortization expense of deferred finance and
acquisition costs associated with the 8% senior subordinated
convertible note.
NOTE (c) Reflects an net increase in the carrying value of goodwill
as of June 30, 1997 in the aggregate amount of $1,985,189 and
net increase in amortization during 1997 on this net increase
in goodwill for $144,000, representing 63% of the fair market
value of IDF's goodwill over 63% of the historical cost.
NOTE (d) Reflects recognition of 63% of the fair value of the
license at $157,500 as of June 30, 1997 and amortization of the
license for one year in the amount of $7,900 based on a useful
life of 20 years.
F-41
<PAGE>
PART III
1. INDEX TO EXHIBITS
(2.) Charter and By-Laws of IDF International, Inc.
(2.1) Certificate of Incorporation (filed March 26,
1991)(1)
(2.2) Certificate of Amendment of Certificate of
Incorporation (filed February 25, 1998) (1)
(2.3) Certificate of Amendment of Certificate of
Incorporation (filed March 23, 1998) (1)
(2.4) Certificate of Amendment of Certificate of
Incorporation (filed July 9, 1998) (1)
<PAGE>
(2.5) Amended and Restated By-Laws of IDF International,
Inc. (1)
(6.) Material Contracts
(6.1) Employment Agreement between Solon Kandel and IDF
International, Inc. (1)
(6.2) Employment Agreement between Lembit Kald and IDF
International, Inc., and Hayden-Wegman, Inc. (1)
(6.3) Employment Agreement between Sergio Luciani and IDF
International, Inc., and TechStar Communications,
Inc. (1)
(6.4) Consulting Agreement between Robert M. Rubin and IDF
International, Inc. (1)
(6.5) Indemnity Agreement between Solon D. Kandel and IDF
International, Inc. (1)
(6.6) Indemnity Agreement between Robert M. Rubin and IDF
International, Inc. (1)
(6.7) Indemnity Agreement between Lembit Kald and IDF
International, Inc. (1)
(6.8) Indemnity Agreement between Sergio Luciani and IDF
International, Inc. (1)
(6.9) Indemnity Agreement between Lawrence Kaplan and IDF
International, Inc. (1)
(6.10) Indemnity Agreement between Simantov Moskona and IDF
International, Inc. (1)
(6.11) Indemnity Agreement between Donald W. Shipley and IDF
International, Inc. (1)
(6.12) IDF International, Inc., 1997 Stock Option Plan (1)
*(10.13) Sublease dated October 20, 1997 between AT&T Corp.
and TechStar Communications, Inc.
*(10.14) Amended Stipulation of Settlement dated September 4,
1997 among Deco Tower Associates, Innovative
Facilities Corporation, Peabody Facilities, Inc. and
Hayden-Wegman, Inc.
*(10.15) Lease dated October 18, 1996 between Philip Y.
DeNormandie and Hayden-Wegman, Inc.
*{10.16) Second Amendment of Lease Agreement dated April 5,
1996 between C&S Associates, VIII and Hayden-Wegman,
Inc.
*(10.17) Employment Agreement between Simantov Moskona, and IDF
International, Inc. and TechStar Communications, Inc.
*21 Subsidiaries of IDF
*23 Consent of Independent Auditors
*27 Financial Data Schedule
- -------------
* Filed herewith
(1) Previously filed
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Amendment No. 1 to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
IDF INTERNATIONAL, INC.
Date: November 13, 1998 By: /s/ Solon L. Kandel
-----------------------
Solon L. Kandel
President and CEO
SUBLEASE
BETWEEN
AT&T CORP.,
SUBLANDLORD
and
TECHSTAR COMMUNICATIONS, INC.,
SUBTENANT
8403 COLESVILLE ROAD
SILVER SPRING, MARYLAND
Dated: October 20, 1997
<PAGE>
* * * *
The mailing, delivery or negotiation of this Sublease shall not be deemed
an offer to enter into any transaction or to enter into any other relationship,
whether on the terms contained herein or on any other terms. This Sublease shall
not be binding nor shall either party have any obligations or liabilities or any
rights with respect thereto, or with respect to the premises, unless and until
both parties have executed and delivered this Sublease and the Prime Landlord
has consented in writing to this Sublease. Until such execution and delivery of,
and consent to this Sublease, either party may terminate all negotiation and
discussion of the subject matter hereof, without cause and for any reason,
without recourse or liability.
* * * *
<PAGE>
Table of Contents
Page
----
1. SUBLEASE ................................................................ 2
2. PARKING ................................................................. 2
3. PRIME LEASE ............................................................. 2
4. DEFINITIONS ............................................................. 4
5. PRIME LANDLORD .......................................................... 4
6. TERM .................................................................... 4
7. RENT .................................................................... 5
8. REFUNDS ................................................................. 7
9. SECURITY DEPOSIT ........................................................ 8
10. SUBTENANT FIT-UP ........................................................ 9
11. ALTERATIONS .............................................................10
12. REPAIRS AND MAINTENANCE .................................................11
13. UTILITIES AND SERVICES ..................................................12
14. ASSIGNMENT AND SUBLEASING ...............................................12
15. INSURANCE ...............................................................14
16. NON-BINDING MEDIATION ...................................................14
17. COMPLIANCE WITH LAWS ....................................................15
18. LIMITATIONS ON SUBLANDLORD'S LIABILITY ..................................16
19. ESTOPPEL CERTIFICATES ...................................................18
20. SUBORDINATION ...........................................................19
21. CASUALTY AND CONDEMNATION ...............................................19
22. CONSENT OR APPROVAL OF PRIME LANDLORD ...................................19
23. NOTICES .................................................................20
(i)
<PAGE>
Page
----
24. BROKERS ................................................................21
25. SUBLANDLORD'S AND SUBTENANT'S POWER TO EXECUTE .........................21
26. TABLE OF CONTENTS - CAPTIONS ...........................................21
27. CONSENT TO SUBLEASE BY PRIME LANDLORD ..................................22
28. ENTIRE AGREEMENT .......................................................22
29. DEFAULT AND RIGHT TO CURE ..............................................22
30. INDEMNIFICATION ........................................................23
EXHIBIT A Description of Subleased Premises ..................................25
EXHIBIT B Prime Lease ........................................................26
(ii)
<PAGE>
SUBLEASE
This Sublease is entered into as of this 20 day of October, 1997, by and
between AT&T CORP., a New York corporation, with offices at 150 Mt. Airy Road,
Basking Ridge, New Jersey 07920 (hereinafter "Sublandlord") and TECHSTAR
COMMUNICATIONS, INC., a _____________ corporation, with offices at 4340 East
West Highway - Suite 1000, Bethesda, Maryland 20814, (hereinafter "Subtenant").
INTRODUCTORY STATEMENTS
A. By Lease dated August 3, 1990, subsequently amended by a First
Amendment to Lease dated December 10, 1990 and by an undated Second Amendment to
Lease dated March 18, 1991 (the "Prime Lease") Silver Spring Metro Plaza Limited
Partnership (the "Prime Landlord") leased to Sublandlord certain space in the
building known as Silver Spring Metro Plaza II located at 8403 Colesville Road,
Silver Spring, Maryland (hereinafter called the "Building").
B. Subtenant has agreed to sublet from Sublandlord certain portions of the
Building.
C. The parties desire to enter into this Sublease defining their
respective rights, duties and liabilities relating to the Subleased Premises
(defined below).
-1-
<PAGE>
WITNESSETH
NOW THEREFORE, Sublandlord and Subtenant, in consideration of the mutual
promises and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
each with intent to be legally bound, for themselves and their respective
successors and assigns, agree as follows:
1. SUBLEASE
Sublandlord, for and in consideration of the Subtenant's payment of the
rent and performance of the covenants contained in this Sublease, does hereby
demise and lease to Subtenant the following portions of the Building: all of
floor sixteen consisting of approximately 31,480 rentable square feet as shown
on the floor plan which is attached hereto as Exhibit A (the "Subleased
Premises").
2. PARKING
Subtenant shall be entitled to use eight (8) parking spaces upon payment
to the Sublandlord as additional rent of the amount charged Sublandlord, subject
to periodic increases. The amount currently charged is $70.00 per space per
month.
3. PRIME LEASE
A true copy of the Prime Lease (with certain financial provisions deleted
for reasons of confidentiality) is attached hereto as Exhibit B. Where not
expressly inconsistent with the terms hereof and except as otherwise stated
herein to the
-2-
<PAGE>
contrary, this Sublease shall be subject and subordinate to all of the terms and
conditions contained in the Prime Lease as said terms and conditions affect the
Subleased Premises, and all of the obligations of Sublandlord as tenant under
the Prime Lease, except as otherwise set forth herein, are hereby incorporated
into this Sublease and shall be binding upon Subtenant with respect to the
Subleased Premises to the same extent as if Subtenant were named as tenant and
Sublandlord as landlord under the Prime Lease. For purposes of this Sublease,
references in the Prime Lease to the "Term" shall mean the Term of this Sublease
and references to the "Premises" in the Prime Lease shall mean the Subleased
Premises. Except as otherwise provided herein, when any fraction, factor or
formula, which is based on the number of square feet leased, is expressed in the
Prime Lease, it will be adjusted by substituting the number of square feet of
the Subleased Premises for the number of square feet of the Premises leased in
the Prime Lease. Each party agrees that it shall not do or omit to do anything
which would result in an "Event of Default" as defined in Section 20.1 of the
Prime Lease, and each party agrees to indemnify and hold the other harmless from
and against all claims, demands or liabilities resulting from such party's
breach, violation or nonperformance of any of its obligations under the Prime
Lease, as incorporated herein. With the exceptions set forth herein, Subtenant
shall be entitled to all of the rights and privileges of the Sublandlord as
tenant under the terms of the Prime Lease with respect to the Subleased
-3-
<PAGE>
Premises. The rights and privileges of the Sublandlord as tenant which are set
forth in the following sections of the Prime Lease shall not be incorporated
into this Sublease: 3 (to the extent that this section establishes the option to
expand the demised premises), 4 (to the extent that this section establishes any
renewal option), 5, 6, 15.1 (to the extent that this section establishes the
right to make any alterations without Sublandlord's written consent), 16.1 (to
the extent that this section establishes the right to satisfy insurance
obligations through self-insurance), 25, 26, 31, 32, 34, 35, 36.18, 36.19,
36.20.
4. DEFINITIONS
All terms not expressly defined in this Sublease shall have the meanings
given to them in the Prime Lease.
5. PRIME LANDLORD
Subtenant agrees to look solely to the Prime Landlord, and not to
Sublandlord, for the performance of all services and obligations of the Prime
Landlord under the Prime Lease with respect to the Subleased Premises. At
Subtenant's expense and request, Sublandlord will reasonably cooperate with
Subtenant to enable Subtenant to enforce the Sublandlord's rights as tenant
under the Prime Lease with respect to the Subleased Premises.
6. TERM
The term of this Sublease (the "Original Term") shall be forty-three
months, commencing on December 1, 1997 (the "Commencement Date") and ending on
June 30, 2001. The Original
-4-
<PAGE>
Term plus any extensions or renewals are sometimes referred to herein as the
"Term."
7. RENT
a. The basic rent, shall accrue at the yearly rate of Four Hundred Nine
Thousand Two Hundred Forty and 00/100 Dollars ($409,240.00) and shall be payable
in advance on the first day of each calendar month during the Original Term in
equal monthly installments of Thirty-Four Thousand One Hundred Three and 33/100
Dollars ($34,103.33) each, subject to the following: (i) a proportionately
lesser sum may be paid for the first and last months of the Term of this
Sublease if the Term commences on a date other than the first day of the month
or ends on a date other than the last day of a month; and (ii) the first monthly
installment of rent shall be abated; and (iii) the monthly installment of rent
for the second month of the Term shall be due and payable in advance upon
execution of this Sublease.
b. In addition to the basic rent set forth in section 7.a. above,
beginning on January 1, 1999 Subtenant shall pay Sublandlord (as and when due
under the terms of the Prime Lease, including monthly installments based on
Prime Landlord's estimates pursuant to the Prime Lease of which Subtenant has
been given notice by Sublandlord), as additional rent, Subtenant's Proportionate
Share of the excess of the amount defined in clause (ii) over the amount defined
in clause (i), as follows: (i) "Tenant's Share of Operating Costs" (as that term
is defined in the Prime Lease) and real estate taxes and insurance costs and
-5-
<PAGE>
"Management Fee" (as that term is defined in the Prime Lease) which Sublandlord
is obligated to pay to Prime Landlord under the terms of the Prime Lease for
calendar year 1998; and (ii) the "Tenant's Share of Operating Costs" (as that
term is defined in the Prime Lease) and real estate taxes and insurance costs
and "Management Fee" (as that term is defined in the Prime Lease) which
Sublandlord is obligated to pay to Prime Landlord under the terms of the Prime
lease for the then current calendar year during the Term. Subtenant's
"Proportionate Share" shall be 13.36%, which is the number of square feet in
Subleased Premises divided by number of square feet in the premises leased by
Sublandlord.
c. The terms "basic rent" and "additional rent" are sometimes referred to
herein as "Rent" or "rent" and shall include all sums due from Subtenant to
Sublandlord under the terms of this Sublease. The foregoing sentence
notwithstanding, Rent under this Sublease will not include costs and expenses
that are incurred by Prime Landlord in enforcing Prime Landlord's rights or
remedies pursuant to Section 20.2 of the Prime lease with respect to an "Event
of Default" (as defined in Section 20.1 of the Prime Lease) by Sublandlord,
unless the obligation that was owed by Sublandlord to Prime Landlord that
constituted the basis of such "Event of Default" (as defined in Section 20.1 of
the Prime Lease) was an obligation that Subtenant assumed under this Sublease
and failed to perform, resulting in an "Event of Default" (as defined in Section
29 of this Sublease) by
-6-
<PAGE>
Subtenant. All Rent shall be payable at the office of the Sublandlord at the
following address:
AT&T Corp.
150 Mt. Airy Road
Basking Ridge, NJ 07920
Attention: Lease Administration
or at such other address as directed by prior written notice from Sublandlord to
Subtenant.
d. Sublandlord shall promptly provide Subtenant with (i) a copy of each
and every "Operating Costs Statement" (as that term is defined in the Prime
Lease) that is received by Sublandlord for each and every "Operating Year" (as
that term is defined in the Prime Lease) during the Term; and (ii) notice of all
estimates of "Operating Costs" that are given by Prime Landlord to Sublandlord
under section 7.2 of the Prime Lease as the basis for determining from time to
time the amount of the monthly installments of "Tenant's Share of Operating
Costs" that are payable by Sublandlord under the Prime Lease.
8. REFUNDS
Provided that there is no Event of Default (as defined in Section 29 of
this Sublease) by Subtenant under this Sublease, Sublandlord shall pay to
Subtenant any sums which Sublandlord is entitled to receive from the Prime
Landlord under the Prime Lease with respect to the Subleased Premises during the
Term, including, but not limited to, Subtenant's Proportional Share of any
refunds of basic rent or additional rent which has been paid by Subtenant;
however, such sums shall be paid to Subtenant only
-7-
<PAGE>
if Sublandlord has received payment of same from Prime Landlord. Payment (less
any sums expended by Sublandlord for collection thereof) shall be made by
Sublandlord to Subtenant within thirty (30) days of Sublandlord's receipt of any
such sum. If Sublandlord's obligation to pay "Annual Basic Rent" or "Additional
Rent" (as those terms are defined in the Prime Lease) is abated, in whole or in
part, pursuant to Section 11 of the Prime Lease because all or part of the
Subleased Premises are rendered untenantable due to an interruption of services,
then the rent and additional rent under this Sublease shall also be abated, for
the same period of time that "Annual Basic Rent" and "Additional Rent" under the
Prime Lease are abated, as to that portion of the Subleased Premises that are
tenantable.
9. SECURITY DEPOSIT
Subtenant has deposited with Sublandlord the sum of Thirty-Four Thousand
One Hundred Three and 33/100 Dollars ($34,103.33) as security for the full and
faithful performance of every portion of this Sublease to be performed by
Subtenant. If there is an Event of Default (as defined in Section 29 below) by
Subtenant, then Sublandlord may use, apply or retain all or any portion of this
security deposit to remedy such Event of Default. If any portion of said deposit
is so used or applied, Subtenant shall, immediately upon Sublandlord's written
demand therefor, deposit money with Sublandlord in an amount sufficient to
restore the security deposit to its original amount. Sublandlord shall
-8-
<PAGE>
not be required to keep this security deposit separate from its general funds,
and Subtenant shall not be entitled to interest on such deposit. If Subtenant
shall fully and faithfully perform every provision of this Sublease to be
performed by it, the security deposit or any balance thereof shall be returned
to Subtenant within thirty (30) days of termination of the Term.
10. SUBTENANT FIT-UP
Subtenant takes premises "AS IS." Any improvements to the Subleased
Premises that may be required by Subtenant to prepare the Subleased Premises for
Subtenant's initial occupancy ("Fit-up Work") shall be at Subtenant's sole cost
and expense, including any space planning and construction document preparation.
Subtenant shall retain its own Contractors to perform all of the Fit-up Work.
With respect to the Fit-up Work, Subtenant shall comply without the obligations
specified in subparagraphs (a) through (f) in section 15.1 of the Prime Lease.
In addition, all plans and specifications and the selection of Subtenant's
contractors for the Fit-up Work, shall be subject to the prior written approval
of Sublandlord, which shall not be withheld, conditioned or delayed
unreasonably. Subject to Sublandlord's requirements for security and the
protection of Sublandlord's confidential information, Subtenant shall be given
access to the Subleased Premises, upon reasonable prior notice to Sublandlord,
in order to inspect and measure the Subleased Premises, design the Fit-up Work,
and show the Subleased Premises to prospective subsubtenants or assignees, or
both. During such access the
-9-
<PAGE>
Subtenant shall not cause interference with Sublandlord's operations in the
Subleased Premises or damage to Sublandlord's property or equipment. Sublandlord
may require that all representatives of Subtenant having access to the Subleased
Premises prior to the Commencement Date be accompanied by a designated
representative of Sublandlord while in the Subleased Premises. Subtenant shall
comply with Subtenant's obligations with respect to insurance under Section 15
of this Sublease, including depositing the policy or policies of such required
insurance or certificates thereof with Sublandlord, before any entry into the
Subleased Premises prior to the Commencement Date.
11. ALTERATIONS
Subtenant shall not make any alterations, improvements or installations in
or to the Subleased Premises after the Fit-up Work without the prior written
consent of Sublandlord, which consent will not be unreasonably delayed,
conditioned or withheld by Sublandlord. All alterations and improvements shall
be subject to the terms and conditions of the Prime Lease, and in those
instances, if required, shall be subject to the Prime Landlord's approval as
provided in the Prime Lease. If Sublandlord does not give Subtenant written
notice of disapproval of Subtenant's plans and specifications for any such
alterations, improvements or installations within twenty (20) days after
Subtenant delivers complete plans and specifications for such work, then
Sublandlord will be deemed to have consented to such plans and specifications,
but obtaining such deemed consent from
-10-
<PAGE>
the Sublandlord shall not relieve Subtenant of the obligation to obtain the
consent of the Prime Landlord, as required by this Sublease and the Prime Lease.
Unless otherwise expressly agreed by Sublandlord, any alterations, improvements
or installations consented to by Sublandlord shall be made at the sole cost and
expense of Subtenant by contractors who have been approved by Sublandlord, such
approval not to be unreasonably delayed, conditioned or withheld.
12. REPAIRS AND MAINTENANCE
Any repair and maintenance obligations with respect to the Subleased
Premises which are the responsibility of the Sublandlord, as tenant under the
Prime Lease, shall be performed by Subtenant at Subtenant's sole cost and
expense, unless the necessity of the repair is due to any negligent or improper
act by Sublandlord or any negligent or improper failure by Sublandlord to
perform any duty expressly provided in this Sublease. Subtenant agrees that it
will notify Sublandlord promptly of the need for any repair to the Subleased
Premises, even if Sublandlord is not responsible for any such repair.
Notwithstanding anything contained herein to the contrary, in the event that a
condition exists in the Subleased Premises that Prime Landlord is obligated to
repair under the terms of the Prime Lease, Subtenant shall so advise
Sublandlord, and Sublandlord, in turn, shall promptly advise Prime Landlord
thereof. Sublandlord shall have no liability to Subtenant for Prime Landlord's
failure to make any such repair, except for any
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<PAGE>
liability resulting from Sublandlord's failure to perform its duty under this
paragraph to notify Prime Landlord of the need for such repair.
13. UTILITIES AND SERVICES
Subtenant shall be entitled to all those services and utilities which
Prime Landlord is required to provide under the terms of the Prime Lease.
Subtenant shall look solely to the Prime Landlord for the provision of such
services and utilities, and Sublandlord shall not be responsible for Prime
Landlord's failure to provide the same nor shall any such failure constitute an
abrogation of any other terms or conditions of this Sublease. In addition to
Subtenant's obligation to pay Subtenant's Proportionate Share of the cost of
such utilities and services, to the extent that Prime Landlord charges
Sublandlord for any services or utilities or increases the cost of such services
or utilities and such charge or increase is due to Subtenant's use of the
Subleased Premises or such utilities or services, Subtenant agrees to pay the
charges therefor within five (5) business days after receipt of Sublandlord's
bill.
14. ASSIGNMENT AND SUBLEASING
Subtenant shall not assign this Sublease or sublet the Subleased Premises,
in whole or in part, without the prior written consent of Sublandlord and Prime
Landlord, which consent Sublandlord shall not unreasonably withhold, condition
or delay but which consent Prime Landlord may withhold in its sole discretion.
If Prime Landlord and Sublandlord give their consent
-12-
<PAGE>
to any subsubletting of the Subleased Premises then Subtenant may, at
Subtenant's election and not as an obligation, charge any subsubtenant rent at a
rate that Subtenant determines and that a potential subsubtenant is willing to
pay. If Prime Landlord and Sublandlord give their consent to an assignment of
this Sublease then Subtenant may, at Subtenant's election and not as an
obligation charge any assignee any consideration for such assignment that
Subtenant determines and that a potential assignee is willing to pay. For the
purposes of this paragraph, the term "Net Rent Excess" means (i) the amount (if
any) by which the rent and all other payments and consideration due Subtenant
from any such subsubtenant for the term of such subsublease exceeds the rent due
Sublandlord under this Sublease for such term, less brokerage commissions and
legal, engineering, construction, accounting and other costs that are incurred
by Subtenant (as subsublandlord) and associated with the preparation and
maintenance of the Subleased Premises, and (ii) the amount of the consideration
due Subtenant from any such assignee for an assignment of this Sublease, less
brokerage commissions and legal, engineering, construction, accounting and other
costs that are incurred by Subtenant (as assignor) and associated with the
assignment of this Sublease. Subtenant shall pay (i) one-half of any Net Rent
Excess to Prime Landlord in accordance with Section 25 of the Prime Lease, and
(ii) one-quarter of any Net Rent Excess to Sublandlord.
-13-
<PAGE>
15. INSURANCE
Subtenant agrees to comply with all of the insurance requirements and
obligations of Sublandlord as set forth in the Prime Lease and to name both
Sublandlord and Prime Landlord as additional insureds on any required insurance
policies.
16. NON-BINDING MEDIATION
a. If a dispute arises out of or relates to this Sublease, or its breach,
and the parties have not been successful in resolving such dispute through
negotiation, the parties agree to attempt to resolve the dispute through
non-binding mediation by submitting the dispute to a sole mediator selected by
the parties or, at the option of a party, to mediation by the American
Arbitration Association ("AAA"). If such dispute is not resolved by such
non-binding mediation, the parties shall have the right to resort to any
remedies permitted by law. All defenses based on passage of time shall be tolled
during the mediation.
b. The direct expenses of the mediation, including the compensation and
expenses of the mediator and the fees of the AAA, shall be borne equally by the
parties. All other costs incurred by the parties to this Sublease in connection
with any dispute arising out of or relating to this Sublease or its breach,
including the parties' legal expenses and their witnesses' expenses, shall be
borne by the party incurring the expense. The parties, their representatives,
other participants and the mediator shall hold the existence, content and result
of the mediation in confidence.
-14-
<PAGE>
17. COMPLIANCE WITH LAWS
Without limiting any other obligation of Subtenant under this Sublease,
Subtenant shall promptly comply with all statutes, ordinances, rules, orders,
regulations and requirements of any Federal, State, municipal, and other
governmental authorities (and the board of fire underwriters and insurance
companies providing coverage) and of any and all of their departments and
bureaus applicable to the use and occupancy of the Subleased Premises by
Subtenant or any subsubtenant or assignee of Subtenant during the Term,
including without limitation all laws relating to environmental matters and the
Americans with Disabilities Act (collectively referred to as "Legal
Requirements") at Subtenant's own cost and expense, to the same extent that
Sublandlord otherwise would be obligated to comply with Legal Requirements with
respect to the Subleased Premises under the Prime Lease. Nothing in this
paragraph shall be deemed a consent by Sublandlord to the alteration, subletting
or assignment of all or any portion of the Subleased Premises or of all or any
of Subtenant's interests in this Sublease.
If there is an Event of Default (as defined in Section 29 of this
Sublease) by Subtenant with respect to Subtenant's obligation to comply with
Legal Requirements or make any repairs or perform any maintenance required by
the terms of this Sublease, then without limiting any other remedy available to
Sublandlord under this Sublease, Sublandlord or its agents may (but shall not be
obligated to) enter the Subleased Premises and
-15-
<PAGE>
take such actions as necessary to cure such Event of Default, at the cost and
expense of Subtenant; and, in case of Subtenant's failure to pay therefor, the
said cost and expense shall be added to the next months Rent and be due and
payable as such.
18. LIMITATIONS ON SUBLANDLORD'S LIABILITY
a. Subtenant acknowledges that Sublandlord has made no representations or
warranties with respect to the Building or the Subleased Premises except as
provided in this Sublease and Subtenant accepts the Subleased Premises in AS IS
condition. Notwithstanding anything contained herein to the contrary,
Sublandlord represents and warrants that Sublandlord (i) is duly organized and
formed, validly existing, and in good standing and has all rights, power and
authority to make this Sublease and bind itself thereto through the person set
forth as signatory of Sublandlord set forth below; and (ii) grants Subtenant,
unless there is an Event of Default (as defined in Section 29 of this Sublease)
by Subtenant, sole, actual and quiet and peaceful use, enjoyment and possession
of the Subleased Premises during the Term as herein contemplated.
b. Sublandlord may assign its leasehold estate in the Building, provided
said assignee will assume, recognize and become responsible to Subtenant for the
performance of all of the terms and conditions to be performed by Sublandlord
under this Sublease. If Sublandlord assigns its leasehold estate in the
Building, and provided that the assignee acknowledges in writing its receipt of
the security deposit identified in paragraph 9 of
-16-
<PAGE>
this Sublease, Sublandlord shall have no liability for the return of the
security deposit to Subtenant and no other obligation to Subtenant that arises
after that assignment. Subtenant shall then recognize Sublandlord's assignee as
Sublandlord of this Sublease.
c. Sublandlord shall not be required to perform any of the covenants and
obligations of the Prime Landlord under the Prime Lease, and insofar as any of
the obligations of the Sublandlord hereunder are required to be performed under
the Prime Lease by the Prime Landlord thereunder, Subtenant shall rely on and
look solely to the Prime Landlord for the performance thereof. If the Prime
Landlord shall breach its obligation to perform any of its obligations under the
Prime Lease or breach any provision of the Prime Lease pertaining to the
Subleased Premises, Subtenant shall have the right, at Subtenant's expense and
upon prior notice to Sublandlord, and in the name of Sublandlord to make any
demand or institute any action or proceeding, in accordance with and not
contrary to any provision of the Prime Lease, against the Prime Landlord under
the Prime Lease for the enforcement of the Prime Landlord's obligations
thereunder. Sublandlord will reasonably cooperate with Subtenant to allow
Subtenant to make such demand or institute such action or proceeding for the
enforcement of the Prime Landlord's obligations under the Prime Lease, but
Sublandlord will not be required to incur any costs in performing this
obligation. Subtenant shall defend, indemnify and hold Sublandlord harmless from
and against any suit, action, cost,
-17-
<PAGE>
expense, damage or liability which arises out of or results from or is alleged
to arise out of or result from Subtenant's exercise of its rights under this
paragraph. The foregoing sentence shall not be construed to modify paragraph
16.6 of this Sublease or otherwise create any obligation by Subtenant to
indemnify Sublandlord for any litigation costs, including attorneys' fees, that
may be incurred by Sublandlord in defending any suit or action that may be
brought by Subtenant against Sublandlord for a breach of Sublandlord's
obligations under this Sublease, regardless of whether such action is instituted
by Subtenant against Sublandlord only or against Sublandlord as a co-defendant
in any suit or action initiated by Subtenant against both Sublandlord and Prime
Landlord.
19. ESTOPPEL CERTIFICATES
Either party hereto (the requested party) agrees that from time to time
upon not less than fifteen (15) days prior notice by the other party (requesting
party), the requested party or its duly authorized representative having
knowledge of the following facts will deliver to the requesting party, or to
such person or persons as the requesting party may designate, a statement in
writing certifying (a) that this Sublease is unmodified and in full force and
effect (or if there have been modifications, that the Sublease as modified is in
full force and effect); (b) the date to which the Rent and other charges have
been paid; (c) that to the best of the requested party's knowledge, the
requesting
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<PAGE>
party is not in default under any provision of this Sublease or if in default,
the nature thereof in detail.
20. SUBORDINATION
This Sublease shall be subject and subordinate to the Prime Lease, any
ground lease and to any mortgage or deed of trust thereon or on the fee simple
interest in the Building or the land on which the Building is located.
21. CASUALTY AND CONDEMNATION
If the Prime Lease is terminated with respect to the Subleased Premises by
reason of the occurrence of a casualty or condemnation pursuant to the
provisions of the Prime Lease, this Sublease shall automatically terminate at
the same time and Subtenant shall have no claim against Sublandlord or Prime
Landlord for the loss of its subleasehold interest or any of Subtenant's
property. If the Prime Lease is not terminated with respect to the Subleased
Premises upon the occurrence of a casualty or condemnation, the provisions of
the Prime Lease with respect to casualty or condemnation shall apply to this
Sublease and the Subleased Premises.
22. CONSENT OR APPROVAL OF PRIME LANDLORD
If the consent or approval of Prime Landlord is required under the Prime
Lease with respect to any matter relating to the Subleased Premises, Subtenant
shall be required first to obtain the consent or approval of Sublandlord with
respect thereto (which consent shall not be unreasonably delayed, conditioned or
withheld by Sublandlord), and if Sublandlord grants such consent
-19-
<PAGE>
or approval then Sublandlord or Subtenant may forward a request for consent or
approval to the Prime Landlord, but Sublandlord shall not be responsible for
obtaining such consent or approval. Sublandlord shall have no liability to
Subtenant for the failure of Prime Landlord to give its consent.
23. NOTICES
All notices given pursuant to the provisions of this Sublease shall be in
writing, addressed to the party to whom notice is given and sent registered or
certified mail, return receipt requested, in a postpaid envelope or by
nationally recognized overnight delivery service as follows:
To Subtenant:
TechStar Communications, Inc.
4340 East West Highway - Suite 1000
Bethesda, Maryland 20814
Attention: Senior Attorney, Legal
To Sublandlord:
AT&T Corp.
150 Mt. Airy Road
Basking Ridge, NJ 07920
Attention: Lease Administration
It is understood and agreed that unless specifically modified by this
Sublease, Sublandlord shall be entitled to the length of notice required to be
given Prime Landlord under the Prime Lease plus five (5) days and shall be
entitled to give Subtenant the amount of notice required to be given tenant
under the Prime Lease less ten (10) days. All notices shall be deemed given upon
receipt or rejection.
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<PAGE>
Either party by notice to the other may change or add persons and places
where notices are to be sent or delivered. In no event shall notice have to be
sent on behalf of either party to more than three (3) persons.
24. BROKERS
The parties warrant that they have had no dealings with any real estate
broker or agent in connection with this Sublease, except Cushman and Wakefield
of Maryland, Inc. and Barnes Morris Pardoe & Foster (the "Brokers"). Each party
covenants to pay, hold harmless and indemnify the other from and against any and
all costs, expenses or liabilities for any compensation, commissions and charges
claimed by any other broker or agent with respect to this Sublease or the
negotiation thereof, based upon alleged dealings with the indemnifying party.
Sublandlord agrees to pay the commissions of the Brokers in accordance with
separate agreements.
25. SUBLANDLORD'S AND SUBTENANT'S POWER TO EXECUTE
Sublandlord (subject to Prime Landlord's consent) and Subtenant covenant,
warrant and represent that they have full power and proper authority to execute
this Sublease.
26. TABLE OF CONTENTS - CAPTIONS
The Table of Contents and the captions appearing in this Sublease are
inserted only as a matter of convenience and do not define, limit, construe or
describe the scope or intent of the sections of this Sublease nor in any way
affect this Sublease.
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<PAGE>
27. CONSENT TO SUBLEASE BY PRIME LANDLORD
This Sublease shall not become operative until and unless the Prime
Landlord has given to Sublandlord its consent hereto. Sublandlord shall not be
responsible for Prime Landlord's failure to consent to this Sublease. Should
Prime Landlord not consent to this Sublease, each party shall be released from
all obligations with respect hereto and neither party shall have any further
rights in law or in equity with respect to this Sublease.
28. ENTIRE AGREEMENT
This Sublease (which includes each of the Exhibits attached hereto)
contains the entire agreement between the parties and all prior negotiations and
agreements are merged into this Sublease. This Sublease may not be changed,
modified, terminated or discharged, in whole or in part, nor any of its
provisions waived except by a written instrument which (a) shall expressly refer
to this Sublease and (b) shall be executed by the party against whom enforcement
of the change, modification, termination, discharge or waiver shall be sought.
29. DEFAULT AND RIGHT TO CURE
The provisions of subparagraphs 20.1.a and 20.1.b of the Prime Lease
notwithstanding, the following shall be deemed an "Event of Default" by
Subtenant under this Sublease: (a) Nonpayment of rent or any other of
Subtenant's monetary obligations due as specified hereunder, if remaining unpaid
more than ten (10) days after receipt of notice from Sublandlord of such failure
to pay; or (b) Subtenant's failure to perform any other
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<PAGE>
obligation, covenant, agreement, representation or warranty under this Sublease
within thirty (30) days after receipt of notice from Sublandlord reasonably
specifying the failure. No such failure, however, shall be deemed to exist if
Subtenant in fact shall honestly commence to rectify the same with such
thirty-day period and provided such efforts shall be prosecuted to completion
with reasonable diligence. Delay in rectifying the same shall be excused if due
to causes beyond the reasonable control of Subtenant.
30. INDEMNIFICATION
If the Prime Lease is terminated with respect to the Subleased Premises
pursuant to an Event of Default (as defined in paragraph 20.1 of the Prime
Lease) by Sublandlord under the Prime Lease and Subtenant is totally or
partially evicted, then Sublandlord will indemnify Subtenant for actual,
reasonable costs incurred by Subtenant to vacate the Subleased Premises,
including but not limited to the cost of moving Subtenant's furniture and
equipment from the Subleased Premises and storing such furniture and equipment
for a reasonable amount of time, but Sublandlord will not be liable for
incidental, lost profits or consequential damages. However, Sublandlord will not
be obligated to so indemnify Subtenant if the obligation that was owed by
Sublandlord to Prime Landlord that constituted the basis of such Event of
Default (as defined in Section 20.1 of the Prime Lease) was an obligation that
Subtenant assumed under this Sublease and
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<PAGE>
failed to perform, resulting in an Event of Default (as defined in Section 29 of
this Sublease) by Subtenant.
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
properly executed as of the day and year first above written.
ATTEST/WITNESS: AT&T CORP.
SUBLANDLORD
/s/ Sharon San Phillips By: /s/ Kathleen Russ-Schwalze
- -------------------------------- --------------------------- (SEAL)
Sharon San Phillips - Kathleen Russ-Schwalze -
Transaction Specialist District Manager
- -------------------------------- ---------------------------------
Name and Title Name and Title
ATTEST/WITNESS: TECHSTAR COMMUNICATIONS, INC.
SUBTENANT
/s/ Scott Wilbur By: /s/ Sergio Luciani
- -------------------------------- --------------------------- (SEAL)
Scott Wilbur MGR Finance By: Sergio Luciani (PRESIDENT)
- -------------------------------- ---------------------------------
Name and Title Name and Title
Prime Landlord executes this Sublease solely as evidence of its consent to
the Sublease. Prime Landlord's consent to this Sublease shall not in any way be
deemed a modification of the Prime Lease. Prime Landlord's consent to this
Sublease shall not relieve Sublandlord of the obligation to obtain Prime
Landlord's consent to any further subleasing.
ATTEST/WITNESS: SILVER SPRING METRO PLAZA LIMITED
PARTNERSHIP
PRIME LANDLORD
By:
- -------------------------------- ---------------------------------
- -------------------------------- ---------------------------------
Name and Title Name and Title
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CIVIL COURT OF THE CITY OF NEW YORK
COUNTY OF NEW YORK:
- ----------------------------------------X
DECO TOWER ASSOCIATES,
Petitioner, INDEX NO. 102709/95
-against- AMENDED STIPULATION
OF SETTLEMENT
INNOVATIVE FACILITIES CORPORATION,
PEABODY FACILITIES, INC. and
HAYDEN-WEGMAN, INC.,
Respondent.
- ----------------------------------------X
IT IS HEREBY STIPULATED AND AGREED by and between the parties and their
respective attorneys as follows:
1. The parties entered into a Stipulation of Settlement dated July 1,
1996, a copy of which is herewith attached hereto as Exhibit #1.
2. The final judgment of possession and warrant of eviction previously
issued pursuant to said Stipulation shall continue in full force and effect.
Execution of the warrant shall be stayed provided the Respondent, Hayden-Wegman,
Inc. hereinafter referred to as "Hayden", complies with the terms of this
agreement and makes each and every payment as required hereinafter.
3. Upon execution of this Stipulation, Hayden reaffirms that is in
indebted to the Petitioner as and for use and occupancy of the premises through
April 30, 1996 in the sum of $92,821.10. Said sum is the amount reduced by the
payments which were previously made by Hayden pursuant to the terms of the
Stipulation and as required pursuant to paragraph 6 and 7 of the Stipulation.
4. Hayden may continue in possession of the premises without prejudice to
the Petitioner's rights to otherwise execute upon the warrant through to and
including November 30, 1999 provided that Hayden:
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<PAGE>
a. Pay to the Petitioner the sum of $16,500.00 by good funds
representing use and occupancy and electric (for which the sum of $1,926.22 is
allocated for electric) for each and every month or portion thereof that Hayden
continues in possession of the premises on the first day of each and every month
commencing with December 1, 1997 and continuing monthly thereafter.
b. Hayden shall pay to the Petitioner the sum of $4,419.69 by good
funds each and every month on the first of each month commencing on December 1,
1997 and continuing on the first of each and every month thereafter on account
of the amount set forth in paragraph 3 above until such time as said sum is paid
in full.
c. Hayden does not apply for, files and/or otherwise receives any
protection under the United States Bankruptcy Code.
5. Hayden shall in any event and otherwise vacate either the entire
premises or any portion that it shall retain pursuant to the terms of the
original Stipulation which shall remain unmodified and unchanged other than as
otherwise set forth herein no later than November 30, 1999 and shall deliver the
premises to the Petitioner in broom clean condition on said date. In the event
Hayden fails to do so, the Petitioner shall have the right to execute upon the
warrant and evict Hayden.
6. All other terms of the original Stipulation dated July 1, 1996 not
otherwise modified or changed as herein provided shall remain in full force and
effect.
7. This Amended Stipulation may be executed in counter parts and
signatures by facsimile shall be accepted in the place and instead of an
original signature.
8. This Amended Stipulation may be filed with the Court by either party
without further notice.
2
<PAGE>
9. All notices required by the Stipulation shall be sent by facsimile and
by certified mail, return receipt requested as follows:
a. Notices to Petitioner:
Deco Towers Associates
c/o Tenzer Greenblatt, LLP
405 Lexington Avenue, 15th floor
New York, New York 10174
Attention: M. Teresa Daley
Facsimile number: 212-885-5032.
b. Notices to Respondent:
Hayden-Wegman, Inc.
330 West 42nd Street
New York, New York 10036.
with a copy to:
Baer Marks & Upham, LLP
885 Third Avenue
New York, New York 10022
Attention: Stuart Berg, Esq.
Facsimile number: 212-702-5941
10. This Amended Stipulation shall not be further modified unless in
writing by all parties to be charged.
Dated: New York, New York
September 4, 1997
DECO TOWER ASSOCIATES
BY:
---------------------
TENZER GREENBLATT, LLP
ATTORNEY FOR PETITIONER
BY:
---------------------
M. TERESA DALEY, ESQ.
HAYDEN-WEGMAN, INC.
BY: /s/ [ILLEGIBLE]
---------------------
BAER MARKS & UPHAM
ATTORNEYS FOR RESPONDENT
BY: /s/ STUART BERG
---------------------
STUART BERG, ESQ.
3
<PAGE>
CIVIL COURT OF THE CITY OF NEW YORK
COUNTY OF NEW YORK:
- ----------------------------------------X
DECO TOWER ASSOCIATES,
Petitioner, INDEX NO. 102709/95
-against- STIPULATION OF SETTLEMENT
INNOVATIVE FACILITIES CORPORATION,
PEABODY FACILITIES, INC.,
HAYDEN-WEGMAN, INC.,
Respondent.
- ----------------------------------------X
IT IS HEREBY STIPULATED AND AGREED by and between the parties and their
respective attorneys as follows:
1. Final Judgment of Possession previously granted and Warrant of Eviction
previously issued pursuant to stipulation dated January 10, 1996 shall remain in
full force and effect. The January 10, 1996 Stipulation shall remain in full
force and effect except as otherwise amended herein.
2. The undersigned acknowledge that the Lease Agreement between the
Petitioner and the Respondent, Innovative Facilities Corporation, has expired by
its terms on April 30, 1996. The Respondent Hayden-Wegman, Inc., represents that
it is the only occupant remaining in possession of the premises and that the
Respondents, Innovative Facilities Corporation and Peabody Facilities, Inc.,
have at sometime previously vacated the premises.
3. The proceeding is hereby converted to a Holdover Proceeding and the
judgment of possession and warrant of eviction previously issued may be used by
the Petitioner pursuant, to the terms of this stipulation.
1
<PAGE>
4. Execution of the Warrant is stayed as provided for herein.
5. The Respondent, Hayden-Wegman, Inc., hereinafter referred to as
"Hayden," represents that it is the only occupant in possession of the premises
and that it has not subleased or assigned or permitted any other entity or
individual to occupy any portion of the premises.
6. Pursuant to the terms of the January 10, 1996 Stipulation and through
April 30, 1996 Hayden is indebted to the Petitioner as and for use and occupancy
and/or rent for the premises in the sum of $134,250.56
7. Hayden may continue in possession of the premises, without prejudice to
Petitioner's rights to execute upon the warrant, through to and including
November 30, 1997 provided that Hayden:
a. pay to the Petitioner the sum of $15,000.00 by good funds
representing use and occupancy for each and every month or portion thereof that
Hayden continues in possession of the premises on the 1st day of each and every
month commencing with July 1, 1996;
b. upon execution of this stipulation pay to the Petitioner the sum
of $51,201.01 by certified check, bank check, or money order representing use
and occupancy for May and June, 1996;
c. upon execution of this stipulation pay to the Petitioner the sum
of $7,500.00 by certified check, bank check, or
2
<PAGE>
money order representing the Petitioner's legal fees through the date of
execution of this Stipulation;
d. pay to the Petitioner the sum of $4,419.69 by good funds each and
every month on the first day of the month commencing July 1, 1996 and continuing
on the first day of each and every month thereafter on account of the amount set
forth in paragraph 6 above until such time as said sum is paid in full.
e. does not apply for, files, and/or otherwise receive any
protection under the United States Bankruptcy Code.
8. The Petitioner shall have the right to recover possession of the
Premises prior to November 30, 1997 upon the Petitioner's providing Hayden with
six months prior notice in writing, hand delivered to Hayden at the premises
with a copy to Hayden's attorneys as set forth below. Any balance remaining due
and owing pursuant to the terms of the January 10, 1996 Stipulation and
paragraph 6 hereof shall then come due at the expiration of said six months, and
Hayden shall pay said sum in full to Petitioner on such date. Hayden shall at
the expiration of the said six months vacate the premises and deliver possession
to the Petitioner. In the event Hayden fails to do so, the Petitioner shall have
the right to execute upon the warrant. In the event Hayden fails to pay the
balance due pursuant to paragraph 6 as referred to herein, the Petitioner shall
have the right to enter judgment upon Hayden's Affidavit of Confession of
Judgment heretofore executed and delivered pursuant to the terms of the January
10, 1996 Stipulation
3
<PAGE>
less any funds previously paid by Hayden to the Petitioner on account of same in
accordance with paragraph 7 (d).
9. In the event the Petitioner at any time notifies Hayden that it
requires Hayden to vacate and remove itself from approximately 3,500 square feet
of the southeast corner of the premises Hayden shall so vacate same within
twenty (20) days of receipt of written notice from Petitioner informing it that
it must do so. Upon Hayden vacating such portion of the premises, the Petitioner
shall reduce the amount set forth in paragraph 7a of this Stipulation
representing use and occupancy by a sum equivalent to $1.25 per square foot for
each square foot vacated by Hayden and delivered to Petitioner as provided for
herein. Hayden at its sole cost and expense shall install a demising wall
separating that portion of the premises returned to the Petitioner from the
remaining portion of the premises it shall continue to occupy as otherwise
provided for in this Stipulation, as well as creating a new corridor separating
the remaining premises from the portion returned to Landlord. Tenant shall
comply with all federal, state, city and local laws, rules and/or ordinances
regarding said work in constructing the demising wall and new corridor. All
materials and finishes used by Hayden in performing said work shall be in
accordance with building standards. Hayden shall within ten (10) days from the
date it receives Petitioner's notice to vacate deliver to Petitioner plans and
specifications for the aforesaid work for Petitioner's approval. Petitioner
shall either approve or disapprove plans and specifications within three (3)
days from its
4
<PAGE>
receipt of same. Petitioner shall not unreasonably withhold its approval of
same.
10. Hayden shall in any event and otherwise vacate either the entire
premises or any portion that it shall retain pursuant to the terms of this
Stipulation no later than November 30, 1997 and shall deliver same in broom
clean condition to Petitioner on said date. In the event it fails to do so,
Petitioner shall have the right to execute upon the warrant and evict Hayden.
11. In the event Hayden shall default in complying with any of the terms
set forth in paragraph 7 of this Stipulation the Petitioner shall have the right
to execute upon the warrant and remove and evict Hayden from the premises upon
Petitioner first delivering to Hayden a fifteen (15) day written notice of the
default to the Premises by hand, with a copy to Hayden's attorney at Telecopier
number 212 702-5941 and after Hayden fails to cure the default within said
fifteen (15) day period by mailing payment to Petitioner by certified check,
bank check or money order.
12. Hayden represents that there will be no subtenant, licensee or
assignee or, to its knowledge, any other individual or entity of any description
who claims any right to remain in or occupy the premises after Hayden vacates
the premises. Hayden further represents and warrants that they will not sublet,
assign, or otherwise permit any subtenant, licensee or assignee or other entity
to occupy the premises. These representations and warranties shall survive the
execution of this Stipulation.
5
<PAGE>
13. This Stipulation and the exhibits hereto constitute the entire
agreement between the parties with respect to the subject matter hereof, and all
agreements and/or understandings heretofore had between the parties with respect
to the subject matter of this Stipulation are merged into the terms of this
Stipulation.
14. The parties represent and warrant that they have not relied upon any
representation, express or implied, in entering into this Stipulation, except
those set forth in this Stipulation.
15. The parties expressly agree and acknowledge that they are commercially
sophisticated parties and that each and every one of the terms and conditions of
this Stipulation has been fully explained by their attorneys and that they
expressly understand and acknowledge that possession of the premises must be
delivered to Petitioner on or before November 30, 1997, or as the case may be,
all as provided in paragraphs 7, 8, 9, and/or 11 of this Stipulation.
Accordingly, the parties expressly agree to waive any and all rights to object
to the validity and enforceability of this Stipulation.
16. This Stipulation may not be waived, amended, modified, or discharged,
except by an agreement in writing signed by the party against whom such waiver,
amendment, modification, or discharge is sought. No oral understanding or
agreement shall be effective to waive, amend, modify or discharge the terms
and/or conditions of this Stipulation. An endorsement on any check(s) hereafter
received in connection with this Stipulation shall not be
6
<PAGE>
considered a waiver, amendment, modification or discharge of this Stipulation.
17. The acceptance by a party of partial performance of any of the terms
and/or conditions of this Stipulation shall not constitute an agreement, express
or otherwise, to modify, change, or amend this Stipulation, or constitute a
waiver of or an estoppel against that party's right to insist upon the other's
full and timely performance of all the terms and/or conditions of this
Stipulation.
18. The provisions of this Stipulation are intended to be for the sole
benefit of the parties and their respective heirs, executors, administrators,
successors, and assigns. None of the provisions of this Stipulation are intended
to be nor shall any of such provisions be construed to be for the benefit of any
third party. This Stipulation shall be binding upon and shall inure to the
benefit of the parties and their respective heirs, executors, administrators,
successors, and assigns.
19. If any provision of this Stipulation shall be held to be contrary to
law or invalid under the law of any jurisdiction, such illegality or invalidity
shall not affect any other provision(s) of this Stipulation in any way, which
other provisions shall nevertheless continue in full force and effect.
20. This Stipulation shall be construed without regard to any presumption
or rule of construction to the effect that a written agreement shall be
construed against the party that drafted such agreement.
7
<PAGE>
21. This Stipulation may be filed with the Court by either party without
further notice.
22. This Stipulation may be executed in counterparts and signatures by
facsimile shall be acceptable in place and instead of an original signature.
23. All notices required by this Stipulation shall be sent by fax and by
certified mail return receipt requested as follows:
a. Notices to Petitioner:
Deco Tower Associates
c/o Daley & Associates, P.C.
299 Broadway - Suite 1720
New York, NY 10007
Attention: M. Teresa Daley, Esq.
Fax No.: 212-513-1940
b. Notices to Respondent:
HAYDEN-WEGMAN, INC.
330 West 42nd Street
New York, New York
with a copy to
BAER MARKS & UPHAM LLP
885 Third Avenue
New York, NY 10022
Attention: Stuart Berg, Esq.
Fax No.: 212-702-5941
Dated: New York, New York
July 1, 1996
DECO TOWER ASSOCIATES
BY:
-----------------------
DALEY & ASSOCIATES, P.C.
ATTORNEY FOR PETITIONER
BY: /s/ [ILLEGIBLE]
-----------------------
8
<PAGE>
21. This Stipulation may be filed with the Court by either party without
further notice.
22. This Stipulation may be executed in counterparts and signatures by
facsimile shall be acceptable in place and instead of an original signature.
23. All notices required by this Stipulation shall be sent by fax and by
certified mail return receipt requested as follows:
a. Notices to Petitioner:
Deco Tower Associates
c/o Daley & Associates, P.C.
299 Broadway - Suite 1720
New York, NY 10007
Attention: M. Teresa Daley, Esq.
Fax No.: 212-513-1940
b. Notices to Respondent:
HAYDEN-WEGMAN, INC.
330 West 42nd Street
New York, New York
with a copy to
BAER MARKS & UPHAM LLP
885 Third Avenue
New York, NY 10022
Attention: Stuart Berg, Esq.
Fax No.: 212-702-5941
Dated: New York, New York
July 1, 1996
DECO TOWER ASSOCIATES
BY: /s/ [ILLEGIBLE]
------------------------
DALEY & ASSOCIATES, P.C.
ATTORNEY FOR PETITIONER
BY:
------------------------
8
<PAGE>
HAYDEN-WEGMAN, INC.
BY: /s/ [ILLEGIBLE]
------------------------
BAER MARKS & UPHAM
ATTORNEY FOR RESPONDENT
HAYDEN-WEGMAN, INC.
BY: /s/ STUART BERG
------------------------
9
STANDARD FORM COMMERCIAL LEASE
(214 Lincoln Street)
1. & 2. PARTIES AND PREMISES. Philip Y. DeNormandie with a principal place of
business at 12 Marshall Street, Boston, MA 02108 hereinafter called the LESSOR,
which expression shall include its heirs, successors, and assigns where the
context so admits, does hereby lease to Hayden-Wegman with a principal place of
business at 214 Lincoln Street, Boston, Massachusetts 02134 hereinafter called
the LESSEE, which expression shall include its successors, executors,
administrators, and assigns where the context so admits, and the LESSEE hereby
leases the following described Premises:
Approximately 9300 rentable square feet
("Premises") together with the right to use in common, with others entitled
thereto, the hallways, stairways, and elevators, necessary for access to said
Premises, and lavatories nearest thereto.
3. TERM. The term of this lease shall be for five (5) years commencing on
September 1, 1996 ("Commencement Date") and ending on August 31, 2001
("Expiration Date"). If LESSOR fails to deliver possession of the Premises at
the Commencement Date, the LESSOR shall not be liable for any damages caused
thereby, nor shall this lease be void or avoidable, but the Commencement Date
shall be extended and no rent shall be due until LESSOR delivers possession.
Provided however, that notwithstanding the fact that the Commencement Date has
been so extended, the Expiration Date shall remain the same and all the other
terms and conditions of this Lease, including, without limitation, all dates and
time periods contained herein, shall also remain as stated herein. If this Lease
is extended or renewed, all references to "term" herein shall refer to the
extension or renewal term unless specifically designated otherwise. Years 4 and
5 of this lease are option years. LESSEE must notify LESSOR twelve (12) months
in advance of intention to exercise the option years.
4. RENT. (A) Rent is payable in twelve (12) equal monthly installments in
advance on the first day of each month during each lease year of the term at the
office of Philip Y. DeNormandie, 12 Marshall Street, Boston, Massachusetts 02108
(and also at the early termination of this lease, a proportionate part of rent
for any part of a month then unexpired). If LESSOR elects to accept rent after
the fifth (5) day of the month, interest will accrue on such sum at the rate of
1 1/2% per month until such time as it is paid. (B) The base rent for each year
of the term (the "Base Rent") shall be as follows:
Per Year Per Month
-------- ---------
Year One 9/1/96 - 8/30/97 @ $12.50 $116,250.00 $59,687.50
Year Two 9/1/97 - 8/30/98 @ $12.50 $116,250.00 $59,687.50
Year Three 9/1/98 - 8/30/99 @ $13.50 $125,550.00 $10,462.50
OPTION YEARS
Year Four 9/1/99 - 8/30/00 @ $14.50 $134,850.00 $11,237.50
Year Five 9/1/00 - 8/30/00 $14.50 $134,850.00 $11,237.50
Notwithstanding anything contained herein rent shall continence on September 1,
1996
5. SECURITY DEPOSIT. Upon the execution of this lease by LESSEE, the LESSEE
shall pay to the LESSOR a security deposit of $9,687.50, which shall be held as
a security for the LESSEE'S performance of the
<PAGE>
terms, conditions and convenants of the lease and refunded to the LESSEE at the
end of this lease subject to the LESSEE'S satisfactory compliance with the
conditions thereof.
6. RENT ADJUSTMENT
A. OPERATING EXPENSES. If in any calendar year the operating costs for the
Premises are in excess of the operating costs for the calendar year 1996 (base
year) then tenant shall be obligated to pay 13.8.% of the difference.
B. TAX ESCALATION. If in any tax year commencing with the fiscal year
1997, the real estate taxes on the land and buildings, of which the Premises are
a part, are in excess of the amount of the real estate taxes thereon for the
fiscal year 1997 (hereinafter called the "Base Year"), LESSEE will pay to LESSOR
as additional rent hereunder, within seven (7) days of notice in writing to
LESSOR 13.8% percent ("LESSEE'S Share") of such excess that may occur in each
year of the term of this lease or any extension or renewal thereof and
proportionately for any part of a fiscal year. If the LESSOR obtains an
abatement, of any such excess real estate tax, a proportionate share of such
abatement, less the reasonable fees and costs incurred in Obtaining the same, if
any shall be refunded to the LESSEE.
7. UTILITIES. The LESSEE shall pay, as they become due, all bills for
electricity and other utilities (whether they are used for furnishing heat or
other purposes) that are furnished to the Premises and presently separately
metered or pro rata. The LESSOR agrees to provide all other utility service and
to furnish reasonably hot and cold water and reasonable heat and air
conditioning (except to the extent that the same are furnished above) to the
Premises, the hallways, stairways, elevators, and lavatories for times when the
LESSEE will be using the Premises during the heating/air conditioning seasons of
each year, to furnish elevator service and to light passageways and stairways
during business hours, and to furnish such cleaning service as is customary in
similar buildings in said city or town, all subject to interruption due to any
accident, to the making of repairs, alterations, or improvements, to labor
difficulties, to trouble in obtaining fuel, electricity, service, or supplies
from the sources from which they are usually obtained for said building, or to
any cause beyond the LESSORS control. The LESSOR shall use all reasonable
efforts to promptly restore all utilities in the event of such interruption.
LESSOR shall have no obligation to provide utilities or equipment other than
utilities and equipment within the Premises as of the Commencement Date of this
lease. In the event LESSEE requires additional utilities or equipment, the
installation and maintenance thereof shall be LESSEE'S sole obligation, provided
that such installation shall be subject to the written consent of the LESSOR
which consent shall not be unreasonably withheld. LESSEE shall be allowed to
install satellite equipment provided that such installation shall be at the sole
cost of LESSEE and LESSEE shall remain liable for any repairs during the
installation, use or removal of said satellite equipment. Written consent shall
be required for any structural alteration. Such consent shall not be
unreasonably withheld. LESSOR warrants that the heating, air conditioning and
other utilities are sufficient for the use of general office space.
8. USE OF LEASED PREMISES. The LESSEE shall use the Premises only for the
purpose of general office use and for no other purpose.
9. COMPLIANCE WITH LAWS. The LESSEE acknowledges that no trade or occupation
shall be conducted in the Premises or use made thereof which will be unlawful,
improper, noisy or offensive, or contrary to any law or any municipal by-law or
ordinance in force in the city or town in which the Premises are situated, or
which tend to degrade the economic status of the building.
10. FIRE INSURANCE. The LESSEE shall not permit any use of the Premises which
will make voidable any insurance on the property of which the Premises are a
part, or on the contents of said property or which shall be contrary to any law
or regulation from time to time established by the New England Fire Insurance
Rating Association, or any similar body succeeding to its powers. The LESSEE
shall on demand reimburse the LESSOR all extra insurance premiums caused by the
LESSEE'S use of Premises.
<PAGE>
11. MAINTENANCE.
A. LESSEE'S OBLIGATIONS. The LESSEE agrees to maintain the Premises in
good condition, reasonable wear and tear damage by fire and other casualty only
excepted, and whenever necessary, acknowledging that the Premises are now in
good order and the glass whole. The LESSEE shall not permit the Premises to be
overloaded, damaged, stripped, or defaced, nor suffer any waste. LESSEE shall
obtain written consent of LESSOR before erecting any sign on the Premises.
LESSEE shall be responsible for lights, plugs, and the heating and
air-conditioning units contained in the Lessees premises during the term of this
Lease for maintenance and repair expenses.
B. LESSOR'S OBLIGATIONS. The LESSOR agrees to maintain the structure of
the building of which the Premises are a part in the same condition as it is on
the Commencement Date or as it may be put during the term of its lease,
reasonable wear and tear, damage by fire and other casualty only excepted,
unless maintenance is required because of the conduct of LESSEE or those for
whose conduct the LESSEE is legally responsible. LESSOR shall be responsible
only for maintaining the building's mechanical and electrical systems which
serve more than one unit.
C. SNOW REMOVAL. The removal of snow and ice from sidewalks bordering upon
the Premises shall be LESSOR'S responsibility.
12. ALTERATIONS - ADDITIONS. The LESSEE shall not make structural alterations or
additions to the Premises, but may make non-structural alterations provided the
LESSOR consents thereto in writing, which consent shall not be unreasonably
withheld or delayed. All such allowed alterations shall be LESSEE'S expense and
shall be in quality at least equal to the present construction. LESSEE shall not
permit any mechanic's liens, or similar liens, to remain upon the leased
Premises for labor and material furnished to LESSEE or claimed to have been
furnished to LESSEE in connection with work of any character performed of
claimed to have been performed at the direction of LESSEE and shall cause any
such lien to be release of record forthwith without cost to LESSOR. Any
alterations or improvements made by the LESSEE shall become the property of the
LESSOR at the termination of occupancy as provided herein.
13. ASSIGNMENTS - SUBLEASING. LESSEE shall not assign, sublet, underlet,
mortgage, pledge or encumber (collectively referred to as "Transfer") this lease
without LESSOR'S prior written consent, which consent shall not be unreasonably
withheld. LESSOR'S refusal to consent to a Transfer for any use or purpose other
than specifically stated in Paragraph 8 herein shall not be deemed to be an
unreasonable withholding of consent.
In the event the LESSEE desires to Transfer this lease to a proposed new LESSEE
to whom LESSOR is required to give its reasonable consent pursuant to the
foregoing paragraph. LESSOR shall have the option or either (1) allowing LESSEE
to transfer this lease, in which case LESSEE shall remain primarily liable upon
all the terms, conditions and covenants hereof, will deliver to LESSOR an
instrument executed by the Transferee binding the same to the terms and
provisions of this lease and will pay to LESSOR the amount by which the sum of
rent, additional rent due to taxes and all other money or consideration it
received from a Transferee exceeds the LESSEE'S costs of subletting (brokers
commission advertising, sub-tenant build-out, and transfer) and the sum of all
monetary obligations which LESSEE owes to LESSOR for the period of such
Transfer; or (2) terminating this lease and relieving LESSEE of all its future
obligations hereunder. In the event that LESSOR decides to terminate this lease,
it shall be free to enter into a new lease with the proposed new tenant or
anyone else on whatever terms and conditions it chooses.
Consent by LESSOR, whether express or implied, to any Transfer shall not
constitute a waiver of LESSOR'S right to prohibit any subsequent Transfer nor
shall such consent, be deemed a waiver of LESSOR'S right to terminate this lease
upon any subsequent Transfer.
As used herein, the term "assign" or "assignment" shall be deemed to include,
without limitation: (a) any transfer of the LESSEE'S interest in the lease by
operation of law, the merger or consolidation of the LESSEE with or into
<PAGE>
any other firm or corporation: or (b) the transfer or sale of a controlling
interest in the LESSEE whether by sale of its capital stock or otherwise.
14. SUBORDINATION. This lease shall be subject and subordinate to any and all
mortgages, deeds of trust and other instruments in the nature of a mortgage, now
or at any time hereafter, a lien or liens on the property executed and deliver
such written instruments as shall be necessary to show the subordination of this
lease to said mortgages, deeds of trust or other such instruments in the nature
of a mortgage. Provided that the LESSEE is not in material default hereunder.
LESSOR agrees to make best efforts to obtain from its mortgages holding
mortgages on the building in which the premises are located, non-disturbance
agreement is return to Sublease's attornment to such mortgage.
15. LESSOR'S ACCESS. The LESSOR or agents of the LESSOR may, at reasonable time,
enter to view the Premises and remove placards and signs not approved and
affixed as herein provided, and make repairs and alterations as LESSOR should
elect to do, may show the Premises to others, and at any time within three (3)
months before expiration of the term, may affix to any suitable part of the
Premises a notice for letting or selling the Premises or property of which the
Premises are a part and keep the same so affixed without hindrance or
molestation all provided that the LESSOR does not reasonably interfere with the
business of the LESSEE upon entering the Premises.
16. INDEMNIFICATION. The LESSEE will save LESSOR harmless defend and will
exonerate and indemnify LESSOR from and against any and all claims, liabilities
or penalties.
(i) on account of or based upon any injury to person, or loss of or damage
to property sustained or occurring or emanating for the Premises on
account of or based upon the act, omission, fault, negligence or
misconduct of any person except LESSOR, its employees, agents and
independent contractors.
17. LESSEE'S INSURANCE.
1. Personal Property. Personal property (including merchandise, furniture,
fixtures, inventory and equipment) and the loss of use of personal property of
the LESSEE shall be at the sole risk and responsibility of the LESSEE, and if
the whole or any part of any such personal property is destroyed or damaged by
fire, water or by the leaking or bursting of pipes, or in any other manner, no
part of such loss or damage or loss of use except as due to LESSOR'S gross
negligence or misconduct will be charged to LESSOR. LESSEE shall purchase and
maintain insurance in an amount adequate to repair or replace its personal
property and the tenant improvements and interior finish and build-out to the
Premises.
2. Comprehensive General Liability Insurance. LESSEE agrees to maintain
throughout the term of the lease, Comprehensive General Liability Insurance
written on an occurrence basis. Such insurance shall include coverage for
products/completed operations, personal injury, broad form property damage, host
liquor, extended bodily injury and broad form contractual liability. The minimum
limit of liability carried on such insurance shall be $1,000,000 combined single
limit for each occurrence with any aggregate limit applying only to each of the
following; products/completed operations, personal injury and contractual
liability. However, if the policy contains a general policy aggregate or an
aggregate which applies to coverage's other than the aforementioned coverage's,
the LESSEE shall purchase minimum limits of $l,000,000 per occurrence/
$2,000,000 aggregate per location.
All insurance policies required in paragraph 2 shall designate the LESSOR
as an additional insured. LESSOR agrees that the insurance coverage's required
under sections number 1 through number 5 above shall be written by a company or
companies authorized to do business in the Commonwealth of Massachusetts with an
A.M. Best's rating of "A", VII or better.
LESSEE agrees to furnish the LESSOR with Certificates of Insurance prior to the
beginning of the term of the lease. Renewal Certificates of Insurance shall be
delivered to the LESSOR at least fifteen (15) days in advance of each renewal
date. Such certificates shall state that in the event of cancellation or
material change written
<PAGE>
notification shall be given to the LESSOR at least thirty (30) days in advance
of such cancellation or material change. However, if LESSEE, having used all
reasonable efforts is unable to have such certificate so state, then at least
such certificate shall state that in the event of such cancellation or material
change in coverage, the insurer shall endeavor to mail written notice thereof to
the LESSOR at least ten (10) days prior to such cancellation or material change,
and in such event LESSEE shall promptly notify LESSOR of any such cancellation
or change upon receipt by LESSEE of written notice from the insurer thereof.
18. EMINENT DOMAIN AND DEMOLITION. If the Premises or any part thereof or the
whole or any part of the Building are taken for any street or other public use,
by action the City or other authorities, or if the LESSOR or the LESSEE are
entitled to or receive any direct or consequential damages by reason of anything
lawfully done in pursuance of any public authority, or if LESSOR voluntarily
elects to demolish the Building or any part of the Building, except as a
consequence of fire or other casualty damage, then this lease and the term shall
terminate at the election of the LESSOR. LESSOR may elect so to terminate this
lease even if the entire interest of the LESSOR is divested by such a taking.
If, as a result of a taking or damage to or destruction of the Premises, the
Premises or any part thereof are rendered unfit for use and occupation, the rent
shall be abated proportionately according to nature and extent of the injury
sustained by the Premises until the Premises or, in the case of a taking, what
may remain thereof, shall have been put in proper condition.
Except for the LESSOR'S election voluntarily to demolish the Premises or
Building, any election to terminate shall be made by LESSOR not later than
thirty (30) days after LESSOR receives notice of such taking or action or the
occurrence of such damage. The LESSOR reserves and excepts from this lease all
rights to damages resulting from the taking for public use of the Premises, or
any portion thereof or right appurtenant thereto, or privilege or easement in,
through, or over the same, and by way of confirmation of the foregoing the
LESSEE hereby grants all rights to such damages previously accrued or accruing
during the term to the LESSOR, to have and to hold for the LESSOR forever.
Solely, in the case of LESSOR'S election voluntarily to demolish the Premises or
Building as stated above in this Article, LESSOR must give LESSEE at least one
(1) year prior termination notice, after which the lease shall terminate and be
of no further recourse to either party except as to rights and obligations
incurred prior to the termination date.
19. FIRE AND OTHER DAMAGE SUBROGATION.
A. Fire and other Damage - If the Building or any part thereof is
partially damaged by fire or other casualty, the damage thereto (except for
damage to LESSEE'S fixtures, property and equipment, for which LESSEE shall be
responsible) shall be restored by and at the expense of LESSOR and until such
restoration shall be made, if the Premises are rendered partially unfit for its
use and purpose, the rent and other charges shall be subject to delay which may
arise by reason of adjustment of insurance, and for reasonable delay on account
of "labor troubles" or any other cause beyond LESSOR'S control (excluding
financial inability). LESSOR shall not be liable for any inconvenience or
annoyance to LESSEE or for injury to the business of LESSEE resulting from such
excused delays.
If the building or the Premises is partially damaged or rendered
substantially untenantable by fire or other casualty, the rent and other charges
shall be subject to an abatement to the extent fair and equitable as of the date
of the fire or casualty, and continuing until LESSOR completes its restoration
obligations hereunder or until the term expires hereunder, except if such
casualty was a result of the willful fault or negligence of LESSEE, in which
event there shall be no abatement of rent and the LESSOR shall promptly restore
the same (excluding LESSEE'S fixtures, property and equipment), unless LESSOR
decides not to restore, in which event the LESSOR may, within thirty (30) days,
alter such fire or other cause, give LESSEE a notice in writing of such decision
and thereupon the terms shall expire upon thirty (30) days after such notice is
given, and the LESSEE shall vacate the Premises and surrender the same to the
LESSOR. If the Building (excluding Tenant Improvements and LESSEE'S fixtures,
property and equipment) is not in fact restored by LESSOR within 90 days after
the fire and other casualty, the LESSEE may terminate this lease by written
notice to LESSOR within thirty (30) days after the end of the said ninety day
period.
<PAGE>
The provisions of the is Article 19 shall govern in the case of damage or
destruction of the Building or any part thereof and restoration thereof due to a
fire or casualty notwithstanding any inconsistent provisions of this LEASE.
Notwithstanding anything to the contrary contained in this Article 19, the
provisions hereof shall be subject and subordinate to the rights of institutions
holding mortgages on the Building including the rights contained in any of
LESSOR'S mortgage financing documents affecting the Building.
B. Waiver of Subrogation - LESSOR and LESSEE hereby release each other
from any and all liability or responsibility to the other or anyone claiming
through or under them by way of subrogation or otherwise for any loss or damage
to property caused by fire or any of the extended coverage or supplementary
contract causalities, even if such fire or other casualty shall have been caused
by the fault or negligence of the other party, or anyone for whom such party may
be responsible, provided however, that this release shall be applicable and in
force and effect only to the extent permitted by law and only with respect to
loss or damage occurring during such time as such release does not adversely
affect releasor's insurance policies or prejudice the right of the releasor to
recover thereunder. LESSOR and LESSEE each agree that it will request its
insurance carriers to include in it policies, whether or not such policies are
required hereunder, a clause or endorsement to the effect that any such release
shall not adversely affect said policies or prejudice the right or releasor to
recover thereunder. If extra cost shall be charged, each party will bear the
amount of its extra cost. In any of LESSEE'S insurance policy with respect to
the Premises which do not contain or which do not allow a waiver of subrogation
rights. LESSEE shall have LESSOR designated as harmless from any liability,
loss, damage, or causes of action to which LESSOR is subject due to or resulting
from LESSEE'S failure to either maintain insurance with waiver of subrogation
rights or alternatively designate LESSOR as one of the insured.
20. DEFAULT AND BANKRUPTCY. In the event that:
A. The LESSEE shall default in the payment of any installment of rent or
other sum herein specified and such default shall continue for five (5)
days after written notice thereof; or
B. The LESSEE shall default in the observance or performance of any other
of the LESSEE'S convenants, agreements, or obligations hereunder and such
default shall not be corrected within thirty (30) days after written
notice thereof or, if such default shall reasonably require longer than
thirty (30) days to cure, shall not within said period commence diligently
proceed to cure such default; or
C. The LESSEE shall be declared bankrupt or insolvent according to law,
or, if any assignment shall be made of LESSEE'S property for the benefit
of creditors.
then the LESSOR shall have the right thereafter, while such default continues to
declare the term of the lease ended. The LESSEE shall indemnify the LESSOR
against all loss of rent and from other payments which the LESSOR may incur by
reason of such termination during the residue of the term. If the LESSEE shall
default, after reasonable notice thereof, in observance or performance of any
conditions or covenants on LESSEE'S part to be observed or performed under or by
virtue of any other provisions in any article of this lease, the LESSOR, without
being under any obligation to do so and without thereby waiving such default,
may remedy such default for the account and at the expense of the LESSEE. If the
LESSOR makes any expenditures or incurs any obligations for the payment of money
in connection therewith, including but not limited to, reasonable attorney's
fees in instituting, prosecuting or defending any action or proceeding, such
sums paid or obligation incurred with interest at the rate of 18% per annum and
costs, shall be paid to the LESSOR by the LESSEE as additional rent.
21. NOTICE. Any notice from LESSOR to the LESSEE relating to the Premises or to
the occupancy thereof, shall be deemed duly served if mailed to 400, registered
or certified mail, return receipt requested, postage prepaid, addressed to the
LESSEE. Any notice from the LESSEE to the LESSOR relating to the Premises or to
the occupancy thereof shall be deemed duly served, if mailed to the LESSOR by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the LESSOR at such address as the LESSOR may from time to
<PAGE>
time advise in writing. All rent shall be paid and notices shall be sent to the
LESSOR at 12 Marshall Street, Boston, Massachusetts 02108.
22. SURRENDER. The LESSEE shall at the expiration or other termination of this
lease remove all LESSEE'S goods and effects from the Premises, (including,
without hereby limiting the generality of the foregoing, all signs and lettering
affixed or painted by the LESSEE, either inside or outside the Premises). LESSEE
shall deliver to the LESSOR the Premises and all keys, locks thereto, and other
fixtures connected therewith and all alterations and additions made to our upon
the Premises, in good condition, reasonable wear and tear, damage by fire or
other casualty only excepted. If the lease term terminates by acceleration or
expiration of time and LESSEE does not surrender the Premises and remove his
effects from the Premises, and LESSOR obtains an order of eviction from a court,
then LESSOR may enter the Premises for the purpose of removing LESSEE'S goods
and effects, without prejudice to any other remedies, and LESSOR may remove and
store such goods and effects at LESSEE'S expense.
23. BROKERAGE. LESSOR and LESSEE each warrant and represent that it has not
negotiated with any broker (other than DeNormandie Companies) in connection with
this lease and each party agrees to indemnify and hold the other party harmless
if such warranty or representation shall be deemed untrue. The Broker(s) named
herein warrant(s) that he (they) is (are) duly licensed as such by the
Commonwealth of Massachusetts, and join(s) in the agreement, and become(s) a
party thereto, insofar as any provisions of this agreement expressly apply to
him (them), and to any amendments or modifications of such provisions to which
he (they) agree(s) in writing Lessor shall pay a commission to DeNormandie
Companies..
24. HOLDOVER. If the LESSEE remains on the Premises beyond the Expiration Date,
such holding over shall not be deemed to create any tenancy at will, but the
LESSEE shall be a tenant at sufferance only, at a daily rate equal to three (3)
times the rent and other charges for the last year under this lease unless
LESSOR and LESSEE are in lease negotiations in which case it shall only be 150%
of the last month's rent. However, all other conditions of this lease to be
performed by LESSEE shall continue in force.
25 LIABILITY. LESSEE hereby agrees that any judgment, decree or award obtained
against the LESSOR which is related to this lease, the Premises or the LESSEE'S
use or occupancy of the Premises or the building, whether at law or in equity,
shall be satisfied out of the LESSOR'S equity in the land and building and
further agrees to look only to such assets and to no other assets of the LESSOR
for satisfaction. In no event shall LESSOR be liable for consequential or any
indirect damages. LESSOR agrees to insure the building by obtaining fire and
liability insurance in the amount of at least $1,000,000.
26. NON-WAIVER PROVISION. No acceptance by LESSOR of a lesser sum than the rent,
additional rent or any other charge then due shall be deemed to be other than on
account of the earliest installment of such rent or charge due, nor shall any
endorsement, or statement on any check or any charge be deemed on accord and
satisfaction, and LESSOR may accept such check or payment without prejudice to
LESSOR'S right to recover the balance of such installment or pursue any other
remedy provided in this lease.
27. LESSOR'S RULES AND REGULATIONS. LESSEE shall abide by any reasonable rules
and regulations as the LESSOR may make from time to time, applicable to all
LESSEES of the building and uniformly enforced. The LESSOR however, may change
said rules or waive any or all of said rules in the case of any one or more
LESSEES. Nor shall the LESSOR be responsible to the LESSEE, or the LESSEE'S
agents, employees, servants, licensees, invitees, or visitors, for failure to
enforce any of the rules and regulations or for the non-observance or violation
of any of said rules and regulations or any other LESSEE or by any other person,
or for the nonobservance or violation of or failure to enforce or to perform the
provisions of any other lease of any of the Building. Notwithstanding the
foregoing, however, LESSOR shall use its best efforts to apply the rules and
regulations to all LESSEES with reasonable uniformity in conformity with their
tenancies.
28. NO OFFER TO LEASE. The submission of this document for examination and
negotiation does not constitute an offer to lease, or a reservation of, or
option for, the Premises. This document shall become effective
<PAGE>
and binding only upon the execution and delivery hereof by LESSOR and by LESSEE,
and until such execution and delivery, LESSOR shall not in any way be bound to
enter into a lease with LESSEE for the Premises.
29. PARTIAL INVALIDITY. The invalidity of one or more phrases, sentences,
clauses or articles shall not affect the remaining portions of this lease, and
if any part of this lease should be declared invalid by the final order, decree
or judgment of a court of competent jurisdiction, this lease shall be construed
as if such invalid phrases, sentences, clauses or articles had not been
inserted.
30. ENTIRE AGREEMENT. This lease sets forth the entire agreement between the
parties and cannot be modified or amended except in writing duly executed by the
respective parties.
31. NO RECORDING. This lease shall not be recorded.
32. ADDENDA. The riders attached hereto numbered 1 through 3 are attached and
incorporated herein by reference.
33. PARKING. LESSOR will allocate 30 designated parking spaces on the outdoor
parking lot of 214 Lincoln St. Allston, Ma to LESSEE see addendum one (1).
IN WITNESS WHEREOF, the said parties hereunto set their hands and seals this
18th day of October, DATE.
LESSOR LESSEE
Philip Y. DeNormandie Hayden-Wegman
And not Individually
/s/ Philip Y. DeNormandie /s/ [ILLEGIBLE]
- ------------------------- -------------------------
Address: 12 Marshall Street 214 Lincoln Street
Boston, MA 02108 Allston, MA
<PAGE>
ADDENDUM #__ RULES AND REGULATIONS
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or
encumbered by any Lessee or used for any purpose other than for ingress to
and egress from the Premises and for delivery of merchandise and equipment
in a prompt and efficient manner using elevators and passageways
designated for such delivery by Lessor. There shall not be used in any
space, or in the public hall of the building, either by a Lessee or by
jobbers or others in the delivery or receipt of merchandise, any hand
trucks, except those equipped with rubber tires and sideguards. If the
Premises are situated on the ground floor of the Building, Lessee thereof
shall further, at Lessee's expense, keep the sidewalks and curb in front
of said Premise clean and free from ice, snow, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purpose other than those for which they were designed or constructed and
no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage, or damage resulting
from the violation of this rule shall be borne by the Lessee who, or whose
clerks, agents, employees or visitors, shall have caused it.
3. No Lessee shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substances into any of the corridors or halls,
elevators, or out of the doors or windows or stairways of the Building and
Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises or permit or suffer the Premises
to be occupied or used in a manner offensive or objectionable to Lessor or
other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other Lessees or those having
business therein, nor shall any animals or birds be kept in or about the
Building. Smoking or carrying lighted cigars or cigarettes in the
elevators of the Building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the Building without the prior written consent of Lessor.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Lessee on any part of the outside of
the Premises or the Building or on the inside of the Premises if the same
is visible from the outside of the Premises without the prior written
consent of Lessor, except that the name of Lessee may appear on the
entrance door of the Premises. In the event of the violation of the
foregoing by any Lessee, Lessor may remove same without any liability, and
may charge the expense incurred by such removal to Lessee or Lessees
violating this rule. Interior signs on doors and directory tablet shall be
inscribed, painted or affixed for each Lessee by Lessor at the expense of
such Lessee, and shall be of a size, color and style acceptable to Lessor.
-12-
<PAGE>
6. Except with prior written consent of Lessor and as Lessor may direct, no
Lessee shall mark, paint, drill into, or in any way deface any part of the
Premises or the Building of which they form a part or cut or string wires,
lay linoleum, or other similar floor covering, so that the same shall come
in direct contact with the floor of the Premises, and, if linoleum or
other similar floor covering is desired to be used, an interlining of
builder's deadening felt shall be first affixed to the floor, by a paste
or other material, soluble in water, the use of cement or other similar
adhesive material being expressly prohibited.
7. Except with the prior written consent of Lessor, no additional locks or
bolts of any kind shall be placed upon any of the doors or windows by any
Lessee, nor shall any changes be made in existing locks or mechanism
thereof. If requested, Lessee shall provide Lessor with a copy of a key
for all new locks or bolts. Each Lessee shall, upon the termination of his
tenancy, restore to Lessor all keys either furnished to or otherwise
procured by, such Lessee. In the event of the loss of any keys furnished
to Lessee, Lessee shall pay to Lessor the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the Premises only
on the freight elevators and through the service entrances and corridors
or in an alternative way approved by Lessor and only during hours and in a
manner approved by Lessor.
9. Canvassing, soliciting and peddling in the Building is prohibited and each
Lessee shall cooperate to prevent the same.
10. Lessor shall have the right to prohibit any advertising by any Lessee
which, in Lessor's opinion, tends to impair the reputation of the Building
or its desirability as a building for offices, and upon written notice
from Lessor, Lessee shall refrain from or discontinue such advertising.
11. Except for those items necessary for the cleaning and maintenance of
Lessee's business, including office supplies, which shall be properly
stored to minimize the risk of fire and explosion, Lessee shall not bring
or permit to be brought or kept in or on the Premises, any inflammable,
combustible or explosive fluid, material, chemical or substance, or cause
or permit any odors of cooking or other process, or any unusual or other
objectionable odors to permeate in or emanate from the Premises.
-13-
<PAGE>
[FLOOR PLAN OMITTED]
<PAGE>
[SITE PLAN OMITTED]
SECOND AMENDMENT OF LEASE AGREEMENT
This Second Amendment of Lease Agreement is made this 5th day of
April, 1996, by and between C & S ASSOCIATES, VIII, a general partnership
organized and existing under and by virtue of the laws of the State of New York,
having its principal office at 350 Essjay Road, Suite 101, Williamsville, New
York 14221 (the "Sublessor", and HAYDEN-WEGMAN, INC., a corporation organized
and existing under and by virtue of the laws of the State of New York, with its
address at 455 Commerce Drive, Amherst, New York 14228 (the "Sublessee").
WHEREAS, Sublessor and Sublessee entered into a lease agreement
dated January 16, 1986, pursuant to which Sublessor leases to Sublessee 4,296
square feet of space in its building known as 455 Commerce Drive (the "Sublease
Agreement"), which Sublease Agreement was modified by an Amendment dated April
2, 1991 that extended the lease term for five (5) years; and
WHEREAS, Sublessor and Sublessee wish to modify the Lease Agreement
to extend the lease term for five (5) years (" Second Renewal Term").
NOW, THEREFORE, in consideration of the foregoing the parties agree
as follows:
1. All references to the Lease Term shall be deemed to include
the
<PAGE>
Second Renewal Term.
2. The Second Renewal Term shall be for a period of five (5)
years, which term shall commence on April 1, 1996 and shall
terminate on March 31, 2001.
3. Commencing on April 1, 1996 base monthly rent for the Second
Renewal Term will be Eleven Dollars and No/100 ($11.00) per
square foot, or Three Thousand Nine Hundred Thirty Eight
Dollars and No/100 ($3,938.00) per month, or Forty Seven
Thousand, Two Hundred Fifty Six Dollars and No/100
($47,256.00) per year.
4. Sublessor hereby agrees to amortize Eleven Thousand Eight
Hundred Twenty Dollars and 63/100 ($11,820.63) in past due
rent and additional rent as detailed on Exhibit A attached
hereto. The amortization of this amount is included in the new
rent commencing April 1, 1996.
5. Upon the date of the execution of this Amendment, Tenant shall
deposit with Landlord the sum of Eight Thousand Nine Hundred
Forty Nine Dollars and No/100 ($8,949.00) representing the
balance due of the Security Deposit. After the twenty fourth
(24th) month of this Second Renewal Term the security deposit
($8,949.00) will be
<PAGE>
refunded to the Sublessee if the Sublessee makes payment each
and every month up to and including the twenty fourth month,
without any late payments as defined in the Lease, or if the
Sublessee is acquired by another entity whose financial
statements are satisfactory to the Sublessor and the acquiring
company guarantees the payment of rent.
6. Sublessee will have the option to cancel this Lease after the
first two years of the Second Renewal Term if it, or its
assigns or successors, no longer maintains an office within a
50 mile radius of its current location and Sublessee delivers
a check in the amount of Seven Thousand Three Hundred Dollars
and No/100 ($7,300.00) along with a written notice of
cancellation no later than the 21st month of the Renewal Term.
7. Except as hereby modified the Lease Agreement is unchanged and
is hereby ratified and remains in full force and effect.
8. This Second Amendment to Sublease Agreement shall be effective
upon consent of the Agency and the Bondholder.
<PAGE>
STATE OF NEW YORK )
)SS:
COUNTY OF ERIE )
On the 9th day of April, 1996, before me personally came William B.
Stark, Jr., to me personally known, who, being by me duly sworn did depose and
say that he resides at Williamsville, NY; that he is a general partner of C& S
ASSOCIATES, VIII, the partnership described in and which executed the foregoing
instrument and that he signed his name thereto as such general partner.
/s/ Mary Lou Scharf
-------------------
Notary Public
MARY LOU SCHARF
Notary Public, State of New York
Qualified in Erie County
My Commission Expires April 1, 1997
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
On the 5th day of April, 1996, before me personally came Robert A.
Pocsik, to me personally known, who, being by me duly sworn did depose and say
that he works at 330 W. 42 Street NY, NY 10036; that he is the President of
HAYDEN-WEGMAN, INC., the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation and that he signed his name
thereto by like order.
CARLENE M. FEELEY
-------------------
Notary Public
CARLENE M. FEELEY
Notary Public, State of New York
No. 01FE5044110
Qualified in New York County
Commission Expires May 22, 1997
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment
to Lease Agreement as of the first written date above.
C & S ASSOCIATES, VIII
By /s/ William B. Stark, Partner
-----------------------------
HAYDEN-WEGMAN, INC.
By /s/ Robert A. Pocsik
-----------------------------
Title President/Chairman
--------------------------
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of this _____
day of ____________ 1997 by and between IDF INTERNATIONAL, INC., a Delaware
corporation ("IDF" or the "Corporation"), having its principal offices at 330
West 42nd Street, New York, New York 10036; and SIMANTOV MOSKONA, an individual
residing at 30 Janet Lane, Springfield, New Jersey 07081 (the "Employee"). IDF
is hereinafter sometimes collectively referred to as the "Corporation."
W I T N E S S E T H :
WHEREAS, the Employee is presently a senior executive officer of
TechStar Communications, Inc. ("TechStar") and has extensive knowledge with
respect to the business of TechStar;
WHEREAS, American United Global, Inc. ("AUGI"), has, pursuant to an
agreement and plan of merger dated July 21, 1997 (the "Merger Agreement")
between AUGI, IDF, TechStar and an acquisition subsidiary of IDF, transferred to
IDF, through a merger of such acquisition subsidiary with and into TechStar (the
"Merger"), 100% of the capital stock of TechStar;
WHEREAS, the Corporation desires to have access to the services of the
Employee after the Merger is consummated;
WHEREAS, the Employee is willing and able to render his services to the
Corporation on the terms and conditions of this Agreement;
WHEREAS, it is understood that this Agreement shall become effective as
of the consummation of the Merger (the "Effective Date"); and
WHEREAS, the Employee, TechStar and AUGI are parties to an employment
agreement, dated ______________________ (the "Prior Employment Agreement") which
shall terminate on the Effective Date.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound thereby, the
parties hereby agree as follows:
<PAGE>
1. Nature of Employment.
(a) Subject to the terms and conditions of this Agreement, the
Corporation shall, throughout the term of this Agreement, retain the Employee,
and the Employee shall render services to the Corporation, in the capacity and
with the title of President and Chief Executive Officer of the Corporation, and
such additional titles as may be assigned to the Employee from time to time by
the Board of Directors of the Corporation (the "Board"), which titles the
Employee may be willing to accept. In such capacity, the Employee shall have and
exercise primary responsibility on behalf of the Corporation and its
consolidated subsidiaries, subject at all times to the direction and control of
the Board, for the establishment of all policies, plans and strategic goals for
such Corporation and subsidiaries, together with such other similar or related
duties consistent with his offices as may be assigned to the Employee from time
to time by the Board.
(b) Throughout the period of his employment hereunder, the Employee
shall: (i) devote substantially all of his full business time, attention,
knowledge and skills, faithfully, diligently and to the best of his ability, to
the active performance of his duties and responsibilities hereunder on behalf of
the Corporation; (ii) observe and carry out such rules, regulations, policies,
directions and restrictions as may be established from time to time by the
Board, including but not limited to the standard policies and procedures of the
Corporation as in effect from time to time; and (iii) do such traveling at the
Corporation's expense as may reasonably be required in connection with the
performance of such duties and responsibilities; provided, however, that the
Employee shall not be assigned to regular duties that would reasonably require
him to relocate his permanent residence from that first set forth above.
Notwithstanding the foregoing, the Employee may (x) engage in certain duties and
responsibilities on behalf of AUGI, as may from time to time be assigned to him
by the Board of Directors of AUGI, and (y) engage in charitable, educational,
religious, civic and similar types of activities (all of which shall be deemed
to benefit the Corporation), speaking engagements, membership on the board of
directors of other organizations, and similar activities; provided, that the
activities referred to in clauses (x) and (y) hereof do not unreasonably inhibit
or prohibit the performance of his duties hereunder or inhibit or conflict in
any material way with the business of the Corporation.
2. Term of Employment.
(a) Subject to prior termination in accordance with Section
2(b) below, the term of this Agreement and the Employee's employment hereunder
shall commence as of the Effective Date and shall continue through November 30,
2000, and shall thereafter automatically renew (except to the extent otherwise
provided in this Agreement) for additional terms of one (1) year each unless
either party gives written notice of termination to the other party not less
than ninety (90) days prior to the end of any term (in which event this
Agreement shall terminate effective as of the close of such term), as the same
may be renewed (the "Term").
(b) This Agreement may be terminated:
<PAGE>
(i) upon mutual written agreement of the Corporation
and the Employee;
(ii) at the option of the Employee, upon thirty (30)
days' prior written notice to the Corporation, in the event that (A) the
Corporation shall (1) fail to make any payment to the Employee required to be
made under the terms of this Agreement within thirty (30) days after payment is
due after written notice and opportunity to cure, or (2) fail to perform any
other material covenant or agreement to be performed by it hereunder (including
the failure to re-appoint or re-elect Employee to the offices described in
Section 1(a) of this Agreement or other material change in the duties of the
Employee which reduces the scope or importance of such position) or take any
action prohibited by this Agreement, and fail to cure or remedy same within
thirty (30) days after written notice thereof to the Corporation; provided,
however, that if any periodic salary payment is not paid within ten (10) days of
its due date, the Employee shall only be required to provide fifteen (15) days,
prior written notice of termination; or (B) the Corporation is declared
insolvent, liquidates, dissolves or discontinues the Corporation Business (as
hereinafter defined).
(iii) at the option of the Corporation, upon written
notice to the Employee, "for cause" (as hereinafter defined);
(iv) at the option of the Corporation in the event of
the "permanent disability" (as hereinafter defined) of the Employee; or
(v) upon the death of the Employee, or as a result of
the voluntary resignation by the Employee for any reason other than as specified
in Section 2(b)(ii) above.
(c) As used herein, the term "for cause" shall mean and be
limited to:
(i) any breach of any of the material covenants and
agreements of the Employee (A) contained in this Agreement, or
(B) contained in Section 5 below, which, in any case, is not
corrected in all material respects (if so correctable) within
thirty (30) days after written notice of same from either of
the Corporation to the Employee;
(ii) any material breach by the Employee of his
fiduciary duties and obligations to the Corporation or its
subsidiaries which is not corrected in all material respects
(if so correctable within thirty (30) days after written
notice of same from the Corporation to the Employee;
(iii) the habitual (meaning more than two (2)
breaches of the same covenant or agreement) and material
breach by the Employee of a material
<PAGE>
provision of this Agreement (regardless of any prior cure
thereof, but provided that Employee shall have received the
notice and opportunity to cure provided by clause (i) above);
or
(iv) conduct constituting fraud or embezzlement or
gross dishonesty by Employee in connection with the
performance of his duties under this Agreement, or a formal
charge or indictment of Employee for or conviction of Employee
of a felony or, if it shall materially and adversely damage or
bring into disrepute the business, reputation or goodwill of
either of the Corporation, any crime involving moral
turpitude.
The notice pursuant to clause (i) above shall specify with
particularity the covenant or agreement alleged to have been breached by
Employee and action necessary to be taken by Employee to cure the breach to the
satisfaction of the Corporation. Termination for cause pursuant to clauses (ii),
(iii) or (iv) above shall be effective upon delivery of written notice to
Employee specifying the covenants or agreements alleged to have been breached by
Employee.
(d) As used herein, the term "permanent disability" shall
mean, and be limited to, any physical or mental illness, disability or
impairment that prevents the Employee from continuing the performance of his
normal duties and responsibilities hereunder for a period in excess of four (4)
consecutive months or one hundred eighty (180) non-consecutive days within any
period of three hundred sixty - five (365) working days. For purposes of
determining whether a "permanent disability" has occurred under this Agreement,
the written determination thereof by two (2) qualified practicing physicians
selected and paid for by the Corporation (and reasonably acceptable to the
Employee) shall be conclusive.
(e) Upon any termination of this Agreement as hereinabove
provided, the Employee (or his estate or legal representatives, as the case may
be) shall be entitled to receive any and all earned but unpaid Base Salary (as
hereinafter defined) prorated through the effective date of termination, and any
other amounts and benefits then accrued or due and payable to the Employee
hereunder; provided, that the Employee's participation in any benefit or welfare
plans of the Corporation (including, without limitation, the Stock Options
described below and any profit-sharing plans) shall terminate upon the effective
date of termination of employment except to the extent such Stock Options shall
have vested or as otherwise required by law or provided under the express terms
of the applicable plan. All such payments shall be made on the next applicable
payment date therefor (as provided in Section 3 below) following the effective
date of termination. Except when termination is (x) by the Employee pursuant to
Section 2(b)(ii) above, or (y) by the Corporation other than "for cause" (as
defined in Section 2(c) hereof (any termination described in clauses (x) or (y)
being sometimes hereinafter referred to as a "Non-Cause Termination"), the
foregoing constitutes all amounts to which the Employee shall be entitled upon
termination of this Agreement. In the case of a Non-Cause Termination, the
<PAGE>
amount to which the Employee shall be entitled upon termination of this
Agreement. In the case of a Non-Cause Termination, the amount to which the
Employee shall be entitled is not so limited and shall include the Option
Benefit (defined below).
(f) In the event that there shall be a dispute among the
parties hereto as to whether or not a termination shall constitute a Non-Cause
Termination, during the pendency of such dispute the Corporation will place in
escrow with a third party attorney or financial institution in an interest
bearing escrow account all such periodic Base Salary payments and the securities
representing the Option Benefit (as hereinafter defined) and fringe benefits
which shall be disbursed to the appropriate party or parties upon the final
resolution or settlement of such dispute from which no appeal can or shall have
been taken. As used herein, the term Option Benefit means all the Option Shares
vested pursuant to Section 3(d)(iii) of this Agreement.
3. Compensation and Benefits.
(a) Base Salary. As compensation for his services to be
rendered hereunder, the Corporation shall pay to the Employee a base salary at
the rates per annum set forth below (the "Base Salary"), payable in periodic
installments in accordance with the standard payroll practices of the
Corporation in effect from time to time, but not less than twice each month:
From the Effective Date through November 30, 1997 $180,000
From December 1, 1997 through November 30, 1998 $200,000
From December 1, 1998 through November 30, 1999 $225,000
From December 1, 1999 through November 30, 2000 $250,000;
provided, that the contemplated increase for the period commencing December 1,
1999 is expressly made subject to the Corporation achieving its "1999 Target
Income" (described below).
(b) Fringe Benefits. The Corporation shall also make available
to the Employee, throughout the period of his employment hereunder, such
benefits and perquisites as are generally provided by the Corporation to its
other senior management employees (which benefits shall, in the aggregate, be at
least as generous as those supplied by IDF to the senior executive officers of
its subsidiaries other than TechStar), including but not limited to eligibility
for participation in any group life, health, dental, disability or accident
insurance, pension plan, 401(k) plan, profit-sharing plan, or other such benefit
plan or policy, if any, which may presently be in effect or which may hereafter
be adopted by the Corporation for the benefit of its employees generally;
provided, however, that, except as specified on Exhibit "A" annexed hereto,
nothing herein contained may be deemed to require the Corporation to adopt or
maintain any particular plan or policy; and provided, further, that the
Corporation shall not be obligated to permit the Employee to participate in any
stock option plans it may provide to its employees from time to time, other than
the stock option plan established for the Employee pursuant to this
Agreement and described below. Participation in such benefit plans may be
subject to standard
<PAGE>
waiting periods following the commencement of full-time employment.
Notwithstanding the foregoing, throughout the term of this Agreement, the
Employee shall be entitled to receive the minimum fringe benefits listed on
Exhibit "A" annexed hereto and made a part hereof.
(c) Expenses. Throughout the period of the Employee's
employment hereunder, the Corporation shall also reimburse the Employee,
reasonably promptly after presentment by the Employee to the Corporation of
appropriate receipts and vouchers therefor and related information in such form
and detail as the Corporation may reasonably request, for any reasonable
out-of-pocket business expenses incurred by the Employee in connection with the
performance of his duties and responsibilities hereunder.
(d) Stock Options. The Employee has been awarded options (the
"Options") to purchase a maximum aggregate of Two Hundred and Eighty - Five
Thousand Five Hundred and Seventeen (285,517) shares of the common stock, $0.001
par value per share (the "IDF Common Stock") of IDF (the "Option Shares") at an
exercise price equal to $1.25 per share (the "Exercise Price"). Such Exercise
Price was calculated based upon the conversion price per share into which
convertible notes issued to private placement investors (including Employee) on
the Effective Date of this Agreement may be converted directly or indirectly
into a share of IDF Common Stock, and the exercise price for which such Options
were approved by the Board. The Exercise Price of the Options and number of
Option Shares are subject to adjustment for subdivisions or splits,
combinations, or reclassifications of the IDF Common Stock. All Options awarded
hereunder are subject to the terms and conditions hereinafter set forth
including, without limitation, the forfeiture provisions set forth below.
(i) Term of Options. The Options shall have a term
expiring on a date which shall be the earlier to occur of: (x) July 1, 2000, but
only to the extent of any Options which shall NOT have "vested" in accordance
with Section 3(d)(ii) or Section 3(d)(iii) hereof, or (y) on November 30, 2002,
to the extent of any Options which shall have "vested" in accordance with
Section 3(d)(ii) or Section 3(d)(iii) hereof (the "Option Expiration Date").
(ii) Vesting Conditions. Except as provided in
Section 3(d)(iii) below, the Options shall vest and become exercisable only upon
the following terms and conditions:
(A) An aggregate of Seventy-One Thousand
Three Hundred Seventy-Nine (71,379) Options shall
vest immediately on the Effective Date of this
Agreement and may be immediately exercised at the
Exercise Price then in effect; and
(B) In the event that the "Pre-Tax Income"
(as hereinafter defined) of the Corporation for the
period commencing on July 1, 1997 and ending June 30,
1998 (the "1998 Measuring Period") shall equal or
<PAGE>
exceed $3.5 million (the "1998 Target Income"), a
maximum of an additional 71,379 Option Shares may be
immediately exercised; provided, that (x) a maximum
of 23,793 Option Shares shall be pro-rated from zero
by multiplying 23,793 by the fraction determined by
dividing the actual 1998 Pre-Tax Income by the 1998
Target Income; and (y) if the actual Pre-Tax Income
for such 1998 Measuring Period shall be equal to or
greater than $1.4 million, but less than the 1998
Target Income, the remaining 47,586 Option Shares
exercisable for the 1998 Measuring Period shall be
pro-rated to the extent of the percentage determined
by dividing the actual 1998 Pre-Tax Income by the
1998 Target Income; and
(C) In the event that the "Pre-Tax Income"
(as hereinafter defined) of the Corporation for the
period commencing on July 1, 1998 and ending June 30,
1999 (the "1999 Measuring Period") shall equal or
exceed $4.25 million (the "1999 Target Income"), a
maximum of an additional 71,379 Option Shares may be
immediately exercised; provided, that (x) a maximum
of 23,793 Option Shares shall be pro-rated from zero
by multiplying 23,793 by the fraction determined by
dividing the actual 1999 Pre-Tax Income by the 1999
Target Income; and (y) if the actual Pre-Tax Income
for such 1999 Measuring Period shall be equal to or
greater than $2.125 million, but less than the 1999
Target Income, the remaining 47,586 Option Shares
exercisable for the 1999 Measuring Period shall be
pro-rated to the extent of the percentage determined
by dividing the actual 1999 Pre-Tax Income by the
1999 Target Income; and
(D) In the event that the "Pre-Tax Income"
(as hereinafter defined) of the Corporation for the
period commencing on July 1, 1999 and ending June 30,
2000 (the "2000 Measuring Period") shall equal or
exceed $5.0 million (the "2000 Target Income"), a
maximum of all remaining 71,379 Option Shares may be
immediately exercised; provided, that if (x) a
maximum of 23,793 Option Shares shall be pro-rated
from zero by multiplying 23,793 by the fraction
determined by dividing the actual 2000 Pre-Tax Income
by the 2000 Target Income; and (y) the actual Pre-Tax
Income for such 2000 Measuring Period shall be equal
to or greater than $3.0 million, but less than the
2000 Target Income, the remaining 47,586 Option
Shares exercisable for the 2000 Measuring
<PAGE>
Period shall be pro-rated to the extent of the
percentage determined by dividing the actual 2000
Pre-Tax Income by the 2000 Target Income; and
(E) In the event that the accumulated
Pre-Tax Income for all three (3) Measuring Periods
referred to in clauses (B) through (D) above
(or any portion thereof) shall equal or exceed $12.75
million, all of the remaining 285,517 Option Shares
shall be immediately and fully exercisable,
irrespective of the actual Pre-Tax Income earned in
any or all of the 1998 Measuring Period or 1999
Measuring Period; provided, that unless the Board of
the Corporation shall effect an expansion program not
approved by the Employee, either of which shall
reduce anticipated Pre-Tax Income of the Corporation
in the 2000 Measuring Period, the provisions of this
clause (E) shall only be applicable if the actual
Pre-Tax Income in the 2000 Measuring Period shall
equal or exceed $3.0 million.
Example: As an example of the application of the
pro-ration provisions contained in clauses (B) through (D)
above, the 71,379 Option Shares shall be multiplied by a
fraction: (x) the numerator of which shall be the amount by
which the actual Pre-Tax Income earned in a Measuring Year
shall exceed the minimum base Pre-Tax Income required in such
Measuring Year, and (y) the denominator of which shall be the
difference between the Target Income for such Measuring Year
and the minimum base Pre-Tax Income in such Measuring Year.
Accordingly, if the Corporation's actual Pre-Tax Income in the
1998 Measuring Year is $2.0 million, 71,379 Option Shares
shall be multiplied by 0.2857142, the fraction resulting from
dividing $600,000 ($2.0 million actual Pre-Tax Income less the
$1.4 million minimum base Pre-Tax Income for the 1998
Measuring Year) by $2.1 million (the $3.5 million Target
Pre-Tax Income less the $1.4 million minimum base Pre-Tax
Income).
<PAGE>
(iii) Immediate Vesting on Certain Events. The
Options shall immediately vest and shall be exercisable to the extent set forth
below:
(A) if at any time prior to June 30, 2000,
IDF shall effect a sale of all or substantially all
of its shares of the capital stock or assets to any
unaffiliated third party, whether by merger,
consolidation, stock sale, asset sale or like
transaction, all Options shall immediately vest and
be exercisable in full; or
(B) if at any time prior to June 30, 2000,
IDF shall consummate an underwritten public offering
of securities of IDF pursuant to which it shall
receive gross proceeds of $15.0 million or more (a
"Qualified Public Offering"), the unvested Options
shall (x) immediately vest, to the extent of 71,379
Options if the Qualified Public Offering gross
proceeds shall equal or exceed $15.0 million, to the
extent of an additional 71,379 Options (a total of
142,758 Options) if the Qualified Public Offering
gross proceeds shall equal or exceed $17.0 million,
and to the extent of an additional 71,379 Options (a
total of 214,137 Options) if the Qualified Public
Offering gross proceeds shall equal or exceed $20.0
million; and (y) be exercisable, irrespective of the
actual Pre-Tax Income of the Corporation, to the
extent of 33-1/3% of such vested Options in each of
the 1998 Measuring Period, 1999 Measuring Period and
2000 Measuring Period; provided, however, that such
vested Options or any Option Shares issuable upon
exercise thereof shall be subject to the same
underwriter's "lockup" agreement as shall be required
of the shares of IDF then owned by AUGI or AUGI's
affiliates; or
(C) if the Employee's employment pursuant to
this Agreement is terminated by the Corporation or by
the Employee, in either case prior to June 30, 2000,
for any reason, other than (x) "for cause" (as
defined in this Agreement), (y) as a result of the
Employee's resignation or voluntary termination
(except from a constructive termination) of his
employment with the Corporation for any reason other
than a breach by the Corporation of its obligations
to the Employee hereunder, or (y) pursuant to Section
2(b)(i) of this Agreement, all Options shall
immediately vest and shall be fully exercisable.
(iv) Termination of Options. Options not previously
vested and immediately exercisable pursuant to their terms shall immediately
terminate:
<PAGE>
(A) effective as of July 1, 2000, but only
with respect to any Options that shall not have
previously vested in accordance with the provisions
of Section 3(d)(ii) or Section 3(d)(iii) above; or
(B) if the Employee's employment with the
Corporation shall terminate "for cause" (as defined
herein), or
(C) if the Employee shall resign or
otherwise voluntarily terminate (except arising from
constructive termination) his full-time employment
with the Corporation prior to June 30, 2000 for any
reason other than a breach by the Corporation of its
obligations to the Employee hereunder.
(v) Definition. As used herein, the term "Pre-Tax
Income" shall mean the net income of the Corporation and all of its consolidated
Subsidiaries (as that term is defined in the Merger Agreement), including,
without limitation, TechStar, after deduction of all expenses paid or accrued
for the appropriate Measuring Period in question in accordance with generally
accepted accounting principles, but before application of or deduction for: (i)
all interest on indebtedness aggregating $500,000 originally incurred by AUGI on
December 11, 1996 and assumed by TechStar pursuant to the Merger Agreement, and
(ii) all federal, state and local income taxes for such Measuring Period, all as
determined by the independent auditors engaged to audit the consolidated
financial statements of the Corporation, subject only to the right of the
Employee (at his sole cost and expense) to engage his own accountant or
financial advisor to review the calculations of such Pre-Tax Income for the
applicable Measuring Period at the Employee's expense. Disputes shall be
resolved in accordance with Section 10(f) of this Agreement.
(vi) Assignment of Options. The Options may not be
transferred, assigned or otherwise disposed of by the Employee unless and until
they have become vested and are then immediately exercisable into Option Shares;
provided, that the Employee shall have the right to assign all or any portion of
his Options to any member of his family; provided, further, that any such
permitted assignee shall execute a joinder or similar agreement with IDF and
TechStar agreeing to be bound by all of the terms and conditions of this Section
3(d).
<PAGE>
(vii) Reservation of Option Shares; Registration of
Options. IDF hereby covenants and agrees to:
(A) take all steps necessary and appropriate
to keep a sufficient number of Option Shares reserved
for issuance upon exercise of the Options; and
(B) to the extent that the same have vested
and are then currently exercisable in accordance with
this Agreement, IDF shall, at its sole cost and
expense, include the Options and underlying Option
Shares in any one or more Form S-8 Registration
Statements which IDF shall elect, in its sole
discretion to file with the Securities and Exchange
Commission to register stock options for any
executive officers, directors or key employees of IDF
or any of its Subsidiaries.
(viii) Cashless Exercise. The Employee shall have the
right to exercise his Options upon vesting pursuant to a "cashless" exercise.
Pursuant to such cashless exercise, vested Options shall, at the request of the
Employee, be deemed to have been exercised by the Employee, to the extent of
such number of Option Shares resulting from dividing the aggregate amount by
which all such vested Options are then "in the money" by the closing price of
the IDF's Common Stock, as traded on the Nasdaq National Market (or other
national securities exchange). In such event, the number of vested Options
resulting from such calculation shall be deemed exercised in full by the
Employee, all such vested Options shall be cancelled, and the underlying Option
Shares resulting from such "cashless" exercise may be sold without payment to
IDF.
Example: By way of example, if 100,000 Options shall
have vested at an exercise price of $1.25 per share and the closing price of
IDF's publicly traded Common Stock shall be $2.50 per share: (A) the 100,000
Options shall be deemed to be "in the money" to the extent of $125,000 (100,000
multiplied by the excess of the $2.50 closing price over the $1.25 exercise
price), and (B) the Employee shall, upon exercise of all 100,000 vested Options,
receive 50,000 shares of IDF Common Stock, as a result of dividing $125,000 by
the $2.50 per share closing price.
(ix) Public Distribution of Option Shares. To the
extent Options shall have vested and shall have been exercised by the Employee
pursuant to this Agreement, the Employee shall, prior to effecting any public
sale or distribution of any such Option Shares, consult with the Corporation and
utilize the services of any recognized broker/dealer or investment banking firm
recommended by the Corporation to effect such distribution in order to maintain
an orderly market for the Corporation's publicly traded common stock.
<PAGE>
4. Vacation.
The Employee shall be entitled to take, from time to time,
normal and reasonable vacations with pay, consistent with the Corporation's
standard policies and procedures in effect from time to time (provided that such
policies and procedures shall be no less favorable than those set forth on
Exhibit "A" annexed hereto), at such times as shall be mutually convenient to
the Employee and the Corporation, and so as not to interfere unduly with the
conduct of the business of the Corporation.
5. Restrictive Covenants.
(a) The Employee hereby acknowledges and agrees that (i) the
business contacts, customers, suppliers, technology, product designs and
specifications, know-how, trade secrets, marketing techniques, promotional
methods and other aspects of the business of the Corporation have been of value
to the Corporation and will be of value to the Corporation, and have provided
the Corporation and will hereafter provide the Corporation with substantial
competitive advantage in the operation of its business, and (ii) the Employee
has and will continue to have detailed knowledge and possesses and will possess
confidential information concerning the business and operations of the
Corporation.
(b) Unless otherwise approved in writing by IDF or its
Chairman of the Board after full disclosure by the Employee to IDF's Board of
Directors of all relevant facts and circumstances, the Employee shall not,
directly or indirectly, for the Employee or through or on behalf of any other
person or entity, at any time during the "Restrictive Period" (as defined in
clause (ii) below):
(i) divulge, transmit or otherwise disclose or cause
to be divulged, transmitted or otherwise disclosed, any clients or customer
lists, technology, know-how, trade secrets, marketing techniques, contracts or
other confidential or proprietary information of the Corporation of whatever
nature, whether now existing or hereafter created or developed (provided,
however, that for purposes hereof, information shall not be considered to be
confidential or proprietary if (A) the information, and its relevance in the
applicable instance, is a matter of common knowledge or public record, (B) the
information, and its relevance in the applicable instance, is generally known in
the industry, or (C) the information is disclosed to Employee after termination
of his employment by another person not prohibited from making such disclosure,
(D) the information is required to be disclosed by law pursuant to court order
or subpoena, or (E) the Employee can demonstrate that such information, and its
relevance in the particular instance, was already known to the recipient thereof
other than by reason of any breach of any obligation under this Agreement or any
other confidentiality or non-disclosure agreement); and/or
<PAGE>
(ii) unless the Employee's employment with the
Corporation shall be terminated by reason of a Non-Cause Termination, at any
time during the period commencing on the date hereof through and including the
date which shall be three (3) years following the voluntary resignation by the
Employee of his employment with the Corporation or his termination by the
Corporation "for cause," but in no event longer than one (1) year following the
end of the Term (the "Restrictive Period"), invest, carry on, engage or become
involved, either as an employee, agent, advisor, officer, director, stockholder
(excluding ownership of not more than 5% of the outstanding shares of a publicly
held corporation if such ownership does not involve managerial or operational
responsibility), manager, partner, joint venturer, participant or consultant in
any business enterprise (other than the Corporation), the Corporation or any of
their respective Subsidiaries, affiliates, successors or assigns) which derives
any material revenues from the TechStar Business or the IDF Business (as those
terms are defined in the Merger Agreement), or which engages in any other
business substantially similar to and directly competitive with the TechStar
Business or the IDF Business.
(c) The Employee and the Corporation hereby acknowledge and
agree that, in the event of any breach by the Employee, directly or indirectly,
of the foregoing restrictive covenants, it will be difficult to ascertain the
precise amount of damages that may be suffered by the Corporation by reason of
such breach; and accordingly, the parties hereby agree that, as liquidated
damages (and not as a penalty) in respect of any such breach, the breaching
party or parties shall be required to pay to the Corporation, on demand from
time to time, cash amounts equal to any and all gross revenues derived by the
Employee or his affiliate, directly or indirectly, from any and all violative
acts or activities. The parties hereby agree that the foregoing constitutes a
fair and reasonable estimate of the actual damages that might be suffered by
reason of any breach of this Section 5 by the Employee, and the parties hereby
agree to such liquidated damages in lieu of any and all other measures of
damages that might be asserted in respect of any subject breach.
(d) The Employee and the Corporation hereby further
acknowledge and agree that any breach by the Employee, directly or indirectly,
of the foregoing restrictive covenants will cause the Corporation irreparable
injury for which there is no adequate remedy at law. Accordingly, the Employee
expressly agrees that, in the event of any such breach or any threatened breach
hereunder by the Employee, directly or indirectly, the Corporation shall be
entitled, in addition to the liquidated damages provided for in Section 5(c)
above, to seek and obtain injunctive and/or other equitable relief to require
specific performance of or prevent, restrain and/or enjoin a breach under the
provisions of this Section 5, in any such case without the necessity of proving
actual damages or posting bond.
(e) In the event of any dispute under or arising out of this
Section 5, the prevailing party in such dispute shall be entitled to recover
from the non-prevailing party or parties, in addition to any damages and/or
other relief that may be awarded, its reasonable costs
<PAGE>
and expenses (including reasonable attorneys' fees) incurred in connection with
prosecuting or defending the subject dispute.
(f) Upon the termination of the Employee's employment with the
Corporation, the Employee shall immediately surrender and deliver to the
Corporation all notes, drawings, diagrams, models, prototypes, lists, books,
records, documents and data of every kind or description, in whatever written or
other media (including, without limitation, electronic, tape, or other form of
storage) relating to or connected with the business contacts, client or customer
lists, technology, know-how, trade secrets, marketing techniques, contracts or
other confidential or proprietary information of the Corporation, its business,
its properties, or its customers referred to in Section 5(b)(i) above.
6. Inventions; Intellectual Property.
(a) The Employee shall promptly communicate to the
Corporation and disclose to the Corporation in such form as the Corporation
requests from time to time, all drawings, sketches, models, records,
information, details and data (in whatever media the same may be created or
recorded including, without limitation, print, tape, electronic, or otherwise)
pertaining to all ideas, processes, trademarks, inventions, improvements,
discoveries and improvements, product designs and specifications, and other
intellectual property, whether patented or unpatented, and copyrightable or
uncopyrightable, made, conceived, developed, acquired or implemented by the
Employee, solely or jointly, during the term of this Agreement (the "Development
Term"), whether or not conceived during regular working hours through the use of
Corporation time, material or facilities or otherwise (each of the foregoing
hereinafter referred to, individually and collectively, as a "Development"). The
Employee hereby assigns, transfers, conveys and sells to the Corporation all
right, title and interest in and to all Developments, whether now existing or
hereafter existing during the Development Term, and acknowledges that the same,
whether now existing or hereafter existing during the Development Term, are the
sole and exclusive property of the Corporation for which the Employee is being
adequately compensated hereunder. At any time and from time to time, upon the
request of the Corporation and at its expense, the Employee will execute and
deliver to the Corporation any and all applications, assignments, instruments,
documents and papers, give evidence and do any and all other acts which, in the
opinion of the Corporation, are or may be necessary or desirable to document
such transfer or to enable the Corporation to file and prosecute applications
for and to acquire, maintain and enforce any and all patents, trademark or
tradename registrations, copyrights or other rights under United States,
foreign, state or local law with respect to any such Developments or to obtain
any extension, validation, reissue, continuance, division or renewal of any of
the same, in whole or in part, and otherwise to establish, protect and enforce
the Corporation's rights in and to such intellectual property.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the foregoing Section 6(a) shall only apply and be effective to the
extent permitted under applicable
<PAGE>
law. In this regard, the provisions of Section 6(a) of this Agreement which
provide that the Employee shall assign or offer to assign any of the Employee's
rights in an invention to the Corporation shall not apply to any invention for
which no equipment, supplies, facility, or trade secret information of the
Corporation was used and which was developed entirely on the Employee's own
time, unless (a) the invention relates (i) directly to the business of the
Corporation, or (ii) to the Corporation's actual or demonstrably anticipated
research or development, or (b) the invention results from any work performed by
the Employee for the Corporation.
7. Non-Assignability.
In light of the unique personal services to be performed by
the Employee hereunder, it is acknowledged and agreed that any purported or
attempted assignment or transfer by the Employee of this Agreement or any of his
duties, responsibilities or obligations hereunder shall be void.
8. Notices.
Any notices, requests, demands or other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been given when delivered personally, one (1) day after being
sent by recognized overnight courier service with all charges prepaid or charged
to the sender's account, or three (3) days after being mailed by certified mail,
return receipt requested, addressed to the party being notified at the address
of such party first set forth above, or at such other address as such party may
hereafter have designated by notice; provided, however, that any notice of
change of address shall not be effective until its receipt by the party to be
charged therewith. Copies of any notices or other communications to the
Corporation shall simultaneously be sent by first class mail to IDF
International, Inc., 330 West 42nd Street, New York, New York 10036, Attention:
Robert M. Rubin, Chairman.
9. General.
(a) Neither this Agreement nor any of the terms or conditions
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the party to be charged therewith. Any waiver or
amendment shall only be applicable in the specific instance, and shall not
constitute or be construed as a waiver or amendment in any other or subsequent
instance. No failure or delay on the part of either party in respect of any
enforcement of obligations hereunder shall in any manner affect such party's
right to seek or effect enforcement at any other time or in respect of any other
required performance.
<PAGE>
(b) The captions and Section headings used in this Agreement
are for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
(c) This Agreement, and all matters or disputes relating to
the validity, construction, performance or enforcement hereof, shall be
governed, construed and controlled by and under the laws of the State of
Delaware applicable to contracts entered into and performed wholly within
Delaware.
(d) This Agreement shall be binding upon and shall inure to
the sole and exclusive benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and permitted
assigns, and no other person or entity shall have any right to rely on this
Agreement or to claim or derive any benefit herefrom absent the express written
consent of the party to be charged with such reliance or benefit; provided, that
neither this Agreement nor any rights or obligations hereunder may be assigned
by either party without the express prior written consent of the other party.
(e) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original hereof, but all of
which together shall constitute one and the same instrument.
(f) Except for any legal or judicial proceeding which may be
brought for injunctive and/or any other equitable relief as contemplated by
Section 5(d) above, any dispute involving the interpretation or application of
this Agreement shall be resolved by final and binding arbitration in accordance
with the terms, conditions and procedures set forth in the Merger Agreement.
(g) This Agreement constitutes the sole and entire agreement
and understanding between the parties hereto as to the subject matter hereof,
and supersedes all prior discussions, agreements and understandings of every
kind and nature between them as to such subject matter.
(h) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require; and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first set forth above.
TECHSTAR COMMUNICATIONS, INC. IDF INTERNATIONAL, INC.
BY:________________________ By: ___________________________
Name: Robert M. Rubin Name: Robert M. Rubin
Title: Chairman Title: Chairman
THE EMPLOYEE:
________________________________
SIMANTOV MOSKONA
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name State of Incorporation
------- ------------------------
(1) HAYDEN-WEGMAN, INC. Delaware
(2) TECHSTAR COMMUNICATIONS, INC. Delaware
(3) HAYDEN-WEGMAN INTERNATIONAL, LTD. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the year ended July 31, 1998 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 791,804
<SECURITIES> 0
<RECEIVABLES> 3,763,506
<ALLOWANCES> 480,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,951,698
<PP&E> 832,306
<DEPRECIATION> 482,943
<TOTAL-ASSETS> 8,251,667
<CURRENT-LIABILITIES> 6,217,476
<BONDS> 495,521
0
4,084,000
<COMMON> 9,928
<OTHER-SE> (2,555,258)
<TOTAL-LIABILITY-AND-EQUITY> 8,251,667
<SALES> 14,066,155
<TOTAL-REVENUES> 14,066,155
<CGS> 9,936,467
<TOTAL-COSTS> 9,936,467
<OTHER-EXPENSES> 12,677,759
<LOSS-PROVISION> 197,723
<INTEREST-EXPENSE> 1,124,281
<INCOME-PRETAX> (9,870,075)
<INCOME-TAX> 59,563
<INCOME-CONTINUING> (9,929,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,929,638)
<EPS-PRIMARY> (1.02)<F1>
<EPS-DILUTED> (1.02)<F2>
<FN>
<F1> BASIC
<F2> FULLY DILUTED
</FN>
</TABLE>
