SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 1997 COMMISSION FILE NO. 0-20406
EZCONY INTERAMERICA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BRITISH VIRGIN ISLANDS NOT APPLICABLE
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
CRAIGMUIR CHAMBERS, P.O. BOX 71,
ROAD TOWN, TORTOLA BRITISH VIRGIN ISLANDS
- ---------------------------------------- ----------------------
(Address of Principal Executive Offices) (Country)
Registrant's telephone number, including area code:
(507) 441-6566 (PANAMA) AND (305) 599-1352 (U.S.A.)
- ---------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At August 1, 1997 there were outstanding:
4,510,000 common shares, no par value
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
(UNAUDITED) (A)
ASSETS JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 204,121 $ 311,419
Trade accounts receivable, net 23,545,140 18,194,043
Due from directors, officers and employees, net 375,138 119,038
Inventories 11,772,488 9,926,498
Prepaid expenses and other current assets 1,219,863 1,099,069
Restricted cash 7,440,963 6,082,924
------------ ------------
Total current assets 44,557,713 35,732,991
Property, plant and equipment, net 1,716,030 1,276,563
Other assets 644,917 532,298
------------ ------------
Total assets 46,918,660 37,541,852
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 66,047 61,604
Notes and acceptances payable 21,901,551 11,703,686
Accounts payable 15,491,671 14,802,647
Accrued expenses and other liabilities 891,638 677,536
Net current liabilities of discontinued operations 2,134,771 101,857
------------ ------------
Total current liabilities 40,485,678 27,347,330
Long-term debt 425,576 457,902
------------ ------------
Total liabilities 40,911,254 27,805,232
------------ ------------
Shareholders' equity:
Common stock, no par value; 15,000,000 shares authorized;
4,500,000 issued and outstanding 12,941,910 12,941,910
Accumulated deficit (6,934,504) (3,205,290)
------------ ------------
Total shareholders' equity 6,007,406 9,736,620
------------ ------------
Total liabilities and shareholders' equity $ 46,918,660 $ 37,541,852
============ ============
<FN>
(A) Derived from the audited consolidated financial statements as of December
31, 1996.
</FN>
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE CONSOLIDATED BALANCE SHEETS.
2
<PAGE>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 60,578,394 $ 42,512,037
Cost of sales 56,588,793 39,411,774
------------ ------------
Gross profit 3,989,601 3,100,263
Selling, general and administrative expenses 3,839,666 2,482,114
------------ ------------
Operating income 149,935 618,149
------------ ------------
Other income (expense):
Interest income 195,435 150,431
Interest expense (888,812) (451,944)
Other income 92,952 216,631
------------ ------------
(600,425) (84,882)
------------ ------------
Income (loss) from continuing operations before income taxes (450,490) 533,267
Provision for income taxes -- 98,990
------------ ------------
Income (loss) from continuing operations (450,490) 434,277
------------ ------------
Loss from discontinued operations, net of income taxes of $0 (733,938) (219,615)
Loss on disposal, including provision of $1,375,092 for
operating losses during phase-out period, net of income
taxes of $0 (2,544,786) -
------------ -------------
(3,278,724) (219,615)
------------ -------------
Net income (loss) (3,729,214) 214,662
Accumulated deficit, beginning of period (3,205,290) (4,282,944)
------------ ------------
Accumulated deficit, end of period $ (6,934,504) $ (4,068,282)
============ ============
Income (loss) per share:
Continuing operations $ (0.10) $ 0.10
Discontinued operations (0.73) (0.05)
------------ ------------
$ (0.83) $ 0.05
============ ============
Weighted average number of common shares outstanding 4,500,000 4,500,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 33,718,184 $ 23,828,843
Cost of sales 31,643,389 22,191,519
------------ ------------
Gross profit 2,074,795 1,637,324
Selling, general and administrative expenses 2,336,604 1,298,445
------------ ------------
Operating income (loss) (261,809) 338,879
------------ ------------
Other income (expense):
Interest income 73,066 75,217
Interest expense (456,172) (244,809)
Other income 50,935 182,783
------------ ------------
(332,171) 13,191
------------ ------------
Income (loss) from continuing operations before income taxes (593,980) 352,070
Provision for income taxes -- 43,113
------------ ------------
Income (loss) from continuing operations (593,980) 308,957
------------ ------------
Loss from discontinued operations, net of income taxes of $0 (525,078) (133,111)
Loss on disposal, including provision of $1,375,092 for
operating losses during phase-out period, net of income
taxes of $0 (2,544,786) -
------------ -------------
(3,069,864) (133,111)
------------ -------------
Net income (loss) (3,663,844) 175,846
Accumulated deficit, beginning of period (3,270,660) (4,244,128)
------------ ------------
Accumulated deficit, end of period $ (6,934,504) $ (4,068,282)
============ ============
Income (loss) per share:
Continuing operations $ (0.13) $ 0.07
Discontinued operations (0.68) (0.03)
------------ ------------
$ (0.81) $ 0.04
============ ============
Weighted average number of common shares outstanding 4,500,000 4,500,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,729,214) $ 214,662
Reconciliation of net income (loss) to net cash used in
Operating activities -
Depreciation and amortization 100,919 92,066
Provision for doubtful accounts 560,904 327,176
Provision for inventory write-down -- 56,996
Gain on sale of property, plant and equipment -- (1,028)
Provision for loss from discontinued operations 2,544,786 --
Changes in operating assets and liabilities:
Increase in trade accounts receivable (5,912,001) (1,856,929)
Increase in due from directors, officers and employees, net (256,100) (34,011)
Increase in inventories (1,845,990) (3,606,694)
Decrease (increase) in prepaid expenses and other current assets (120,794) 79,279
Decrease (increase) in other assets (112,619) 52,409
Increase in accounts payable 689,024 1,788,635
Increase in accrued expenses and other liabilities 214,102 67,238
Decrease in income taxes payable -- (74,895)
Net changes in discontinued operations (511,872) (36,799)
------------ -----------
Net cash used in operating activities (8,378,855) (2,931,895)
------------- ------------
Cash flows from investing activities:
Increase in restricted cash, net (1,358,039) (1,005,675)
Purchase of property, plant and equipment (540,386) (69,271)
Proceeds from sale of property, plant and equipment -- 23,450
Deposit to purchase building -- (72,500)
------------ -----------
Net cash used in investing activities (1,898,425) (1,123,996)
------------ -----------
Cash flows from financing activities:
Borrowings of notes and acceptance payables, net 10,197,865 2,744,208
Repayment of long-term debt (27,883) (26,575)
------------ -----------
Net cash provided by financing activities 10,169,982 2,717,633
------------ -----------
Net decrease in cash (107,298) (1,338,258)
Cash at beginning of period 311,419 2,135,333
------------ -----------
Cash at end of period $ 204,121 $ 797,075
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,090,048 $ 614,786
============ ===========
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE>
EZCONY INTERAMERICA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
In management's opinion, the accompanying unaudited condensed consolidated
financial statements of Ezcony Interamerica Inc. and subsidiaries (the
"Company") contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of the Company
as of June 30, 1997 and 1996, and the results of its operations for the six and
three months ended June 30, 1997 and 1996. The results of operations and cash
flows for the six months ended June 30, 1997 and the results of operations for
the three months ended June 30, 1997 are not necessarily indicative of the
results of operations or cash flows which may be reported for the remainder of
1997.
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for the reporting on Form 10-Q. Pursuant to
such rules and regulations, certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. The
condensed financial statements should be read in conjunction with the
Consolidated Financial Statements and the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
The accounting policies followed for interim financial reporting are the
same as those disclosed in Note 1 of the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
(2) DISCONTINUED OPERATIONS
On August 5, 1997, the Company's Board of Directors approved a plan to sell or
liquidate its non-core business subsidiary, New World Interactive, Inc. ("New
World Interactive") as part of an overall restructuring program designed to
focus the Company's resources on its core business, the distribution of consumer
electronics. New World Interactive is engaged in the production and distribution
of Spanish and Portuguese CD-ROM software. Significant needed capital
requirements and sales not materialising contributed to the decision to
discontinue the subsidiary. The
<PAGE>
Company anticipates that the business will be sold or liquidated by December 31,
1997. Accordingly, New World Interactive is reported as a discontinued operation
in the accompanying condensed consolidated financial statements. Net liabilities
of the discontinued operation at June 30, 1997, consist primarily of accounts
payables, accrued expenses and estimated loss on disposal which is offset by
accounts receivable and inventory. The estimated loss on the disposal of New
World Interactive is $2,544,786, consisting of an estimated loss on disposal of
the business of $1,169,694 and a provision of $1,375,092 for anticipated
operating losses until disposal.
Discontinued operations include management's best estimates of the amounts
expected to be realized on the sale or liquidation of New World Interactive's
assets. Significant contractual obligations exist that must be negotiated due to
the nature and conduct of the business and there can be no assurances as to the
outcome of these negotiations. While the estimates are based on current
negotiations, the amounts the Company will ultimately realize could differ
materially in the near term from amounts assumed in arriving at the loss on
disposal of the discontinued operations.
Sales for the six months ended June 30, 1997 and 1996 were $843,690 and
$1,744,050, respectively, and for the three months ended June 30, 1997 were
$331,125 and $926,263, respectively.
(3) NET INCOME (LOSS) PER COMMON SHARE
Earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common and dilutive common equivalent shares
outstanding for each period. Common stock equivalents include the dilutive
effect of all outstanding stock options and warrants using the treasury stock
method. The outstanding warrants and options to purchase common share
were anti-dilutive or not materially dilutive during the periods presented.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", requires the disclosure of "basic" and "diluted" earnings per share
for periods ending after December 15, 1997. The computation under SFAS No. 128
differs from the computation of primary and fully diluted earnings per share
under Accounting Principles Board ("APB") Opinion No. 15 primarily in the manner
which potential common stock (that is, securities such as options, warrants,
convertible securities, or contingent stock agreements) is treated. Basic
earnings per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. In the computation
of diluted earnings per share, the weighted average number of common shares
outstanding is adjusted for the effect of all dilutive
<PAGE>
potential common stock.
Basic and diluted earnings per share computed in accordance with SFAS No.
128 for the six and three months ended June 30, 1997 and 1996 does not differ
from the primary earnings per share reported in the accompanying condensed
consolidated statements of operations and accumulated deficit.
(4) INCOME TAXES
Effective January 1, 1997, all income derived from export operations of
companies operating in the Colon Free Zone are tax exempt. Therefore, the
Company did not record any provision for income taxes.
(5) SUBSEQUENT EVENT
On April 25, 1997, the Company awarded to an outside consultant 250,000
stock warrants at an exercise price of $2.00 in connection with the execution of
a consulting agreement. Subsequent to June 30, 1997, the 250,000 stock warrants
were canceled in connection with the termination of the consulting agreement.
(6) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130. "Reporting
Comprehensive Income". SFAS 130 establishes standards for reporting and display
of comprehensive income. The purpose of reporting comprehensive income is to
present a measure of all changes in equity that result from recognized
transactions and other economic events of the period other than transactions
with owners in their capacity as owners. SFAS 130 requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. SFAS 130 is effective for the fiscal years
beginning after December 15, 1997, with earlier application permitted. The
Company has not yet determined the impact of the implementation of SFAS 130.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information". SFAS 131 specifies revised guidelines
for determining an entity's operating segments and the type and level of
financial information to be disclosed. Once operating segments have been
determined, SFAS 131 provides for a two-tier test for determining those
operating segments that would need to be disclosed for external reporting
purposes. In addition to providing the required disclosures for reportable
segments, SFAS 131 also requires disclosure of certain "second level"
information by geographic area and for products/services. SFAS 131 also makes a
number of changes to existing disclosure requirements. SFAS 131 is effective for
fiscal years beginning after December 15, 1997, with earlier application
encouraged. The Company has not yet determined the impact of the implementation
of SFAS 131.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included herein should be read in conjunction with the
Consolidated Financial Statements, the related Notes to Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 and the Condensed Consolidated Financial
Statements and the related Notes to Condensed Consolidated Financial Statements
included in Item 1 of this quarterly report on Form 10-Q.
DISCONTINUED OPERATIONS
On August 5, 1997, the Company's Board of Directors approved a plan to sell
or liquidate its non-core business subsidiary, New World Interactive, as part of
an overall restructuring program designed to focus the Company's resources on
its core business, the distribution of consumer electronics. New World
Interactive is engaged in the production and distribution of Spanish and
Portuguese CD-ROM software. Significant needed capital requirements and sales
not materialising contributed to the decision to discontinue the subsidiary. The
financial information given below for the six months and three months ended June
30, 1997 and 1996 refer to the continuing operations of the Company and exclude
the operations of New World Interactive.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996.
NET SALES
Net sales increased 42% to $60.6 million for the six months ended June 30,
1997 from $42.5 million for the same period in 1996. The Company is continuing
its efforts to increase sales in its various markets by expanding its product
lines to include new brand names and by entering into new markets.
<PAGE>
Decreased sales to Turkey ($1.2 million) and Ecuador ($1.1 million) were
more than offset by increased sales to Colombia ($7.7 million), United States of
America ($5.5 million), Paraguay ($1.7 million), Argentina ($1.3 million) and
increased sales in various other markets.
GROSS PROFIT
Gross profit increased 29% to $4.0 million for the six months ended June
30, 1997 from $3.1 million for the same period in 1996.
The Company's gross profit margin decreased to 6.6% in the six months
ended June 30, 1997 from 7.3% in the comparable 1996 period due to lower average
selling prices resulting from increased competition and the new product lines
which carry a lower margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses increased to $3.8 million
for the six months ended June 30, 1997 versus $2.5 million for the same period
in 1996.
Selling, general, and administrative expenses were in large part affected
by charges incurred by the Company within this period as follows: (i) reserves
for disputed amounts arising in the normal course of business and other losses
totaling approximately $273,000, (ii) certain charges aggregating approximately
$228,000 consisting primarily of (a) costs associated with hiring of sales and
other personnel (b) opening a new sales office, (c) severance costs of a key
executive and (d) consultant fees for assisting in implementing a strategic plan
for the Company, and (iii) the result of additional provisions for doubtful
accounts aggregating approximately $306,000 from two former customers.
INTEREST
Interest income increased from $150,000 for the six months ended June 30,
1996 to $195,000 for the same period in 1997 due to higher average daily
balances of restricted cash.
Interest expense increased to $889,000 for the six months ended June 30,
1997 from $452,000 for the same period in 1996, as a result of additional
borrowings.
OTHER INCOME
Other income decreased to $93,000 for the six months ended June 30, 1997
from $217,000 for the same period in 1996. This
<PAGE>
decrease is primarily attributable to the $108,000 settlement of a suit filed
against the Company's insurance carrier that was recorded in the 1996 period.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from continuing operations was $450,000 ($.10 per share) in the six
months ended June 30, 1997 compared to income from continuing operations of
$434,000 ($.10 per share) in the six months ended June 30, 1996. The change was
primarily due to the increase in selling, general and administrative expenses.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1996.
Net sales increased 42% to $33.7 million for the three months ended June
30, 1997 from $23.8 million for the same period in 1996. The Company is
continuing its efforts to increase sales in its various markets by expanding its
product lines to include new brand names and by entering into new markets.
Decreased sales to Ecuador ($1.5 million), Mexico ($1.4 million) and
Turkey ($450,000) were more than offset by increased sales to Colombia ($5.1
million), United States of America ($4.6 million), Argentina ($900,000),
Paraguay ($769,000), Peru ($719,000) and increased sales in various other
markets.
GROSS PROFIT
Gross profit increased 27% to $2.1 million for the three months ended June
30, 1997 from $1.6 million for the same period in 1996.
The Company's gross profit margin decreased to 6.2% in the three
month period ended June 30, 1997 compared to 6.9% in the comparable 1996 period
due to lower average selling prices resulting from increased competition and the
new product lines which carry a lower margin.
SELLING, GENERAL, ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses increased to $2.3 million
for the three months ended June 30, 1997 compared to $1.3 million for the same
period in 1996.
Selling, general, and administrative expenses were in large
<PAGE>
part affected by charges incurred by the Company within this period as follows:
(i) reserves for disputed amounts arising in the normal course
of business and other losses totaling approximately $273,000, (ii) certain
charges aggregating approximately $110,000 consisting primarily of (a) costs
associated with hiring of sales and other personnel (b) opening a new sales
office, (c) severance costs of a key executive and (d) consultant fees for
assisting in implementing a strategic plan for the Company, and (iii) the result
of additional provisions for doubtful accounts aggregating approximately
$306,000 from two former customers.
INTEREST
Interest income remained relatively stable at $73,000 for the three months
ended June 30, 1997 compared to $75,000 for the same period in 1996.
Interest expense increased to $456,000 for the three months ended June 30,
1997 compared to $245,000 for the same period in 1996 as a result of additional
borrowings.
OTHER INCOME
Other income decreased to $51,000 for the three months ended June 30, 1997
compared to $183,000 for the three months ended June 30, 1996. This decrease is
primarily attributable to the $108,000 settlement of a suit filed against the
Company's insurance carrier that was recorded in the 1996 period.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from continuing operations was $594,000 ($0.13 per share) in the
three months ended June 30, 1997 compared to income from continuing operations
of $309,000 ($0.07 per share) in the three months ended June 30, 1996. The
change was primarily due to the increase in selling, general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through short term
bank borrowings, trade credit and, to a lesser extent, internally generated
funds.
The Company used $8.4 million in cash for operating activities in the six
months ended June 30, 1997. This utilization was primarily due to $5.9 million
in increased accounts receivable and $1.8 million for increased inventory which
was offset in part by $689,000 in increased accounts payable.
<PAGE>
Cash used in investing activities was $1.9 million in the six months ended
June 30, 1997 primarily attributable to an increase in restricted cash balances
required to secure additional borrowings of $1.4 million and capital
expenditures approximating $500,000 made in conjunction with the relocation of
the Company's warehouse and offices to a new facility located in Colon, Panama
which is expected to be completed by September 1997.
Cash provided by financing activities was $10.2 million in the six months
ended June 30,1997 principally due to obtaining additional bank borrowings.
Management believes that the Company's ability to repay its indebtedness
must be achieved primarily through funds generated from its operations and by
consolidating its current credit facilities with one or two primary lenders. As
the Company expanded sales in existing markets such sales were primarily made on
a credit basis as compared to cash basis. The number of days sales in accounts
receivable was 70 days at June 30, 1997 compared to 63.6 days at June 30, 1996
which has also adversely affected liquidity.
The Company has since December 31, 1996 increased its bank credit lines
from $21.3 million to $37.4 million in an effort to increase sales volumes as
access to additional products is limited. The increase in lines of credit for
the Company's operations will also enable the Company to better balance its cash
needs against collection of receivables. The Company believes that current
available credit facilities are sufficient to meet its short-term sales
objectives, however, to support continued long-term sales growth it must
increase its borrowing capacity.
During the remainder of 1997, the Company intends to consolidate its
borrowings in an effort to obtain lower interest rates and reduce inventory
carrying costs factoring its trade accounts receivables which would also limit
the Company's exposures to credit, political and transfer risk. There can be no
assurances that the Company will be able to finance its trade accounts
receivables.
The Company continues to have a good relationship with its two principal
suppliers, Sony and Pioneer. At June 30, 1997, the Company's credit facility
with Sony was $11 million and $8 million with Pioneer compared to $8
million for Sony and $4.5 million for Pioneer at December 31, 1996 and $6
million for Sony and $4.5 million for Pioneer at June 30, 1996. From time to
time Sony and Pioneer have allowed the Company to increase its credit line above
its stated credit.
As of June 30, 1997, the Company had outstanding on its
<PAGE>
credit facilities with its major suppliers approximately $12.0 million with no
past due balances. Management believes, that through collections from normal
operations and utilization of bank lines, the Company will maintain all accounts
current and be able to support ongoing operations. Historically, the Company in
part utilizes bank lines to extend the number of days credit granted by
suppliers.
At June 30, 1997, the Company had with eleven banks an aggregate of $37.4
million in bank facilities of which $33.1 million was utilized. From time to
time, the Company is overdue with various of its bank lenders for periods of a
few days for amounts the Company does not consider to be significant in light of
the size of its borrowings. No restructured borrowings currently exist. All of
the Company's lines of credit and credit facilities from its various lenders are
callable on demand as construed under the laws of Panama and the United States,
as applicable.
FORWARD LOOKING STATEMENTS
From time to time, the Company publishes forward-looking statements,
including certain statements in the Management's Discussion and Analysis of this
Form 10-Q, which relate to such matters as anticipated financial performance,
business prospects, technological developments, new products and similar matters
the private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements.
Such factors include, among others, (i) the ability of the Company to sell or
otherwise liquidate the operations of its New World Interactive subsidiary; (ii)
expansion of the Company's "core" business into new geographic markets and
within its current markets; (iii) the general availability of credit from its
principal suppliers and banks to the Company to finance its inventory,
specifically, the continued cooperation of its major suppliers and its banks to
provide credit and their forbearance from time to time; (iv) the expansion of
available credit through the successful consolidation of the Company's
borrowings; (v) the lack of adverse economic development in those foreign
countries in which the Company conducts a material amount of business, including
Colombia, Paraguay and Argentina.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1997, the Company held its annual shareholders meeting. Each
of the seven directors seeking re-election and a new Director were elected as
follows:
NAME FOR AGAINST
- ---- --- -------
Ezra Cohen 2,861,606 -0-
Moises Ezra Cohen 2,861,606 -0-
David Djemal 2,861,606 -0-
Michael G. Dowling 2,861,606 -0-
Ezra Homsany Gateno 2,861,606 -0-
Daniel Homsany 2,861,606 -0-
Leonard J. Sokolow 2,861,606 -0-
Enrique P. Lacs (New Director) 1,823,110 -0-
No director had more than 7,630 votes withheld for his election. There were no
abstentions or broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 10.1 International License, Distribution and Localization
Agreement dated February 28, 1997 by and between Accolade,
Inc. and New World Interactive, Inc.
10.2 Credit Financing Agreement with Hamilton Bancorp Inc. dated
May 7, 1997
10.3 Consulting Agreement with Ocean Reef Management, Inc. dated
April 25, 1997
10.4 Cancellation of Consulting Agreement with Ocean Reef
Management, Inc. dated July 7, 1997
10.5 Mutual General Release between the company and Ocean Reef
Management, Inc., dated August 13, 1997
10.6 Addendum dated May 12, 1997 to the Distribution Agreement
for Motorola Cellular Products dated June 17, 1996 by and
between King David Com. Exportacao e Importacao Ltda. and
Ezcony Interamerica Inc.
10.7 Termination Agreement dated April 24, 1997 between Ezcony
Interamerica Inc. and its subsidiaries and John A. Galea
10.8 Termination Agreement dated June 18, 1997 and
Confidentiality and Non-Competition Agreement by and
between Ezcony Interamerica Inc. and subsidiaries and
Ezra Homsany
27 Financial Data Schedule
99 Review Report of Coopers & Lybrand L.L.P. on Second Quarter
Financial Statements
(b) No Form 8-K was filed during the quarter ended June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EZCONY INTERAMERICA INC.
Date: August 14, 1997 By: /s/ EZRA COHEN
-------------------------
Ezra Cohen, President and
Chief Executive Officer
Date: August 14, 1997 By: /s/ ANA M. MENENDEZ
-------------------------
Ana M. Menendez,
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
10.1 International License, Distribution and Localization Agreement
dated February 28, 1997 by and between Accolade, Inc. and
New World Interactive, Inc.
10.2 Credit Financing Agreement with Hamilton Bancorp Inc. dated
May 7, 1997
10.3 Consulting Agreement with Ocean Reef Management, Inc. dated
April 25, 1997
10.4 Cancellation of Consulting Agreement with Ocean Reef Management, Inc.
dated July 7, 1997
10.5 Mutual General Release between the company and Ocean Reef Management,
Inc., dated August 13, 1997
10.6 Addendum dated May 12, 1997 to the Distribution Agreement for Motorola
Cellular Products dated June 17, 1996 by and between King David Com.
Exportacao e Importacao Ltda. and Ezcony Interamerica Inc.
10.7 Termination Agreement dated April 24, 1997 between Ezcony Interamerica
Inc. and its subsidiaries and John A. Galea
10.8 Termination Agreement dated June 18, 1997 and Confidentiality and
Non-Competition Agreement by and between Ezcony Interamerica Inc. and
subsidiaries and Ezra Homsany
27 Financial Data Schedule (For SEC Use Only)
99 Review Report of Coopers & Lybrand L.L.P. on Second Quarter
Financial Statements
EXHIBIT 10.1
CONTRACT NUMBER: 96-007-1
TITLE: Eradicator
DATE: February 19, 1996
BETWEEN: Accolade, Inc. and New World Interactive
TERRITORY: Latin America
INTERNATIONAL LICENSE, DISTRIBUTION AND LOCALIZATION AGREEMENT
This International License, Distribution and Localization Agreement
("AGREEMENT") is entered into this 28 day of February, 1997 ("EFFECTIVE DATE")
by and between Accolade, Inc. ("ACCOLADE"), A California corporation, with its
principal place of business at 5300 Stevens Creek Blvd., Suite 500, San Jose,
California 95129 and New World Interactive, Inc. ("DISTRIBUTOR"), a U.S.
corporation, with its principal place of business at 7620 NW 25th Street, Units
4 and 5, Miami, Florida 33122.
RECITALS
WHEREAS, Accolade is in the business of developing, licensing and publishing
interactive entertainment software; and
WHEREAS, Distributor is in the business of developing, licensing, manufacturing
and distributing interactive entertainment software; and
WHEREAS, Distributor wishes to prepare localized versions of certain of
Accolade's interactive entertainment software titles for use in the Territory
and to exercise manufacturing and distribution rights to such localized
versions, and Accolade wishes to have Distributor do so during the Term of this
Agreement;
NOW, THEREFORE, in consideration of the performance of the mutual covenants
contained herein, Distributor and Accolade hereby agree as follows:
1.0 DEFINITIONS
1.1 "ADDITIONAL TITLES" means the computer software programs published by
Accolade that are expressly added to this Agreement by subsequent Addenda
mutually executed by the parties, referencing this Agreement, and supplementing
the exhibits to this Agreement, as needed.
<PAGE>
1.2 "INITIAL TITLES" means the computer software programs published by
Accolade that are set forth in EXHIBIT A.
1.3 "INTELLECTUAL PROPERTY RIGHTS" means any and all worldwide copyright
rights (including but not limited to rights in audiovisual works and Moral
Rights), patent rights, trade secret rights, trademark rights (and goodwill
appurtenant thereto), merchandising rights, rights of privacy, rights of
publicity, and any and all other intellectual property and proprietary rights
available in any jurisdiction in the world.
1.4 "LOCALIZED VERSION" means a version of the Titles other than in English
as is specified in EXHIBIT A and which comply with the specification set forth
in EXHIBIT A.
1.5 "LOCALIZED PRINTED MATERIALS" means a version of the Printed Materials,
other than in English, as is specified in EXHIBIT A and which complies with the
specification set forth in EXHIBIT A.
1.6 "LOCALIZATION KIT" means the files for the Titles as described on
EXHIBIT A.
1.7 "MARK" means any trademark, trade name, service mark, logo, design,
character, or artwork owned by, or licensed to, Accolade.
1.8 "MORAL RIGHTS" means any right to claim authorship to or to object to
any distortion, mutilation, or other modification or other derogatory action in
relation to a work, whether or not such would be prejudicial to the author's
reputation, and any similar right, existing under common or statutory law of any
country or jurisdiction of the world or under any treaty, regardless of whether
or not such right is denominated or generally referred to as a "moral right."
1.9 "RETAIL NET RECEIPTS" Means the titles wholesale selling price with no
other deductions.
1.10 "OEM NET RECEIPTS" Means the total revenue from the sale less COGS
only if Distributor manufactures and pays for the manufacture of the goods.
1.11 "PRINTED MATERIALS" will mean the packaging, artwork, manuals,
instructional materials, documentation, product warranty card, end user license
agreement and any other printed matter relating to the Titles.
1.12 "TERRITORY " means Latin America, which is comprised of Mexico,
Central America and South America, and the Caribbean.
1.13 "TITLES" means the Initial Titles and any and all Additional Titles.
2.0 TERM
2.1 TERM. This Agreement will continue in effect for two (2) years
following the Effective Date, unless terminated as specified in Section 7
herein; provided, however, that if this
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Agreement, or any of its terms of conditions, must be approved by any
governmental authorities in the Territory prior to its becoming effective, then
this Agreement will not go into effect unless and until such approval is
obtained.
2.2 RENEWAL. This Agreement shall automatically renew for two (2)
successive one (1) year periods/terms, after two (2) years the Agreement may be
renewed upon mutual written agreement, unless either party gives written notice
of cancellation at least sixty (60) days prior to renewal.
3.0 GRANTS OF LICENSE
3.1 TRANSLATION LICENSE. Subject to the terms and conditions of this
Agreement, Accolade hereby grants to Distributor a limited, non-assignable,
exclusive right and license to use, copy, translate, modify, and create
derivative works based upon, the Titles in the Territory during the term of this
Agreement solely for the purpose of creating the Localized Versions.
3.2 LOCALIZATION KIT LICENSES. Subject to the terms and conditions of this
Agreement, Accolade hereby grants to Distributor a limited, non-assignable,
non-exclusive right and license to use and copy the Localization Kit solely for
the purpose of creating the Localized Versions in the Territory during the term
of this Agreement.
3.3 MANUFACTURE AND DISTRIBUTION LICENSE.
a. Upon Accolade's and, where applicable Sony of Europe ("Sony"),
acceptance of a Localized Version pursuant to Section 4.3, Accolade grants to
Distributor a limited, nonassignable, exclusive right and license to copy,
manufacture, distribute, advertise and promote such Localized Version, in object
code form only, solely in, and solely for use in, the Territory during the term
of this Agreement pursuant to the terms and conditions set forth in this
Agreement.
3.4 AFFILIATED LABEL AGREEMENT. The parties, during the terms of this
agreement, agree to evaluate in good faith, the possibility of entering into an
affiliated label agreement for other products which are not the subject of this
agreement.
3.5 DISTRIBUTION RESTRICTIONS. a. Distributor will not have any right to
distribute the Localized Versions outside of, or for use outside of, the
Territory. Distributor will not have any right to distribute the Localized
Versions in the Territory or otherwise by electronic means, including, but not
limited to, by any third-party on-line service, the Internet, satellite, cable,
wire, or any other electronic means of distribution now known or hereafter
developed.
b. Distributor shall not distribute the titles as part of budget or
"compilation" programs. However, both parties agree to negotiate in good faith
the budget line opportunities.
3.6 TRADEMARK LICENSE.
3
<PAGE>
(a) USE DURING AGREEMENT. Subject to the terms and conditions of this
Agreement, Accolade hereby grants to Distributor a limited, non-assignable,
non-exclusive right and license to use the Marks Accolade uses for the Titles in
connection with Distributor's advertisement, promotion and distribution of the
Localized Versions in the Territory during the term of this Agreement.
Distributor's use of such Marks will be in accordance with Accolade's policies
in effect from time to time, including but not limited to trademark usage
guidelines. Distributor agrees not to attach any additional trademarks, trade
names, logos or designations to any Localized Version without the prior written
consent of Accolade. Distributor further agrees not to use any Accolade Mark in
connection with any product other than the Localized Versions.
(b) TRADEMARK NOTICES. Distributor will include on each Localized Version
that it distributes, and on all containers and storage media therefor, all Marks
included by Accolade on the corresponding Title, except as Accolade may instruct
Distributor is writing. Distributor agrees not to alter, erase, deface or
overprint any such notice on anything provided by Accolade. Distributor also
will include the appropriate trademark notices when referring to any Localized
Version in advertising and promotional materials.
(c) DISTRIBUTOR DOES NOT ACQUIRE PROPRIETARY RIGHTS IN MARKS. Distributor
has paid no consideration for the use of Accolade's Marks, and nothing contained
in this Agreement will give Distributor any right, title or interest in any of
them. Distributor acknowledges that Accolade owns and retains all right, title
and interest in all Marks associated with the Titles, and agrees that it will
not at any time during or after this Agreement assert or claim any interest in
or do anything that may adversely affect the validity of any Mark belonging to
or licensed to Accolade (including, without limitation any act or assistance to
any act, which may infringe or lead to the infringement of any of Accolade's
proprietary rights).
(d) NO CONTINUING RIGHTS. Upon expiration or termination of this Agreement,
and subject to Distributor's sell-off rights according to section 7.4 herein,
Distributor will immediately cease all display, advertising and use of all
Accolade Marks and will not thereafter use, advertise or display any trademark,
trade name, logo or designation which is, or any part of which is, similar to or
confusing with any Mark associated with any Accolade product.
(e) OBLIGATION TO PROTECT. At Accolade cost, Distributor agrees to use
reasonable efforts to protect Accolade's proprietary rights in the Marks and to
cooperate in Accolade's efforts to protect its proprietary rights in the Marks.
Distributor agrees to promptly notify Accolade of any known or suspected breach
of Accolade's proprietary rights in the Marks that comes to Distributor's
attention.
3.6 RESERVED RIGHTS.
(a) All rights not expressly granted to Distributor, including those
rights set forth in Section 3.4, herein are reserved by Accolade.
4
<PAGE>
4.0 TRANSLATION AND LOCALIZATION
4.1 CREATION OF LOCALIZED VERSIONS. Distributor will exert best efforts, at
its expense, to develop the Localized Versions in accordance with the
specification set forth in EXHIBIT A for use in the Territory and as are
required to comply with the local laws of the Territory. Distributor will be
responsible for translating, at its expense, all Printed Materials used in
connection with the Titles into the language(s) of the Territory. Other than
word-for-word translation of the Printed Materials and the text electronically
displayed by the Titles, Distributor will consult with Accolade, or Sony where
applicable, as to what changes need to be made to the Titles and Printed
Materials pursuant to this section, and will obtain Accolade's prior written
consent to all such changes. Accolade agrees to provide Distributor with at no
expense to Distributor, all existing Artwork, Packaging and Marketing Materials
associated with the titles.
(a) COMPETING PRODUCTS. Accolade acknowledges and agrees that
Distributor may manufacture, sell and distribute products which might compete
with the Titles.
4.2 ASSIGNMENT OF RIGHTS.
(a) ASSIGNMENT. Distributor agrees and acknowledges that the Localized
Versions, the Localized Printed Materials, and all Intellectual Property Rights
therein will be the sole and exclusive property of Accolade. Distributor hereby
irrevocably transfers and assigns to Accolade all of its worldwide right, title,
and interest that Distributor may have at any time in and to the Localized
Versions, the Localization Kit, the Localized Printed Materials, and all
Intellectual Property Rights therein.
(b) FURTHER ASSURANCES. As a condition of Accolade's obligations under
this Agreement, Distributor will provide reasonable assistance and cooperation
to Accolade, at Accolade's expense, to acquire, transfer, maintain, perfect,
and enforce Accolade's Intellectual Property Rights in the Localized Versions
and the Localized Printed Materials, including, but not limited to, execution of
a formal assignment document or such other documents as Accolade may request at
any time. Distributor acknowledges that it is not entitled to additional
compensation for complying with its obligations under this section.
(c) Accolade shall have the right to purchase the localized version of
the Titles from distributor at cost of goods(COGS) plus four dollars ($4.00),
for sale by Accolade outside the territory. Distributor shall not pay royalties
to Accolade on units purchased by Accolade.
(d) MORAL RIGHTS. Developer hereby, on behalf of itself and its
employees and contractors, irrevocably transfers and assigns to Accolade, and
waives and agrees never to assert, any and all Moral Rights that Distributor or
its employees or contractors may have in or with respect to the Localized
Versions, even after termination or expiration of this Agreement.
4.3 THE LOCALIZATION/TRANSLATION PROCESS
5
<PAGE>
The process of localizing and translating the Titles into the Localized
Version by Distributor shall proceed as follows for each Title:
(a) Accolade shall deliver to Distributor two (2) samples of the Titles
and the items set forth on Exhibit "C" to the Agreement (the "Deliverables") as
soon as they are available. Distributor shall then have fourteen (14) days to
examine the Deliverables and advise Accolade in writing if all of the
Deliverables were not provided. Accolade shall then have another seven (7) days
to provide all missing Deliverables.
(b) In addition, without payment of royalty or other compensation to
Accolade by Distributor, Distributor shall have the right to manufacture up to
400 copies of a short version of the Titles referred to in the industry as a
"demo" and up to 100 samples of the Localized Version per language into which
it is localized/translated for promotional use. Distributor may not derive any
revenue from "demos" or "samples" defined herein. If Distributor derives revenue
then Distributor owes Accolade the appropriate royalties.
(c) As part of the localization/translation process, Distributor may
make minor changes to the format, title and concept of the Titles reasonably
necessary to localize or translate, including changes to the Printed Materials
which it deems appropriate for marketing purposes, all subject to Accolade's
approval in accordance with the procedures set forth in the following
paragraphs.
(d) Upon completion of the localization/translating process,
Distributor shall deliver to Accolade an appropriate sample of the Localized
Version and bluelines of all Printed Materials, for Accolade's testing and
approval, which approval shall not be unreasonably withheld.
(e) (i) For products that do not require third party approval: Accolade
shall have five (5) business days from the delivery of the Localized Version and
bluelines within which to test same and either approve of the Localized Version
or provide Distributor with specific and detailed objections in writing. Failure
to timely object in writing as set forth herein shall constitute approval by
Accolade. If Accolade has objections, the process of submission and testing
shall continue until all reasonable objections by Accolade have been cured
("Final Approval"). (ii) For products that require third party approval,
Accolade and Distributor shall be subject to the approval process as defined by
the third party.
(f) Upon Final Approval the Localized Version shall be deemed to be
complete and ready for sale. Distributor may accept orders for the Localized
Version prior to Final Approval; but may not ship the Localized Version before
Final Approval.
(g) Any Localized Version created pursuant to this Agreement, and all
materials and documents generated by Distributor in connection with the creation
of the Localized Version, shall be owned exclusively by Distributor. However,
Distributor does not have the right to manufacture, market or distribute the
localized version of the Title, or any derivation of the Title, without the
express written consent of Accolade as defined by this or any future Agreement.
6
<PAGE>
(h) Accolade's failure to timely deliver all of the Deliverables for
each Title in accordance with subparagraph (a) of this paragraph or its failure
to release any of the Titles for distribution within sixty (60) days of the
release date identified on Exhibit A for each Title, shall, at Distributor's
option (which option may be exercised at any time), result in the following:
(i) Termination of this Agreement for each Title affected pursuant
to subparagraph (i) of this paragraph; or
(ii) A ten (1O) percent reduction in the Minimum Sales Guaranteed
set forth in paragraph 6.4 for each Title affected, for every month or part
thereof that the Deliverables are late in being delivered or that release of a
Title is delayed, which reduction can be taken against any payment or sum due to
Accolade by Distributor and is in the nature of liquidated damages and not as a
penalty.
(i) In the event Distributor cannot localize and translate any
particular Title so as to create a marketable Localized Version for that Title,
due to defects in the Title of the Deliverables, Distributor shall have the
option to cancel this Agreement with respect to that Title only, in which case
Distributor shall return all materials provided to it by Accolade with respect
to that Title and this Agreement shall be deemed terminated as to that Title.
Upon such a termination, Accolade shall promptly refund any and all payments
made to it by Distributor under this Agreement with respect to the canceled
Title.
(j) At Distributor's request and upon presentation of evidence of third
party violations of Distributor's exclusivity under this Agreement, Accolade
shall take reasonable steps at Distributor's pre-approved expense, to stop
unauthorized persons from translating or localizing any of the Titles or using
Distributor's Localized Version for sale into the Territory.
4.4 WARRANTY CARD AND END USER LICENSE AGREEMENT.
(a) Distributor will, at its sole expense, prepare and deliver to
Accolade a translation from English into the appropriate language(s) of any
product warranty card and/or end user license agreement supplied with the
Initial Titles. Such translations will be included, in the same manner as in
Accolade's software packages for the Initial Titles in the U.S., in every
package of the Localized Version manufactured by Distributor hereunder, except
as Distributor may be instructed by Accolade in writing.
(b) Distributor agrees that it will notify Accolade in writing as soon
as possible if it knows, or has reason to believe, that any of the translations
specified in subsection (a) above: (i) violates any law, rule or regulation in
effect in the Territory; or (iii) requires any additional terms. In such event,
Distributor will provide reasonable cooperation to Accolade in resolving any
issue with respect to the foregoing.
5.0 MANUFACTURE AND DISTRIBUTION
5.1 MANUFACTURE OF LOCALIZED PRODUCTS. Distributor will manufacture at its
sole expense the Localized Versions at its principal place of business as set
forth above, unless
7
<PAGE>
otherwise agreed in writing by Accolade, in a workmanlike manner. Distributor
will provide at no charge reasonable numbers of samples of the Localized Version
for Accolade's inspection upon Accolade's request at any time.
5.2 OBLIGATIONS OF DISTRIBUTOR.
(a) PROMOTIONAL EFFORTS. Distributor will use its best efforts to (i)
vigorously promote the distribution of the Localized Versions in the Territory
in accordance with the terms and policies of Accolade as announced from time
to time; and (ii) satisfy those reasonable criteria and policies with respect to
Distributor's obligations under this Agreement communicated in writing to
Distributor by Accolade from time to time.
(b) ADVERTISING OBLIGATIONS. Distributor will aggressively advertise
the Localized Products in the Territory in accordance with this Agreement,
provided that Distributor will not use advertisements that have not been
approved in writing by Accolade.
(c) INVENTORY. Distributor will maintain at least one warehouse
facility in Miami or the Territory, and will maintain an inventory of the
Localized Versions and warehousing facilities sufficient to serve adequately the
needs of its distributors and customers on a timely basis.
(d) DISTRIBUTOR PERSONNEL. Distributor will train and maintain a
sufficient number of capable technical and sales personnel having the knowledge
and training necessary to: (i) inform customers properly concerning the features
and capabilities of the Localized Versions and, if necessary, competitive
products; (ii) service and support the Localized Versions in accordance with
Distributor's obligations under this Agreement; and (iii) otherwise carry out
the obligations and responsibilities of Distributor under this Agreement.
(e) TECHNICAL EXPERTISE. Distributor and its staff will be conversant
with the technical language conventional to the Localized Versions and similar
computer products in general, and will develop sufficient knowledge of the
industry, of the Titles, and of products competitive with the Titles (including
specifications, features and benefits) so as to be able to explain in detail to
its customers the differences between the Titles and competitive products.
(f) SERVICE AND SUPPORT. Distributor will provide prompt service and
support for all Localized Products distributed in the Territory. Distributor
will provide necessary and useful installation assistance and consultation on
the use of the Localized Versions; timely respond to customers' general
questions concerning use of the Localized Versions; and assist customers in the
diagnosis and correction of problems encountered in using the Localized
Versions.
(g) DISTRIBUTOR COVENANTS. Distributor will: (i) conduct business in a
manner that reflects favorably at all times on the Localized Versions and the
good name, good will and reputation of Accolade; (ii) avoid deceptive,
misleading or unethical practices that are or might be detrimental to Accolade;
(iii) make no false or misleading representations with regard to
8
<PAGE>
Accolade, the Titles, or the Localized Versions; (iv) not publish or employ, or
cooperate in the publication or employment of, any misleading or deceptive
advertising material with regard to Accolade, the Titles, or the Localized
Versions; (v) make no representations, warranties or guarantees to customers or
to the trade with respect to the specifications, features or capabilities of the
Titles or the Localized Versions that are inconsistent with the literature
distributed by Accolade; and (vi) not enter into any contract or engage in any
practice detrimental to the interests of Accolade in the Localized Versions.
(h) COMPLIANCE WITH LAW. Distributor will comply with all applicable
international, national, state, regional and local laws and regulations in
performing its duties hereunder and in any of its dealings with respect to the
Localized Versions.
(i) COMPLIANCE WITH U.S. EXPORT LAWS. Distributor acknowledges that all
Localized Versions, including Printed Materials and other technical data, are
subject to export controls imposed by the U.S. Export Administration Act of
1979, as amended (the "ACT"), and the regulations promulgated thereunder.
Distributor will not export or re-export (directly or indirectly) any Localized
Versions or Printed Materials or other technical data therefor without complying
with the Act and the regulations thereunder. Accolade will be responsible of
informing if such exists in a product.
(j) GOVERNMENTAL APPROVAL. If any approval with respect to this
Agreement, or the notification or registration thereof, will be required at any
time during the term of this Agreement, with respect to giving legal effect to
this Agreement in the Territory, or with respect to compliance with exchange
regulations or other requirements so as to assure the right of remittance abroad
of U.S. dollars pursuant to Section 6 hereof or otherwise, Distributor will
immediately take whatever steps may be necessary in this respect, and any
charges incurred in connection therewith will be for the account of Distributor.
Distributor will keep Accolade currently informed of its efforts in this
connection.
(k) MARKET CONDITIONS. Distributor will advise Accolade promptly
concerning any market information that comes to Distributor's attention
respecting Accolade, the Titles, the Localized Versions, Accolade's market
position or the continued competitiveness of the Titles or the Localized
Versions in the marketplace. Distributor will confer with Accolade from time to
time at the request of Accolade on matters relating to market conditions, sales
forecasting and product planning relating to the Localized Versions.
(l) COSTS AND EXPENSES. Except as expressly provided herein or agreed
to in writing by Accolade and Distributor, Distributor will pay all costs and
expenses incurred in the performance of Distributor's obligations under this
Agreement.
5.3 RECORDS. Distributor will maintain for at least two (2) years after any
termination or expiration of this Agreement copies of all contracts and accounts
relating to distribution of the Localized Versions. Distributor will permit
examination thereof, solely to determine Distributor's compliance with the terms
and conditions of this Agreement, by authorized representatives of Accolade at
all reasonable times.
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6.0 FINANCIAL
6.1 ROYALTIES AND ADVANCE ON SALES.
(a) ROYALTIES. Distributor will pay Accolade royalties on sales of the
Localized Versions as set forth on Exhibit B ("Royalties").
(b) ADVANCES. Distributor will pay Accolade advances against future
Royalties and against the minimum guaranty, as set forth on EXHIBIT B
("ADVANCES").
6.2 PAYMENTS AND ACCOUNTING.
(a) ROYALTIES. Distributor will render a statement of account to
Accolade within thirty (30) days after the close of each calendar quarter. The
statement will show the Royalties payable thereon to Accolade and will provide
sufficient information, as requested by Accolade, to enable Accolade to confirm
that the Royalties have been calculated correctly. Distributor will pay Accolade
all Royalties accrued during each quarter concurrently with the statement of
account. In the event that Distributor is late in making a royalty payment to
Accolade, Accolade will have the right to charge interest on the past due
payment at a rate equal to the lesser of one and one-half percent (1.5%) per
month, or the maximum rate allowed by applicable law.
(b) AUDIT. Accolade will have the right to audit Distributor's records
and books which are relevant to Distributor's obligations under this Agreement
at any time. Costs for such audits and related activities will be paid for by
Accolade; provided that if the results of the audit show a shortfall in payments
owed to Accolade exceeding FIVE percent (5%), the costs for the audit will be
paid by Distributor.
6.3 TAXES. All amounts payable under this Agreement are exclusive of all
sales, use, value-added, and other taxes and duties. Distributor will pay all
taxes and duties assessed in connection with this Agreement and its performance
by any authority within or outside of the U.S., except for taxes payable on
Accolade's net income. Notwithstanding the foregoing, Accolade acknowledges and
agrees that withholding taxes are included as part of the total royalty payable
by Distributor. Distributor will provide Accolade with written documentation,
including but not limited to copies of receipts, of any and all such taxes paid
in connection with this Agreement.
6.4 MINIMUM SALES GUARANTEE. Distributor guarantees to Accolade that a
minimum amount of Royalties for each Localized Version, as set forth in Exhibit
B, will have been paid to Accolade. Such minimum amount will be paid either in
total Royalties payable on each Localized Version, or if there is a shortfall,
then by separate payment. Distributor agrees and acknowledges there will not be
any cross-collateralization between the minimum Royalty amounts for each
Localized Version.
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6.5 PAYMENT FORMS. Distributor agrees that all payments due Accolade under
this Agreement will be paid solely in U.S. funds by direct wire transfer to
Accolade's bank account, or by check. Wire transfer instructions will be given
to Distributor by Accolade in writing. Any currency exchanges will be calculated
as of the customary exchange rate published on the last day of the calendar
quarter in which the payments became due.
7.0 TERMINATION
7.1 TERMINATION UPON BANKRUPTCY. If either party becomes subject to any
bankruptcy law and/or if the business of either party is placed in the hands of
a receiver, or trustee in bankruptcy, whether by voluntary act of such party or
otherwise, then the other party will have the right to terminate this Agreement
by written notice to the other party.
7.2 TERMINATION UPON BREACH. Should a material breach of this Agreement
occur, then the injured party may provide the breaching party with written
notice of such breach. If such breach is not cured within thirty (30) days of
the receipt of such written notice, then the injured party will have the right
to terminate this Agreement immediately. Distributor and Accolade agree that a
material breach includes, but is not limited to the following actions: exceeding
the scope of the license grant, violating any of Accolade's Intellectual
Property Rights, and non-payment of Royalties, Advances, or minimum Royalty
amounts.
7.3 RETURN OF INFORMATION. Following any expiration or termination of this
Agreement, Distributor will return to Accolade all of Accolade's Confidential
Information (as defined in Section 13 below) as well as all tangible property,
including plans, drawings, specifications, papers, computer hardware or related
equipment, documents, manuals, computer programs, and other records, including
all complete or partial copies thereof, which refer or relate to the Titles, the
Localized Versions, or the Localization Kit. All such material will be returned
within ten (1O) days after expiration or termination of this Agreement, and
Distributor will certify in writing that it has complied with this section.
7.4 DISTRIBUTION. Upon any termination or expiration of this Agreement,
Distributor must immediately cease copying, manufacturing, marketing, selling,
promoting and distributing the Localized Versions and using the Marks; provided,
however, that Distributor may deplete its then-existing inventory after the date
of such termination or expiration, provided that termination was not due to
Distributor's breach under section 7.2 above.
7.5 NO DAMAGES FOR TERMINATION OR EXPIRATION.
(a) DAMAGES. NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR INCIDENTAL
OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE BREACH, TERMINATION OR EXPIRATION OF
THIS AGREEMENT IN ACCORDANCE WITH THIS SECTION 7. BOTH PARTIES WAIVE ANY RIGHTS
THEY MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS ON TERMINATION OR
EXPIRATION OF
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THIS AGREEMENT UNDER THE LAW OF THE TERRITORY OR OTHERWISE, OTHER THAN AS
EXPRESSLY PROVIDED IN THIS AGREEMENT.
(b) GOODWILL. Accolade will not be liable to Distributor on account of
termination or expiration of this Agreement for reimbursement or damages for the
loss of goodwill, prospective profits or anticipated income, or on account of
any expenditures, investments, leases or commitments made by Distributor or for
any other reason whatsoever based upon or growing out of such termination or
expiration. Distributor acknowledges that (i) Distributor has no expectation and
has received no assurances that any investment by Distributor in the promotion
of the Localized Versions will be recovered or recouped or that Distributor will
obtain any anticipated amount of profits by virtue of this Agreement, and (ii)
Distributor will not have or acquire by virtue of this Agreement or otherwise
any vested, proprietary or other right in the promotion of the Localized
Versions or in "goodwill" created by its efforts hereunder.
(c) MATERIALITY. THE PARTIES ACKNOWLEDGE THAT THIS SECTION HAS BEEN
INCLUDED AS A MATERIAL INDUCEMENT FOR ACCOLADE TO ENTER INTO THIS AGREEMENT AND
THAT ACCOLADE WOULD NOT HAVE ENTERED INTO THIS AGREEMENT BUT FOR THE LIMITATIONS
OF LIABILITY AS SET FORTH HEREIN.
7.6 SURVIVAL. The following sections of this Agreement will survive any
expiration or termination of this Agreement: 4.2 (Assignment of Rights), 5.5
(Records); 7.3 (Return of Information), 7.5 (No Damages for Termination or
Expiration), 7.6 (Survival), 8 (Distributor's Representations and Warranties), 9
(Accolade's Representations and Warranties), 10 (Indemnification), 11 (Limited
Warranty; Disclaimer of Warranties), 12 (Limited Liability), 13
(Confidentiality), 14 (Proprietary Rights), and 15 (General Provisions).
8.0 DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
8.1 AUTHORITY. Distributor represents and warrants that it is duly
incorporated and in good standing under the laws of the jurisdiction in which it
is incorporated, and that Distributor has the full rights, power, legal capacity
and authority to enter into this Agreement, and to carry out the terms hereof.
8.2 NO CONFLICTS. Distributor represents and warrants that it is under no
contractual or other legal obligation which would interfere in any way with the
full, prompt, and complete performance of its obligations pursuant to this
Agreement
8.3 INTELLECTUAL PROPERTY RIGHTS. Except as may be contained in the
Localization Kit as delivered to Distributor, Distributor represents and
warrants that the Localized Versions, as prepared by Distributor: (i) will be
entirely original to Distributor, without containing any third party content or
technology, other than subcontracting work in connection with the translation
and recording; and (ii) will not infringe the Intellectual Property Rights of
any third party.
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9.0 ACCOLADE'S REPRESENTATIONS AND WARRANTIES
9.1 AUTHORITY. Accolade represents and warrants that it is duly
incorporated and in good standing under the laws of the jurisdiction in which it
is incorporated, and that Accolade has the full rights, power, legal capacity
and authority to enter into this Agreement, and to carry out the terms hereof,
including the rights to grant the licenses set forth herein and the obligation
to maintain such licenses during the term of this Agreement.
9.2 NO CONFLICTS. Accolade represents and warrants that it is under no
contractual or other legal obligation which would interfere in any way with the
full, prompt, and complete performance of its obligations pursuant to this
Agreement
9.3 INTELLECTUAL PROPERTY RIGHTS. Accolade represents and warrants that the
Localization Kit, as delivered to Distributor, will not infringe the
Intellectual Property Rights of any third party. Except that all rights granted
under Section 3.5 are accepted "AS IS" by distributor with express understanding
that Accolade is not obligated to obtain Trademark protection for the titles in
any country within the Territory.
10.0 INDEMNIFICATION
10.1 INDEMNIFICATION BY ACCOLADE. Accolade will defend with legal counsel
exclusively chosen and directed by Accolade, at its sole expense, any claim,
suit or proceeding brought against Distributor insofar as such claim, suit or
proceeding is based upon a claim by a third party alleging facts or
circumstances that, if true, would constitute a breach of any representation or
warranty of Accolade set forth in Section 9, provided Distributor gives prompt
written notice of any such suit or proceeding and provides Accolade at no cost
with such assistance and cooperation as Accolade may reasonably request in the
defense thereof. Subject to Section 10.2, Accolade will pay any damages and
costs assessed against Distributor (or paid or payable by Distributor pursuant
to a settlement agreement or any other resolution, formal or informal) in
connection with such claim, suit or proceeding. Distributor reserves the right
to participate in any such claim, suit, or proceeding at its own expense.
10.2 INDEMNIFICATION BY DISTRIBUTOR. Distributor will defend with legal
counsel exclusively chosen and directed by Distributor, at its sole expense, any
claim, suit or proceeding brought against Accolade insofar as such claim, suit
or proceeding is based upon a claim by a third party alleging facts or
circumstances that, if true, would constitute a breach of any representation or
warranty of Distributor set forth in Section 8, provided Accolade gives prompt
written notice of any such suit or proceeding and provides Distributor at no
cost with such assistance and cooperation as Distributor may reasonably request
in the defense thereof. Distributor will pay any damages and costs assessed
against Accolade (or paid or payable by Accolade pursuant to a settlement
agreement or any other resolution, formal or informal) in connection with such
claim, suit or proceeding. Accolade reserves the right to participate in any
such claim, suit, or proceeding at its own expense.
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10.3 OTHER INDEMNIFICATION BY DISTRIBUTOR. Distributor will defend and
indemnify Accolade (including reasonable attorneys' fees and costs of
litigation) against and hold Accolade harmless from, any and all claims by any
third party resulting from Distributors acts, omissions or misrepresentations,
regardless of the form of action, in connection with this Agreement.
11.0 LIMITED WARRANTY; DISCLAIMER OF WARRANTIES
11.1 LIMITED WARRANTY. ACCOLADE MAKES NO WARRANTIES OR REPRESENTATIONS AS
TO PERFORMANCE OF THE TITLES OR THE LOCALIZATION KIT OR AS TO SERVICE TO
DISTRIBUTOR.
11.2 DISCLAIMER OF WARRANTIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
ALL IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT, ARE
HEREBY EXCLUDED BY ACCOLADE.
11.3 DISTRIBUTOR WARRANTY. Distributor will make no warranty, guarantee or
representation, whether written or oral, on Accolade's behalf, in any Localized
Printed Materials, advertising, or otherwise.
12.0 LIMITED LIABILITY
12.1 CONSEQUENTIAL DAMAGES. REGARDLESS WHETHER ANY REMEDY SET FORTH HEREIN
FAILS OF ITS ESSENTIAL PURPOSE OR OTHERWISE, NEITHER PARTY WILL BE LIABLE TO THE
OTHER FOR ANY LOST PROFITS OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR OTHER SPECIAL DAMAGES SUFFERED BY IT, ITS CUSTOMERS OR OTHERS
ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE TITLES, THE LOCALIZATION KIT OR
THE LOCALIZED PRODUCTS, FOR ALL CAUSES OF ACTION OF ANY KIND (INCLUDING TORT,
CONTRACT, NEGLIGENCE, STRICT LIABILITY AND BREACH OF WARRANTY) EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND WHETHER OR NOT
SUCH DAMAGES ARE FORESEEABLE.
12.2 MAXIMUM LIABILITY. IN NO EVENT WILL EITHER PARTY'S TOTAL CUMULATIVE
LIABILITY IN CONNECTION WITH THIS AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE
TITLES, THE PRINTED MATERIALS, AND THE LOCALIZATION KIT) FROM ALL CAUSES OF
ACTION OF ANY KIND, INCLUDING TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY AND
BREACH OF WARRANTY, EXCEED THE TOTAL AMOUNT PAID BY DISTRIBUTOR TO ACCOLADE
HEREUNDER.
12.3 RELIANCE. Distributor acknowledges that Accolade has set its royalty
rates and entered into this Agreement in reliance on the disclaimers of
liability, the disclaimers of warranty
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and the limitations of liability set forth in this Agreement and that such terms
form an essential basis of the bargain between the parties.
13.0 CONFIDENTIALITY
13.1 PROTECTION OF CONFIDENTIAL INFORMATION. Each party acknowledges that,
during the term of this Agreement, it will have access to proprietary or
confidential information of the other party ("CONFIDENTIAL INFORMATION"). Each
party will use its best efforts to protect the Confidential Information of the
other party in the same manner in which it protects its own proprietary or
confidential information (but in no event less than reasonable care), and will
not use or disclose such Confidential Information, except as may be specifically
permitted hereunder.
13.2 CONFIDENTIAL INFORMATION. The following items will be treated as
the Confidential Information: (i) the Titles, the Localized Versions, the
Localization Kit, any technical or design information related to any Title or
Localized Version, the Printed Materials and the Localized Printed Materials;
(ii) the business or technical information of either party, including, but not
limited to any information relating to its product plans, designs, costs,
product prices and names, finances, marketing plans, business opportunities,
personnel, research, development or knowhow; (iii) any information designated as
"confidential" or "proprietary" or which, under the circumstances taken as a
whole, would reasonably be deemed to be confidential; and (iv) the existence and
terms and conditions of this Agreement.
13.3 EXCEPTIONS TO CONFIDENTIAL TREATMENT. The following types of
information will not be considered to be Confidential Information:
(a) information that was known by the receiving party prior to the
date of this Agreement and not obtained or derived, directly or indirectly, from
the disclosing party or its affiliates, or if so obtained or derived, was
lawfully obtained or derived and is not held subject to any confidentiality or
non-use obligations;
(b) information which is or becomes public or available to the general
public or the computer software industry otherwise than through any act or
default of the receiving party;
(c) information that is obtained or derived prior or subsequent to the
date of this Agreement from a third party which, to the best knowledge of the
receiving party, is lawfully in possession of such information and does not hold
such information subject to any confidentiality or non-use obligations;
(d) information which is independently developed by the receiving party
without use of the disclosing party's Confidential Information, which the
receiving party can prove with written evidence; or
(e) information which is required to be disclosed by one of the parties
pursuant to applicable law or under a government or court order; provided,
however, that (i) the
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obligations of confidentiality and non-use will continue to the fullest extent
not in conflict with such law or order, and (ii) if and when a party is required
to disclose such Confidential Information pursuant to any such law or order,
such party will use its best efforts to obtain a protective order or take such
other actions as will prevent or limit, to the fullest extent possible, public
access to, or disclosure of, such Confidential Information.
13.4 CONTINUATION OF OBLIGATIONS. The obligations under this Section 13
will continue for three (3) years following any expiration or termination of
this Agreement.
14.0 PROPRIETARY RIGHTS
14.1 TITLES. Distributor agrees and acknowledges that Accolade owns, and
will continue to own, all Intellectual Property Rights in and to the Titles, the
Printed Materials, and the Localization Kit.
14.2 LOCALIZED VERSIONS. Distributor agrees and acknowledges that, pursuant
to Section 4.2 above, Accolade will own all Intellectual Property Rights in and
to the Localized Versions and Localized Printed Materials.
14.3 PROPRIETARY NOTICES. Distributor agrees to place Accolade's copyright
notice and other legal notices on each copy of the Localized Versions and
Localized Printed Materials. Such proprietary notices are specified on EXHIBIT
A.
14.4 THIRD PARTY INFRINGEMENT. Distributor agrees to give prompt written
notice to Accolade of any activities or threatened activities of any third party
of which it becomes aware that infringe any Intellectual Property Rights
related to the Titles, the Localized Versions, or the Marks. Distributor agrees
to cooperate and generally assist Accolade, at Accolade's expense, in taking
such action as is necessary or appropriate to prevent or remedy such activities.
14.5 THIRD PARTY CLAIMS. Distributor will promptly notify Accolade in
writing of any legal proceeding instituted, or written claim or demand asserted
by, any third party against Distributor with respect to the infringement of any
Intellectual Property Right, which is alleged to result from the license, sale
or use of any of the Localized Versions, the Localized Printed Materials, or the
Marks.
15.0 GENERAL PROVISIONS
15.1 ASSIGNMENT. Distributor may not assign its rights or delegate its
duties under this Agreement without the prior written consent of Accolade. This
Agreement will be binding upon and will inure to the benefit of Accolade and
Distributor and their respective successors and permitted assigns.
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15.2 NOTICE. Any notice or other advice herein required or permitted to
be given will be given in writing and may be delivered personally to any officer
of Accolade or Distributor, as appropriate, by express courier, or sent by
registered or certified mail, postage and fees prepaid, with return receipt
requested to the address specified above or, if different, the then most current
address of the other party known to the party giving such notice. Either party
may from time to time specify or change the address for such notice by giving
written notice thereof to the other party in the manner hereinabove provided. A
notice will be deemed given upon the date it was delivered to the other party.
15.3 FORCE MAJEURE. Neither party will be responsible for any failure
to perform due to causes beyond its reasonable control (each a "FORCE MAJEURE"),
including, but not limited to, strikes, riots, embargoes, war, invasion, acts of
civil or military authorities, fire, floods, explosion, earthquakes, accidents,
delays in carriers, acts of God, and all other delays beyond the party's
reasonable control, provided that such party gives prompt written notice of such
Force Majeure to the other party within five (5) business days. The time for
performance will be extended for a period equal to the duration of the Force
Majeure, but in no event longer than thirty (30) days.
15.4 SEVERABILITY. In the event that any provision in this Agreement
will be subject to an interpretation under which it would be void or
unenforceable, such provisions will be construed so as to constitute it a valid
and enforceable provision to the fullest extent possible, and in the event that
it cannot be so construed, it will, to that extent, be deemed deleted and
separable from the other provisions of this Agreement, which will remain in full
force and effect and will be construed to effectuate its purposes to the maximum
legal extent.
15.5 INDEPENDENT CONTRACTORS. Distributor will be deemed to have the
status of an independent contractor, and nothing in this Agreement will be
deemed to place the parties in the relationship of employer-employee,
principal-agent, partners or joint venturers. Unless otherwise indicated herein,
each party will bear its own costs, expenses and liabilities arising under this
Agreement. Distributor will be responsible for paying its own payroll taxes,
disability insurance payments, unemployment taxes and other similar taxes or
charges hereunder.
15.6 GOVERNING LAW AND VENUE. This Agreement will be construed in
accordance with the substantive laws of the State of California, excluding its
conflict of law rules. The parties agree that the provisions of the U.N.
Convention for the International Sale of Goods will not apply to this Agreement.
The venue for any judicial proceeding will exclusively be in the state and
federal courts located in the County of Santa Clara, California. Distributor
hereby irrevocably submits to the jurisdiction of such courts.
15.7 HEADINGS AND PRESUMPTIONS. The headings of the sections of this
Agreement are provided for convenience only and will not be used to limit or
construe the contents of this Agreement. As this Agreement is a negotiated
agreement, there will be no presumption against any party on the ground that
such party was responsible for preparing this Agreement or any part of it. The
English version of this Agreement will control, and Distributor waives any right
it may have under the law of the Territory to have this Agreement written in a
language other than English.
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15.8 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will be deemed an original Agreement for all purposes and which
collectively will constitute one and the same Agreement.
15.9 REMEDIES. Unless expressly set forth to the contrary, either party's
election of any remedies provided for in this Agreement will not be exclusive of
any other remedies available hereunder or otherwise at law or in equity, and all
such remedies will be deemed to be cumulative.
15.10 INJUNCTIVE RELIEF. Distributor acknowledges that any breach of this
Agreement would cause irreparable harm to Accolade that could not be remedied by
the payment of monetary damages alone. Accordingly, Distributor agrees and
acknowledges that Accolade will be entitled to preliminary and permanent
injunctive relief and other equitable relief for any such breach of this
Agreement by Distributor.
15.11 ARBITRATION.
(a) BINDING; RULES. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof, will be settled by binding arbitration
in San Jose, California, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") then in effect. Any such
arbitration will be conducted in English. Judgment upon the award rendered in
any arbitration may be entered in any court of competent jurisdiction.
(b) PROCEDURE. Either party may initiate such an arbitration by giving
the other party written notice of such arbitration, specifying, in reasonable
detail, the dispute to be resolved thereby. Each such arbitration will be
conducted by a single arbitrator, who will, to the extent possible, have
experience in, or with respect to, the software industry. The determination of
the arbitrator with respect to any dispute will be conclusive and binding on the
parties, and the arbitrator will have the right to award attorneys' fees and
costs, including, but not limited to, the costs of the arbitration, to the
prevailing party. Except to the extent determined otherwise by the arbitrator,
each of the parties will be obligated to pay one half of the fees and costs of
the AAA and the arbitrator with respect to each arbitration.
(c) OTHER REMEDIES. Notwithstanding the foregoing, each party will have
the right to seek injunctive relief from a court of competent jurisdiction
pursuant to Section 15.10.
15.12 COMPLETE AGREEMENT. WAIVER, AND MODIFICATION. This Agreement and the
attached exhibits, which are incorporated into this Agreement by this reference,
constitute the complete and exclusive understanding between the parties with
respect to the subject matter hereof, superseding all prior negotiations,
preliminary agreements, correspondence or understandings, written or oral. No
waiver or modification of any provision of this Agreement will be binding unless
it is in writing and signed by each of the parties. No waiver of a breach hereof
will be deemed to constitute a waiver of a further breach, whether of a similar
or dissimilar nature.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
ACCOLADE, INC. NEW WORLD INTERACTIVE
By: /s/ ILLEGIBLE By: /s/ EZRA HOMSANY
----------------------------- ------------------------------
Printed Name: ILLEGIBLE Printed Name: Ezra Homsany
------------------ -------------------
Title: EVP Title: PRESIDENT
------------------------- ---------------------------
Date: 3/7/97 Date: 2/28/97
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EXHIBIT A
Initial Titles and release dates:
1. Eradicator- For play on IBM and IBM compatible PC systems only. Including all
patches and upgrades now existing or released in the future, but does not
include sequels. Release Date: November 15, 1996
2. Test Drive Off Road - For play on IBM and IBM compatible PC systems only.
Including all patches and upgrades now existing or released in the future, but
does not include sequels. Release Date: March 28, 1997
Localized Version Specification:
To be localized for Spanish and Portuguese speaking countries.
Proprietary/Legal Notices:
ERADICATOR(TM) and (C) 1996 Accolade, Inc. All rights reserved.
Distributed by New World Interactive.
Test Drive(TM) and (C) 1996 Accolade, Inc. All rights reserved. Developed by
Elite Systems. Distributed by New World Interactive. The Land Rover name and
logo are trademarks of Rover Group Limited used under license. Hummer and Humvee
are the registered trademarks of AM General Corporation. JEEP and the Jeep
Grille design are registered trademarks of Chrysler Corporation, USA and are
used under license. (C) CHRYSLER CORPORATION 1996. Chevrolet K-1500 Z71 and Body
Design are trademarks of Cheverolet Motor Division, General Motors Corporation,
used under license to Accolade, Inc.
Extent of Localization:
Notwithstanding anything in this Agreement to the contrary, at Distributor's
option, "Localized Version" may be a fully localized version (all software and
written materials are translated) or a partially localized version (where all
written materials are translated, but the software is the English version).
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EXHIBIT B
1. Titles: Eradicator (TM)
Test Drive Off Road(TM)
2. Royalties: U.S.$10.00/unit for all sales of Eradicator
33% of wholesale revenue of all sales for all other titles
3. Advances: A. Eradicator:
1. U.S. $50,000 total advance
2. U.S. $10,000 to be paid no later than February 28, 1997
U.S. $20,000 to be paid no later than February 28, 1997
U.S. $20,000 to be paid no later than February 28, 1997
B. Test Drive Off Road:
1. U.S. $50,000 total advance
2. U.S. $10,000 to be paid no later than February 28, 1997
U.S. $20,000 to be paid no later than May 31, 1997
U.S. $20,000 to be paid no later than June 30, 1997
4. Minimum Guarantee: Five Thousand (5,000) units per Title, Ten Thousand
(10,000) total, during the initial two (2) year term.
5. Royalties: The Distributor shall have the exclusive right within the
Territory to distribute the localized version, and the Distributor shall
have the non-exclusive right to distribute the Title through original
equipment manufacturers ("OEM") provided that all OEM transactions are
subject to Accolade's prior written consent which Accolade may withhold in
its sole discretion. Distributor agrees to pay Accolade forty-five percent
(45%) of the Net Receipts received by Distributor from OEM sales. If
Accolade elects to grant worldwide exclusive OEM rights to a third party,
Distributor agrees that all further OEM distribution in the Territory shall
be done through Accolade or its designee, subject to Distributor receiving
forty-five percent (45%) of Accolade's Net Receipts from OEM sales. Accolade
further retains all of its rights to distribute in the Territory during the
term of the Agreement, an OEM English version of the Title without any
payment due to Distributor.
6. Distributor shall be entitled to purchase the English version of the Title
for distribution in the Territory only until such time as the localized
version is completed. Accolade agrees to sell the English version of the
Title to Distributor at Accolade's U.S. wholesale cost less forty percent
(40%). Any purchases of the English version of the Title by Distributor
shall not be credited against the advances paid under this Agreement.
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EXHIBIT C
The Deliverables
Partial localization:
1. All the artwork files used in the final version of the packaging, including
fonts, graphics, logos and a list of software tools used to create the
packaging and sales materials.
2. Five samples of every item used for marketing including sell sheets, press
releases and POP.
3. Copies of reviews by the press
4. Fifteen samples, disk only, of the English finished product.
5. A sample of the finished packaging including the box, manual, manual cover,
CD lable, CD jacket, CD insert, quick reference card, etc. as soon as these
materials are ready.
6. Five copies of the shrinkwraped finished goods including all collateral
materials
Full Localization:
All the items above plus:
1 Localization kit or the complete source code of the final version of the
title (which is currently on the market), maintaining the original
structures of the directories, and ready to be compiled.
2. Original script, dialog script, screen text, printed text and in-game text
including installation instructions and dialog boxes.
3. The voice script used in the final version.
4. The complete list of software programs and tools required to complete the
localization and used in the development of the title.
5. Localization instructions.
6. A list of all files containing text to be translated.
7. All the background sound effects and background audio tracks minus
voice-overs where required to complete localizations.
8. All the still images and pictures required to complete the localization.
9. All the fonts required to complete the localization of the title.
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EXHIBIT 10.2
HAMILTON
BANCORP INC.
May 7,1997
Ezcony Trading Corporation
Panama, Republica de Panama
Attn: Mr. Ezra Cohen
RE: US$15,000,000 LINE OF CREDIT FACILITY
Dear Sirs,
Hamilton Bank, N.A. (the "Bank") is pleased to offer the following credit
financings to Ezcony Trading Corporation ("Ezcony"), representing an increase of
US$5,100,000 to the Credit Facility, under the following terms and conditions:
BORROWER: Ezcony Trading Corporation
TYPES OF US$15,000,000 line of credit for issuance of sight and time
CREDIT letters of credit, short term advances to refinance letters of
credit and collection, short term import and export financings
and discount of short term third party paper with recourse,
with interest discounted (except for import financings which
shall be payable monthly in arrears) and principal payable at
maturity. The term of a letter of credit draft, any refinancing
thereof or any refinancing of collections shall not exceed 180
days. The remaining term of any discounted paper shall not
exceed 180 days.
Export and import financings shall not at any time exceed
US$3,000,000, and the maximum face amount of any outstanding
discounted paper shall not exceed US$4,000,000.
Export financings shall be made against the assignment of
letters of credit issued in favor of Ezcony and confirmed by
the Bank, and such financings shall not exceed 90 days. Import
financings shall be made against purchase orders or copies of
invoices with payments made directly to the suppliers, and such
financings shall not exceed 180 days.
The line of credit may be terminated at any time, in the Bank's
sole discretion, and in the absence of such termination will
expire on April 30, 1998.
PRICING: The Credit Facility shall bear an interest rate of Prime Rate
plus one and a half percent (1/2%), with a 0.25% disbursement
fee on refinancing of letters of credit and documentary
collections and a 0.25.% disbursement fee on import financings.
The term "Prime Rate" shall mean the annual rate of interest
from time to time
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announced by the Citibank, N.A. as its prime rate with respect
to which rates of interest on sums advanced is calculated, but
shall not under any circumstances, mean the lowest or best rate
of interest charged on sums advanced by such institution. The
Bank reserves the right to increase the rate of interest
payable hereunder by the amount of any increase in the Prime
Rate after the date hereof.
FACILITY FEE: 0.25% of the amount of the increase, payable quarterly in four
equal payments.
FEES: 1/4 of 1% Negotiation Fee
1/4 of 1% Issuance Fee
2% Acceptance Commission per annum
In addition to the aforementioned fees, the Bank will charge
Normal and Customary Administrative Fees, which are subject to
change from time to time at the Bank's sole discretion.
COLLATERAL: Certificates of deposit in the name of Ezcony in the aggregate
principal amount of US$1,257,081.
GUARANTORS: Ezcony Interamerica, Inc.
Ezra Cohen
Ezra Homsany
Daniel Homsany
David Djemal Homsany
CONDITIONS Ezcony shall execute and deliver to the Bank this Agreement,
PRECEDENT the Promissory Note, the Corporate Guarantee of Ezcony
Interamerica, Inc., the Personal Guarantees of Ezra Cohen, Ezra
Homsany, and David Djemal Homsany and other documents as the
Bank may request in connection with this Credit Facility, all
in form and substance satisfactory to the Bank and its legal
counsel (hereinafter referred to as the "Documentation").
REPRESENTATIONS As an inducement to the Bank to enter into this Credit Facility
AND WARRANTIES: as provided herein, Ezcony represents and warrants to the Bank
that:
1) Ezcony is a corporation, duly organized, validly existing
and in good standing under the laws of the Republic of Panama
and is authorized to do business in the jurisdictions in which
its ownership of property or conduct of business legally
requires such authorization.
2) There are no actions, suits or proceedings (whether or not
purportedly on behalf of Ezcony) pending, or to the knowledge
of Ezcony threatened against, or affecting Ezcony, at law or in
equity, before or by any person or entity, which, if adversely
determined, could have a material adverse effect on Ezcony.
2
<PAGE>
3) Ezcony is not in violation or default with respect to any
applicable laws and/or regulations that could materially affect
the operations and/or condition (financial or otherwise) of
Ezcony, nor is Ezcony in violation or default with respect to
any order, writ, injunction, demand, or decree of any court,
any person or entity.
COVENANTS: Ezcony shall provide to the Bank a copy of its quarterly
interim financial statements no later than 45 days after
quarter end, and audited fiscal year end financial statements
no later than 90 days after fiscal year end. In addition, the
Corporate Guarantor shall provide to the Bank a copy of its
10-K reports and 10-Q reports.
DEFAULT: Failure of Ezcony to perform its obligations under the
Documentations shall constitute an Event of Default hereunder
and shall render all amounts owed to the Bank hereunder or
otherwise immediately due and payable. Likewise, Ezcony's
failure to perform any obligation hereunder shall constitute a
default under the Documentation.
Upon the occurrence of any default under the Documentation, or
hereunder, or if at anytime the Bank feels insecure for any
reason whatsoever, the Bank may, at its option, terminate this
Credit Facility and/or declare all liabilities (matured or
unmatured) of Ezcony to the Bank immediately due and payable
without notice or demand.
No delay or omission on the part of the Bank in exercising any
right hereunder or under any of the Documentation shall operate
as a waiver of such right or of any other right hereunder or
under any of the Documentation. Presentment, demand, including
demand hereunder, protest, notice of dishonor and extension of
time without notice are hereby waived by Ezcony. Ezcony
promises and agrees to pay all costs of collection including,
but not limited to, reasonable fees and costs of the Bank's
legal counsel, regardless of whether any such costs are
incurred before or at trial, upon appeal or otherwise. Any
notice to Ezcony shall be sufficiently served for all purposes
if placed in the mail, postage prepaid, addressed to or left
upon the premises at the address shown below or any other
address shown on Bank's records.
ENTIRE This Agreement supersedes all prior agreements, correspondence,
AGREEMENT: and understandings relating to the subject matter hereof
If any term in any documentation executed by the Ezcony in
connection with any credit extended under this Agreement
conflicts or is inconsistent with the terms of this Agreement,
the terms of this Agreement shall control, PROVIDE, HOWEVER,
that terms that are more comprehensive than equivalent terms
herein shall be deemed to be supplementary of this Agreement
and not inconsistent or in conflict with the terms hereof.
WAIVER OF RIGHT TO TRIAL: EZCONY HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY
IN RESPECT OF ANY ACTION,
3
<PAGE>
PROCEEDING OR COUNTERCLAIM BASED ON THIS CREDIT FACILITY, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS CREDIT
FACILITY OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION WITH THIS
CREDIT FACILITY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF ANY PARTY IN
CONNECTION WITH THIS CREDIT FACILITY.
GOVERNING LAW: This Credit Facility shall be governed by and construed in
accordance with the laws of the State of Florida.
If Ezcony is in accordance with the foregoing, please sign and return to us
the enclosed copy of this letter, no later than 5:00 p.m. (New York time) on May
24, 1997.
Very truly yours,
HAMILTON BANK, N.A.
Agreed and Accepted this 7th
day of May, 1997:
By:/s/ JAIME A. MARTIN
----------------------------------
Jaime A. Martin
EZCONY TRADING CORPORATION Officer
International Corporate Banking
/s/ EZRA COHEN
By:-----------------------
Ezra Cohen By:/s/ ANTONIO M. ARBULU
President ----------------------------------
Antonio M. Arbulu
Vice President
International Corporate Banking
EXHIBIT 10.3
OCEAN REEF MANAGEMENT, INC.
ONE TURNBERRY PLACE
SUITE 800
19495 BISCAYNE BLVD.
AVENTURA, FLORIDA 33180
305-931-4077 FAX: 305-931-9295
April 25, 1997
Mr. Ezra M. Cohen
President
Ezcony Interamerica Inc.
7620 N.W. 25th Street Unit 5
Miami, Florida 33122
Dear Mr. Cohen:
We are pleased to submit this letter, which sets forth the terms and
conditions upon which Ocean Reef Management, Inc., d/b/a ORM, a Florida
corporation ("ORM"), will provide consulting services to Ezcony Interamerica
Inc., a British Virgin Islands corporation ("Ezcony").
1. We will endeavor to: (i) locate and evaluate potential target
acquisitions and new channels of distributions; (ii) replace current financing
with more competitive and aggressive vehicles; (iii) evaluate and make
recommendations to enhance cash flow, (iv) institute a comprehensive PR and
marketing program; and (v) introduce you to financial institutions and market
makers. In addition, ORM shall within 30 days of the date of this letter prepare
for Ezcony's Board of Directors a brief written description of the activities
and responsibilities to be undertaken by ORM under this Agreement (the
"Proposal"). The Ezcony Board of Directors shall be deemed to accept the
Proposal unless within 30 days after its presentation to Ezcony the Board sends
ORM a written notice of its rejection. Anything else in this Agreement to the
contrary notwithstanding, if Ezcony consummates a merger, acquisition, or
similar transaction with or involving Joel Newman, Windmere-Durable Holdings,
Inc. or New Tech, Inc., the approval of the Board of Directors shall have been
deemed granted.
2. In consideration of $10.00 and the Services to be performed hereunder,
you agree to grant ORM stock warrants for 250,000 of Ezcony Common Shares, no
par value per share (the "Common Shares"), subject to adjustment as provided in
Paragraph 2(g), below, at an exercise price (the "Exercise Price") of $2.00 per
share
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -2-
(the"Warrant").
(a ) The Warrant shall vest and be immediately exercisable in
whole or in part cumulatively as follows providing this Agreement is then in
effect:
VESTINA DATE NUMBER OF SHARES
------------ ----------------
On the date hereof (1) 41,666
Six months to one year from the date hereof(2) 41,666
One year from the date hereof 83,333
Two years from the date hereof 83,333
(1) Subject to the Board of Directors not rejecting the Proposal as
described in Paragraph 1, above.
(2) 6,944 on the date of each monthly anniversary of the date hereof
beginning six months from the date hereof and ending 10 months from the date
hereof with 6,946 vesting on the date 11 months from the date hereof.
The Warrant to the extent not previously exercised shall terminate on
five years from the date hereof.
The Warrant shall become immediately fully exercisable if:
(i) there occurs any transaction (which shall include a series of
transactions occurring within 60 days or occurring pursuant to a plan) that has
the result that shareholders of Ezcony immediately before such transaction cease
to own at least 51% of the voting stock of any entity that results from the
participation of Ezcony in a reorganization, consolidation, merger, liquidation
or any other form of corporation transaction;
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of Ezcony
cease for any reason to constitute at least a majority thereof;
(iii) there occurs any event (other than as described in (i),
above) which causes the Common Shares of Ezcony to be eliminated, provided,
however, that ORM may exercise the Warrant immediately prior to the occurrence
of such event; or
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -3-
(iv) there occurs any sale, lease, exchange or other disposition
of all or substantially all the property and assets of Ezcony, provided however,
that ORM may exercise the Warrant immediately prior to the occurrence of such
event.
In addition the Warrant may become partially vested as set forth in
Paragraph 6, below.
Ezcony may in its sole discretion accelerate the date on which Warrant
may be exercised.
(b) Subject to the terms and conditions of this Agreement, the Warrant
may be exercised by written notice given in accordance with he terms of this
Agreement. Such notice shall that ORM elects to purchase shares under the
Warrant and the number of shares for which the Warrant is being exercised, and
it shall be signed by the person so exercising the Warrant. Such notice shall be
accompanied by payment of the full purchase price of the shares (i) in cash or
(ii) by certified or cashier's check.
(c) If the Warrant is exercised by a person other than ORM, payment
shall be accompanied by appropriate proof of the authority of such person to
exercise the Warrant.
(d) Ezcony shall cause a certificate or certificates representing the
shares purchased under the Warrant to be issued as soon as practicable after
receipt of the notice of exercise and full payment. The certificate or
certificates for such shares shall be registered in the name of the person
exercising the Warrant. All share certificates shall be delivered to or upon the
written order of the person exercising the Warrant.
(e) All shares purchased through the exercise of the Warrant shall be
fully paid and nonassessable.
(f) The Warrant and all shares issued upon exercise thereof are
restricted securities and may not be sold or otherwise transferred except
pursuant to the registration provisions of the Securities Act of 1933, as
amended (the "Act"), and any applicable state securities laws or an exemption
therefrom. ORM represents that it is taking the Warrant and will take any shares
upon exercise thereof solely for its own account and without a view to sale or
distribution thereof. Ezcony agrees no later than six months from the date
hereof to file a registration statement, on Form F-3 with the Securities and
Exchange Commission to register the Common Shares issuable upon exercise of the
Warrant or on such other suitable form if Form F-3 is not available to Ezcony
for any reason, PROVIDED,
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -4-
HOWEVER, that ORM shall give in writing to Ezcony the representations and
indemnities customarily given by selling shareholders to a registering company
in a secondary offering.
(g) Except as hereinafter provided, in case Ezcony shall at any time
after the date hereof issue or sell any Common Shares (other than the issuance
or sales referred to in Paragraph 2(l), below), including Common Shares issued
upon the exercise of any options, rights or warrants to subscribe for Common
Shares (other than the issuances or sales of Common Shares pursuant to rights to
subscribe for such Common Shares distributed to all the shareholders of the
Ezcony and holders of this Warrant pursuant to Paragraph 2(n)below) and Common
Shares issued upon the direct or indirect conversion or exchange of securities
for Common Shares for a consideration per share less than the "Market Price" (as
defined in Paragraph 2(g)(v) hereof) per share or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) equal to the quotient derived by dividing (A) an amount equal to the sum
of (X) the product of (a) the total number of shares of Common Shares
outstanding immediately prior to such issuance or sale, multiplied by (b) the
"Market Price" (as defined in subsection (v) of this Paragraph 2(g)) per Common
Share on the date immediately prior to the issuance or sale of such shares,
plus, (Y) the aggregate of the amount of all consideration, if any, received by
Ezcony upon such issuance or sale, by (B) the total number of Common Shares
outstanding immediately after such issuance or sale, provided however, that in
no event shall the Exercise Price be adjusted pursuant to this computation to an
amount in excess of the Exercise Price in effect immediately prior to such
computation, except in the case of a combination of outstanding Common Shares,
as provided in Paragraph 2(i), below.
For the purposes of any computation to be made in accordance with this
Paragraph 2(g), the following provisions shall be applicable:
(i) In case of the issuance or sale of Common Shares for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefore shall be deemed to be the amount of cash received by
Ezcony for such shares (or, if Common Shares are offered by Ezcony for
subscription, the subscription price, or, if such securities shall be sold to
underwriters or dealers for public offering without a subscription offering, the
initial public offering price) before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend
or other distribution on any shares of Ezcony) of Common Shares for a
consideration part
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -5-
or all of which shall be other than cash, the amount of the consideration
therefore other than cash shall be deemed to be the value of such consideration
as determined in good faith by Ezcony's Board of Directors.
(iii) Common Shares issuable by way of dividend or other
distribution on any outstanding Ezcony Common Shares shall be deemed to have
been issued immediately after the opening of business on the day following the
record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of Ezcony other than
Common Shares into securities including Common Shares shall be deemed to involve
the issuance of such Common Shares for a consideration other than cash
immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Shares shall be
determined as provided in subsection (ii) of this Paragraph 2(g).
(v) The number of Common Shares at any one time outstanding shall
include the aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date shall
be the average of the last reported sale prices for the last ten trading days
before the date of determination, as officially reported by the principal
securities exchange on which the Common Shares are listed or admitted to trading
or as reported in the Nasdaq National Market System or Small Cap Market, as the
case may be, or, if the Common Shares are not listed or admitted to trading on
any national securities exchange or quoted on the Nasdaq National Market System
or Small Cap Market, the closing bid price as furnished by the National
Association of Securities Dealers, Inc. through Nasdaq or similar organization
if Nasdaq is no longer reporting such information, or the Common Shares are not
quoted on Nasdaq, as determined in good faith by resolution of Ezcony's Board of
Directors, based on the best information available to it for the day immediately
preceding such issuance or sale, the day of such issuance or sale and the day
immediately after such issuance or sale.
(h) Except in the case of Ezcony issuing rights to subscribe for
Common Shares distributed to all the shareholders of Ezcony and holders of this
Warrant pursuant to Paragraph 2(n) below, if Ezcony shall at any time after the
date hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for Common
Shares (i) for a consideration per share less
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -6-
than the Market Price, or (ii) without consideration, the Exercise Price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making a computation in accordance with the
provisions of Paragraph 2(g) above, provided that:
(i) The aggregate maximum number of Common Shares, issuable under
all the outstanding options, rights or warrants shall be deemed to be issued and
outstanding at the time all the outstanding options, rights or warrants were
issued, and for a consideration equal to the minimum purchase price per share
provided for in the options, rights or warrants at the time of issuance, plus
the consideration (determined in the same manner as consideration received
on the issue or sale of shares in accordance with the terms of the Warrant), if
any, received by Ezcony for the options, rights or warrants, and if no minimum
price is provided in the options, rights or warrants, then the consideration
shall be equal to zero; PROVIDED, HOWEVER, that upon the expiration or other
termination of the options, rights or warrants, if any thereof shall not have
been exercised, the number Of Common Shares deemed to be issued and outstanding
pursuant to this subsection (i)(and or the purposes of subsection (v) of
Paragraph 2(g) above) shall be reduced by such number of shares as to which
options, warrants and/or rights shall have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Exercise Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of shares actually issued or issuable upon the
exercise of those options, rights or warrants as to which the exercise rights
shall not have expired or terminated unexercised.
(ii) The aggregate maximum number of Common Shares issuable upon
conversion or exchange of any convertible or exchangeable securities shall be
deemed to be issued and outstanding at the time of issuance of such securities,
and for a consideration equal to the consideration (determined in the same
manner as consideration received on the issue or sale of Common Shares in
accordance with the terms of the Warrant received by Ezcony for such securities)
plus the minimum consideration, if any, receivable by Ezcony upon the conversion
or exchange thereof; PROVIDED, HOWEVER, that upon the termination of the right
to convert or exchange such convertible or exchangeable securities (whether by
reason of redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subsection (ii) (and for the purpose of subsection
(v) of Paragraph 2(g) above) shall be reduced by such number of shares as to
which the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be issued
and outstanding and the Exercise Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -7-
basis of the issuance only of the shares actually issued or issuable upon the
conversion or exchange of those convertible or exchangeable securities as to
which the conversion or exchange rights shall not have expired or terminated
unexercised.
(iii) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (i) of
this Paragraph 2(h), or in the price per share at which the securities referred
to in subsection (ii) of this Paragraph 2(h) are convertible or exchangeable,
the options, rights or warrants or conversion or exchange rights as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and Ezcony shall be deemed to
have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
(i) In case Ezcony shall at any time subdivide or combine the
outstanding Common Shares, the Exercise Price shall forthwith be proportionately
decreased in the case of subdivision or increased in the case of combination.
(j) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Paragraph 2 (except for the provisions of Paragraphs 2 (g)
and 2 (h)), the number of shares of Common Stock issuable upon the exercise of
the Warrant shall be adjusted to the nearest full Common Shares by multiplying
the number, equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Common Shares issuable upon exercise of the Warrant
immediately prior to such adjustment and dividing the product so obtained by
the adjusted Exercise Price.
(k) In case of any reclassification or change of the outstanding
Common Shares (other than a change in par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in the
case of any consolidation Ezcony with, or merger of Ezcony into, another
corporation (other than a consolidation or merger in which Ezcony is the
surviving corporation and that does not result in any reclassification of change
of the outstanding Common Shares, except a change as a result of a subdivision
or combination of such shares or a change in par value, as aforesaid) or in the
case of a sale or conveyance to another corporation of the property of Ezcony as
an entirety, ORM shall thereafter have the right to purchase, upon exercise of
the Warrant, the kind and number of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance as if ORM were the owner of the Common Shares underlying the
Warrant immediately prior to any such event at a price equal to the product of
(x) the number of shares issuable upon exercise
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -8-
of the Warrant and (y) the Exercise Price in effect immediately prior to the
record date for such reclassification, change, consolidation, merger, sale or
conveyance as if ORM had exercised the Warrant.
(l) Anything else in this letter to the contrary notwithstanding, no
adjustment of the Exercise Price or the number of Common Shares for which the
Warrant is exercisable shall be made:
(i) Upon the issuance or sale of Common Shares upon the exercise
of the Warrant; or
(ii) Upon (x) the issuance of options pursuant to Ezcony's
employee stock option plan in effect on the date hereof or the sale by Ezcony of
any Common Shares pursuant to the exercise of any such options or the alteration
by Ezcony of the exercise price thereof, or (y) the sale of Ezcony of any Common
Shares pursuant to the exercise of any options or warrants previously issued
and outstanding on the date hereof or the alteration by Ezcony of the exercise
price thereof; or
(iii) Upon the issuance or sale of any Common Shares, or options
or warrants therefor or shares convertible into Common Stock, arising out of any
introductions by ORM; or
(iv) If the amount of the said adjustment shall be less than 2
cents per share of Common Shares, PROVIDED HOWEVER, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least 2 cents per share.
(m) In the event that Ezcony shall at any time prior to the exercise of
the Warrant in full declare a dividend (other than a dividend consisting solely
of Common Shares or a cash dividend or distribution payable out of current or
retained earnings) or otherwise distribute to its shareholders any monies,
assets, property, rights, evidences of indebtedness, securities (other than
Common Shares), whether issued by Ezcony or by another person or entity, or any
other thing of value, the holder or holders of the unexercised portion of the
Warrant shall thereafter be entitled, in addition to the Common Shares or other
securities receivable upon the exercise thereof, to receive, upon the exercise
of the Warrant, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution. At the time of
any such dividend or distribution, Ezcony shall make appropriate reserves to
ensure the timely performance of
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -9-
the provisions of this Paragraph 2(m).
(n) In the case Ezcony or an affiliate of Ezcony shall at anytime
after the date hereof and prior to the exercise of the Warrant in full issue any
rights to subscribe for Common Shares or any other securities of Ezcony or of
such affiliate to all the shareholders of Ezcony, the holder or holders of the
unexercised portion of the Warrant shall be entitled, in addition to the Common
Shares or other securities receivable upon the exercise of the Warrant, to
receive such rights at the time such rights are distributed to the other
shareholders of Ezcony.
(o) Ezcony shall at all times reserve and keep available out of its
authorized Common Shares, solely for the purpose of issuance upon the exercise
of the Warrant, such number of Common Shares as shall be issuable upon the
exercise thereof. Ezcony covenants and agrees that, upon exercise of the Warrant
and payment of the Exercise Price therefor, all Common Shares issuabie upon such
exercise shall be duly and validly issued, fully paid, nonassessable and not
subject to the preemptive rights of any shareholder. As long as the Warrant
shall be outstanding, Ezcony shall use its best efforts to cause all Common
Shares issuable upon the exercise of the Warrant to be listed on or quoted by
Nasdaq if the Common Shares are.
(p) Nothing contained in this Agreement shall be construed as
conferring upon the holder or holders of the Warrant the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of Ezcony. If, however, at any time prior to
the expiration of the Option and its exercise, any of the following events shall
occur:
(i) Ezcony shall take record of the holders of its Common Shares
for the purpose of entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of Ezcony; or
(ii ) Ezcony shall offer to all the holders of its Common Shares
any additional shares of capital stock of Ezcony or securities convertible into
or exchangeable for shares of capital stock of Ezcony, or any option, right or
warrant to subscribe therefor; or
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -10-
(iii) a dissolution, liquidation or winding up of Ezcony (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then, in any one or more of said events, Ezcony shall give written
notice of such event at least 15 days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or ant defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
3. You agree to reimburse ORM for all reasonable out-of-pocket travel
and other expenses incurred in connection with its services, such expenses not
to exceed $5,000 per calendar year commencing in 1997, upon presentation to
Ezcony of acceptable receipts therefor. In addition, Ezcony will pay for any
other expenses for which it has given prior approval in writing.
4. In the event that ORM becomes involved in any legal action,
proceeding or investigation in connection with carrying out its obligations or
duties referred to Paragraph 1 of this letter, Ezcony agrees to reimburse ORM
for its reasonable legal and other related expenses (including the cost of any
investigation and preparation) directly incurred in connection therewith. Ezcony
will also indemnify ORM against any losses, claims, damages or liabilities to
which ORM, may become subject in such regard, except to the extent that any such
legal and other related expenses, loss, claim, damage or liability
(collectively, "Costs") results from ORM's negligence or willful act or omission
in performing the services that are the subject of this letter. Ezcony's
reimbursement and indemnity obligations under this paragraph shall be in
addition to any liability that Ezcony, may otherwise have, and shall be binding
upon and inure to the benefit of any successors and assigns of Ezcony and ORM.
The foregoing provisions shall survive any termination of this Agreement.
5. In the event ORM's negligence or willful action or inaction in the
performance of its duties under this letter which causes Ezcony to incur Costs,
ORM shall indemnify and hold Ezcony harmless against such Costs. ORM's
reimbursement and indemnity obligations under this paragraph shall be in
addition to any liability that ORM may otherwise have, and shall be binding upon
and inure to the benefit of, any successors and assigns of Ezcony and ORM. The
foregoing provisions shall survive any termination
<PAGE>
Mr. Ezra Cohen, President
April 25,1997
Page -11-
of this Agreement.
6. This letter agreement shall be for a term of 36 months commencing on
the date hereof; PROVIDED, HOWEVER, that this letter may be terminated by either
party upon written notice without liability except for any reimbursement or
indemnity pursuant to Paragraphs 4 and 5, above. Any notice shall be sent to the
address on the first page of this letter and shall be effective upon hand
delivery or two days after mailing by first class mail postage paid. Any portion
of the Warrant vested at the time of termination shall not be affected by such
termination and shall terminate on the fifth anniversary of the date hereof.
The unvested portion of the Warrant shall terminate irrevocably on the date of
termination of this letter.
7. Ezcony will be responsible for the contents of any disclosure
documents used in connection with the services to be provided by ORM, and Ezcony
represents, that such documents will not, as of the date of their final
preparation and approval, contain any untrue statements of a material fact or
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances in which they were made, not misleading, to the best
of Ezcony's knowledge.
8. ORM acknowledges that during the time it is carrying out its duties
under this letter agreement it may from time to time have access to confidential
or proprietary information of Ezcony. ORM agrees that until ten years after the
date of termination of this letter agreement it will keep confidential and not,
without the prior written consent of Ezcony, disclose in whole or in part in any
manner to any other person any confidential or proprietary information of
Ezcony. As used herein, the term "confidential or proprietary information" does
not include any information that (i) at the time of disclosure or thereafter is
generally available to the public (other than as a result of a disclosure
directly or indirectly by ORM or its representatives); (ii) was available to ORM
on a nonconfidential basis from a source other than Ezcony or its advisors,
provided that such source is not and was not known by ORM after due inquiry to
be bound by a confidentiality obligation owed to Ezcony; or (iii) ORM can
establish is already in its possession after the date of this Agreement (other
than any information furnished by or on behalf of Ezcony).
9. This letter shall not constitute ORM a partner, joint venturer, or
agent of Ezcony for any purposes and does not constitute authority for 0RM to
enter into any agreements on behalf of or bind Ezcony for any purposes.
10. The invalidity in whole or in part of any covenant, promise or
undertaking, or any section, subsection, sentence clause, phrase or word, or of
any provision of this Agreement shall not affect the validity of the remaining
portions thereof.
<PAGE>
Mr. Ezra Cohen, President
April 25, 1997
Page -12-
11. This Agreement shall be governed by the laws of the State of
Florida.
12. In the event any suit or other legal proceeding is brought for the
enforcement of any of the provisions of this Agreement, the parties hereto agree
that the prevailing party or parties shall be entitled to recover from the
other party or parties reasonable attorneys fees, including attorneys fees for
any appeal, and costs incurred in bringing such suit or proceeding.
13. This Agreement constitutes the entire understanding between ORM
and Ezcony regarding the subject matter described herein, supersedes any other
prior written or, oral agreement between two parties hereto, and may be changed
only in a writing signed by both parties.
If this Agreement is in accordance with your understanding, kindly
confirm your acceptance and agreement by signing and returning one of the
enclosed duplicates of this letter, which will thereupon constitute an agreement
between us.
Sincerely,
ORM, Inc.
By:/s/ JOEL EIDELSTEIN
-------------------------
Joel Eidelstein
President
ACCEPTED AND AGREED TO
AS OF April 25, 1997
EZCONY INTERAMERICA INC.
By: /s/ EZRA M. COHEN
--------------------
Ezra M. Cohen
President
EXHIBIT 10.4
(LETTERHEAD)
JULY 7, 1997
VIA CERTIFIED
RETURN RECEIPT MAIL
Mr. Joel Eidelstein
Ocean Reef Management, Inc.
One Turnberry Place
19495 Biscayne Boulevard
Aventura, Florida 33180
RE: CONSULTING AGREEMENT BETWEEN EZCONY INTERAMERICA INC. ("EZCONY") AND
OCEAN REEF MANAGEMENT, INC. DATED APRIL 25, 1997 (THE "AGREEMENT")
Dear Mr. Eidelstein:
We have been requested by our client, Ezcony, to send you notice of
cancellation of the Agreement pursuant to Section 6 thereof. As provided in
Section 6 this cancellation is effective two days after the date of mailing.
Sincerely,
ADORNO & ZEDER, P.A.
By: /s/ RICHARD M. SPECTOR
------------------------------
Richard M. Spector
RMS:abg
cc:Ezra Cohen, President
EXHIBIT 10.5
MUTUAL GENERAL RELEASE
Ezcony Interamerica, Inc. ("Ezcony") and Ocean Reef Management, Inc.
("ORM"), in consideration of $18.00 paid by Ezcony to ORM, hereby agree as
follows:
1. Ezcony hereby releases ORM from any and all claims, debts, obligations,
promissory notes, contracts, causes of action and liabilities of any kind
whatsoever, from the beginning of the world to the date of this release. This is
intended to be a general release of the broadest scope permitted by Florida law.
2. ORM hereby releases Ezcony from any and all claims, debts, obligations,
promissory notes, contracts, causes of action and liabilities of any kind
whatsoever, from the beginning of the world to the date of this release. This is
intended to be a general release of the broadest scope permitted by Florida law.
Dated: August 13, 1997 EZCONY INTERAMERICA, INC.
By: EZRA COHEN
---------------------
Its: Chairman, CEO
-------------------
Dated: August 13, 1997 OCEAN REEF MANAGEMENT, INC.
By: /S/ JOEL EIDELSTEIN
---------------------
Its: President
-------------------
EXHIBIT 10.6
(LETTERHEAD)
AMERICAN CONSULATE GENERAL
SAO PAULO, BRAZIL
I, Linda L. Donahue, Consul of the United States of America at Sao Paulo, in the
State of Sao Paulo, Federative Republic of Brazil, commissioned and qualified,
do hereby certify that, EDISON G. DE LIMA, whose signature and official stamp
are respectively subscribed and affixed to this document, was on the 16th day of
May 1997, the day of the date thereof, a Notary Public at Sao Paulo, in the
State of Sao Paulo, Federative Republic of Brazil. In witness whereof I have
hereunto set my hand and affixed the seal of the Consulate General of the United
States of America at Sao Paulo on this 4th day of June 1997.
/s/ LINDA L. DONAHUE
---------------------
Linda L. Donahue
Consul
<PAGE>
CONSULADO-GERAL DO BRASIL EM MIAMI
Reconheco verdadeira a assinatura de ANGELA JIRON, ESCRIVA ADJUNTA NO
CONDADO DE DADE, NO ESTADO DA FLORIDA, nos Estados Unidos da America. E, para
constar onde convier, mandei passar o presente, que assinei a fiz selar com o
Selo deste Consulado-Geral. Dispensada a legallizacao da assinatura de
autoridade consular, de acordo com o artigo 20 do Decreto No 84.451, de
31/01/1980.
Miami, em 10 de junho de 1997.
/s/ ANAMARIA NOBREGA FERNANDES
------------------------------
Anamaria Nobrega Fernandes
Vice-Consul
(SEAL)
Pagou R$ 20,00 ouro
ou US$ 20.00
Tabela 416
<PAGE>
ADDENDUM TO DISTRIBUTION AGREEMENT
This is an addendum (this "Addendum") to that certain Distribution
Agreement For Motorola Cellular Products, entered into between Ezcony
Interamerica Inc. ("Ezcony") and King David Com. Exportacao e Importacao Ltda.
("Brazilian Distributor") as of June 17, 1996 (the"Agreement"). In consideration
of the mutual covenants set forth below, Ezcony and Bazilian Distributor agree
as follows.
1. The parties acknowledge that as of January 1, 1997, Motorola discontinued
its MDF and cooperative advertising programs. Accordingly, paragraph 7 of the
Agreement is deleted, effective retroactively to January 1, 1997.
2. Motorola has expanded Ezcony's territory to the entire country of Brazil.
Accordingly, effective immediately, the term "Territory" as used in the
Agreement is hereby defined to be entire country of Brazil.
3. Paragraph 5 of the Agreement is modified to read in its entirety as
follows.
5. COMMISSION. Brazilian Distributor shall pay Ezcony a commission on all
purchases of cellular phones under this Agreement equal to the greater of
(i) 2% of 65% of the gross amount of Brazilian Distributor's invoice to its
customer, or (ii) the F.O.B. Chicago price of the phones being sold as
charged by Motorola (if applicable). In addition, the Brazilan Distributor
shall pay to Ezcony a commission on all purchases of cellular phone
accessories under this Agreement equal to the greater of (i) 3% of 65% of
the gross amount of Brazilian Distributor's invoice to its customer, or
(ii) the F.O.B. Chicago price of the phones being sold as charged by
Motorola (if applicable).
4. All other terms and conditions of the Agreement remain unchanged by this
Addendum.
Entered into this 12 day of May, 1997.
Ezcony Interamerica Inc. King David Com. Exportacao e Importacao Ltda.
By:/s/ EZRA COHEN By:/s/ CLEMENT ABOULAFIA /s/ HAIM NASSER
- ------------------------ ------------------------ ---------------
Ezra Cohen, President Clement Aboulafia Haim Nasser
/s/ RAFAEL MARCOS
-----------------
Rafael Marcos
ezconyi
EXHIBIT 10.7
TERMINATION AGREEMENT
This agreement is entered into this 24th day of April, 1997 between Ezcony
Interamerica Inc. and its subsidiaries ("Employer") and John A. Galea
("Employee"). In consideration of the mutual covenants set forth below,
Employer and Employee agree as follows:
1. Employee's rights and responsibilities as an employee, officer and
director of Employer are terminated effective April 24, 1997, except that,
through and until August 24, 1997, Employer shall continue to pay Employee's
compensation at the rate of $125,000 per annum and provide Employee with
substantially the same health, life, dental and disability insurance coverages
that Employee received as of April 23, 1997.
2. In the event Employee is elected a director of Ezcony Interamerica Inc.
subsequent to April 24, 1997, he agrees to immediately resign as such.
3. Within 40 days of the effective date of this Agreement, Employer shall
pay Employee for an increase in base compensation, from $105,000 per annum to
$125,000 per annum, retroactive to January 1, 1997 and through April 24, 1997.
4. Employer shall pay Employee's COBRA premiums for continuation of
Employee's group health coverage from August 24 through and until October 24,
1997, unless Employee becomes insured under other group coverage prior to
October 24, 1997, in which case Employer's obligation in that regard shall
cease.
5. Within 40 days of the effective date of this Agreement, Employer shall
pay Employee for unused sick and vacation time for 1997 in the amount of $5.520.
6. Except for obligations arising pursuant to this Agreement, Employer and
Employee hereby release and discharge each other from all civil liabilities,
claims, causes of action, contracts, liabilities and obligations of any kind
that one may owe to the other, or that one may claim against the other, whether
known or unknown, reported or unreported, currently existing or arising in the
future, which relate to matters occurring prior to the date of this Agreement.
7. Employee shall have reasonable approval rights with regard to the
wording of any press release related to the termination of his employment or his
resignation as an officer or director, subject only to the Employer's SEC
disclosure obligations.
8. Employee shall make himself available, for no additional compensation,
for telephone consultations with Employer from time to time, not to exceed a
total of ten hours of the Employee's time after April 24, 1997. However, any
assistance requested of Employee by Employer that requires more than a telephone
consultation or which exceeds the four hour limit, will require Employee's prior
consent and reasonable compensation.
<PAGE>
9. Employer agrees not to contest any application Employee might make for
unemployment compensation benefits.
10. This Agreement constitutes the entire agreement between the parties.
Each party represents to the other than no promises, inducements or
representations were made to it that are not incorporated into this Agreement.
11. Employee acknowledges that he has been advised to and has been given an
opportunity to consult counsel of his choosing before executing this Agreement.
Employee understands that this Agreement materially affects his legal rights.
Employee represents to Employer that he understands this Agreement and all of
its terms, and that he is executing this Agreement of his own free will and
without duress of any kind.
/s/ JOHN A. GALEA DATE: 4/24/97
- -------------------- --------------------
John A. Galea
/s/ EZRA COHEN DATE: 4/24/97
- ------------------------------------- -------------------
Ezra Cohen, as President of
Ezcony Interamerica Inc., as
President of Ezcony International,
Inc., as President of Ezcony
Trading Corp., and as Secretary
of New World Interactive, Inc.
EXHIBIT 10.8
TERMINATION AGREEMENT
This Termination Agreement is entered into THIS 18 DAY OF JUNE, 1997, by
and between Ezcony Interamerica Inc. and its subsidiaries (collectively,
"Employer") and Ezra Homsany ("Employee").
RECITALS
WHEREAS, Employee is an officer of all entities included within the
definition of "Employer" and is a director of several such entities, including
Ezcony Interamerica Inc.;
WHEREAS, Employee and Employer have decided terminate their relationship as
it currently exists and provide for a transitional relationship THROUGH
DECEMBER 31, 1999.
COVENANTS
In consideration of the mutual covenants set forth below, Employer and
Employee agree as follows:
1. Employee's rights and responsibilities as an employee and officer of all
entities included within the definition of "Employer" and as a director of all
such entities other than Ezcony Interamerica Inc. are terminated effective the
close of business on JUNE 30,1997, and Employee hereby resigns from all such
positions effective that date. Until such date, however, Employee shall continue
in his current capacities and Employer shall continue to pay Employee his
current rate of salary and provide Employee his current fringe benefits, which
benefits consist OF HEALTH INSURANCE FOR EMPLOYEE AND HIS ELIGIBLE SPOUSE AND
DEPENDENT CHILDREN, LIFE AND DISABILITY INSURANCE, TWO VEHICLES AND CELLULAR
PHONE SERVICES (HEREUNDER COLLECTIVELY REFERRED TO AS THE "BENEFITS").
2. FROM JULY 1 THROUGH DECEMBER 31, 1997, EMPLOYEE SHALL SERVE AS A
CONSULTANT TO EMPLOYER ON THE FOLLOWING TERMS:
a. Upon reasonable notice, Employee shall make himself available for a
maximum of ten (10) hours per week to provide consulting services (such as
rendering advice to Employer regarding the marketing of new products or the
penetration of new markets by Employer), as needed by Employer, which
consulting services shall be rendered in Employer's office in Miami, Florida, if
Employer so requires;
B. EMPLOYER SHALL PAY EMPLOYEE $22,900 PER MONTH (PAYABLE TWICE MONTHLY
IN EQUAL INSTALLMENTS AS A CONSULTANT for the months of July through November,
and shall provide Employee with all Benefits for the same months; and
c. Employer shall have no obligation to pay Employee any monetary
compensation for the month of December 1997, but shall provide Employee with
the Benefits for that month.
3. FROM JANUARY 1, 1998 THROUGH DECEMBER 31, 1999, EMPLOYEE SHALL SERVE AS
A CONSULTANT TO EMPLOYER ON THE FOLLOWING TERMS:
<PAGE>
a. Upon reasonable notice, Employee shall make himself available for a
maximum of eight (8) hours per week to provide consulting services (such as
rendering advice to Employer regarding the marketing of new products or the
penetration of new markets by Employer), as needed by Employer, which consulting
services may be rendered at Employer's office in Panama, as Employee anticipates
he will be living in Panama during this period of time;
B. EMPLOYER SHALL PAY EMPLOYEE $9,541 PER MONTH (PAYABLE TWICE MONTHLY)
IN EQUAL INSTALLMENTS) AS A CONSULTANT FOR THE MONTHS OF JANUARY 1998 THROUGH
DECEMBER 1999; AND
c. Employer shall provide Employee and his spouse and dependent children
with health insurance coverage in Panama similar to that which it provides to
its other Panama-based employees for the months of January 1 through June 30,
1998, but shall have no obligation to provide any other Benefits to Employees
after December 31, 1997.
4. On January 1, 1998, Employer shall pay Employee the following sums:
a. $25,000 as compensation for Employee's loss of use of the two
company vehicles; provided to him as a fringe benefit; and
b. $7,270.11 REPRESENTING THE FULL VALUE, BASED ON A PER DIEM RATE OF
$1053.64, OF ALL OF EMPLOYEE'S ACCRUED BUT UNUSED VACATION TIME AS OF JUNE 30,
1997 (EMPLOYEE SHALL NOT ACCRUE ANY VACATION TIME AFTER THAT DATE AND SHALL NOT
RECEIVE ANY COMPENSATION FOR ANY UNUSED SICK TIME OR PERSONAL DAYS).
5. The parties anticipate that Employee will remain a director of Ezcony
Interamerica Inc. due to his family's stock holdings in that company. It is
agreed that as of July 1, 1997, Employee shall be treated as a non-employee
director of such company for PURPOSES OF DIRECTOR COMPENSATION (WHICH SHALL BE
PAID TO EMPLOYEE IN ADDITION TO THE AMOUNTS TO BE PAID TO EMPLOYEE PURSUANT TO
PARAGRAPHS 2, 3 AND 4 ABOVE). And the pending balance of the 1996 Bonus
which is $38,000.00.
6. EMPLOYEE SHALL, ON OR BEFORE JUNE 30, 1997, EXECUTE THE EMPLOYER'S
STANDARD NON-COMPETE AND CONFIDENTIALITY AGREEMENT, in the form attached hereto
as Exhibit "A", which agreement shall have a non-compete term of three years to
run from July 1, 1997.
7. Employee shall remain a guarantor on all of Employer's credit on which
he is currently a guarantor, but he shall be under no obligation to become a
guarantor on any additional credit Employer might secure after the date this
Agreement is executed. For purposes of this agreement, additional credit shall
not include renewals of existing credit on which there are no materially adverse
changes in credit terms. Employee shall receive no additional compensation for
serving as a guarantor as described herein.
8. EMPLOYER HEREBY WAIVES THE REQUIREMENT THAT EMPLOYEE EXERCISE VESTED
OPTIONS WITHIN NINETY DAYS AFTER TERMINATION AND ALSO HEREBY FULLY VESTS
EMPLOYEE IN HIS EXISTING OPTIONS. ALL OF EMPLOYEE'S OPTIONS, TO THE EXTENT NOT
EXERCISED, SHALL EXPIRE AT THE CLOSE OF BUSINESS ON JUNE 28, 2002. EMPLOYEE'S
OPTIONS SHALL CONTINUE TO BE SUBJECT TO THE TERMS AND CONDITIONS OF THE
AMENDED AND RESTATED EZCONY INTERAMERICA INC. 1992 STOCK OPTION PLAN.
2
<PAGE>
9. Except for obligations arising pursuant to this Agreement, Employer and
Employee hereby mutually release and discharge each other from all civil
liabilities, claims, causes of action, contracts, liabilities and obligations of
any kind that one may owe to the other, or that one may claim against the other,
whether known or unknown, reported or unreported, relating to or arising from
Employee's employment by Employer and services as an officer or director of
Employer, which either party ever had; may have had, or has against the other
party, to the date of this Agreement.
10. Press releases in the form attached hereto as Exhibit "B" related to
the termination of his Employee's employment with Employer or his resignation as
an officer or director of employer shall be used by Employer, subject only to
the Employer's SEC disclosure obligations.
11. Any services of Employee requested by Employer that exceed those
required by this Agreement will require Employee's prior consent which
Employee may refuse to grant for any reason whatsoever, and reasonable
compensation.
12. This Agreement constitutes the entire agreement between the parties.
Each party represents to the other that no promises, inducements or
representations were made to it that are not incorporated into this Agreement.
13. Employee acknowledges that he has been advised to and has been given
an opportunity to consult counsel of his choosing before executing this
Agreement. Employee understands that this Agreement materially affects his legal
rights. Employee represents to employer that he understands this Agreement and
all of its terms, and that he is executing this Agreement of his own free will
and without duress of any kind.
14. Other than the obligations of the non-compete and confidentiality
agreement described in paragraph six above, all covenants of this agreement
are dependent in nature and, therefore, any material breach shall excuse future
performance by the non-breaching party.
/s/ EZRA HOMSANY Date: 6/18/97
- -------------------------- --------
Ezra Homsany
/s/ EZRA COHEN Date: 6/27/97
- -------------------------- --------
Ezra Cohen, as President
of Ezcony Interamerica, Inc.,
as President of Ezcony International,
Inc., as President of Ezcony Trading
Corp., and as Secretary of New World
Interactive, Inc.
3
<PAGE>
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
This Agreement is between Ezcony Interamerica Inc. on behalf of itself and
its direct and indirect subsidiaries as more particularly set forth in Recital
"A" below (as context permits, individually or collectively the "Corporation"),
and Ezra Homsany (the "Employee").
RECITALS
A. Ezcony Interamerica Inc. and its direct and indirect subsidiaries
(including but not limited to Ezcony International Corp., Ezcony Trading Corp.,
New World Interactive Corp., New World Interactive, Inc. and Ezcony Cellular,
Inc.) are engaged in the business of buying and selling consumer and other
electronics, hardware and software around the world. Of critical importance to
the Corporation's operations are the identity of its suppliers and customers,
and knowledge of the price and terms on which it buys and sells, and its
localization process for CD Rom and other software. In addition to this
confidential information, the Corporation is also the owner of certain other
confidential information, as defined herein, which is a valuable and unique
asset of the Corporation and which is essential for the continuation of the
business of the Corporation, including but not limited to localization processes
for CD Rom software and the end products of such processes.
B. Employee is and officer and director of Ezcony Interamerica Inc. and a
director of one or more of the entities that are included in the term
"Corporation" as defined above, including Ezcony Interamerica Inc.
C. During the relationship between the Employee and the Corporation, the
Employee was exposed to or entrusted with all or part of the Confidential
Information to of the Corporation so that the Employee could perform the
services contemplated in his relationship with the Corporation.
D. Employee and the Corporation have decided to terminate their current
relationship effective the CLOSE OF BUSINESS JUNE 30, 1997 except that Employee
will remain a director of Ezcony Interamerica Inc.
E. The Corporation has one or more legitimate business interests in
maintaining the secrecy and limiting the disclosure of its Confidential
Information, namely that such Confidential Information constitutes trade secrets
or is otherwise considerably valuable to the Corporation and is necessary for
maintaining the Corporation's relationships with prospective or existing
customers or clients and is further necessary to maintain the Corporation's
established goodwill.
F. The parties acknowledge that as a result of the Employee's relationship
with the Corporation, the Employee acquired knowledge of the Confidential
Information which will give the Employee, or any subsequent employer of the
Employee which competes with the Corporation, and unfair commercial advantage
over the Corporation if the Employee should engage in any competitive practice
with the Corporation, as defined herein.
<PAGE>
G. The parties desire to provide assurance to the Corporation for the
safeguarding of the Confidential Information.
AGREEMENT
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the sufficiency and receipt of which is hereby
acknowledged, the parties agree as follows:
1. RECITALS. The foregoing recitals are true and correct and are
incorporated herein.
2. CONFIDENTIAL INFORMATION. The Employee acknowledges that in and as a
result of the Employee's relationship with the Corporation, the Employee made
use of, acquired and added to confidential information of a special and unique
nature as set forth in Recital "A" above, and which also includes such matters
as the Corporation's patents, copyrights, proprietary information, processes for
and the end products of CD Rom localization, trade secrets, systems, procedures,
manuals, confidential reports, and lists of customers or clients, which are
deemed for all purposes confidential and proprietary, as well as the nature and
type of services the Corporation renders, the equipment and methods used by the
Corporation or the customers or clients of the Corporation, and the fees that
the customers or clients pay to the Corporation (the "Confidential
Information"). The Employee acknowledges that the Confidential Information is a
valuable, special and unique asset of the Corporation's business which is
essential to the continuation of the business of the Corporation.
3. CONFIDENTIALITY. The Employee agrees to keep in strict secrecy and
confidence any and all Confidential Information the Employee assimilated or to
which the Employee had access during his relationship with the Corporation that
has not been publicly disclosed and is not a matter of common knowledge with
respect to the business in which the Corporation is engaged. The Employee agrees
that he will not, without the Corporation's prior written consent, disclose any
such Confidential Information to any third person or entity.
4. EMPLOYEE'S COVENANTS TO THE CORPORATION. The Employee makes the
following covenants with the Corporation (the "Employee's Covenants"):
(a) The Employee covenants to the Corporation and agrees that the
employee shall not, directly or indirectly, divulge or disclose for any purpose
whatsoever any Confidential Information that the Employee has obtained or which
has been disclosed to him as a result of the Employee's relationship with the
Corporation.
(b) The Employee covenants to the Corporation and agrees that for a
period of three (3) years after July 1, 1997 (7/1/97-6/30/2002), the Employee
shall not, directly or indirectly, in the states of
<PAGE>
California, Texas and Florida and in Central and South America, Mexico, or the
Caribbean basin, enter into or engage in a business which competes with any
business engaged in by the Corporation during the one year period preceeding the
date of this Agreement, either as an individual on his own account, or as a
partner or employee for any person, or as an officer, director, or stockholder
of a corporation, or otherwise.
The Employee shall have the right to request from the Corporation in
advance a statement from the Corporation that a contemplated business or
position is not competing within the terms of this Agreement, and if the
Employee receives such a statement or if within 30 days of such a request the
employee does not receive a negative reply from the Corporation, the Employee
may assume and the Corporation shall be deemed to have agreed that the
contemplated business or accepting the position. It is specifically agreed, as
an exception to the prohibitions of the first paragraph of this section 5(b),
that if Employee works for a "publisher," such work shall not constitute a
violation of this paragraph 5(b). This exception shall not relieve Employee of
any of the other covenants contained in this section 5. For purpose of this
exception, a "publisher" is a company that creates and manufactures CD Rom or
other software and sells licenses such products to the Corporation or companies
at the Corporation's level in the distribution process, but that does not
compete with the Corporation or sell such products to the Corporation's
customers, or purchasers at the level of the Corporation's customers in the
distribution process.
(c) The Employee covenants to the corporation and agrees that for a
period of three (3) years after July 1, 1997, the Employee will not, directly or
indirectly, as an independent contractor, employee, consultant, partner, joint
venturer, or otherwise, solicit any of the employees of the Corporation or its
affiliates to terminate their employment with the Corporation.
(d) The employee covenants to the Corporation and agrees that for a
period of three (3) years after July 1, 1997, the employee will not, directly or
indirectly, as an independent contractor, employee, consultant, partner, joint
venturer, and otherwise, solicit any customer of the Corporation which the
Employee knows or reasonably believes to be a major customer of the Corporation,
as defined below, without the Corporation's prior written consent. "Major
customer" MEANS ANY CUSTOMER WHICH HAS A LINE OF CREDIT FROM THE CORPORATION OF
$300,000 OR MORE.
(e) The period of time during which the Employee is prohibited from
engaging in such business practices pursuant to the above paragraphs shall be
extended by any length of time during which the Employee is in breach of such
covenants.
(f) the parties hereto understand that each if the Employees Covenants
is a separate and essential element of this Agreement, and that, but for the
agreement of the Employee to comply with such covenants, the Corporation would
not have agreed to enter into the Termination Agreement by and between the
Employee and the Corporation dated on or about of even date herewith
(the "Termination Agreement"). Such covenants by the Employee shall be
construed as
3
<PAGE>
covenants made by the Employee to the Corporation that are independent of any
other provision in this Agreement.
5. REASONABLENESS OF RESTRICTIONS.
(a) The Employee has carefully read and considered the Employee's
Covenants, and agrees that the restrictions set forth therein, including but not
limited TO THE TIME PERIOD AND GEOGRAPHICAL RESTRICTIONS, are fair and
reasonable and are required for the protection of the legitimate business
interests of the Corporation with respect to its customers or clients, as set
forth in Recital "E" above.
(b) Notwithstanding the above, the Employee and the Corporation agree
that if any portion of the Employee's Covenants are held to be unreasonable,
arbitrary, against public policy, or otherwise unenforceable, then such portion
shall be considered divisible both as to time and geographical area. The parties
further agree that if any court of competent jurisdiction determines the
specified time period or the specified geographical area applicable to Section 5
above to be unreasonable, arbitrary, against public policy, or otherwise
unenforceable, then the Corporation may enforce against the Employee a lesser
time period or geographical area determined by a court of competent jurisdiction
to be reasonable, non-arbitrary, not against public policy, and otherwise
enforceable. The parties agree that the foregoing covenants are appropriate and
reasonable when considered in light of the nature and extent of the business the
Corporation conducts.
6. SPECIFIC PERFORMANCE IN CASE OF BREACH OF THE EMPLOYEE'S COVENANTS. The
Employee agrees that damages at law will be an insufficient remedy to the
Corporation in the event the Employee violates the Employee's Covenants, and
that the Corporation shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief to enforce the provisions of such
paragraphs, which relief shall be in addition to any other rights or remedies
available to the Corporation.
7. COMPLIANCE WITH OTHER AGREEMENTS. The Employees warrants that his
execution of this Agreement and his performance of any obligations hereunder
will not conflict with, result in the breach of any provision of, cause the
termination of, or constitute a default under any agreement to which the
Employee is a party or by which the Employee is or may be bound.
8. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing in this Agreement
shall prevent the Corporation from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another business or
entity that assumes this Agreement and all obligations and undertakings of the
Corporation hereunder. Upon such a consolidation, merger, or transfer of assets
and assumption, the term "the Corporation" as used herein shall mean such other
business or entity and this Agreement shall continue in full force and effect,
subject to the Employee's right of termination as may be provided herein.
4
<PAGE>
9. NOTICE. Any notice to the Employee required by this Agreement shall be
sent via certified mail, return receipt requested, or hand-delivered or given to
the Employee by the Corporation at the Employee's address maintained in the
Corporation's files and used by the Corporation for the purpose of providing
federal income tax reporting information to the Employee as required by law. Any
notice to the Corporation required by this Agreement shall be sent via certified
mail, return receipt requested or, hand-delivered to the Corporation at 7620
N.W. 25th Street, Unit 5, Miami, Florida 33122, Attn: Ezra Cohen.
Each party, by five days' prior written notice to the other party in the
aforesaid manner, may change the address to which notice shall be sent.
10. ATTORNEYS' FEES. If any action at law or in equity, including an action
for declaratory relief, is brought to enforce or interpret the provisions of
this Agreement, the prevailing party shall be entitled to recover its reasonable
attorney's fees, whether at pretrial, trial or appellate levels, which may be
set by the court in the same action or in a separate action brought for that
purpose, including costs and fees for investigation and collection of any amount
awarded in such action, in addition to any other relief to which the party may
be entitled.
11. GOVERNING LAW AND VENUE. This Agreement shall be governed by and
construed under the substantive laws of the State of Florida, notwithstanding
any choice of laws provision to the contrary. Any suit or any other action
brought by either party in connection with this Agreement shall be brought only
in Dade County, Florida.
12. BINDING EFFECT. Execution of this Agreement by any one of the entities
within the term "Corporation" is intended to be for the benefit of all such
entities.
13. ENTIRE AGREEMENT. This Agreement and the Termination Agreement to which
it is an exhibit, contain the entire agreement between the parties, and
supersedes any other agreement, oral or written, entered into between the
parties.
14. REFERENCES TO GENDER AND SINGULAR. The use in this Agreement of any
gender shall be deemed to include the other gender. The use of the singular
shall be deemed to include the plural, and vice-versa.
15. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall constitute an original Agreement, but all of which shall be
deemed to constitute one instrument.
16. DESCRIPTIVE HEADINGS. The descriptive headings herein have been
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction or interpretation of this Agreement.
5
<PAGE>
17. PROPERTY OF THE CORPORATION. Employee hereby acknowledges and agrees
that any and all information, software, localization process or application,
copyrighted material, trademark or other tangible or intangible property used,
developed, written or acquired by or with the assistance of Employee during the
term of Employee's relationship with the Corporation are the sole and exclusive
property of the Corporation or affiliated entity for whom Employee was working
at the direction of the Corporation, and Employee has absolutely no right, title
or interest thereto or therein.
WHEN FULLY EXECUTED, THIS DOCUMENT WILL CONSTITUTE A BINDING LEGAL DOCUMENT,
WHICH MAY AFFECT OR RESTRICT EMPLOYEE'S EMPLOYMENT WITH OTHER EMPLOYERS IN THE
FUTURE. YOU SHOULD TAKE THIS DOCUMENT TO YOUR LEGAL ADVISOR FOR COMPLETE REVIEW
PRIOR TO EXECUTION.
CORPORATION:
By: /s/ EZRA COHEN
----------------------
Date: 6/27/97
EMPLOYEE:
By: /s/ EZRA HOMSANY
---------------------- Witnessses as to Employee:
Date: 6/18/97 Name: DULCE JIMENEZ
-----------------------------------
Address: 1805 S.W. 107 Ave., Miami 33165
-------------------------------
Name: ILLEGIBLE
-----------------------------------
Address: 8353 Lake Dr.
------------------------------
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 204,121
<SECURITIES> 0
<RECEIVABLES> 26,704,034
<ALLOWANCES> 3,158,894
<INVENTORY> 11,772,488
<CURRENT-ASSETS> 44,557,713
<PP&E> 2,921,130
<DEPRECIATION> 1,205,100
<TOTAL-ASSETS> 46,918,660
<CURRENT-LIABILITIES> 40,485,678
<BONDS> 0
0
0
<COMMON> 12,941,910
<OTHER-SE> (6,934,504)
<TOTAL-LIABILITY-AND-EQUITY> 46,918,660
<SALES> 60,578,394
<TOTAL-REVENUES> 60,578,394
<CGS> 56,588,793
<TOTAL-COSTS> 56,588,793
<OTHER-EXPENSES> 3,839,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 888,812
<INCOME-PRETAX> (450,490)
<INCOME-TAX> 0
<INCOME-CONTINUING> (450,490)
<DISCONTINUED> (3,278,724)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,729,214)
<EPS-PRIMARY> (.83)
<EPS-DILUTED> (.83)
</TABLE>
EXHIBIT 99
[LETTERHEAD]
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Ezcony Interamerica Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Ezcony
Interamerica Inc. and subsidiaries as of June 30, 1997, and the related
condensed consolidated statements of operations and accumulated deficit and cash
flows for the three-month and six-month periods ended June 30, 1997 and 1996.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended (not presented herein), and in our report dated
March 12, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1996, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Miami, Florida
August 13, 1997
