U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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)
155 Morris Avenue,
Springfield, New Jersey 07081
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(Address of principal (Zip Code)
executive offices)
(973) 379-1481
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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
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
IDF International, Inc. ("IDF"), is a holding company. Through its
wholly-owned subsidiaries, TechStar Communications, Inc. ("TechStar") and
Hayden-Wegman, Inc. ("Hayden-Wegman"), it provides site acquisition, zoning,
architectural and engineering project management and consulting services to the
wireless communications industry, and provides construction and engineering
services to municipalities and private industry. Services to the wireless
communications industry are provided by TechStar, and general construction and
engineering services are provided by Hayden-Wegman.
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, Nextel Communications and Bell
Atlantic/Nynex Mobile.
Hayden-Wegman is headquartered in New York, New York, and has offices
in Boston, Massachusetts, 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 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 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 BACKGROUND
IDF is involved in two main industries through its subsidiaries. These
are the wireless communications industry, through TechStar, and the
infrastructure and environmental engineering industry, through Hayden-Wegman.
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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 these licenses are up to 13 years 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 of these 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 must complete their
systems quickly and, through a massive build plan, attempt 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. These
holders are awaiting decisions from the FCC regarding potential restructuring of
their license fee payments and 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 repositioning of these licenses
as well as the further development of emerging technologies, such as local
multipoint distribution system ("LMDS"), hold the promise of additional new
activity in the wireless communications industry. Regardless of the outcome,
competition remains heavy within wireless communications, with some markets,
like Washington, D.C., hosting as many as five major operating carriers.
Industry sources have estimated that, over the next 10 years, up to 100,000
wireless communications sites will have to be developed in the United States
alone.
Internationally, wireless networks are developing at a rapid pace and
liberalization/privatization processes are at the various stages of
implementation, providing a substantial market opportunity in the near future
for companies that offer wireless communications services. Some countries,
including many 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.
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INFRASTRUCTURE AND ENVIRONMENTAL ENGINEERING INDUSTRY
Hayden-Wegman provides 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, domestic billings of the top 500 domestic
design firms aggregated approximately $ 30 billion in 1996. Billings from
infrastructure design projects accounted for about $ 4.4 billion or 16% for the
top 500 domestic design 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 systems offer
opportunities for expansion of Hayden-Wegman's current services in these areas.
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 planning and design. These projects require the
environmental analysis and rehabilitation of many, formerly neglected,
structures and properties.
Congress, recognizing the urgency of years of neglect of the nation's
infrastructure, has recently enacted the Intermodal Surface Transportation
Efficiency Act. Management believes that this important legislation will inject
over $150 billion toward the revitalization and expansion of the nation's
infrastructure. Of this amount, management believes New York has been allocated
$121 billion, New Jersey $3 billion, Massachusetts $6 billion and Connecticut $2
billion. Management believes that Hayden-Wegman is well positioned to capture a
significant level of business as a result of this legislation.
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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 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 via 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 will serve to create new
markets 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/Nynex, 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.
Companies such as American Personal Communications, Nextel, and Omnipoint, to
name a few, are building and operating wireless communications networks in
numerous metropolitan areas. 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.
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In addition, management believes that there may be some opportunities
in the area of property development and management, both within and without the
telecommunications area, which IDF intends to explore.
For the seven month period ended July 31, 1997, three of TechStar's
clients each accounted for more than 10% of TechStar's revenues. These clients
accounted for $2,500,000, $400,000 and $400,000 of TechStar's 1997 fiscal year
revenues.
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 in its industry and is
often cited as a provider of superior consulting and engineering services.
Hayden-Wegman has provided engineering services for a variety of projects from
major interstate transpoprtation 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. 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 found a unique market niche in the
garage rehabilitation industry and markets itself as "The Garage Specialists."
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.
A majority of work undertaken by Hayden-Wegman is with the public
sector. Approximately 75% of total billings for the years ended June 30, 1994,
1995 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 cost bid; a bidder wins a contract under such a bid based on
price. Another 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.
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For the year ended June 30, 1997, three of Hayden-Wegman's clients each
accounted for more than 10% of Hayden-Wegman's revenues. These clients accounted
for approximately $2,200,000, $1,800,000 and $1,400,000 of Hayden-Wegman's
1997 fiscal year revenues.
Over the years, Hayden-Wegman has been particularly effective 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.
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. 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 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; replacement of Pier No. 11 in New York Harbor; and marinas in Northport
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, Massachusetts and Connecticut.
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 that aggregate more than $100 million in value.
Its completed environmental projects include a 5 mile long sewer
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tunnel in Buffalo, New York, and Sewage Treatment Plants in Endicott, New York,
and Stamford, Connecticut.
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
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 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.
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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 clients have included the New York
State Department of Transportation, 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 Parsippany office market is engineering
opportunities generated within New Jersey. Its major client is the New Jersey
Department of Transportation. In addition to engineering, the Parsippany 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 and planning 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 May 1, 1998, IDF's backlog consisted of $13.1 million in
contracts.
MARKETING AND SALES STRATEGY
Each of the TechStar and Hayden-Wegman IDF operating subsidiaries
markets its own services individually.
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, Bell Atlantic,
Motorola, Nextel and Omnipoint.
In addition, in order to enhance their market share and increase the
pace of sale and installation of their equipment, wireless communications
equipment providers offer
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telecommunications operators financing of equipment purchases. TechStar has
initiated discussions with identified equipment providers with respect to
development of a program to offer complete turnkey development of wireless
communications networks in particular geographic areas for wireless
communications operator clients. The benefits of such a program to the equipment
providers include offering their wireless communications operator clients one
point of contact and management, the elimination of multiple handoffs and
management points, increased speed, efficiency and accountability, reduced cost
and reduced operator supervision in connection with their network infrastructure
developments. At the same time, this program offers equipment providers an
opportunity for broader market penetration through leveraged services.
Focusing on evolving market conditions, TechStar will also approach
marketing of its services through two other major avenues:
o FINANCING: Project administration, site acquisition, zoning,
engineering and construction management services can also be
financed to provide complementary opportunities with joint
venture equipment providers.
o ACQUISITIONS/JOINT VENTURES: TechStar will pursue aggressively
the acquisition or partnering with potentially synergistic
competitors or complementary businesses offering access to new
markets, new customers or new service applications, nationally
and internationally.
TechStar's sales and marketing are managed by the President and other
senior officers of the company. In addition, TechStar recently hired a Vice
President of Marketing to coordinate TechStar's marketing efforts. He is
compensated with a base salary, and commission equal to 1% of the gross
revenue of projects he develops. The company relies on its good reputation with
clients and has received significant repeat business and referrals for new
business from existing clients. TechStar also periodically advertises in
RCR, a wireless communications industry publication.
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.
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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 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.
Hayden-Wegman's sales and marketing are managed by the President, 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 is well-positioned to 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.
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 will
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, consulting and wireless
communications network services, is strong and is concentrated primarily among
less than twenty companies, of which half of these companies are represented by
telecommunications divisions of large engineering firms such as Fluor-Daniels
and
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Bechtel. The other half are from well established firms such as SBA, Georon,
Entel, and Whalen. In the last few months, a number of carriers have slowed the
development of their wireless communications networks in the face of various
delays and difficulties. As a result, there has been a slowdown in building
activity which has put pressure on the existing companies in 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
building turnkey operations to specifications and renting them to wireless
communications operators.
Regardless of these trends, management believes that TechStar can
compete in this environment and against these companies. TechStar has positioned
itself as one of the few consulting and engineering service providers capable of
providing turnkey services within one organization. In addition, TechStar is
exploring new avenues for business, such as license and franchise acquisition
and development, site management, construction and joint venture consulting
services solutions.
Management believes that TechStar's primary competitive advantage
versus the aforementioned competition is its ability to move quickly to meet the
needs of the client. This is partly a result of the relative size of the company
versus the competition. Management also believes that TechStar has a strong
asset in its professional and administrative staff, who continue to provide
superior services at competitive pricing.
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 companies such as Vollmer Associates, Parsons
Brinkerhoff and Urbitran. Vollmer Associates and Parsons Brinkerhoff are
companies with significantly greater revenues and financial resources than
Hayden-Wegman, while Urbitran's revenues and financial resources are believed to
be comparable to those of Hayden-Wegman.
Within environmental design, Hayden-Wegman faces competition from 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.
The 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 Company and from Gannett Fleming Company. These companies
have significantly greater revenues and financial resources than Hayden-Wegman.
In Boston,
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Hayden-Wegman faces competition from smaller regional firms such as Howard
Needles Tammen and Bergendoff and Seele Stevenson. Both these firms are
privately held and, as a result, no financial information is available.
Management believes that Hayden-Wegman's primary competitive advantage
versus the aforementioned competition is its ability to move quickly to meet the
needs of the client. This is associated both with proximity of regional offices
as well as the relative size of the company versus the competition. Management
also believes that Hayden-Wegman has a strong asset in its professional and
administrative staff, who continue to provide superior consulting and design
services at competitive pricing.
REGULATORY ENVIRONMENT AND INTELLECTUAL PROPERTY
REGULATORY ENVIRONMENT
Neither IDF nor its subsidiaries require government approval for the
services they offer. Outside of the normal regulatory framework within which all
businesses operate, no government regulations currently significantly impact or
are expected to impact significantly IDF or its subsidiaries' operations in the
foreseeable future.
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.
CORPORATE HISTORY AND EMPLOYEES
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 in the opinion of management 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.
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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 in August 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.
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-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
14
<PAGE>
to Hayden-Wegman International, Ltd. ("H-W Ltd."). H-W Ltd. continues to be a
wholly-owned subsidiary of IDF.
EMPLOYEES
IDF employs 1 senior executive, its President and Chief Executive
Officer.
TechStar employs 45 engineers, technical support personnel and
administrative personnel (19 engineers, 15 technical support personnel, and 11
administrative personnel).
Hayden-Wegman employs 108 professional engineers, technical support
personnel and administrative personnel (76 engineers, 18 technical support
personnel, and 14 administrative personnel). 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.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 1997 AND JUNE 30, 1996. Revenue for the
fiscal year ended June 30, 1997 of $11.3 million was $400,000 lower than the
preceding year's revenue of $11.7 million. Gross profit of $5.6 million,
however, was $100,000 greater than that for fiscal 1996, primarily due to higher
profit margins reflecting a larger proportion of high margin private sector work
performed in fiscal 1997, as contrasted with a larger proportion of lower margin
public sector work in fiscal 1996.
Selling, general and administrative expense of $3.9 million for fiscal
1997 was $1.2 million below the prior year due to a combination of reduced
corporate overhead, resulting from head count reductions in management staff,
re-negotiation downward of certain lease payments and insurance premiums, and
the settlement for $437,000 of disputed payments to two vendors. Other Income of
$98,000 in fiscal year 1997, compared to Other Expenses of $160,000 in fiscal
year 1996, reflected final settlement in fiscal year 1997 of outstanding tax
disputes for which IDF received credit for certain penalties assessed in fiscal
year 1996.
Income before Extraordinary item of $900,000 for fiscal year 1997 was
$1.6 million greater than the loss of $650,000 incurred in fiscal year 1996 due
to the above mentioned factors. Net income for fiscal year 1997 of $900,000,
however, was $365,000 below reported net income for the prior year due to a
one-time settlement of $1.9 million with an unsecured creditor which took place
in December 1995.
NINE MONTHS ENDED APRIL 30, 1998 AND APRIL 30, 1997. Revenue for the
nine months ended April 30, 1998 was $11.9 million, which represents an
increase of $3.3 million over the nine months ended April 30, 1997. This
increase reflects the inclusion of nine months of TechStar operations in
the nine months ended April 30, 1998 as a result of the merger of IDF and
TechStar, for which no comparable revenues existed in the 1997 nine month
period. See "Liquidity and Capital Resources," below.
Selling, general and administrative expenses of $4.2 million for the nine months
ended April 30, 1998, up from $1.8 million for the nine months ended April 30,
1997, also reflects the inclusion of a full nine months of TechStar expenses for
the period ended April 30, 1998, with no comparable expenses incurred during the
1997 nine month period. Interest expense for the nine months ended April 30,
1998 of $.7 million, as compared to $.6 million for the comparable prior nine
months period, reflects increased borrowing under the IDF Line of Credit in the
latter period for working capital purposes in the start-up of certain public
sector change-order work.
Net income for the nine months ended April 30, 1998 was $178,000, down from
$477,000 for the nine months ended April 30, 1997, and resulted from the
combination of the above mentioned factors, plus the inclusion of a provision
for income taxes of $55,000 for the nine months ended April 30, 1998, with no
comparable provision included for the 1997 nine month period.
LIQUIDITY AND CAPITAL RESOURCES
During the course of the fiscal year ended June 30, 1997, IDF raised
additional capital, both through debt and equity offerings. Proceeds from
long-term debt offerings amounted to $800,000, and net proceeds from common
stock equity offerings totaled $350,000.
Additionally, in February 1997, holders of $745,000 of indebtedness
dating to 1994 converted such outstanding principal and accrued interest of
$149,000 into 715,000 shares of IDF's Common Stock at a conversion price of
$1.25 per share.
16
<PAGE>
In November 1994, IDF, through its Hayden-Wegman subsidiary, entered
into a line of credit/factoring agreement with Bankers Capital (the "Line of
Credit"). Under the terms of the Line of Credit IDF is able to borrow up to
$3,000,000, based upon the factoring of client invoices. The amount received by
IDF under the Line of Credit equals 80% of the face value of each factored
invoice, which is generally disbursed within 48 hours of submission of the
invoice to Bankers Capital. The remaining 20% balance of the invoice, less
specified fees, is paid to IDF upon Bankers Capital's full collection of the
invoice amount from the account debtor. As of June 30, 1997, IDF's outstanding
principal balance under the Line of Credit was approximately $1,700,000.
All amounts outstanding under the Line of Credit bear interest at an
interest rate approximating 25% per annum (see above). The amounts advanced
under the Line of Credit are generally with recourse to IDF and Hayden-Wegman.
Effective in August 1997, IDF was a party to a reverse triangular merger
(through a newly formed subsidiary, Acquisition Corp.) with TechStar, a wholly
owned subsidiary of AUGI. TechStar emerged as the surviving corporation of the
merger with Acquisition Corp. and became a wholly-owned subsidiary of IDF. 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.
In September 1997, IDF sold approximately $3 million principal amount
of IDF's 8% Senior Subordinate Convertible Notes (the "Notes") in a private
placement to accredited investors, and an affiliate converted an existing
$800,000 principal loan to IDF, plus $11,452 of accrued interest, into a
$811,452 principal convertible 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 8% Series A and 8% Series
A-1, or 8% Series B Preferred Stock, respectively. IDF used approximately
$2,500,000 of the net proceeds of this offering to settle certain past due
obligations existing on July 31, 1997. In January 1998, principal, and accrued
interest in the amount of $ 100,000, 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 ($32,000) 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. Dividends on the Series A, Series A-1 and
Series B Preferred Stock can be paid in additional shares of such Preferred
Stock, if agreed to by the holders, at the option of IDF. To date substantially
all dividends on the Preferred Stock have been paid in additional shares rather
than in cash, and IDF anticipates continuing to do so.
17
<PAGE>
CASH FLOW
As of June 30, 1997 IDF had negative working capital of $1.9 million
compared to a negative working capital of $5.2 million at June 30, 1996. Current
Assets were reduced during the year by $300,000 primarily as a result of
Accounts Receivable net collections. Proceeds from debt and common stock
offering were utilized to effect a reduction of $800,000 in Accrued Wages and
Related Costs, and Accounts Payable was paid down by $650,000. Additionally, IDF
was able to replace borrowing under its Line of Credit by $600,000 between June
30, 1996 and June 30, 1997. Principal Non-cash transactions also positively
affecting the working capital reduction during this period were the conversion
of $755,000 of debt from the 1994 offering to common stock as previously
mentioned, and the settlement of $437,000 in disputed vendor costs which is
reflected in the decrease in Other Accrued Expenses.
As of April 30, 1998, IDF had working capital of $3.2 million compared to a
negative working capital of $1.9 million at July 31, 1997, an increase of $5.1
million. This improvement reflects the capital infusion discussed in "Liquidity
and Capital Resources" above, in which the net proceeds of the $3 million
offering, amounting to $2.6 million, were utilized to pay off past due Accrued
Wages, Salaries and Related Costs, which were reduced between July 31, 1997 and
April 30, 1998 by $1.2 million, and to pay down certain past due accounts
payable and other accrued expenses, which were reduced during the nine month
period ended April 30, 1998 by $.7 million. Additionally, working capital at
April 30, 1998 includes $2.1 million relating to TechStar, which balance was
zero at the pre-merger date of July 31, 1997. The principal components of this
latter amount are $.4 million cash and $1.8 million in accounts receivable and
work-in-process. Borrowings under IDF's $3 million Line of Credit amounted to
$2.6 million as of April 30, 1998, an increase of $.8 million over the balance
at July 31, 1997. This increase was utilized to finance increased receivables
and work-in-process over the period. IDF plans to negotiate a replacement of its
current Line of Credit with another credit facility at a reduced interest rate.
IDF believes that the current credit limit under the Line of Credit is
sufficient to meet its working capital needs.
ITEM 3. DESCRIPTION OF PROPERTY
IDF PROPERTIES
IDF maintains its corporate headquarters in Springfield, New Jersey.
The office is located at 155 Morris Avenue, Springfield, New Jersey. The office
is leased and the office floor area is approximately 500 square feet. The lease
is $600 per month.
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 expected to be subleased in the near future.
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.
18
<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 $ 16,500 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 June 30, 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.
19
<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% 47.86%
11130 NE 33rd Place, Suite
250, Bellevue, WA 98004
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Lembit Kald 112,580 1.13% *
Hayden-Wegman, Inc., 330 West
42nd Street, New York, NY
10036 (6)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Lawrence Kaplan 496,492 5.00% 3.85%
Gro-Vest, Inc., 150 Vanderbilt
Motor Parkway, Suite 311,
Hauppaug, NY 11788 (2)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Solon D. Kandel 71,379 * *
IDF International, Inc., 155
Morris Avenue, 2nd Floor,
Springfield, NJ 07081 (3)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Sergio Luciani 71,379 * *
TechStar Communications, Inc.,
8403 Colesville Road, 16th
Floor, Silver Spring, MD 20910
(3)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Simantov Moskona 71,379 * *
TechStar Communications, Inc.,
8403 Colesville Road, 16th
Floor, Silver Spring, MD 20910
(3)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Donald Shipley 162,394 1.63% 1.26%
Hayden-Wegman, Inc., 330 West
42nd Street, New York, NY
10036 (6)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock Robert M. Rubin 874,659 8.81% 6.78%
6060 Kings Gate Circle, Del
Rey Beach, FL 33484
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Common Stock All directors and executive 1,860,262 18.74% 14.43%
officers as a group (7 persons)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Solon D. Kandel 165,334 14.17% 1.28%
Stock IDF International, Inc., 155
Morris Avenue, 2nd Floor,
Springfield, NJ 07081 (4)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Sergio Luciani 165,334 14.17% 1.28%
Stock TechStar Communications, Inc.,
8403 Colesville Road, 16th
Floor, Silver Spring, MD 20910
(4)
---------------------- -------------------------------- ---------------- ----------------- ----------------
20
<PAGE>
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Simantov Moskona 165,334 14.17% 1.28%
Stock TechStar Communications, Inc.,
8403 Colesville Road, 16th
Floor, Silver Spring, MD 20910
(4)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Robert M. Rubin 21,334 1.83% *
Stock 6060 Kings Gate Circle, Del
Rey Beach, FL 33484 (5)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred Lawrence Kaplan 130,924 11.22% 1.01%
Stock Gro-Vest, Inc., 150 Vanderbilt
Motor Parkway, Suite 311,
Hauppaug, NY 11788 (6)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series A-1 Preferred All directors and executive 648,260 55.58% 5.03%
Stock officers as a group (7 persons)
---------------------- -------------------------------- ---------------- ----------------- ----------------
---------------------- -------------------------------- ---------------- ----------------- ----------------
Series B Preferred Robert M. Rubin 400,000 100% 3.10%
Stock 6060 Kings Gate Circle, Del
Rey Beach, FL 33484 (5)
---------------------- -------------------------------- ---------------- ----------------- ----------------
</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) Includes 209,000 shares owned by Helaine Kaplan, the wife of Lawrence
Kaplan, with respect to which shares Mr. Kaplan has beneficial
ownership.
(3) 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.
(4) 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. Therefore, the number of votes that Messrs. Kandel,
Luciani and Moskona are entitled to cast as a result of their ownership
of Series A-1 Preferred Stock is initially as follows:
21
<PAGE>
Mr. Kandel, 165,334 votes; Mr. Luciani, 165,334 votes; and Mr. Moskona,
165,334 votes.
(5) 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. Therefore, the
number of votes that Robert Rubin is entitled to cast as a result of
his ownership of Series A-1 and B Preferred Stock is initially 421,334
votes.
(6) 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.
Therefore, the number of votes that Lawrence and Helaine Kaplan are
entitled to cast as a result of their ownership of Series A-1 Preferred
Stock is initially 130,924 votes.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors, executive officers and key employees of IDF are as
follows:
<TABLE>
<CAPTION>
<S> <C>
NAME AGE POSITION
- ------------------------------------------ -------------------- --------------------------------------------
Robert M. Rubin 57 Chairman of the Board of Directors
- ------------------------------------------ -------------------- --------------------------------------------
Lembit Kald 74 Director; Executive Vice President;
President and Chief Executive Officer of
Hayden-Wegman, Inc.
- ------------------------------------------ -------------------- --------------------------------------------
Lawrence Kaplan 54 Director
- ------------------------------------------ -------------------- --------------------------------------------
Donald Shipley 52 Chief Financial Officer of Hayden-Wegman,
Inc.; Chief Financial Officer of TechStar
Communications, Inc.
- ------------------------------------------ -------------------- --------------------------------------------
22
<PAGE>
- ------------------------------------------ -------------------- --------------------------------------------
Solon D. Kandel 37 Director; President and Chief Executive
Officer
- ------------------------------------------ -------------------- --------------------------------------------
Sergio Luciani 47 Director; Senior Vice President, Chief
Financial Officer and Secretary; Chief
Executive Officer of TechStar
Communications, Inc.
- ------------------------------------------ -------------------- --------------------------------------------
Simantov Moskona 47 Executive Vice President; President and
Chief Operating Officer of TechStar
Communications, Inc.
- ------------------------------------------ -------------------- --------------------------------------------
</TABLE>
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
23
<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 D. 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 Senior Vice President, Chief
Financial Officer and Secretary. 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.
24
<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 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 President 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 President 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.
DONALD SHIPLEY. Mr. Shipley served as director of IDF from November 1993 through
September 1997. Mr. Shipley currently serves as Chief Financial Officer of each
of Hayden-Wegman and TechStar. Mr. Shipley has been Chief Financial Officer and
Vice President - Finance for Hayden-Wegman since 1992. Prior to that, he was
Chief Financial Officer of Advatex Associates, Inc., from 1990 to 1992. Mr.
Shipley has over 20 years of diversified financial management experience in
engineering/construction and transportation. He is a certified public accountant
and a member of several professional organizations.
25
<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, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------- -------- -------------------------- -----------------------------------------
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
/SARs
- ------------------------------------- -------- -------- -------- ------- ---------- ---------- -------- --------
Lembit Kald, President and Chief 1995 $104,567 $0 $0 $0 0 $0 $0
Executive Officer of Hayden-Wegman,
Inc.
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
1996 130,400 0 0 0 0 0 0
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
1997 129,950 8,950 0 0 0 0 0
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
Donald Shipley, Chief Financial 1995 104,000 0 0 0 0 0 0
Officer of Hayden-Wegmen, Inc.,
Chief Financial Officer of TechStar
Communications, Inc.
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
1996 119,392 0 0 0 0 0 0
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
1997 115,000 8,950 0 0 0 0 0
- ------------------------------------- -------- -------- -------- -------- ---------- ---------- -------- --------
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth for each executive officer named in the
Summary Compensation Table above information regarding stock option exercises
during the fiscal year ended June 30, 1997, 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
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
Lembit Kald 50,000 $53,550 (1) 0 0 $0 $0
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
Donald W. Shipley 50,000 $53,550 (1) 0 0 0 0
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
- ------------------------------------- ---------- ----------- ----------- ------------- ----------- -------------
</TABLE>
26
<PAGE>
(1) Reflects the exercise of options to purchase 50,000 shares of IDF
Common Stock, at an exercise price of $0.179 per share, at such time
when the fair market value of a share of IDF Common Stock was estimated
by IDF to be $1.25 per share.
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.
Each of Messrs. Kandel, Luciani and Moskona also received, under the
terms of their respective employment agreements, the grant of options to
purchase a maximum aggregate of 285,517 shares of the Common Stock of IDF at an
exercise price of $1.25 (the "Options"). Such Options shall expire on the
earlier of July 1, 2000, for any un-vested options, or on November 30, 2002 for
those Options which have vested but have not been exercised. The vesting
conditions of the foregoing Options are as follows: (i) 25% of the Options
vested immediately on the effective date of the employment
27
<PAGE>
agreements and are currently exercisable, and (ii) 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 IDF, as set forth in each
employment agreement.
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
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.
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
28
<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.
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"). 9,927,841 shares of Common stock and 2,966,400 shares of
convertible Preferred Stock are 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 1,166,400 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.
29
<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,
30
<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
31
<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
32
<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 "resident domestic corporation"
from engaging in a business combination with an interested shareholder (the
beneficial owner of 20% of the corporation's stock) for a period of five (5)
years from the time the shareholder acquired the stock in such resident domestic
corporation, unless certain conditions are met. A "resident domestic
corporation" is defined as a corporation (1) incorporated in New York with its
principal executive offices in New York as well as a significant portion of its
business operations; AND (2) having at least 10% of its stock
33
<PAGE>
beneficially owned by New York residents, and includes a corporation NOT having
its principal executive offices and significant business operations in New York,
if the corporation meets the other requirements above AND also, alone or in
combination with one or more subsidiaries, of which it owns at least 80% of the
voting stock, (i) has 250 or more employees employed primarily within New York
or (ii) has 25% or more of the total number of its own employees and those of
such subsidiaries so employed in New York.
A resident 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. The
formula price is the higher of the price paid by the interested shareholder or
the market value of the stock, computed as the higher of the value when acquired
or when the announcement of the business combination was made. Such a section
would appear harmful to a corporation because it might deter transactions that
would be in the best interests of the corporation although not in conformity
with the statute. New York law is further restrictive in that even after five
(5) years have passed from the time an entity or person became a 20%
shareholder, there may still be no business combinations between the shareholder
and the corporation UNLESS the shareholders agree to the combination OR all
shareholders receive a formula price. See ss. 912(c) of the Corporate Law.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
As of July 7, 1998, IDF had outstanding 9,927,841 shares of Common
Stock held by 164 record shareholders and over 300 beneficial shareholders.
IDF's Common Stock began being publicly traded on March, 19, 1998, and is
currently publicly traded, on the OTC 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
34
<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 (through July 7, $2.86 $2.00
1998) ......................................................
- -------------------------------------------------------------- ---------------------- ----------------------
</TABLE>
On July 7, 1998, the closing sale price for IDF Common Stock was $2.25.
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 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.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
35
<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.
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 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. 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.
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
36
<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.
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
37
<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.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Page(s)
-------
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------
Independent Auditors' Report F - 3
Consolidated Balance Sheets as of April 30, 1998 (unaudited) and July 31, 1997 F - 4
Consolidated Statements of Operations for the Nine Month Periods Ended April 30,
1998 and 1997 (unaudited) and for the Month of July 31, 1997 F - 6
Consolidated Statements of Shareholders' Equity for the Month of July 31, 1997 and
the Nine Month Period Ended April 30, 1998 (unaudited) F - 7
Consolidated Statements of Cash Flows for the Nine Month Periods Ended April 30,
1998 and 1997 (unaudited) and for the Month of July 31, 1997 F - 9
Notes to Consolidated Financial Statements F - 11
Independent Auditors' Report F - 26
Consolidated Balance Sheets as of June 30, 1997 and 1996 F - 27
Consolidated Statements of Operations for the Years Ended June 30, 1997 and 1996 F - 29
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1997
and 1996 F - 30
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997 and 1996 F - 31
Notes to Consolidated Financial Statements F - 33
TECHSTAR COMMUNICATIONS, INC.
-----------------------------
Independent Auditors' Report on Financial Statements F - 46
Balance Sheets as of July 31, 1997 and December 31, 1996 F - 47
Statements of Operations for the seven month period ended July 31, 1997
and for the year ended December 31, 1996 F - 48
Statements of Shareholders' Equity for the year ended December 31, 1996
and for the seven month period ended July 31, 1997 F - 49
Statements of Cash Flows for the seven month period ended July 31, 1997 and
for the year ended December 31, 1996 F - 50
Notes to Financial Statements F - 51
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
Introduction to Pro Forma Consolidated Statement of Operations F - 58
Pro Forma Consolidated Statement of Operations F - 59
Notes to Pro Forma Consolidated Statement of Operations F - 60
BROADCAST TOWER SITES, INC.
---------------------------
Page(s)
-------
INDEPENDENT AUDITORS' REPORT F - 61
BALANCE SHEETS - September 30, 1996 and December 31, 1995 F - 62
STATEMENTS OF OPERATIONS - for the nine months ended
September 30, 1996 and year ended December 31, 1995 F - 63
STATEMENTS OF SHAREHOLDERS' EQUITY - for the nine
months ended September 30, 1998 and year ended December 31, 1995 F - 64
STATEMENTS OF CASH FLOWS - for the nine months ended
September 30, 1996 and year ended December 31, 1995 F - 65
NOTES TO FINANCIAL STATEMENTS F - 66
F-1
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page(s)
-------
Independent Auditors' Report F - 3
Consolidated Financial Statements:
Consolidated Balance Sheets as of April 30, 1998 (unaudited) and July 31, 1997 F - 4
Consolidated Statements of Operations for the Nine Month Periods Ended April 30,
1998 and 1997 (unaudited) and for the Month of July 31, 1997 F - 6
Consolidated Statements of Shareholders' Equity for the Month of July 31, 1997 and
the Nine Month Period Ended April 30, 1998 (unaudited) F - 7
Consolidated Statements of Cash Flows for the Nine Month Periods Ended April 30,
1998 and 1997 (unaudited) and for the Month of July 31, 1997 F - 9
Notes to Consolidated Financial Statements F - 11
</TABLE>
F-2
<PAGE>
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, 1997 and the related
consolidated statement of operations, shareholders' equity and cash flows for
the month of July 1997. 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, 1997 and the results of their operations
and their cash flows for the month of July 1997 in conformity with generally
accepted accounting principles.
_______________________________
LAZAR LEVINE & FELIX LLP
New York, New York
November 14, 1997, except
for Note 14 which is dated
as of March 3, 1998
F-3
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS Page 1 of 2
- ASSETS (Notes 4 and 5) -
<TABLE>
<CAPTION>
<S> <C>
April 30, July 31,
1998 1997
----------- --------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents (Note 2f) $ 415,337 $ 4,719
Contract receivables - less allowances for doubtful accounts of
$380,000 and $341,500 for 1998 and 1997, respectively (Notes 2f, 3 and 11) 5,295,106 2,738,644
Costs and earnings in excess of billings on uncompleted contracts (Note 2b) 2,121,786 1,561,611
Prepaid expenses and other current assets 276,615 19,762
Deferred income taxes (Note 2e) 64,742 -
------------- -----------
TOTAL CURRENT ASSETS 8,173,586 4,324,736
------------- -----------
FIXED ASSETS (Notes 2c and 6):
Computer equipment 431,720 255,567
Furniture, fixtures and equipment 97,110 20,196
Automobiles 31,649 31,649
Leasehold improvements 81,054 73,737
Computer software 26,341 -
Survey equipment 154,912 -
------------- -----------
822,786 381,149
Less: accumulated depreciation and amortization (450,117) (282,242)
------------- ------------
372,669 98,907
------------- -------------
OTHER ASSETS:
Goodwill - net of accumulated amortization of $531,056 and $573,657 for 1998
and 1997, respectively (Note 2d) 8,226,258 2,555,382
Licenses - net of accumulated amortization of $2,953 (Note 2d) 154,547 -
Deferred costs - net of accumulated amortization of $75,733 and
$51,711 for 1998 and 1997, respectively (Note 2d) 88,867 19,889
Security deposits and other assets 108,709 64,406
------------- -------------
8,578,381 2,639,677
------------- -------------
$17,124,636 $7,063,320
=========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS Page 2 of 2
- LIABILITIES AND SHAREHOLDERS' EQUITY -
<TABLE>
<CAPTION>
<S> <C>
April 30, July 31,
1998 1997
----------- --------
(Unaudited)
CURRENT LIABILITIES:
Bank overdraft $ 183,323 $ 259,408
Short-term debt - subordinated (Note 4) 55,000 55,000
Revolving credit facility (Note 5) 2,638,326 1,782,744
Accounts payable 564,917 730,775
Billings in excess of costs and earnings on uncompleted contracts (Note 2b) - 153,472
Accrued wages, salaries and related costs (Note 7) 829,659 2,071,320
Current portion of long-term debt (Note 6) 112,421 44,535
Income taxes payable (Note 2e) 30,000 -
Other accrued expenses 578,289 1,097,146
------------- -----------
TOTAL CURRENT LIABILITIES 4,991,935 6,194,400
------------- -----------
LONG TERM LIABILITIES:
Long term debt-net of current portion (Note 6) 478,959 845,804
Deferred income taxes (Note 2e) 26,856 -
------------- -------------
505,815 845,804
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 10, 11, 12 and 13)
SHAREHOLDERS' EQUITY (Notes 8, 9 and 10):
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 preferred stock (aggregate liquidation
preference $1,458,230) 1,458,000 -
Common stock, $.001 par value, 120,000,000 shares authorized; 9,927,841
and 3,620,538 shares issued and outstanding for 1998 and 1997, respectively 9,928 3,621
Additional paid-in capital 10,875,469 3,388,111
Accumulated deficit (3,248,611) (3,350,716)
------------- -----------
11,644,786 41,016
Less: stock subscription receivable (17,900) (17,900)
------------- -------------
11,626,886 23,116
------------ -------------
$17,124,636 $7,063,320
=========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C>
For the Nine Months For the
Ended April 30, Month Ended
------------------------- July 31,
1998 1997 1997
---------- ------------ -----------
(Unaudited) (Unaudited)
CONTRACT REVENUE EARNED (Notes 2b and 11) $11,932,571 $8,668,813 $832,971
Cost of revenue earned 6,749,019 5,778,214 404,294
------------- ----------- ---------
GROSS PROFIT 5,183,552 2,890,599 428,677
Selling, general and administrative expenses 4,248,152 1,832,274 367,203
------------- ----------- ---------
INCOME FROM OPERATIONS 935,400 1,058,325 61,474
------------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense (740,680) (584,745) (52,812)
Other income 38,330 3,501 725
------------- -------------- ------------
(702,350) (581,244) (52,087)
------------- ------------ ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 233,050 477,081 9,387
Provision for income taxes (Note 2e) 54,945 - -
------------- ------------ ----------
NET INCOME $ 178,105 $ 477,081 $ 9,387
============= =========== ==========
BASIC EARNINGS PER SHARE (Note 2k): $.01 $.23 $ -
==== ==== =======
Diluted $.02 $.23 $ -
==== ==== =======
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING (Note 2k):
Basic 9,927,841 2,101,000 3,620,538
Diluted 10,999,107 2,101,000 3,620,538
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Page 1 of 2
<TABLE>
<CAPTION>
<S> <C>
8% Convertible 8% Convertible 8% Convertible
Preferred Series A Series B Series C Common
Shares Preferred Stock Preferred Stock Preferred Stock Shares
------ --------------- --------------- --------------- ------
Balance as of June 30, 1997 - $ - $ - $ - 3,620,538
Net income for the month - - - - -
--------- ----------- --------- ----------
Balance as of July 31, 1997 - - - - 3,620,538
Net income for the nine months - - - - -
Dividends declared-
Series A, B and C
Preferred Stock- paid
in additional Series C
stock (Note 9c) 60,800 - - 76,000 -
Stock issued (Notes 1, 8 and 9) 2,905,600 1,750,000 800,000 1,382,000 6,307,303
--------- ----------- --------- ----------- ---------
BALANCE AS OF APRIL 30, 1998 2,966,400 $1,750,000 $800,000 $1,458,000 9,927,841
========= ========== ======== ========== =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-7
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Page 2 of 2
----------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Additional Stock
Common Paid in Accumulated Subscription
Stock Capital Deficit Receivable Total
----- ------- ------- ---------- -----
Balance as of June 30, 1997 $3,621 $ 3,388,111 $(3,360,103) $(17,900) $ 13,729
Net income for the month - - 9,387 - 9,387
-------- ------------ ----------- -------- ---------
Balance as of July 31, 1997 3,621 3,388,111 (3,350,716) (17,900) 23,116
Net income for the nine months - - 178,105 - 178,105
Dividends declared
Series A,B and C
Preferred Stock-Paid
in additional Series C
Stock (Note 9c) - - (76,000) - -
Stock issued (Notes 1, 8 and 9) 6,307 7,487,358 - - 11,425,665
-------- ------------ ----------- -------- ---------
BALANCE AS OF APRIL 30, 1998 $9,928 $10,875,469 $(3,248,611) $(17,900) $11,626,886
====== ============ =========== ======== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-8
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 1 of 2
-------------------------------------
<TABLE>
<CAPTION>
<S> <C>
For the Nine Months For the
Ended April 30, Month Ended
------------------- July 31,
1998 1997 1997
------------- ------------- -----------
(Unaudited) (Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 178,105 $ 477,081 $ 9,387
Adjustments to reconcile net income to net cash (used in) operating
activities:
Depreciation and amortization 117,337 34,777 3,992
Bad debt provision (credit) (211,500) 65,000 34,500
Loss on disposal of fixed assets 9,076 - -
Amortization of goodwill 220,318 156,209 10,430
Amortization of deferred costs 108,354 39,778 3,977
Changes in operating assets and liabilities:
Decease (increase) in contract receivables 177,681 (233,072) 30,777
(Increase) in costs and earnings in excess of billings on uncompleted
contracts (560,175) (61,961) (159,689)
(Increase) decrease in prepaid expenses and other current assets (250,835) (47,983) 4,464
(Increase) in other assets (19,278) (91,282) -
(Decrease) increase in bank overdraft (76,085) (320,307) 7,615
(Decrease) in accounts payable (241,858) (533,807) (32,373)
(Decrease) increase in billings in excess of costs and earnings on
uncompleted contracts (153,472) - 63,822
(Decrease) increase in accrued wages, salaries and related costs (1,165,430) 74,141 (94,847)
(Decrease) increase in income taxes payable (117,586) - -
(Decrease) in deferred income (200,000) - -
(Decrease) increase in other current liabilities (769,550) (362,617) 37,847
------------- ------------ ------------
Net cash (used in) operating activities (2,954,898) (804,043) (80,098)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (144,855) (24,964) -
Proceeds from acquisition of subsidiary 155,500 - -
------------ ----------- ------------
Net cash provided by (used in) investing activities 10,645 (24,964) -
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in revolving credit facility 855,582 62,257 81,521
Payment of long-term debt (136,886) (33,589) (3,475)
Proceeds from convertible and other debt 3,000,000 800,000 -
Fees paid to acquire debt (393,000) - -
Increase in long-term debt 29,175 - -
------------ ----------- ------------
Net cash provided by financing activities 3,354,871 828,668 78,046
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 410,618 (339) (2,052)
Cash and cash equivalents, at beginning of period 4,719 64,960 6,771
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 415,337 $ 64,621 $ 4,719
============ ============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-9
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 2 of 2
<TABLE>
<CAPTION>
<S> <C>
For the Nine Months For the
Ended April 30, Month Ended
--------------------------- July 31,
1998 1997 1997
------------ ----------- ------------
(Unaudited) (Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest $398,475 $500,687 $ 46,754
Income taxes 24,945 - -
NON-CASH TRANSACTIONS:
During the nine months ended April 30, 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 nine months ended April 30, 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 nine months ended April 30, 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 nine months ended April 30, 1998 the Board of Directors authorized
the inssuance of 60,800 shares of Series C preferred stock in payment of
preferred stock dividends in the aggregate amount of $ 76,000 for the three
months ended April 30, 1998.
During the nine months ended April 30, 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 nine months ended April 30, 1998, the Company assumed $300,000 of
debt of the parent on notes payable to former shareholders of TechStar (see Note
1).
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-10
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
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 new
fiscal year end, 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. 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. The fair market value of the stock
issued in conjunction with this transaction was not
determinable at the time that the prior year's audited
financial statements were issued, and accordingly, goodwill if
any, arising from the acquisition of 63% of IDF by AUGI was not
reflected in the proforma information at that time (see Note
14). In January 1998, IDF obtained a valuation for 100% of its
common stock as of July 31, 1997. As a result, the transaction
was accounted for by the purchase method of accounting in the
aggregate value of $2,242,461. The fair market value of the
liabilities acquired exceeded the fair market value of the
assets (excluding goodwill) and resulted in the recording of
goodwill in the amount of $3,693,931 on the books of IDF in
accordance with the push down theory of accounting. 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.
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.
F-11
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
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.
(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.
F-12
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Intangible Assets:
The Company amortizes goodwill over lives ranging from 25 years
to 40 years using the straight-line method. Amortization
expense for the month of July 31, 1997 was $10,430.
Amortization expense for the nine month periods ended April 30,
1998 and 1997 was $220,318 and $156,209, respectively (see Note
1).
The Company periodically assesses the recoverability of
goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered
through projected undiscounted future results. The amount of
goodwill impairment, if any, is based upon such projected
undiscounted future earnings before interest and income taxes.
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 month
of July 31, 1997 was $3,977. Amortization expense charged to
operations for the nine month periods ended April 30, 1998 and
1997 was $97,095 and $39,778, respectively (see Note 8a).
Deferred costs (associated with TechStar) 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 nine
months ended April 30, 1998 was $4,173.
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 nine months ended April 30, 1998 was
$4,133.
In connection with the reverse acquisition (see Note 1), the
Company valued its existing licenses acquired by AUGI at
$157,500. Licenses are being amortized on a straight-line basis
over 40 years. Amortization expense charged to operations for
the nine months ended April 30, 1998 was $2,953.
F-13
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(e) Income Taxes:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
<S> <C>
(Unaudited)
For the Nine Months
Ended April 30,
----------------------- July 31,
1998 1997 1997
--------- ----------- ---------
Current taxes:
Federal $ 56,000 $ 169,000 $ 3,000
State 16,000 49,000 1,000
--------- ----------- ---------
72,000 218,000 4,000
Benefit of operating loss carryforwards (72,000) (218,000) (4,000)
--------- --------- --------
Total current taxes - - -
Prior years alternative taxes 54,945 - -
--------- --------- --------
Provision for income taxes $54,945 $ - $ -
========= ========= ========
</TABLE>
At April 30, 1998, the Company has available net operating loss
carryforwards of approximately $2,100,000, which expire in
various years through 2011. As a result of the reverse
acquisition described in Note 1, this net operating loss
carryforward which is subject to annual limitations, can only
be applied against taxable income of Hayden-Wegman.
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences; and operating loss and tax credit carryforwards
and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. 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.
SFAS 109 requires recognition of future tax benefits such as
net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not.
Accordingly, the Company has established a 100% valuation
allowance against the deferred tax assets of Hayden-Wegman of
approximately $945,000, resulting principally from net
operating loss carryforwards, until Hayden-Wegman realizes
taxable income and utilizes (as limited by IRS regulations)
such net operating loss carryforwards against taxable income.
(f) Concentration of Credit Risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts receivable.
F-14
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) Concentration of Credit Risk (continued):
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 April 30, 1998 and July 31, 1997, 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 as the
interest rates on these obligations approximate current market
conditions.
(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. There was no
advertising expense for month of July 31, 1997. Advertising
expense was $89,867 and $1,000 for the nine months ended April
30, 1998 and 1997, respectively.
(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) 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 of 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 had already planned on upgrading its computer software
to increase operational efficiencies and information analysis
and will ensure that the new systems properly utilize dates
beyond December 31, 1999. The cost of this upgrade project, as
it relates to the year 2000 issue, is not expected to have a
material effect on the operations of the Company and will be
funded through operating cash flows.
F-15
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 3 - CONTRACT AND ACCOUNTS RECEIVABLE:
Contract and accounts receivable consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
April 30, July 31,
1998 1997
-------- --------
Billed:
Completed contracts $1,607,643 $ 407,661
Contracts in progress 3,816,274 2,343,582
Retainage 251,189 328,901
------------ ------------
5,675,106 3,080,144
Less: allowances for doubtful amounts 380,000 341,500
------------ ------------
$5,295,106 $2,738,644
============ ============
</TABLE>
NOTE 4 - SHORT-TERM DEBT - SUBORDINATED:
Short-term debt - subordinated consists of the remaining
balance of certain notes 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 5). The remaining noteholders
have the option 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 Company is currently in
default as regards to the payment of the remaining balance of
$55,000. In February 1998, these remaining noteholders agreed
to convert their outstanding debt and accrued interest into
shares of the Company's common stock at a conversion price of
$1.25. As of April 30, 1998, these liabilities had not been
converted, and accordingly, are still reflected as liabilities.
NOTE 5 - REVOLVING CREDIT FACILITY:
Hayden-Wegman has a $3.0 million revolving credit facility
agreement with a lender. As of April 30, 1998 and July 31,
1997, the outstanding borrowings under this facility amounted
to $2,638,326 and $1,782,744, respectively. 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.
F-16
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 6 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
<S> <C>
The principal amounts due are as follows:
April 30, July 31,
1998 1997
-------- -------
Term loan payable to a shareholder/board member in the original
amount of $800,000 which was payable in full on January 8,
1998. The loan bore interest at the rate of prime plus 1%, with
the first interest payment due for the months July through
December 1996, in January 1997. This loan was also subject to
certain repayment terms in the event of additional financing by
the Company and is secured by substantially all of the assets
of the Company subject to subordination to its lending
institution (see Note 5). The Company also issued 400,000
shares of its common stock valued at $71,600 as additional
consideration.
Subsequent to the Company's fiscal year end, and as a
consideration to the merger, and subject to an amendment to the
certificate of incorporation of the Company, this loan together
with any interest due thereon, was automati cally converted
into seven year redeemable convertible 8% Series B preferred
stock of the Company at a conversion price of $2.00 per share.
Accordingly, this debt was reclassified from current
liabilities to long-term debt retroactively.
-- $800,000
Note payable to the former shareholders of TechStar (see
Note 1) due in December 1999. This debt bears interest of
8% per annum. 300,000 --
Secured Equipment notes payable in monthly installments of
$7,157 through November 1999. The rate of interest on these
notes are between 7% and 8.25% 81,517 --
</TABLE>
F-17
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 6 - LONG-TERM DEBT (Continued):
<TABLE>
<CAPTION>
<S> <C> <C>
April 30, July 31,
1998 1997
----------- ----------
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
period ended April 30, 1998, IDF paid $ 62,581 of this debt by
offsetting expenses paid by IDF on behalf of AUGI in the
same amount. 152,419 -
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 its landlord (see Note 12a). 57,444 90,339
---------- ----------
591,380 890,339
Less: current maturities 112,421 44,535
--------- ----------
$478,959 $845,804
========= ==========
At April 30, 1998, the annual scheduled principal payments of
long-term debt are $112,421, $352,374, $-0- and $126,585 for
each of the next four years, respectively.
</TABLE>
NOTE 7 - ACCRUED WAGES, SALARIES AND RELATED COSTS:
Accrued wages, salaries and related costs consist of the
following:
<TABLE>
<CAPTION>
<S> <C> <C>
April 30, July 31,
1998 1997
---------- -----------
Wages and salaries $328,036 $ 223,438
Payroll withholding and taxes in arrears including
applicable interest and penalties (a) 277,379 1,389,185
Savings and investment plan including applicable
interest and penalties (b) 21,850 275,755
Benefits, fringes and other 202,394 182,942
--------- ------------
$829,659 $2,071,320
========= ============
</TABLE>
F-18
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 7 - ACCRUED WAGES, SALARIES AND RELATED COSTS (Continued):
(a) 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. Since the first quarter of 1997, the Company has been
making timely payroll withholding tax payments to federal and
state tax jurisdictions. During the nine month period ended
April 30, 1998 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 have been paid.
(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.
During the nine month period ended April 30, 1998, and as a
condition to the merger, the Company became current with
respect to all known outstanding obligations relative to the
defined contribution savings and investment plan.
NOTE 8 - CONVERTIBLE DEBT / PREFERRED STOCK:
(a) In September, 1997, subsequent to the Company's fiscal year
end, 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 $342,500 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). In April 1998, the
Board of Directors authorized the issuance of $ 60,800 shares
of Series C preferred stock in payment of preferred stock
dividends in the aggregate amount of $ 76,000 for the three
months ended April 30, 1998. Accordingly, unamortized deferred
issue costs in the amount of $293,384 was offset against
additional paid-in capital (see Note 9).
(b) Also in January 1998, subsequent to the Company's fiscal year
end, 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-19
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 9 - SHAREHOLDER EQUITY AND ISSUANCE OF STOCK:
During the nine month period ended April 30, 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 preferred stock. The rights and preferences of the
Series C preferred stock shall be designated by the Board of
Directors in its discretion and without further vote of
shareholders.
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.
(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 8a).
See Notes 1 and 8 regarding other share issuances.
NOTE 10 - STOCK OPTIONS:
As a result of the reverse acquisition as described in Note 1,
IDF issued an aggregate of 856,550 options to acquire common
stock of the Company for $1.25 per share to key personnel of
TechStar. 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, those options for additional common stock of
IDF.
IDF has established an option pool consisting of an aggregate
of 131,777 additional performance options for certain of its
management personnel and other key employees.
To date, no options have been exercised.
NOTE 11 - MAJOR CUSTOMERS:
For the nine month periods ended April 30, 1998 and 1997,
revenue earned from one customers was in excess of 10% of total
revenues and amounted to approximately $1,714,000 and
$1,386,000, respectively. At April 30, 1998 and 1997, contract
receivables from this customers amounted to approximately
$491,000 and $1,249,000, respectively.
For the month of July 31, 1997, revenue earned from two
customers were each in excess of 10% of total revenues and
amounted to approximately $221,000 and $136,000, respectively.
At July 31, 1997, contract receivables from these customers
amounted to approximately $590,000 and $485,000, respectively.
F-20
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 12 - PROFIT SHARING PLAN:
During the nine month period ended April 30, 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 nine months ended
April 30, 1998.
NOTE 13 - 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 2001. The Company
also leases certain vehicles and equipment under operating
leases expiring in various years through 2002. Minimum future
rental payments under non-cancelable operating leases having
remaining terms in excess of one year, as of January 31, 1998,
are as follows:
Year Ending July 31,
--------------------
1998 $ 446,446
1999 624,612
2000 595,341
2001 534,541
2002 786
---------------
$2,201,726
===============
Rent expense was $32,802 for the month of July 31, 1997. Rent
expense was $521,354 and $246,358 for the nine month periods
ended April 30, 1998 and 1997, respectively. 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 6).
(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 $1,000,000 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 and intends to vigorously defend it.
F-21
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):
(c) Litigation:
(ii) TechStar is involved in a contract dispute with a vendor
over engineering services provided to TechStar by the
vendor. According to the management of TechStar, the
vendor filed a claim in the amount of $ 216,000 plus
interest against TechStar. TechStar notified the vendor
(through its attorney) that the vendor's work was
unacceptable by the customer, causing TechStar to incur
additional cost to complete the project and also causing
TechStar to lose the contract with the customer.
TechStar's customer agrees with these assertions and has
been helpful in assisting TechStar with its investigative
discovery process. Furthermore, TechStar 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 TechStar 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.
(iii) From time-to-time the Company is also involved in various
other litigation matters. At April 30, 1998, management
does not believe that any 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. 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 (see Note 10).
(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.
F-22
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of and for the Periods Ended
April 30, 1998 and 1997 is Unaudited)
NOTE 14 - ACQUISITION:
Effective August 1, 1997, Company completed a reverse
triangular merger (see Note 1) with TechStar. This merger was
accounted for by the Company as a reverse acquisition of the
Company by TechStar. Accordingly, financial statements in the
future will reflect a consolidation of TechStar's assets and
liabilities using historical cost with IDF's assets and
liabilities using fair value excluding goodwill to the extent
acquired (approximately 63%) and historical cost for the
remainder. In January 1998, IDF obtained a valuation for 100%
of its common stock as of July 31, 1997. Accordingly, a
proforma presentation of consolidated assets and liabilities
was subsequently prepared utilizing fair values instead of
historical costs. The following table presents, on a proforma
basis, a condensed consolidated balance sheet at July 31, 1997,
giving effect to the acquisition as if it had occurred on that
date.
Unaudited Proforma
July 31, 1997
-------------
Assets:
Current assets $ 7,302,000
Net fixed assets 355,000
Intangible assets, net 9,129,000
-------------
$16,786,000
=============
Liabilities and Equity:
Current liabilities $ 4,596,000
Long-term debt 4,129,000
Shareholders' equity 8,061,000
-------------
$16,786,000
===========
The following unaudited, proforma, condensed consolidated
financial information assumes the acquisition occurred at
December 11, 1996, which is the date on which TechStar was
acquired by its former parent AUGI (see Note 1). Accordingly,
the following proforma, condensed consolidated financial
information reflects the operations of the Company for the
periods indicated. The results do not purport to be indicative
of what would have occurred had the acquisition actually been
made at December 11, 1996 or of the results which may occur in
the future.
<TABLE>
<CAPTION>
<S> <C>
For the Period For the Month
from December 11, Ended
1996 to April 30, 1997 July 31, 1997
---------------------- -------------
Net sales $12,700,000 $1,679,000
Income from operations 2,223,000 342,000
Net income 1,047,000 181,000
</TABLE>
F-23
<PAGE>
Note 15 - Business Segment Information:
The Companies operations have been classified into two business
segments: Civil engineering and telecommunication consulting.
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 telecommunication 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 information by business segment for the
Nine Months ended April 30, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net Sales-
CE $ 7,306,764
TC 4,625,807
------------
$ 11,932,571
============
Operating Income
CE 940,832
TC (5,432)
------------
$ 935,400
============
Total Assets
CE $ 10,781,149
TC 6,334,189
------------
$ 17,115,338
============
Deprecitation & Amitization
CE $ 253,668
TC 192,341
------------
$ 446,009
============
Capital expanditures
CE $ 49,074
TC 75,565
------------
$ 124,639
============
</TABLE>
F-24
<PAGE>
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Page(s)
-------
Independent Auditors' Report on Consolidated Financial Statements F - 26
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 and 1996 F - 27
Consolidated Statements of Operations for the Years Ended June 30, 1997 and 1996 F - 29
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1997
and 1996 F - 30
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997 and 1996 F - 31
Notes to Consolidated Financial Statements F - 33
</TABLE>
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholders
IDF International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of IDF
International, Inc. and subsidiaries, d/b/a Hayden-Wegman, Inc., as of June 30,
1997 and 1996 and the related consolidated statements of operations,
shareholders' equity and cash flows for the years 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IDF International,
Inc. and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
_______________________________
LAZAR LEVINE & FELIX LLP
New York, New York
October 23, 1997, except for
Note 12(a) which is dated as
of March 3, 1998
F-26
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
CONSOLIDATED BALANCE SHEETS Page 1 of 2
AS OF JUNE 30, 1997 AND 1996
- ASSETS (Notes 4, 5, 6 and 7) -
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 6,771 $ 5,730
Contract receivables - less allowances for doubtful accounts of $307,000 and
$193,314 for 1997 and 1996, respectively (Notes 2f, 3 and 9) 2,766,666 3,126,654
Costs and earnings in excess of billings on uncompleted contracts (Note 2b) 1,401,922 1,289,939
Prepaid expenses and other current assets 24,226 67,478
------------- -------------
TOTAL CURRENT ASSETS 4,199,585 4,489,801
----------- -----------
FIXED ASSETS (Notes 2c):
Computer equipment 255,567 225,171
Furniture, fixtures and equipment 20,196 20,196
Automobiles 31,649 31,649
Leasehold improvements 73,737 73,737
------------- -------------
381,149 350,753
Less: accumulated depreciation and amortization 278,250 230,281
------------ ------------
102,899 120,472
------------ ------------
OTHER ASSETS:
Goodwill - net of accumulated amortization of $563,227 and $438,066
for 1997 and 1996, respectively (Note 2d) 2,565,812 2,690,973
Deferred issue and discount costs-net of accumulated amortization of
$47,734 and $22,919 for 1997 and 1996, respectively (Note 2d) 23,866 22,583
Security deposits and other assets 64,406 64,208
------------- -------------
2,654,084 2,777,764
------------- -------------
$6,956,568 $7,388,037
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-27
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
CONSOLIDATED BALANCE SHEETS Page 2 of 2
AS OF JUNE 30, 1997 AND 1996
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
-------------- ---------------
CURRENT LIABILITIES:
Bank overdraft $ 251,793 $ 147,700
Short-term debt - subordinated (Note 4) 55,000 800,000
Revolving credit facility (Note 5) 1,663,968 2,290,400
Accounts payable 763,148 1,420,352
Billings in excess of costs and earnings on uncompleted contracts (Note 2b) 89,650 -
Accrued wages, salaries and related costs (Notes 7 and 10) 2,159,263 2,987,314
Current portion of long-term debt (Note 6) 44,092 40,436
Other accrued expenses 1,066,203 1,957,594
------------ -----------
TOTAL CURRENT LIABILITIES 6,093,117 9,643,796
------------ -----------
LONG TERM LIABILITIES:
Long term debt-net of current portion (Note 6) 849,722 118,815
-------------- ------------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)
SHAREHOLDERS' EQUITY (DEFICIT) (Note 8):
Common stock, $.001 par value, 120,000,000 shares authorized; 3,620,538 and
1,494,000 shares issued and outstanding for
1997 and 1996, respectively 3,621 1,494
Additional paid-in capital 3,388,111 1,902,037
Accumulated deficit (3,360,103) (4,278,105)
----------- ------------
31,629 (2,374,574)
Less: stock subscription receivable (Note 8d) (17,900) -
------------- ------------
13,729 (2,374,574)
-------------- ------------
$ 6,956,568 $ 7,388,037
============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-28
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------------- -------------
CONTRACT REVENUE EARNED (Notes 2b and 9) $11,269,590 $11,725,198
Cost of revenue earned 5,655,732 6,211,427
------------- -------------
GROSS PROFIT 5,613,858 5,513,771
Selling, general and administrative expenses (Note 10) 3,930,232 5,131,303
------------- -------------
INCOME FROM OPERATIONS 1,683,626 382,468
------------- --------------
OTHER INCOME (EXPENSES):
Interest expense (863,741) (872,461)
Other income (expenses) - net (Note 7) 98,117 (160,341)
-------------- --------------
(765,624) (1,032,802)
-------------- --------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 918,002 (650,334)
Provision for income taxes (Note 2e) - -
-------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 918,002 (650,334)
Extraordinary item - gain on extinguishment of debt (Note 13) - 1,933,577
-------------- -------------
NET INCOME $ 918,002 $ 1,283,243
============= ============
EARNINGS (LOSS) PER COMMON SHARE (Note 2k):
Income (loss) before extraordinary item $.41 $ (.43)
Extraordinary item - 1.29
------- ------
$.41 $ .86
==== ======
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note 2k) 2,259,500 1,494,000
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-29
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden - Wegman Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C>
Additional Stock
Common Common Paid in Accumulated Subscription
Shares Stock Capital Deficit Receivable Total
---------- -------- ---------- ------------ ------------ ------------
Balance as of June 30, 1995 1,076,000 $1,076 $1,827,455 $(5,561,348) $ - $(3,732,817)
Net income for the year - - - 1,283,243 - 1,283,243
Stock issued (Note 8) 418,000 418 74,582 - - 75,000
---------- -------- ---------- ------------ ------------ ------------
Balance as of June 30, 1996 1,494,000 1,494 1,902,037 (4,278,105) - (2,374,574)
Net income for the year - - - 918,002 - 918,002
Stock issued (Notes 4, 6 and 8) 2,126,538 2,127 1,486,074 - - 1,488,201
Unpaid shares (Note 8) - - - - (17,900) (17,900)
---------- -------- ---------- ------------ ------------ ------------
BALANCE AS OF JUNE 30, 1997 3,620,538 $3,621 $3,388,111 $(3,360,103) $(17,900) $ 13,729
========== ====== ========== ============ ======== =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-30
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 1 of 2
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
-------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 918,002 $ 1,283,243
Adjustments to reconcile net income to net cash (used in) operating activities:
Depreciation and amortization 47,967 63,065
Bad debt provision 113,686 69,264
Gain on extinguishment of debt - (1,933,577)
Amortization of goodwill 125,161 125,162
Amortization of deferred costs 70,317 34,679
Changes in operating assets and liabilities:
Decrease (increase) in contract receivables 246,302 (1,017,046)
(Increase) decrease in costs and earnings in excess of billings on
uncompleted contracts (111,983) 485,772
Decrease in prepaid expenses and other current assets 43,252 6,625
(Increase) in other assets (198) (9,649)
Increase in bank overdraft 104,093 7,708
(Decrease) increase in accounts payable (567,204) 137,089
Increase (decrease) in billings in excess of costs and earnings on
uncompleted contracts 89,650 (29,954)
(Decrease) increase in accrued wages, salaries and related costs (828,051) 238,490
(Decrease) increase in other current liabilities (675,590) 392,145
---------- --------------
Net cash (used in) operating activities (424,596) (146,984)
---------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (30,394) (5,520)
----------- ---------------
Net cash (used in) investing activities (30,394) (5,520)
----------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in revolving credit facility (626,432) 56,183
Proceeds from long-term debt 800,000 25,000
Payment of note payable - bank (25,000) -
Payment of deferred rent note (40,437) -
Proceeds from sale of common stock 347,900 75,000
---------- ---------------
Net cash provided by financing activities 456,031 156,183
---------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,041 3,679
Cash and cash equivalents, at beginning of year 5,730 2,051
------------ ----------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 6,771 $ 5,730
=========== ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-31
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 2 of 2
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest $778,415 $648,225
NON-CASH TRANSACTIONS:
During the year ended June 30, 1997 the Company issued 400,000 shares of its
common stock as additional consideration to the lender of the term loan in the
amount of $800,000 (see Note 6). For financial statement purposes, these shares
were valued at $71,600 and reflected as deferred issue and discount costs.
During the year ended June 30, 1997 certain note holders, representing $745,000
of the original principal amount of $800,000, converted their outstanding debt
and accrued interest of $149,000 into 715,200 shares of the Company's common
stock (see Note 4).
During the year ended June 30, 1997 the Company issued 110,334 shares of stock
to the holder of a term note as payment for accrued interest in the amount of
$66,200 (see Note 8b).
During the year ended June 30, 1997 the Company issued 259,334 shares of common
stock to an affiliate of one of the board members of the Company as repayment of
prior years management fees in the amount of $90,000, a $65,000 loan and accrued
interest in the amount of $600 (see note 8c).
During the year ended June 30, 1997 the Company granted stock options to two key
employees to purchase 50,000 shares each of its common stock. These options were
exercised and are reflected as stock subscriptions receivable valued at $17,900
as of June 30, 1997. (See Note 8d)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-32
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS:
Hayden-Wegman International Ltd. ("Limited") formerly H/W
Acquisition, Inc. was organized under the laws of the State of
Delaware on December 1, 1992 and on December 30, 1992 acquired
all of the outstanding stock of Hayden-Wegman, Inc.
("Hayden-Wegman").
On November 3, 1993, the stockholders of Limited exchanged all
of their shares of common stock for 550,000 newly issued,
unregistered shares of common stock of IDF International, Inc.
("IDF"), an inactive public company, which had 250,000 shares
outstanding and whose only assets were cash and loans
receivable from Limited. The transaction was accounted for as a
pooling of interests.
IDF International, Inc., and subsidiaries (the "Company") 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 Company is the holder of a State of New York
corporate professional engineering license.
Effective August 1, 1997, subsequent to the balance sheet date,
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. In
addition, certain officers of TechStar received options to
acquire an additional 8% of the Company pursuant to their
employment agreements. See note 12 of these Notes for further
information.
TechStar was incorporated in the State of Delaware in February
1994 and is in the business of locating 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounted 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.
F-33
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(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.
(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
Leasehold improvements are amortized over the terms of the
lease.
(d) Intangible Assets:
The excess of cost over the fair value of the business acquired
(goodwill), is being amortized using the straight-line method
over 25 years. Amortization expense for each of the years ended
June 30, 1997 and 1996 was $125,161 and $125,162, respectively
(see Note 12).
The Company periodically assesses the recoverability of
goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered
through projected undiscounted future results. The amount of
goodwill impairment, if any, is based upon such projected
undiscounted future earnings before interest and income taxes.
F-34
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Intangible Assets (continued):
Debt issue and discount costs, which were incurred with the
issuance of short-term notes, are being amortized on a
straight-line basis over the terms of the notes. Amortization
expense charged to operations for the years ended June 30, 1997
and 1996 was $70,317 and $34,679, respectively.
(e) Income Taxes:
Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standard No. 109 ("SFAS 109"), "Accounting
for Income Taxes", which requires the Company to recognize
deferred tax assets and liabilities for future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis.
The provision for income taxes for the year ended June 30, 1997
consists of the following:
Current taxes:
Federal $ 326,000
State 94,000
----------
420,000
Benefit of operating loss carryforwards (420,000)
----------
Provision for income taxes $ -
==========
At June 30, 1997, the Company has available net operating loss
carryforwards of approximately $2,300,000, which expire in 2010
and 2011.
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences; and operating loss and tax credit carryforwards
and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. 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
on tax laws on the date of enactment.
SFAS 109 requires recognition of future tax benefits such as
net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not.
Accordingly, the Company has established a 100% valuation
allowance against the deferred tax assets of approximately
$1,050,000, resulting principally from net operating loss
carryforwards, until the Company realizes taxable income and
utilizes (as limited by IRS regulations) such net operating
loss carryforwards against taxable income.
(f) Concentration of Credit Risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of contract
receivables.
The Company believes that risk with regards to contract
receivables is limited due to the make-up of its customer base
which consists primarily of state and local government agencies
which are concentrated in the northeast region of the United
States.
F-35
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(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:
At June 30, 1997 and 1996, 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.
(i) 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.
(j) Advertising:
The Company expenses advertising as incurred. Advertising
expense was $844 and $2,051 for the years ended June 30, 1997
and 1996, respectively.
(k) Earnings (Loss) Per Share:
Earnings (loss) per share has been computed on the basis of the
weighted average number of common shares and common equivalent
shares outstanding during each period presented.
F-36
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 3 - CONTRACT RECEIVABLES:
Contract receivables consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
-------------- ------------
Billed:
Completed contracts $ 362,464 $ 157,152
Contracts in progress 2,390,208 2,917,514
Retainage 320,994 245,302
------------ ------------
3,073,666 3,319,968
Less: allowances for doubtful amounts 307,000 193,314
------------ ------------
$2,766,666 $3,126,654
========== ==========
</TABLE>
NOTE 4 - SHORT-TERM DEBT:
Short-term debt consists of notes issued in 1994, in the
original amount of $800,000, bearing interest at 8% per annum,
due on or before April 15, 1995 and extended to October 15,
1995. In conjunction with the issuance of these notes the
Company granted to the note holders 3,000 shares of common
stock for each $10,000 of principal amount of notes,
aggregating 240,000 shares. The Company valued the shares at
$120,000, which was accounted for as debt discount. These notes
are secured by substantially all the assets of the Company and
are subordinated to the Company's lending institution (see Note
5). Accrued but unpaid interest on these outstanding notes
amounted to $13,743 and $135,900 at June 30, 1997 and 1996,
respectively. The noteholders have the option to convert all or
a portion of unpaid principal and interest into such number of
fully paid and nonassessable shares of common stock of the
Company at a conversion price of $2.00 per share. In February
1997, 38 of 41 note holders representing $745,000 of the
original principal amount of $800,000 converted their
outstanding debt and accrued interest of $149,000 into 715,200
shares of the Company's common stock as provided for in the
debt agreements, at a reduced conversion price of $1.25 per
share. The Company is currently in default as regards to the
payment of the remaining balance of $55,000.
The Company incurred expenses connected with the issuance of
the notes aggregating $107,000, which includes the estimated
value of 36,000 shares issued to the placement agent and
finders for the offering.
NOTE 5 - REVOLVING CREDIT FACILITY:
In November 1994, the Company entered into a $2.5 million
revolving credit facility agreement with a lender. The credit
limit was subsequently increased to $3.0 million in April 1995.
As of June 30, 1997 and 1996, the outstanding borrowings under
this facility amounted to $1,663,968 and $2,290,400,
respectively. Under this agreement the Company has pledged
substantially all
F-37
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C>
NOTE 5 - REVOLVING CREDIT FACILITY (Continued):
of its contract receivables and other tangible and intangible
assets. In accordance with the agreement the Company 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 the Company 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. The Company has the option to repurchase portions of
the receivable pools from the lender.
NOTE 6 - LONG-TERM DEBT:
At June 30, 1997 the principal amounts due are as follows:
Term loan payable to a shareholder/board member in the
original amount of $800,000 which is payable in full on
January 8, 1998. The loan bears interest at the rate of prime
plus 1%, with the first interest payment due for the months
July through December 1996, in January 1997. This loan is
also subject to certain repayment terms in the event of
additional financing by the Company and is secured by
substantially all of the assets of the Company subject to
subordination to its lending institution (see Note 5). The
Company also issued 400,000 shares of its common stock
valued at $71,600 as additional consideration. $800,000
Subsequent to the balance sheet date, as a condition to the
merger, and subject only to an amendment to the certificate
of incorporation of the Company, this loan together with any
interest due thereon, shall be automatically converted into
seven year redeemable convertible 8% Series B preferred stock
of the Company at a conversion price of $2.00 per share.
Accordingly, this debt has been reclassified from current
liabilities to long-term debt retroactively, until converted
to equity in the subsequent period.
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 the
Company's obligations to its landlord (See Note 11a). 93,814
-----------
893,814
Less: current maturities 44,092
-----------
$ 849,722
===========
</TABLE>
F-38
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 6 - LONG-TERM DEBT (Continued):
At June 30, 1997, the annual scheduled principal payments of
long-term debt (excluding the conversion of the Term loan
into preferred stock - see Note 12b (iv)) are $44,092 and
$49,722 for each of the next two years, respectively.
NOTE 7 - ACCRUED WAGES, SALARIES AND RELATED COSTS:
Accrued wages, salaries and related costs consist of the
following at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
-------------- -------------
Wages and salaries $ 230,431 $ 410,937
Payroll withholding and taxes in arrears including
applicable interest and penalties (a) 1,477,189 1,867,552
Savings and investment plan including applicable
interest and penalties (b) 268,164 533,069
Benefits, fringes and other 183,479 175,756
------------ ------------
$2,159,263 $2,987,314
========== ==========
</TABLE>
(a) 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. Interest and penalties charged to operations and
included in other expenses on the consolidated statements of
operations amounted to $169,903 for the year ended June 30,
1996. Since the first quarter of 1997, the Company has been
making timely payroll withholding tax payments to federal and
state tax jurisdictions. Subsequent to June 30, 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 have been paid.
(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 and $533,000 as of
June 30, 1997 and 1996, respectively. Subsequent to June 30,
1997, and as a condition to the merger, the Company became
current with respect to all known outstanding obligations
relative to the defined contribution savings and investment
plan.
F-39
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 8 - SALES AND ISSUANCES OF STOCK:
During the year ended June 30, 1997, the following transactions
were authorized by the Company's Board of Directors:
(a) Issuance of 441,670 shares of stock to investors for an
equity investment of $282,900.
(b) Issuance of 110,334 shares of stock to the holder of the
term note (see Note 6) as payment for accrued interest in
the amount of $66,200 and the issuance of 100,000 shares
for an equity investment of $17,900.
(c) Issuance of 259,334 shares of stock to an affiliate of
one of the board members of the Company as repayment for
(i) prior years management fees in the amount of $90,000,
(ii) a 1997 loan in the amount of $65,000 and (iii)
accrued interest in the amount of $600.
(d) Issuance of 50,000 shares each to two employees of the
Company upon the exercise of their options to purchase
shares at $0.179 per share. The value of these shares,
which amounted to $17,900 was unpaid as of June 30, 1997.
During the year ended June 30, 1996, IDF's Board of Directors
authorized the issuance of 418,000 shares of stock to two
investors in return for an equity investment of $75,000.
See Notes 4 and 6 regarding other share issuances.
NOTE 9 - MAJOR CUSTOMERS:
For the year ended June 30, 1997, revenue earned from three
customers were each in excess of 10% of total revenues and
amounted to approximately $2,193,000, $1,807,000 and
$1,439,000, respectively. At June 30, 1997, contract
receivables from these customers amounted to approximately
$1,126,000, $190,000 and $292,000, respectively.
For the year ended June 30, 1996, revenues earned from four
customers were each in excess of 10% of total revenues and
amounted to approximately $1,814,000, $2,041,000, $2,472,000
and $1,691,000, respectively. At June 30, 1996, contract
receivables from these customers amounted to approximately
$406,000, $478,000, $580,000 and $243,000, respectively.
F-40
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 10 - REDUCTION OF PRIOR YEAR ACCRUALS:
Prior to July 1, 1995, the Company had established accruals
with two vendors for insurance and reproduction costs in the
amounts of $640,486 and $113,926, respectively. Subsequent to
June 30, 1997, these accruals were settled with the respective
vendors for $260,000 and $57,500, respectively. Accordingly,
these accruals have been reduced in the aggregate amount of
$436,912. The reversal of the accruals has been retroactively
reflected in the statement of operations for the year ended
June 30, 1997.
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
(a) The Company leases its facilities 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 2001. The Company also leases certain vehicles
and equipment under operating leases expiring in various years
through 2000. Minimum future rental payments under
noncancelable operating leases having remaining terms in excess
of one year, as of June 30, 1997, are as follows:
Year Ending June 30,
--------------------
1998 $186,970
1999 184,800
2000 172,689
2001 157,325
---------
$701,784
========
Rent expense was $348,000 and $540,000 for the years ended June
30, 1997 and 1996, respectively. The Company's lease on its
headquarters office space was restructured due to the Company
being in arrears with respect to its lease obligation. The
terms of the restructured lease provide for the Company to rent
on a month to month basis through November 1997 (See also Note
6).
(b) The Company is a party to various litigation matters as follows:
(i) A former employee of the Company commenced an action that
is pending before the Supreme Court of the State of New
York in which he is seeking, from the Company,
compensatory damages of $1,000,000 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. The Company has filed an answer denying the
claim and intends to vigorously defend it.
F-41
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued) :
(ii) From time to time the Company is involved in various
litigation matters. At June 30, 1997, management does not
believe that any pending matters are material to the
financial statements.
(c) The Company had an employment agreement with its President
which was to expire on October 31, 1998. The agreement provided
for salary, bonus and other benefits, as well as other terms of
employment. The aggregate commitment for annual salaries,
excluding bonuses and other benefits, was approximately
$260,000 for each fiscal year through 1998.
The President was terminated on April 15, 1996. In an agreement
reached between the Company and the former President, he
released all salary and bonus benefit claims against the
Company in exchange for the purchase of his existing stock and
bond holdings in the Company, for $96,000, by a shareholder of
the Company. In addition the Company agreed to continue to pay
his health benefits for a period of one year.
NOTE 12 - SUBSEQUENT EVENTS:
(a) Acquisition:
Effective August 1, 1997, subsequent to the balance sheet date,
the Company completed a reverse triangular merger (see Note 1)
with TechStar. This merger was accounted for by the Company as
a reverse acquisition of the Company by TechStar. Accordingly,
financial statements in the future will reflect a consolidation
of TechStar's assets and liabilities using historical cost with
IDF's assets and liabilities using fair value excluding
goodwill to the extent acquired (approximately 63%) and
historical cost for the remainder. In January 1998, IDF
obtained a valuation for 100% of its common stock as of July
31, 1997. Accordingly, a pro forma presentation of consolidated
assets and liabilities was subsequently prepared utilizing fair
value instead of historical cost. The following table presents,
on a pro forma basis, a condensed consolidated balance sheet at
June 30, 1997, giving effect to the acquisition as if it had
occurred on that date:
Unaudited Proforma
June 30, 1997
------------------
Assets:
Current asset $ 7,177,000
Net fixed assets 358,000
Intangible assets, net 9,144,000
-------------
$16,679,000
=============
Liabilities and Equity:
Current liabilities $ 4,495,000
Long-term debt 4,133,000
Shareholders' equity 8,051,000
-------------
$16,679,000
===========
F-42
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 12 - SUBSEQUENT EVENTS (Continued):
(a) Acquisition (continued):
The following unaudited, proforma, condensed consolidated
financial information assumes the acquisition occurred at
December 11, 1996, which is the date on which TechStar was
acquired by its former parent AUGI (see Note 1). Accordingly,
the following pro forma, condensed consolidated financial
information reflects the operations of the Company for the year
ended June 30, 1997 and for TechStar for the period December
11, 1996 through June 30, 1997. The results do not purport to
be indicative of what would have occurred had the acquisition
actually been made at the beginning of the fiscal year ended
June 30, 1997, or of the results which may occur in the future.
Net sales $15,161,000
Income from operations 2,686,000
Net income 1,333,000
(b) Other subsequent events resulting from the merger are as follows:
(i) The Company issued 6,171,553 shares of its common stock
to AUGI in exchange for 100% of the issued and
outstanding stock of TechStar (see Note 1).
(ii) The Company issued an aggregate of 856,550 options to
acquire common stock of the Company for $1.25 per share
to key personnel of TechStar. In the event that any of
these options terminate or are cancelled without having
been vested and timely exercised, AUGI will be entitled
to receive, as additional merger consideration, those
shares of the common stock of the Company.
(iii) The Company issued 8% senior subordinated convertible
notes in the amount of $3,000,000 which are convertible
into common stock of the Company at a conversion price of
$1.25 per share. The net proceeds of the debt raised was
$2,657,500 net of associated costs. The Company used
approximately $2,500,000 of the net proceeds to settle
certain obligations existing at June 30, 1997.
(iv) The Company committed to convert an $800,000 term note
payable to a shareholder/Director into preferred stock
(see Note 6).
(v) A loan payable balance of $215,000 due AUGI from TechStar
was assumed by the Company in exchange for an 8%
promissory note from TechStar. This note is due and
payable upon the earlier of (i) the consummation of any
public or private placement of securities by the Company
or any of its subsidiaries, which individually or in the
aggregate results in gross cash proceeds of $2.5 million
or more, or (ii) August 25, 2002. Interest will be
payable quarterly commencing December 1, 1997.
F-43
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
d/b/a Hayden-Wegman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 12 - SUBSEQUENT EVENTS (Continued):
(vi) The Company amended its certificate of incorporation to
increase the authorized shares to 130,000,000 shares;
10,000,000 shares of preferred stock and 120,000,000
shares of common stock, each with a par value of $.001.
(vii) The Company granted 131,777 options to acquire shares of
the Company's common stock to certain officers and key
employees of TechStar.
(viii)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.
(ix) The Company executed a consulting agreement with the
chairman of the Board of Directors of the Company for a
term of three years, commencing August 1, 1997, with
annual fees of $75,000 each year.
(x) TechStar will assume $300,000 of AUGI's acquisition debt,
due in December 1999, to the former TechStar
shareholders, provided that AUGI will make the 1997 and
1998 principal and interest payments on the acquisition
debt and unconditionally guarantees the debt assumed by
the TechStar.
NOTE 13 - EXTRAORDINARY ITEM:
On December 30, 1992, the Company executed a five year
unsecured note payable with a bank for $2,036,000. The note was
payable in substantially equal monthly installments with
interest at prime plus 1% per annum. Beginning in September
1993 the Company was not able to make the required monthly
payments. On March 31, 1994 the Company renegotiated this note
with the bank and executed a replacement promissory note ('the
Renegotiated Note") of which $1,829,583 was outstanding at June
30, 1995. The new note consolidated the outstanding principal
and unpaid accrued interest and was to be paid in equal monthly
installments of $20,000 until the entire principal amount was
repaid. Interest on the outstanding principal accrued at a rate
of 11.25% per annum. In addition to the monthly payments, the
Company was required to make mandatory prepayments towards the
outstanding loan balance based on excess cash flows. Beginning
in July 1994, the Company did not make its required payments on
the Renegotiated Note and as a result, received a notice of
default. In September 1995, the Company reached an agreement
with the lender, to have the then outstanding indebtedness of
$2,183,577 forgiven in exchange for payments aggregating
$250,000. The final installment payment aggregating the
$250,000 was made in December 1995. The forgiveness of this
debt resulted in an extraordinary gain in the amount of
$1,933,577, which is reflected on the statement of operations
for the year ended June 30, 1996. The related income tax
effect, aggregating approximately $750,000, has been offset by
net operating loss carryforwards (see Note 2e).
F-44
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
- CONTENTS -
<TABLE>
<CAPTION>
<S> <C>
Page(s)
-------
Independent Auditors' Report on Financial Statements F - 46
Financial Statements:
Balance Sheets as of July 31, 1997 and December 31, 1996 F - 47
Statements of Operations for the seven month period ended July 31, 1997
and for the year ended December 31, 1996 F - 48
Statements of Shareholders' Equity for the year ended December 31, 1996
and for the seven month period ended July 31, 1997 F - 49
Statements of Cash Flows for the seven month period ended July 31, 1997 and
for the year ended December 31, 1996 F - 50
Notes to Financial Statements F - 51
</TABLE>
F-45
<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-46
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
BALANCE SHEETS
AS OF JULY 31, 1997 AND DECEMBER 31, 1996
- ASSETS -
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------------- -------------
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 73,426
------------- -------------
TOTAL CURRENT ASSETS 2,751,060 1,130,054
------------- -------------
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 $ 5,138,555
============= =============
- 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 13,008
------------- -------------
292,372 13,008
------------- -------------
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 $ 5,138,555
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
1997 1996
----------- -----------
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
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
Common Additional Retained
-------------------- Paid-in Earnings
Shares Stock Capital (Deficit) Total
------ ----- ------- --------- -----
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-49
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------------ -----------
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:
(i) As of December 31, 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-50
<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, 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.(See Note 8)
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-51
<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-52
<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 from 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-53
<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 and December 31, 1996, 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 as the interest
rates on these obligations approximate current market
conditions.
(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.
(i) 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> <C>
At July 31, 1997, the principal amounts due are as follows:
(a) Promissory note to IDF, (see Notes 3 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-54
<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 4 - LONG-TERM DEBT (Continued):
<TABLE>
<CAPTION>
<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
==========
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 (4,550) 429
----------- --------
$466,871 $373,594
----------- --------
The components of deferred taxes, pursuant to SFAS 109 as of
July 31, 1997 and December 31, 1996 are as follows:
1997 1996
---------- --------
Deferred tax assets:
Accounts receivable $64,742 $46,344
Net operating loss -- 27,082
--------- --------
Total deferred tax asset $64,742 $73,426
========= ========
Deferred tax liability:
Fixed assets $ (9,853) $(12,612)
Goodwill (17,003) (396)
--------- ---------
Total deferred tax liabilities $(26,856) $(13,008)
========= =========
</TABLE>
F-55
<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 approxi
mately 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.
(c) 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
complete 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. Futhermore, 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 tenitatively scheduled for the
later part of July 1998. The vendor's insurance carrier has
agreed to take part in the mediation discussions.
F-56
<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 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.
(c) In November 1997, the Company entered into a new lease for
its office facility for forty-three months commencing on
December 1, 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-57
<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-58
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
- Historical -
- Historical - TechStar
IDF International, Inc. Communications Pro Forma
and Subsidiaries Inc. Adjustments
For the Year Ended For the Year Ended ----------------------------- Pro Forma
June 30, 1997 June 30, 1997 Debit Credit Consolidated
----------------------- ------------------- ------------- -------------- ---------------
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
$ 6,300(d) $44,300(c)
3,930,232 897,472 107,000(b) 4,896,704
------------- ----------- -------------
INCOME FROM OPERATIONS 1,683,626 1,552,153 3,166,779
------------- ----------- -------------
OTHER INCOME (EXPENSES)
Interest expense (863,741) 10,834 150,000(a) (1,002,907)
Other incme 98,117 (12,687) 85,430
------------- ----------- -------------
(765,624) (1,853) (917,477)
------------- ----------- -------------
INCOME BEFORE INCOME TAXES 918,002 1,550,300 2,249,302
INCOME TAXES - 620,120 620,120
------------- ----------- -------- ------- -------------
NET INCOME $ 918,002 $ 930,180 $263,300 $44,300 $ 1,629,182
============= =========== ======== ======= ============
</TABLE>
See notes to pro forma consolidated statement of operations.
F-59
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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 a reduction in the carrying value of goodwill as of
June 30, 1997 in the aggregate amount of $1,616,462 and the
reversal of amortization during 1997 on this portion of
goodwill for $44,300, representing 63% of the goodwill and
amortization associated with the reverse acquisition.
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 $6,300 based on a useful life of
25 years.
F-60
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Broadcast Tower Sites, Inc.
We have audited the accompanying balance sheets of Broadcast
Tower Sites, Inc. as of September 30, 1996 and December 31, 1995, and the
related statements of operations, shareholders' equity and cash flows for the
nine months ended September 30, 1996 and for the year ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Broadcast
Tower Sites, Inc. as of September 30, 1996 and December 31, 1995 and the results
of its operations and its cash flows for the nine months ended September 30,
1996 and the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Feldman Sherb Ehrlich & Co., P.C.
Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
(formerly Feldman Radin & Co., P.C.)
New York, New York
November 8, 1996
F-61
<PAGE>
BROADCAST TOWER SITES, INC.
BALANCE SHEETS
September 30, December 31
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 474,082 $ 20,085
Accounts receivable, less allowance for doubtful
accounts of $200,000 in 1996 798,836 452,892
Prepaid expenses 3,441 -
--------- -------
TOTAL CURRENT ASSETS 1,276,359 472,977
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 38,817 28,348
OTHER ASSETS: 6,233 4,792
--------- -------
$ 1,321,409 $ 506,117
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 119,966 $ -
Accrued expenses 427,236 27,503
--------- -------
TOTAL CURRENT LIABILITIES 547,202 27,503
=========== ===========
SHAREHOLDERS' EQUITY:
Common stock; no par value; 1,500 shares authorized,
issued and outstanding 1,500 1,500
Retained earnings 772,707 477,114
--------- -------
774,207 478,614
--------- -------
$ 1,321,409 $ 506,117
=========== ===========
See notes to financial statements
F-62
<PAGE>
BROADCAST TOWER SITES, INC.
STATEMENTS OF OPERATIONS
Nine Months
Ended Year Ended
September 30, December 31,
1996 1995
----------- ------------
REVENUES $ 2,555,534 $ 822,946
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,776,271 390,667
----------- ------------
INCOME FROM OPERATIONS 779,263 432,279
----------- ------------
OTHER INCOME (EXPENSE):
Interest income 330 1,903
Interest expense - (171)
----------- ------------
TOTAL OTHER INCOME (EXPENSE) 330 1,732
----------- ------------
INCOME BEFORE INCOME TAXES 779,593 434,011
PROVISION FOR INCOME TAXES 34,000 13,000
----------- ------------
NET INCOME $ 745,593 $ 421,011
=========== ===========
See notes to financial statements
F-63
<PAGE>
BROADCAST TOWER SITES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
------------ Retained
Shares Amount Earnings Total
------ ------ -------- -----
Balance at December 31, 1994 1,500 $ 1,500 $ 56,103 $ 57,603
Net income - - 421,011 421,011
----- ------- ----------- -----------
Balance at December 31, 1995 1,500 1,500 477,114 478,614
Net income - - 745,593 745,593
Distributions to shareholders - - (450,000) (450,000)
----- ------- ----------- -----------
Balance at September 30, 1996 1,500 $ 1,500 $ 772,707 $ 774,207
===== ======= ========== ==========
See notes to financial statements
F-64
<PAGE>
BROADCAST TOWER SITES, INC.
STATEMENTS OF CASH FLOWS
Nine Months
Ended Year Ended
September 30, December 31,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 745,593 $ 421,011
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 11,155 3,293
Changes in assets and liabilities:
Increase (decrease) in accounts receivable (345,944) (452,892)
Increase (decrease) in prepaid expenses (3,441) -
Increase (decrease) in other assets (1,441) (2,737)
(Decrease) increase in accounts payable 119,966 -
(Decrease) increase in accrued expenses 399,733 3,288
------- ---------
168,873 (452,341)
------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 925,621 (28,037)
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (21,624) (31,641)
------- ---------
NET CASH USED IN INVESTING ACTIVITIES (21,624) (31,641)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders (450,000) -
------- ---------
NET CASH USED IN FINANCING ACTIVITIES (450,000) -
------- ---------
NET INCREASE (DECREASE) IN CASH 453,997 (59,678)
CASH, beginning of period 20,085 79,763
------- ---------
CASH, end of period $ 474,082 $ 20,085
=========== ===========
See notes to financial statements
F-65
<PAGE>
BROADCAST TOWER SITES, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
YEAR ENDED DECEMBER 31, 1995
1. BUSINESS:
Broadcast Tower Sites, Inc. ("the Company") was incorporated on
February 28, 1994 as a broadcast tower site acquisition service
corporation. The Company has service contracts with two major clients.
The Company locates potential wireless tower sites pursuant to
agreements with clients, and further, upon successful location of such
sites, the Company is responsible for negotiating leases, obtaining
zoning clearances, and other architectural and/ or engineering tasks,
as they arise. Presently, the Company conducts these services in the
Washington D.C. and Philadelphia areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Basis of accounting - The Company uses the accrual basis of
accounting to prepare their financial statements.
B. Revenue recognition - The Company recognizes revenue from
contracts when the underlying tasks are completed and ready
for invoicing to the client.
C. Depreciation - The Company depreciates property and equipment
using the following estimated lives:
Computer equipment 3 years
Office furniture and equipment 5 years
D. Income taxes - The Company elected "S" corporation status on
February 28, 1994, its inception. As an "S" corporation, the
Company is not required to pay any federal or Maryland income
taxes. Income taxes are the responsibility of the individual
shareholders, however, state income taxes have been provided
to accrue taxes in the states and localities other than
Maryland where the Company conducts operations.
The Company reports on the cash basis of accounting for income
tax purposes. The accrual basis financial statements include
approximately $252,000 of income which has not been reflected
in the corporation's reported taxable income.
F-66
<PAGE>
E. Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reporting amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
3. CONTRACTS - MAJOR CUSTOMER AND ACCOUNTS RECEIVABLE:
For the nine months ended September 30, 1996 and the year ended
December 31, 1995, the majority of the Company's sales were derived
from one client, accordingly, the accounts receivable for the same
periods are primarily from this same client. The agreement with this
client terminates on the later of December 31, 1996 or the date of the
Company's completion of its last contract.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
Nine Months
Ended Year Ended
September 30, December 31,
1996 1995
---------- ---------
Computer equipment $ 28,611 $ 11,392
Office furniture 19,405 15,000
Office equipment 5,249 5,249
---------- ---------
53,265 31,641
Accumulated depreciation (14,448) (3,293)
---------- ---------
$ 38,817 $ 28,348
========== =========
5. COMMITMENTS AND CONTINGENCIES:
The Company subleases its principal executive offices under a
cancelable sublease agreement expiring December 30, 1998. The monthly
base rent is $3,441. Rent expense for the periods ended September 30,
1996 and December 31, 1995 totaled $38,031 and $19,598, respectively.
In November 1996, the Company received notice from a former
subcontractor seeking approximately $100,000 in claims for work
allegedly performed. Management of the
F-67
<PAGE>
Company believes that the claim is without merit, as the subcontractor
was dismissed for substandard work. The Company intends to vigorously
defend any legal action which may arise as a result of this claim.
6. ACCRUED EXPENSES:
Included in accrued expenses is $300,000 representing accrued
compensation to the principal executive officers of the Company as of
September 30, 1996.
F-68
<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)
(2.2) Certificate of Amendment of Certificate of
Incorporation (filed February 25, 1998)
(2.3) Certificate of Amendment of Certificate of
Incorporation (filed March 23, 1998)
(2.4) Certificate of Amendment of Certificate of
Incorporation (filed July 9, 1998)
<PAGE>
(2.5) Amended and Restated By-Laws of IDF International,
Inc.
(6.) Material Contracts
(6.1) Employment Agreement between Solon D. Kandel and IDF
International, Inc.
(6.2) Employment Agreement between Lembit Kald and IDF
International, Inc., and Hayden-Wegman, Inc.
(6.3) Employment Agreement between Sergio Luciani and IDF
International, Inc., and TechStar Communications,
Inc.
(6.4) Consulting Agreement between Robert M. Rubin and IDF
International, Inc.
(6.5) Indemnity Agreement between Solon D. Kandel and IDF
International, Inc.
(6.6) Indemnity Agreement between Robert M. Rubin and IDF
International, Inc.
(6.7) Indemnity Agreement between Lembit Kald and IDF
International, Inc.
(6.8) Indemnity Agreement between Sergio Luciani and IDF
International, Inc.
(6.9) Indemnity Agreement between Lawrence Kaplan and IDF
International, Inc.
(6.10) Indemnity Agreement between Simantov Moskona and IDF
International, Inc.
(6.11) Indemnity Agreement between Donald W. Shipley and IDF
International, Inc.
(6.12) IDF International, Inc., 1997 Stock Option Plan
2. EXHIBITS [To follow Signature Page]
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
IDF INTERNATIONAL, INC.
Date: July 14, 1998 By: /s/ Solon D. Kandel
--------------------
Solon D. Kandel
President and CEO
Certificate of Incorporation
Of
IDF INTERNATIONAL, INC.
Under Section 402 of the Business Corporation Law
of the State of New York
---------------------------------------------------
The undersigned, a natural person of at least eighteen (18) years of
age, for the purpose of forming a corporation under the Business Corporation
Law of the State of New York, certifies that:
FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is
IDF INTERNATIONAL, INC.
SECOND: The purpose or purposes for which the Corporation is formed
are as follows:
To engage in any lawful act or activity for which corporations may be
organized under the Business Corporation Law of the State of New York, provided
that it is not formed to engage in any act or activity requiring the consent or
approval of any state official, department, board, agency or other body without
such consent or approval first being obtained.
To purchase, sell, lease, exchange, hire or otherwise acquire real
property, with or without buildings thereon, or any interest therein whatsoever
or wheresoever situated; to make, enter into, perform, and carry out contracts
for constructing, building, altering, improving, repairing, decorating,
maintaining, furnishing and fitting buildings and structures of every
description; to erect, construct, rebuild, enlarge, alter, improve, maintain,
manage and operate houses, buildings or other structures on any lands owned or
leased by the Corporation or upon any other lands and, to do all things
necessary and appropriate in furtherance of the purposes or powers enumerated
herein.
To enter into any lawful arrangements for sharing profits, union of
interest, reciprocal concession, or cooperations with any corporation,
association, partnership, syndicate, entity, person, or governmental, municipal,
or public authority, domestic or foreign, in the carrying on of any business
which the Corporation is authorized to carry on or any business or transaction
deemed necessary, convenient, or incidental to the carrying out of any of the
purposes of the Corporation.
To apply for, register, obtain, purchase, lease, take licenses in
respect of, or otherwise acquire, and to hold, own, use, operate, develop,
enjoy, grant licenses and immunities in
1
<PAGE>
respect of, manufacture under and to introduce, sell, assign, mortgage, pledge
or otherwise dispose of, and, in any manner deal with and contract with
reference to:
A. inventions, devices, formulae, processes and any improvements
and modifications thereof;
B. letters patent, patent rights, patented processes, copyrights,
designs, and similar rights, trademarks, trade symbols and other
indications of origin and ownership granted by or recognized
under the laws of the United States of America or of any state
or subdivision thereof, or of any foreign country or subdivision
thereof, and all rights connected therewith or appertaining
thereunto; and
C. franchises, licenses, grants and concessions.
To enter into, make and perform contracts of every kind and description
which may be necessary or convenient for the business of the Corporation, with
any person, firm, association, corporation, municipality, county, state, body
politic, or government, or colony, any dependency, or political or
administrative division thereof.
To enter into and carry out partnerships (both general partnerships and
limited partnerships) and other forms of joint arrangements with other persons,
firms or corporations, so far as and to the extent that the same may be done and
performed by a corporation organized under the Business Corporation Law of the
State of New York.
To carry on business at any place within the jurisdiction of the United
States and in any and all foreign countries and to purchase any property at any
such place or places.
To acquire and take over as a going concern, and thereafter to carry on
the business of any person, firm or corporation engaged in any business which
the Corporation is authorized to carry on and, in connection therewith, to
acquire the good will and all or any of the assets and to assume or otherwise
provide for all or any of the liabilities of any such business.
To borrow money for its corporate purposes and to make, accept,
endorse, execute and issue promissory notes, bills of exchange, bonds,
debentures, or other obligations from time to time, for the purchase of
property, or for any purpose in connection with the business of the Corporation,
and, if deemed proper, to secure the payment of any such obligations, mortgages,
pledge, deed of trust or otherwise.
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To carry on any other similar business in connection with the
foregoing, and to have and exercise all of the powers conferred by the laws of
the State of New York upon corporations formed under the Business Corporation
Law of the State of New York, and to do any or all of the things hereinbefore
set forth to the same extent as natural persons might or could do so.
To such extent as a corporation organized under the Business
Corporation Law of the State of New York may now or hereafter lawfully do, to
perform or do each and everything necessary, suitable, convenient, or proper
for, or in connection with, or incidental to, the accomplishment of any one or
more of the purposes or the exercise of any one or more of the powers herein
described, or designed directly or indirectly to promote the interests of the
Corporation or to enhance the value of its properties; and, in general, to do
any and all things and exercise any and all powers, rights and privileges for
which a corporation may now or hereafter may be organized under the Business
Corporation Law of the State of New York, or under act amendatory thereof,
supplemental thereto, or substituted therefore, including, but not limited to,
all of the powers enumerated in Section 202 of the New York State Business
Corporation Law or any other statute of the State of New York.
THIRD: The Office of the Corporation is to be located in Suffolk
County, in the State of New York.
FOURTH: The aggregate number of shares which the Corporation shall have
the authority to issue is one hundred and twenty million (120,000,000) shares,
all of which have a par value of $.001.
FIFTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be served. The post
office address to which the Secretary of State shall mail a copy of any process
against the Corporation served upon him is Frederick M. Mintz, Esq., c/o Mintz &
Fraade, P.C., 488 Madison Avenue, New York, New York 10022.
SIXTH: The duration of the Corporation is to be perpetual.
SEVENTH: No holder of any shares of any class of the Corporation shall
be entitled as of right to subscribe for, purchase, or otherwise acquire any
shares of any class of the Corporation which the Corporation proposes to issue,
or any rights or options which the Corporation proposes to grant for purchases
of any shares, bonds, securities or obligations of the Corporation which are
convertible into or exchangeable for, or which carry any rights to subscribe
for, purchase or otherwise acquire shares of any class of the Corporation; and
any and all of such shares, bonds, securities or obligations of the Corporation,
whether now or hereafter authorized or created, may be
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issued, or may be reissued or transferred if the same have been reacquired and
have treasury status, and any and all of such rights and options may be granted
by the Board of Directors to such persons, firms, corporations and associations,
and for such lawful consideration, and on such terms, as the Board of Directors
in its discretion may determine, without first offering the same, or any
thereof, to any said holder. Without limiting the generality of the foregoing
stated denial of any and all preemptive rights, no holder of shares of any class
of the Corporation shall have any preemptive rights in respect of the matters or
proceedings, inclusive of paragraph (e) of Section 622 of the Business
Corporation Law.
EIGHTH: Except as may otherwise be specifically provided in this
Certificate of Incorporation, no provision hereof is intended to be construed as
limiting, prohibiting, denying, or abrogating any of the general or specific
powers or rights conferred under the Business Corporation Law of the State of
New York upon Corporations of the State of New York upon the Corporation, its
shareholders, bondholders and security holders, and upon its directors, officers
and other corporate personnel, including, without limitation, the power of the
Corporation to furnish indemnification to any person or persons in the
capacities defined and prescribed by the Business Corporation Law of the State
of New York and the defined and prescribed rights of a person or persons to
indemnification as the same are conferred by the Business Corporation Law of the
State of New York.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the provisions of Section
402(b) of the Business Corporation Law, as the same may be amended or
supplemented.
IN WITNESS WHEREOF, this Certificate has been subscribed this 26th day
of March, 1991 by the undersigned who affirms that the statements made herein
are true under the penalties of perjury.
/s/ Richard A. Friedman
-------------------------------
Richard A. Friedman, Esq.
c/o Mintz & Fraade, P.C.
488 Madison Avenue
New York, New York 10022
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IDF INTERNATIONAL, INC.
Pursuant to Section 502(d) of the Business Corporation Law of the
State of New York
IDF INTERNATIONAL, INC.
Certificate of Amendment of Certificate of Incorporation Pursuant to
Section 502(d) of the Business Corporation Law of the State of New York
We, being, respectively, the President and Secretary of IDF
INTERNATIONAL, INC., a corporation organized and existing under the Business
Corporation Law of the State of New York (the "Corporation"), DO HEREBY CERTIFY:
FIRST: That, pursuant to authority expressly granted and vested in the
Board of Directors of said Corporation by the provisions of its Certificate of
Incorporation dated March 27, 1991, as amended to date, the certificate of
incorporation is hereby amended by the following resolution:
RESOLVED, that the Board of Directors, pursuant to authority granted
and expressly vested in it by the provisions of the Certificate of Incorporation
of the Corporation, as amended, hereby authorizes the issue from time to time of
a Class of Preferred Stock, which shall include Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock of the Corporation (collectively,
the "Preferred Stock") and hereby fixes the designation, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or
<PAGE>
restrictions thereof, in addition to those set forth in said Certificate of
Incorporation, as amended, to be in their entirety as follows:
PART 1
SERIES A PREFERRED STOCK
Section 1. Designation. This series of Preferred Stock shall be
designated and known as "Series A Convertible Preferred Stock" and is sometimes
referred to herein as the "Series A Preferred Stock." The number of shares
constituting such series shall be one million four hundred thousand shares
(1,400,000). The date of issuance of each share of Series A Preferred Stock is
referred to herein as the "Original Issue Date."
Section 2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of each share of Series A Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common Stock or
any other series of Preferred Stock of the Corporation ranking junior to the
Series A Preferred Stock by reason of their ownership thereof, an amount equal
to (i) one dollar and twenty-five cents ($1.25) per share, plus (ii) any and all
accrued but unpaid dividends on each share of Series A Preferred Stock declared
or otherwise due and payable pursuant to Section 5 hereof. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation available for distribution to the holders of the Series A Preferred
Stock shall be insufficient to pay the holders of the Series A Preferred Stock
the full amounts to which they respectively shall be entitled pursuant to this
Section 2, the holders of shares of the Series A Preferred Stock shall share
ratably in any distribution of assets according to the respective amounts that
would be
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payable in respect of the shares of Series A Preferred Stock held by them upon
such distribution if all amounts payable on or with respect to said shares were
paid in full.
All of the preferential amounts to be paid to the holders of the Series
A Preferred Stock under this Section 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of the Common
Stock or any other series of Preferred Stock ranking junior to the Series A
Preferred Stock in connection with such liquidation, dissolution or winding up.
After payment shall have been made to the holders of shares of the Series A
Preferred Stock of the full amounts to which they shall have been entitled
pursuant to this Section 2, the holders of shares of the Corporation's Common
Stock and the holders of shares of the Preferred Stock shall be entitled to
share in all remaining assets of the Corporation available for distribution to
its shareholders, such remaining assets to be shared by the holders of shares of
the Corporation's Common Stock and the holders of shares of the Corporation's
Preferred Stock on a pro rata basis calculated as if all of the outstanding
shares of the Preferred Stock had been converted into shares of Common Stock
pursuant to Section 3 hereof immediately prior to such payment.
For the purposes of this Section 2, the term "liquidation" shall be
deemed to include (i) a consolidation or merger of the Corporation with or into
any other corporation, (ii) a merger of any other corporation into the
Corporation, (iii) a reorganization of the Corporation, (iv) a purchase or
redemption of all or a substantial part of the outstanding shares of any class
or classes of capital stock of the Corporation (other than the Preferred Stock),
(v) a sale, transfer, assignment or other disposition of all or substantially
all the assets of the Corporation or (vi) a distribution to the Corporation's
holders of Common Stock of the stock of any subsidiary of the Corporation.
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If the assets or surplus funds to be distributed to the holders of the
Series A Preferred Stock are insufficient to permit the payment to such holders
of their full preferential amount, the assets and surplus funds legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive.
Section 3. Conversion. The holders of any shares of the Series A
Preferred Stock shall have conversion rights and obligations as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall be
convertible into shares of Common Stock of the Corporation ("Conversion
Shares"), without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Series A Preferred Stock, into that number of fully = paid and
nonassessable Conversion Shares (calculated to the nearest one-one-hundredth
(1/100) of a share) determined by dividing one dollar and twenty-five cents
($1.25) by the Conversion Price, determined as hereinafter provided, in effect
at the time of conversion. The conversion price at which Conversion Shares shall
be deliverable upon conversion of Series A Preferred Stock without the payment
of any additional consideration by the holder thereof (the "Conversion Price")
shall initially be one dollar and twenty-five cents ($1.25) per Conversion
Share. Such initial Conversion Price stall be subject to adjustment, in order to
adjust the number of Conversion Shares of Common Stock into which the Series A
Preferred Stock is convertible, as hereinafter provided.
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
automatically, without any further action on the part of the holder of Series A
Preferred Stock, be converted into Conversion Shares in the same manner as set
forth in Section 3(a) upon the events
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described below. Each person who holds of record 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, pursuant to Section 5 hereof. Such
dividends shall be paid to all such holders within thirty (30) days of the
automatic conversion. The shares of Series A Preferred Stock shall be
automatically converted, without any further action on the part of the holder of
Series A Preferred Stock, into Conversion Shares (i) upon consummation of the
first public offering of the Corporation's securities resulting in aggregate
gross proceeds to the Company of 55,000,000 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) the Corporation'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 the Corporation's Common Stock (or the
last sale price, if quoted on a national securities exchange) has been at least
double the then effective Conversion Price for twenty consecutive trading days.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Series A Preferred Stock shall
be entitled to convert the same into full shares of Common Stock pursuant to
Section 3(a), he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice to the Corporation at
such office that he elects to convert the same and shall state therein his name
or the name or names of his nominees in which he wishes the certificate or
certificates
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<PAGE>
for shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid, together with cash in lieu of any fraction of a share,
and a certificate or certificates for such number of shares of Series A
Preferred Stock as were represented by the certificates surrendered and not
converted. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Series A
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common stock on such
date. Upon any automatic conversion pursuant to Section 3(b), the mechanics of
conversion shall be the same except that all certificates representing shares of
Series A Preferred Stock shall, upon such conversion, be deemed to represent
that number of shares of Common Stock issuable upon such conversion.
(d) Stock Dividends. Stock Distributions and Subdivisions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall declare or pay any dividend or make any other distribution on the Common
Stock payable in Common Stock, or effect a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in Common Stock), then and in any such event, the adjustment contemplated by
Section 3(e) shall be deemed to have occurred:
(i) in the case of any such dividend or distribution, immediately after
the close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend or distribution, or
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(ii) in the case of any such subdivision, at the close of business on
the date immediately prior to the date upon which such corporate action becomes
effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment previously made
in the Conversion Price which became effective on such record date shall be
canceled as of the close of business on such record date, and thereafter the
Conversion Price shall be adjusted pursuant to this subparagraph 3(d) as of the
time of actual payment of such dividend.
(e) Adjustment for Dividends. Distributions. Subdivisions. Combinations
or Consolidation of Common Stock.
(i) Stock Dividends. Distributions or Subdivisions. In the event the
Corporation shall issue Additional Shares of Common Stock pursuant to Section
3(d) in a stock dividend, stock distribution or subdivision, the Conversion
Price in effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock dividend,
stock distribution or subdivision, be proportionately decreased.
(ii) Combinations or Consolidations. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Price
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(f) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation or other business entity, each share of Series A Preferred
Stock thereafter shall be convertible into the number of shares of
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<PAGE>
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such Series A
Preferred Stock would have been entitled upon such consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interest thereafter of the holders of the
Series A Preferred Stock, to the end that the provisions set forth herein
(including provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Series A Preferred Stock.
(g) Impairment. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the number of shares into which the Series A
Preferred Stock may be converted pursuant to this Section 3, the Corporation, at
its expense, promptly shall compute such adjustment or readjustment in
accordance with the terms hereof and, upon request by any holder of Series A
Preferred Stock, furnish to each holder of Series A Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation,
upon the written request at any time of
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<PAGE>
any holder of Series A Preferred Stock, shall furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters and other than the dividends to be paid pursuant to Section 5
hereof) or other distribution, the Corporation shall mail to each holder of
Series A Preferred Stock at least ten (10) days prior to the date specified
herein, a notice specifying the date on which any such record is to be taken for
the purpose of such dividend or distribution.
(j) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as from time to time shall be sufficient to effect conversion of
the Series A Preferred Stock.
Section 4. Voting. (a) The holders of shares of Series A Preferred
Stock shall be entitled to notice of any shareholders' meeting and to vote upon
any matter submitted to a shareholder for a vote, on the following basis:
(i) Holders of Common Stock shall have one vote per share on all
matters; and
(ii) Holders of Series A Preferred Stock shall have that number of
votes per share as is equal to the number of shares of Common Stock into which
each such share of Series A Preferred Stock held by such holder is then
convertible.
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Section 5. Dividends. The Corporation shall declare and pay to the
holder of each share of Series A Preferred Stock cash dividends (the "Series A
Preferred Dividend") aggregating each year in the amount of eight percent (8%)
of the purchase price thereof, such purchase price being deemed to be the
original principal amount of the Corporation's Senior Subordinated Convertible
Note (or accrued interest on either the Corporation's Senior Subordinated
Convertible Note or any other indebtedness of the Corporation, if such accrued
interest was originally converted into shares of Series A Preferred Stock) from
which such shares of Series A Preferred Stock shall have been converted, at any
time that the Corporation legally may pay dividends in accordance with Delaware
law. Such dividends shall be cumulative commencing as of the Original Issue
Date, shall be paid prior and in advance of payment of dividends on any other
capital stock of the Corporation ranking junior to the Series A Preferred Stock,
and shall be paid on at least a quarterly basis, and in all events prior to the
payment of dividends on any other capital stock of the Corporation ranking
junior to the Series A Preferred Stock. Such dividends shall be paid in cash;
provided, that in the event that the Corporation has received the written
agreement of any holder(s) of the Series A Preferred Stock to the effect that at
the option of the Corporation such dividends shall be payable either in cash or
in additional whole or fractional shares of the Series A Preferred Stock [with
the number of such shares to be distributed being equal to the quotient
determined by dividing the cash dividend amount by One Dollar and Twenty-Five
Cents ($1.25)], then such dividends may be paid in additional shares of Series A
Preferred Stock at the option of the Corporation. Each such dividend shall be
paid to the holders of record of shares of the Series B Preferred Stock as they
appear on the stock register of the Corporation on such record date, not
exceeding 30 days nor less than 10 days preceding the payment date of such
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dividends as shall be fixed by the Board of Directors of the Corporation or a
duly authorized committee thereof.
Section 6. Restriction on Additional Issuances. The Corporation shall
not, without the prior written consent of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock, create or issue any
additional Series A Preferred Stock (other than the 1,400,000 Series A Preferred
Stock shares authorized hereby) or securities of the Company which rank senior
to the Series A Preferred Stock upon payment of dividends or upon liquidation or
other distribution of assets other than debt securities issued in connection
with borrowings, direct or indirect, from financial institutions or other
persons by the Company, provided such securities and borrowings do not have any
equity features, including warrants, options or other rights to purchase capital
stock, and are not convertible into capital stock of the Company. The
Corporation may create other series of Preferred Stock on a basis which is on a
parity with the Series A Preferred Stock.
PART 2
SERIES B PREFERRED STOCK
Section 1. Designation. This series of Preferred Stock shall be
designated and known as "Series B Redeemable Convertible Preferred Stock" and is
sometimes referred to herein as the "Series B Preferred Stock."
The number of shares constituting such series shall be five hundred
thousand (500,000) shares. The date of issuance of each share of Series B
Preferred Stock is referred to herein as the "Original Issue Date."
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Section 2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of each share of Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common Stock or
any other series of preferred stock ranking junior to the Series B Preferred
Stock of the Corporation by reason of their ownership thereof, an amount equal
to (i) two dollars ($ 2.00) per share (the "Liquidation Value"), plus (ii) any
and all accrued but unpaid dividends on each share of Series B Preferred Stock
declared or otherwise due and payable pursuant to Section 7 hereof. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation available for distribution to the holders of the Series B Preferred
Stock shall be insufficient to pay the holders of the Series B Preferred Stock
the full amounts to which they respectively shall be entitled pursuant to this
Section 2, the holders of shares of the Series B Preferred Stock shall share
ratably in any distribution of assets according to the respective amounts that
would be payable in respect of the shares of Series B Preferred Stock held by
them upon such distribution if all amounts payable on or with respect to said
shares were paid in full.
All of the preferential amounts to be paid to the holders of the Series
B Preferred Stock under this Section 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of the Common
Stock or any other series of preferred stock ranking junior to the Series B
Preferred Stock in connection with such liquidation, dissolution or winding up.
After payment shall have been made to the holders of shares of the Series B
Preferred Stock of the full amounts to which they shall have been entitled
pursuant to this Section 2, the holders of shares of the Corporation's Common
Stock and the holders of shares of any preferred stock not ranking junior to the
Series
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B Preferred Stock shall be entitled to share in all remaining assets of the
Corporation available for distribution to its shareholders, such remaining
assets to be shared by the holders of shares of the Corporation's Common Stock
and the holders of shares of the Series B Preferred Stock and shares of the
Corporation's preferred stock not ranking junior to the Series B Preferred Stock
on a pro rata basis calculated as if all of the outstanding shares of such
preferred stock had been converted into shares of Common Stock pursuant to
Section 3 hereof immediately prior to such payment.
For the purposes of this Section 2, the term "liquidation" shall be
deemed to include (i) a consolidation or merger of the Corporation with or into
any other corporation, (ii) a merger of any other corporation into the
Corporation, (iii) a reorganization of the Corporation, (iv) a purchase or
redemption of all or a substantial part of the outstanding shares of any class
or classes of capital stock of the Corporation (other than the Series B
Preferred Stock or any other series of preferred stock ranking senior or pari
passu to the Series B Preferred Stock, including but not limited to the
Corporation's Series A Convertible Preferred Stock (the "Series A Preferred
Stock")), (v) a sale, transfer, assignment or other disposition of all or
substantially all the assets of the Corporation or (vi) a distribution to the
Corporation's holders of Common Stock of the stock of any subsidiary of the
Corporation.
If the assets or surplus funds to be distributed to the holders of the
Series B Preferred Stock are insufficient to permit the payment to such holders
of their full preferential amount, the assets and surplus funds legally
available for distribution shall be distributed ratably among the holders of the
Series B Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive.
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Section 3. Conversion. The holders of any shares of the Series B
Preferred Stock shall have conversion rights and obligations as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock shall be
convertible into shares of Common Stock of the Corporation ("Conversion
Shares"), without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share (except that, with respect to any shares called for
redemption, such right shall terminate at the close of business on the date
preceding the date fixed for redemption), at the office of the Corporation or
any transfer agent for the Series B Preferred Stock, into that number of fully
paid and nonassessable Conversion Shares (calculated to the nearest
one-one-hundredth (1/100) of a share) determined by dividing two dollars ($2.00)
by the Conversion Price, determined as hereinafter provided, in effect at the
time of conversion. The conversion price at which Conversion Shares shall be
deliverable upon conversion of Series B Preferred Stock without the payment of
any additional consideration by the holder thereof (the "Conversion Price")
shall initially be two dollars ($2.00) of Liquidation Value of a share of Series
B Preferred Stock, per Conversion Share. Such initial Conversion Price shall be
subject to adjustment, in order to adjust the number of Conversion Shares of
Common Stock into which the Series B Preferred Stock is convertible, as
hereinafter provided.
(b) Automatic Conversion. Each share of Series B Preferred Stock shall
automatically, without any further action on the part of the holder of Series B
Preferred Stock, be converted into Conversion Shares in the same manner as set
forth in Section 3(a) upon the events described below. Each person who holds of
record 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, pursuant to
Section 7 hereof.
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Such dividends shall be paid to all such holders within thirty (30) days of the
automatic conversion. The shares of Series B Preferred Stock shall be
automatically converted, without any further action on the part of the holder of
Series B Preferred Stock, into Conversion Shares (i) upon consummation of a
public offering of the Corporation's securities resulting in aggregate gross
proceeds to the Corporation 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) the Corporation'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 the Corporation's Common Stock (or the
last sale price, if quoted on a national securities exchange) has been at least
five dollars ($5.00) for thirty (30) consecutive trading days.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
be issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Series B Preferred Stock shall
be entitled to convert the same into full shares of Common Stock pursuant to
Section 3(a), he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series B Preferred Stock, and shall give written notice to the Corporation at
such office that he elects to convert the same and shall state therein his name
or the name or names of his nominees in which he wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Series B Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to
15
<PAGE>
which he shall be entitled as aforesaid, together with cash in lieu of any
fraction of a share, and a certificate or certificates for such number of shares
of Series B Preferred Stock as were represented by the certificates surrendered
and not converted. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series B Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date. Upon any automatic conversion pursuant to Section 3(b), the mechanics
of conversion shall be the same except that all certificates representing shares
of Series B Preferred Stock shall, upon such conversion, be deemed to represent
that number of shares of Common Stock issuable upon such conversion.
(d) Stock Dividends, Stock Distributions and Subdivisions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall declare or pay any dividend or make any other distribution on the Common
Stock payable in Common Stock, or effect a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in Common Stock), then and in any such event, the adjustment contemplated by
Section 3(e) shall be deemed to have occurred:
(i) in the case of any such dividend or distribution, immediately after
the close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend or distribution, or
(ii) in the case of any such subdivision, at the close of business on
the date immediately prior to the date upon which such corporate action becomes
effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment previously made
in the Conversion Price which became
16
<PAGE>
effective on such record date shall be canceled as of the close of business on
such record date, and thereafter the Conversion Price shall be adjusted pursuant
to this subparagraph 3(d) as of the time of actual payment of such dividend.
(e) Adjustment for Dividends. Distributions. Subdivisions. Combinations
or Consolidation of Common Stock.
(i) Stock Dividends. Distributions or Subdivisions. In the event the
Corporation shall issue Additional Shares of Common Stock pursuant to Section
3(d) in a stock dividend, stock distribution or subdivision, the Conversion
Price in effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock dividend,
stock distribution or subdivision, be proportionately decreased.
(ii) Combinations or Consolidations. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Price
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(f) Adjustment for Merger or Reorganization etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation or other business entity, each share of Series B Preferred
Stock thereafter shall be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Series B Preferred
Stock would have been entitled upon such consolidation, merger or conveyance;
and, in any case, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the
17
<PAGE>
provisions herein set forth with respect to the rights and interest thereafter
of the holders of the Series B Preferred Stock, to the end that the provisions
set forth herein (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series B Preferred Stock.
(g) No Impairment. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred Stock against impairment.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the number of shares into which the Series B
Preferred Stock may be converted pursuant to this Section 3, the Corporation, at
its expense, promptly shall compute such adjustment or readjustment in
accordance with the terms hereof and, upon request by any holder of Series B
Preferred Stock, furnish to each holder of Series B Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation,
upon the written request at any time of any holder of Series B Preferred Stock,
shall furnish or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Price at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of
18
<PAGE>
other property which at the time would be received upon the conversion of Series
B Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters and other than the dividends to be paid pursuant to Section 6
hereof) or other distribution, the Corporation shall mail to each holder of
Series B Preferred Stock at least ten (10) days prior to the date specified
herein, a notice specifying the date on which any such record is to be taken for
the purpose of such dividend or distribution.
(j) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as from time to time shall be sufficient to effect conversion of
the Series B Preferred Stock.
Section 4. Redemption.
(a) Redemption at the Option of the Corporation. (i) The Corporation
may redeem the Series B Preferred Stock, in whole or in part, at any time or
from time to time, out of funds legally available therefor at a redemption price
of two dollars ($2.00) per share plus an amount equal to accrued and unpaid
dividends, if any, to and including the date fixed for redemption, whether or
not earned or declared.
(ii) In the event the Corporation shall redeem shares of Series B
Preferred Stock, notice of such redemption shall be given by mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the redemption
date, to each holder of record of the shares to be redeemed, at such holder's
address as the same appears on the stock records of the Corporation. Each notice
shall state: (A) the redemption date, (B) the number of shares of Series B
Preferred
19
<PAGE>
Stock to be redeemed and, if less than all the shares held by such holder are to
be redeemed, the number of shares to be redeemed from such holder, (C) the
redemption price, (D) the place or places where certificate for such shares is
to be surrendered for payment of the redemption price, (E) the then current
Conversion Price, and (F) that dividends on the shares to be redeemed shall
cease to accrue on such redemption date.
(iii) Upon surrender in accordance with said notice of the certificates
for any such shares so redeemed (properly endorsed or assigned for transfer, if
the Board of Directors shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at a redemption price aforesaid. If
fewer than all the outstanding shares of Series B Preferred Stock are to be
redeemed, shares to be redeemed shall be selected by the Corporation from
outstanding shares of Series B Preferred Stock not previously called for
redemption on a pro rata basis. If fewer than all the shares represented by any
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
(iv) Notwithstanding the foregoing, if notice of redemption has been
given pursuant to this Section 4(a) and any holder of shares of Series B
Preferred Stock shall, prior to the close of business on the date preceding the
redemption date, give written notice to the Corporation pursuant to Section 3(c)
hereof of the conversion of any or all of the shares to be redeemed held by such
holder (accompanied by a certificate or certificates for such shares, duly
endorsed or assigned to the Corporation), then the conversion of such shares to
be redeemed shall become effective as provided in Section 3.
(b) Redemption at the Option of the Holder. (i) Each holder of Series B
Preferred Stock shall have the right to require the Corporation to repurchase
all of such holder's Series B Preferred Stock or any portion thereof at a price
equal to 100% of the liquidation preference of
20
<PAGE>
the Series B Preferred Stock, plus accrued dividends, if any, to the Repurchase
Date. Such repurchase shall occur on August 25, 2004 (the "Repurchase Date").
(ii) Any holder electing to have shares of Series B Preferred Stock
repurchased pursuant to this Section 4(b) shall surrender such shares, duly
endorsed for transfer, together with irrevocable notice of such holder's intent
to exercise such repurchase right, to the Corporation on or prior to the close
of business on August 15, 2004.
(iii) The Corporation shall accept for payment shares of Series B
Preferred Stock properly tendered pursuant to this Section 4(b). On the
Repurchase Date, the Corporation shall mail to the holders of Series B Preferred
Stock so tendered and accepted payment in an amount equal to the redemption
price, and as soon as possible after such payment, shall cancel the shares of
Series B Preferred Stock so tendered and accepted. The Corporation will issue to
holders whose shares of Series B Preferred Stock are purchased only in part new
shares of Series B Preferred Stock equal to the unpurchased portion of the
shares of Series B Preferred Stock surrendered.
Section 5. Voting. (a) The holders of shares of Series B Preferred
Stock shall be entitled to notice of any shareholders' meeting and to vote upon
any matter submitted to a shareholder for a vote, on the following basis:
(i) Holders of Common Stock shall have one vote per share on all
matters; and
(ii) Holders of Series B Preferred Stock shall have that number of
votes per share as is equal to the number of shares of Common Stock into which
each such share of Series B Preferred Stock held by such holder is then
convertible.
Section 6. Ranking. Any class or classes of stock of the Corporation
shall be deemed to rank junior to the Series B Preferred Stock, with the
exception of the Series A Convertible
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<PAGE>
Preferred Stock or any other series of Preferred stock which shall rank on
parity with the Series B Preferred Stock, including with respect to the payment
of dividends and upon liquidation.
Section 7. Dividends. The Corporation shall declare and pay to the
holder of each share of Series B Preferred Stock cash dividends (the "Preferred
Dividend") aggregating each year in the amount of eight percent (8%) of the
purchase price thereof, such purchase price being deemed to be two dollars
($2.00), at any time that the Corporation legally may pay dividends in
accordance with New York law. Such dividends shall be cumulative commencing as
of the Original Issue Date, shall be paid prior and in advance of payment of
dividends on any other capital stock of the Corporation ranking junior to the
Series B Preferred Stock, and shall be paid on at least a quarterly basis, and
in all events prior to the payment of dividends on any other capital stock of
the Corporation. Such dividends shall be paid in cash; provided, that in the
event that the Corporation has received the written agreement of any holder(s)
of the Series B Preferred Stock to the effect that at the option of the
Corporation such dividends shall be payable either in cash or in additional
whole or fractional shares of the Series B Preferred Stock [with the number of
such shares to be distributed being equal to the quotient determined by dividing
the cash dividend amount by One Dollar and Twenty-Five Cents ($1.25)], then such
dividends may be paid in additional shares of Series A Preferred Stock at the
option of the Corporation. Each such dividend shall be paid to the holders of
record of shares of the Series B Preferred Stock as they appear on the stock
register of the Corporation on such record date, not exceeding 30 days nor less
than 10 days preceding the payment date of such dividends as shall be fixed by
the Board of Directors of the Corporation or a duly authorized committee
thereof.
Section 8. Restriction on Additional Issuances. The Corporation shall
not, without the prior written consent of the holders of at least a majority of
the then outstanding shares of Series
22
<PAGE>
B Preferred Stock, create or issue any additional Series B Preferred Stock
(other than the 500,000 shares authorized hereby) or securities of the
Corporation which rank senior to the Series B Preferred Stock upon payment of
dividends or upon liquidation or other distribution of assets, other than debt
securities issued in connection with borrowings, direct or indirect, from
financial institutions or other persons by the Corporation, provided such
securities and borrowings do not have any equity features, including warrants,
options or other rights to purchase capital stock, and are not convertible into
capital stock of the Corporation.
PART 3
SERIES C PREFERRED STOCK
Authority is hereby vested in the Board of Directors of the Corporation
to provide for the issuance of up to 2,100,000 shares of Series C Preferred
Stock and in connection therewith to fix by resolution providing for the issue
of such series or subclassifications thereof, the number of shares to be
included in such series or subclassifications thereof, including, without
limitation, rights of redemption or conversion into Common Stock, to the fullest
extent now or hereafter permitted by the New York Business Corporation Law.
SECOND: That said determination of the designation, preferences and the
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, relating to said Preferred Stock, was duly
made by the Board of Directors pursuant to the provisions of the Certificate of
Incorporation of the Corporation, as amended, and in accordance with the
provisions of Section 502(d) of the Business Corporation Law of the State of New
York.
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<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed by the Executive
Vice President of IDF INTERNATIONAL, INC. and said Corporation has caused its
corporate seal to be hereunder affixed and attested by its Secretary, all as of
the 28th day of January, 1998.
IDF INTERNATIONAL, INC. ATTEST
By:__________________________________________ [SEAL]_________________________
Simantov Moskona, Executive Vice President Sergio Luciani, Secretary
24
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IDF INTERNATIONAL, INC.
Pursuant to Section 805 of the Business Corporation Law of the
State of New York
IDF INTERNATIONAL, INC.
Certificate of Amendment of Certificate of Incorporation Pursuant to
Section 502(d) of the Business Corporation Law of the State of New York
We, being, respectively, the Executive Vice President and Secretary of
IDF INTERNATIONAL, INC., a corporation organized and existing under the Business
Corporation Law of the State of New York (the "Corporation"), DO HEREBY CERTIFY:
FIRST: That, pursuant to authority expressly granted and vested in the
Board of Directors of said Corporation by the provisions of its Certificate of
Incorporation, dated March 27, 1991, as amended to date, the certificate of
incorporation is hereby amended by the following resolution:
RESOLVED, that the Board of Directors, pursuant to authority granted
and expressly vested in it by the provisions of the Certificate of Incorporation
of the Corporation, as amended, hereby authorizes the issue from time to time of
shares of its Series C Preferred Stock of the Corporation, which shares shall be
designated shares of "Series A-1 Preferred Stock" [with the shares of the
Corporation's Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (including the Series A-1 Preferred Stock) being collectively
referred to as the
<PAGE>
"Preferred Stock"], and hereby fixes the designation, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, in addition to those set forth in said Certificate of
Incorporation, as amended, to be in their entirety as follows:
PART 1
SERIES A-1 PREFERRED STOCK
Section 1. Designation. This series of Preferred Stock shall be
designated and known as "Series A-1 Convertible Preferred Stock" and is
sometimes referred to herein as the "Series A-1 Preferred Stock." The number of
shares constituting such series shall be one million two hundred thousand shares
(1,200,000). The date of issuance of each share of Series A-1 Preferred Stock is
referred to herein as the "Original Issue Date."
Section 2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of each share of Series A-1 Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common Stock or
any other series of Preferred Stock of the Corporation ranking junior to the
Series A-1 Preferred Stock by reason of their ownership thereof, an amount equal
to (i) one dollar and twenty-five cents ($1.25) per share, plus (ii) any and all
accrued but unpaid dividends on each share of Series A-1 Preferred Stock
declared or otherwise due and payable pursuant to Section 5 hereof. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation available for distribution to the holders of the Series A-1
Preferred Stock shall be insufficient to pay the holders of the Series A-1
Preferred Stock the full amounts to which they respectively shall be entitled
pursuant to this Section 2, the holders of shares of the Series A-1 Preferred
Stock shall share ratably in any distribution of assets according to the
respective amounts that would be
2
<PAGE>
payable in respect of the shares of Series A-1 Preferred Stock held by them upon
such distribution if all amounts payable on or with respect to said shares were
paid in full.
All of the preferential amounts to be paid to the holders of the Series
A-1 Preferred Stock under this Section 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of the Common
Stock or any other series of Preferred Stock ranking junior to the Series A-1
Preferred Stock in connection with such liquidation, dissolution or winding up.
After payment shall have been made to the holders of shares of the Series A-1
Preferred Stock of the full amounts to which they shall have been entitled
pursuant to this Section 2, the holders of shares of the Corporation's Common
Stock and the holders of shares of the Preferred Stock shall be entitled to
share in all remaining assets of the Corporation available for distribution to
its shareholders, such remaining assets to be shared by the holders of shares of
the Corporation's Common Stock and the holders of shares of the Corporation's
Preferred Stock on a pro rata basis calculated as if all of the outstanding
shares of the Preferred Stock had been converted into shares of Common Stock
pursuant to Section 3 hereof immediately prior to such payment.
For the purposes of this Section 2, the term "liquidation" shall be
deemed to include (i) a consolidation or merger of the Corporation with or into
any other corporation, (ii) a merger of any other corporation into the
Corporation, (iii) a reorganization of the Corporation, (iv) a purchase or
redemption of all or a substantial part of the outstanding shares of any class
or classes of capital stock of the Corporation (other than the Preferred Stock),
(v) a sale, transfer, assignment or other disposition of all or substantially
all the assets of the Corporation or (vi) a distribution to the Corporation's
holders of Common Stock of the stock of any subsidiary of the Corporation.
3
<PAGE>
If the assets or surplus funds to be distributed to the holders of the
Series A-1 Preferred Stock are insufficient to permit the payment to such
holders of their full preferential amount, the assets and surplus funds legally
available for distribution shall be distributed ratably among the holders of the
Series A-1 Preferred Stock in proportion to the full preferential amount each
such holder is otherwise entitled to receive.
Section 3. Conversion. The holders of any shares of the Series A-1
Preferred Stock shall have conversion rights and obligations as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series A-1 Preferred Stock shall be
convertible into shares of Common Stock of the Corporation ("Conversion
Shares"), without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Series A-1 Preferred Stock, into that number of fully paid and
nonassessable Conversion Shares (calculated to the nearest one-one-hundredth
(1/100) of a share) determined by dividing one dollar and twenty-five cents
($1.25) by the Conversion Price, determined as hereinafter provided, in effect
at the time of conversion. The conversion price at which Conversion Shares shall
be deliverable upon conversion of Series A-1 Preferred Stock without the payment
of any additional consideration by the holder thereof (the "Conversion Price")
shall initially be one dollar and twenty-five cents ($1.25) per Conversion
Share. Such initial Conversion Price stall be subject to adjustment, in order to
adjust the number of Conversion Shares of Common Stock into which the Series A-1
Preferred Stock is convertible, as hereinafter provided.
(b) Automatic Conversion. Each share of Series A-1 Preferred Stock
shall automatically, without any further action on the part of the holder of
Series A-1 Preferred Stock, be converted into Conversion Shares in the same
manner as set forth in Section 3(a) upon the
4
<PAGE>
events described below. Each person who holds of record Series A-1 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-1 Preferred Stock, pursuant to Section 5 hereof. Such
dividends shall be paid to all such holders within thirty (30) days of the
automatic conversion. The shares of Series A-1 Preferred Stock shall be
automatically converted, without any further action on the part of the holder of
Series A-1 Preferred Stock, into Conversion Shares (i) upon consummation of the
first public offering of the Corporation's securities resulting in aggregate
gross proceeds to the Company 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) the Corporation'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 the Corporation's Common Stock (or the
last sale price, if quoted on a national securities exchange) has been at least
double the then effective Conversion Price for twenty (20) consecutive trading
days.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Series A-1 Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Series A-1 Preferred Stock
shall be entitled to convert the same into full shares of Common Stock pursuant
to Section 3(a), he shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series A-1 Preferred Stock, and shall give written notice to the Corporation at
such office that he elects to convert the same and shall state therein his name
or the name or names of his nominees in which he wishes the certificate or
certificates
5
<PAGE>
for shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A-1 Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid, together with cash in lieu of any fraction of a share,
and a certificate or certificates for such number of shares of Series A-1
Preferred Stock as were represented by the certificates surrendered and not
converted. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Series
A-1 Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall be treated for
all purposes as the record holder or holders of such shares of Common stock on
such date. Upon any automatic conversion pursuant to Section 3(b), the mechanics
of conversion shall be the same except that all certificates representing shares
of Series A-1 Preferred Stock shall, upon such conversion, be deemed to
represent that number of shares of Common Stock issuable upon such conversion.
(d) Stock Dividends. Stock Distributions and Subdivisions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall declare or pay any dividend or make any other distribution on the Common
Stock payable in Common Stock, or effect a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in Common Stock), then and in any such event, the adjustment contemplated by
Section 3(e) shall be deemed to have occurred:
(i) in the case of any such dividend or distribution, immediately after
the close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend or distribution, or
6
<PAGE>
(ii) in the case of any such subdivision, at the close of business on
the date immediately prior to the date upon which such corporate action becomes
effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment previously made
in the Conversion Price which became effective on such record date shall be
canceled as of the close of business on such record date, and thereafter the
Conversion Price shall be adjusted pursuant to this subparagraph 3(d) as of the
time of actual payment of such dividend.
(e) Adjustment for Dividends. Distributions. Subdivisions. Combinations
or Consolidation of Common Stock.
(i) Stock Dividends. Distributions or Subdivisions. In the event the
Corporation shall issue Additional Shares of Common Stock pursuant to Section
3(d) in a stock dividend, stock distribution or subdivision, the Conversion
Price in effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock dividend,
stock distribution or subdivision, be proportionately decreased.
(ii) Combinations or Consolidations. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Price
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(f) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation or other business entity, each share of Series A-1 Preferred
Stock thereafter shall be convertible into the number of shares
7
<PAGE>
of stock or other securities or property to which a holder of the number of
shares of Common Stock of the Corporation deliverable upon conversion of such
Series A-1 Preferred Stock would have been entitled upon such consolidation,
merger or conveyance; and, in any case, appropriate adjustment (as determined by
the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interest thereafter of the
holders of the Series A-1 Preferred Stock, to the end that the provisions set
forth herein (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series A-1 Preferred Stock.
(g) Impairment. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A-1 Preferred Stock against impairment.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the number of shares into which the Series A-1
Preferred Stock may be converted pursuant to this Section 3, the Corporation, at
its expense, promptly shall compute such adjustment or readjustment in
accordance with the terms hereof and, upon request by any holder of Series A-1
Preferred Stock, furnish to each holder of Series A-1 Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation,
upon the written request at
8
<PAGE>
any time of any holder of Series A-1 Preferred Stock, shall furnish or cause to
be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series A-1
Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters and other than the dividends to be paid pursuant to Section 5
hereof) or other distribution, the Corporation shall mail to each holder of
Series A-1 Preferred Stock at least ten (10) days prior to the date specified
herein, a notice specifying the date on which any such record is to be taken for
the purpose of such dividend or distribution.
(j) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as from time to time shall be sufficient to effect conversion of
the Series A-1 Preferred Stock.
Section 4. Voting. (a) The holders of shares of Series A-1 Preferred
Stock shall be entitled to notice of any shareholders' meeting and to vote upon
any matter submitted to a shareholder for a vote, on the following basis:
(i) Holders of Common Stock shall have one vote per share on all
matters; and
(ii) Holders of Series A-1 Preferred Stock shall have that number of
votes per share as is equal to the number of shares of Common Stock into which
each such share of Series A-1 Preferred Stock held by such holder is then
convertible.
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Section 5. Dividends. The Corporation shall declare and pay to the
holder of each share of Series A-1 Preferred Stock cash dividends (the "Series
A-1 Preferred Dividend") aggregating each year in the amount of eight percent
(8%) of the purchase price thereof, such purchase price being deemed to be the
original principal amount of the Corporation's Senior Subordinated Convertible
Note (or accrued interest on either the Corporation's Senior Subordinated
Convertible Note or any other indebtedness of the Corporation, if such accrued
interest was originally converted into shares of Series A-1 Preferred Stock)
from which shares of Series A Preferred Stock shall have been converted, at any
time that the Corporation legally may pay dividends in accordance with New York
law. Such dividends shall be cumulative commencing as of the Original Issue
Date, shall be paid prior and in advance of payment of dividends on any other
capital stock of the Corporation ranking junior to the Series A-1 Preferred
Stock, and shall be paid on at least a quarterly basis, and in all events prior
to the payment of dividends on any other capital stock of the Corporation
ranking junior to the Series A-1 Preferred Stock. Such dividends shall be paid
in cash; provided, that in the event that the Corporation has received the
written agreement of any holder(s) of the Series A-1 Preferred Stock to the
effect that at the option of the Corporation such dividends shall be payable
either in cash or in additional whole or fractional shares of the Series A-1
Preferred Stock [with the number of such shares to be distributed being equal to
the quotient determined by dividing the cash dividend amount by One Dollar and
Twenty-Five Cents ($1.25)], then such dividends may be paid in additional shares
of Series A-1 Preferred Stock at the option of the Corporation. Each such
dividend shall be paid to the holders of record of shares of the Series A-1
Preferred Stock as they appear on the stock register of the Corporation on such
record date, not exceeding 30 days nor less than 10 days
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preceding the payment date of such dividends as shall be fixed by the Board of
Directors of the Corporation or a duly authorized committee thereof.
Section 6. Restriction on Additional Issuances. The Corporation shall
not, without the prior written consent of the holders of at least a majority of
the then outstanding shares of Series A-1 Preferred Stock, create or issue any
additional Series A-1 Preferred Stock (other than the 1,200,000 Series A-1
Preferred Stock shares authorized hereby and such additional shares of Series
A-1 Preferred Stock as may be issued pursuant to Section 5 hereof) or securities
of the Corporation which rank senior to the Series A-1 Preferred Stock upon
payment of dividends or upon liquidation or other distribution of assets other
than debt securities issued in connection with borrowings, direct or indirect,
from financial institutions or other persons by the Corporation, provided such
securities and borrowings do not have any equity features, including warrants,
options or other rights to purchase capital stock, and are not convertible into
capital stock of the Corporation. The Corporation may create other series of
preferred stock on a basis which is on a parity with the Series A-1 Preferred
Stock.
SECOND: That said determination of the designation, preferences and the
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, relating to said Preferred Stock, was duly
made by the Board of Directors pursuant to the provisions of the Certificate of
Incorporation of the Corporation, as amended, and in accordance with the
provisions of Section 502(d) of the Business Corporation Law of the State of New
York.
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IN WITNESS WHEREOF, this Certificate has been signed by the Executive
Vice President of IDF INTERNATIONAL, INC. and said Corporation has caused its
corporate seal to be hereunder affixed and attested by its Secretary, all as of
the 27th day of February, 1998.
IDF INTERNATIONAL, INC. ATTEST
By:_______________________________________ [SEAL] __________________________
Toby Moskona, Executive Vice President Sergio Luciani, Secretary
12
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IDF INTERNATIONAL, INC.
Under Section 805 of the Business Corporation Law of the
State of New York
We, being, respectively, the President and Secretary of IDF
INTERNATIONAL, INC., a corporation organized and existing under the Business
Corporation Law of the State of New York (the "Corporation"), DO HEREBY CERTIFY
AND SET FORTH THAT:
FIRST: The name of the Corporation is IDF International, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed
by the Department of State on the 27th day of March, 1991. Amendments to the
Certificate of Incorporation were filed by the Department of State on the 25th
day of February, 1998 and the 23rd day of March, 1998.
THIRD: The Certificate of Incorporation of the Corporation, as amended,
is hereby amended by adding Articles Tenth, Eleventh, Twelfth and Thirteenth,
which shall read as follows:
TENTH: All actions taken by the shareholders of the
Corporation by written consent and not at a meeting of shareholders must be
taken by no less than the unanimous written consent of all shareholders entitled
to act with respect to such matter under the provisions of the New York Business
Corporation Law.
ELEVENTH: Any action taken by shareholders which would have
the effect of amending Article TENTH to permit shareholder action by less than
unanimous written consent shall require 66.66% of the voting power of all
outstanding shares entitled to vote thereon.
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TWELFTH: Any action taken by shareholders which would have the
effect of amending or eliminating the reference to the By-laws of the
Corporation as determining the manner in which Special Meetings of Shareholders
are called shall require 66.66% of the voting power of all outstanding shares
entitled to vote thereon.
THIRTEENTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute or by this
Certificate of Incorporation, and all rights conferred upon shareholders herein
are granted subject to this reservation. The provisions of Article SIXTH,
Article TENTH, Article ELEVENTH, Article TWELFTH or Article THIRTEENTH of this
Certificate of Incorporation shall not be amended by the shareholders of the
Corporation other than by a vote of no less than 66.66% of the outstanding
shares of the Corporation entitled to vote on such matters as provided by the
New York Business Corporation Law.
FOURTH: The foregoing amendments to the Certificate of Incorporation of
the Corporation were authorized, pursuant to section 803(a) of the Business
Corporation law, by vote of the board of directors, followed by the affirmative
vote of the holders of a majority of outstanding shares entitled to vote thereon
at a meeting of the shareholders of the Corporation duly called and held on the
23rd day January, 1998, a quorum being present.
IN WITNESS WHEREOF, the undersigned have executed and signed this
certificate this 4th day of June, 1998.
---------------------------------
Solon D. Kandel
President
---------------------------------
Sergio Luciani
Secretary
2
AMENDED & RESTATED
BYLAWS
OF
IDF INTERNATIONAL, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1.01 Registered Office. The registered office of the
Corporation shall be in the County of Suffolk, State of New York.
Section 1.02 Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time designate or as the Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 2.01 Place of Meeting. Annual meetings and special meetings
shall be held at such time and place, either within or without the State of New
York, as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting or in a duly executed waiver of notice
thereof. Whenever the Board of Directors shall fail to fix such place, the
meeting shall be held at the registered office of the Corporation in the State
of New York.
Section 2.02 Annual Meetings. The Annual Meeting of stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors, provided that the first Annual Meeting shall be held
on a date within thirteen months after the organization of the Corporation and
each successive Annual Meeting shall be held on a date within thirteen months
after the date of the preceding Annual Meeting.
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Section 2.03 Special Meetings.Special Meetings of the stockholders may
be called by the Board of Directors, Chairman of the Board of Directors, the
President, or by shareholders pursuant to a written demand by the holders of at
least 66.66% of the voting power of all outstanding shares of the Corporation
entitled to vote on the matter(s) to be considered by the Special Meeting. Upon
request in writing to the Chairman of the Board of Directors, the President, any
Vice President or the Secretary by any person (other than the Board of
Directors) entitled to call a Special Meeting of the stockholders, not less than
15 nor more than 60 days after the receipt of the request, the officer shall
cause notice to be given to the stockholders who are entitled to vote that a
meeting will be held at the time and place which were requested by the person or
persons calling the meeting. If the notice is not given within 20 days after
receipt of the request, the entitled person calling for the meeting may give the
notice. Any amendment to or deletion of this Section 2.03 shall require the
approval of the holders of at least 66.66% of all the outstanding shares
entitled to vote thereon.
Section 2.04 Notice of Meetings. Written notice of the place, date
and hour of each Annual or Special Meeting of stockholders shall be given
personally or by mail not less than ten or more than fifty days before the date
of the meeting to each stockholder entitled to vote thereat. The notice of an
Annual Meeting shall state that the meeting is called for the election of
directors and for the transaction of other business which may properly come
before the meeting, and shall, if any other action which could be taken at a
Special Meeting is to be taken at such Annual Meeting, state the purpose or
purposes. The notice of a Special Meeting shall in all instances state the
purposes or purposes for which the meeting is called. The notice of any meeting
shall also include, or be accompanied by, any additional statements, information
or documents which are prescribed by the New York Business Corporation Law. If
such notice is mailed, it shall be
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directed to the stockholder in a postage prepaid envelope at his address as it
appears on the record of stockholders, or, if he shall have filed with the
Secretary a written request that notices to him be mailed to some other address,
then directed to him at such other address. Except as otherwise expressly
provided by statute, no publication of any notice of a meeting of stockholders,
or any adjournment thereof, shall be required.
Section 2.05 Waiver of Notice. Notice of a meeting need not be given to
any stockholder who submits a waiver of notice, signed in person or by proxy,
whether before or after the meeting. The attendance of any stockholder at a
meeting, in person or by proxy, shall constitute a waiver of notice of such
meeting except when the stockholder attends the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because of the lack of notice to him or that the meeting has not been
lawfully called or convened. Neither the business to be transacted at, or the
purpose of, any Annual or Special Meeting of the stockholders need be specified
in any written waiver of notice.
Section 2.06 Quorum; Adjournment. At any meeting of the
stockholders, the holders of a majority of all of the shares of the stock
entitled to vote at the meeting, present in person or by proxy, shall be
requisite for and constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law or the
Certificate of Incorporation. Where a separate vote by a class, classes or
series is required, a majority of the outstanding shares of such classes or
series, present in person or represented by proxy, shall be requisite for and
constitute a quorum entitled to take action with respect to a vote on that
matter, unless or except to the extent that the presence of a larger number may
be required by law or the Certificate of Incorporation. If a quorum shall fail
to attend any meeting, the chairman of the meeting or the holders of a majority
of the shares of stock entitled to vote who
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are present, in person or by proxy, may adjourn the meeting from time to time
to another place, date or time until a quorum shall be present or
represented.
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
The stockholders who are present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than the
number required to originally constitute a quorum.
Section 2.07 Organization. At every meeting of the stockholders, the
Chairman of the Board of Directors, if there be one, or in the case of a vacancy
in the office or absence of the Chairman of the Board of Directors, one of the
following persons present in the order stated shall act as chairman of the
meeting: the Vice Chairman of the Board of Directors, if there be one, the
President, the Vice Presidents in their order of rank or seniority, a chairman
designated by the board of directors or a chairman chosen by the shareholders in
the manner which is provided in Section 2.06 of this Article II. The Secretary,
or in his absence, an Assistant Secretary, or in the absence of the Secretary
and the Assistant Secretaries, a person appointed by the chairman of the
meeting, shall act as secretary of the meeting.
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Section 2.08 Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing filed in accordance with the procedure which is
established for the meeting.
Except as otherwise required by law or provided for in the Certificate
of Incorporation, each stockholder shall have one vote for every share of stock
which is entitled to vote which is registered in his name on the record date
which is set for the meeting, provided, however, if no record date shall have
been set, then the day on which the meeting is held.
All voting, including for the election of directors but excepting where
otherwise provided herein or required by law or the Certificate of
Incorporation, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or such stockholder's proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure which is established for the
meeting. Every vote which is taken by ballot shall be counted by an inspector or
inspectors who are appointed by the Board of Directors.
Except as otherwise required by law or provided for in the Certificate
of Incorporation, all matters to be determined by shareholders, including but
not limited to, all elections of directors shall be determined by a plurality of
the votes which are cast.
Section 2.09 Stockholder List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares which are registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a
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place within the city or other municipality or community where the meeting is to
be held, which place shall be specified in the notice of the meeting, or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting, during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list which is required by this Section 2.09 of
this Article II, the books of the Corporation or to vote at any meeting of
stockholders. Failure to comply with the requirements of this Section 2.09 of
this Article II shall not affect the validity of any action taken at such
meeting.
Section 2.10 Inspectors of Election. In advance of any meeting of
stockholders, the Board of Directors may appoint inspectors of election, who
need not be stockholders, to act at such meeting or any adjournment thereof. If
inspectors of election are not so appointed, the person presiding at any such
meeting may, and on the request of any stockholder entitled to vote at the
meeting and before voting begins shall, appoint inspectors of election. No
person who is a candidate for office of the Corporation shall act as an
inspector. The number of inspectors shall be either one or three, as determined,
with respect to the inspectors who are appointed upon demand of a stockholder,
by the stockholders in the manner which is provided in Section 2.06 of this
Article II, and otherwise by the Board of Directors or the person who is
presiding at the meeting, as the case may be. If any person who is appointed
fails to appear or act, the vacancy may be filled by appointment made by the
Board of Directors in advance of the meeting or at the meeting by the person
presiding at the meeting. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath to execute the duties of inspector at
such meeting faithfully, with strict impartiality and according to the best of
his ability.
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If inspectors of election are appointed as aforesaid, they shall
determine from the lists referred to in Section 2.09 of this Article II the
number of shares which are outstanding, the shares which are represented at the
meeting, the existence of a quorum and the voting power of the shares which are
represented at the meeting, determine the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with the right to vote or the number
of votes which may be cast, count and tabulate all votes or ballots, determine
the results and do such acts as are proper to conduct the election or vote with
fairness to all stockholders who are entitled to vote thereat. If there be three
inspectors of election, the decision, act or certificate of a majority shall be
effective in all respects as the decision, act or certificate of all of them.
Unless waived by vote of the stockholders conducted in the manner
which is provided in Section 2.06 of this Article II, the inspectors shall make
a report in writing of any challenge or question or matter which is determined
by them, and execute a sworn certificate of any facts found by them.
Section 2.11 Actions by Stockholders. Unless otherwise provided in the
Certificate of Incorporation, any action which is required to be taken at any
Annual or Special Meeting of stockholders of the Corporation, or any action
which may be taken at any Annual or Special Meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be a unanimous
written consent, signed by the holders of all the outstanding stock that would
be necessary to authorize or take such action at a meeting at which all shares
which are entitled to vote thereon were present and voted and shall be delivered
to the Corporation by delivery to its registered office in this State, its
principal place of business, or an officer or agent of the Corporation
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having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Any amendment to or
deletion of this Section 2.11 shall require the approval of the holders of at
least 66.66% of all the outstanding shares entitled to vote thereon.
Section 2.12 Record Date. For the purpose of determining the
stockholders who are entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to or dissent
from any corporate action in writing without a meeting, or who are entitled to
distribution or the exercise of any rights exchange of stock, or for the purpose
of determining stockholders receive payment of any dividend or other allotment
of any rights, or entitled to in respect of any change, conversion or for the
purpose of any other lawful action, the directors may fix, in advance, a date as
the record date for any such determination. Such date shall not be more than
sixty days nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. If no record date is fixed, the record
date for the determination of stockholders shall be at the close of business on
the date preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day preceding the day on which the meeting is held;
the record date for determining stockholders who are entitled to express consent
to any corporate action in writing without a meeting, when no prior action by
the Board of Directors is necessary, shall be the day on which the first written
consent is expressed. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts resolutions relating thereto. When a determination of
stockholders of record who are entitled to notice of or to vote at any meeting
of stockholders has been made as provided in this Section 2.12 of this Article
II, such
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determination shall apply to any adjournment thereof; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 Duties and Powers. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation or by these
By-laws directed or required to be exercised or done by the stockholders. The
use of the phrase "whole board" herein refers to the total number of directors
which the Corporation would have if there were no vacancies.
Section 3.02 Number and Term in Office. The Board shall consist of
three classes of directors, each class to be as nearly equal in number of
directors as possible. There shall be Class A director(s), Class B director(s)
and Class C director(s). Beginning with the 1998 Annual Meeting of Shareholders:
(i) the Class A director(s) shall be elected, to hold office until the third
Annual Meeting of Shareholders to occur subsequent to the Annual Meeting at
which such director(s) was elected and until his or their successors shall have
been elected and qualified, or until his or their deaths, or until he or they
shall have resigned, or have been removed; (ii) the Class B director(s) shall be
elected, to hold office until the 1999 Annual Meeting of Shareholders, and until
his or their successors shall have been elected and qualified, or until his or
their deaths, or until he or they shall have resigned, or have been removed; and
(iii) the Class C director(s) shall be elected, to hold office until the 2000
Annual Meeting of Shareholders, and until his or their successors shall have
been elected and qualified, or until his or their deaths, or
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until he or they shall have resigned, or have been removed. Beginning with the
1999 Annual Meeting of Shareholders, the Class B director(s) shall be elected,
to hold office until the third Annual Meeting of Shareholders to occur
subsequent to the Annual Meeting at which such director(s) was elected and until
his or their successors shall have been elected and qualified, or until his or
their deaths, or until he or they shall have resigned, or have been removed.
Beginning with the 2000 Annual Meeting of Shareholders, the Class C director(s)
shall be elected, to hold office until the third Annual Meeting of Shareholders
to occur subsequent to the Annual Meeting at which such director(s) was elected
and until his or their successors shall have been elected and qualified, or
until his or their deaths, or until he or they shall have resigned, or have been
removed. The Board of Directors can determine to change the number of directors
constituting the Board of Directors, which number shall not be less than three
(3) nor more than nine (9), provided that no decrease in the number of directors
shall have the effect of shortening the term of any incumbent director. Any
decrease in the number of directors shall be effective at the time of the next
succeeding Annual Meeting of Shareholders at which the election of the director
whose position is being eliminated would have been considered, unless there
shall be vacancies in the Board of Directors, in which case such decrease may
become effective at any time prior to the next such succeeding Annual Meeting of
Shareholders to the extent of the number of such vacancies. In the event of any
increase or decrease in the number of directors, the number of additional
directors and the number of eliminated directors shall be apportioned among the
three classes of directors in a manner which results, to the extent possible, in
an equal number of directors being included in each such class.
Section 3.03 Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors
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then in office, although less than a quorum, or by a sole remaining director or
by the stockholders entitled to vote at any Annual or Special Meeting held in
accordance with Article II, and the directors so chosen shall hold office until
the next Annual or Special Meeting duly called for that purpose and until their
successors are duly elected and qualified, or until their earlier death,
resignation or removal.
Section 3.04 Nominations of Directors; Election. Nominations for the
election of directors may be made by the Board of Directors or a committee
appointed by the Board of Directors, or by any stockholder entitled to vote
generally in the election of directors who complies with the procedures set
forth in this Section 3.04 of this Article III. At each meeting of stockholders
for the election of directors at which a quorum is present, the persons
receiving a plurality of the votes cast shall be elected directors. All
NOMINATIONS BY stockholders shall be made pursuant to timely notice in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior to
the meeting; provided, however, that in the event that less than 40 days' notice
or prior public disclosure OR the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. To be in proper written form, such stockholder's notice shall set forth in
writing (i) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, including, without
limitation, such person's
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written consent to being named in the proxy statement as a nominee and to
serving as a director if elected and (ii) as to the stockholder giving the
notice (x) the name and address, as they appear on the Corporation's books, of
such stockholder and (y) the class and number of shares of the corporation which
are beneficially owned by such stockholder.
Section 3.05 Regular Meetings. A regular meeting of the Board of
Directors shall be held immediately following the Annual Meeting of
stockholders, as soon thereafter as a quorum of the directors may conveniently
assemble, and other regular meetings shall be held at such time and at such
place, within or without the State of Delaware, as shall from time to time be
determined by the Board of Directors. If the day so determined shall be a legal
holiday, such meeting shall be held on the next succeeding business day, not a
legal holiday, at the same hour. No notice shall be required for any such
regular meeting of the Board of Directors but a copy of every resolution fixing
or changing the time or place of such meeting shall be mailed to each director
at least seven days before the first meeting held pursuant to such resolution.
Neither the business to be transacted at, nor the purpose of, any regular
meeting of the directors need be specified in any written waiver of notice.
Section 3.06 Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board of
Directors, the President, or by a majority of the directors. Written, oral or
any other mode of notice of the date, place, time and purpose of any special
meeting shall be given in sufficient time for the convenient assembly of the
directors. Notice of any meeting of the Board of Directors need not be given to
any director who submits a signed waiver of notice before or after the meeting.
The attendance of a director at a special meeting shall constitute waiver of
notice of such meeting, except when he attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
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business because of the lack of notice to him or the meeting is not lawfully
called or convened. Unless limited by statute, the Certificate of Incorporation
or the By-Laws, any and all business may be transacted at, nor the purpose of,
any special meeting of the directors need be specified in any written waiver of
notice.
Section 3.07 Quorum; and Manner of Acting. A majority of the Board of
Directors in office at the time of any regular or special meeting of the Board
of Directors shall constitute a quorum for the transaction of business. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place at which time, a quorum being
present, any business may be transacted which might have been transacted at the
meeting as originally called. Notice of the time and place of such adjourned
meeting need not be given to the directors who were not present at the time of
adjournment. Except as herein otherwise provided and except as otherwise
provided by the New York Business Corporation Law, the act of the Board of
Directors shall be the act by vote of a majority of the directors present at a
meeting at which a quorum is present. The directors shall act only as a Board of
Directors and the individual directors shall have no power as such. The quorum
and voting privileges which are herein stated shall not be construed as
conflicting with any provisions of the New York Business Corporation Law and
these By-Laws which govern a meeting of directors held to fill vacancies and
newly create directorships in the Board of Directors.
Section 3.08 Committees. The Board of Directors may, by resolution
passed by a majority of the directors then in office, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or
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disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such members constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any committee,
to the extent allowed by By-laws or resolution establishing such and may
exercise all the powers and of Directors in the management of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. No such committee shall have any power or authority to amend the
Certificate of Incorporation, adopt an agreement of merger or consolidation,
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommend to the
stockholders a dissolution of the Corporation or a revocation of a dissolution
of the Corporation or amend the By-Laws of the Corporation or otherwise as
prohibited by Section 712 of the New York Business Corporation Law. Each
committee shall keep regular minutes and report to the Board of Directors when
required.
Section 3.09 Action of Board of Directors Without a Meeting. Unless
otherwise provided by the Certificate of Incorporation or these By-laws, any
action which is required or permitted to be taken at any meeting of the Board of
Directors of any committee thereof may be taken without a meeting if all members
of the Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee. Any member or members of the Board of
Directors or of any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any such committee, as
the case may be, by means of a conference
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telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such a
meeting by such means shall constitute presence in person at such meeting.
Section 3.10 Resignations. Any director of the Corporation may resign
at any time by giving written notice to the Chairman of the Board of Directors,
the President or the Secretary. Such resignation shall take effect at the date
of the receipt of such notice or at any later time which is specified therein
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3.11 Organization. At every meeting of the Board of Directors,
the Chairman of the Board of Directors, if there be one, or, in the case of a
vacancy in the office or absence of the Chairman of the Board of Directors, one
of the following officers present in the order stated shall act as Chairman of
the meeting: the President, the Vice Presidents in their order of rank and
seniority, or a chairman chosen by a majority of the directors present. The
Secretary, or, in his absence, an Assistant Secretary, or in the absence of the
Secretary and the Assistant Secretaries, any person appointed by the Chairman of
the meeting shall act as secretary of the meeting.
Section 3.12 Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
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Section 3.13 Removal. A director, or the entire Board of Directors, may
be removed only with cause and with the affirmative vote of the holders of at
least 66.66% of the voting power of all outstanding shares of the Corporation
entitled to vote generally in the election of directors. Any amendment to or
deletion of this Section 3.13 shall require the approval of the holders of at
least 66.66% of all the outstanding shares entitled to vote thereon.
ARTICLE IV
OFFICERS
Section 4.01 General. The officers of the Corporation shall be elected
by the Board of Directors and shall consist of a Chairman of the Board of
Directors or a President, or both, one or more Vice Presidents, a Treasurer and
a Secretary. The Board of Directors may also choose one or more Assistant
Secretaries and Assistant Treasurers, and such other officers and agents as the
Board of Directors, in its sole and absolute discretion, shall deem necessary or
appropriate as determined by the Board of Directors from time to time. Except
for the offices of Chairman of the Board of Directors, President and Secretary,
any two or more corporate offices, whether elective or appointive, may be held
by the same person but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument be required by law or by
these By-Laws to be executed, acknowledged or verified, as the case may be, by
any two or more officers.
Section 4.02 Election; Term of Office. The Board of Directors at its
first meeting held after each Annual Meeting of Stockholders shall elect a
Chairman of the Board of Directors or a President, or both, one or more Vice
Presidents, a Secretary and a Treasurer, and may also elect at that meeting or
any other meeting, such other officers and agents as it shall deem necessary or
appropriate. Each officer of the Corporation shall exercise such powers and
perform
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such duties which are prescribed by these By-Laws and as shall be determined
from time to time by the Board of Directors together with the powers and duties
which are customarily exercised by such officer. Each officer of the Corporation
shall hold office until such officer's successor is elected and qualified or
until such officer's earlier death, resignation or removal. Any officer may
resign at any time upon written notice to the Corporation. The Board of
Directors may at any time, with or without cause, by the affirmative vote of a
majority of directors then in office, remove any officer or agent.
Section 4.03 Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be such an officer, shall be the chief executive
officer of the Corporation. The Chairman of the Board of Directors shall preside
at all meetings of the stockholders and the Board of Directors and shall have
such other duties and powers as may be prescribed by the Board of Directors from
time to time.
Section 4.04 President. The President, subject to the control of the
Board of Directors, shall be the chief operating officer of the Corporation and
shall have and exercise complete and direct charge of all the business and
affairs of the Corporation and shall have such powers and perform such duties as
may from time to time be assigned to him by the Board of Directors. The
President shall have general authority to negotiate and execute bonds, leases,
deeds, mortgages and enter into contracts in the name of and for and on behalf
of the corporation; to sign certificates for shares; to cause the employment or
appointment of such employees and agents of the Corporation (other than officers
or agents elected or appointed by the Board of Directors) as the conduct of the
business of the Corporation may require and to fix their compensation; to remove
or suspend any employee or agent who shall not have been appointed by the Board
of Directors; to suspend for cause, pending final action by the Board of
Directors,
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any officer or agent who shall have been elected or appointed by the Board of
Directors; and, in general, to exercise all the powers generally appertaining to
the office of president and chief executive officer of a corporation.
In the absence of the Chairman of the Board of Directors or in the
event of his inability or refusal to act, or if the Board of Directors has not
designated a Chairman, the President shall perform the duties of the Chairman of
the Board of Directors, and when so acting shall have all of the powers and be
subject to all of the restrictions upon the Chairman of the Board of Directors.
Section 4.05 Vice President. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or if there be
more than one Vice President, the vice Presidents in the order which is
designated by the Board of Directors, or in the absence of any designation, then
in the order of their election) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all of the
restrictions upon the President. The Vice Presidents shall perform such other
duties and have such other powers as the Board of Directors or the President may
from time to time prescribe.
Section 4.06 Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given notice of meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President. If the Secretary shall be unable or shall refuse to cause to be given
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and if there be no Assistant Secretary, then either the Board
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of Directors or the President may choose another officer to cause such notice to
be given. The Secretary shall have custody of the seal of the Corporation and
the Secretary or any Assistant Secretary, if there by one, shall have authority
to affix same to any instrument requiring it and when so affixed, it may be
attested to by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Secretary shall have authority to sign stock
certificates and shall generally perform all the duties appertaining to the
office of a secretary of a corporation. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest to the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records which are
required by law to be kept or filed are properly kept: or filed, as the case may
be.
Section 4.07 Treasurer. The Treasurer shall be the chief financial and
accounting officer of the Corporation, have the custody of the corporate funds
and securities, keep complete and accurate accounts of all receipts and
disbursements of the Corporation and shall deposit all monies and other valuable
effects of the Corporation in its name and to its credit in such banks and other
depositories as may be designated from time to time by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation, taking proper
vouchers and receipts for such disbursements, and shall render to the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation. He shall supervise the accounting and auditing practices of
the Corporation and shall direct the manner of certifying the Corporation's
financial statements. The Treasurer shall have such other powers and perform
such other duties in connection with the administration of the financial affairs
of the Corporation, and shall generally perform all the duties usually
appertaining to the office of a treasurer of a corporation.
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Section 4.08 Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
Section 4.09 Resignations. Any officer may resign at any time by giving
written notice to the Corporation by giving notice to the Board of Directors,
the Chairman of the Board of Directors, the President or the Secretary. Such
resignation shall take effect upon receipt of such notice or at any later time
which is specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4.10 Officers' Bonds or Other Security. If required by the
Board of Directors, any officer of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board of Directors may require.
Section 4.11 Vacancies. Any vacancy among the officers, whether caused
by death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of office in the manner which is prescribed by
these By-Laws for the regular election to such office.
Section 4.12 Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors; provided, however, that the Board of Directors may
delegate to the President the power to fix the compensation of officers and
agents who are appointed by him. Any officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation, but any such officer who shall also be a director
shall not have any vote in the determination of the amount of compensation which
is paid to him.
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ARTICLE V
SHARE CERTIFICATES
Section 5.01 Form; Signature. The shares of the Corporation shall be
represented by certificates in such form as shall be approved by the Board of
Directors and shall be signed by the Chairman of the Board of Directors or the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall be sealed with the seal of
the Corporation or a facsimile thereof. The signatures of the officers upon
certificate may be facsimiles if the certificate is countersigned by a Transfer
Agent or registered by a Registrar other than the Corporation or its employees.
if any officer who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the date of issue.
Section 5.02 Regulations Appointment of Transfer Agent and Registrars.
The Board of Directors may make all such rules and regulations, not inconsistent
with these By-Laws, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation. The Board
of Directors may, in its discretion, appoint one or more banks or trust
companies from time to time to act as Transfer Agents and Registrars of the
shares of the Corporation and, upon such appointments being made, no certificate
representing shares shall be valid until countersigned by one of such Transfer
Agents and registered by one of such Registrars.
Section 5.03 Transfer of Shares. Upon compliance with the provisions
restricting the transfer or registration of transfer of shares of stock, if any,
transfer or registration of transfers of shares of stock of the Corporation
shall be made only on the stock ledger of the Corporation by
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the registered holder thereof, or by his attorney thereunto authorized by power
of attorney, duly executed and filed with the Secretary of the Corporation or
with a transfer agent or registrar, if any, and on surrender of the certificate
or certificates for such shares of stock properly endorsed and the payment of
all taxes due thereon.
Section 5.04 Registered Stockholders. The Corporation shall be entitled
to recognize the person in whose name shares of stock shall stand on the record
of stockholders of the Corporation as the exclusive owner thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
Section 5.05 Lost, Stolen, Destroyed or Mutilated Certificates. If the
holder of any certificate representing shares of stock of the Corporation shall
notify the Corporation that such certificate has been lost, stolen, destroyed or
mutilated, the Board of Directors, or any officer or officers duly authorized by
the Board of Directors, may authorize the issuance of a substitute certificate
in place of the certificate so alleged to have been lost, stolen, destroyed or
mutilated and may cause or authorize such substitute certificate to be
countersigned by the appropriate Transfer Agent and registered by the
appropriate Registrar. In each such case, the Board of Directors may, in its
discretion, require such owner or his legal representative, to furnish to the
Corporation and to such of its Transfer Agents and Registrars as may require the
same, evidence to their satisfaction, in their discretion, of the loss, theft,
destruction or mutilation of such certificate and of the ownership thereof, and
to give to the Corporation a bond in such sum, limited or unlimited, and in such
form and with such surety or sureties as the Board of Directors in its absolute
discretion shall determine, to indemnify the corporation against any claim that
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may be made against it on account of the alleged loss, theft, destruction or
mutilation of any such certificate, or the Issuance of such new certificate.
Notwithstanding anything which is contained herein to the contrary, the Board of
Directors, in its absolute discretion, may refuse to issue any such new
certificate, except pursuant to legal proceedings.
Section 5.06 Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities which are owned by the Corporation may be executed in the
name of and on behalf of the Corporation by the Chairman of the Board, the
President, any Vice President or the Secretary and any such officer may, in the
name of and on behalf of the Corporation take all such action as any such
officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
powers incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers upon
any other person or persons.
ARTICLE VI
NEGOTIABLE INSTRUMENTS. BANK ACCOUNTS, ETC.
Section 6.01 Signatures on Negotiable Instruments. All bills, notes,
checks or other instruments for the payment of money out of the funds of the
Corporation shall be signed or countersigned by such officers or agents in the
name and on behalf of the Corporation and in such manner as from time to time
may be prescribed by resolution of the Board of Directors, or may be prescribed
by any officer or officers or any officer and agent jointly, as duly authorized
by the Board of Directors. Except as may be otherwise expressly provided by
resolution of the
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Board of Directors, endorsements for or on behalf of the Corporation upon
checks, drafts, bills of exchange, acceptances, notes, obligations or orders for
the payment of money deposited with a duly authorized depositary of the
Corporation for deposit or collection may be written or stamped endorsements of
the Corporation without any designation of the party making such endorsement.
Section 6.02 Deposits; Bank Accounts. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board of
Directors may from time to time designate or as may be designated by an officer
or officers of the Corporation to whom such power of designation may from time
to time be delegated by the Board of Directors. The Board of Directors may from
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board of
Directors may designate or as may be designated by any officer or officers of
the Corporation to whom such power of designation may from time to time be
delegated by the Board of Directors. The Board of Directors may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these By-Laws, as it my deem expedient.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification of Directors and Officers in Third Party
Proceedings.
The Corporation shall indemnify any director or officer of the
Corporation who was or is an "authorized representative of the Corporation"
(which shall mean for the purposes of this Article VII a director or officer of
the corporation, or a person serving at the request of the
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Corporation as a director, officer, partner or trustee of another corporation,
partnership, joint venture, trust or other enterprise) and who was or is a
"party" (which shall include for purposes of this Article VII the giving of
testimony or similar involvement) or is threatened to be made a party to any
"third party proceeding" (which shall mean for purposes of this Article VII any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, other than an action by or in the
right of the Corporation) by reason of the fact that such person was or is an
authorized representative of the Corporation, against expenses (which shall
include for purposes of this Article VII attorneys' fees and disbursements),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to a criminal third party proceeding (which shall
include for purposes of this Article VII any investigation which could or does
lead to a criminal third party proceeding) had not reasonable cause to believe
such conduct was unlawful. The termination of any third party proceeding by
judgment, order, settlement, indictment, conviction or upon a plea of no contest
or its equivalent, shall not, of itself, create a presumption that the
authorized representative did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal third party proceeding, had
reasonable cause to believe that such conduct was unlawful.
Section 7.02 Indemnification of Directors and Officers in Corporate
Proceedings.
The Corporation shall indemnify any director or officer of the
Corporation who was or is an authorized representative of the Corporation and
who was or is a party or is threatened to be
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made a party to any "corporate proceeding (which shall mean for purposes of this
Article VII any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor or any investigative
proceeding by or on behalf of the Corporation) by reason of the fact that such
person was or is an authorized representative of the Corporation, against
expenses (including attorneys' fees and disbursements) actually and reasonably
incurred by such person in connection with the defense or settlement of such
corporate proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall, have been adjudged to be
liable for negligence or misconduct in the performance of such person's duty to
the Corporation unless and only to the extent that the court in which such
corporate proceeding was pending shall determine upon application that despite
the adjudication of liability but in view of all the circumstances of the case,
such authorized representative is fairly and reasonably entitled to indemnity
for such expenses which the court shall deem proper.
Section 7.03 Indemnification of Authorized Representatives. To the
extent that an authorized representative of the Corporation who neither was nor
is a director or officer of the Corporation has been successful on the merits or
otherwise in defense of any third party or corporate proceeding or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses which are actually and reasonably incurred by such person in connection
therewith. Such an authorized representative may, at the discretion of the
Corporation, be indemnified by the corporation in any other circumstances to any
extent if the Corporation would be required by Section 7.01 or 7.02 of this
Article VII to indemnify such
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person in such circumstances to such extent as if such person were or had been a
director or officer of the Corporation.
Section 7.04 General Terms. Any indemnification under Section 7.01 and
Section 7.02 of this Article VII (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he had met the applicable standard of conduct set
forth in Section 7.01 and Section 7.02 of this Article VII. Such determination
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in written
opinion, or (iii) by the stockholders.
Expenses incurred in defending a civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in these By-Laws.
Section 7.05 Amendment. Any amendment to Article VII shall not apply to
any liability of a director, officer, employee or agent arising out of a
transaction or omission occurring prior to the adoption of such amendment, but
any such liability based on a transaction or omission occurring prior to the
adoption of such amendment shall be governed by Article VII of these By-Laws, as
in effect at the time of such transaction or omission.
Section 7.06 Insurance and Trust Fund. In furtherance and not in
limitation of the powers which are conferred by statute:
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(1) the Corporation may purchase and maintain insurance on behalf of
any person who is or was a director' officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability which is asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of law; and
(2) the Corporation may create a trust fund, grant a security interest
and/or use other means (including, without limitation, letters of credit, surety
bonds and/or other similar arrangements), as well as enter into contracts
providing indemnification to the fullest extent permitted by law and including
as part thereof provisions with respect to any or all of the foregoing, to
ensure the payment of such amount as may become necessary to effect
indemnification as provided therein, or elsewhere.
Section 7.07 Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, including the right to
be paid by the Corporation the expenses which are incurred in defending any
proceeding in advance of its final disposition, to any employee or agent of the
Corporation to the fullest extent of the provisions of this Section 7.07 or
otherwise with respect to the indemnification and advancement of expenses of
directors and officers of the corporation.
ARTICLE VIII
DIVIDENDS
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or
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special meeting or by any Committee of the Board of Directors having such
authority at any meeting thereof, and may be paid in cash, in property, in
shares of the capital stock or in any combination thereof. Before payment of any
dividend, there may be set aside out of any funds of the Corporation which are
available for dividends such sum or sum as the Board of Directors from time to
time deems proper, in its absolute discretion, as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
ARTICLE IX
GENERAL
Section 9.01 Corporate Seal. The corporate seal, if the Corporation
shall have a corporate seal, shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal, New
York." The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
Section 9.02 Fiscal Year. The fiscal year of the Corporation shall be
fixed and shall be subject to change by the Board of Directors.
Section 9.03 Amendments. These By-Laws may be amended or repealed or
new By-Laws may be adopted either by vote of the stockholders as hereinabove
provided, or by the vote of a majority of all of the directors then in office,
except that the Board of Directors shall not have power to adopt any By-Laws
which by statute only the stockholders have power to so adopt. Any By-Laws which
are adopted by the Board of Directors may be amended or repealed by stockholders
who are entitled to vote thereon. The notice of any meeting of stockholders at
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which action to amend, repeal or adopt any By-Law or By-Laws is proposed to be
taken, shall include notice of such proposed amendment, repeal or adoption.
30
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 SOLON L. KANDEL, 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").
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(b) This Agreement may be terminated:
(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;
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(iii) the habitual (meaning more than two (2)
breaches of the same covenant or agreement) and material
breach by the Employee of a material 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
amount to which the Employee shall be
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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
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Agreement and described below. Participation in such benefit plans may be
subject to standard 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
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and ending June 30, 1998 (the "1998 Measuring
Period") shall equal or 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 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
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(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).
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(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:
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(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).
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(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.
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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
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(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
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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
14
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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.
(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.
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<PAGE>
(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.
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<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:
________________________________
SOLON L. KANDEL
17
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of this 25th
day of August, 1997 by and between HAYDEN/WEGMAN, INC. a New York corporation
("Hayden/Wegman" or the "Corporation"), having its principal offices at 4340
East West Highway, Suite 1000, Bethesda, Maryland 20814; IDF INTERNATIONAL,
INC., a New York corporation ("IDF"), having its principal offices at 330 West
42nd Street, New York, New York 10036; and LEMBIT KALD, an individual residing
at 72-16 32nd Avenue, East Elmhurst, New York 11370 (the "Employee").
Hayden/Wegman and IDF are hereinafter sometimes collectively referred to as the
"Corporations."
W I T N E S S E T H :
WHEREAS, the Employee is presently a senior executive officer of
Hayden/Wegman and has extensive knowledge with respect to the business of
Hayden/Wegman;
WHEREAS, the Corporations desire to have continued access to the
services of the Employee;
WHEREAS, the Employee is willing and able to render his services to the
Corporations on the terms and conditions of this Agreement; and
WHEREAS, it is understood that this Agreement shall become effective on
a date (the "Effective Date") which shall be the date of consummation of a
merger (the "Merger") of TechStar Communications, Inc. ("TechStar") into a
merger subsidiary of IDF ("Mergerco"), pursuant to the agreement and plan of
merger, dated July 31, 1997, among IDF, American United Global, Inc., TechStar
and Mergerco (the "Merger Agreement").
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, IDF
shall, throughout the term of this Agreement, retain the Employee, and the
Employee shall render services to the Corporations, in the capacity and with the
title of Executive Vice President of IDF and President and Chief Executive
Officer of Hayden/Wegman, and such additional titles as may be assigned to the
Employee from time to time by the Board of Directors of IDF (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 Hayden/Wegman for
the establishment of all operating plans and policies, 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 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
Hayden/Wegman; (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
Hayden/Wegman as in effect from time to time; and (iii) do such traveling at
Hayden/Wegman'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. The
Employee may engage in charitable, educational, religious, civic and similar
types of activities (all of which shall be deemed to benefit Hayden/Wegman),
speaking engagements, membership on the board of directors of other
organizations, and similar activities to the extent that such activities do not
inhibit or prohibit the performance of his duties hereunder or inhibit or
conflict in any material way with the business of Hayden/Wegman.
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:
(i) upon mutual written agreement of IDF and the
Employee;
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<PAGE>
(ii) at the option of the Employee, upon thirty (30)
days' prior written notice to IDF, in the event that (A) IDF 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 IDF; 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) IDF is
declared insolvent, liquidates, dissolves or discontinues Hayden/Wegman Business
(as hereinafter defined).
(iii) at the option of IDF, upon written notice to
the Employee, "for cause" (as hereinafter defined);
(iv) at the option of IDF 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
IDF to the Employee;
(ii) any material breach by the Employee of his
fiduciary duties and obligations to IDF or its subsidiaries
which is not corrected in all material respects (if so
correctable) within thirty (30) days after written notice of
same IDF 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 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
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<PAGE>
(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 IDF, 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 IDF. 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 IDF (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 IDF shall terminate upon the effective date of termination of
employment except to the extent 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 IDF 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.
(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 IDF will place in escrow with a
third party attorney or financial institution in an interest bearing escrow
account all such periodic Base Salary payments 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.
4
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As compensation for his services to be
rendered hereunder, IDF 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 Hayden/Wegman 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 $180,000
From December 1, 1998 through November 30, 1999 $180,000
From December 1, 1999 through November 30, 2000 $180,000
(b) Fringe Benefits. IDF shall also make available to the
Employee, throughout the period of his employment hereunder, such benefits and
perquisites as are generally provided by Hayden/Wegman 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 Hayden/Wegman), 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 IDF 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 IDF to adopt or maintain any particular plan
or policy; and provided, further, that IDF 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. Participation in such benefit plans may be subject
to standard waiting periods following the commencement of full-time employment.
(c) Expenses. Throughout the period of the Employee's
employment hereunder, IDF shall also reimburse the Employee, reasonably promptly
after presentment by the Employee to IDF of appropriate receipts and vouchers
therefor and related information in such form and detail as IDF 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.
4. Vacation.
The Employee shall be entitled to take, from time to time,
normal and reasonable vacations with pay, consistent with Hayden/Wegman's
standard policies and procedures in effect from time to time, at such times as
shall be mutually convenient to the Employee and Hayden/Wegman, and so as not to
interfere unduly with the conduct of the business of Hayden/Wegman.
5
<PAGE>
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 Hayden/Wegman have been of value to
Hayden/Wegman and will be of value to Hayden/Wegman, and have provided
Hayden/Wegman and will hereafter provide Hayden/Wegman 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
Hayden/Wegman.
(b) Unless otherwise approved in writing by Hayden/Wegman or
its Chairman of the Board after full disclosure by the Employee to
Hayden/Wegman'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 Hayden/Wegman 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
(ii) unless the Employee's employment with
Hayden/Wegman 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 Hayden/Wegman or his termination by
Hayden/Wegman "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
6
<PAGE>
consultant in any business enterprise (other than IDF or any of their respective
Subsidiaries, affiliates, successors or assigns) which derives any material
revenues from the TechStar Business or the Hayden/Wegman 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 Hayden/Wegman Business.
(c) The Employee and the Corporations 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 Hayden/Wegman 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 Corporations 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 Corporations hereby further
acknowledge and agree that any breach by the Employee, directly or indirectly,
of the foregoing restrictive covenants will cause Hayden/Wegman 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, Hayden/Wegman 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 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
hereunder, the Employee shall immediately surrender and deliver to Hayden/Wegman
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
7
<PAGE>
proprietary information of Hayden/Wegman, 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 Hayden/Wegman
and disclose to Hayden/Wegman in such form as Hayden/Wegman 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 Hayden/Wegman 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 Hayden/Wegman for which the Employee is being adequately compensated
hereunder. At any time and from time to time, upon the request of Hayden/Wegman
and at its expense, the Employee will execute and deliver to Hayden/Wegman any
and all applications, assignments, instruments, documents and papers, give
evidence and do any and all other acts which, in the opinion of Hayden/Wegman,
are or may be necessary or desirable to document such transfer or to enable
Hayden/Wegman 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 Hayden/Wegman'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 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 Hayden/Wegman shall not
apply to any invention for which no equipment, supplies, facility, or trade
secret information of Hayden/Wegman was used and which was developed entirely on
the Employee's own time, unless (a) the invention relates (i) directly to the
business of Hayden/Wegman, or (ii) to Hayden/Wegman's actual or demonstrably
anticipated research or development, or (b) the invention results from any work
performed by the Employee for Hayden/Wegman.
8
<PAGE>
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
Hayden/Wegman shall simultaneously be sent by first class mail to Hayden/Wegman,
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.
(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
9
<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first set forth above.
HAYDEN/WEGMAN, INC. IDF INTERNATIONAL, INC.
BY:________________________ By: ___________________________
Name: Robert M. Rubin Name: Robert M. Rubin
Title: Chairman Title: Chairman
THE EMPLOYEE:
________________________________
LEMBIT KALD
11
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of this _____
day of August, 1997 by and between TECHSTAR COMMUNICATIONS, INC., a Delaware
corporation ("TechStar" or the "Corporation"), having its principal offices at
4340 East West Highway, Suite 1000, Bethesda, Maryland 20814; IDF INTERNATIONAL,
INC., a Delaware corporation ("IDF"), having its principal offices at 330 West
42nd Street, New York, New York 10036; and SERGIO LUCIANI, an individual
residing at 7508 Lynn Drive, Chevy Chase, MD 20815 (the "Employee"). TechStar
and IDF are 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 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 31, 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 December 11, 1996 (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:
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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 Senior Vice President, Chief Financial Officer and Secretary
of IDF and President and Chief Executive Officer of TechStar, 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 (i) on behalf of IDF, for overseeing and actively
participating in all aspects of financial reporting, corporate finance and
banking, dealing with auditors and periodic reporting to the Securities and
Exchange Commission, and (ii) on behalf of TechStar, 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 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. The
Employee may 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 to the extent that such activities do not
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:
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(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 three (3) business days 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 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
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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
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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 the most generous benefits supplied by the Corporation as
any of its subsidiaries to senior executive officers), 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
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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 shall not have been exercised (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
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exceed $3.0 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 Pre-Tax 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 by multiplying such 47,586 Option
Shares by a fraction (1) the numerator of which
shall be the amount by which the actual 1998 Pre-Tax
Income exceeds the minimum 1998 Pre-Tax Income, and
(2) the denominator of which shall be the amount by
which the 1998 Target Income exceeds the minimum
1998 Pre-Tax 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 Pre-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 by multiplying such 47,586 Option
Shares by a fraction (1) the numerator of which shall
be the amount by which the Actual 1999 Pre-Tax Income
exceeds the minimum 1999 Pre-Tax Income, and (2) the
denominator of which shall be the amount by which the
1999 Target Income exceeds the minimum 1999 Pre-Tax
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 Pre-Tax 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
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Period shall be pro-rated by multiplying such 47,586
Option Shares by a fraction (1) the numerator of
which shall be the amount by which the actual 2000
Pre-Tax Income exceeds the minimum 2000 Pre-Tax
Income, and (2) the denominator of which shall be the
amount by which the 2000 Target Income exceeds the
minimum 2000 Pre-Tax 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
$12.25 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
the provisions of this clause (E) shall only be
applicable if either (x) the actual Pre-Tax Income
in the 2000 Measuring Period, shall equal or exceed
$3.0 million, or (y) the average of the
closing prices of the Corporation's common
stock, as traded on the Nasdaq Stock Market or any
other national securities exchange, for the
thirty (30) consecutive trading days immediately
prior to June 30, 2000 shall equal or exceed $5.00
per share.
Example: The following is an example of the
application of the pro-ration provisions contained in clauses
(B) through (D) above: 23,793 Option Shares shall be pro-rated
from zero based upon the fraction determined by dividing the
actual Pre-Tax Income by the Target Pre-Tax Income in such
Measuring Year, and the remaining 47,586 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, an
aggregate of 33,707 Option Shares shall vest in such Measuring
Year, calculated as follows: (i) initially, 15,862 of the
initial 23,793 Option Shares shall, vest, based upon the
product of multiplying 23,793 by 2/3; the fraction determined
by dividing the $2.0 million actual Pre-Tax Income by the $3.0
million Target Pre-Tax Income in such Measuring Year; and (ii)
then 17,845 of the remaining 47,586 Option Shares shall vest,
based upon multiplying such 47,586 Option Shares by 0.375;
being 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 $1.6
million (the $3.0 million Target Pre-Tax Income less the $1.4
million minimum base Pre-Tax Income).
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(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 addition 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 (z) 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:
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(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 $600,000 originally incurred by AUGI on
December 11, 1996, of which $300,000 shall be 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).
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(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; provided
that underwriting discounts and commissions and the other terms of such public
distribution shall be on financially competitive terms.
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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
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(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 or any of its 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 any Development to the Corporation shall not apply to any Development
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 Development 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 Development 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. A copy of any notice sent to the Employee shall be
simultaneously sent to Steven Fuerst, Esq. Lowenstein, Sandler, Kohl, Fisker &
Boylan, 50 Division Street, Sommerville, New Jersey 08876, facsimile no. (908)
526-9173.
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:
________________________________
SERGIO LUCIANI
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") dated _____________, 1998
(the "Effective Date") is made and entered into by and between IDF
INTERNATIONAL, INC., a New York corporation (the "Company"), and ROBERT M.
RUBIN (the "Consultant").
WHEREAS, the Consultant is a principal stockholder of the Company and
is a party to a consulting agreement with the Company dated August 25, 1997 (the
"Prior Consulting Agreement"); and
WHEREAS, as of the Effective Date, the Consultant has elected to resign
as a member of the Board of Directors of the Company, and connection therewith,
the Company and the Consultant have elected to restate the terms of the Prior
Consulting Agreement pursuant to provisions of this Agreement.
NOW THEREFORE, in consideration of the promises and the mutual consents
entered herein, the parties hereto agree as follows:
Section 1. Engagement; Termination of Prior Consulting Agreement.
Subject to the terms and conditions set forth in this Agreement, the Company
hereby engages the Consultant, and the Consultant hereby accepts such
engagement. Simultaneous with the execution and delivery of this Agreement, the
Prior Consulting Agreement shall terminate and shall be deemed null and void, ab
initio, and without further force or effect.
Section 2. Duties. The Consultant shall aid and assist the Company,
TechStar and the Hayden/Wegman, Inc. subsidiary of the Company in obtaining
financing and in connection with their general policies and procedures,
including without limitation, ongoing merger and acquisition strategy, new
business development, corporate finance, marketing and positioning in the
marketplace, strategic partnership arrangements and other matters as from time
to time requested by the Board of Directors of the Company and agreed to by the
Consultant. The Consultant shall be required to devote no more than 10% of his
business time to the provision of such services. In addition, the Consultant
shall, at no additional compensation, serve as Chairman of the Board of
Directors of each of the Company, TechStar and Hayden/Wegman, Inc. subsidiaries
of the Company.
Section 3. Compensation. In consideration for the services to be
rendered by the Consultant hereunder, the Company shall pay the Consultant an
annual consulting fee of $75,000. This compensation shall be paid in
installments at such times as the Company customarily pays its senior
management, but in no event less frequently than once per month.
Section 4. Expenses. The Company will pay or reimburse the Consultant
for all reasonable and necessary direct out-of-pocket expenses incurred in
connection with the
<PAGE>
performance by the Consultant of his responsibilities hereunder in accordance
with the Company's usual and customary practices.
Section 5. Nature of Relationship. The Consultant's relationship with
the Company shall be that of an independent contractor. This Agreement shall not
be construed as an agreement of employment, partnership or any form of business
entity. The Consultant shall not be an employee of the Company, shall not be
entitled to participate in any employee benefit plan or other similar
arrangement or benefit that may be provided by the Company to its employees and
shall be entitled to compensation only as expressly provided in this Agreement
or pursuant to his services as a director of the Company. The Consultant
understands that he will not be treated as an employee for purposes of any
federal or state law regarding income tax withholding or with respect to
contribution required under any employment, insurance or compensatory program
and he will fully discharge any and all such taxes and contributions related to
his services hereunder.
Section 6. Term and Termination.
(a) The term of this Agreement shall begin as of the date of this
Agreement and shall terminate upon the earliest of (i) the Consultant's death,
(ii) any termination pursuant to paragraph (b) of this Section 6 or (iii) the
date on which shall be three (3) years from the Effective Date of this
Agreement.
(b) The Company shall have the right to terminate this Agreement at any
time for "cause" upon written notice to the Consultant, and such termination
shall be effective upon delivery of such notice. For purposes of this Agreement,
"Cause" shall mean a material breach of this Agreement by the Consultant
determined to have occurred in good faith by a resolution of the Company's Board
of Directors, including willful and deliberate malfeasance or gross negligence.
Section 7. Integrated Agreement: Amendment. This Agreement constitutes
the entire understanding and agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements between the
parties. This Agreement may be amended or modified at any time in all respects,
but only by an instrument in writing executed by the parties hereto.
Section 8. Severability. Each provision of this Agreement is intended
to be severable. If any provision contained in this Agreement shall be held to
be invalid, illegal or unenforceable, it shall not affect the validity or
enforceability of any other provision of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein; provided, however, that no provision
shall be severed if it is clearly apparent under the circumstances that the
parties would not have entered into this Agreement without such provision or
provisions.
Section 9. Waiver. The failure by either party to enforce any rights
hereunder shall
<PAGE>
not be deemed to be a waiver of such rights, unless such waiver is an express
written waiver that has been signed by the waiving party. Waiver of any one
breach shall not be deemed to be a waiver of any other breach of the same or any
other provision thereof.
Section 10. Choice of Law. The validity of this Agreement, the
construction of its terms and the determination of the rights and duties of the
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York applicable to contracts made and to be performed wholly
within such State.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
IDF INTERNATIONAL, INC.
By:
_________________________________
President
______________________________
ROBERT M. RUBIN
Each of the undersigned does hereby guaranty the obligations of IDF
International, Inc. under the foregoing agreement.
TECHSTAR COMMUNICATIONS, INC.
By:
_________________________________
President
HAYDEN/WEGMAN, INC.
By:
_________________________________
President
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, dated as of January 23, 1998, is made by
and between IDF INTERNATIONAL, INC., a New York corporation having an address at
330 West 42nd Street, 20th Floor, New York, New York 10036 (the "Company"), and
SOLON D. KANDEL, an individual residing at 30 Janet Lane, Springfield, New
Jersey 07081 ("Indemnitee").
R E C I T A L S :
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, or
both, due to increased exposure to litigation costs and risks resulting from
their service to such corporations, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. The Company and Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether or not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of officers and
directors;
D. The Company believes that it is unfair for its directors and
officers and those serving other entities at the request of the Company to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer acted in good faith;
E. The Business Corporation Law of the State of New York (the "BCL"),
under which the Company is organized, empowers the Company to indemnify its
officers, directors, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provisions of the BCL are not exclusive;
F. The Board of Directors has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its stockholders;
G. The Company has requested the Indemnitee to serve or continue to
serve the Company free from undue concern for claims for damages arising out of
or related to such services to the Company; and
<PAGE>
A G R E E M E N T :
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) Affiliate(s). Means any affiliate, subsidiary or other
related entity of Company.
(b) Company. For purposes of this Agreement, "Company" shall
include IDF International, Inc. as well as all of its Affiliates.
(c) Expenses. For purposes of this Agreement, "Expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, attorneys' fees and related
disbursements, other out-of-pocket costs and compensation for time
spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party), incurred by the
Indemnitee in connection with either (i) the investigation, defense or
appeal of or being a witness or otherwise participating in or preparing
for a Proceeding or (ii) the establishment or enforcement of
Indemnitee's right to indemnification under this Agreement, the BCL or
otherwise, including judgments, fines and amounts paid in settlement by
or on behalf of Indemnitee.
(d) Proceedings. For the purposes of this Agreement,
"Proceeding" means any investigation or any threatened, pending or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever, whether
instituted by, or in the right of, the Company or by any other person
or entity to which the Indemnitee was or is a party or a witness or is
otherwise involved or is threatened to be made a party or a witness or
to be otherwise involved, by reason of the fact that he is or was a
director, officer, employee, fiduciary or other agent of the Company,
or who is or was serving at the request of the Company as a director,
officer, employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust or other enterprise of the Company.
(e) Reviewing Party. For purposes of this Agreement,
"Reviewing Party" shall be the Special Independent Counsel.
(f) Special Independent Counsel. For purposes of this
Agreement "Special Independent Counsel" shall mean counsel selected by
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and who has not, unless waived by the Company
and Indemnitee, otherwise performed services for the Company or
Indemnitee within the last three (3) years. The Company agrees to pay
the reasonable fees of the Special Independent
-2-
<PAGE>
Counsel referred to above and to fully indemnify such counsel against,
any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
(g) Voting Securities. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company which vote
generally in the election of directors.
2. Agreement to Serve. The Indemnitee has served and agrees to continue
to serve as a member of the board of directors, an officer, employee and/or
consultant, at his will and will serve in such capacities, so long as he is duly
appointed or elected and qualified as such or until such time as he tenders his
resignation in writing.
3. Basic Indemnity.
(a) The Company shall indemnify the Indemnitee if the
Indemnitee is or was a witness or a party to or is threatened to be
made a party to or is otherwise involved in any Proceeding brought by
any person or entity to the fullest extent permitted by law as soon as
practicable, but in any event no later than ten (10) days after written
demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties and amounts paid or owing in settlement
(including all interest assessments and other charges paid or payable
in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Proceeding.
(b) Notwithstanding anything in this Agreement to the
contrary, (i) the obligations of the Company under Section 3(a) shall
be subject to the condition that the Reviewing Party shall not have
determined in a writing stating the reasons therefor that Indemnitee
would not be permitted to be indemnified under applicable law and (ii)
the obligation of the Company to make an Expense Advance pursuant to
Section 6 shall be subject to the condition that, if, when and to the
extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall
be entitled to be reimbursed by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided,
however, that if Indemnitee has commenced legal proceedings in a court
of competent jurisdiction to secure a determination that Indemnitee
should be indemnified under applicable law, any determination made by
the Reviewing Party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee
shall not be required to reimburse the Company for any Expense Advance
until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
-3-
<PAGE>
(c) If the Reviewing Party determines that Indemnitee would
not be permitted to be indemnified in whole or in part under applicable
law (such determination to be made by the Reviewing Party independent
of any position of the Company on any aspect of the indemnification
including but not limited to the appropriateness of the amount of any
settlement), Indemnitee shall have the right to commence litigation in
any court, having subject matter jurisdiction thereof, and in which
venue is proper, seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and
Indemnitee.
4. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement 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.
5. Partial Indemnity Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
6. Advancement of Expenses. The Company shall advance all Expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any Proceeding for which the Indemnitee is entitled to
indemnification hereunder (each an "Expense Advance"). Expense Advances to be
made hereunder shall be paid by the Company to or on behalf of the Indemnitee
within ten (10) days following delivery of a written demand therefor by the
Indemnitee to the Company.
-4-
<PAGE>
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement, or the threat of commencement, of any Proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement,
notify the Company of the commencement or threat of commencement
thereof. The failure to so notify the Company shall not affect the
Company's obligation to indemnify the Indemnitee otherwise than under
this Agreement.
(b) In the event the Company shall be obligated hereunder to
provide indemnification for or make any Expense Advances with respect
to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim upon the delivery to
Indemnitee of written notice of the Company's election to do so. The
Company shall keep the Indemnitee and his counsel (which shall be
retained at the Company's expense) reasonably and currently apprised
throughout such negotiations and/or defense of the status thereof and
shall promptly pay the amount of all final judgments and agreed
settlements, including attorneys' fees and costs. The Indemnitee shall
cooperate with the Company in all reasonable ways in such negotiations
and/or defense, but at the sole expense of the Company, and without
incurring or being deemed to have incurred any obligation or liability
of any kind, nature or description by reason thereof.
(c) The Company shall indemnify Indemnitee against any and all
expenses (including attorneys' fees) and, if requested by Indemnitee,
shall, within ten (10) days of such request, advance such expenses to
Indemnitee which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i)
indemnification hereunder or advance payment of Expenses by the Company
under this Agreement (or any other agreement or the Company's
Certificate of Incorporation or By-Laws now or hereafter in effect)
relating to Proceedings and/or (ii) recovery under any director and
officer liability insurance policies maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.
(d) For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea
of nolo contendere, or its equivalent shall not create a presumption
that Indemnitee did not meet any particular standard of conduct or have
any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
8. Insurance. The Company may, but is not obligated to, obtain
directors' and officers' liability insurance ("D&O Insurance") as may be or
become available with respect to
-5-
<PAGE>
which the Indemnitee is named as an insured. Notwithstanding any other provision
of this Agreement, the Company shall not be obligated to indemnify the
Indemnitee for expenses, judgments, fines or penalties which have been paid
directly to the Indemnitee by D&O Insurance. If the Company has D&O Insurance in
effect at the time the Company receives from the Indemnitee any notice of the
commencement of a Proceeding, the Company shall give prompt notice of the
commencement of such Proceeding to the insurers in accordance with the
procedures set forth in the policy. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such Proceeding in accordance
with the terms of such policy.
9. Settlement. The Company shall have no obligation under this
Agreement to indemnify the Indemnitee for any amounts paid in settlement of any
Proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in which it takes the position that the Indemnitee is
not entitled to indemnification in connection with such settlement without the
prior written consent of the Indemnitee, nor shall the Company settle any
Proceeding in any manner which would impose any fine or any obligation on the
Indemnitee, without the Indemnitee's prior written consent. Neither the Company
nor the Indemnitee shall unreasonably withhold such consent to any proposed
settlement; provided, however, that the Indemnitee shall not be obligated to
consent to any proposed settlement unless in connection with such settlement the
Indemnitee shall be fully released from all liability with respect to the
relevant Proceeding either because such Proceeding was settled without liability
to the Indemnitee or, if the Indemnitee shall have any liability with respect to
such Proceeding, the Indemnitee shall be fully indemnified hereunder from all
Expenses resulting from such Proceeding and/or shall receive payment in the
amount of such Expenses pursuant to D&O Insurance.
10. Nonexclusivity. The provisions for indemnification and advance of
Expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation (as amended or restated from time to time) or
Bylaws, in any court in which a proceeding is brought, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in his or her official capacity and to action in another capacity
while an Agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an Agent of the Company and
shall inure to the benefit of the heirs, executors and administrators of the
Indemnitee. To the extent that a change in applicable law (whether by statute or
judicial decision) permits greater indemnification by agreement than would be
afforded currently, it is the intent of the parties hereto that the Indemnitee
shall enjoy by this Agreement the greater benefits afforded by such change.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
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<PAGE>
12. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted (including causes of action accruing prior to
the date of this Agreement) by or on behalf of the Company or any Affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company or its Affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period shall govern.
13. Termination. No termination of this Agreement shall nullify any of
the rights and obligations of either Indemnitee or the Company hereunder in
respect of any matter occurring prior to the effective date of termination.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby.
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the heirs, administrators, successors (including
any direct or indirect successor by purchase, merger, consolidation or otherwise
to all or substantially all of the business and/or assets of the Company) and
assigns of the parties hereto.
17. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, (ii) if delivered to
a recognized overnight carrier, such as Federal Express; or (iii) if by
facsimile transmission, upon receipt of a clear transmission report. Addresses
for notice to either party are as shown on the first page of this Agreement, or
as subsequently modified by written notice. At the same time any notice is given
to the Company, copies shall be sent to:
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<PAGE>
Greenberg Traurig Hoffman
Lipoff Rosen and Quentel
200 Park Avenue, 15th Floor
New York, NY 10166
Attn: Peter W. Rothberg, Esq.
18. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York without giving
effect to the principles of conflicts of laws.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement.
20. Exclusive Agreement. Except as expressly set forth herein, this
Agreement shall supersede and replace in its entirety any prior written or oral
agreement between the Company and the Indemnitee with regard to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
IDF INTERNATIONAL, INC.
By:__________________________________
Sergio Luciani,
Chief Financial Officer
__________________________________
Solon D. Kandel
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, dated as of January 23, 1998, is made by and between
IDF INTERNATIONAL, INC., a New York corporation having an address at 330 West
42nd Street, 20th Floor, New York, New York 10036 (the "Company"), and ROBERT M.
RUBIN, an individual residing at 6060 Kings Gate Circle Del Ray Beach, Florida
33484 ("Indemnitee").
R E C I T A L S :
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, or
both, due to increased exposure to litigation costs and risks resulting from
their service to such corporations, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. The Company and Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether OR not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of officers and
directors;
D. The Company believes that it is unfair for its directors and
officers and those serving other entities at the request of the Company to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer acted in good faith;
E. The Business Corporation Law of the State of New York (the "BCL"),
under which the Company is organized, empowers the Company to indemnify its
officers, directors, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provisions of the BCL are not exclusive;
F. The Board of Directors has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its stockholders;
<PAGE>
G. The Company has requested the Indemnitee to serve or continue to
serve the Company free from undue concern for claims for damages arising out of
or related to such services to the Company; and
A G R E E M E N T :
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) Affiliate(s). Means any affiliate, subsidiary or other
related entity of Company.
(b) Company. For purposes of this Agreement, "Company" shall
include IDF International, Inc. as well as all of its Affiliates.
(c) Expenses. For purposes of this Agreement, "Expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, attorneys' fees and related
disbursements, other out-of-pocket costs and compensation for time
spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party), incurred by the
Indemnitee in connection with either (i) the investigation, defense or
appeal of or being a witness or otherwise participating in or preparing
for a Proceeding or (ii) the establishment or enforcement of
Indemnitee's right to indemnification under this Agreement, the BCL or
otherwise, including judgments, fines and amounts paid in settlement by
or on behalf of Indemnitee.
(d) Proceedings. For the purposes of this Agreement,
"Proceeding" means any investigation or any threatened, pending or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever, whether
instituted by, or in the right of, the Company or by any other person
or entity to which the Indemnitee was or is a party or a witness or is
otherwise involved or is threatened to be made a party or a witness or
to be otherwise involved, by reason of the fact that he is or was a
director, officer, employee, fiduciary or other agent of the Company,
or who is or was serving at the request of the Company as a director,
officer, employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust or other enterprise of the Company.
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<PAGE>
(e) Reviewing Party. For purposes of this Agreement,
"Reviewing Party" shall be the Special Independent Counsel.
(f) Special Independent Counsel. For purposes of this
Agreement "Special Independent Counsel" shall mean counsel selected by
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and who has not, unless waived by the Company
and Indemnitee, otherwise performed services for the Company or
Indemnitee within the last three (3) years. The Company agrees to pay
the reasonable fees of the Special Independent Counsel referred to
above and to fully indemnify such counsel against, any and all expenses
(including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(g) Voting Securities. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company which vote
generally in the election of directors.
2. Agreement to Serve. The Indemnitee has served and agrees to continue
to serve as a member of the board of directors, an officer, employee and/or
consultant, at his will and will serve in such capacities, so long as he is duly
appointed or elected and qualified as such or until such time as he tenders his
resignation in writing.
3. Basic Indemnity.
(a) The Company shall indemnify the Indemnitee if the
Indemnitee is or was a witness or a party to or is threatened to be
made a party to or is otherwise involved in any Proceeding brought by
any person or entity to the fullest extent permitted by law as soon as
practicable, but in any event no later than ten (10) days after written
demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties and amounts paid or owing in settlement
(including all interest assessments and other charges paid or payable
in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Proceeding.
(b) Notwithstanding anything in this Agreement to the
contrary, (i) the obligations of the Company under Section 3(a) shall
be subject to the condition that the Reviewing Party shall not have
determined in a writing stating the reasons therefor that Indemnitee
would not be permitted to be indemnified under applicable law and (ii)
the obligation of the Company to make an Expense Advance pursuant to
Section 6 shall be subject to the condition that, if, when and to the
extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall
be
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<PAGE>
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such reasonable amounts theretofore paid;
provided, however, that if Indemnitee has commenced legal proceedings
in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding
and Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed).
(c) If the Reviewing Party determines that Indemnitee would
not be permitted to be indemnified in whole or in part under applicable
law (such determination to be made by the Reviewing Party independent
of any position of the Company on any aspect of the indemnification
including but not limited to the appropriateness of the amount of any
settlement), Indemnitee shall have the right to commence litigation in
any court, having subject matter jurisdiction thereof, and in which
venue is proper, seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and
Indemnitee.
4. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement 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.
5. Partial Indemnity Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
6. Advancement of Expenses. The Company shall advance all Expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of
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<PAGE>
any Proceeding for which the Indemnitee is entitled to indemnification hereunder
(each an "Expense Advance"). Expense Advances to be made hereunder shall be paid
by the Company to or on behalf of the Indemnitee within ten (10) days following
delivery of a written demand therefor by the Indemnitee to the Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement, or the threat of commencement, of any Proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement,
notify the Company of the commencement or threat of commencement
thereof. The failure to so notify the Company shall not affect the
Company's obligation to indemnify the Indemnitee otherwise than under
this Agreement.
(b) In the event the Company shall be obligated hereunder to
provide indemnification for or make any Expense Advances with respect
to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim upon the delivery to
Indemnitee of written notice of the Company's election to do so. The
Company shall keep the Indemnitee and his counsel (which shall be
retained at the Company's expense) reasonably and currently apprised
throughout such negotiations and/or defense of the status thereof and
shall promptly pay the amount of all final judgments and agreed
settlements, including attorneys' fees and costs. The Indemnitee shall
cooperate with the Company in all reasonable ways in such negotiations
and/or defense, but at the sole expense of the Company, and without
incurring or being deemed to have incurred any obligation or liability
of any kind, nature or description by reason thereof.
(c) The Company shall indemnify Indemnitee against any and all
expenses (including attorneys' fees) and, if requested by Indemnitee,
shall, within ten (10) days of such request, advance such expenses to
Indemnitee which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i)
indemnification hereunder or advance payment of Expenses by the Company
under this Agreement (or any other agreement or the Company's
Certificate of Incorporation or By-Laws now or hereafter in effect)
relating to Proceedings and/or (ii) recovery under any director and
officer liability insurance policies maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.
(d) For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement
(whether with or without
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<PAGE>
court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent shall not create a presumption that Indemnitee did not
meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law.
8. Insurance. The Company may, but is not obligated to, obtain
directors' and officers' liability insurance ("D&O Insurance") as may be or
become available with respect to which the Indemnitee is named as an insured.
Notwithstanding any other provision of this Agreement, the Company shall not be
obligated to indemnify the Indemnitee for expenses, judgments, fines or
penalties which have been paid directly to the Indemnitee by D&O Insurance. If
the Company has D&O Insurance in effect at the time the Company receives from
the Indemnitee any notice of the commencement of a Proceeding, the Company shall
give prompt notice of the commencement of such Proceeding to the insurers in
accordance with the procedures set forth in the policy. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Proceeding
in accordance with the terms of such policy.
9. Settlement. The Company shall have no obligation under this
Agreement to indemnify the Indemnitee for any amounts paid in settlement of any
Proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in which it takes the position that the Indemnitee is
not entitled to indemnification in connection with such settlement without the
prior written consent of the Indemnitee, nor shall the Company settle any
Proceeding in any manner which would impose any fine or any obligation on the
Indemnitee, without the Indemnitee's prior written consent. Neither the Company
nor the Indemnitee shall unreasonably withhold such consent to any proposed
settlement; provided, however, that the Indemnitee shall not be obligated to
consent to any proposed settlement unless in connection with such settlement the
Indemnitee shall be fully released from all liability with respect to the
relevant Proceeding either because such Proceeding was settled without liability
to the Indemnitee or, if the Indemnitee shall have any liability with respect to
such Proceeding, the Indemnitee shall be fully indemnified hereunder from all
Expenses resulting from such Proceeding and/or shall receive payment in the
amount of such Expenses pursuant to D&O Insurance.
10. Nonexclusivity. The provisions for indemnification and advance of
Expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation (as amended or restated from time to time) or
Bylaws, in any court in which a proceeding is brought, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in his or her official capacity and to action in another capacity
while an Agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an Agent of the Company and
shall inure to the benefit of the heirs, executors
-6-
<PAGE>
and administrators of the Indemnitee. To the extent that a change in applicable
law (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
12. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted (including causes of action accruing prior to
the date of this Agreement) by or on behalf of the Company or any Affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company or its Affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period shall govern.
13. Termination. No termination of this Agreement shall nullify any of
the rights and obligations of either Indemnitee or the Company hereunder in
respect of any matter occurring prior to the effective date of termination.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby.
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the heirs, administrators, successors (including
any direct or indirect
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<PAGE>
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) and assigns of
the parties hereto.
17. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, (ii) if delivered to
a recognized overnight carrier, such as Federal Express; or (iii) if by
facsimile transmission, upon receipt of a clear transmission report. Addresses
for notice to either party are as shown on the first page of this Agreement, or
as subsequently modified by written notice. At the same time any notice is given
to the Company, copies shall be sent to:
Greenberg Traurig Hoffman
Lipoff Rosen and Quentel
200 Park Avenue, 15th Floor
New York, NY 10166
Attn: Peter W. Rothberg, Esq.
18. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York without giving
effect to the principles of conflicts of laws.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement.
20. Exclusive Agreement. Except as expressly set forth herein, this
Agreement shall supersede and replace in its entirety any prior written or oral
agreement between the Company and the Indemnitee with regard to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
IDF INTERNATIONAL, INC.
By:____________________________
Sergio Luciani,
Chief Financial Officer
_______________________________
Robert M. Rubin
-8-
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, dated as of January 23, 1998, is made by
and between IDF INTERNATIONAL, INC., a New York corporation having an address at
330 West 42nd Street, 20th Floor, New York, New York 10036 (the "Company"), and
LEMBIT KALD, an individual residing at 72-16 32nd Avenue, East Elmhurst, New
York 11370 ("Indemnitee").
R E C I T A L S :
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, or
both, due to increased exposure to litigation costs and risks resulting from
their service to such corporations, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. The Company and Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether OR not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of officers and
directors;
D. The Company believes that it is unfair for its directors and
officers and those serving other entities at the request of the Company to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer acted in good faith;
E. The Business Corporation Law of the State of New York (the "BCL"),
under which the Company is organized, empowers the Company to indemnify its
officers, directors, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provisions of the BCL are not exclusive;
F. The Board of Directors has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its stockholders;
<PAGE>
G. The Company has requested the Indemnitee to serve or continue to
serve the Company free from undue concern for claims for damages arising out of
or related to such services to the Company; and
A G R E E M E N T :
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) Affiliate(s). Means any affiliate, subsidiary or other
related entity of Company.
(b) Company. For purposes of this Agreement, "Company" shall
include IDF International, Inc. as well as all of its Affiliates.
(c) Expenses. For purposes of this Agreement, "Expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, attorneys' fees and related
disbursements, other out-of-pocket costs and compensation for time
spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party), incurred by the
Indemnitee in connection with either (i) the investigation, defense or
appeal of or being a witness or otherwise participating in or preparing
for a Proceeding or (ii) the establishment or enforcement of
Indemnitee's right to indemnification under this Agreement, the BCL or
otherwise, including judgments, fines and amounts paid in settlement by
or on behalf of Indemnitee.
(d) Proceedings. For the purposes of this Agreement,
"Proceeding" means any investigation or any threatened, pending or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever, whether
instituted by, or in the right of, the Company or by any other person
or entity to which the Indemnitee was or is a party or a witness or is
otherwise involved or is threatened to be made a party or a witness or
to be otherwise involved, by reason of the fact that he is or was a
director, officer, employee, fiduciary or other agent of the Company,
or who is or was serving at the request of the Company as a director,
officer, employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust or other enterprise of the Company.
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<PAGE>
(e) Reviewing Party. For purposes of this Agreement,
"Reviewing Party" shall be the Special Independent Counsel.
(f) Special Independent Counsel. For purposes of this
Agreement "Special Independent Counsel" shall mean counsel selected by
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and who has not, unless waived by the Company
and Indemnitee, otherwise performed services for the Company or
Indemnitee within the last three (3) years. The Company agrees to pay
the reasonable fees of the Special Independent Counsel referred to
above and to fully indemnify such counsel against, any and all expenses
(including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(g) Voting Securities. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company which vote
generally in the election of directors.
2. Agreement to Serve. The Indemnitee has served and agrees to continue
to serve as a member of the board of directors, an officer, employee and/or
consultant, at his will and will serve in such capacities, so long as he is duly
appointed or elected and qualified as such or until such time as he tenders his
resignation in writing.
3. Basic Indemnity.
(a) The Company shall indemnify the Indemnitee if the
Indemnitee is or was a witness or a party to or is threatened to be
made a party to or is otherwise involved in any Proceeding brought by
any person or entity to the fullest extent permitted by law as soon as
practicable, but in any event no later than ten (10) days after written
demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties and amounts paid or owing in settlement
(including all interest assessments and other charges paid or payable
in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Proceeding.
(b) Notwithstanding anything in this Agreement to the
contrary, (i) the obligations of the Company under Section 3(a) shall
be subject to the condition that the Reviewing Party shall not have
determined in a writing stating the reasons therefor that Indemnitee
would not be permitted to be indemnified under applicable law and (ii)
the obligation of the Company to make an Expense Advance pursuant to
Section 6 shall be subject to the condition that, if, when and to the
extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall
be
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<PAGE>
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such reasonable amounts theretofore paid;
provided, however, that if Indemnitee has commenced legal proceedings
in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding
and Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed).
(c) If the Reviewing Party determines that Indemnitee would
not be permitted to be indemnified in whole or in part under applicable
law (such determination to be made by the Reviewing Party independent
of any position of the Company on any aspect of the indemnification
including but not limited to the appropriateness of the amount of any
settlement), Indemnitee shall have the right to commence litigation in
any court, having subject matter jurisdiction thereof, and in which
venue is proper, seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and
Indemnitee.
4. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement 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.
5. Partial Indemnity Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
6. Advancement of Expenses. The Company shall advance all Expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of
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<PAGE>
any Proceeding for which the Indemnitee is entitled to indemnification hereunder
(each an "Expense Advance"). Expense Advances to be made hereunder shall be paid
by the Company to or on behalf of the Indemnitee within ten (10) days following
delivery of a written demand therefor by the Indemnitee to the Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement, or the threat of commencement, of any Proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement,
notify the Company of the commencement or threat of commencement
thereof. The failure to so notify the Company shall not affect the
Company's obligation to indemnify the Indemnitee otherwise than under
this Agreement.
(b) In the event the Company shall be obligated hereunder to
provide indemnification for or make any Expense Advances with respect
to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim upon the delivery to
Indemnitee of written notice of the Company's election to do so. The
Company shall keep the Indemnitee and his counsel (which shall be
retained at the Company's expense) reasonably and currently apprised
throughout such negotiations and/or defense of the status thereof and
shall promptly pay the amount of all final judgments and agreed
settlements, including attorneys' fees and costs. The Indemnitee shall
cooperate with the Company in all reasonable ways in such negotiations
and/or defense, but at the sole expense of the Company, and without
incurring or being deemed to have incurred any obligation or liability
of any kind, nature or description by reason thereof.
(c) The Company shall indemnify Indemnitee against any and all
expenses (including attorneys' fees) and, if requested by Indemnitee,
shall, within ten (10) days of such request, advance such expenses to
Indemnitee which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i)
indemnification hereunder or advance payment of Expenses by the Company
under this Agreement (or any other agreement or the Company's
Certificate of Incorporation or By-Laws now or hereafter in effect)
relating to Proceedings and/or (ii) recovery under any director and
officer liability insurance policies maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.
(d) For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement
(whether with or without
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<PAGE>
court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent shall not create a presumption that Indemnitee did not
meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law.
8. Insurance. The Company may, but is not obligated to, obtain
directors' and officers' liability insurance ("D&O Insurance") as may be or
become available with respect to which the Indemnitee is named as an insured.
Notwithstanding any other provision of this Agreement, the Company shall not be
obligated to indemnify the Indemnitee for expenses, judgments, fines or
penalties which have been paid directly to the Indemnitee by D&O Insurance. If
the Company has D&O Insurance in effect at the time the Company receives from
the Indemnitee any notice of the commencement of a Proceeding, the Company shall
give prompt notice of the commencement of such Proceeding to the insurers in
accordance with the procedures set forth in the policy. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Proceeding
in accordance with the terms of such policy.
9. Settlement. The Company shall have no obligation under this
Agreement to indemnify the Indemnitee for any amounts paid in settlement of any
Proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in which it takes the position that the Indemnitee is
not entitled to indemnification in connection with such settlement without the
prior written consent of the Indemnitee, nor shall the Company settle any
Proceeding in any manner which would impose any fine or any obligation on the
Indemnitee, without the Indemnitee's prior written consent. Neither the Company
nor the Indemnitee shall unreasonably withhold such consent to any proposed
settlement; provided, however, that the Indemnitee shall not be obligated to
consent to any proposed settlement unless in connection with such settlement the
Indemnitee shall be fully released from all liability with respect to the
relevant Proceeding either because such Proceeding was settled without liability
to the Indemnitee or, if the Indemnitee shall have any liability with respect to
such Proceeding, the Indemnitee shall be fully indemnified hereunder from all
Expenses resulting from such Proceeding and/or shall receive payment in the
amount of such Expenses pursuant to D&O Insurance.
10. Nonexclusivity. The provisions for indemnification and advance of
Expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation (as amended or restated from time to time) or
Bylaws, in any court in which a proceeding is brought, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in his or her official capacity and to action in another capacity
while an Agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an Agent of the Company and
shall inure to the benefit of the heirs, executors
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<PAGE>
and administrators of the Indemnitee. To the extent that a change in applicable
law (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
12. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted (including causes of action accruing prior to
the date of this Agreement) by or on behalf of the Company or any Affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company or its Affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period shall govern.
13. Termination. No termination of this Agreement shall nullify any of
the rights and obligations of either Indemnitee or the Company hereunder in
respect of any matter occurring prior to the effective date of termination.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby.
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the heirs, administrators, successors (including
any direct or indirect
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<PAGE>
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) and assigns of
the parties hereto.
17. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, (ii) if delivered to
a recognized overnight carrier, such as Federal Express; or (iii) if by
facsimile transmission, upon receipt of a clear transmission report. Addresses
for notice to either party are as shown on the first page of this Agreement, or
as subsequently modified by written notice. At the same time any notice is given
to the Company, copies shall be sent to:
Greenberg Traurig Hoffman
Lipoff Rosen and Quentel
200 Park Avenue, 15th Floor
New York, NY 10166
Attn: Peter W. Rothberg, Esq.
18. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York without giving
effect to the principles of conflicts of laws.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement.
20. Exclusive Agreement. Except as expressly set forth herein, this
Agreement shall supersede and replace in its entirety any prior written or oral
agreement between the Company and the Indemnitee with regard to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
IDF INTERNATIONAL, INC.
By:_______________________________
Sergio Luciani,
Chief Financial Officer
______________________________
Lembit Kald
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INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, dated as of January 23, 1998, is made by
and between IDF INTERNATIONAL, INC., a New York corporation having an address at
330 West 42nd Street, 20th Floor, New York, New York 10036 (the "Company"), and
SERGIO LUCIANI, an individual residing at 7508 Lynn Drive, Chevy Chase, Maryland
20815 ("Indemnitee").
R E C I T A L S :
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, or
both, due to increased exposure to litigation costs and risks resulting from
their service to such corporations, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. The Company and Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether OR not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of officers and
directors;
D. The Company believes that it is unfair for its directors and
officers and those serving other entities at the request of the Company to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer acted in good faith;
E. The Business Corporation Law of the State of New York (the "BCL"),
under which the Company is organized, empowers the Company to indemnify its
officers, directors, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provisions of the BCL are not exclusive;
F. The Board of Directors has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its stockholders;
<PAGE>
G. The Company has requested the Indemnitee to serve or continue to
serve the Company free from undue concern for claims for damages arising out of
or related to such services to the Company; and
A G R E E M E N T :
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) Affiliate(s). Means any affiliate, subsidiary or other
related entity of Company.
(b) Company. For purposes of this Agreement, "Company" shall
include IDF International, Inc. as well as all of its Affiliates.
(c) Expenses. For purposes of this Agreement, "Expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, attorneys' fees and related
disbursements, other out-of-pocket costs and compensation for time
spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party), incurred by the
Indemnitee in connection with either (i) the investigation, defense or
appeal of or being a witness or otherwise participating in or preparing
for a Proceeding or (ii) the establishment or enforcement of
Indemnitee's right to indemnification under this Agreement, the BCL or
otherwise, including judgments, fines and amounts paid in settlement by
or on behalf of Indemnitee.
(d) Proceedings. For the purposes of this Agreement,
"Proceeding" means any investigation or any threatened, pending or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever, whether
instituted by, or in the right of, the Company or by any other person
or entity to which the Indemnitee was or is a party or a witness or is
otherwise involved or is threatened to be made a party or a witness or
to be otherwise involved, by reason of the fact that he is or was a
director, officer, employee, fiduciary or other agent of the Company,
or who is or was serving at the request of the Company as a director,
officer, employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust or other enterprise of the Company.
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<PAGE>
(e) Reviewing Party. For purposes of this Agreement,
"Reviewing Party" shall be the Special Independent Counsel.
(f) Special Independent Counsel. For purposes of this
Agreement "Special Independent Counsel" shall mean counsel selected by
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and who has not, unless waived by the Company
and Indemnitee, otherwise performed services for the Company or
Indemnitee within the last three (3) years. The Company agrees to pay
the reasonable fees of the Special Independent Counsel referred to
above and to fully indemnify such counsel against, any and all expenses
(including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(g) Voting Securities. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company which vote
generally in the election of directors.
2. Agreement to Serve. The Indemnitee has served and agrees to continue
to serve as a member of the board of directors, an officer, employee and/or
consultant, at his will and will serve in such capacities, so long as he is duly
appointed or elected and qualified as such or until such time as he tenders his
resignation in writing.
3. Basic Indemnity.
(a) The Company shall indemnify the Indemnitee if the
Indemnitee is or was a witness or a party to or is threatened to be
made a party to or is otherwise involved in any Proceeding brought by
any person or entity to the fullest extent permitted by law as soon as
practicable, but in any event no later than ten (10) days after written
demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties and amounts paid or owing in settlement
(including all interest assessments and other charges paid or payable
in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Proceeding.
(b) Notwithstanding anything in this Agreement to the
contrary, (i) the obligations of the Company under Section 3(a) shall
be subject to the condition that the Reviewing Party shall not have
determined in a writing stating the reasons therefor that Indemnitee
would not be permitted to be indemnified under applicable law and (ii)
the obligation of the Company to make an Expense Advance pursuant to
Section 6 shall be subject to the condition that, if, when and to the
extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall
be
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<PAGE>
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such reasonable amounts theretofore paid;
provided, however, that if Indemnitee has commenced legal proceedings
in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding
and Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed).
(c) If the Reviewing Party determines that Indemnitee would
not be permitted to be indemnified in whole or in part under applicable
law (such determination to be made by the Reviewing Party independent
of any position of the Company on any aspect of the indemnification
including but not limited to the appropriateness of the amount of any
settlement), Indemnitee shall have the right to commence litigation in
any court, having subject matter jurisdiction thereof, and in which
venue is proper, seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and
Indemnitee.
4. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement 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.
5. Partial Indemnity Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
6. Advancement of Expenses. The Company shall advance all Expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of
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<PAGE>
any Proceeding for which the Indemnitee is entitled to indemnification hereunder
(each an "Expense Advance"). Expense Advances to be made hereunder shall be paid
by the Company to or on behalf of the Indemnitee within ten (10) days following
delivery of a written demand therefor by the Indemnitee to the Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement, or the threat of commencement, of any Proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement,
notify the Company of the commencement or threat of commencement
thereof. The failure to so notify the Company shall not affect the
Company's obligation to indemnify the Indemnitee otherwise than under
this Agreement.
(b) In the event the Company shall be obligated hereunder to
provide indemnification for or make any Expense Advances with respect
to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim upon the delivery to
Indemnitee of written notice of the Company's election to do so. The
Company shall keep the Indemnitee and his counsel (which shall be
retained at the Company's expense) reasonably and currently apprised
throughout such negotiations and/or defense of the status thereof and
shall promptly pay the amount of all final judgments and agreed
settlements, including attorneys' fees and costs. The Indemnitee shall
cooperate with the Company in all reasonable ways in such negotiations
and/or defense, but at the sole expense of the Company, and without
incurring or being deemed to have incurred any obligation or liability
of any kind, nature or description by reason thereof.
(c) The Company shall indemnify Indemnitee against any and all
expenses (including attorneys' fees) and, if requested by Indemnitee,
shall, within ten (10) days of such request, advance such expenses to
Indemnitee which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i)
indemnification hereunder or advance payment of Expenses by the Company
under this Agreement (or any other agreement or the Company's
Certificate of Incorporation or By-Laws now or hereafter in effect)
relating to Proceedings and/or (ii) recovery under any director and
officer liability insurance policies maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.
(d) For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement
(whether with or without
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<PAGE>
court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent shall not create a presumption that Indemnitee did not
meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law.
8. Insurance. The Company may, but is not obligated to, obtain
directors' and officers' liability insurance ("D&O Insurance") as may be or
become available with respect to which the Indemnitee is named as an insured.
Notwithstanding any other provision of this Agreement, the Company shall not be
obligated to indemnify the Indemnitee for expenses, judgments, fines or
penalties which have been paid directly to the Indemnitee by D&O Insurance. If
the Company has D&O Insurance in effect at the time the Company receives from
the Indemnitee any notice of the commencement of a Proceeding, the Company shall
give prompt notice of the commencement of such Proceeding to the insurers in
accordance with the procedures set forth in the policy. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Proceeding
in accordance with the terms of such policy.
9. Settlement. The Company shall have no obligation under this
Agreement to indemnify the Indemnitee for any amounts paid in settlement of any
Proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in which it takes the position that the Indemnitee is
not entitled to indemnification in connection with such settlement without the
prior written consent of the Indemnitee, nor shall the Company settle any
Proceeding in any manner which would impose any fine or any obligation on the
Indemnitee, without the Indemnitee's prior written consent. Neither the Company
nor the Indemnitee shall unreasonably withhold such consent to any proposed
settlement; provided, however, that the Indemnitee shall not be obligated to
consent to any proposed settlement unless in connection with such settlement the
Indemnitee shall be fully released from all liability with respect to the
relevant Proceeding either because such Proceeding was settled without liability
to the Indemnitee or, if the Indemnitee shall have any liability with respect to
such Proceeding, the Indemnitee shall be fully indemnified hereunder from all
Expenses resulting from such Proceeding and/or shall receive payment in the
amount of such Expenses pursuant to D&O Insurance.
10. Nonexclusivity. The provisions for indemnification and advance of
Expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation (as amended or restated from time to time) or
Bylaws, in any court in which a proceeding is brought, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in his or her official capacity and to action in another capacity
while an Agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an Agent of the Company and
shall inure to the benefit of the heirs, executors
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<PAGE>
and administrators of the Indemnitee. To the extent that a change in applicable
law (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
12. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted (including causes of action accruing prior to
the date of this Agreement) by or on behalf of the Company or any Affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company or its Affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period shall govern.
13. Termination. No termination of this Agreement shall nullify any of
the rights and obligations of either Indemnitee or the Company hereunder in
respect of any matter occurring prior to the effective date of termination.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby.
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the heirs, administrators, successors (including
any direct or indirect
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<PAGE>
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) and assigns of
the parties hereto.
17. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, (ii) if delivered to
a recognized overnight carrier, such as Federal Express; or (iii) if by
facsimile transmission, upon receipt of a clear transmission report. Addresses
for notice to either party are as shown on the first page of this Agreement, or
as subsequently modified by written notice. At the same time any notice is given
to the Company, copies shall be sent to:
Greenberg Traurig Hoffman
Lipoff Rosen and Quentel
200 Park Avenue, 15th Floor
New York, NY 10166
Attn: Peter W. Rothberg, Esq.
18. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York without giving
effect to the principles of conflicts of laws.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement.
20. Exclusive Agreement. Except as expressly set forth herein, this
Agreement shall supersede and replace in its entirety any prior written or oral
agreement between the Company and the Indemnitee with regard to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
IDF INTERNATIONAL, INC.
By:________________________________
Solon D. Kandel,
President
________________________________
Sergio Luciani
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INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, dated as of January 23, 1998, is made by
and between IDF INTERNATIONAL, INC., a New York corporation having an address at
330 West 42nd Street, 20th Floor, New York, New York 10036 (the "Company"), and
LAWRENCE KAPLAN, an individual residing at 17 Riverview Terrace, Smithtown, New
York 11787 ("Indemnitee").
R E C I T A L S :
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, or
both, due to increased exposure to litigation costs and risks resulting from
their service to such corporations, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. The Company and Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether OR not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of officers and
directors;
D. The Company believes that it is unfair for its directors and
officers and those serving other entities at the request of the Company to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer acted in good faith;
E. The Business Corporation Law of the State of New York (the "BCL"),
under which the Company is organized, empowers the Company to indemnify its
officers, directors, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provisions of the BCL are not exclusive;
F. The Board of Directors has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its stockholders;
<PAGE>
G. The Company has requested the Indemnitee to serve or continue to
serve the Company free from undue concern for claims for damages arising out of
or related to such services to the Company; and
A G R E E M E N T :
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) Affiliate(s). Means any affiliate, subsidiary or other
related entity of Company.
(b) Company. For purposes of this Agreement, "Company" shall
include IDF International, Inc. as well as all of its Affiliates.
(c) Expenses. For purposes of this Agreement, "Expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, attorneys' fees and related
disbursements, other out-of-pocket costs and compensation for time
spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party), incurred by the
Indemnitee in connection with either (i) the investigation, defense or
appeal of or being a witness or otherwise participating in or preparing
for a Proceeding or (ii) the establishment or enforcement of
Indemnitee's right to indemnification under this Agreement, the BCL or
otherwise, including judgments, fines and amounts paid in settlement by
or on behalf of Indemnitee.
(d) Proceedings. For the purposes of this Agreement,
"Proceeding" means any investigation or any threatened, pending or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever, whether
instituted by, or in the right of, the Company or by any other person
or entity to which the Indemnitee was or is a party or a witness or is
otherwise involved or is threatened to be made a party or a witness or
to be otherwise involved, by reason of the fact that he is or was a
director, officer, employee, fiduciary or other agent of the Company,
or who is or was serving at the request of the Company as a director,
officer, employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust or other enterprise of the Company.
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<PAGE>
(e) Reviewing Party. For purposes of this Agreement,
"Reviewing Party" shall be the Special Independent Counsel.
(f) Special Independent Counsel. For purposes of this
Agreement "Special Independent Counsel" shall mean counsel selected by
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and who has not, unless waived by the Company
and Indemnitee, otherwise performed services for the Company or
Indemnitee within the last three (3) years. The Company agrees to pay
the reasonable fees of the Special Independent Counsel referred to
above and to fully indemnify such counsel against, any and all expenses
(including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(g) Voting Securities. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company which vote
generally in the election of directors.
2. Agreement to Serve. The Indemnitee has served and agrees to continue
to serve as a member of the board of directors, an officer, employee and/or
consultant, at his will and will serve in such capacities, so long as he is duly
appointed or elected and qualified as such or until such time as he tenders his
resignation in writing.
3. Basic Indemnity.
(a) The Company shall indemnify the Indemnitee if the
Indemnitee is or was a witness or a party to or is threatened to be
made a party to or is otherwise involved in any Proceeding brought by
any person or entity to the fullest extent permitted by law as soon as
practicable, but in any event no later than ten (10) days after written
demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties and amounts paid or owing in settlement
(including all interest assessments and other charges paid or payable
in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Proceeding.
(b) Notwithstanding anything in this Agreement to the
contrary, (i) the obligations of the Company under Section 3(a) shall
be subject to the condition that the Reviewing Party shall not have
determined in a writing stating the reasons therefor that Indemnitee
would not be permitted to be indemnified under applicable law and (ii)
the obligation of the Company to make an Expense Advance pursuant to
Section 6 shall be subject to the condition that, if, when and to the
extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall
be
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<PAGE>
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such reasonable amounts theretofore paid;
provided, however, that if Indemnitee has commenced legal proceedings
in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding
and Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed).
(c) If the Reviewing Party determines that Indemnitee would
not be permitted to be indemnified in whole or in part under applicable
law (such determination to be made by the Reviewing Party independent
of any position of the Company on any aspect of the indemnification
including but not limited to the appropriateness of the amount of any
settlement), Indemnitee shall have the right to commence litigation in
any court, having subject matter jurisdiction thereof, and in which
venue is proper, seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and
Indemnitee.
4. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement 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.
5. Partial Indemnity Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
6. Advancement of Expenses. The Company shall advance all Expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of
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<PAGE>
any Proceeding for which the Indemnitee is entitled to indemnification hereunder
(each an "Expense Advance"). Expense Advances to be made hereunder shall be paid
by the Company to or on behalf of the Indemnitee within ten (10) days following
delivery of a written demand therefor by the Indemnitee to the Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement, or the threat of commencement, of any Proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement,
notify the Company of the commencement or threat of commencement
thereof. The failure to so notify the Company shall not affect the
Company's obligation to indemnify the Indemnitee otherwise than under
this Agreement.
(b) In the event the Company shall be obligated hereunder to
provide indemnification for or make any Expense Advances with respect
to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim upon the delivery to
Indemnitee of written notice of the Company's election to do so. The
Company shall keep the Indemnitee and his counsel (which shall be
retained at the Company's expense) reasonably and currently apprised
throughout such negotiations and/or defense of the status thereof and
shall promptly pay the amount of all final judgments and agreed
settlements, including attorneys' fees and costs. The Indemnitee shall
cooperate with the Company in all reasonable ways in such negotiations
and/or defense, but at the sole expense of the Company, and without
incurring or being deemed to have incurred any obligation or liability
of any kind, nature or description by reason thereof.
(c) The Company shall indemnify Indemnitee against any and all
expenses (including attorneys' fees) and, if requested by Indemnitee,
shall, within ten (10) days of such request, advance such expenses to
Indemnitee which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i)
indemnification hereunder or advance payment of Expenses by the Company
under this Agreement (or any other agreement or the Company's
Certificate of Incorporation or By-Laws now or hereafter in effect)
relating to Proceedings and/or (ii) recovery under any director and
officer liability insurance policies maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.
(d) For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement
(whether with or without
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<PAGE>
court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent shall not create a presumption that Indemnitee did not
meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law.
8. Insurance. The Company may, but is not obligated to, obtain
directors' and officers' liability insurance ("D&O Insurance") as may be or
become available with respect to which the Indemnitee is named as an insured.
Notwithstanding any other provision of this Agreement, the Company shall not be
obligated to indemnify the Indemnitee for expenses, judgments, fines or
penalties which have been paid directly to the Indemnitee by D&O Insurance. If
the Company has D&O Insurance in effect at the time the Company receives from
the Indemnitee any notice of the commencement of a Proceeding, the Company shall
give prompt notice of the commencement of such Proceeding to the insurers in
accordance with the procedures set forth in the policy. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Proceeding
in accordance with the terms of such policy.
9. Settlement. The Company shall have no obligation under this
Agreement to indemnify the Indemnitee for any amounts paid in settlement of any
Proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in which it takes the position that the Indemnitee is
not entitled to indemnification in connection with such settlement without the
prior written consent of the Indemnitee, nor shall the Company settle any
Proceeding in any manner which would impose any fine or any obligation on the
Indemnitee, without the Indemnitee's prior written consent. Neither the Company
nor the Indemnitee shall unreasonably withhold such consent to any proposed
settlement; provided, however, that the Indemnitee shall not be obligated to
consent to any proposed settlement unless in connection with such settlement the
Indemnitee shall be fully released from all liability with respect to the
relevant Proceeding either because such Proceeding was settled without liability
to the Indemnitee or, if the Indemnitee shall have any liability with respect to
such Proceeding, the Indemnitee shall be fully indemnified hereunder from all
Expenses resulting from such Proceeding and/or shall receive payment in the
amount of such Expenses pursuant to D&O Insurance.
10. Nonexclusivity. The provisions for indemnification and advance of
Expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation (as amended or restated from time to time) or
Bylaws, in any court in which a proceeding is brought, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in his or her official capacity and to action in another capacity
while an Agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an Agent of the Company and
shall inure to the benefit of the heirs, executors
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<PAGE>
and administrators of the Indemnitee. To the extent that a change in applicable
law (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
12. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted (including causes of action accruing prior to
the date of this Agreement) by or on behalf of the Company or any Affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company or its Affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period shall govern.
13. Termination. No termination of this Agreement shall nullify any of
the rights and obligations of either Indemnitee or the Company hereunder in
respect of any matter occurring prior to the effective date of termination.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby.
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the heirs, administrators, successors (including
any direct or indirect
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<PAGE>
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) and assigns of
the parties hereto.
17. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, (ii) if delivered to
a recognized overnight carrier, such as Federal Express; or (iii) if by
facsimile transmission, upon receipt of a clear transmission report. Addresses
for notice to either party are as shown on the first page of this Agreement, or
as subsequently modified by written notice. At the same time any notice is given
to the Company, copies shall be sent to:
Greenberg Traurig Hoffman
Lipoff Rosen and Quentel
200 Park Avenue, 15th Floor
New York, NY 10166
Attn: Peter W. Rothberg, Esq.
18. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York without giving
effect to the principles of conflicts of laws.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement.
20. Exclusive Agreement. Except as expressly set forth herein, this
Agreement shall supersede and replace in its entirety any prior written or oral
agreement between the Company and the Indemnitee with regard to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
IDF INTERNATIONAL, INC.
By:________________________________
Sergio Luciani,
Chief Financial Officer
____________________________________
Lawrence Kaplan
-8-
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, dated as of January 23, 1998, is made by
and between IDF INTERNATIONAL, INC., a New York corporation having an address at
330 West 42nd Street, 20th Floor, New York, New York 10036 (the "Company"), and
SIMANTOV MOSKONA, an individual residing at 1813 Ingleside Terrace, Washington,
D.C. 20010 ("Indemnitee").
R E C I T A L S :
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, or
both, due to increased exposure to litigation costs and risks resulting from
their service to such corporations, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. The Company and Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether or not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of officers and
directors;
D. The Company believes that it is unfair for its directors and
officers and those serving other entities at the request of the Company to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer acted in good faith;
E. The Business Corporation Law of the State of New York (the "BCL"),
under which the Company is organized, empowers the Company to indemnify its
officers, directors, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provisions of the BCL are not exclusive;
F. The Board of Directors has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its stockholders;
<PAGE>
G. The Company has requested the Indemnitee to serve or continue to
serve the Company free from undue concern for claims for damages arising out of
or related to such services to the Company; and
A G R E E M E N T :
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) Affiliate(s). Means any affiliate, subsidiary or other
related entity of Company.
(b) Company. For purposes of this Agreement, "Company" shall
include IDF International, Inc. as well as all of its Affiliates.
(c) Expenses. For purposes of this Agreement, "Expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, attorneys' fees and related
disbursements, other out-of-pocket costs and compensation for time
spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party), incurred by the
Indemnitee in connection with either (i) the investigation, defense or
appeal of or being a witness or otherwise participating in or preparing
for a Proceeding or (ii) the establishment or enforcement of
Indemnitee's right to indemnification under this Agreement, the BCL or
otherwise, including judgments, fines and amounts paid in settlement by
or on behalf of Indemnitee.
(d) Proceedings. For the purposes of this Agreement,
"Proceeding" means any investigation or any threatened, pending or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever, whether
instituted by, or in the right of, the Company or by any other person
or entity to which the Indemnitee was or is a party or a witness or is
otherwise involved or is threatened to be made a party or a witness or
to be otherwise involved, by reason of the fact that he is or was a
director, officer, employee, fiduciary or other agent of the Company,
or who is or was serving at the request of the Company as a director,
officer, employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust or other enterprise of the Company.
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<PAGE>
(e) Reviewing Party. For purposes of this Agreement,
"Reviewing Party" shall be the Special Independent Counsel.
(f) Special Independent Counsel. For purposes of this
Agreement "Special Independent Counsel" shall mean counsel selected by
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and who has not, unless waived by the Company
and Indemnitee, otherwise performed services for the Company or
Indemnitee within the last three (3) years. The Company agrees to pay
the reasonable fees of the Special Independent Counsel referred to
above and to fully indemnify such counsel against, any and all expenses
(including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(g) Voting Securities. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company which vote
generally in the election of directors.
2. Agreement to Serve. The Indemnitee has served and agrees to continue
to serve as a member of the board of directors, an officer, employee and/or
consultant, at his will and will serve in such capacities, so long as he is duly
appointed or elected and qualified as such or until such time as he tenders his
resignation in writing.
3. Basic Indemnity.
(a) The Company shall indemnify the Indemnitee if the
Indemnitee is or was a witness or a party to or is threatened to be
made a party to or is otherwise involved in any Proceeding brought by
any person or entity to the fullest extent permitted by law as soon as
practicable, but in any event no later than ten (10) days after written
demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties and amounts paid or owing in settlement
(including all interest assessments and other charges paid or payable
in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Proceeding.
(b) Notwithstanding anything in this Agreement to the
contrary, (i) the obligations of the Company under Section 3(a) shall
be subject to the condition that the Reviewing Party shall not have
determined in a writing stating the reasons therefor that Indemnitee
would not be permitted to be indemnified under applicable law and (ii)
the obligation of the Company to make an Expense Advance pursuant to
Section 6 shall be subject to the condition that, if, when and to the
extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall
be
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<PAGE>
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such reasonable amounts theretofore paid;
provided, however, that if Indemnitee has commenced legal proceedings
in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding
and Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed).
(c) If the Reviewing Party determines that Indemnitee would
not be permitted to be indemnified in whole or in part under applicable
law (such determination to be made by the Reviewing Party independent
of any position of the Company on any aspect of the indemnification
including but not limited to the appropriateness of the amount of any
settlement), Indemnitee shall have the right to commence litigation in
any court, having subject matter jurisdiction thereof, and in which
venue is proper, seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and
Indemnitee.
4. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement 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.
5. Partial Indemnity Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
6. Advancement of Expenses. The Company shall advance all Expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of
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<PAGE>
any Proceeding for which the Indemnitee is entitled to indemnification hereunder
(each an "Expense Advance"). Expense Advances to be made hereunder shall be paid
by the Company to or on behalf of the Indemnitee within ten (10) days following
delivery of a written demand therefor by the Indemnitee to the Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement, or the threat of commencement, of any Proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement,
notify the Company of the commencement or threat of commencement
thereof. The failure to so notify the Company shall not affect the
Company's obligation to indemnify the Indemnitee otherwise than under
this Agreement.
(b) In the event the Company shall be obligated hereunder to
provide indemnification for or make any Expense Advances with respect
to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim upon the delivery to
Indemnitee of written notice of the Company's election to do so. The
Company shall keep the Indemnitee and his counsel (which shall be
retained at the Company's expense) reasonably and currently apprised
throughout such negotiations and/or defense of the status thereof and
shall promptly pay the amount of all final judgments and agreed
settlements, including attorneys' fees and costs. The Indemnitee shall
cooperate with the Company in all reasonable ways in such negotiations
and/or defense, but at the sole expense of the Company, and without
incurring or being deemed to have incurred any obligation or liability
of any kind, nature or description by reason thereof.
(c) The Company shall indemnify Indemnitee against any and all
expenses (including attorneys' fees) and, if requested by Indemnitee,
shall, within ten (10) days of such request, advance such expenses to
Indemnitee which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i)
indemnification hereunder or advance payment of Expenses by the Company
under this Agreement (or any other agreement or the Company's
Certificate of Incorporation or By-Laws now or hereafter in effect)
relating to Proceedings and/or (ii) recovery under any director and
officer liability insurance policies maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.
(d) For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement
(whether with or without
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<PAGE>
court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent shall not create a presumption that Indemnitee did not
meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law.
8. Insurance. The Company may, but is not obligated to, obtain
directors' and officers' liability insurance ("D&O Insurance") as may be or
become available with respect to which the Indemnitee is named as an insured.
Notwithstanding any other provision of this Agreement, the Company shall not be
obligated to indemnify the Indemnitee for expenses, judgments, fines or
penalties which have been paid directly to the Indemnitee by D&O Insurance. If
the Company has D&O Insurance in effect at the time the Company receives from
the Indemnitee any notice of the commencement of a Proceeding, the Company shall
give prompt notice of the commencement of such Proceeding to the insurers in
accordance with the procedures set forth in the policy. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Proceeding
in accordance with the terms of such policy.
9. Settlement. The Company shall have no obligation under this
Agreement to indemnify the Indemnitee for any amounts paid in settlement of any
Proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in which it takes the position that the Indemnitee is
not entitled to indemnification in connection with such settlement without the
prior written consent of the Indemnitee, nor shall the Company settle any
Proceeding in any manner which would impose any fine or any obligation on the
Indemnitee, without the Indemnitee's prior written consent. Neither the Company
nor the Indemnitee shall unreasonably withhold such consent to any proposed
settlement; provided, however, that the Indemnitee shall not be obligated to
consent to any proposed settlement unless in connection with such settlement the
Indemnitee shall be fully released from all liability with respect to the
relevant Proceeding either because such Proceeding was settled without liability
to the Indemnitee or, if the Indemnitee shall have any liability with respect to
such Proceeding, the Indemnitee shall be fully indemnified hereunder from all
Expenses resulting from such Proceeding and/or shall receive payment in the
amount of such Expenses pursuant to D&O Insurance.
10. Nonexclusivity. The provisions for indemnification and advance of
Expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation (as amended or restated from time to time) or
Bylaws, in any court in which a proceeding is brought, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in his or her official capacity and to action in another capacity
while an Agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an Agent of the Company and
shall inure to the benefit of the heirs, executors
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<PAGE>
and administrators of the Indemnitee. To the extent that a change in applicable
law (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
12. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted (including causes of action accruing prior to
the date of this Agreement) by or on behalf of the Company or any Affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company or its Affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period shall govern.
13. Termination. No termination of this Agreement shall nullify any of
the rights and obligations of either Indemnitee or the Company hereunder in
respect of any matter occurring prior to the effective date of termination.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby.
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the heirs, administrators, successors (including
any direct or indirect
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<PAGE>
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) and assigns of
the parties hereto.
17. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, (ii) if delivered to
a recognized overnight carrier, such as Federal Express; or (iii) if by
facsimile transmission, upon receipt of a clear transmission report. Addresses
for notice to either party are as shown on the first page of this Agreement, or
as subsequently modified by written notice. At the same time any notice is given
to the Company, copies shall be sent to:
Greenberg Traurig Hoffman
Lipoff Rosen and Quentel
200 Park Avenue, 15th Floor
New York, NY 10166
Attn: Peter W. Rothberg, Esq.
18. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York without giving
effect to the principles of conflicts of laws.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement.
20. Exclusive Agreement. Except as expressly set forth herein, this
Agreement shall supersede and replace in its entirety any prior written or oral
agreement between the Company and the Indemnitee with regard to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
IDF INTERNATIONAL, INC.
By:____________________________
Sergio Luciani,
Chief Financial Officer
__________________________
Simantov Moskona
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INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, dated as of January 23, 1998, is made by
and between IDF INTERNATIONAL, INC., a New York corporation having an address at
330 West 42nd Street, 20th Floor, New York, New York 10036 (the "Company"), and
DONALD W. SHIPLEY, an individual residing at 129 Linwood Circle, Princeton, New
Jersey 08540 ("Indemnitee").
R E C I T A L S :
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, or
both, due to increased exposure to litigation costs and risks resulting from
their service to such corporations, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. The Company and Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether or not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of officers and
directors;
D. The Company believes that it is unfair for its directors and
officers and those serving other entities at the request of the Company to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer acted in good faith;
E. The Business Corporation Law of the State of New York (the "BCL"),
under which the Company is organized, empowers the Company to indemnify its
officers, directors, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provisions of the BCL are not exclusive;
F. The Board of Directors has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its stockholders;
<PAGE>
G. The Company has requested the Indemnitee to serve or continue to
serve the Company free from undue concern for claims for damages arising out of
or related to such services to the Company; and
A G R E E M E N T :
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) Affiliate(s). Means any affiliate, subsidiary or other
related entity of Company.
(b) Company. For purposes of this Agreement, "Company" shall
include IDF International, Inc. as well as all of its Affiliates.
(c) Expenses. For purposes of this Agreement, "Expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, attorneys' fees and related
disbursements, other out-of-pocket costs and compensation for time
spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party), incurred by the
Indemnitee in connection with either (i) the investigation, defense or
appeal of or being a witness or otherwise participating in or preparing
for a Proceeding or (ii) the establishment or enforcement of
Indemnitee's right to indemnification under this Agreement, the BCL or
otherwise, including judgments, fines and amounts paid in settlement by
or on behalf of Indemnitee.
(d) Proceedings. For the purposes of this Agreement,
"Proceeding" means any investigation or any threatened, pending or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever, whether
instituted by, or in the right of, the Company or by any other person
or entity to which the Indemnitee was or is a party or a witness or is
otherwise involved or is threatened to be made a party or a witness or
to be otherwise involved, by reason of the fact that he is or was a
director, officer, employee, fiduciary or other agent of the Company,
or who is or was serving at the request of the Company as a director,
officer, employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust or other enterprise of the Company.
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<PAGE>
(e) Reviewing Party. For purposes of this Agreement,
"Reviewing Party" shall be the Special Independent Counsel.
(f) Special Independent Counsel. For purposes of this
Agreement "Special independent Counsel" shall mean counsel selected by
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and who has not, unless waived by the Company
and Indemnitee, otherwise performed services for the Company or
Indemnitee within the last three (3) years. The Company agrees to pay
the reasonable fees of the Special Independent Counsel referred to
above and to fully indemnify such counsel against, any and all expenses
(including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(g) Voting Securities. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company which vote
generally in the election of directors.
2. Agreement to Serve. The Indemnitee has served and agrees to continue
to serve as a member of the board of directors, an officer, employee and/or
consultant, at his will and will serve in such capacities, so long as he is duly
appointed or elected and qualified as such or until such time as he tenders his
resignation in writing.
3. Basic Indemnity.
(a) The Company shall indemnify the Indemnitee if the
Indemnitee is or was a witness or a party to or is threatened to be
made a party to or is otherwise involved in any Proceeding brought by
any person or entity to the fullest extent permitted by law as soon as
practicable, but in any event no later than ten (10) days after written
demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties and amounts paid or owing in settlement
(including all interest assessments and other charges paid or payable
in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Proceeding.
(b) Notwithstanding anything in this Agreement to the
contrary, (i) the obligations of the Company under Section 3(a) shall
be subject to the condition that the Reviewing Party shall not have
determined in a writing stating the reasons therefor that Indemnitee
would not be permitted to be indemnified under applicable law and (ii)
the obligation of the Company to make an Expense Advance pursuant to
Section 6 shall be subject to the condition that, if, when and to the
extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall
be
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<PAGE>
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such reasonable amounts theretofore paid;
provided, however, that if Indemnitee has commenced legal proceedings
in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding
and Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed).
(c) If the Reviewing Party determines that Indemnitee would
not be permitted to be indemnified in whole or in part under applicable
law (such determination to be made by the Reviewing Party independent
of any position of the Company on any aspect of the indemnification
including but not limited to the appropriateness of the amount of any
settlement), Indemnitee shall have the right to commence litigation in
any court, having subject matter jurisdiction thereof, and in which
venue is proper, seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and
Indemnitee.
4. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement 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.
5. Partial Indemnity Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
6. Advancement of Expenses. The Company shall advance all Expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of
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<PAGE>
any Proceeding for which the Indemnitee is entitled to indemnification hereunder
(each an "Expense Advance"). Expense Advances to be made hereunder shall be
paid by the Company to or on behalf of the Indemnitee within ten (10) days
following delivery of a written demand therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement, or the threat of commencement, of any Proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement,
notify the Company of the commencement or threat of commencement
thereof. The failure to so notify the Company shall not affect the
Company's obligation to indemnify the Indemnitee otherwise than under
this Agreement.
(b) In the event the Company shall be obligated hereunder to
provide indemnification for or make any Expense Advances with respect
to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim upon the delivery to
Indemnitee of written notice of the Company's election to do so. The
Company shall keep the Indemnitee and his counsel (which shall be
retained at the Company's expense) reasonably and currently apprised
throughout such negotiations and/or defense of the status thereof and
shall promptly pay the amount of all final judgments and agreed
settlements, including attorneys' fees and costs. The Indemnitee shall
cooperate with the Company in all reasonable ways in such negotiations
and/or defense, but at the sole expense of the Company, and without
incurring or being deemed to have incurred any obligation or liability
of any kind, nature or description by reason thereof.
(c) The Company shall indemnify Indemnitee against any and all
expenses (including attorneys' fees) and, if requested by Indemnitee,
shall, within ten (10) days of such request, advance such expenses to
Indemnitee which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i)
indemnification hereunder or advance payment of Expenses by the Company
under this Agreement (or any other agreement or the Company's
Certificate of Incorporation or By-Laws now or hereafter in effect)
relating to Proceedings and/or (ii) recovery under any director and
officer liability insurance policies maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.
(d) For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement
(whether with or without
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<PAGE>
court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent shall not create a presumption that Indemnitee did not
meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law.
8. Insurance. The Company may, but is not obligated to, obtain
directors' and officers' liability insurance ("D&O Insurance") as may be or
become available with respect to which the Indemnitee is named as an insured.
Notwithstanding any other provision of this Agreement, the Company shall not be
obligated to indemnify the Indemnitee for expenses, judgments, fines or
penalties which have been paid directly to the Indemnitee by D&O Insurance. If
the Company has D&O Insurance in effect at the time the Company receives from
the Indemnitee any notice of the commencement of a Proceeding, the Company shall
give prompt notice of the commencement of such Proceeding to the insurers in
accordance with the procedures set forth in the policy. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Proceeding
in accordance with the terms of such policy.
9. Settlement. The Company shall have no obligation under this
Agreement to indemnify the Indemnitee for any amounts paid in settlement of any
Proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in which it takes the position that the Indemnitee is
not entitled to indemnification in connection with such settlement without the
prior written consent of the Indemnitee, nor shall the Company settle any
Proceeding in any manner which would impose any fine or any obligation on the
Indemnitee, without the Indemnitee's prior written consent. Neither the Company
nor the Indemnitee shall unreasonably withhold such consent to any proposed
settlement; provided, however, that the Indemnitee shall not be obligated to
consent to any proposed settlement unless in connection with such settlement the
Indemnitee shall be fully released from all liability with respect to the
relevant Proceeding either because such Proceeding was settled without liability
to the Indemnitee or, if the Indemnitee shall have any liability with respect to
such Proceeding, the Indemnitee shall be fully indemnified hereunder from all
Expenses resulting from such Proceeding and/or shall receive payment in the
amount of such Expenses pursuant to D&O Insurance.
10. Nonexclusivity. The provisions for indemnification and advance of
Expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation (as amended or restated from time to time) or
Bylaws, in any court in which a proceeding is brought, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in his or her official capacity and to action in another capacity
while an Agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an Agent of the Company and
shall inure to the benefit of the heirs, executors
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<PAGE>
and administrators of the Indemnitee. To the extent that a change in applicable
law (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
12. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted (including causes of action accruing prior to
the date of this Agreement) by or on behalf of the Company or any Affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company or its Affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period shall govern.
13. Termination. No termination of this Agreement shall nullify any of
the rights and obligations of either Indemnitee or the Company hereunder in
respect of any matter occurring prior to the effective date of termination.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby.
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the heirs, administrators, successors (including
any direct or indirect
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<PAGE>
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) and assigns of
the parties hereto.
17. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, (ii) if delivered to
a recognized overnight carrier, such as Federal Express; or (iii) if by
facsimile transmission, upon receipt of a clear transmission report. Addresses
for notice to either party are as shown on the first page of this Agreement, or
as subsequently modified by written notice. At the same time any notice is given
to the Company, copies shall be sent to:
Greenberg Traurig Hoffman
Lipoff Rosen and Quentel
200 Park Avenue, 15th Floor
New York, NY 10166
Attn: Peter W. Rothberg, Esq.
18. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York without giving
effect to the principles of conflicts of laws.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement.
20. Exclusive Agreement. Except as expressly set forth herein, this
Agreement shall supersede and replace in its entirety any prior written or oral
agreement between the Company and the Indemnitee with regard to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
IDF INTERNATIONAL, INC.
By:_____________________________
Sergio Luciani,
Chief Financial Officer
_____________________________
Donald W. Shipley
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IDF INTERNATIONAL, INC.
1997 STOCK OPTION PLAN
INTRODUCTION
IDF International, Inc., a New York corporation (hereinafter
referred to as the "Corporation"), hereby establishes an incentive compensation
plan to be known as the "IDF INTERNATIONAL, INC., 1997 STOCK OPTION PLAN"
(hereinafter referred to as the "Plan"), as set forth in this document. The Plan
permits the grant of Non-Qualified Stock Options and Incentive Stock Options.
The Plan shall become effective on the date it is adopted by
the Corporation's Board of Directors. However, it shall be rendered null and
void and have no effect, and all Plan Awards granted hereunder shall be
canceled, if the Plan is not approved by a majority vote of the Corporation's
stockholders within twelve (12) months of the date the Plan is adopted by the
Corporation's Board of Directors.
The purpose of the Plan is to promote the success and enhance
the value of the Corporation by linking the personal interests of Participants
to those of the Corporation's stockholders by providing Participants with an
incentive for outstanding performance. The Plan is further intended to assist
the Corporation in its ability to motivate, and retain the services of,
Participants upon whose judgment, interest and special effort the successful
conduct of its operations is largely dependent.
<PAGE>
DEFINITIONS
For purposes of this Plan, the following terms shall be
defined as follows unless the context clearly indicates otherwise:
(a) "Award Agreement" shall mean the written agreement, executed by an
appropriate officer of the Corporation, pursuant to which a Plan Award is
granted.
(b) "Board of Directors" shall mean the Board of Directors of the
Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder.
(d) "Committee" shall mean the Board of Directors of the Corporation or
any committee of two or more persons designated by the Board of Directors to
serve as the Committee.
(e) "Common Stock" shall mean the common stock, par value $.001 per
share, of the Corporation.
(f) "Consultant" shall mean a non-employee consultant or other type of
adviser to the Corporation.
(g) "Corporation" shall mean IDF International, Inc., a New York
corporation.
(h) "Disability" shall have the same meaning as the term "permanent and
total disability" under Section 22(e)(3) of the Code.
(i) "Employee" shall mean a common-law employee of the Company or of
any Subsidiary.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
(k) "Fair Market Value" of the Corporation's Common Stock on a Trading
Day shall mean the last reported sale price for Common Stock or, in case no such
reported sale takes place on such Trading Day, the average of the closing bid
and asked prices for the Common Stock for such Trading Day, in either case on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading, or if the Common Stock is not listed or admitted to
trading on any national securities exchange, but is traded in the
over-the-counter market, the closing sale price of the Common Stock or, if no
sale is publicly reported, the average of the closing bid and asked quotations
for the Common Stock, as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or any comparable system or, if
the Common Stock is not listed on NASDAQ or a comparable system, the closing
sale price of the Common Stock or, if no sale is publicly reported, the average
of the closing bid and asked prices, as furnished by two members of the National
Association of Securities Dealers, Inc. who make a market in the Common Stock
selected from time to time by the Corporation for that purpose. In addition, for
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purposes of this definition, a "Trading Day" shall mean, if the Common Stock is
listed on any national securities exchange, a business day during which such
exchange was open for trading and at least one trade of Common Stock was
effected on such exchange on such business day, or, if the Common Stock is not
listed on any national securities exchange but is traded in the over-the-counter
market, a business day during which the over-the-counter market was open for
trading and at least one "eligible dealer" quoted both a bid and asked price for
the Common Stock. An "eligible dealer" for any day shall include any
broker-dealer who quoted both a bid and asked price for such day, but shall not
include any broker-dealer who quoted only a bid or only an asked price for such
day. In the event the Corporation's Common Stock is not publicly traded, the
Fair Market Value of such Common Stock shall be determined by the Committee in
good faith.
(l) "Good Cause" shall have the equivalent meaning set forth in the
employment agreement between the Participant and the Corporation or Subsidiary
or, in the absence of such agreement, such term shall mean (i) a Participant's
willful or gross misconduct or willful or gross negligence in the performance of
his duties for the Corporation or for any Subsidiary after prior written notice
of such misconduct or negligence and the continuance thereof for a period of 30
days after receipt by such Participant of such notice, (ii) a Participant's
intentional or habitual neglect of his duties for the Corporation or for any
Subsidiary after prior written notice of such neglect, or (iii) a Participant's
theft or misappropriation of funds of the Corporation or of any Subsidiary or
commission of a felony.
(m) "Incentive Stock Option" shall mean a stock option satisfying the
requirements for tax-favored treatment under Section 422 of the Code.
(n) "Non-Qualified Option" shall mean a stock option which does not
satisfy the requirements for, or which is not intended to be eligible for,
tax-favored treatment under Section 422 of the Code.
(o) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option granted pursuant to the provisions of Section VI hereof.
(p) "Optionee" shall mean a Participant who is granted an Option under
the terms of this Plan.
(q) "Participant" shall mean any Employee or Consultant participating
under the Plan.
(r) "Plan Award" shall mean an Option granted pursuant to the terms of
this Plan.
(s) "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
(t) "Subsidiary" shall mean a subsidiary corporation of the Corporation
within the meaning of Section 424(f) of the Code.
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II
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee may establish from time to time such
regulations, provisions, proceedings and conditions of awards which, in its sole
opinion, may be advisable in the administration of the Plan. A majority of the
Committee shall constitute a quorum, and, subject to the provisions of Section V
of the Plan, the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by a majority of the
Committee, shall be the acts of the Committee as a whole.
III
SHARES AVAILABLE
Subject to the adjustments provided in Section VII of the
Plan, the aggregate number of shares of the Common Stock which may be granted
for all purposes under the Plan shall be One Million Five Hundred Thousand
shares. Shares of Common Stock underlying awards of securities (derivative or
not) shall be counted against the limitation set forth in the immediately
preceding sentence and may be reused to the extent that the related Plan Award
to any individual is settled in cash, expires, is terminated unexercised, or is
forfeited. Common Stock granted to satisfy Plan Awards under the Plan may be
authorized and unissued shares of the Common Stock, issued shares of such Common
Stock held in the Corporation's treasury or shares of Common Stock acquired on
the open market.
IV
ELIGIBILITY
Officers and employees of the Corporation, or of any
Subsidiary, who are regularly employed on a salaried basis as common law
employees, and key Consultants to the Corporation or any Subsidiary, shall be
eligible to participate in the Plan.
V
AUTHORITY OF COMMITTEE
The Plan shall be administered by, or under the direction of,
the Committee, which shall administer the Plan so as to comply at all times with
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder, to the extent such compliance is required, and shall otherwise have
plenary authority to interpret the Plan and to make all determinations specified
in or permitted by the Plan or deemed necessary or desirable for its
administration or for the conduct of the Committee's business. Subject to the
provisions of Section XI hereof, all interpretations and determinations of the
Committee may be made on an individual or group basis and shall be final,
conclusive and binding on all interested parties. Subject to the express
provisions of the Plan, the Committee shall have authority, in its discretion,
to determine the persons to whom Plan Awards shall be granted, the times when
such Plan Awards shall be granted, the number of Plan Awards, the purchase price
or exercise price of each Plan Award (if applicable), the period(s) during which
a Plan Award shall be exercisable (whether in whole or in part), the
restrictions to be applicable to
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Plan Awards and the other terms and provisions thereof (which need not be
identical). In addition, the authority of the Committee shall include, without
limitation, the following:
(a) Financing. The arrangement of temporary financing for an Optionee
by registered broker-dealers, under the rules and regulations of the Federal
Reserve Board, for the purpose of assisting an Optionee in the exercise of an
Option, such authority to include the payment by the Corporation of the
commissions of the broker-dealer;
(b) Procedures for Exercise of Option. The establishment of procedures
for an Optionee (i) to exercise an Option by payment of cash, (ii) to have
withheld from the total number of shares of Common Stock to be acquired upon the
exercise of an Option that number of shares having a Fair Market Value, which,
together with such cash as shall be paid in respect of fractional shares, shall
equal the Option exercise price of the total number of shares of Common Stock to
be acquired, (iii) to exercise all or a portion of an Option by delivering that
number of shares of Common Stock already owned by him having a Fair Market Value
which shall equal the Option exercise price for the portion exercised and, in
cases where an Option is not exercised in its entirety, and subject to the
requirements of the Code, to permit the Optionee to deliver the shares of Common
Stock thus acquired by him in payment of shares of Common Stock to be received
pursuant to the exercise of additional portions of such Option, the effect of
which shall be that an Optionee can in sequence utilize such newly acquired
shares of Common Stock in payment of the exercise price of the entire Option,
together with such cash as shall be paid in respect of fractional shares and
(iv) to engage in any form of "cashless" exercise.
(c) Withholding. The establishment of a procedure whereby a number of
shares of Common Stock or other securities may be withheld from the total number
of shares of Common Stock or other securities to be issued upon exercise of an
Option or for the tender of shares of Common Stock owned by any Participant to
meet any obligation of withholding for taxes incurred by the Participant upon
such exercise.
VI
STOCK OPTIONS
The Committee shall have the authority, in its discretion, to grant
Incentive Stock Options or to grant Non-Qualified Stock Options or to grant both
types of Options. Notwithstanding anything contained herein to the contrary, an
Incentive Stock Option may be granted only to common law employees of the
Corporation or of any Subsidiary now existing or hereafter formed or acquired,
and not to any director or officer who is not also such a common law employee.
The terms and conditions of the Options shall be determined from time to time by
the Committee; provided, however, that the Options granted under the Plan shall
be subject to the following:
(a) Exercise Price. The Committee shall establish the exercise price at
the time any Option is granted at such amount as the Committee shall determine;
provided, however, that the exercise price for each share of Common Stock
purchasable under any Incentive Stock Option granted hereunder shall be such
amount as the Committee shall, in its best judgment, determine to be not less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock
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at the date the Option is granted; and provided, further, that in the case of an
Incentive Stock Option granted to a person who, at the time such Incentive Stock
Option is granted, owns shares of stock of the Corporation or of any Subsidiary
which possess more than ten percent (10%) of the total combined voting power of
all classes of shares of stock of the Corporation or of any Subsidiary, the
exercise price for each share of Common Stock shall be such amount as the
Committee, in its best judgment, shall determine to be not less than one hundred
ten percent (110%) of the Fair Market Value per share of Common Stock at the
date the Option is granted. The exercise price will be subject to adjustment in
accordance with the provisions of Section VII of the Plan.
(b) Payment of Exercise Price. The price per share of Common Stock with
respect to each Option shall be payable at the time the Option is exercised.
Such price shall be payable in cash or pursuant to any of the methods set forth
in Sections V(a) or (b) hereof, as determined by the Participant. Shares of
Common Stock delivered to the Corporation in payment of the exercise price shall
be valued at the Fair Market Value of the Common Stock on the date preceding the
date of the exercise of the Option.
(c) Exercisability of Options. Except as provided in Section VI(e)
hereof, each Option shall be exercisable in whole or in installments, and at
such time(s), and subject to the fulfillment of any conditions on, and to any
limitations on, exercisability as may be determined by the Committee at the time
of the grant of such Options. The right to purchase shares of Common Stock shall
be cumulative so that when the right to purchase any shares of Common Stock has
accrued such shares of Common Stock or any part thereof may be purchased at any
time thereafter until the expiration or termination of the Option.
(d) Expiration of Options. No Incentive Stock Option by its terms shall
be exercisable after the expiration of ten (10) years from the date of grant of
the Option; provided, however, in the case of an Incentive Stock Option granted
to a person who, at the time such Option is granted, owns shares of stock of the
Corporation or of any Subsidiary possessing more than ten percent (10%) of the
total combined voting power of all classes of shares of stock of the Corporation
or of any Subsidiary, such Option shall not be exercisable after the expiration
of five (5) years from the date such Option is granted.
(e) Exercise Upon Optionee's Termination of Employment. If the
employment of an Optionee by the Corporation or by any Subsidiary is terminated
for any reason other than death, any Incentive Stock Option granted to such
Optionee may not be exercised later than three (3) months (one (1) year in the
case of termination due to Disability) after the date of such termination of
employment. For purposes of determining whether any Optionee has incurred a
termination of employment, an Optionee who is both an employee and a director of
the Corporation and/or any Subsidiary shall (with respect to any Non-Qualified
Option that may have been granted to him) be considered to have incurred a
termination of employment only upon his termination of service both as an
employee and as a director. Furthermore, (i) if an Optionee's employment is
terminated by the Corporation or by any Subsidiary for Good Cause or (ii) if an
Optionee voluntarily terminates his employment other than for Disability with
the Corporation or with any Subsidiary without the written consent of the
Committee, regardless of whether such Optionee continues to serve as a director
of the Corporation or of any Subsidiary, then the Optionee shall, at the time of
such termination of employment, forfeit his rights to exercise any and all of
the
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outstanding Option(s) theretofore granted to him.
(f) Maximum Amount of Incentive Stock Options. Each Plan Award under
which Incentive Stock Options are granted shall provide that to the extent the
aggregate of the (i) Fair Market Value of the shares of Common Stock (determined
as of the time of the grant of the Option) subject to such Incentive Stock
Option and (ii) the fair market values (determined as of the date(s) of grant of
the option(s) of all other shares of Common Stock subject to incentive stock
options granted to an Optionee by the Corporation or any parent of the
Corporation or any Subsidiary, which are exercisable for the first time by any
person during any calendar year, exceed(s) one hundred thousand dollars
($100,000), such excess shares of Common Stock shall not be deemed to be
purchased pursuant to Incentive Stock Options. The terms of the immediately
preceding sentence shall be applied by taking all options, whether or not
granted under this Plan, into account in the order in which they are granted.
(g) Dividend Equivalents for Outstanding Options. The Committee may, in
its sole discretion, provide that amounts equivalent to dividends shall be
payable with respect to one or more shares of Common Stock subject to vested but
unexercised Option(s) granted to a Participant. Such amounts shall be credited
to a suspense account, and shall be payable to the Participant in cash or in
Common Stock, as set forth under the terms of the Plan Award, at such time as
the related Option(s) are exercised.
VII
ADJUSTMENT OF SHARES; MERGER OR
CONSOLIDATION, ETC. OF THE CORPORATION
(a) Recapitalization, Etc. In the event there is any change in the
Common Stock of the Corporation by reason of any reorganization,
recapitalization, stock split, stock dividend or otherwise, there shall be
substituted for or added to each share of Common Stock theretofore appropriated
or thereafter subject, or which may become subject, to any Option, the number
and kind of shares of stock or other securities into which each outstanding
share of Common Stock shall be so changed or for which each such share shall be
exchanged, or to which each such share be entitled, as the case may be, and the
per share price thereof also shall be appropriately adjusted. Notwithstanding
the foregoing, (i) each such adjustment with respect to an Incentive Stock
Option shall comply with the rules of Section 424(a) of the Code and (ii) in no
event shall any adjustment be made which would render any Incentive Stock Option
granted hereunder to be other than an incentive stock option for purposes of
Section 422 of the Code.
(b) Merger, Consolidation or Change in Control of Corporation. Upon (i)
the merger or consolidation of the Corporation with or into another corporation
(pursuant to which the stockholders of the Corporation immediately prior to such
merger or consolidation will not, as of the date of such merger or
consolidation, own a beneficial interest in shares of voting securities of the
corporation surviving such merger or consolidation having at least a majority of
the combined voting power of such corporation's then outstanding securities), if
the agreement of merger or consolidation does not provide for (1) the
continuance of the Options granted hereunder or (2) the
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substitution of new options for Options granted hereunder, or for the assumption
of such Options by the surviving corporation, (ii) the dissolution, liquidation,
or sale of all or substantially all the assets of the Corporation to a person
unrelated to the Corporation or to a direct or indirect owner of a majority of
the voting power of the Corporation's then outstanding voting securities (such
sale of assets being referred to as an "Asset Sale") or (iii) the Change in
Control of the Corporation, the holder of any such Option theretofore granted
and still outstanding (and not otherwise expired) shall have the right
immediately prior to the effective date of such merger, consolidation,
dissolution, liquidation, Asset Sale or Change in Control of the Corporation to
exercise such Option(s) in whole or in part without regard to any installment
provision that may have been made part of the terms and conditions of such
Option(s); provided that any conditions precedent to the exercise of such
Option(s), other than the passage of time, have occurred. The Corporation, to
the extent practicable, shall give advance notice to affected Optionees of such
merger, consolidation, dissolution, liquidation, Asset Sale or Change in Control
of the Corporation. All such Options which are not so exercised shall be
forfeited as of the effective time of such merger, consolidation, dissolution,
liquidation or Asset Sale (but not in the case of a Change in Control of the
Corporation).
(c) Definition of Change in Control of the Corporation. As used herein,
a "Change in Control of the Corporation" shall be deemed to have occurred if any
person (including any individual, firm, partnership or other entity) together
with all Affiliates and Associates (as defined under Rule 12b-2 of the General
Rules and Regulations promulgated under the Exchange Act) of such person (but
excluding (i) a trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation or any subsidiary of the Corporation, (ii) a
corporation owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as their ownership of the
Corporation, (iii) the Corporation or any subsidiary of the Corporation or (iv)
only as provided in the immediately following sentence, a Participant together
with all Affiliates and Associates of the Participant) is or becomes the
Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities of the Corporation representing 40% or
more of the combined voting power of the Corporation's then outstanding
securities. The provisions of clause(iv) of the immediately preceding sentence
shall apply only with respect to the Option(s) held by the Participant who,
together with his Affiliates or Associates, if any, is or becomes the direct or
indirect Beneficial Owner of the percentage of securities set forth in such
clause.
VIII
MISCELLANEOUS PROVISIONS
(a) Administrative Procedures. The Committee may establish any
procedures determined by it to be appropriate in discharging its
responsibilities under the Plan. Subject to the provisions of Section XI hereof,
all actions and decisions of the Committee shall be final.
(b) Assignment or Transfer. No grant or award of any Plan Award (other
than a Non-Qualified Option) or any rights or interests therein shall be
assignable or transferable by a Participant except by will or the laws of
descent and distribution or pursuant to a domestic relations order. During the
lifetime of a Participant, Incentive Stock Options granted hereunder shall be
exercisable only by the Participant.
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(c) Investment Representation. In the case of Plan Awards paid in
shares of Common Stock or other securities, or, with respect to shares of Common
Stock received pursuant to the exercise of an Option, the Committee may require,
as a condition of receiving such securities, that the Participant furnish to the
Corporation such written representations and information as the Committee deems
appropriate to permit the Corporation, in light of the existence or nonexistence
of an effective registration statement under the Securities Act to deliver such
securities in compliance with the provisions of the Securities Act.
(d) Withholding Taxes. The Corporation shall have the right to deduct
from all cash payments hereunder any federal, state, local or foreign taxes
required by law to be withheld with respect to such payments. In the case of the
issuance or distribution of Common Stock upon the exercise of any Plan Award,
the Corporation, as a condition of such issuance or distribution, may require
the payment (through withholding from the Participant's salary, reduction of the
number of shares of Common Stock or other securities to be issued, or otherwise)
of any such taxes. Each Participant may satisfy the withholding obligations by
paying to the Corporation a cash amount equal to the amount required to be
withheld or by tendering to the Corporation a number of shares of Common Stock
having a value equivalent to such cash amount, or by use of any available
procedure as described under Section V(c) hereof.
(e) Costs and Expenses. The costs and expenses of administering the
Plan shall be borne by the Corporation and shall not be charged against any
award nor to any employee receiving a Plan Award.
(f) Funding of Plan. The Plan shall be unfunded. The Corporation shall
not be required to segregate any of its assets to assure the payment of any Plan
Award under the Plan. Neither the Participants nor any other persons shall have
any interest in any fund or in any specific asset or assets of the Corporation
or any other entity by reason of any Plan Award, except to the extent expressly
provided hereunder. The interests of each Participant and former Participant
hereunder are unsecured and shall be subject to the general creditors of the
Corporation.
(g) Other Incentive Plans. The adoption of the Plan does not preclude
the adoption by appropriate means of any other incentive plan for employees.
(h) Plurals and Gender. Where appearing in the Plan, masculine gender
shall include the feminine and neuter genders, and the singular shall include
the plural, and vice versa, unless the context clearly indicates a different
meaning.
(i) Headings. The headings and sub-headings in this Plan are inserted
for the convenience of reference only and are to be ignored in any construction
of the provisions hereof.
(j) Severability. In case any provision of this Plan shall be held
illegal or void, such illegality or invalidity shall not affect the remaining
provisions of this Plan, but shall be fully severable, and the Plan shall be
construed and enforced as if said illegal or invalid provisions had never been
inserted herein.
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(k) Payments Due Missing Persons. The Corporation shall make a
reasonable effort to locate all persons entitled to benefits under the Plan;
however, notwithstanding any provisions of this Plan to the contrary, if, after
a period of one (1) year from the date such benefits shall be due, any such
persons entitled to benefits have not been located, their rights under the Plan
shall stand suspended. Before this provision becomes operative, the Corporation
shall send a certified letter to all such persons at their last known addresses
advising them that their rights under the Plan shall be suspended. Subject to
all applicable state laws, any such suspended amounts shall be held by the
Corporation for a period of one (1) additional year and thereafter such amounts
shall be forfeited and thereafter remain the property of the Corporation.
(l) Liability and Indemnification. (i) Neither the Corporation nor any
Subsidiary shall be responsible in any way for any action or omission of the
Committee, or any other fiduciaries in the performance of their duties and
obligations as set forth in this Plan. Furthermore, neither the Corporation nor
any Subsidiary shall be responsible for any act or omission of any of their
agents, or with respect to reliance upon advice of their counsel provided that
the Corporation and/or the appropriate Subsidiary relied in good faith upon the
action of such agent or the advice of such counsel.
(ii) Except for their own gross negligence or willful
misconduct regarding the performance of the duties specifically assigned to them
under, or their willful breach of the terms of, this Plan, the Corporation, each
Subsidiary and the Committee shall be held harmless by the Participants, former
Participants, beneficiaries and their representatives against liability or
losses occurring by reason of any act or omission. Neither the Corporation, any
Subsidiary, the Committee, nor any agents, employees, officers, directors or
shareholders of any of them, nor any other person shall have any liability or
responsibility with respect to this Plan, except as expressly provided herein.
(m) Incapacity. If the Committee shall receive evidence satisfactory to
it that a person entitled to receive payment of any Plan Award is, at the time
when such benefit becomes payable, a minor, or is physically or mentally
incompetent to receive such Plan Award and to give a valid release thereof, and
that another person or an institution is then maintaining or has custody of such
person and that no guardian, committee or other representative of the estate of
such person shall have been duly appointed, the Committee may make payment of
such Plan Award otherwise payable to such person to such other person or
institution, including a custodian under a Uniform Gifts to Minors Act, or
corresponding legislation (who shall be an adult, a guardian of the minor or a
trust company), and the release by such other person or institution shall be a
valid and complete discharge for the payment of such Plan Award.
(n) Cooperation of Parties. All parties to this Plan and any person
claiming any interest hereunder agree to perform any and all acts and execute
any and all documents and papers which are necessary or desirable for carrying
out this Plan or any of its provisions.
(o) Governing Law. All questions pertaining to the validity,
construction and administration of the Plan shall be determined in accordance
with the laws of the State of New York.
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(p) Nonguarantee of Employment. Nothing contained in this Plan shall be
construed as a contract of employment or other engagement for compensation
between the Corporation (or any Subsidiary), and any employee or Participant, as
a right of any employee or Participant to be continued in the employment or
other engagement of the Corporation (or any Subsidiary), or as a limitation on
the right of the Corporation or any Subsidiary to discharge any of its employees
or Consultants, at any time, with or without cause.
(q) Notices. Each notice relating to this Plan shall be in writing and
delivered in person or by certified mail to the proper address. All notices to
the Corporation or the Committee shall be addressed to it at 330 West 42nd
Street, 20th Floor, New York, NY 10036, Attn: Corporate Secretary. All notices
to Participants, former Participants, beneficiaries or other persons acting for
or on behalf of such persons shall be addressed to such person at the last
address for such person maintained in the Committee's records.
(r) Written Agreements. Each Plan Award shall be evidenced by a signed
written agreement (the "Award Agreements") between the Corporation and the
Participant containing the terms and conditions of the award.
IX
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Corporation shall have the right to
amend, suspend or terminate the Plan at any time, provided that no amendment
shall be made which shall increase the total number of shares of the Common
Stock of the Corporation which may be issued and sold pursuant to Incentive
Stock Options, reduce the minimum exercise price in the case of an Incentive
Stock Option or modify the provisions of the Plan relating to eligibility with
respect to Incentive Stock Options unless such amendment is made by or with the
approval of the stockholders within 12 months of the effective date of such
amendment, but only if such approval is required by any applicable provision of
law. The Board of Directors of the Corporation shall also be authorized to amend
the Plan and the Options granted thereunder to maintain qualification as
"Incentive Stock Options" within the meaning of Section 422 of the Code, if
applicable. Except as otherwise provided herein, no amendment, suspension or
termination of the Plan shall alter or impair any Plan Awards previously granted
under the Plan without the consent of the holder thereof.
X
TERM OF PLAN
The Plan shall automatically terminate on the day immediately preceding
the tenth anniversary of the date the Plan was adopted by the Board of Directors
of the Corporation, unless sooner terminated by such Board of Directors. No Plan
Awards may be granted under the Plan subsequent to the termination of the Plan.
XI
CLAIMS PROCEDURES
(a) Denial. If any Participant, former Participant or beneficiary is
denied any
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vested benefit to which he is, or reasonably believes he is, entitled under this
Plan, either in total or in an amount less than the full vested benefit to which
he would normally be entitled, the Committee shall advise such person in writing
the specific reasons for the denial. The Committee shall also furnish such
person at the time with a written notice containing (i) a specific reference to
pertinent Plan provisions, (ii) a description of any additional material or
information necessary for such person to perfect his claim, if possible, and an
explanation of why such material or information is needed and (iii) an
explanation of the Plan's claim review procedure.
(b) Written Request for Review. Within 60 days of receipt of the
information stated in subsection (a) above, such person shall, if he desires
further review, file a written request for reconsideration with the Committee.
(c) Review of Document. So long as such person's request for review is
pending (including the 60 day period in subsection (b) above), such person or
his duly authorized representative may review pertinent Plan documents and may
submit issues and comments in writing to the Committee.
(d) Committee's Final and Binding Decision. A final and binding
decision shall be made by the Committee within 60 days of the filing by such
person of this request for reconsideration; provided, however, that if the
Committee, in its discretion, feels that a hearing with such person or his
representative is necessary or desirable, this period shall be extended for an
additional 60 days.
(e) Transmittal of Decision. The Committee's decision shall be conveyed
to such person in writing and shall (i) include specific reasons for the
decision, (ii) be written in a manner calculated to be understood by such person
and (iii) set forth the specific references to the pertinent Plan provisions on
which the decision is based.
(f) Limitation on Claims. Notwithstanding any provisions of this Plan
to the contrary, no Participant (nor the estate or other beneficiary of a
Participant) shall be entitled to assert a claim against the Corporation (or
against any Subsidiary) more than three years after the date the Participant (or
his estate or other beneficiary) initially is entitled to receive benefits
hereunder.
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