As Filed with the Securities and Exchange Commission on October 15, 1997
Registration No. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Form SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PATCOMM CORPORATION
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(Name of small business issuer in its charter)
Nevada 3663 11-3124068
- ---------------------- --------------------- -------------------
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classi- Identification No.)
organization) fication Code Number)
Patcomm Corporation
7 Flower Field, M100
St. James, NY 11780
(516) 862-6511
-------------------------------
(Address and telephone number of
principal executive offices)
7 Flower Field, M100
St. James, NY 11780
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(Address of principal place of business)
Copies of all communications to: Copies of all communications to:
Henry F. Schlueter, Esq. John E. Lawlor, Esq.
Celia Velletri, Esq. Attorney at Law
Schlueter & Associates, P.C. 129 Third Street
1050 17th St., Suite 1700 Mineola, New York 11501
Denver, Colorado 80265 (516) 248-7700
(303) 292-3883 -----------------------
-----------------------
Frank Delfine
7 Flower Field, M100
St. James, NY 11780
(516) 862-6511
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(Name, address and telephone number of securities
agent for service)
Approximate date of proposed sale to public:
As soon as practicable after effective date.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: /_X_/
Calculation of Registration Fee
================================================================================
Amount Amount of
to be Offering price Aggregate registra-
Title of each class of registered per unit(1) offering price(1) tion fee
sec to be registered
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Common Stock 1,000,000 $ 5.75 $ 5,750,000 $1,742
Representative's Warrants 100,000 $ 0.001 $ 100 $ 0
Common Stock(2) 100,000 $ 6.90 $ 690,000 $ 209
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Total Registration Fee: $ 6,440,100 $1,951
================================================================================
(Footnotes on following page)
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Represents shares issuable upon exercise of the Representative's Warrants.
Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Representative's Warrants.
-------------------------------------------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
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Cross Reference Sheet
Form SB-2
Item No. Sections in Prospectus
- -------- ----------------------
1 Front of the Registration Statement and
Outside Front Cover of Prospectus.........Cover Page
2 Inside Front and Outside Back Cover
Pages of Prospectus.......................Inside Front Cover Pages (i)(ii);
and Outside Back Cover Page
3 Summary Information and Risk Factors......Prospectus Summary; Risk Factors
4 Use of Proceeds...........................Prospectus Summary; Use of Proceeds
5 Determination of Offering Price...........Cover Page; Underwriting
6 Dilution..................................Risk.Factors; Dilution
7 Selling Security Holders..................Not Applicable
8 Plan of Distribution......................Prospectus Summary; Underwriting
9 Legal Proceedings.........................Litigation
10 Directors, Executive Officers,
Promoters and Control Persons.............Management
11 Security Ownership of Certain
Beneficial Owners and Management..........Principal Shareholders
12 Description of Securities.................Description of Securities
13 Interest of Named Experts and Counsel.....Not Applicable
14 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Statement as to Indemnification
15 Organization within Last Five Years.......The Company; Management - Certain
Transactions
16 Description of Business...................Prospectus Summary; Risk Factors;
Business
17 Management's Discussion and Analysis
or Plan of Operation......................Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18 Description of Property...................Business - Properties
19 Certain Relationships and Related
Transactions..............................Management - Certain Transactions
20 Market for Common Equity and Related
Stockholder Matters.......................Market for Common Equity and
Related Stockholder Matters
21 Executive Compensation....................Management - Executive Compensation
22 Financial Statements......................Index to Financial Statements
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23 Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure......................Not Applicable
24 Indemnification of Directors and
Officers..................................Indemnification of Directors and
Officers
25 Other Expenses of Issuance and
Distribution..............................Other Expenses of Issuance and
Distribution
26 Recent Sales of Unregistered Securities...Recent Sales of Unregistered
Securities
27 Exhibits..................................Exhibits
28 Undertakings..............................Undertakings
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PATCOMM CORPORATION
1,000,000 Shares of Common Stock
Patcomm Corporation (the "Company") is hereby offering an aggregate of
1,000,000 shares of Common Stock (the "Common Stock"), $0.001 par value, at a
public offering price of $5.75 per share. The shares are being offered by the
Underwriters as agents for the Company on a "best efforts, all-or-none" basis
until _________________, 1997, (45 days from the date of this Prospectus,
subject to a 45-day extension until _________________, 1998, by agreement among
the Company and the Underwriters). If all 1,000,000 shares of Common Stock are
not sold within the offering period (including any extensions), the offering
will terminate and all funds will be promptly returned to subscribers by the
Escrow Agent without deduction therefrom or interest thereon. There is no right
to the return of funds out of escrow during the offering period (including any
extensions). There will be no market-making activities in the Common Stock until
after the closing of the offering.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that any market will develop or, if a
market should develop, that it will continue. The public offering price of the
Common Stock has been arbitrarily determined by the Company and Andrew Garrett,
Inc., the representative (the "Representative") of the several underwriters (the
"Underwriters") and bears no relationship to the Company's present assets, book
value, earnings, stockholders' equity, or any other statistical criterion of
value. It is anticipated that the Common Stock will be traded on the National
Association of Securities Dealers, Inc. Small Cap MarketSM ("NASDAQ") under the
symbol "PTCM". See "Risk Factors--No Prior Public Market," "Market for Common
Equity and Related Stockholder Matters," and "Underwriting."
This offering should be considered only by persons who can afford the loss
of their entire investment. See "Risk Factors."
_________________________________
THESE SECURITIES INVOLVE A
HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION.
(See "RISK FACTORS" beginning on page ___ and "DILUTION" beginning on page ___)
_________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Assumed Price Underwriting Proceeds to
to Public Commissions(1) Company(1)(2)(3)
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Per Share $5.75 $0.575 $5.175
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Total Offering $5,750,000 $575,000 $5,175,000
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(1) The Common Stock is being offered by the Underwriters on a "best efforts
basis" for a period of 45 days from the date hereof, which period may be
extended for additional periods not to exceed a total of 45 days by
agreement among the Company and the Underwriters. Pending sale of all
1,000,000 shares of Common Stock, all proceeds will be held in escrow by
European American Bank, a New York banking corporation (the "Escrow Agent")
for this offering. Funds will be deposited in such escrow account no later
than noon on the business day following receipt. In the event that all
1,000,000 shares of Common Stock are not sold within the 45-day offering
period (unless extended), this offering will terminate and all funds will
(Footnotes continued on following page)
ANDREW GARRETT, INC.
The date of this Prospectus is ___________, 1997
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be returned promptly to subscribers by the Escrow Agent, without any
deduction therefrom or interest thereon. All checks should be made payable
to the Escrow Agent. Purchasers will have no right to the return of their
funds during the term of this offering.
(2) Excludes (i) payment by the Company of a non-accountable expense allowance
equal to 3% of the gross proceeds of the offering payable to the
Representative on the closing date of this offering; (ii) additional
compensation to the Representative through the payment of fees to the
Representative pursuant to an Investment Banking Agreement; and (iii)
additional compensation to the Representative through the sale to the
Representative, for nominal consideration of $100, of warrants (the
"Representative's Warrants") entitling the holder thereof to purchase
100,000 shares of Common Stock, subject to adjustment, at a price of $6.90
per share (120% of the $5.75 per share offering price) for a period of four
years commencing one year from the date of this Prospectus. The Company has
agreed to indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting other expenses payable by the Company estimated at
$536,580, including, among others, registration and filing fees,
professional fees, printing expenses, and the non-accountable expense
allowance in the amount of $172,500 and investment banking fee in the
amount of $108,000, payable to the Representative. Total expenses of the
offering, including underwriting commissions, should approximate
$1,111,580, for estimated net proceeds ("Estimated Net Proceeds") to the
Company of $4,638,420. See "Use of Proceeds" and "Underwriting."
The shares of Common Stock are offered by the Underwriters subject to prior
sale when, as, and if issued and delivered by the Company, and subject to the
right of the Underwriters to reject any order in whole or in part,
notwithstanding the tender of payment by check or otherwise. It is expected that
delivery of certificates for the shares will be made on or about _________,
1998.
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a registration statement on Form SB-2 (herein,
together with all amendments thereto, called the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities offered hereby. This Prospectus, which is a part of the
Registration Statement, omits certain information contained in the Registration
Statement. The Registration Statement and exhibits thereto may be examined free
of charge and copied at the office of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60621-2511 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Furthermore, copies of such materials can be obtained from
the Public Reference Section of the Commission, Washington, D.C., at prescribed
rates. References in this Prospectus to various documents, contracts, statutes,
regulations, and agreements do not purport to be complete and are qualified in
their entirety by reference to such documents, contracts, statutes, regulations,
and agreements. The Commission maintains a Web Site at http://www.secgov that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission.
After consummation of this offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and, in connection therewith, will file reports, proxy and information
statements, and other information with the Commission. Such materials filed by
the Company with the Commission can be inspected and copied at the public
reference facilities referenced above at prescribed rates. The Company intends
to furnish its shareholders with annual reports containing audited financial
statements certified by independent accountants.
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TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 2
USE OF PROCEEDS............................................. 13
DIVIDEND POLICY............................................. 14
CAPITALIZATION.............................................. 14
DILUTION.................................................... 15
SELECTED FINANCIAL DATA..................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 17
BUSINESS.................................................... 19
MANAGEMENT.................................................. 25
EXECUTIVE COMPENSATION...................................... 26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 28
PRIOR OFFERINGS............................................. 29
PRINCIPAL SHAREHOLDERS...................................... 30
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................... 30
DESCRIPTION OF SECURITIES................................... 32
UNDERWRITING................................................ 34
LITIGATION.................................................. 36
LEGAL MATTERS............................................... 36
EXPERTS..................................................... 36
ADDITIONAL INFORMATION...................................... 36
STATEMENT AS TO INDEMNIFICATION............................. 36
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by more detailed
information and the financial statements appearing elsewhere in this Prospectus.
Unless the context otherwise requires, all references in this Prospectus to the
"Company" refer to Patcomm Corporation. Except where otherwise indicated, all
share and per share data in this Prospectus assume no exercise of the
Representative's Warrants to purchase up to 100,000 shares of Common Stock and
no issuance of shares of Common Stock under either the Company's Stock Option
Plans or outstanding stock options or warrants.
The Company
Patcomm Corporation (the "Company") was organized under the laws of the
State of Nevada on March 12, 1992. The Company is engaged in the development and
marketing of a new line of products for the amateur radio communications market,
incorporating a new architecture by which many traditional hardware functions
are replaced by software. The Company had sold 21 units of its first product,
the PC1610tm HF transceiver, and 79 units of its newer model transceiver, the
model PC16000tm, which is intended to replace the model PC1610tm. See
"Business--Products."
The Company's executive offices are located at 7 Flower Field, M100, St.
James, New York 11780. Its telephone number is (516) 862-6511.
Development of the Company's Products and Business. In the early stages of
amateur radio development, almost every station was made up of a separate
receiver and transmitter. As technology evolved, the "transmitter" and
"receiver" were integrated into a single unit called the "transceiver." The
introduction of the integrated circuit into the communications industry resulted
in transceivers which could perform more functions for the same cost and which
also were more compact. More recently, microcomputer technology has given birth
to the "smart" transceiver. "Smart" is common jargon in the electronics industry
for using software to perform logical functions in electronic equipment at high
speeds. An important benefit of "smart" technology is that it generally results
in lower cost.
The Company's founders have developed a new architecture for transceiver
design which advances the concept of integration by including a computer
platform within the transceiver/receiver. This concept is called by the Company
the Power Integration Principle or PIPtm. Integrating a computer within the
transceiver is a difficult task because a transceiver is designed to detect very
low level electronic signals in the environment and a computer is
(electronically) an extremely noisy device. Therefore, the integration of the
computer and the transceiver presented a significant technological challenge to
the Company's engineering staff. The Company has successfully solved the
technological problems associated with integration of the computer and the
transceiver through sophisticated engineering and design. To date, the Company's
primary activities have been devoted to achieving this technological
breakthrough. The Company is positioned to take advantage of its technology and
commence the next major phase of its development, which is the marketing of its
integrated transceiver and computer products.
The Company's founders believe that in order for the Company to
successfully market its products, those products must provide increased function
at lower cost. Management of the Company believes that the Company's competitors
in the amateur radio ("HAM") industry have historically added functions to their
products at higher costs to the consumer, which is contrary to the trend in
other areas of the consumer electronics industry. The Company's technology
enables the Company to offer increased functions at lower cost per function.
This can be expected to give the Company a competitive advantage, allowing the
Company to gain market share and to become a significant force in the more than
one billion dollar a year HAM radio industry and, when appropriate, to extend
the technology into the commercial marketplace.
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Many of the features incorporated in the Company's technology are based on
simpler hardware accompanied by sophisticated software. The selected software
and hardware residing on the common computerized "platform" will make up the
"footprint" for the Company's various mainline products. The performance, cost,
and model of the product depend on the variety and sophistication of each of the
selected hardware and software features. Additional economic opportunities are
available to the Company in the aftermarket as consumers add or update software
and/or hardware to existing equipment.
The new architecture developed by the Company will offer HAM radio
operators (and commercial users) an unusual combination of features: (i) a
computerized platform common to all models designed to accept a software driven
architecture; (ii) the ability to mix, upgrade, and/or add new features to
existing equipment for maximum flexibility and/or expandability; (iii) special
emphasis on user friendliness; and (iv) special capabilities such as a Morse
code decoder that automatically converts code to text and text to code. These
product characteristics rely significantly on the application of microprocessor
and software technology that has not previously been introduced in the
marketplace by established manufacturers.
Management believes that intellectual property protection is an important
element of the Company's strategy, and that patent protection is one method for
defending the Company's products and market. Accordingly, the Company has
attempted to define its patent in such a way as to provide the greatest patent
protection at an economical cost. The Company's initial patent employs an
interesting and strategically exclusive feature in that the Company makes the
only transceiver that can be directly controlled by a computer keyboard. Other
competitive products require that an external computer such as a PC be used in
order to perform this function. The Company's approach will result in
significant cost savings to the user, and is the subject of a recently granted
(Company owned) U.S. Patent.
The independent auditors report accompanying the Company's balance sheet at
December 31, 1996, notes that the balance sheet has been prepared "assuming that
the Company will continue as a going concern," which contemplates that the
Company will realize its assets and liquidate its liabilities in the ordinary
course of business. Between inception and December 31, 1996, the Company sold
only 21 units of its product. However, commencing in January 1997, the Company
began to ship its PC16000tm and as of June 30, 1997, the Company had sold 79 of
that model transceiver. The proceeds of this offering will be used, in part, for
production, testing, marketing, and selling the model 16000tm.
The Company's strategy for growth is to aggressively market its products to
existing amateur radio enthusiasts making equipment upgrade purchases and to
three significant categories of new entrants into amateur radio - younger users,
new retirees, and handicapped individuals. See " Business--Market Strategy."
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The Offering
Securities Offered by the Company 1,000,000 shares of $0.001 par value
Common Stock. See "Description of
Securities--Common Stock."
Offering Price $5.75 per share
Common Stock Outstanding
Prior to the Offering 1,056,498 shares
Common Stock to be Outstanding
After the Offering(1) 2,056,498 shares
Use of Proceeds The estimated net proceeds of $4,638,420
are intended to be used to: (i) hire a
new president/ chief operating officer;
(ii) hire a chief financial officer/con-
troller and five additional accounting
and administrative staff persons; (iii)
develop a fully staffed marketing depart-
ment, which will include additional sales
and marketing staff persons; (iv) hire
additional technical persons for quality
control and research and development; (v)
acquire the necessary components and
other raw materials to support the
Company's anticipated sales; (vi) conduct
marketing and promotional activities;
(vii) purchase or lease equipment and
machinery; (viii) repay promissory notes
issued to shareholders; (ix) fulfill the
Company's commitment to the Representa-
tive to spend up to $350,000 for investor
relations and public relations for the
Company; and (x) provide working capital
and fund general corporate purposes,
including the possible investment in,
strategic acquisition of, or joint
ventures with, complementary businesses,
technologies, or product lines. See "Use
of Proceeds."
Risk Factors This offering involves a high degree of
risk. See "Risk Factors."
Proposed NASDAQ SmallCap Symbol PTCM
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(1) Excludes (i) 100,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants to be issued in conjunction with this offering;
(ii) 72,252 shares of Common Stock issuable upon the exercise of currently
outstanding common stock purchase warrants; (iii) 180,000 shares of Common
Stock issuable upon the exercise of currently outstanding stock options;
(iv) 450,000 shares of Common Stock reserved for issuance under the
Company's Stock Option Plans; and (v) 140,000 shares of Common Stock
issuable upon the conversion of currently outstanding promissory notes. See
"Market for Common Equity and Related Stockholder Matters--Common Stock
Outstanding or Reserved for Issuance," "Underwriting--Representative's
Warrants," "Executive Compensation--Option Plans," and "Prior Offerings."
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<CAPTION>
Summary Financial Information
The summarized financial information set forth below at and for the fiscal
years ended December 31, 1996 and 1995 is derived from the audited financial
statements of the Company. The financial data included below at and for the six
months ended June 30, 1997 are unaudited. See "Selected Financial Data."
Income Statement Data Year Ended Six Months Ended
December 31, June 30,
------------------------------------ ----------------------------------
1996 1995 1997 1996
(Audited) (Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 25,211 $ 15,975 $ 57,818 $ 10,501
Cost of sales 125,423 38,843 20,312 58,061
Gross profit (100,212) (22,868) 37,506 (47,560)
Income (loss) from
operations (376,898) (215,063) (323,146) (158,710)
Net income (loss) (381,724) (215,880) (324,513) (157,360)
Earnings (loss) per share (0.43) (0.34) (0.31) (0.22)
Weighted average number
of common shares
outstanding(1 885,353 637,250 1,046,498 730,583
Balance Sheet Data At December 31, 1996 At June 30, 1997
- ------------------ -------------------- --------------------------------
Actual Actual As Adjusted(2)
(Audited) (Unaudited) (Unaudited)
Working capital $ 311 $(141,227) $4,497,193
Total assets 165,919 183,260 4,821,680
Capital lease obligations 13,534 11,475 11,475
Stockholders' equity 63,182 (121,706) 4,516,714
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(1) Excludes (i) 100,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants to be issued in conjunction with this offering;
(ii) 72,252 shares of Common Stock issuable upon the exercise of currently
outstanding common stock purchase warrants; (iii) 180,000 shares of Common
Stock issuable upon the exercise of currently outstanding stock options;
(iv) 450,000 shares of Common Stock reserved for issuance under the
Company's Stock Option Plans; and (v) 140,000 shares of Common Stock
issuable upon the conversion of currently outstanding promissory notes. See
"Market for Common Equity and Related Stockholder Matters--Common Stock
Outstanding or Reserved for Issuance," "Underwriting--Representative's
Warrants," "Executive Compensation--Option Plans," and "Prior Offerings."
(2) Assumes receipt of net proceeds from the offering of $4,638,420.
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RISK FACTORS
Investment in the securities offered hereby involves a high degree of risk.
Prospective investors should carefully consider, together with the other
information appearing in this Prospectus, the following factors, among others,
in evaluating the Company and its business before purchasing the securities
offered by this Prospectus.
Risks Pertaining to the Company
Stockholders' Deficit; Going Concern Qualification. As of June 30, 1997,
the Company had an accumulated deficit of $1,403,216. The independent auditors'
report accompanying the Company's balance sheet at December 31, 1996 notes that
the balance sheet has been prepared "assuming that the Company will continue as
a going concern," which contemplates that the Company will realize its assets
and liquidate its liabilities in the ordinary course of business. However, the
Company has not generated positive cash flow from operations and there can be no
assurance that this trend will not continue. Profitable operations are dependent
upon, among other factors, the Company's ability to obtain equity or debt
financing and its ability to successfully market its products. The Company is
dependent on the net proceeds of this offering for operating capital. See "Use
of Proceeds," "Management's Discussion and Analysis or Plan of Operation," and
the Financial Statements, including the Notes thereto, included as a part of
this Prospectus.
Limited Operating History; Start-Up Enterprise; High Risk Investment. The
Company was incorporated under the laws of the State of Nevada on March 12,
1992. To date, the Company's activities have been primarily limited to the
development, design, and manufacture of its first product and the raising of
capital. The Company has conducted limited sales operations and earned limited
revenues and is a development stage company.
Since the Company has not conducted significant sales operations and has
engaged in only limited production operations, no historical "track record"
information or financial data can be provided upon which a prospective investor
can make an informed judgment as to the future prospects of the Company. The
Company faces all of the risks inherent in a new business and those risks
specifically inherent in the type of business in which the Company is engaged,
namely, the development and marketing of a high technology product that has
never been assembled and sold by the Company in large quantities. Accordingly,
the success of the Company is dependent on management's ability to complete the
development of, and to market and distribute, the Company's products, which may
be dependent on various factors that are beyond the control of the Company. The
purchase of Common Stock therefore must be regarded as the placing of funds at a
high risk in a new or "start-up" venture with all the unforeseen costs,
expenses, problems, and difficulties to which such ventures are subject. There
can be no assurance that the Company will be able to develop and to market and
distribute its products or operate at a profit.
Dependence on Key Personnel. The Company's future performance will depend
to a significant extent upon the efforts and abilities of certain members of
senior management as well as upon the Company's ability to attract and retain
qualified engineering, technical, design, marketing, and production personnel.
In particular, the Company is largely dependent upon the continued efforts of
its founders, Frank Delfine, who is currently the Company's president/chief
operating officer, treasurer, and Chairman of the Board of Directors, and
Alexander Adelson, who is currently the Company's secretary and a director. To
the extent that the services of Mr. Delfine or Mr. Adelson would be unavailable
to the Company, the Company would be required to obtain other personnel to
perform the duties that they otherwise would perform. There can b no assurance
that the Company would be able to employ another qualified person or persons,
with the appropriate background and expertise, to replace Mr. Delfine or Mr.
Adelson on terms suitable to the Company. Furthermore, the Company does not
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maintain key person life insurance on either Mr. Delfin or Mr. Adelson, although
the Company intends to obtain key person life insurance on Mr. Delfine in the
amount of $1,000,000 prior to the date that the offering to which this
Prospectus relates is commenced. Effective January 1, 1997, the Company entered
into three-year employment agreements with Messrs. Adelson and Delfine. Mr.
Delfine's employment agreement provides for an annual salary and incentive
compensation based on the Company's net profits. The Company will have to
compete with other larger companies for marketing and other personnel, and there
can be no assurance that the Company will be able to attract or retain such
personnel. See "Management" and "Executive Compensation."
Competition. The Company will be competing with other companies that
provide similar, though not identical, products. The radio communications
industry is highly competitive, and many of the companies with which the Company
will compete have substantially greater technical, financial, and marketing
resources than the Company. Management believes that the principal factors that
will determine the Company's competitive position will include ergonomic
friendliness, reliability, technological advancements, quality, customer
service, and price. Management believes that its research and development
capabilities, concentration on increased production efficiencies, commitment to
customer service, and product innovation will enable the Company to compete
effectively. However, there can be no assurance that the Company"s products will
be viewed favorably by prospective purchasers when compared with its
competitors' products or that they will be competitive in the face of advances
in product technology developed by the Company's competitors. See
"Business--Competition."
No Preemptive Rights. Shareholders do not have preemptive rights to
purchase additional shares of Common Stock. Consequently, persons who purchase
Common Stock in this offering will have no preemptive rights to purchase Common
Stock in any future offerings of Common Stock that may occur. Accordingly, the
issuance of additional shares of Common Stock will result in dilution to the
holders of Common Stock at the time of such issuances, which could reduce the
value of the Common Stock.
Patents. As of the date of this Prospectus, the Company has obtained one
patent that relates to its technology. Although a patent has been granted, there
is no assurance that such patent will not be attacked by third parties or that,
if any such attack were made, it would not be successful. The costs involved in
defending a patent or prosecuting a patent infringement action would be
substantial. At present, the Company does not have the resources to pursue such
an action. In addition, it cannot be assured that a competitor could not design
a product that is the functional equivalent of the Company's product, without
infringing on the Company's patent. See "Business--Technology Protection."
No Dividends Paid. The Company has not paid cash dividends on its Common
Stock and management does not anticipate that the Company will pay any dividends
in the foreseeable future. See "Dividend Policy."
Possible Issuance of Preferred Stock. The Company is authorized to issue up
to 10,000,000 shares of preferred stock. The preferred stock may be issued in
one or more series, the terms of which may be determined at the time of issuance
by the Board of Directors, without further action by the Company's shareholders,
and may include voting rights, preferences as to dividends and liquidation,
conversion and redemption rights, and sinking fund provisions as determined by
the Board of Directors. The issuance of preferred stock in the future could have
the effect of delaying, deferring, or preventing a change in control of the
Company and could limit the price that certain investors might be willing to pay
in the future for shares of the Company's Common Stock. Although the Company has
no present plans to issue any shares of preferred stock, the issuance of
preferred stock in the future could adversely affect the rights of the holders
of Common Stock and reduce the value of the Common Stock.
-9-
<PAGE>
Dependence on Single Assembly Location. All of the Company's assembly
operations are performed at the Company's facility in St. James, Long Island,
New York. The Company currently maintains $56,020 of property damage insurance
for losses relating to its St. James facility, including business income and
extra expense coverage, which amounts could be reduced as a result of
deductibles and co-insurance calculations. Nevertheless, material damage to, or
the loss of, the Company's facility due to fire, severe weather, flood, or other
act of God or cause, even if insured against, would have a material adverse
effect on the Company's financial condition, business, and prospects.
Risks Pertaining to this Offering
Control by Existing Shareholders. After completion of this offering, the
Company's existing shareholders will beneficially own or control approximately
51.4% of the outstanding shares of Common Stock of the Company. The Company's
Articles of Incorporation do not provide for cumulative voting in the election
of directors. As a result, the Company's current shareholders will be in the
position to elect all of the Board of Directors and, therefore, to control the
business and affairs of the Company including certain significant corporate
actions such as acquisitions, the sale or purchase of assets, the issuance and
sale of the Company's securities at such prices as the Board of Directors may
determine, and transactions with affiliates. The directors, in turn, appoint all
of the Company's officers. Pursuant to Nevada law, amendment of the Articles of
Incorporation to provide for cumulative voting would require the affirmative
vote of a majority of the shares entitled to vote thereon; therefore, purchasers
of the Common Stock offered hereby would not hold sufficient votes to effect
such an amendment. See "Principal Shareholders" and "Description of Securities."
No Assurance of Public Market for Securities. Prior to this offering, there
has been no public market for the Company's Common Stock. No assurance can be
given that a trading market for the Common Stock will develop or, if developed,
that it will continue. Therefore, purchasers of the Common Stock offered hereby
may have difficulty selling such Common Stock should they desire to do so.
Immediate Substantial Dilution/Purchase of Common Stock by Insiders and
Prior Investors at Below Offering Price. The shares of Common Stock held by the
Company's current shareholders were purchased for prices significantly lower
than the offering price herein. As of June 30, 1997, the Company's net tangible
book value per share of Common Stock was $(0.12). Based on certain assumptions,
purchasers of the Common Stock offered hereby will experience immediate
substantial dilution of $3.55 (61.7%) per share. See "Dilution."
Use of Proceeds. The proceeds of this offering have been allocated only
generally and the Board of Directors has the discretion to vary the actual
application of the funds. Accordingly, investors will entrust their funds with
the Company's management on whose judgment the investors must depend, with only
limited information about management's specific intentions. See "Use of
Proceeds."
Determination of Offering Price. The offering price of the Common Stock has
been arbitrarily determined through negotiation between the Company and the
Representative. The offering price of the Common Stock does not necessarily bear
any relationship to the assets, operating results, book value, or stockholders'
equity of the Company or any other statistical criterion of value. There can be
no assurance that the Common Stock will trade in the future at market prices in
excess of, or equal to, the offering price herein. See "Underwriting--Pricing of
the Offering."
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<PAGE>
No Commitment to Purchase Common Stock, No Right to Return of Funds, and
"All or None" Offering. The Underwriters are offering the Common Stock on a
"best efforts" basis. No person, including the Company or the Underwriters, has
any obligation to purchase all or any portion of the Common Stock. Therefore,
subscribers to the Common Stock may lose the use of their funds used to purchase
such securities for the duration of the escrow period, 45 days, and for up to 45
additional days if the escrow period is extended, even though the offering is
not completed and no Common Stock is sold. See "Underwriting." Subscribers will
not have the right to cancel their subscription or to request the return of
their funds during the term of this offering or any extension thereof. The
Company's officers and directors may purchase shares of Common Stock in order to
meet the minimum; however, in no event will such purchases exceed more than 20%
of the offering.
The shares are being offered by the Underwriters as agents for the Company
on a "best efforts, all-or-none" basis until _________________, 1997, (45 days
from the date of this Prospectus, subject to a 45 day extension until
_________________, 1998, by agreement among the Company and the Underwriters).
If all 1,000,000 shares are not sold within the offering period (including any
extensions), the offering will terminate and all funds will be promptly returned
to subscribers by the Escrow Agent without deduction therefrom or interest
thereon. There is no right to the return of funds out of escrow during the
offering period (including any extensions). There will be no market-making
activities in the Common Stock until after the final closing of the offering.
Underwriters' Influence on the Market and Possibility that Underwriters May
Cease Market Making. It is anticipated that all of the securities offered hereby
will be sold to customers of the Underwriters. Such customers subsequently may
engage in transactions for the sale or purchase of such securities through or
with the Underwriters. Although they have no legal obligation to do so, the
Underwriters, from time to time, may become market makers and may otherwise
effect transactions in such securities. To the extent the Underwriters do so,
they may be influential in any market that might develop and the degree of
participation by the Underwriters may significantly affect the price and
liquidity of the Company's securities. Such market making activities, if
commenced, may be discontinued at any time or from time to time by the
Underwriters without obligation or prior notice. Depending on the nature and
extent of the Underwriters' market making activities and retail support of the
Company's securities at such time, the Underwriters' discontinuance could
adversely affect the price and liquidity of the securities.
Shares Eligible for Future Sale. Following this offering but without giving
effect to the exercise of the Representative's Warrants, the 72,252 currently
outstanding Common Stock purchase warrants, or any of the 180,000 currently
outstanding stock options, the conversion of the 240 currently outstanding
convertible promissory notes, or the issuance of any of the 450,000 shares of
Common Stock reserved for issuance under the Company's Stock Option Plans, there
will be 2,056,498 shares of Common Stock issued and outstanding. Of these
shares, 1,000,000 shares of Common Stock sold in this offering will be "free
trading" (assuming that the shares are not acquired by affiliates of the
Company) and the balance will be "restricted securities" as that term is defined
in Rule 144 promulgated under the Securities Act. An aggregate of approximately
996,498 of the restricted securities are currently eligible for resale pursuant
to Rule 144 and will be freely tradable in the public market (except by
affiliates of the Company). The holders of 655,639 shares of Common Stock that
are eligible for resale under Rule 144 have entered into an agreement with the
Representative under which they have agreed not to sell any of the restricted
securities which they hold for a two year period following the date of this
Prospectus, without the consent of the Representative (the "Lock-Up"). The
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<PAGE>
Representative has no general policy, plans, arrangements, understandings, or
commitments with respect to the early release of the Lock-Up; however, investors
are cautioned that the Representative in its sole discretion, and without notice
to the public, may elect to release all or part of the shares subject to the
Lock-Up prior to the expiration of the Lock-Up. All of the Company's officers
and directors, who hold an aggregate of 601,164 shares of Common Stock, have
entered into the Lock-Up agreement with the Representative. The early release of
shares subject to the Lock-Up and subsequent sale of any of those shares could
have a depressive effect upon the trading price of the Common Stock. Sales of
substantial amounts of Common Stock under Rule 144 or otherwise into the public
market could adversely affect the prevailing market price for the Common Stock
(i.e., depress the market price of the shares), if such a market should ever
develop. See "Market for Common Equity and Related Stockholder Matters--Shares
Eligible for Future Sale."
Maintenance Criteria for NASDAQ Small Cap Market Securities; Penny Stock
Risks. The Company has applied for inclusion of the Common Stock for trading on
the NASDAQ Small Cap Market ("NASDAQ"). In order to continue to be included on
NASDAQ, a company must satisfy certain requirements. The company must meet one
or more of the following: (i) net tangible assets of $2 million; market
capitalization of $35 million; or net income (in the latest fiscal year or in
two of the last three fiscal years) of $500,000. In addition, a company must (i)
have 500,000 shares in the public float; (ii) have $1 million in market value of
public float; (iii) have a minimum bid price of $1.00; (iv) have two market
makers; (v) have 300 (round lot) shareholders; and (vi) meet certain corporate
governance standards. The Company's failure to meet these maintenance criteria
in the future may result in the discontinuance of the inclusion of its
securities on NASDAQ. In such event, trading, if any, in the securities may then
continue to be conducted in the non-NASDAQ over-the-counter market in markets
commonly referred to as the electronic bulletin board and the "pink sheets." As
a result, an investor may find it more difficult to dispose of or obtain
accurate quotations as to the market value of the Common Stock. In addition, the
Company would be subject to a rule promulgated by the Commission that imposes
various sales practice requirements on broker-dealers who sell securities
governed by the rule to persons other than established customers and accredited
investors, if the Company fails to meet criteria set forth in such rule. For
these types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and must have received the purchaser's written
consent to the transactions prior to sale. Consequently, the rule may have an
adverse effect on the ability of broker-dealers to sell the Company's
securities, which may affect the ability of purchasers in this offering to sell
the Company's securities in the secondary market.
If the Company fails to maintain its qualification for the Common Stock to
trade on NASDAQ and is trading below $5.00 per share, the Common Stock will be
subject to disclosure rules adopted under the Securities Exchange Act of 1934,
as amended, relating to penny stocks. Disclosure rules for transactions
involving penny stocks require broker-dealers, among other things, to (i)
determine the suitability of purchasers of the securities and obtain the written
consent of purchasers to purchase such securities; and (ii) disclose the best
(inside) bid and offer prices for such securities and the price at which the
broker-dealers last purchased or sold the securities. The additional burdens
imposed upon broker-dealers may discourage them from effecting transactions in
penny stocks, which could reduce the liquidity of the Common Stock.
Recently Organized Representative. This is the first underwriting managed
by the Representative of the Underwriters, Andrew Garrett, Inc. This limited
experience could adversely impact the development and maintenance of a trading
market in the securities offered hereby.
Important Factors Related to Forward-Looking Statements and Associated
Risks. This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
and the Company intends that such forward-looking statements be subject to the
safe harbors created thereby. These forward-looking statements include the plans
and objectives of management for future operations, including plans and
objectives relating to the products and future economic performance of the
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<PAGE>
Company. The forward-looking statements and associated risks set forth in this
Prospectus include or relate to (i) the successful development and marketing of
the Company's products; (ii) increasing sales through both direct marketing and
entering into distribution arrangements; (iii) the success of additional
marketing initiatives to be undertaken by the Company; and (iv) the success of
the Company in achieving increases in sales with corresponding profitability.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
develop, market, and ship products on a timely basis, that competitive
conditions within the ham radio industry will not change materially or
adversely, that demand for the Company's products will be strong, that the
Company will retain existing key management personnel, that the Company's
forecasts will accurately anticipate market demand, and that there will be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive, and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the results contemplated in forward-looking information
will be realized. In addition, as disclosed elsewhere under other risk factors,
the business and operations of the Company are subject to substantial risks
which increase the uncertainty inherent in such forward-looking statements. In
light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company are estimated to be approximately $4,638,420
after deducting the Underwriters' commissions, payment of the amounts due under
the Investment Banking Agreement, and other estimated offering expenses payable
by the Company.
The Company expects to use approximately $1,471,000 of the net proceeds to
hire additional personnel, including a president/chief operating officer, a
chief financial officer/controller, five additional accounting and
administrative staff persons, and additional technical persons for quality
control and research and development and to develop a fully staffed marketing
department which will include additional sales and marketing staff persons. In
addition, the Company expects to use approximately $1,000,000 of the proceeds to
purchase or lease machinery and equipment, $750,000 of the proceeds to acquire
the components and other raw materials necessary to support the Company's
anticipated sales, $500,000 for marketing and promotion of the Company's
products, $350,000 for investor relations and public relations, and $61,800,
plus accrued interest, to repay promissory notes issued to shareholders. The
balance of the proceeds will be used for working capital and general corporate
purposes, including the possible investment in, strategic acquisition of, or
joint ventures with, complementary businesses, technologies, or product lines.
As of the date of this Prospectus the Company has no plans, arrangements,
understandings, or commitments with respect to any such material investments,
acquisitions, or joint ventures, nor is the Company engaged in negotiations with
respect to any such matter. There can be no assurance that any such investments,
acquisitions, or joint ventures will become available on terms acceptable to the
Company. See "Business" and "Certain Relationships and Related Transactions."
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<PAGE>
The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this offering based on current planning and business
conditions. The Company reserves the right to change such uses when and if
market conditions change or unexpected changes in operating conditions or
results occur. The amounts actually expended for each use may vary significantly
depending upon a number of factors, including future sales growth and the amount
of cash generated by the Company's operations. Net proceeds not immediately
required for the purposes described above will be invested principally in U.S.
government securities, short-term certificates of deposit, money market funds,
or other short-term, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock, and does not
intend to pay cash dividends on its Common Stock in the foreseeable future. The
payment of dividends by the Company is within the discretion of its Board of
Directors and depends in part upon the Company's earnings, capital requirements,
and financial condition. The Company intends to retain earnings, if any, for use
in its business.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, and as adjusted to reflect the sale of 1,000,000 shares of Common
Stock in this offering at the offering price of $5.75 per share. The information
contained in the table is qualified in its entirety by reference to, and should
be read in conjunction with, the unaudited financial statements at and for the
six months ended June 30, 1997 and related notes, appearing elsewhere in this
Prospectus.
June 30, 1997
------------------------------
As Adjusted
Actual After Offering(1)
------ -----------------
Stockholders' equity:
Common Stock, $0.001 par value;
10,000,000 shares authorized;
1,056,498 shares issued and outstanding
at June 30, 1997; 2,056,498 issued and
outstanding, as adjusted(2) $ 1,056 $ 2,056
Paid in capital............................ 1,248,377 5,885,797
Accumulated deficit......................... (1,403,216) (1,403,216)
Common Stock subscribed..................... 32,077 32,077
----------- -----------
Total stockholders' equity..................$ (121,706) $ 4,516,714
=========== ===========
- ----------
(1) As adjusted to reflect the sale of 1,000,000 shares of Common Stock in this
offering at the public offering price of $5.75 per share and the
application of the net proceeds therefrom, estimated to be $4,638,420.
(2) Excludes (i) 100,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants to be issued in conjunction with this offering;
(ii) 72,252 shares of Common Stock issuable upon the exercise of currently
outstanding common stock purchase warrants; (iii) 180,000 shares of Common
Stock issuable upon the exercise of currently outstanding stock options;
(iv) 450,000 shares of Common Stock reserved for issuance under the
Company's Stock Option Plans; and (v) 140,000 shares of Common Stock
issuable upon the conversion of currently outstanding promissory notes. See
"Market for Common Equity and Related Stockholder Matters--Common Stock
Outstanding or Reserved for Issuance," "Underwriting--Representative's
Warrants," "Executive Compensation--Option Plans," and "Prior Offerings."
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DILUTION
The net tangible book value of the Company's Common Stock at June 30, 1997
was $(121,706) or $(0.12) per share. Based upon an offering price of $5.75 per
share, the net tangible book value per share will increase as a result of the
sale of this offering to approximately $2.20 (without adjustment for other
changes in net tangible book value subsequent to June 30, 1997), resulting in an
immediate substantial dilution to new shareholders of $3.55 per share (61.7%).
Dilution is the reduction in value of the investor's investment measured by the
difference between the price per share in the public offering and the net
tangible book value per share at June 30, 1997, plus the increase attributable
to purchases by shareholders in this offering. "Net tangible book value per
share" represents the amount of total tangible assets, less total liabilities,
divided by the number of shares of Common Stock outstanding. The following table
illustrates the per share effect of this dilution on purchasers in this
offering. See "Description of Securities" and "Financial Statements."
Public Offering Price Per Share $5.75
Net Tangible Book Value Per
Share at June 30, 1997(1) $(0.12)
Increase Per Share Attributable
to Purchases by New Shareholders $ 2.32
------
Pro Forma Net Tangible Book Value
Per Share After Offering(2) $2.20
-----
Dilution to New Shareholders $3.55
=====
Percent of Offering Price 61.7%
=====
- ----------
(1) Amount results from subtracting the total liabilities and intangible assets
of the Company from its total assets and dividing the remainder by the
number of shares of Common Stock outstanding.
(2) Includes the adjusted net tangible book value of $(121,706) at June 30,
1997, plus estimated net proceeds of this offering, after payment of
expenses, underwriting commissions, and the investment banking fee, of
$4,638,420. Does not include (i) 100,000 shares underlying the
Representative's Warrants; (ii) 72,252 shares of Common Stock issuable upon
the exercise of currently outstanding common stock purchase warrants; (iii)
180,000 shares of Common Stock issuable upon the exercise of currently
outstanding stock options; (iv) 450,000 shares of Common Stock reserved for
issuance under the Company's Stock Option Plans; or (v) 140,000 shares of
Common Stock issuable upon conversion of currently outstanding promissory
notes. See "Market for Common Equity and Related Stockholder
Matters--Common Stock Outstanding or Reserved for Issuance,"
"Underwriting," "Executive Compensation--Option Plans," and "Prior
Offerings."
Based upon the sale of 1,000,000 shares of Common Stock at an offering
price of $5.75 per share to the investors in this offering, investors in this
offering will own approximately 48.6% of the issued and outstanding Common
Stock. This compares with 1,056,498 shares of Common Stock held by existing
shareholders of the Company, for which the Company was paid an aggregate
consideration of $1,283,311 upon initial issuance, or an average of
approximately $1.21 per share, and which will constitute approximately 51.4% of
the issued and outstanding Common Stock following this offering. Except as
otherwise stated, the foregoing information assumes no exercise of outstanding
options or warrants, no conversion of outstanding convertible promissory notes,
and no exercise of the Representative's Warrants. To the extent that currently
outstanding options or warrants are exercised or that currently outstanding
convertible promissory notes are converted to Common Stock, there may be further
dilution to new investors.
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<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
The selected financial information at and for the fiscal years ended
December 1995 and 1996, set forth below, is derived from the audited financial
statements of the Company, which have been prepared in accordance with generally
accepted accounting principles. The audited financial statements at January 31,
1995 and 1996 and for the fiscal years ended January 31, 1995 and 1996 have been
audited by Winter, Scheifley & Associates, P.C. and appear elsewhere herein. The
selected financial data at and for the six months ended June 30, 1996 and 1997,
set forth below, are unaudited and include, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation of financial position and results of operations.
Operating results for the six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. The selected financial data are qualified in their entirety by reference
to, and should be read in conjunction with, the Financial Statements, related
Notes, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
Balance Sheet Data At December 31, 1996 At June 30, 1997
- ------------------ -------------------- ----------------
(Audited) (Unaudited)
Working capital $ 311 $ (141,227)
Total assets 165,919 183,260
Capital lease obligations 13,534 11,475
Stockholders' equity 63,182 (121,706)
Income Statement Data Year Ended Six Months Ended
December 31, June 30,
----------------------------- -----------------------------
1996 1995 1997 1996
(Audited) (Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 25,211 $ 15,975 $ 57,818 $ 10,501
Cost of sales 125,423 38,843 20,312 58,061
Gross profit (100,212) (22,868) 37,506 (47,560)
Selling, general, and administrative 216,956 164,927 328,335 98,629
Research and development 59,730 27,268 32,317 12,521
Income (loss) from operations (376,898) (215,063) (323,146) (158,710)
Interest income 2,670 14 1,252 --
Miscellaneous income -- -- 881 1,850
Interest expense (7,496) (831) (3,500) (500)
Net income (loss) (381,724) (215,880) (324,513) (157,360)
Weighted average number
of common shares outstanding(1) 885,353 637,250 1,046,498 730,583
- ----------
(1) Excludes (i) 100,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants to be issued in conjunction with this offering;
(ii) 72,252 shares of Common Stock issuable upon the exercise of currently
outstanding common stock purchase warrants; (iii) 180,000 shares of Common
Stock issuable upon the exercise of currently outstanding stock options;
(iv) 450,000 shares of Common Stock reserved for issuance under the
Company's Stock Option Plans; and (v) 140,000 shares of Common Stock
issuable upon the conversion of currently outstanding promissory notes. See
"Market for Common Equity and Related Stockholder Matters--Common Stock
Outstanding or Reserved for Issuance," "Underwriting--Representative's
Warrants," "Executive Compensation--Option Plans," and "Prior Offerings."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
OVERVIEW
Patcomm Corporation is a technology company dedicated to the amateur radio
and related products industry. The Company has chosen to concentrate on the most
dominant product activity of the amateur radio field, transceiver and ancillary
support products. The competitive principle around which the Company's
technology is based is the replacement of traditional hardware functions with
software, thus reducing cost of goods while allowing equivalent or greater
sophistication. The Company's fundamental design strategy is the integration of
a computer with a transceiver. Further, the Company has successfully obtained a
patent protecting its use of a computer keyboard for controlling a transceiver,
thus creating an ergonomic interface that combines "computer culture" with
"amateur radio culture." The Company's products are described in the section of
this Prospectus entitled "Business--Products." The Company is currently engaged
in the transition from a development stage company to a manufacturing and
marketing entity.
From its inception, the Company has dedicated its resources primarily to
market research and technical development activities. This has involved raising
capital, recruiting personnel, system design, software development, prototype
building, prototype and beta site testing, manufacturing prototype testing,
market measurement and reaction, and promotional activities. The Company has
also leased or purchased assets for use in its operations. And, finally, the
Company has engaged in minor manufacturing and sales activities. Management is
attempting to determine the best way to make and sell the Company's product
concepts.
In view of the Company's limited operating history, an evaluation of its
prospects must be considered in view of the difficulties and risks associated
with development stage entities transitioning into operating entities. In order
to become a viable business entity, the Company must project itself into the
amateur radio marketplace as an innovative and credible source of competitive
products. The Company must be equally recognized by end customers, distributors,
media entities, and industry institutions. In order to achieve this goal, the
Company must strive to be a state of the art technology provider. The Company's
fiscal year ends December 31.
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<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
The following table sets forth selected income data as a percentage of net
sales for the periods indicated.
Six Months Ended
Year ended December 31, June 30,
----------------------- ---------------------
1995 1996 1997 1996
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 243.1 497.5 35.1 552.9
----- ----- ---- -----
Gross profit (143.1) (397.5) 64.9 (452.9)
General and administrative 1,032.4 860.6 567.9 939.2
Research and development 170.7 236.9 55.9 119.2
----- ----- ---- -----
Income (loss) from operations (1,346.2) (1,495.0) (558.9) (1,511.4)
Interest income 0.0 10.6 2.2 0.0
Miscellaneous income 0.0 0.0 1.5 17.6
Interest expense 5.2 (29.7) 6.1 4.8
--- ----- --- ---
Net income (loss) (1,351.4) (1,514.1) (561.3) (1,498.5)
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
Sales for the six months ended June 30, 1997, were $57,818, an increase of
$47,317, or 450.6%, as compared to the period ended June 30, 1996. Cost of sales
for the six months ended June 30, 1997, was $20,312, a decrease of $37,749, or
65.0%, as compared to the period ended June 30, 1996. General and administrative
expenses for the six months ended June 30, 1997 were $328,335, an increase of
$229,706, or 232.9%, as compared to the period ended June 30, 1996. Research and
development expenses for the six months ended June 30, 1997 were $32,317, an
increase of $19,796, or 158.1%, as compared to the period ended June 30, 1996.
Interest expense for the six months ended June 30, 1997 was $3,500, an increase
of $3,000, or 600.0%, as compared to the period ended June 30, 1996.
Because the Company is a start-up stage company, the financial results for
prior operating periods are not necessarily indicative of future financial
results.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Sales for the year ended December 31, 1996, were $25,211, an increase of
$9,236, or 57.8%, as compared to the year ended December 31, 1995. Cost of sales
for the year ended December 31, 1996, was $125,423, an increase of $86,580, or
222.9%, as compared to the year ended December 31, 1995. General and
administrative expenses for the year ended December 31, 1996 were $216,956, an
increase of $52,029, or 31.5%, as compared to the year ended December 31, 1995.
Research and development expenses for the year ended December 31, 1996 were
$59,730, an increase of $32,462, or 119%, as compared to the year ended December
31, 1995. Interest expense for the year ended December 31, 1996, was $7,496, an
increase of $6,665, as compared to the year ended December 31, 1995. This
increase occurred because the Company did not have any outstanding indebtedness
during the prior fiscal year.
Because the Company is a start-up stage company, the financial results for
prior operating periods are not necessarily indicative of future financial
results.
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has been financed through private sales of royalty
interests and common stock purchase warrants, Common Stock, and debt and through
loans from "insiders." Additional information with respect to the Company's
prior offerings, including its private sales of royalty interests, common stock
purchase warrants, Common Stock, and debt is included under the section
captioned "Prior Offerings," in this Prospectus. Cash provided by revenues has
been insignificant.
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<PAGE>
The net proceeds to the Company from the sale of shares of Common Stock in
this offering are estimated to be $4,638,420. The Company intends to use
$1,000,000 of the net proceeds to purchase new machinery and equipment. The
balance of the net proceeds is expected to be used to hire additional personnel,
for marketing and promotion, general corporate purposes, and working capital.
The Company believes that the net proceeds from the offering will be sufficient
to meet cash requirements for the next 20 months,. If such cash flows are not
sufficient to meet the Company's needs, it may seek additional cash through the
sale of equity and/or debt instruments, and/or attempt to obtain credit.
BUSINESS
Introduction
The Company was formed in 1992 to develop and market a new line of products
and related services for the amateur radio communications market and eventually
for related commercial markets. Utilizing technology developed by the Company's
founders, Alexander Adelson and Frank Delfine, the Company has developed new
architecture for integrating a computer (and the required software) with a
transceiver used by amateur radio (HAM) operators. Further, it has succeeded in
gaining intellectual property protection covering the use of computer and
similar keyboards for directly controlling amateur radio transceivers (US Patent
#5,566,205). This integration significantly reduces the cost of a state of the
art transceiver while retaining many complex functions that are part of the
current technology. The Company plans to use a portion of the proceeds of this
offering to hire additional personnel to market and distribute its principal
product and develop additional products and services. The Company has completed
and tested its PC16000 transceiver. For further information concerning products
and the Company's backlog, please see "- Products" and "- Backlog," below.
Industry Overview
For over 20 years the amateur radio industry has been characterized by
stable but modest growth, with a customer base comprised primarily of
conservative, dedicated, well educated, and above average income individuals.
The typical amateur radio operator is between 40 and 60 years of age and has
been licensed for a period of 15 to 30 years. However, the industry is currently
experiencing growth with the average number of licenses issued to amateur
operators per year increasing over the last five years. This increase in
licenses is due, in part, to a rapid increase in the number of "new" retirees
each year. Existing operators typically become more actively involved upon
retirement and others will try the activity for the first time upon retirement.
The increase is also due, in part, to the creation of the Codeless License Class
by the FCC in February 1991, which has made obtaining a license easier and has
attracted younger, more technically oriented users, lowering the average age of
operators during the last few years.
Notwithstanding dramatic technological improvements in virtually every
other area of communications, there has not been a major technological
breakthrough in amateur radio equipment in approximately ten years. The set of
electronic equipment an amateur radio operator uses to receive and transmit
radio signals is commonly referred to as a "station." In the early stages of
amateur radio development, almost every "station" was made up of a separate
receiver and transmitter. As technology evolved, the transmitter and receiver
were combined into a single unit called a "transceiver." The introduction of the
integrated circuit into the communications industry resulted in transceivers
which could perform more functions for the same cost and which also were more
compact. More recently, microcomputer technology has given birth to the "smart"
transceiver. In the jargon of the electronics industry, "smart" equipment
utilizes a microprocessor located inside such equipment to assist in the
performance of numerous electronic functions--including highly complex functions
at very high speeds. Accordingly, the user receives the benefit of additional,
useful functions at a relatively low incremental cost. The next step in the
technological evolution is the most significant to date--the evolution from
microprocessor to the complete integration of the transceiver with the
processing capabilities of a computer and keyboard. The Company's products and
services are focused on this technological advance.
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Marketing and Distribution
The Company intends to market and distribute its products by direct
response marketing, and through the appointment of distributors. Direct response
marketing includes any form of media communications which elicits a direct
response by a prospective customer to the Company. Direct response techniques
include print advertising in ham radio magazines and publications, direct mail,
and other standard forms of advertising which call upon the customer to contact
the advertiser directly. The Company intends to advertise extensively in amateur
radio publications. In addition, the Company also intends to utilize direct mail
advertising to amateur radio enthusiasts. Lists of amateur radio license holders
and enthusiasts are available both from the government and publishers of
material for amateur radio enthusiasts.
The Company intends to utilize existing amateur radio distributors for
distribution of its products through certain specialty chains and amateur radio
specialty stores throughout the country and the world. At the present time, the
Company has entered into a distribution agreement for Western Europe with a
distribution company based in the Netherlands, that also markets and distributes
other amateur radio products throughout Western Europe. That distributor has
entered into a sub-agreement with an Italian distributor for distribution of the
Company's products in Italy. In addition, the Company has entered into two
distribution arrangements with companies located in the United States, and an
arrangement with an Australian distributor for distribution of the Company's
products in Australia and New Zealand.
Market Strategy
The Company's strategy is to capitalize on its advanced technology and the
increasing costs of some significant competitors to gain market share and
ultimately establish a leading role in the expanding amateur radio operator
business and related wireless commercial uses. By converting hardware functions
to software functions, the integration of the transceiver and the computer
results in a transceiver which can perform more functions for the same cost.
Company marketing studies indicate that such a reduction in cost per function is
very attractive both to long time operators who are looking for less costly ways
to upgrade their equipment and to the younger, more technology minded buyers
just starting out in amateur radio activities. Management also believes that the
Company can provide a family of technically advanced products at a lower cost
than the three Japanese companies which have traditionally held a dominant
position in the U.S. (See "-- Competition," below.) Thus, management believes
that the Company has a unique opportunity to establish market share through
technically advanced products while having a cost advantage over some of the
traditional leaders in the marketplace.
The Company will seek to utilize its advanced technology to establish
market share in the existing amateur radio operator markets and to develop new
market segments. The largest existing market consists of established HAM
operators who can be approached through conventional media technologies to
purchase system upgrades. The Company believes that new, younger operators and
new retirees comprise a significant expanding market in which the Company can
establish significant market share through aggressive, innovative marketing. In
addition, the Company will capitalize on its unique software architecture to
market to physically impaired operators as a specialty niche market.
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The Company has conducted a market study which indicates that the current
median price for a full featured HF (high frequency) transceiver is $2,103. This
medium priced, medium featured transceiver leads the pack in high volume sales
by the major manufacturers. The PC16000tm transceiver, a direct challenge to
this product type, is at a suggested retail price of $1,600. The Company intends
to develop a high end unit which will fall into the $3,500 category.
The Company intends to market its products to commercial and institutional
users who require the same HF operating spectrum as amateur radio operators as
well as the same sort of equipment attributes, utilities, and features. Such
users include the Civil Air Patrol (CAP), missionary communications, high seas
nautical communications, and certain government communications. Products sold to
these types of commercial users will require "type acceptance" by the FCC,
unlike amateur radio products which are certified by manufacturers to be built
in accordance with established FCC standards. The Company believes that its
integrating architectural concept, because it shifts so many functional burdens
to software instead of hardware, should also give the Company a cost edge in
this marketplace. The Company has not yet determined the demand for its
products, but believes that there are significant opportunities because of the
overall size of the commercial market.
The Company also plans to enter the VHF market. Again, using the economic
advantages of its architecture, the Company intends to make a two band (six
meters/two meters) multi-mode (CW, SSB, FM, and AM) portable transceiver (not a
hand held).
Products
The Company's business plan for the amateur radio business focuses
initially on the PC16000tm transceiver which has been completed and tested and
is now being marketed. This is an advanced up-conversion general coverage high
frequency transceiver that utilizes DSP (digital signal processing) to provide
excellent filtering characteristics (equal or better than expensive crystal
filters) at a low cost. This product is being priced by the Company at
approximately $1,600, which is less than a comparable product offered by
competitors. Additional features such as IF shift and AM/FM modes are included.
This unit also contains digital decoding/sending modes (CW/RTTY/ASCII) as well
as software upgrades to support advanced digital error correcting modes such as
AMTOR and PACTOR. Transmitter power is rated at average 100 watts continuous
output power. The PC16000tm does not comply with the requirements for a CE mark,
which would serve as confirmation to the European authorities that the marked
product complies with all European Union directives relevant to the product and
that the product may be traded freely in the European market. Management of the
Company intends to develop a CE compliant version of the PC16000tm transceiver,
to be called the PC16000E, for distribution in Europe.
The Company is also in the process of developing the following additional
products:
PC-AT16 - Automatic Antenna Tuner for the HF Bands. Designed to be used
with the PC-1610/PC-16000 or any other HF transceiver (including competition).
This unit allows the operator to tune his antenna system automatically (instead
of turning knobs and switches and watching meters) by simply pressing a single
button. The match is made in a matter of seconds automatically. Management
anticipates that development of the product will be completed by June 1998.
PC-9000 - A compact HF transceiver designed for fixed or mobile use.
Provides HAM band only coverage (160 through 10 meters) with options for six
meter (VHF) coverage. The transceiver will operate on CW, SSB or, optionally, FM
modes. There is also a provision for controlling the unit via a PC keyboard so
that the Company's patent concept is utilized as in the PC-16000. Limited
control is provided as a standard feature. Additional features may be added via
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software/hardware upgrade options (i.e. RTTY/CW decoding and memory). This unit
is designed to be competitive with the newer portable/mobile type designs
recently introduced by the competition. It will provide unique features at a low
user cost. Its selling price is targeted at $790.00. The scheduled completion
date is early 1998. Preliminary advertising has begun and the paper design is
complete. The first prototypes are now underway.
PC-4500 - A low end, low power, HF transceiver designed for portable
operation which will have plug-in modules (sold separately) to add additional
HAM bands. The unit is aimed at the low power (QRP) battery/solar powered
marketplace. The unit will support both CW and SSB modes of operation, which is
unique for a unit in this price class. (Typically, only CW (Morse code) is
supported). This is possible by utilizing the "phasing" techniques developed in
the original PC-1610. The selling price for the basic (one band) unit is
targeted at under $200.00. This unit is scheduled for completion by mid-1998.
The Company is also developing software and upgrade components for its
products. One version will add AMTOR/PACTOR operation to the PC16000tm and the
PC160000tm. These are digital modes that are error correcting, providing error
free communications by re-transmitting lost data as a background task which is
totally transparent to the user. Upgrades will be offered for existing systems
as they become available much like software upgrades in the business
productivity software world.
The Company has contemplated development of the following products:
PC1600Rtm - A receiver only device aimed at the serious SWL (Shortwave
Listener) market. This receiver is identical to the receiver included in the
PC16000tm and contains all the same digital decoding modes (CW/RTTY/ASCII).
PC160000tm - A high end, high frequency transceiver with all the features
of the PC16000tm, plus dual receivers and built-in full screen display to
support additional digital modes such as PACKET. The Company is also developing
additional software and upgrade components for its products and will also
include multiple DSP (Digital Signal Processing) filters. The transmitter will
be rated at 150 watts continuous output.
The FCC has set forth certain technical standards to which a transmitted
amateur signal must conform. These standards set some basic guidelines for
minimum signal quality in the transmitted signal. The "image" of the amateur
operator is projected in the quality of the signal that he broadcasts. This
signal is the only thing that the rest of the world hears when the operator is
on the air. A high quality, properly formed signal is much easier to listen to
for long periods of time. This is also true of the quality of the signal that
the receiver produces. A receiver which produces noisy, distorted audio will
tend to create a high level of fatigue very quickly for its operator. Such poor
quality results in a bad reputation for the unit by both the operator and the
listener. The Company intends to manufacture only high quality units that
produce high quality signals which exceed all FCC specifications.
Technology Protection
The Company intends to rely on a combination of patents, copyrights, and
trademarks to protect proprietary product design, software codes, and product
and service identification. The registration of a trademark does not in itself
restrict others from offering similar competing products but does restrict
others from using a deceptively similar name or mark to identify their product.
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Patents. An application has been granted to the Company by the U.S. Patent
Office regarding certain aspects of the Company's technology. The Company
received a Notice of Allowance from the United States Patent and Trademark
Office with respect to such application on October 15, 1996 (patent number
5,566,205). The Company intends to file additional patent applications as other
products are developed. Until such time as a patent issues, the Company will not
have the right to bring a patent infringement action against a third party that
makes a product or uses a technology identical or similar to the Company's
product or technology. Even if a patent is granted, there is no assurance that
such patent will not be attacked by third parties or if any such attack were
made, that it would not be successful. The costs involved in defending a patent
or prosecuting a patent infringement action would be substantial. At present the
Company does not have the resources to pursue such an action. In addition, even
if a patent issues, it cannot be assured that a competitor could not design a
product that is the functional equivalent of the Company's product, without
infringing on the Company's patent.
Trademarks. Patcomm is a registered trademark of the Company and the
Company plans to register the following additional trademarks under applicable
federal law:
PC1610tm
PC16100tm
PC16000Rtm
PC16000tm
PC160000tm
PC16000Vtm
PC16000Etm
PC9000tm
PC4500tm
PCAT16tm
Although management believes that the Company's software and trademarks are
adequately protected for their intended purposes, there can be no assurance that
such trademarks will not be attacked by third parties or that, if any such
attack were made it would not be successful. The costs involved in defending a
patent, trademark, or copyright or prosecuting infringement action relating to a
copyright, trademark, or patent would be substantial. At present the Company
does not have the resources to pursue such an action.
Competition
The amateur radio marketplace is currently dominated by four large
manufacturers, including Kenwood, Yaesu, Icom, and Ten-Tec, of which Ten-Tec is
the only significant U.S. manufacturer, the others being Japanese.
Employees
The Company employs seven full-time employees and two part-time employees.
The Company has also employed outside consultants on a contractual basis in
connection with its research and development and may continue this practice.
The Company attempts to maintain amiable and communicative relations with
its employees. The Company is not a party to any labor contracts or collective
bargaining agreements. The Company has experienced no labor stoppages in recent
years and management believes that relations with its employees are
satisfactory. The Company believes there is an adequate supply of suitable labor
available.
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Research and Development and Product Design
The Company intends to invest money in an ongoing research and development
program along with the subsequent product design program. Management believes
that this approach is fundamental with any high tech type of company. During the
fiscal years ended December 31, 1995 and 1996, the Company expended $27,268 and
$59,730, respectively, for research and development.
Seasonality
The Company's products are subject to two types of seasonal variation.
First is the normal year end holiday buying activity and the spring seasonal
activity increase. The second fluctuation is peculiar to this industry. HF
communication is subject to sunspot activity since reduced sunspot activity
results in poor radio reception quality. A sunspot cycle is approximately 11
years. As these cycles end there is reduced sales activity due to generally poor
communication quality. Fortunately we are just entering an upswing of a new
sunspot cycle. The Company's backlog as of any given date is not a meaningful
measure of the Company's future business because the Company's customers
generally require rapid shipment of orders.
Properties
The Company maintains its headquarters and offices in a rented 2800 square
foot facility in the St. James area of Long Island, New York. It leases the
space on a one year renewable basis with an average 3% to 4% yearly increase.
The cost currently is $12.83 per square foot which includes power, water, heat,
air conditioning, and taxes. The property is leased from an unrelated third
party.
This facility is adequate for the Company's short term plans; however,
there have been conversations with the present landlord to expand, as required,
within the present facility to accommodate increased sales activity as demand
builds up. The Company enjoys a good relationship with the landlord.
Government/Environmental Regulation
The Company is subject to various federal, state, and local environmental
laws and regulations. Management believes that the Company's operations
currently comply in all material respects with applicable laws and regulations.
Management is not aware of any current or future environmental laws and
regulations that could have a material impact on the Company. The Company's
products in the United States are subject to various regulations of the Federal
Communications Commission. Management believes that the Company's products
comply in all material respects with applicable Federal Communications
Commission laws and regulations. Future changes in laws applicable to the
Company's products could have a material impact upon the Company.
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MANAGEMENT
The founders and promoters, directors, and executive officers of the
Company, their ages and present positions are as follows:
Name Age Position
- ---- --- --------
Frank Delfine 44 Founder and Promoter, Chairman of the Board,
President, and Treasurer
Alexander Adelson 62 Founder and Promoter, Secretary, and Director
John Dibble 45 Director
James Messing 54 Director
Each director is serving a term of office which will continue until the
next annual meeting of shareholders, and until the election and qualification of
his successor. Set forth below is biographical information with respect to the
Company's founders and promoters and each officer and director.
Frank Delfine, founder and promoter, has been president, treasurer, and a
director of the Company since inception. He has been Chairman of the Board of
Directors since October 7, 1997. Mr. Delfine has over 19 years experience as an
Electronic Design Engineer with diverse experience in various fields. He has
been part of the RTS Research Lab, Inc. technology resource group for the past
18 years. RTS Research Lab, Inc. is a privately held technology resource group
providing technology and marketing services to the electronic and optical
industries. Since 1984, Mr. Delfine has run his own technology consulting firm
serving high technology companies. In addition, Mr. Delfine has been an amateur
radio operator for 32 years, and holds a General Class license as well as a
First Class FCC Commercial license. Mr. Delfine currently devotes his full-time
to the business and affairs of the Company.
Alexander Adelson, founder and promoter, has been a director and secretary
of the Company since inception. From inception to October 7, 1997, he also
served as Chairman of the Board of Directors. Mr. Adelson is president and
Chairman of the Board of RTS Research Lab, Inc., a position he has held since
October 1974. Mr. Adelson is also Chief Technical Consultant and a member of the
Board of Directors for Base Ten Systems, Inc., a publicly held, 30 year old
company (NASDAQ NMS: BASEA). Base Ten Systems, Inc. is a diversified technology
company engaged in the design and manufacture of weapons control systems,
medical software, and secure communication technology. Mr. Adelson held a
similar position for Symbol Technologies, Inc. from 1977 through 1989. Symbol
Technologies is the leading manufacturer in the world of hand held laser
scanning equipment.
John Dibble has been a director of the Company since July 1992. Mr. Dibble
founded Aminetech, Inc. in 1988, which has created several gas treatment
products and he currently serves as president of that company. From 1974 to
1988, he worked at Union Carbide Corp. in research and development, serving in
various positions including the position of technology manager for a newly
created gas treating chemicals business group where over a dozen new products
were introduced to refineries, natural gas, and ammonia plants.
James Messing has been a director of the Company since April 1996. Mr.
Messing has spent 28 years on Wall Street with the investment banking firms of
Salomon Brothers and CS First Boston in all areas of capital markets, including
trading, sales, and new product development. Mr. Messing currently is a
principal in Sage Securities Corp., a NASD member firm.
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<TABLE>
<CAPTION>
The directors of the Company are elected annually and serve until their
successors take office or until their death, resignation, or removal. The
executive officers serve at the pleasure of the Board of Directors.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the president and
the secretary of the Company for services rendered to the Company during the
last three fiscal years.
Long
term
Annual Compensation compensation
Name ------------------------------ ------------
and Fiscal year Other Number of
principal ended annual options
position December 31, Salary Bonus compensation awarded
-------- ------------ ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Frank Delfine, 1996 $ 65,258 $-0- $-0- 90,000(1)
President, Treasurer, 1995 $ 46,000 $-0- $-0-
and Director 1994 $ 51,000 $-0- $-0-
Alexander Adelson, 1996 $ -0- $-0- $-0- 90,000(1)
Secretary and Director 1995 $ -0- $-0- $-0-
1994 $ -0- $-0- $-0-
- ----------
(1) Effective September 30, 1996, the Board of Directors granted stock options
to Alexander Adelson and Frank Delfine. Mr. Adelson and Mr. Delfine were
each granted a stock option to purchase 15,000 shares of Common Stock
(30,000 shares in the aggregate) at an exercise price of $2.60 per share.
In addition, effective November 30, 1996, the Board of Directors granted
each of Messrs. Adelson and Delfine stock options to purchase 75,000 shares
of Common Stock (150,000 shares in the aggregate) at an exercise price of
$8.05 per share.
Option/Warrant Values. The following table provides certain information
concerning the fiscal year end value of unexercised options or warrants held by
Mr. Adelson and Mr. Delfine.
Aggregated Option Exercises in 1996 Fiscal Year
and Fiscal Year End Option Values
Shares Number of Unexercised Value of Unexercised
Acquired on Value Options at Fiscal Year In-the-Money Options
Name Exercise Realized End at Fiscal Year End
- ---- -------- -------- ------------------ ------------------
Exercisable Exercisable
Frank Delfine 15,000 $47,250(1)
75,000(2)
Alexander Adelson 15,000 $47,250(1)
75,000(2)
- ----------
(1) Value calculated by determining the difference between the assumed offering
price of $5.75 per share and the exercise price of $2.60 per share for the
options Fair market value was not discounted for restricted nature of any
stock that may be acquired on exercise of these options.
(2) These options are exerciseable at $8.05 per share, which is in excess of
the offering price of $5.75 per share reflected herein.
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Employment Agreements
The Company has entered into an employment agreement with Mr. Frank
Delfine, its president, providing for the payment of an annual salary of $88,000
for the years commencing January 1, 1997 and 1998. In addition, the agreement
provides for the payment of incentive compensation in the amount of 3% of the
Company's net income (after tax), if any, up to $1,499,000 and 1% of all net
income (after tax), if any, in excess of $1,500,000. Mr. Delfine is also
entitled to receive severance benefits equal to one week's base salary for each
full year of service to the Company up to a maximum of eight weeks based upon
Mr. Delfine's first date of employment by the Company. The employment agreement
also contains an agreement to maintain confidentiality of trade secrets and
other materials.
Effective January 1, 1997, the Company entered into an employment agreement
with Mr. Alexander Adelson, the secretary of the Company, providing for the
payment of a salary of $1,000 per month in exchange for up to two days of
service to the Company per month by Mr. Adelson. Mr. Adelson is also entitled to
receive severance benefits equal to one week's base salary for each full year of
service to the Company up to a maximum of eight weeks based upon Mr. Adelson's
first date of employment by the Company. The employment agreement also contains
an agreement to maintain confidentiality of trade secrets and other materials.
Directors
Directors are not compensated for their services as directors; however,
they are reimbursed for all reasonable expenses incurred in connection
therewith.
Option Plans
The Board of Directors of the Company has adopted an Incentive Stock Option
Plan (the "Qualified Plan") which provides for the grant of options to purchase
an aggregate of not more than 300,000 shares of the Company's Common Stock. The
purpose of the Qualified Plan is to make options available to management and
employees of the Company in order to provide them with a more direct stake in
the future of the Company and to encourage them to remain with the Company. The
Qualified Plan provides for the granting to management and employees of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code").
The Board of Directors of the Company has adopted a Non-Qualified Stock
Option Plan (the "Non-Qualified Plan") which provides for the grant of options
to purchase an aggregate of not more than 150,000 shares of the Company's Common
Stock. The purpose of the Non-Qualified Plan is to provide certain key
employees, independent contractors, technical advisors, and directors of the
Company with options in order to provide additional rewards and incentives for
contributing to the success of the Company. These options are not incentive
stock options within the meaning of Section 422 of the Code.
The Qualified Plan and the Non-Qualified Plan (the "Stock Option Plans")
will be administered by a committee (the "Committee") appointed by the Board of
Directors which determines the persons to be granted options under the Stock
Option Plans and the number of shares subject to each option. No options granted
under the Stock Option Plans will be transferable by the optionee other than by
will or the laws of descent and distribution and each option will be
exercisable, during the lifetime of the optionee, only by such optionee. Any
options granted to an employee will terminate upon his ceasing to be an
employee, except in limited circumstances, including death of the employee, and
where the Committee deems it to be in the Company's best interests not to
terminate the options.
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The exercise price of all incentive stock options granted under the
Qualified Plan must be equal to the fair market value of the underlying shares
on the date of grant as determined by the Committee, based on guidelines set
forth in the Qualified Plan. The exercise price may be paid in cash or (if the
Qualified Plan shall meet the requirements of rules adopted under the Securities
Exchange Act of 1934) in Common Stock or a combination of cash and Common Stock.
The term of each option and the manner in which it may be exercised will be
determined by the Committee, subject to the requirement that no option may be
exercisable more than 10 years after the date of grant. With respect to an
incentive stock option granted to a participant who owns more than 10% of the
voting rights of the Company's outstanding capital stock on the date of grant,
the exercise price of the option must be at least equal to 110% of the fair
market value on the date of grant and the option may not be exercisable more
than five years after the date of grant. The exercise price of all stock options
granted under the Non-Qualified Plan must be equal to at least 80% of the fair
market value of such shares on the date of grant as determined by the Committee,
based on guidelines set forth in the Non-Qualified Plan.
As of the date of this Prospectus, no options have been granted under
either the Qualified Plan or the Non-Qualified Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has received periodic cash advances from Mr. Alexander Adelson,
its secretary and a founder, promoter, and director. As of December 31, 1996,
the advances aggregated $35,500. The Company has executed a promissory note with
Mr. Adelson which requires the payment of the principal amount of these
advances, together with interest at the rate of 10% per annum, compounded
quarterly, on the unpaid principal balance, not later than December 31, 1998. In
addition, the Company received loans from Mr. Adelson in June and July 1997, in
the amounts of $5,000 and $10,000, respectively. The loans are evidenced by
promissory notes, which bear interest at the rate of 8.75% per annum, and which
are due on demand. Management intends to repay these promissory notes from the
net proceeds of this offering.
The Company also received periodic cash advances from Mr. Frank Delfine,
its president, treasurer, Chairman of its Board of Directors and a founder and
promoter. As of December 31, 1996, the advances aggregated $6,300 from Mr.
Delfine. The Company has executed a promissory note with Mr. Delfine, which
requires the payment of the principal amount of these advances, together with
interest at the rate of 10% per annum, compounded quarterly, on the unpaid
principal balance, not later than December 31, 1998. In addition, the Company
received a loan from Mr. Delfine in May 1997, in the amount of $5,000. The loan
is evidenced by a promissory note, bears interest at the rate of 8.75% per
annum, and is due on demand. Management intends to repay both of these
promissory notes from the net proceeds of this offering.
Effective September 30, 1996, the Board of Directors granted stock options
to Alexander Adelson and Frank Delfine. Mr. Adelson and Mr. Delfine were each
granted a stock option to purchase 15,000 shares of Common Stock (30,000 shares
in the aggregate) at an exercise price of $2.60 per share. In addition,
effective November 30, 1996, the Board of Directors granted each of Messrs.
Adelson and Delfine stock options to purchase 75,000 shares of Common Stock
(150,000 shares in the aggregate) at an exercise price of $8.05 per share. The
Board of Directors believes that the exercise price of the stock options, in
each case, was in excess of the fair market value of the Company's Common Stock
at the time that such options were granted. However, the $8.05 exercise price
for the options granted effective November 30, 1996, was determined in
negotiations with the Representative of the Underwriters.
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PRIOR OFFERINGS
On October 12, 1992, the Company raised $370,000 by selling 37 units (the
"Units") at $10,000 per Unit. Each Unit was comprised of a 0.1% royalty interest
(each a "Royalty Interest") in gross sales revenues (aggregating 3.7% per annum
of the Company's gross revenues from sales in royalty payments to the holders of
the 37 Royalty Interests) and 3,750 Common Stock purchase warrants (the
"Warrants"). Each Warrant, when issued, entitled the holder thereof to purchase
one share of the Company's Common Stock at a price of $4.00 per share. The
Warrants expire on December 31, 1997.
In December 1994, the Company raised $140,000 pursuant to a private
offering and sale of 28,000 shares of the Company's Common Stock. The proceeds
were used for: (i) marketing of the product recently developed by the Company;
(ii) further research and development of products; and (iii) working capital.
Between January and June 1996, the Company raised $300,000 pursuant to a
private offering and sale of 100,000 shares of Common Stock. The proceeds have
been used for: (i) the purchase of finished goods inventory; (ii) marketing and
advertising; (iii) salaries; and (iv) working capital.
In June 1996, the Company reduced the exercise price of the Warrants to
$2.60 per share of Common Stock for an interim period of time by means of a
private offering to the holders of the Warrants. For additional information
concerning the 58,252 Warrants which are currently outstanding and exercisable
at $4.00 per share, see "Description of Securities-Common Stock Purchase
Warrant" The Company also solicited the holders of the Royalty Interests to
convert their Royalty Interests to shares of Common Stock. All of the Royalty
Interests were converted into 185,000 shares of Common Stock pursuant to that
offering. In connection with that offering, Messrs. Delfine and Adelson agreed
that any person who previously exercised his or her Warrants at the stated
exercise price of $4.00 per share would receive additional shares of Common
Stock, such shares to be transferred to such persons by Messrs. Delfine and
Adelson from their personal holdings of Common Stock and in such numbers as to
make the effective exercise price of those Warrants $2.60 per share. In
addition, Messrs. Delfine and Adelson agreed that persons who purchased shares
of Common Stock for $5.00 per share in the 1994 private offering would receive
additional shares, such shares to be transferred to such persons by Messrs.
Delfine and Adelson from their personal holdings of Common Stock and in such
numbers as to make the effective purchase price of those shares $3.00 per share.
The shares transferred to such prior investors, an aggregate of 28,763 shares,
were transferred without consideration of any kind for such transfer. Pursuant
to that private offering, the Company issued an additional 61,748 shares of
Common Stock and Messrs. Delfine and Adelson transferred an aggregate of 28,763
shares of Common Stock (including 1,333 shares of Common Stock transferred to
Mr. Adelson who had invested in the offering at $5.00 per share on the same
terms as the other investors).
On February 14, 1997, the Company completed a private offering of 60,000
shares of its Common Stock and raised approximately $156,000 in net proceeds
from that offering. The net proceeds of that offering were used for working
capital.
On September 15, 1997, the Company completed a private offering of
promissory notes to a total of 36 investors, with an aggregate principal amount
of $420,000. The promissory notes will mature on July 31, 1998, bear interest at
the rate of 10% per annum, and will be convertible, as of the maturity date at
the option of the holder, to Common Stock at $3.00 per share. The proceeds of
the offering have been and are to be used for working capital. See "Description
of Securities--10% Promissory Notes."
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PRINCIPAL SHAREHOLDERS
The Company is authorized to issue 10,000,000 shares of Common Stock,
$0.001 par value, and 10,000,000 shares of preferred stock, $0.01 par value. As
of the date of this Prospectus, there are 1,056,498 shares of the Company's
Common Stock issued and outstanding. No shares of preferred stock are issued and
outstanding. The table below sets forth the stock ownership as of September 1,
1997, of each person known by the Company to be the beneficial owner of more
than 5% of the Company's $0.001 par value Common Stock, of all directors
individually, and of all directors and executive officers of the Company as a
group.
Shares Beneficially Shares to be Beneficially
Owned Prior to Offering Owned After Offering(1)
Name and Address ----------------------- -----------------------
of Beneficial Owner Number Percent Number Percent
- ------------------- ------ ------- ------ -------
Alexander Adelson(2),(3) 353,951 30.87% 353,951 16.49%
Frank Delfine(2),(4) 350,619 30.58% 350,619 16.33%
John Dibble(2),(5) 42,131 3.95% 42,131 2.04%
James Messing(2),(6) 43,894 4.15% 43,894 2.13%
Officers and Directors 790,595 63.45% 790,595 35.20%
as a Group (4 persons)
- ----------
(1) Excludes (i) 100,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants to be issued in conjunction with this offering;
(ii) 72,252 shares of Common Stock issuable upon the exercise of currently
outstanding common stock purchase warrants; (iii) 180,000 shares of Common
Stock issuable upon the exercise of currently outstanding stock options;
(iv) 450,000 shares of Common Stock reserved for issuance under the
Company's Stock Option Plans; and (v) 140,000 shares of Common Stock
issuable upon the conversion of currently outstanding promissory notes. See
"Market for Common Equity and Related Stockholder Matters--Common Stock
Outstanding or Reserved for Issuance," "Underwriting--Representative's
Warrants," "Executive Compensation--Option Plans," and "Prior Offerings."
(2) The address for the officers and directors of the Company is 7 Flower
Field, M100, St. James, NY 11780
(3) Includes options to purchase 75,000 shares of the Company's Common Stock
which are exerciseable at $8.05 per share, and options to purchase 15,000
shares of the Company's Common Stock which are exerciseable at $2.60 per
share.
(4) Includes options to purchase 75,000 shares of the Company's Common Stock
which are exerciseable at $8.05 per share, and options to purchase 15,000
shares of the Company's Common Stock which are exerciseable at $2.60 per
share.
(5) Includes warrants to purchase 9,431 shares of the Company's Common Stock
which are immediately exerciseable at $4.00 per share.
(6) Includes shares of the Company's Common Stock owned of record by Mr.
Messing's wife. Mr. Messing may be deemed to be the beneficial owner of the
shares held by his wife.
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that any market will develop or, if a market
should develop, that it will continue. Subsequent to completion of this
offering, it is anticipated that the Common Stock will be listed on the National
Association of Securities Dealers, Inc.'s Small Cap Market.
Common Stock Outstanding or Reserved for Issuance.
As of the date of this Prospectus, the Company has 1,056,498 shares of
Common Stock outstanding. The number of holders of record of the Company's
Common Stock is 70.
The Company has reserved 300,000 shares of Common Stock for issuance upon
exercise of options which may be granted pursuant to the Company's Qualified
Stock Option Plan, 150,000 shares of Common Stock for issuance upon exercise of
options which may be granted pursuant to the Company's Non-Qualified Stock
Option Plan, 58,252 shares of Common Stock for issuance upon exercise of the
remaining outstanding Warrants, 180,000 shares of Common Stock for issuance upon
exercise of outstanding stock options, 140,000 shares of Common Stock for
issuance upon conversion of outstanding convertible promissory notes, 14,000
shares of Common Stock for issuance upon exercise of certain warrants issued to
the selling agent in a prior private securities offering, and 100,000 shares of
Common Stock for issuance to the Representative upon exercise of the
Representative's Warrants being issued in connection with this offering. See
"Shares Eligible for Future Sale," below.
Shares Eligible for Future Sale
After completion of this offering but without giving effect to the exercise
of the Representative's Warrants or the issuance of any shares of Common Stock
reserved for issuance under the Company's Stock Option Plans or pursuant to the
exercise of any of the 72,252 currently outstanding warrants or any of the
180,000 currently outstanding stock options, or pursuant to conversion of the
outstanding convertible promissory notes, the Company will have 2,056,498 shares
of Common Stock outstanding after completion of this offering. Of these, the
1,000,000 shares sold in this offering will be freely tradable (except by
affiliates of the Company) without restriction or further registration under the
Securities Act. The balance will be "restricted securities" as that term is
defined in Rule 144 promulgated under the Securities Act. An aggregate of
approximately 996,498 of the restricted securities (which are held by
approximately 52 beneficial owners) are currently eligible for resale pursuant
to Rule 144 and will be freely tradable in the public market (except by
affiliates of the Company). The remaining 60,000 "restricted securities" may be
sold, but only in the public market pursuant to an effective registration
statement or in accordance with Rule 144. The holders of 655,639 shares of
Common Stock that are eligible for resale under Rule 144 have entered into an
agreement with the Representative under which they have agreed not to sell any
of the restricted securities which they hold for a two year period following the
date of this Prospectus, without the consent of the Representative (the
"Lock-Up"). All of the Company's officers and directors, who hold an aggregate
of 601,164 shares of Common Stock, have entered into the Lock-Up agreement
referenced above. The Representative has no general policy, plans, arrangements,
understandings, or commitments with respect to the early release of the Lock-Up;
however, investors are cautioned that the Representative in its sole discretion,
and without notice to the public, may elect to release all or part of the shares
subject to the Lock-Up prior to the expiration of the Lock-Up period. The early
releases of the Lock-Up and subsequent sale of those shares could have a
depressive effect upon the trading price of the Common Stock. Following the
expiration of the Lock-Up, all of the shares that are the subject of the Lock-Up
will be eligible for resale pursuant to Rule 144 promulgated pursuant to the
Securities Act, subject in some cases to compliance with certain volume
limitations imposed pursuant to Rule 144 and to applicable state securities
laws.
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In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned his or
her shares for at least one year, including affiliates of the Company, would be
entitled to sell within any three-month period a number of shares equal to the
greater of 1% of the then outstanding shares of Common Stock of the Company
(approximately 20,565 after this offering) or the average weekly trading volume
of the Company's Common Stock during the four calendar weeks preceding the
filing of the required notice of such sale. Sales under Rule 144 are also
subject to certain waiver of sale restrictions, notice requirements, and the
availability of current public information about the Company. Sales of
substantial numbers of shares of Common Stock pursuant to a registration
statement, Rule 144, or otherwise could adversely affect the market price of the
Common Stock, should such a market develop.
The Company has reserved 450,000 shares of Common Stock for issuance upon
exercise of options which may be granted pursuant to the Company's Stock Option
Plans, 72,252 shares of Common Stock for issuance upon exercise of the currently
outstanding warrants, 180,000 shares of Common Stock for issuance upon exercise
of currently outstanding stock options, 140,000 shares of Common Stock for
issuance upon conversion of outstanding convertible promissory notes, and
100,000 shares of Common Stock for issuance to the Representative upon exercise
of the Representative's Warrants. The 72,252 outstanding warrants consist of
58,252 Warrants issued in a prior private offering, which Warrants are
exercisable at $4.00 per share of Common Stock until December 31, 1997, and
14,000 warrants issued to the selling agent with respect to a prior private
offering, which warrants are exercisable at $3.60 per share of Common Stock for
a period of four years commencing July 8, 1998. Neither the warrants nor the
shares of Common Stock underlying the warrants are being registered pursuant to
the Registration Statement of which this Prospectus is a part. The
Representative's Warrants are exercisable at $6.90 per share of Common Stock for
a period of four years commencing one year from the date of this Prospectus. The
Representative's Warrants carry certain registration rights. The exercise prices
of the warrants and the Representative's Warrants are subject to adjustment
under certain circumstances. If the holders of the Representative's Warrants
exercise their warrants and their registration rights relating to the underlying
Common Stock, they will own registered shares which will be freely transferable
and tradable without restriction or further registration under the Securities
Act. See "Underwriting."
DESCRIPTION OF SECURITIES
Common Stock
The Company's authorized capital consists of 10,000,000 shares of Common
Stock, par value $0.001 per share.
Holders of Common Stock are entitled to one vote for each whole share on
all matters to be voted upon by shareholders, including the election of
directors. Holders of Common Stock do not have cumulative voting rights in the
election of directors. All shares of Common Stock are equal to each other with
respect to liquidation and dividend rights. Holders of Common Stock are entitled
to receive dividends if and when declared by the Company's Board of Directors
out of funds legally available therefor under Nevada law. In the event of the
liquidation of the Company, all assets available for distribution to the holders
of the Common Stock are distributable among them according to their respective
holdings. Holders of Common Stock have no preemptive rights to purchase any
additional, unissued shares of Common Stock. All of the outstanding shares of
Common Stock of the Company are, and those to be issued pursuant to this
offering will be, fully paid and nonassessable.
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Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of preferred
stock, par value $0.01 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights,
and sinking fund provisions. The ability of the Board of Directors to issue
preferred stock could also be used as a means for resisting a change of control
of the Company, and therefore can be considered an "Anti-Takeover" device.
No shares of preferred stock will be outstanding as of the closing of this
offering, and the Company has no present plans for the issuance thereof. The
issuance of any such preferred stock could adversely affect the rights of the
holders of the Common Stock and therefore, reduce the value of the Common Stock.
Common Stock Purchase Warrants
The Company currently has outstanding 58,252 Common Stock Purchase Warrants
(the "Investor Warrants") which were issued pursuant to a prior private offering
of the Company's securities and 14,000 Common Stock purchase warrants (the
"Selling Agent Warrants") which were issued to the selling agent of a prior
private offering of the Company's securities. Each Investor Warrant entitles the
holder thereof to purchase one share of the Company's Common Stock for $4.00 per
share. The Investor Warrants are exercisable until December 31, 1997. Each
Selling Agent Warrant entitles the holder thereof to purchase one share of the
Company's Common Stock for $3.60 per share for a period of four years commencing
July 8, 1998. Neither the Investor Warrants nor the Selling Agent Warrants are
redeemable. The exercise price of and the number of shares of Common Stock to be
obtained upon exercise of the Investor Warrants and the Selling Agent Warrants
are subject to adjustment in certain circumstances including (i) the payment of
a stock dividend; (ii) a forward or reverse stock split; (iii) a consolidation
or combination involving the Common Stock; and (iv) a reclassification or
recapitalization involving the Common Stock.
Neither the warrants nor the shares of Common Stock issuable upon exercise
of the warrants are being registered pursuant to the Registration Statement of
which this Prospectus is a part.
10% Promissory Notes
The Company currently has outstanding 420 promissory notes (the "Promissory
Notes") which were issued pursuant to a prior private offering of the Company's
securities. The principal amount of each Promissory Note is $1,000, for an
aggregate principal amount of $420,000. The Promissory Notes bear interest at
the rate of 10% per annum, will mature on July 31, 1998, and will be
convertible, as of the maturity date at the option of the holder, to Common
Stock at $3.00 per share.
Transfer Agent
Corporate Stock Transfer, Inc., 370 17th Street, Suite 2360, Denver,
Colorado 80202, has been retained to serve as the transfer agent and registrar
for the Company's Common Stock.
Reports to Shareholders
The Company intends to furnish annual reports to shareholders which include
audited financial statements reported on by its independent accountants. The
Company will comply with the periodic reporting requirements imposed by the
Securities Exchange Act of 1934.
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UNDERWRITING
The Company has entered into an Underwriting Agreement with Andrew Garrett,
Inc. Under the terms of the Underwriting Agreement, the Company has employed the
Underwriters as its exclusive agents to sell 1,000,000 shares of Common Stock at
an offering price of $5.75 per share on a "best efforts, all-or-none" basis. All
1,000,000 shares of Common Stock must be sold by the Underwriters in order to
break escrow and close this offering. Therefore, if 1,000,000 shares of Common
Stock are not sold within 45 days from the date of this Prospectus (unless
extended for additional periods not to exceed 45 days by mutual agreement
between the Company and the Underwriters), all monies received will be refunded
without any deduction for commissions or expenses, and without any interest
thereon. All proceeds from the sale of the 1,000,000 shares of Common Stock will
be promptly transmitted to an escrow account at European American Bank, a New
York banking corporation, (the "Escrow Agent") entitled "Patcomm Corporation
Escrow Account." Until such time as the funds have been released from escrow and
certificates for the shares of Common Stock delivered to the purchasers thereof,
such purchasers, if any, will be deemed subscribers and not shareholders.
The Underwriters intend to offer a portion of the shares offered hereby
through selected licensed security dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD"), and allocate to such dealers
such portions of the commission and the Representative's Warrants as the
Representative may determine. The Underwriters intend to enter into written
dealer agreements with such other securities dealers regarding this offering as
they deem appropriate.
The Underwriters are to receive a sales commission of ten percent ($0.575
per share sold). In addition, upon the sale of all 1,000,000 shares offered
hereby, the Company has agreed to pay to the Representative a non-accountable
expense allowance of 3% of the gross proceeds of the offering ($172,500), of
which none has been paid. Any other expenses of the Representative which exceed
the non-accountable expense allowance will be borne by the Representative. To
the extent that the expenses of the Representative are less than the
non-accountable expense allowance, the excess may be deemed to be additional
compensation to the Representative. The Company has agreed to pay the expenses
connected with qualifying the shares for sale in various states that the
Representative may designate. The Underwriting Agreement also contains a
covenant by the Company to spend up to $350,000 from the proceeds of the
offering for investor relations and public relations.
The Representative has required the holders of 655,639 shares of Common
Stock, including the officers and directors of the Company, to agree not to sell
or otherwise dispose of any of their shares for a period of up to two years
after the date of this Prospectus without the prior written consent of the
Representative. Such agreements will be enforceable only by the parties thereto
and not by other shareholders and may be amended or rescinded, in whole or in
part, at any time.
The Company and the Representative have agreed to indemnify each other and
related persons against certain liabilities, including liabilities under the
Securities Act, and, if such indemnifications are unavailable or are
insufficient, the Company and the Representative have agreed to damage
contribution arrangements between them based upon the relative benefits received
from the offering and the relative fault resulting in such damages. Such
relative benefits and relative fault would be determined in legal actions among
the parties. Under such contribution arrangements, the maximum payable by any
underwriter would be the public offering price of the Common Stock underwritten
and distributed by any such underwriter.
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Representative's Warrants
The Company has agreed to sell to the Representative, at the closing of
this offering and for a purchase price of $0.001 per warrant, warrants (the
"Representative's Warrants") to purchase one share of Common Stock for each 10
shares sold in the offering. For a period of one year following the date of this
Prospectus, the Representative's Warrants are restricted from sale, transfer,
assignment, or hypothecation, except to the Underwriters and persons who are
officers or partners of the Underwriters. In addition, neither the
Representative's Warrants nor the underlying shares of Common Stock may be sold
without registration or an exemption from the registration provisions of the
Securities Act. The Representative's Warrants are exercisable at a price of 120%
of the public offering price (i.e., $6.90 per share, assuming a price of $5.75
per share in this offering) for a period of four years beginning one year from
the date of this Prospectus. The exercise period may not be extended. The
exercise price of the Representative's Warrants and the number of shares of
Common Stock underlying said Representative's Warrants are subject to adjustment
under certain circumstances to prevent dilution to the holders in the event of
stock dividends, stock splits, or stock combinations or upon a sale of assets,
merger, or consolidation.
The Representative and persons to whom the Representative may transfer the
Representative's Warrants have the right to join in any registration statement
or offering filed by the Company under the Securities Act to register the
Representative's Warrants and underlying securities for a period of four years
commencing one year from the date of this Prospectus. In addition, for a period
of four years commencing one year from the date of this Prospectus, the Company
has agreed, upon request of the holders of not less than 50% of the
Representative's Warrants or underlying securities, to file, not more than once,
a registration statement under the Securities Act registering or qualifying the
Representative's Warrants and/or the underlying shares of Common Stock at the
Company's expense. All expenses of such registration or qualification (except
for selling commissions and expenses and fees and expenses of counsel for the
selling security holders) including, but not limited to, legal, accounting,
state and federal filing fees, and the cost of printing prospectuses, will be
borne by the Company, which will be a substantial cost to the Company.
Both the Representative's Warrants and any profits realized by the
Representative on the sale of the shares of Common Stock underlying the
Representative's Warrants may be considered additional underwriting
compensation.
Right of First Refusal
The Underwriting Agreement provides that, for a period of five years
following the date of this Prospectus, the Representative will have a 48-hour
right of first refusal to underwrite, on terms acceptable to the Representative,
any public or private sale of the Company's securities.
Investment Banking Agreement
The Company has agreed to enter into a three-year Investment Banking
Agreement with the Representative. Such agreement provides that the
Representative will render consulting services on investment banking and other
financial matters to be determined by the Company, including but not limited to
changes in capital structure, banking methods and systems, the raising of
capital from public and private sources, and investment banking transactions and
services. Such services will be provided upon dates requested by the Company and
reasonably acceptable to the Representative. The aggregate fee due to the
Representative for such services will be $108,000 and shall be paid at closing
of this offering. The investment banking fee may be considered additional
underwriting compensation.
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Pricing of the Offering
Prior to this offering, there has been no public market for the securities
of the Company and there can be no assurance that a market will develop
following the offering. The initial public offering price of the Common Stock
has been determined by negotiation between the Representative and the Company
and does not reflect an evaluation of the Company's securities by any
statistical valuation method. Among the factors considered in determining the
initial public offering price and the number of shares offered were the history
of, and the prospects for the Company, assessment of the Company's management,
its past and present operations, its past and present earnings and the prospects
for future earnings of the Company, the general condition of the securities
markets at the time of the offering, and other factors deemed relevant.
Accordingly, the offering price set forth on the cover page of this Prospectus
should not be considered an indication of the actual value of the Company or the
securities. The price bears no relation to the Company's assets, book value,
earnings, or net worth or any other generally accepted criterion of value. No
assurance can be given that any purchaser of Common Stock will be able to sell
any of his or her Common Stock, in any public market or otherwise, or at any
particular price.
Recently Organized Representative
The underwriting of this offering is being managed by the Representative,
Andrew Garrett, Inc. This offering constitutes the first public offering of
securities managed by the Representative. The Representative's limited
experience could adversely impact the development and maintenance of a trading
market in the securities offered hereby.
LITIGATION
The Company is not aware of any material pending litigation to which the
Company is or may be a party, nor is it aware of any pending or contemplated
proceedings against it by governmental authorities. The Company knows of no
legal proceedings pending or threatened, or judgments entered against, any
director or officer of the Company, or legal proceeding to which any director,
officer, or security holder of the Company is a party adverse to, or has a
material interest adverse to, the Company.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters in connection herewith will be passed upon for the Company by Schlueter
& Associates, P.C., Denver, Colorado. Certain legal matters in connection with
the offering will be passed upon for the Underwriters by John E. Lawlor, Esq.,
Attorney at Law, Mineola, New York.
EXPERTS
The financial statements of the Company at December 31, 1996 and for the
years ended December 31, 1996 and 1995 included in this Prospectus have been
audited by Winter, Scheifley, and Associates, P.C., as indicated in their report
with respect thereto, and are included herein in reliance upon such report and
upon the authority of said firm as experts in accounting and auditing.
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STATEMENT AS TO INDEMNIFICATION
The Company's Articles of Incorporation and Bylaws provide that the Company
will indemnify its directors and officers to the fullest extent provided by
Nevada law. In addition, the Articles of Incorporation contain a provision
limiting a director's and officer's liability for monetary damages to the
fullest extent permitted by Nevada law.
Furthermore, Section 78.751 of the NGCL contains provisions relating to
indemnification of officers and directors. Section 78.751(1) provides that a
corporation may indemnify any person who was or is a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, except for an action by or in right of the
corporation by reason of the fact that he was a director, officer, employee, or
agent of the corporation. In order to indemnify, it must be shown that he acted
in good faith and in a manner he reasonably believed to be in the best interest
of the corporation. Generally, no indemnification may be made where the person
has been determined to be negligent or guilty of misconduct in the performance
of his duty to the corporation.
Section 78.751(2) of the NGCL further allows the corporation to indemnify
any person who was or is a party to any threatened, pending, or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee, or agent
of the corporation, including amounts paid in settlement and attorneys' fees if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation. Indemnification may not be
made for any claim, issue, or matter to which a court of competent jurisdiction
has adjudged an officer or director liable to the corporation, unless and only
to the extent that a court of competent jurisdiction determines that in view of
the circumstances of the case, the person is fairly and reasonably entitled to
be indemnified for such expenses.
To the extent that a director, officer, employee, or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding discussed in the preceding paragraphs, Section 78.751(3) of the
NGCL provides that he must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the defense.
Except when indemnification is required by a court of competent
jurisdiction, Section 78.751(4) of the NGCL states that the corporation shall
only indemnify upon a determination of (i) the stockholders; (ii) majority vote
of the board that were not parties to the action; (iii) if ordered by a majority
vote of a quorum of directors who were not parties to the action, suit, or
proceeding, by independent legal counsel in a written opinion; or (iv) by
independent legal counsel in a written opinion if no quorum of directors who
were not parties to the action may be obtained.
Unless ordered by a court of competent jurisdiction, indemnification may
not be made to or on behalf of any officer or director if a final adjudication
establishes that his acts or omissions involved intentional misconduct, fraud,
or a knowing violation of the law and were material to the cause of action.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In accordance with the Nevada Revised Statutes ("NRS"), the Registrant has
included a provision in its Articles of Incorporation to limit the personal
liability of its directors for violations of their fiduciary duty. The provision
eliminates such directors' liability to the Registrant or its stockholders for
monetary damages, except for (i) any breach of the director's duty of loyalty to
the Registrant or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
unlawful payment of dividends or unlawful stock purchases or redemptions; or
(iv) any transaction from which a director derived an improper personal benefit.
The Articles of Incorporation of the Registrant provide for the
indemnification of every person who was or is a party or is threatened to be
made a party to, or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or a person of whom he is the legal representative is or was an officer of the
Registrant or is or was serving at the request of the Registrant as a director
or officer of another corporation, or as its representative in a partnership,
joint venture, trust or other enterprise, to the fullest extent permitted by the
NRS, against all expenses, liability and loss for and (including attorneys'
fees, judgment, fines and amounts paid or to be paid in settlement), reasonably
incurred or suffered by him in connection therewith. In addition, the Articles
of Incorporation of the Registrant provide that the Registrant may purchase and
maintain insurance on behalf of any person who is or was an officer, employee or
agent of the Registrant for any liability asserted against such person and
liability and expenses incurred by him in any such capacity or arising out of
such status, whether or not the Registrant has the authority to indemnify such
person.
In general terms, NRS Section 78.751 allows indemnification of any person
who was, is or is threatened to be made a party to an action, suit or proceeding
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person, provided such
person acted in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. NRS Section 78.752 also permits the Registrant, under certain
circumstances, to obtain insurance or make other financial arrangements to fund
payments for liabilities and expenses incurred by directors, officers, employees
and agents whether or not the Registrant has the authority to indemnify such
person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933, and is therefore unenforceable.
II-1
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
Estimates of fees and expenses incurred or to be incurred in connection
with the issuance and distribution of securities being registered, other than
underwriting commissions are as follows:
Securities and Exchange Commission filing fee $ 1,951
National Association of Securities Dealers, Inc. filing fee $ 1,144
NASDAQ Small Cap Market Listing Fee $ 7,985
State Securities Laws (Blue Sky) fees and expenses $ 40,000
Representative's Non-Accountable Expense Allowance $ 172,500
Investment Banking Fee $ 108,000
Transfer Agent's fees $ 10,000
Printing and mailing costs and fees $ 30,000
Legal fees and costs $ 125,000
Accounting fees and costs $ 30,000
Miscellaneous expenses $ 10,000
----------
TOTAL $ 536,580
==========
Item 26. Recent Sales of Unregistered Securities
The Registrant has sold the following unregistered securities during the
past three years.
1. Pursuant to a Confidential Private Placement Memorandum dated April
28, 1994, the Registrant sold an aggregate of 28,000 shares of its $0.001 par
value Common Stock to a total of 13 persons. These shares were sold for an
aggregate of $140,000.00 in cash, or $5.00 per share.
No underwriter, broker, or dealer, in its capacity as such, was
involved in any of the above sales of the Registrant's unregistered securities,
and no underwriting discounts, commissions, or brokerage fees were paid with
respect to such transactions.
The Registrant considers that the above transactions are exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemptions under Sections 4(2) and 3(b) of such Act as
sales of securities not involving a public offering. Management of the
Registrant has represented that the persons who paid cash for their securities
in the foregoing transactions possessed material information concerning the
Registrant and were in a position to obtain from the Registrant information
necessary to verify such information. All such persons were offered the
opportunity to obtain information from the Registrant in order to evaluate the
merits and risks of the proposed investment. In addition, all such persons were
informed that they were obtaining "restricted securities" as defined in Rule 144
under the Act, that such shares cannot be transferred without appropriate
registration or exemption therefrom, that they must bear the economic risk of
the investment for an indefinite period of time, and that the Registrant would
restrict the transfer of the securities in accordance with such restrictions. In
addition, each certificate representing shares purchased in the above
transactions bears the standard restrictive legend.
2. At various times between September and December 1995, the
Registrant issued an aggregate of 18,750 shares of its $0.001 par value Common
Stock to a total of 5 persons upon exercise of 18,750 outstanding Common Stock
Purchase Warrants at an exercise price of $4.00 per share, for an aggregate of
$75,000 in cash. These Common Stock Purchase Warrants were originally issued in
October 1992, pursuant to a Confidential Private Offering Memorandum, and the
statements made below are also applicable to the October 1992 offering.
II-2
<PAGE>
No underwriter, broker, or dealer, in its capacity as such, was
involved in any of the above sales of the Registrant's unregistered securities,
and no underwriting discounts, commissions, or brokerage fees were paid with
respect to such transactions.
The Registrant considers that the above transactions are exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemptions under Sections 4(2) and 3(b) of such Act as
sales of securities not involving a public offering. Management of the
Registrant has represented that the persons who paid cash for their securities
in the foregoing transactions possessed material information concerning the
Registrant and were in a position to obtain from the Registrant information
necessary to verify such information. All such persons were offered the
opportunity to obtain information from the Registrant in order to evaluate the
merits and risks of the proposed investment. In addition, all such persons were
informed that they were obtaining "restricted securities" as defined in Rule 144
under the Act, that such shares cannot be transferred without appropriate
registration or exemption therefrom, that they must bear the economic risk of
the investment for an indefinite period of time, and that the Registrant would
restrict the transfer of the securities in accordance with such restrictions. In
addition, each certificate representing shares purchased in the above
transactions bears the standard restrictive legend.
3. Pursuant to a Confidential Private Placement Memorandum dated
January 29, 1996, the Registrant sold an aggregate of 100,000 shares of its
$0.001 par value Common Stock to a total of 14 persons. These shares were sold
for an aggregate of $300,000.00 in cash, or $3.00 per share.
The shares were offered and sold by Andrew Garrett, Inc., as Placement
Agent. The Placement Agent was paid a commission equal to 10% of the purchase
price of each share sold, or an aggregate of $30,000.00.
The Registrant considers that the above transactions are exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemptions under Sections 3(b), 4(2), and 4(6) of such
Act as sales of securities not involving a public offering. Management of the
Registrant has represented that the persons who paid cash for their securities
in the foregoing transactions possessed material information concerning the
Registrant and were in a position to obtain from the Registrant information
necessary to verify such information. All such persons were offered the
opportunity to obtain information from the Registrant in order to evaluate the
merits and risks of the proposed investment. In addition, all such persons were
informed that they were obtaining "restricted securities" as defined in Rule 144
under the Act, that such shares may not be transferred without appropriate
registration or exemption therefrom, that they must bear the economic risk of
the investment for an indefinite period of time, and that the Registrant would
restrict the transfer of the securities in accordance with such restrictions. In
addition, each certificate representing shares purchased in the above
transactions bears the standard restrictive legend.
4. Pursuant to a Confidential Private Placement Memorandum dated May
25, 1996, the Registrant issued an aggregate of 246,748 shares of its $0.001 par
value Common Stock to a total of 19 persons upon the exercise of outstanding
Common Stock Purchase Warrants and conversion of royalty interests as described
below. An aggregate of 61,748 shares were issued upon exercise of 61,748
outstanding Common Stock Purchase Warrants at an exercise price of $2.60 per
share, for an aggregate of $160,545 in cash or forgiveness of debt. The
remaining 185,000 shares were issued upon conversion of 37 outstanding Royalty
Interests for no additional consideration. The Royalty Interests were originally
sold to investors in 1992.
II-3
<PAGE>
No underwriter, broker, or dealer, in its capacity as such, was
involved in any of the above sales of the Registrant's unregistered securities,
and no underwriting discounts, commissions, or brokerage fees were paid with
respect to such transactions.
The Registrant considers that the above transactions are exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemptions under Sections 4(2), 3(b), and 4(6) of such
Act as sales of securities not involving a public offering. Management of the
Registrant has represented that the persons who paid cash (and forgave debt) for
their securities in the foregoing transactions possessed material information
concerning the Registrant and were in a position to obtain from the Registrant
information necessary to verify such information. All such persons were offered
the opportunity to obtain information from the Registrant in order to evaluate
the merits and risks of the proposed investment. In addition, all such persons
were informed that they were obtaining "restricted securities" as defined in
Rule 144 under the Act, that such shares may not be transferred without
appropriate registration or exemption therefrom, that they must bear the
economic risk of the investment for an indefinite period of time, and that the
Registrant would restrict the transfer of the securities in accordance with such
restrictions. In addition, the shares which were issued upon conversion of the
outstanding Royalty Interests were exchanged by the issuer with its existing
security holders exclusively and no commission or other remuneration was paid or
given, directly or indirectly, for soliciting such exchange. Each certificate
representing shares issued in the above transactions bears the standard
restrictive legend.
5. On February 14, 1997, the Registrant completed a private offering
of 60,000 shares of its $0.001 par value Common Stock to a total of 18 persons.
These shares were sold for an aggregate of $156,000 in cash, or $2.60 per share.
The shares were offered and sold by Andrew Garrett, Inc., as Placement
Agent. The Placement Agent was paid a commission equal to 10% of the purchase
price of each share sold, or an aggregate of $15,600.
The Registrant considers that the above transactions are exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemption under Sections 4(2) of such Act as sales of
securities not involving a public offering. Management of the Registrant has
represented that the persons who paid cash for their securities in the foregoing
transactions possessed material information concerning the Registrant and were
in a position to obtain from the Registrant information necessary to verify such
information. All such persons were offered the opportunity to obtain information
from the Registrant in order to evaluate the merits and risks of the proposed
investment. In addition, all such persons were informed that they were obtaining
"restricted securities" as defined in Rule 144 under the Act, that such shares
may not be transferred without appropriate registration or exemption therefrom,
that they must bear the economic risk of the investment for an indefinite period
of time, and that the Registrant would restrict the transfer of the securities
in accordance with such restrictions. In addition, each certificate representing
shares purchased in the above transactions bears the standard restrictive
legend.
6. Pursuant to a Confidential Private Placement Memorandum dated July
8, 1997, the Registrant sold 420 10% Promissory Notes, each with a principal
amount of $1,000, to a total of 36 investors. The Promissory Notes were sold for
an aggregate of $420,000.00 in cash. The Promissory Notes are due and payable in
full as of July 31, 1998 (the "Maturity Date") and are convertible, at the
option of the holder, into shares of Common Stock at the Maturity Date, at the
rate of $3.00 per share.
II-4
<PAGE>
The Promissory Notes were offered and sold by Andrew Garrett, Inc., as
Placement Agent. The Placement Agent was paid a commission equal to 10% of the
purchase price of each Promissory Note sold, or an aggregate of $42,000.
The Registrant considers that the above transactions are exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the exemption under Sections 4(2) of such Act as sales of
securities not involving a public offering. Management of the Registrant has
represented that the persons who paid cash for their securities in the foregoing
transactions possessed material information concerning the Registrant and were
in a position to obtain from the Registrant information necessary to verify such
information. All such persons were offered the opportunity to obtain information
from the Registrant in order to evaluate the merits and risks of the proposed
investment. In addition, all such persons were informed that they were obtaining
"restricted securities" as defined in Rule 144 under the Act, that such
securities may not be transferred without appropriate registration or exemption
therefrom, that they must bear the economic risk of the investment for an
indefinite period of time, and that the Registrant would restrict the transfer
of the securities in accordance with such restrictions. In addition, each
Promissory Note purchased in the above transactions bears the standard
restrictive legend.
II-5
<PAGE>
Item 27. Exhibits
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement with Andrew Garrett, Inc.
1.2 Form of Selected Dealers Agreement
3.1 Articles of Incorporation of the Registrant and Amendment
3.2 Bylaws of the Registrant
4.1 Form of Common Stock Share Certificate
4.2 Form of Representative's Warrant
4.3 Form of 10% Promissory Notes issued in 1997
5.1 Opinion of Schlueter & Associates, P.C (1)
10.1 Form of Lock Up Agreement between the Representative and Officers and
Directors of the Registrant and certain Affiliates
10.2 Form of Employment Agreement between the Company and Mr. Frank Delfine
10.3 Form of Employment Agreement between the Company and
Mr. Alexander Adelson, as amended(1)
10.4 Form of Escrow Agreement between the Company, the Underwriters, and
European American Bank
10.5 Form of Incentive Stock Option Plan
10.6 Form of Non-Qualified Stock Option Plan
10.7 Investment Banking Agreement between the Company
and Andrew Garrett, Inc. (1)
10.8 Lease Agreement dated August 27, 1997, between Patcomm Corporation
and Gyrodyne Company of America, Inc. for facility at
7 Flower Field #M100, St. James, NY
23.1 Consent of Winter Scheifley & Associates, P.C.
independent Certified Public Accountants
- ----------
(1) To be filed by amendment.
II-6
<PAGE>
Item 28. Undertakings
With regard to the securities of the Registrant being registered pursuant
to Rule 415 under the Securities Act of 1933, the Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the Registration Statement; and
(iii) To include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933, to
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement Common Stock certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of New
York, New York, on October 13, 1997.
PATCOMM CORPORATION
By: /s/ Frank Delfine
------------------------------------------
Frank Delfine, President
In accordance with the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
October 13, 1997
/s/ Alexander Adelson Chairman of the Board
- ------------------------
Alexander Adelson
October 13, 1997
/s/ Frank Delfine President, and a Director
- ------------------------
Frank Delfine
/s/ John Dibble Director October 13, 1997
- ------------------------
John Dibble
/s/ James Messing Director October 13, 1997
- ------------------------
James Messing
II-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Patcomm Corporation
We have audited the accompanying balance sheet of Patcomm Corporation (a
development stage Company) as of December 31, 1996, and the related statements
of operations, stockholders' equity, and cash flows for each of the two years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Patcomm Corporation (a
development stage Company) as of December 31, 1996, and the results of its
operations, changes in stockholder's equity, and its cash flows for each of the
two years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses and negative
cash flow from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in note 9. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Winter, Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
March 7, 1997
F-1
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Balance Sheet
December 31, 1996
ASSETS
------
Current assets:
-----------
Cash $ 38,734
Inventory 50,780
-----------
Total current assets 89,514
Property and equipment, at cost, net of
accumulated depreciation of $64,131 55,021
Deferred offering costs 20,000
Other assets 1,384
-----------
$ 165,919
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of capital lease obligations $ 3,858
Current portion of loans payable to stockholders 61,800
Accounts payable 5,128
Accrued expenses 18,417
-----------
Total current liabilities 89,203
Capital lease obligations 13,534
Commitments
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized,
no shares issue and outstanding --
Common stock, $.001 par value,
10,000,000 shares authorized,
996,498 shares issue and outstanding 996
Additional paid-in capital 1,108,812
Common stock subscriptions 32,077
Deficit accumulated during the development stage (1,078,703)
-----------
63,182
-----------
$ 165,919
===========
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statements of Operations
For The Years Ended December 31, 1996 and 1995
and Inception (March 12, 1992) to December 31, 1996
Year Ended Year Ended Inception to
December 31, December 31, December 31,
1996 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Sales $ 25,211 $ 15,975 $ 68,322
Cost of sales 125,423 38,843 190,228
----------- ----------- -----------
Gross profit (100,212) (22,868) (121,906)
Other costs and expenses:
General and administrative 216,956 164,927 554,013
Research and development 59,730 27,268 404,555
----------- ----------- -----------
276,686 192,195 958,568
----------- ----------- -----------
Income (loss) from operations (376,898) (215,063) (1,080,474)
Other income and (expense):
Interest income 2,670 14 10,098
Interest expense (7,496) (831) (8,327)
----------- ----------- -----------
(4,826) (817) 1,771
----------- ----------- -----------
Net income (loss) $ (381,724) $ (215,880) $(1,078,703)
=========== =========== ===========
Earnings (loss) per share:
Net income (loss) ($ 0.43) ($ 0.34) ($ 1.78)
=========== =========== ===========
Weighted average shares outside 885,353 637,250 605,417
=========== =========== ===========
See accompanying notes to financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statement of Changes in Stockholder's Equity
Inception (March 12, 1992) to December 31, 1996
Deficit
Accumulated
Common Stock Additional During the Common
------------------------- Paid-in Development Stock
Shares Amount Capital Stage Subscriptions Total
------ ------ ------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Shares issued for equipment at $.11
per share March, 1992 550,000 $ 550 $ 60,345 $ -- $ -- $ 60,895
Shares issued for services at $.11
per share March, 1992 53,000 53 5,815 -- -- 5,868
Net (loss) for the year -- -- -- (44,631) -- (44,631)
----------- ----------- ----------- -------- ---------- ---------
Balance, December 31, 1992 603,000 603 66,160 (44,631) -- 22,132
Net (loss for the year -- -- -- (208,972) -- (208,972)
----------- ----------- ----------- -------- ---------- ---------
Balance December 31, 1993 603,000 603 66,160 (253,603) -- (186,840)
Shares issued for cash at $5.00
per share March, 1994 28,000 28 139,972 -- -- 140,000
Officer's capital contribution -- -- 10,000 -- -- 10,000
Net loss for the year -- -- -- (227,496) -- (227,496)
----------- ----------- ----------- ---------- --------- ----------
Balance, December 31, 1994 631,000 631 216,132 (481,099) -- (264,336)
Exercise of warrants at $4.00
per share September to December, 1995 18,750 19 74,981 -- -- 75,000
Officer's salary contributed to capital -- -- 17,000 -- -- 17,000
Net loss for the year -- -- -- (215,880) -- (215,880)
----------- ----------- ----------- ---------- --------- ----------
Balance, December 31, 1995 649,750 650 308,113 (696,979) -- (388,216)
Shares issued pursuant to a private
placement at $3.00 per share (January
to September 1996) 100,000 100 260,400 -- -- 260,500
Shares issued pursuant to a warrant
conversion at $2.60 per share
(January to September 1996) 61,748 61 160,484 -- -- 160,545
Forgiveness of stockholder loan -- -- 10,000 -- -- 10,000
Conversion of royalty interests
(June 1996) 185,000 185 369,815 -- -- 370,000
Common stock subscriptions -- -- -- -- 32,077 32,077
Net loss for the year -- -- -- (381,724) -- (381,724)
----------- ----------- ----------- ---------- --------- -----------
Balance, December 31, 1996 996,498 $ 996 $ 1,108,812 $(1,078,703) $ 32,077 $ 63,182
=========== =========== =========== =========== ======== ===========
See accompanying notes to financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
and Inception (March 12, 1992) to December 31, 1996
Year Ended Year Ended Inception to
December 31, December 31, December 31,
1996 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Net Income (loss) $ (381,724) $ (215,880) $(1,078,703)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 18,724 13,984 67,316
Officer's contribution of salary to capital -- 17,000 17,000
Stock issued for services -- -- 5,868
Changes in assets and liabilities:
(Increase) decrease in inventory 6,836) (11,387) (50,780)
(Increase) decrease in other assets -- -- (2,544)
Increase (decrease) in accounts payable and
accrued expenses (10,014) 9,228 23,545
----------- ----------- -----------
Total adjustments 1,874 28,825 60,405
----------- ----------- -----------
Net cash provided by (used in) operating activities (379,850) (187,055) (1,018,298)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of plant and equipment (13,935) (4,867) (39,931)
Deferred offering costs (20,000) -- (59,500)
----------- ----------- -----------
Net cash provided by (used in)
investing activities (33,935) (4,867) (99,431)
----------- ----------- -----------
Cash flows from financing activities:
Officer's capital contribution -- -- 10,000
Common stock issued for cash 453,122 75,000 717,622
Issuance of royalty interests and
warrants for cash -- -- 370,000
Repayment of capital leases (1,966) -- (2,959)
Increase in stockholder loans -- 71,800 61,800
----------- ----------- -----------
Net cash provided by (used in)
financing activities 451,156 146,800 1,156,463
----------- ----------- -----------
Increase (decrease) in cash 37,371 (45,122) 38,734
Cash and cash equivalents, beginning of period 1,363 46,485 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 38,734 $ 1,363 $ 38,734
=========== =========== ===========
Supplemental cash flow information:
Cash paid for interest $ 3,316 $ 831 $ 831
Cash paid for income taxes $ -- $ -- $ --
Non-cash investing and financing activities:
Acquisition of equipment with capital leases $ 15,660 $ 2,026 $ 20,351
Acquisition of equipment with common stock $ -- $ -- $ 60,895
Forgiveness of stockholder loans for equity $ 10,000 $ -- $ --
See accompanying notes to financial statements.
F-5
</TABLE>
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Patcomm Corporation, formerly Patriot Communications Technology, Inc. (the
"Company"), was organized under the laws of the State of Nevada on March 12,
1992. The Company is engaged in the development and marketing of a new line of
products for the amateur radio communications market, incorporating a new
architecture by which many traditional hardware functions are replaced by
software. To date, the Company has not realized significant sales from planned
principal operations and is considered a development stage company as defined by
generally accepted accounting principles.
Estimates:
Management of the Company uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that management uses.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Inventory consists of work in process ($10,728)
and raw materials ($40,052).
Fixed assets:
The company depreciates its office equipment utilizing the straight line method
over periods of five to seven years.
Organization Costs:
Organization costs of $1,369 are being amortized over a period of 60 months. At
December 31, 1996 the costs are shown net of accumulated amortization of $1,159
and included with other assets on the balance sheet.
Deferred offering costs:
During the year ended December 31, 1996, the Company incurred legal and
accounting fees of $20,000 in connection with a February, 1997 SB-2 registration
filing with the Securities and Exchange Commission. These costs have been shown
as a deferred asset at December 31, 1996, and will be offset against the
proceeds of the offering or charged to expense should the offering be abandoned.
Net loss per share:
The net loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. Common
stock equivalents are excluded from the computation as their effect would be
anti-dilutive.
Research and Development Costs:
Research and development costs are charged to expense as incurred.
F-6
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996
(Continued)
Cash and cash equivalents:
Cash and cash equivalents consist of cash and other highly liquid debt
instruments with original maturities of less than three months.
Revenue recognition:
The Company recognizes revenue from the sale of its products upon shipment.
Financial instruments:
The Company's short term financial instruments consist of cash and cash
equivalents, accounts and loans payable. The carrying amounts of such financial
instruments approximate fair market value because of the short term maturities
of these instruments.
Advertising costs:
The Company's policy is to expense advertising costs when shown. Advertising
costs of $40,773 and $4,236 were charged to operations during the years ended
December 31, 1996 and 1995, respectively.
Stock-Based Compensation:
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's first
quarter of 1996. Upon adoption of FAS 123, the Company continued to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees, and has provided in Note 4 pro forma disclosures of the effect on net
income and earnings per share as if the fair value-based method prescribed by
FAS 123 had been applied in measuring compensation expense.
Note 2. FIXED ASSETS
Fixed assets consist of the following at December 31, 1996:
Equipment and furniture $ 119,152
Accumulated depreciation (64,131)
---------
$ 55,021
Depreciation charged to operations was $18,450 and $13,984 during 1996 and 1995,
respectively.
Note 3. STOCKHOLDER LOANS
The Company had short-term loans payable to various stockholders aggregating
$61,800 as of December 31, 1996. These loans are unsecured, bear interest at 10%
per annum and are due during June, 1997.
Note 4. STOCKHOLDERS EQUITY
Common stock:
At inception, the Company issued 550,000 shares of its common stock to two of
its officers and directors in exchange for equipment having a fair value of
$60,895.
F-7
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996
(Continued)
During October, 1992 the Company issued 53,000 shares of its common stock for
services valued at $5,868.
During March, 1994 the Company issued 28,000 shares of its common stock for cash
aggregating $140,000. Additionally during the year ended December 31, 1994 the
Company received a $10,000 cash capital contribution from an officer.
During the period from September to December 1995, the Company issued 18,750
shares of its common stock for cash aggregating $75,000 pursuant to the exercise
of stock purchase warrants issued in connection with the royalty interests
described in Note 5.
Also during 1995 the Company agreed to convert $17,000 of salary accrued to the
benefit of an officer to additional paid in capital.
During the period from January to June 1996 the Company issued 100,000 shares of
its $.001 par value common stock in exchange for net cash aggregating $260,500
pursuant to a private placement.
During June 1996 the Company decided to reduce the exercise price of its
outstanding warrants to $2.60 per share of common stock temporarily for a period
of 30 days (unless extended by the Company's directors) pursuant to a private
offering to the holders of the warrants. In connection with this offering,
certain officers of the Company agreed that any person who previously exercised
their warrants at $4.00 per share would receive additional shares directly from
those owned by the officers so that their effective exercise price would be
reduced to $2.60 per share.
In addition, these officers agreed that any person who previously purchased
shares at $5.00 per share would receive additional shares from those owned by
the officers so that their effective purchase price would be reduced to $3.00
per share. The officers transferred an aggregate of 24,917 shares in connection
with the above .
The Company also solicited the holders of royalty interests described in Note 5
to convert their royalty interests into common stock. Through September 1996,
the full amount of royalty interests ($370,000) were converted into 180,000
shares of common stock.
During September 1996, the Company granted stock options to certain of its
officers to acquire 30,000 shares of common stock exercisable at $2.60 per
share. In addition, effective December 31, 1996, the Company granted these
officers options to purchase 150,000 shares of common stock exercisable at $7.00
per share. As of December 31, 1996, none of the options has been excercised.
The weighted average fair value at the date of grant for options granted during
1996 was $.87 per option. The fair value of the options at the date of grant was
estimated using the Black-Scholes model with assumptions as follows:
Market value $2.60 and $3.00
Expected life 10
Interest rate 6.96%
Volatility 25%
Dividend yield 0.00%
Stock based compensation costs that would be recorded by the Company as a result
of the foregoing would have increased the net loss for the period by $156,200 or
$.18 per share.
F-8
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996
(Continued)
During September 1996, the Company adopted an incentive stock option plan which
provides for the granting of options to purchase up to 300,000 shares of common
stock by eligible employees.
In addition the Company adopted a non-qualified stock option plan which provides
for the granting of options to purchase up to 150,000 shares of common stock by
eligible employees.
No options were granted during the year pursuant to these plans.
During the periods covered by these financial statements the Company issued
shares of common stock without registration under the Securities Act of 1933.
Although the Company believes that the sales did not involve a public offering
of its securities and that the Company did comply with the "safe harbor"
exemptions from registration under section 4(2), it could be liable for
rescission of the sales if such exemptions were found not to apply. The Company
has not received a request for rescission of shares nor does it believe that it
is probable that its shareholders would pursue rescission nor prevail if such
action were undertaken.
Note 5. ROYALTY INTERESTS
During September, 1992 through December, 1992, the Company sold 37 units of its
securities pursuant to a private placement at $ 10,000 per unit for total
proceeds of $370,000. Each unit consisted of one convertible royalty interest
and warrants to purchase 3,750 shares of $.001 par value common stock of the
Company. Each royalty interest entitled the holder to receive payments equal to
0.1% per annum of the Company's gross revenues from sales. Each royalty interest
was to have automatically converted into 5,000 shares of common stock, subject
to adjustment in certain events upon the earlier of (i) such time as cumulative
royalty payments have been paid on the royalty interest in an amount equal to
150% of the initial investment; or (ii) the closing on a public offering of
common stock with gross proceeds of $5,000,000 or more. In addition, each
royalty interest was convertible, at any time at the option of the holder
thereof, into 5,000 shares of common stock, subject to adjustment in certain
events. In June 1996 the warrant holders exercised the conversion option and
received 185,000 shares of common stock (See Note 4).
Each Warrant also had entitled the holder to purchase one share of common stock
at $4.00 per share, subject to adjustment in certain events, at any time prior
to December 31, 1995. Effective December 31, 1995 the Board of Directors
extended the exercise period for these warrants to December 31, 1997. The
Warrants may be redeemed by the Company at $.01 per Warrant, upon 30 days prior
written notice. During the year ended December 31, 1995, 18,750 warrants had
been exercised for total proceeds of $75,000.
F-9
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996
(Continued)
Note 6. INCOME TAXES
The Company has adopted Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes. Deferred income taxes may arise from temporary
differences resulting from income and expense items reported for financial
accounting and tax purposes in different periods. Deferred taxes are classified
as current or non-current, depending on the classifications of the assets and
liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are classified as
current or non-current depending on the periods in which the temporary
differences are expected to reverse. The deferred tax asset related to the
operating loss carryforward has been fully reserved. The increase in the
deferred tax asset account for the year ended December 31, 1996 was
approximately $129,800.
The Company currently has operating loss carryforwards aggregating approximately
$1,070,000 which expire as follows: 2007 $44,000, 2008 $209,000, 2009 $227,000,
2010 $210,000, and 2011 $380,000
Note 7. CAPITAL LEASES
The Company leases certain office equipment under capital leases expiring in
December, 1997, March, 1999, and August 2001. The assets and liabilities under
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. The assets are amortized over a 7
year period. Amortization of assets under capital leases is included in
depreciation expense.
Following is a summary of property held under capital leases:
Office equipment $20,351
Accumulated amortization 3,410
-------
$16,941
Minimum future lease payments under capital leases as of December 31, 1996 are
as follows:
1997 $ 6,559
1998 5,439
1999 4,900
2000 4,720
2001 4,717
------
26,335
Amount representing interest (8,943)
------
Present value of minimum lease payments 17,392
Current portion (3,858)
------
$13,534
=======
Interest rates on capitalized leases approximate 18% per annum.
F-10
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996
(Continued)
Note 8. COMMITTMENTS
During December 1996, the Company entered into employment agreements with two of
its officers . One of these agreements provides for an annual salary of $12,000
(for devoting up to two days per month to the Company), and the other provides
for an annual salary of $88,000. Each of the agreements also provides for bonus
payments of 3% of net income after tax up to $1,499,000 and 1% of net income
after tax above that amount during the term of the agreement.
The Company leases its facility under an agreement expiring during August, 1997
which provides for monthly rent payments of approximately $2,900. Rent expense
was $27,418 and $22,412 for the years ended December 31, 1996 and 1995,
respectively.
Minimum future rental payments under non-cancelable operating leases are as
follows:
Year ended December 31, 1997: $34,800
Note 9. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a "going concern"
basis which contemplates the realization of assets and the liquidation of
liabilities in the ordinary course of business.
The Company has incurred operating losses during the years ended December
31, 1996 and 1995 aggregating $381,724 and $215,880 and since inception of
$1,078,703.
During the periods presented the Company has not generated positive cash flow
from operations and there can be no assurance that the trend will not continue.
Profitable operations are dependent upon, among other factors, the Company's
ability to obtain equity or debt financing and its ability to successfully
market its products.
The Company is unable to project a level of revenue which would allow a reversal
of its history of operating losses in the near future. In this regard the
Company has undertaken the raising of additional equity capital. In addition,
the Company is seeking to expand its customer base and attempting to lower its
operating expenses.
Note 10 SUBSEQUENT EVENTS
On February 14, 1997, the Company to filed a registration statement on Form SB-2
with the Securities and Exchange Commission whereby it will attempt to register
1,265,000 shares of common stock for sale to the public at a proposed offering
price of $5.00 per share.
F-11
<PAGE>
Patcomm Corporation
(A Development Stage Company)
Balance Sheet
June 30, 1997
ASSETS
------
Current assets:
Cash $ 9,808
Inventory 100,656
-----------
Total current assets 110,464
Property and equipment, at cost, net of
accumulated depreciation of $71,581 41,547
Deferred offering costs 20,000
Other assets 1,249
-----------
$ 183,260
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of capital lease obligations $ 3,782
Loans payable to stockholders 30,000
Loan payable 10,000
Accounts payable 178,771
Accrued expenses 29,138
-----------
Total current liabilities 251,691
Capital lease obligations 11,475
Loans payable to stockholders 41,800
Commitments
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding --
Common stock, $.001 par value, 10,000,000 shares
authorized, 1,056,498 shares issued and outstanding 1,056
Additional paid-in capital 1,248,377
Common stock subscriptions 32,077
Deficit accumulated during the development stage (1,403,216)
-----------
(121,706)
-----------
$ 183,260
===========
See accompanying notes to financial statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statements of Operations
Six Months Ended June 30, 1997 and 1996
and Inception (March 12, 1992) to June 30, 1997
Six Months Six Months
Ended Ended Inception to
June 30, June 30, June 30,
1997 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 57,818 $ 10,501 $ 125,840
Cost of sales 20,312 58,061 213,486
----------- ----------- -----------
Gross profit 37,506 (47,560) (87,646)
Other costs and expenses:
General and administrative 328,335 98,629 880,386
Research and development 32,317 12,521 436,872
----------- ----------- -----------
360,652 111,150 1,317,258
----------- ----------- -----------
Income (loss) from operations (323,146) (158,710) (1,404,904)
Other income and (expense):
Interest income 1,252 -- 12,634
Miscellaneous income 881 1,850 881
Interest expense (3,500) (500) (11,827)
----------- ----------- -----------
(1,367) 1,350 1,688
----------- ----------- -----------
Net income (loss) $ (324,513) $ (157,360) $(1,403,216)
=========== =========== ===========
Earnings (loss per shares:
Net income (loss) ($ 0.31) ($ 0.22) ($ 2.17)
=========== =========== ===========
Weighted average shares outstanding 1,046,498 730,583 646,949
=========== =========== ===========
See accompanying notes to financial statements.
F-13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Patcomm Corporation
(A Development Stage Company)
Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
and Inception (March 12, 1992) to June 30, 1997
Six Months Six Months
Ended Ended Inception to
June 30, June 30, June 30,
1997 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ (182,440) $ (223,563) $(1,200,738)
Cash flows from investing activities:
Acquisition of plant and equipment (3,976) (1,505) (43,907)
Deferred offering costs -- -- (20,000)
----------- ----------- -----------
Net cash provided by (used in) investing activities (3,976) (1,505) (63,907)
----------- ----------- -----------
Cash flows from financing activities:
Officer's capital contribution -- -- 10,000
Common stock issued for cash 139,625 312,495 817,747
Royalty interest and warrants issued for cash -- -- 370,000
Repayment of capital leases (2,135) (672) (5,094)
Increase in loan payable 10,000 -- 10,000
Increase (repayment) in stockholder loans 10,000 -- 71,800
----------- ----------- -----------
Net cash provided by (used in) financing activities 157,490 311,823 1,274,453
----------- ----------- -----------
Increase (decrease) in cash (28,926) 86,755 9,808
Cash and cash equivalents,
beginning of period 38,734 1,363 --
----------- ----------- -----------
Cash and cash equivalents,
end of period $ 9,808 $ 88,118 $ 9,808
=========== =========== ===========
See accompanying notes to financial statements.
F-14
</TABLE>
<PAGE>
Patcomm Corporation
Notes to Financial Statements
Basis of presentation
The accompanying condensed unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
financial statements should be read in conjunction with the Company's annual
financial statements for the year ended December 31, 1996 appearing elsewhere
herein.
Stockholder loans
Short-term, unsecured, demand loans payable to various stockholders bear
interest at 8.75% ($10,000) and 10% ($20,000) per annum.
In addition, loans from two stockholders aggregating $41,800, bear interest at
10% per annum and are due no later than December 31, 1998.
Stockholders' equity
Income (loss) per share was computed using the weighted average number of common
shares outstanding.
During the period ended June 30, 1997, the Company issued 60,000 shares of its
common stock pursuant to a private placement. The Company realized gross
proceeds from the offering of $156,000.
F-15
- ------------------------
Frank Delfine
October 13, 1997
/s/ John Dibble Director
- ------------------------
John Dibble
October 13. 1997
/s/ James Messing Director
- ------------------------
James Messing
II-8
1,000,000 Shares
PATCOMM CORPORATION
UNDERWRITING AGREEMENT
Dated: , 1997
Andrew Garrett, Inc.
as the Underwriter named herein
310 Madison Avenue
Suite 406
New York, N.Y. 10017
Dear Sirs:
The undersigned, Patcomm Corporation, a Nevada corporation, (herein called
the "Company"), hereby confirms its agreement with Andrew Garrett, Inc. (the
"Underwriter") as follows:
1. Description of Shares. The Company has authorized by appropriate
corporate action, and proposes to issue 1,000,000 shares of common stock of the
Company, $.001 par value (hereinafter called the "Shares") as more fully
described in the Registration Statement and Prospectus referred to hereinafter.
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with the Underwriter that:
(a) A registration statement on Form SB-2 with respect to the Shares,
including a preliminary prospectus, copies of which have heretofore been
delivered by the Company to the Underwriter, has been carefully prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (hereinafter called the "Act"), and the Rules and Regulations of the
Securities and Exchange Commission (hereinafter called the "Commission") under
such Act, and has been filed with the Commission (File No. ). On or prior to the
effective date of such registration statement, one or more amendments to such
registration statement, copies of which have heretofore been or will be
delivered to the Underwriter, will have been so prepared and filed including a
final prospectus, in the form heretofore delivered to the Underwriter. Such
registration statement (including all exhibits thereto) as finally amended prior
to the effective date thereof, each related preliminary prospectus, and the
final prospectus as filed pursuant to Rule 424(b) under the Act, are hereby
respectively referred to as the "Registration Statement", the "Preliminary
Prospectus" and the "Prospectus".
(b) When the Registration Statement becomes effective and at all times
subsequent thereto up to and including the Closing Date (as defined in Section 3
hereof), (i) the Registration Statement and the Prospectus and any amendments or
supplements thereto will contain all statements which are required to be stated
therein by the Act and the Rules and Regulations of the Commission thereunder
and will in all respects conform to the requirements of the Act and such Rules
and Regulations, and (ii) neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto will include any untrue statement of a
1
<PAGE>
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that the Company makes no representations or warranties as to information
contained in or omitted from the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Underwriter expressly for use in the
preparation thereof.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Nevada, with all corporate and
other power and authority necessary to carry on its business; and the Company is
qualified and in good standing in all other jurisdictions in which the nature of
its business requires such qualification. The Company has no subsidiaries.
(d) The consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it or any of
its properties is bound, or of its Certificate of Incorporation, or By-laws, or
any order, rule or regulation applicable to the Company or any of its
properties, of any court or other governmental body.
(e) The Company has full power and authority to authorize, issue and sell
the Shares on the terms and conditions herein set forth, and has taken all
corporate action necessary therefor; no consent, approval, authorization or
other order of any regulatory authority is required for such authorization,
issue or sale, except as may be required under the Act or state securities or
blue sky laws. This Agreement has been duly authorized, executed and delivered
by the Company and is a valid and legally binding agreement of the Company
enforceable in accordance with its terms.
(f) The Shares and the authorized capitalization of the Company conform to
the description thereof contained in the Registration Statement and Prospectus.
The outstanding shares of capital stock are, and the Shares issuable pursuant to
the public offering contemplated hereby will upon such issuance be, duly
authorized and issued and fully paid and non-assessable. There are no options,
rights of conversion, indebtedness or calls in equity other than as disclosed in
the Prospectus and Registration Statement.
(g) Except as set forth or contemplated in the Registration Statement and
Prospectus, subsequent to the respective date as of which information is given
in the Registration Statement and the Prospectus, the Company has not incurred
any material liabilities or obligations, direct or contingent, or entered into
any material transactions, not in the ordinary course of business, and there has
not been any material change in the capital stock or funded debt of the Company,
or any material adverse change in the condition (financial or other) or results
of operations of the Company.
(h) The financial statements (audited and unaudited) set forth in the
Registration Statement and Prospectus fairly present the financial condition of
the Company and the results of its operations as of the dates and for the
periods therein specified; and said financial statements (including the related
notes and schedules) have been prepared in accordance with generally accepted
accounting principles which have been consistently applied throughout the
periods covered thereby.
(i) The accountants whose opinion or opinions is or are included in the
Registration Statement are independent public accountants within the meaning of
the Act and the Rules Regulations of the Commission thereunder.
(j) Except as set forth in the Prospectus, there is not pending any action,
suit or other proceeding to which the Company is a party or of which any
property of the Company is subject, before or by any court or other governmental
body, which might result in any material adverse change in the condition,
business or prospects of the Company, or might materially adversely affect the
properties or assets of the Company; and, except as indicated in the Prospectus,
no such proceeding is known by the Company to be threatened or contemplated.
2
<PAGE>
(k) The Company knows of no claim for services, either in the nature of a
finder's fee, brokerage fee or otherwise, with respect to this financing,
whether or not heretofore satisfied, for which it or the Underwriters or any of
them may be responsible, other than as expressly disclosed in the Prospectus.
(l) On the effective date of the Registration Statement, the outstanding
capital stock of the Company will consist of not more than _________ shares of
Common Stock, $0.001 par value.
3. Employment of the Underwriter. On the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth:
(a) The Company hereby employs the Underwriter as its exclusive agent to
sell for its account 1,000,000 Shares as defined in Section 1 hereof, on a "best
efforts, all or none" basis as to all such shares.
(b) In the event that less than 1,000,000 Shares are sold during the
offering period, this offering will not be completed, none of the Shares will be
sold, and all proceeds will be returned in full, with interest in accordance
with the Escrow Agreement between the parties hereto and European American Bank,
to subscribers, not later than 7 business days following the expiration of
ninety (90) days (or 180 days, as the case may be) from the effective date as
set forth in the prospectus described herein. The escrow agent must first be
provided with a properly executed W-9.
(c) The Shares shall be offered to the general public at the initial public
offering price of $5.75 per Share.
(d) All funds received from subscribers shall be held in escrow with
European American Bank (the "Escrow Agent") pursuant to an Escrow Agreement
annexed as an Exhibit to the Registration Statement. Checks tendered for
subscription of Shares shall be made payable to the Escrow Agent and will be
transmitted to the Escrow Agent by noon of the next business day following
receipt.
(e) The Company agrees to issue or have the Shares issued in such names and
denominations as may be specified by the Underwriter and to deliver the Shares
on the Closing Date against payment to the company at $.5.175 per Share, less
non-accountable expenses as set forth in Paragraph 4(e).
(f) If all of the Shares are sold, the Underwriter shall be entitled to
receive as compensation (a) a commission of $.575 per Share with respect to all
Shares sold, which compensation the Underwriter shall be entitled to deduct and
retain from the proceeds of the sale of the Shares prior to transmittal of
payment to the Company.
(g) The Underwriter and the Company, by mutual agreement may, at any time
prior to Closing Date, direct that the Escrow Agent return funds to any or all
subscribers.
4. Covenants of the Company. The Company further covenants and agrees with
the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and will not at any time, whether before or after
3
<PAGE>
the effective date, file any amendment to the Registration Statement or
supplement to the Prospectus of which the Underwriter shall not previously have
been advised and furnished with a copy or to which the Underwriter shall have
reasonably objected in writing or which is not in compliance with the Act, or
the Rules and Regulations of the Commission thereunder.
(b) The Company will notify the Underwriter immediately and confirm in
writing (i) when the Registration Statement and any post-effective amendment
thereto becomes effective, (ii) of the issuance of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any Preliminary Prospectus or of the Prospectus or of the
initiation of any proceedings for such purposes, and (iii) of the receipt of any
comments (in writing or orally) from the Commission in respect of the
Registration Statement or Prospectus. If the Commission shall enter a stop order
or any order preventing or suspending the use of any Preliminary Prospectus or
of the Prospectus at any time, or shall initiate any proceedings for such
purpose, the Company will make every reasonable effort to prevent the issuance
of such order and if issued, to obtain the withdrawal thereof.
(c) Within the time during which a prospectus relating to the Shares and/or
the Underwriter Warrant Shares (or the exercise of any Shares or Underwriter
Warrants) is required to be delivered under the Act, the Company will comply
with all requirements imposed upon it by the Act, as now and hereafter amended,
and by the Rules and Regulations of the Commission thereunder, from time to time
in force, so far as necessary to permit the continuance of sales or dealings in
the Shares, (or the Shares to be acquired upon the exercise of the Underwriter
Warrants) as contemplated by the provisions hereof and the Prospectus; and if
during such period any event occurs as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in the
light of the circumstances then existing, not misleading, or if during such
period it is necessary to amend or supplement the Prospectus to comply with the
Act, the Company will promptly notify the Underwriter and will amend or
supplement the Prospectus (in form reasonably satisfactory to your counsel and
at the expense of the Company) so as to correct such statement or omission or
effect such compliance.
(d) The Company will cooperate with the Underwriter and will take all
necessary action, and furnish to whomever the Underwriter may direct such proper
information, as may be lawfully required in qualifying the Shares for offering
and sale under the securities or blue sky law of such states as the Underwriter
may designate, and in continuing such qualifications in effect so long as
required for the distribution; provided that the Company shall not be obligated
to qualify as a foreign corporation to do business under the laws of any such
state or to submit to any requirements which it reasonably deems unduly
burdensome.
(e) The Company will pay any and all fees, taxes and expenses incident to
the performance of its obligations under this Underwriting Agreement, including,
but not limited to, expenses and taxes incident to the issuance and delivery to
the Underwriter of the Shares, Underwriter's Warrants and Underwriter's Warrant
Shares, if any, to be sold to the Underwriter pursuant to Sections 3 and 4
hereof; all fees and disbursements of counsel and accountants for the Company;
expenses and filing fees incident to the preparation, printing, delivery,
shipment and filing with Commission, and state blue sky authorities of the
Registration Statement and all exhibits thereto and the Prospectus, and any
amendments or supplements thereto; fees of blue sky counsel equal to $15,000. to
cover the fees attendant to the qualification of the Shares in a maximum of
twenty (20) states or jurisdictions (which counsel is to be designated by the
Underwriter and who may be Underwriter's counsel). The Company will further pay
at closing for expenses incurred in connection with this offering on a
non-accountable basis, an amount equal to 3% of the aggregate public offering.
The Company will further pay at closing a financial consulting fee of $108,000.
pursuant to the terms of a Financial Consulting Agreement between the Company
and the Underwriter. It is expressly understood by and between the parties
4
<PAGE>
hereto that if the transactions referred to herein are not consummated the
Company will be under no obligation to reimburse the Underwriter, on an
accountable or non-accountable basis, for any fees or expenses incurred by the
Underwriter in connection with this offering.
(f) The Company will apply the net proceeds from the sale of the Shares
substantially as set forth under the caption "Use of Proceeds" in the
Prospectus.
(g) The Company will deliver to the Underwriter as promptly as practicable
three signed copies of the Registration Statement and all amendments thereto,
including all exhibits filed therewith or incorporated therein by reference, and
signed consents, certificates and opinions of accountants and of any other
persons named in the Registration Statement as having prepared, certified or
reviewed any part thereof, and will deliver to the Underwriter such number of
unsigned copies of the Registration Statements, without exhibits, and of all
amendments thereto, as the Underwriter may reasonably request. The Company will
deliver to the Underwriter or upon its order, on the effective date of the
Registration Statement and thereafter, subject to the provisions of Section 4(c)
hereof, from time to time, as many copies of the Prospectus in final form or as
thereafter amended or supplemented, as the Underwriter may reasonably request.
The Company will deliver to the Underwriter, promptly after the Closing Date,
three (3) bound volumes of all of the documents, papers, exhibits correspondence
and records forming the materials involved in this public offering.
(h) The Company will make generally available to its security holders, as
soon as is practicable to do so (in no event later than fifteen months after the
effective date of the Registration Statement), an Earning Statement of the
Company (which need not be audited) covering a period of at least twelve months
beginning not later than the first day of the fiscal quarter next succeeding
such effective date which shall satisfy the provisions of Section 11(a) of the
Act.
(i) For a period of at least five years from the date hereof, the Company
will supply to the Underwriter, (i) as soon as practicable after the end of each
fiscal year an annual report of the Company and its consolidated subsidiaries
(if any) for such period, (iii) copies of such financial statements and reports
as the Company may, from time to time, furnish generally to holders of any class
of its stock, (iv) copies of each report which it shall be required to file with
the Commission or any securities exchange at the same time as such reports are
filed and (v) copies of the daily stock transfer sheets of the Company, and (vi)
from time to time such other information concerning the Company as the
Underwriter may reasonably request.
(j) Simultaneously with the purchase and payment by the Underwriter for the
Shares on the Closing Date the Company has agreed to sell to the Underwriter, at
the closing of this offering and for an aggregate purchase price of $.001 per
warrant, warrants to purchase one share of Common Stock for each 10 shares sold
in the offering (the "Underwriter's Warrants"). For a period of one year
following the date of this Prospectus, the Underwriter's Warrants are restricted
from sale, transfer, assignment or hypothecation, except to the Underwriters and
persons who are officers or partners of the Underwriters. In addition, neither
the Underwriter's Warrants nor the underlying shares of Common Stock may be sold
without registration or an exemption from the registration provisions of the
Securities Act. The Underwriter's Warrants are exercisable at a price of 120% of
the public offering price (i.e., $6.90 per share, assuming a price of $5.75 per
share in this offering) for a period of four years beginning one year from the
date of this Prospectus. The exercise price of the Underwriter's Warrants and
the number of shares of Common Stock underlying said Underwriter's Warrants are
subject to adjustment under certain circumstances to prevent dilution to the
holders in the event of stock dividends, stock splits, stock combinations or
upon a sale of assets, merger or consolidation.
The Underwriter and persons to whom the Underwriter may transfer the
Underwriter's Warrants have the right to join in any registration statement or
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offering filed by the Company under the Securities Act to register the
Underwriter's Warrants and underlying securities for a period of four years
commencing one year from the date of this Prospectus. In addition, for a period
of six years commencing one year from the date of this Prospectus, the Company
has agreed, upon request of the holders of not less than 50% of the
Underwriter's Warrants or underlying securities, to file, not more than once, a
registration statement under the Securities Act registering or qualifying the
Underwriter's Warrants and/or the underlying shares of Common Stock at the
Company's expense. All expenses of such registration or qualification (except
for selling commissions and expenses and fees and expenses of counsel for the
selling security holders) including, but not limited to, legal, accounting,
state and federal filing fees and the cost of printing prospectuses, will be
borne by the Company, which will be a substantial cost to the Company.
Both the Underwriter's Warrants and any profits realized by the Underwriter
on the sale of the shares of Common Stock underlying the Underwriter's Warrants
may be considered additional underwriting compensation.
(k) The Company grants to the undersigned a right of first refusal for a
period of two (2) years after the closing date of the Public Offering for any
public sale of securities of the Company to be made by the company or any
subsidiary and/or its principal shareholders.
(l) The Company shall, within thirty (30) days after the closing of the
public offering, apply for listing in Standard & Poors Corporation Reports and
shall use its best efforts to have the Company continuously listed in such
reports, for at least five (5) years from the date of the Closing Date.
(m) The Company shall cooperate with the Underwriter in making available to
their Underwriter such information as it may request in making an investigation
of the Company and its affairs.
(n) At all times, so long as any of the Underwriter Warrants are
outstanding, the Company will have reserved authorized but unissued shares,
available for immediate issuance in amounts necessary for the exercise of all
Underwriter Warrants then outstanding.
(o) The Company will pay the fees and expenses (but not transfer taxes, if
any) of the Company's stock transfer agents, warrant agents, and registrar (if
any), without charge to stockholders and warrant holders, for not less than five
years after the effective date of the Registration Statement.
5. Conditions of the Underwriters' Obligation. The Underwriter's
obligations to purchase and pay for the Shares as provided herein, shall be
subject to the accuracy, as of the date hereof and as of the Closing Date (as if
made on the Closing Date), of the representations and warranties of the Company
herein, to the accuracy of statements of Company officers made in certificates
delivered pursuant to the provisions hereof, to the performance by the Company
of its obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
5:00 p.m., New York City time on the day following the date of this Agreement,
unless a later time and date be agreed to by the Underwriter; and no stop order
suspending the effectiveness of the Registration Statement, or order preventing
or suspending the use of any Preliminary Prospectus or of the Prospectus, shall
have been issued and no proceedings for such purpose shall have been instituted
or be pending or, to the knowledge of the Company or the Underwriter, shall be
contemplated by the Commission; and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Underwriter's Counsel.
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(b) On the Closing Date the Underwriter shall have received an opinion of
Schlueter & Associates, P.C. counsel to the Company, dated the Closing Date, to
the effect that:
(i) This Agreement and the Warrant Agreement have been duly
authorized, executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company enforceable in accordance with
their terms (except insofar as enforcement of the indemnification and
contribution provisions thereof may be limited by applicable federal securities
laws or principles of public policy and subject to bankruptcy, insolvency,
moratorium, reorganization and similar laws affecting creditors' rights
generally and to general principles of equity). The Company has full corporate
power and authority to enter into this Agreement and to sell, issue and deliver
the Shares, Underwriter Warrants and all securities underlying the Underwriter
Warrants;
(ii) The Company has an authorized and outstanding capital stock as
set forth under "Capitalization" in the Prospectus; all of the Company's
outstanding shares have been dully authorized and validly issued, and are fully
paid and non assessable; all of the securities sold and the Underwriter Warrants
to be issued by the Company pursuant to this Agreement have been duly and
validly authorized, issued and delivered and are fully paid and non assessable,
and conform to the description thereof in the Prospectus and such description
conforms to the rights duly set forth in the Certificate of Incorporation of the
Company; that this Agreement and the Underwriter Warrants are, when issued in
accordance with the provisions of this Agreement, be valid and legally binding
obligations of the Company in accordance with their respective terms (subject to
bankruptcy, insolvency, moratorium, reorganization and similar laws affecting
creditors' rights generally and to general principles of equity); the securities
underlying the Underwriter Warrants have been validly authorized and reserved
for issuance and any shares when issued in accordance with the terms of the
Underwriter Warrants will be validly issued and will be fully paid and
non-assessable; the holders thereof are not, and will not be, subject to any
personal liability by reason of being holders thereof; and none of such
securities has been issued in violation of the preemptive rights or any other
rights of any shareholder of the Company and no shareholder has any preemptive
right to subscribe for or to purchase any such Shares, Underwriter Warrants or
securities underlying the Underwriter Warrants;
(iii) The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Nevada, has full corporate
power and authority to conduct its business as presently conducted and as
described in the Prospectus and to own its properties and is duly qualified to
do business and is in good standing in such jurisdiction wherein the property
owned or leased by it makes such qualification necessary (except where failure
to so qualify would not have a material adverse effect on the Company);
(iv) The Registration Statement has become effective under the
Securities Act and, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or is pending or contemplated
by the Commission;
(v) The Registration Statement and the Prospectus, and any amendment
or supplement thereto, comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations promulgated
thereunder (except that such counsel need express no opinion as to the financial
statements and schedules and financial data included therein);
(vi) Such counsel has assisted in the preparation of the Registration
Statement and the Prospectus and no fact has come to the attention of such
counsel which leads such counsel to believe that, either as of the Effective
Date or the date of the opinion, (a) either the Registration Statement or the
Prospectus or any amendment or supplement thereto (except for the financial
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<PAGE>
statements and schedules and financial data included therein, as to which such
counsel need express no opinion) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (b) there is any legal,
governmental or administrative proceeding pending, threatened or contemplated to
which the Company is or may become a party or of which any of its property is or
may become subject, or any basis for any legal, governmental or administrative
proceeding, required to be described in the Prospectus which is not described as
required, or (c) there is any contract or document of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required;
(vii) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated therein have not
and will not conflict with or result in a breach or violation of any of the
terms or provisions of, constitute a default under, the Certificate of
Incorporation or By-Laws of the Company or any indenture, mortgage, deed of
trust, note agreement or other agreement or instrument known to such counsel to
which the Company is a party or by which it is bound or to which any or its
property is subject, or any federal or state statute, law, rule or regulation,
or any judgment, order or decree of any court or governmental agency or body
known to such counsel having jurisdiction over the Company or any of its
property;
(viii) No consent, approval, authorization or order of, or declaration
or filing with, any government, governmental instrumentality or court, is
required for the valid consummation by the Company of the transactions
contemplated by this Agreement except such as may be required under the
Securities Act or any state securities or "blue sky" laws in connection with the
purchase, sale and distribution of the Shares; and
(ix) To the best of such counsel's knowledge after due inquiry, the
Company possesses all permits, certificates of compliance, approvals, licenses,
waivers, consents and other rights from governmental authorities which are
requisite for the material conduct of its business as presently conducted and as
described in the Prospectus (except such as in the aggregate would not
materially affect the business or operations of the Company), for the
consummation of the transactions contemplated in this Agreement and for the
offering contemplated by the Prospectus, such permit, certificate of compliance,
approval, license, waiver, consent and right is valid and in full force and
effect.
(c) On the Closing Date, the Underwriters shall have received from Winter,
Sheifley, and Associates, P.C., a letter dated as of such date, to the effect
that:
(i) They are independent accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and Regulations
thereunder;
(ii) In their opinion, the financial statement (including the
schedules, if any) in the Registration Statement examined by such firm, comply
as to form in all material respects with applicable accounting requirements of
the Act and the published Rules and Regulations thereunder with respect to
registration statements on Form SB-2; and
(iii) On the basis of procedures (in accordance with generally
accepted accounting standards) consisting of reading the minutes of meetings of
the shareholders and the Board of Directors of the Company since the date of the
latest audited balance sheet as set forth in the minute book through a specified
date not more than five business days prior to the Closing Date, reading the
unaudited interim financial statements (if any), including the schedules (if
any), of the Company included in the Registration Statement and making inquires
of certain officials of the Company who have responsibility for financial and
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<PAGE>
accounting matters regarding the specific items for which representations are
requested below, nothing has come to their attention as a result of the
foregoing procedures that caused them to believe that (a) the unaudited
financial statements (if any), including the schedules (if any), of the Company
included in the Registration Statement do not comply as to form in all material
respects with applicable accounting requirements of the Act and the published
Rules and Regulations thereunder; (b) said financial statements including the
schedules (if any), are not presented fairly, in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements, or (c) during the period from the date
of the latest balance sheet covered by their report(s) included in the
Registration Statement to a specific date not more than five business days prior
to the Closing Date, there has been any change in the capital stock or long-term
debt of the Company as compared with the amounts shown in the balance sheet
included in the Registration Statement, except as set forth in or contemplated
by the Registration Statement, and for the period from the date of the last
balance sheet contained in the Prospectus to a specified date not more than five
days prior to the date of such letter, there has been any decrease, except as
described in such letter and previously discussed with the Underwriter, in
consolidated gross revenues, net income, consolidated assets or total
stockholders' equity as compared with the amounts shown on such balance sheet,
except for such changes or decreases which the Registration Statement discloses
have occurred or may occur.
(d) The Underwriter shall have received a certificate or certificates,
dated the Closing Date, executed by the Chairman of the Board or the President
or a Vice President of the Company and by a principal financial or accounting
officer of the Company to the effect that, to the best of their knowledge based
on a reasonable investigation:
(i) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceeding for that purpose have been
instituted or are pending or contemplated under the Act;
(ii) Neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statement therein not misleading and since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amendment or supplemented Prospectus which has not been so set forth;
(iii) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, the Company has not incurred any material liabilities or
obligations, direct or contingent, or entered into any material transaction, not
in the ordinary course of business, and there has not been any material change
in the capital stock or funded debt of the Company, or any material adverse
change in the condition (financial or other) or results of operations of the
Company.
(iv) There are no legal proceedings pending or threatened against the
Company of a character effecting the validity of this Agreement or required to
be disclosed in the Prospectus which are not disclosed therein; there are no
transactions or contracts which are required to be filed as exhibits to the
Registration Statement which are not so filed;
(v) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or damage to its properties, whether or not insured;
and
(vi) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date; and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date.
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(e) All corporate proceedings and related matters in connection with the
organization of the Company and the qualification, authorization, issuance, sale
and delivery of the Shares shall be satisfactory to the Law Offices of John E.
Lawlor, Esq., counsel to the Underwriter, and such counsel shall have been
furnished with such papers and information as he may reasonably have requested
in this connection.
(f) All such opinions, letters, certificates and documents will be in
compliance with the provisions hereof only if they are satisfactory to the
Underwriter and to its counsel. The Company will furnish the Underwriter with
such signed or conformed copies of such opinions, letters, certificates and
documents and with such additional documents, certificates or letters as the
Underwriter may reasonably request.
(g) If any condition to the Underwriter's obligations hereunder to be
satisfied at or prior to the Closing Date is not so satisfied, the Underwriter
may terminate this Agreement without liability on their part or on the part of
the Company, except for the expenses to be paid or reimbursed by the Company
pursuant to Section 4(e) of this Agreement and except for any liability under
Section 6 of this Agreement.
6. Indemnification.
(a) The Company will indemnify and hold harmless the Underwriter and each
person, if any, who controls the Underwriter within the meaning of the Act
against any losses, claims, damages or liabilities, joint or several, to which
it or such controlling person may become subject, under the Act or otherwise,
insofar as such loses, claims, damages or liabilities ( or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or in any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Shares under the securities laws thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse it and each such controlling person for any legal or other
expenses reasonably incurred by it or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus, the
Prospectus or such amendment or supplement, or in such blue sky application or
such other document, in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in the
preparation thereof; and provided, further, that the Company will not be liable
under this indemnity agreement, insofar as it relates to any Preliminary
Prospectus, to the extent that any such loss, claim, damage, liability or action
results from the fact that the Underwriter sold Shares to a person to whom there
was not sent or given, at or prior to the written confirmation of such sales, a
copy of the Prospectus (or of the Prospectus as then amended or supplemented if
the Company had previously furnished copies thereof to you). This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company or any such director, officer or controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in the
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Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any blue sky application or other
document executed by the Company specifically for that purpose filed in any
state or other jurisdiction in order to qualify any or all of the Shares under
the securities laws thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, such Preliminary Prospectus, the Prospectus or such amendment or
supplement, or in such blue sky application or such other document, in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter specifically for use in the preparation thereof; and will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. This indemnity
agreement will be in addition to any liability which an Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 6. In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
7. Contribution.
(a) In order to provide for just and equitable contribution under the Act
in any case in which (i) an Underwriter (or any person who controls the
Underwriter within the meaning of the Act) makes claim for indemnification
pursuant to Paragraph 6 (a) hereof but it is judicially determined by the entry
of final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that Paragraph 6 (a) provides for indemnification in such case or (ii)
contribution under the Act may be required on the part of the Underwriter or any
such controlling person in circumstances for which indemnification is provided
under Paragraph 6(b), then, and in each such case, the Company and the
Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Underwriter is responsible for an aggregate of 10%
(being the amount of the Underwriter commission) and the Company is responsible
for the remaining portion; provided, however, that, in any such case, no person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(b) Promptly after receipt by any party to this Agreement of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party (the
"contributing party"), notify the contributing party of the commencement
thereof; but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution under the Act. In case any such action, suit or proceeding is
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brought against any party, any such party notifies a contributing party of the
commencement thereof, the contributing party will be entitled to participate
with the notifying party and any other contributing party similarly notified.
8. Representations and Indemnities to Survive Delivery. All representations
and warranties of the Company contained herein and in the certificate or
certificates delivered pursuant to Section 5(d) hereof, and the indemnity
agreements contained in Section 6 and 7 hereof, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
the Underwriter or any controlling person, or by or on behalf of the Company or
any officer, director or controlling person, or any termination of this
Agreement, shall survive delivery of any payment for the Shares.
9. Effective Date of this Agreement and Termination Thereof.
(a) This Agreement shall become effective at 10:00 a.m., New York City
time, on the first full business day after the Registration Statement has become
effective, or at such earlier time after the Registration Statement has become
effective as the Underwriter in its discretion shall first release the Shares
for sale to the public. For the purposes of this Section 9, the Shares shall be
deemed to have been released for sale to the public upon release by the
Underwriter of the publication of a newspaper advertisement relating to the
Shares or upon release by the Underwriter of telegrams offering the Shares for
sale, whichever shall first occur. The Underwriter or the Company may prevent
this Agreement from becoming effective without liability of any party to any
other party, except as noted below, by giving the notice hereinafter specified
at or before the time this Agreement becomes effective; provided, however, that
the provisions of this Section 6 and of Section 4(e) hereof shall at all times
be effective.
(b) The Underwriter shall have the right to terminate this Agreement by
giving the notice hereinafter specified at any time at or prior to the Closing
Date if (i) the Company shall have failed, refused or been unable, at or prior
to the Closing Date, to perform any agreement on its part or be performed
hereunder, or because any other condition precedent to the Underwriter's
obligation hereunder required to be fulfilled by the Company is not fulfilled,
or if (ii) trading on the New York Stock Exchange or Over-the-Counter Markets
for the trading of securities shall have been generally suspended, or minimum or
maximum prices for trading shall have been fixed, or maximum ranges for prices
for securities shall have been generally required, on the Over-the-Counter
Markets, by the New York Stock Exchange or the National Association of
Securities Dealers, Inc., or by order of the Commission or any other
governmental authority having jurisdiction, or if there has been a substantial
adverse change in general market or economic conditions, or if a banking
moratorium shall have been declared by Federal or New York authorities, or if an
outbreak of hostilities or other national or international calamity of such
nature as to disorganize the securities markets in the United States shall have
occurred since the execution hereof.
If the Underwriter elects to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 9, the Underwriter
shall notify the Company promptly by telephone or telegram, confirmed by letter.
If the Company elects to prevent this Agreement from becoming effective, the
Company shall notify the Underwriter promptly by telephone or telegram,
confirmed by letter.
10. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to the Underwriter shall
be mailed, delivered or telegraphed and confirmed to Andrew Garrett, Inc. 310
Madison Avenue, Ste. 406, New York, N.Y. 10017, with a copy to John E. Lawlor,
Esq., 129 Third Street, Mineola, N.Y. 11501 or if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to it at 7 Flower Field, M100,
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St. James, N.Y., 11780 with a copy to Schlueter & Associates, P.C., 1050
Seventeenth Street, Ste. 1700, Denver, CO 80202.
11. Parties. This Agreement shall insure to the benefit of and be binding
upon the Underwriter and the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person or corporation, other than the parties hereto
and their respective successors and assigns, and the controlling persons and the
officers and directors referred to in Section 6 hereof, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained, this Agreement and all conditions and provision hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective successors and assigns, and said selling security
holders and said controlling persons and said officers and directors, and for
the benefit of no other person or corporation. No purchaser of any of the Shares
from any Underwriter shall be construed a successor or assign by reason merely
of such purchase.
12. Information Furnished by Underwriters. The statement set forth in the
last paragraph on the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus and in blue sky reports of sales,
if any, constitute written information furnished by or on behalf of the
Underwriter referred to in Sections 2(b), 6(a) and 6(b) hereof.
13. Miscellaneous. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York and the
Company hereby consents and will submit to the jurisdiction of the courts of the
State of New York and if any federal court sitting in the City of New York with
respect to controversies arising under this Agreement.
If the foregoing correctly sets forth the understanding between the Company
and the Underwriter, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company and the Underwriter.
Very truly yours,
PATCOMM CORPORATION
By:
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Frank Define, President
Accepted as of the date first above written:
ANDREW GARRETT, INC.
By:
--------------------------------
Drew Sycoff, President
13
1,000,000 SHARES
PATCOMM CORPORATION
SELECTED DEALER AGREEMENT
Dated: , 1997
Dear Sirs:
Subject to the terms and conditions of an Underwriting Agreement between
Andrew Garrett, Inc. as Underwriter (the "Underwriter") and Patcomm Corporation,
a Nevada Corporation (the "Company"), we have agreed, as agent for the Company,
to offer for sale to the public on a "best efforts, all or none" basis,
1,000,000 Shares of the Company, as described below (the "Shares"). Unless
1,000,000 Shares offered are subscribed and paid for during an offering period
of ninety (90) days (which may be extended for an additional ninety (90) days by
the mutual consent of the Company and the undersigned, with up to an additional
10 business days to permit the clearance of funds in escrow) (the "Offering
Period"), none of the Shares will be sold.
1. Selected Dealers.
As Underwriter, we are offering to certain selected dealers (the "Selected
Dealers") who are members in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") the right as set forth herein to sell a
portion of the Shares to the public at the public offering price of $5.75 per
Share.
2. Escrow of Subscription Funds.
The proceeds of the offering will be placed in escrow with European
American bank, ________________________________________________________ (the
"Escrow Agent").
3. Selling Concession.
The Selected Dealers will be allowed on all Shares sold by them a
concession of $__ per Share. Selected Dealers may re-allow out of such
concessions an amount not exceeding $__ per Share only to other members in good
standing of the NASD.
4. Selected Dealer Sales.
The Selected Dealers shall purchase the Shares for their customers only
through the Underwriter, and all such purchases shall be made upon orders
already received by the Selected Dealers from their customers. No Shares may be
purchased for the account of the Selected Dealers or its affiliates. In all
sales of the Shares hereunder, the Selected Dealer shall confirm as agent for a
member of the public.
5. Compliance with Securities Laws and NASD Rules of Fair Practice.
On becoming a Selected Dealer and in offering and selling the Shares you
agree to comply with all the applicable requirements of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934. Upon application, you
will be informed as to the states in which the Underwriter has been advised that
the Shares have been qualified for sale under the respective securities or blue
sky laws of such states, but the Underwriter does not assume any obligations or
responsibility as to the right of any Selected Dealer to sell the Shares in any
state or as to any sale therein, notwithstanding any information the Underwriter
may furnish as to the states where it is believed the Shares may be lawfully
sold.
<PAGE>
In connection with this offering, we will each comply with Rule 2420 of the
Conduct Rules of the NASD and IM 2420-1 inasmuch as we will not deal with any
non-member broker or dealer except at the same prices and terms as are accorded
by us to the general public. In addition, in connection with this offering, we
will each comply with the Rules of Fair Practice of the NASD and, without
limiting the foregoing we each agree that we shall comply with Rules 2710, 2730,
2740 and 2750, and IM 2730, 2740 and 2750 of said Conduct Rules of the NASD and
the related sections specified in such rules.
6. Delivery of Funds.
Amounts in payment for subscriptions of the Shares shall be promptly
transmitted by the Selected Dealers directly to the Escrow Agent, i.e., no later
than 12:00 noon of the next business day following the Selected Dealer's receipt
thereof.
7. Payment and Deposit of Sales Proceeds.
All payments received by the Selected Dealer for the sale of the Shares
sold pursuant to this Agreement shall be transmitted to the Escrow Agent in
clearing house funds, accompanied by all confirmations and applications
identifying the subscribers of such Shares by name, address, taxpayer
identifying number and quantity of Shares subscribed for. All checks and other
orders for the payment of money shall be made payable to the order of "European
American Bank, as Escrow Agent for Patcomm, Corp." and shall be in the full
public offering price of $5.75 per Share.
8. Closing and Delivery of Certificates.
A closing shall be had at the offices of the Escrow Agent or such other
place as the Underwriter may determine, on or before the tenth business day
after the termination of the Offering Period, such last date for payment and
delivery being referred to herein as the "Closing Date". Promptly after the
closing, certificates for the Shares sold by you shall be delivered to you in
such name and denominations as you shall have requested, and your selling
commissions shall be paid to you promptly thereafter.
9. Selected Dealer's Undertakings.
No person is authorized to make any representations concerning the Shares
except those contained in the Company's then current prospectus. The Selected
Dealer will not sell the Shares pursuant to this Agreement unless the prospectus
is furnished to the purchaser at least 48 hours prior to his receipt of a
confirmation of the sale. The Selected Dealer agrees not to use any supplemental
sales literature of any kind without prior written approval of the Underwriter,
unless it is furnished by the Underwriter for such purpose. In offering and
selling the Shares, the Selected Dealers will rely solely on the representations
contained in the Company's prospectus which will be supplied by the Underwriter
in reasonable quantities upon request.
10. Representations and Warranties of Selected Dealers.
By accepting this Agreement, the Selected Dealer represents that it is
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended; is qualified to act as a broker-dealer in the states or other
jurisdictions in which it offers the Shares; is a member in good standing with
the NASD; and will maintain such registrations, qualifications and memberships
2
<PAGE>
throughout the term of this Agreement. Further, the Selected Dealers agree to
comply with all applicable Federal laws; the laws of the states or other
jurisdictions in which it is licensed as a broker-dealer. The Selected Dealers
shall not be entitled to any compensation during any period in which it has been
suspended or expelled from membership in the NASD.
11. Indemnification.
The Company and the Underwriter have agreed to certain indemnities, as more
particularly set forth in the Underwriting Agreement between the parties which
has been filed as an Exhibit to the Company's Registration Statement.
12. Expenses.
No expenses will be charged to Selected Dealers. A single transfer tax, if
any, on the Sale of the Shares by the Selected Dealers to their customers will
be paid when such Shares are delivered to the Selected Dealers for delivery to
their customers. However, the Selected Dealer will pay its proportionate share
of any transfer tax or other tax (other than the single transfer tax described
above) if any such tax shall be from time to time assessed against the
Underwriter and other Selected Dealers.
13. Communications.
All communications to the Underwriter shall be sent to Andrew Garrett,
Inc., 310 Madison Avenue, Ste. 406, New York, N.Y. 10017. Any notice to the
Selected Dealers shall be properly given if telephoned or mailed to the Selected
Dealer at its telephone number or address set forth below.
14. Assignment and Termination.
This Agreement may not be assigned by the Selected Dealer without the
Underwriter's written consent. This Agreement will terminate upon the
termination of the offering, except that either party may terminate this
Agreement at any time by giving written notice to the other.
15. No Authority to Act as Agent.
As a Selected Dealer, you are not authorized to act as agent for the
Underwriter or the Company in offering any Shares to the public or otherwise.
16. Liability.
Nothing herein will constitute the Selected Dealers an association or other
separate entity or partners with the Underwriter or with each other or with the
Company, but you will be responsible for your share of any liability to you for
or in respect to the authorization, issuance, full payment, non-assessability,
value or validity of any Shares; for or in respect to the form or of the
statements contained in or omitted from, the Prospectus or Registration
Statement, the Underwriting Agreement, or any other instrument executed by the
Company or by others, or any agreement on its or their part to be performed; for
or in respect to the qualification of the Shares for sale under the Securities
Act of 1933, as amended, or the laws of any jurisdiction; or for or in respect
to any other matter connected with this Agreement, except agreements expressly
assumed by us herein and none shall be implied; provided , however, that nothing
herein shall be deemed to deny, exclude or impair any liability imposed by the
Securities Act of 1933, as amended, and the rules and regulations of the
Securities and Exchange Commission thereunder.
3
<PAGE>
17. Public Advertisement.
It is expected that public advertisement of the Shares will be made on or
about the date of the commencement of the initial public offering. Twenty-four
(24) hours after such advertisement shall have appeared, but not before, you
will be free to advertise the Shares allotted for sale to or sold by you or such
larger number of Shares as you may desire, without consent, at your own risk and
expense, under your own name, subject to any restriction by local laws; but your
advertisement must conform in all respects to the requirements of the Securities
Act of 1933, as amended, and the Underwriter shall be under no obligation or
liability in respect of such advertisement.
18. Termination; Cancellation of Offering.
This Agreement shall terminate on the Closing Date as defined by the
Underwriting Agreement and may be terminated by us at any time prior thereto.
The Underwriting Agreement provides that unless at least 1,000,000 Shares
offered thereunder are sold during the Offering Period, the Offering will be
canceled. If the offering is canceled, this Agreement will terminate and all
sales by you and for your account hereunder will be similarly canceled, and all
payments received will be refunded directly to the subscribers by the Escrow
Agent with interest and without deduction for commissions or expenses.
Notwithstanding such termination or cancellation, you shall remain liable
to the extent provided by law, for your proportionate amount of any claim,
demand, or liability which may be asserted against you along or against you
together with other Selected Dealers and/or us, based upon the claim that the
Selected Dealers or any of them and/or us constitute an association, an
unincorporated business, or any other separate entity.
19. Application to Participate.
If you desire to offer and sell any of the Shares, your application should
reach us promptly by telephone or telegraph at the offices of Andrew Garrett,
Inc., 310 Madsion Avenue, Ste. 406, New York, N.Y. 10017 (telephone (212)
682-8833) and you should sign and return to us the enclosed copy of this
Agreement, whereupon we shall use our best efforts to comply with your request.
The Underwriter reserves the right to accept, reject or modify subscriptions, in
whole or in part, to make allotments, and to close the subscription book, at any
time, without notice. Subscriptions for Shares will be confirmed subject to the
terms and conditions of this Agreement. The Shares are offered for delivery,
when, as and if accepted by the Underwriter and subject to the terms stated
herein and in the prospectus (a copy of which is enclosed) filed as Part I of
the aforementioned Registration Statement; to the approval of counsel for the
Underwriter and the Company as to legal matters; and to withdrawal, cancellation
or modification, without notice.
4
<PAGE>
20. Confirmation.
Please confirm the foregoing and indicate the number of Shares you desire
allotted to you by telegraphing your acceptance and order and by signing the
duplicate copy of this Agreement enclosed herewith returning it to us at the
address set forth in Section 13 above.
Very truly yours,
ANDREW GARRETT, INC.
By:
-------------------------------------
Drew Sycoff, President
We accept your offer to become a Selected Dealer on the terms specified
above and acknowledge receipt of the definitive Prospectus. In becoming a
Selected Dealer, we have relied solely on the definitive Prospectus, and no
other statements, written or oral.
On the terms set forth above, we hereby subscribe for an allotment of
______ Shares.
Dealer Name:
----------------------------------------
Address:
----------------------------------------
----------------------------------------
Telephone:
----------------------------------------
Tax I.D. #:
----------------------------------------
Accepted By:
-----------------------------
Date Accepted:
--------------------------
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
PATRIOT COMMUNICATIONS TECHNOLOGY, INC.
We the undersigned President and Secretary of Patriot Communications
Technology, Inc., a Nevada corporation (hereinafter called the "Corporation"),
do hereby certify:
FIRST: That the Board of Directors of the Corporation by unanimous written
consent dated February 10, 1994, adopted a resolution to amend the Articles of
Incorporation of the Corporation by striking out all of Article I thereof and by
inserting in lieu thereof the following new Article I: "ARTICLE I NAME The name
of the corporation shall be: Patcomm Corporation"
SECOND: That the number of shares of the Corporation outstanding and
entitled to vote on an amendment to the Articles of Incorporation is Five
Hundred Sixty Thousand (560,000).
THIRD: That the said change(s) and amendment have been consented to and
approved by the holders of all of the shares of stock outstanding and entitled
to vote thereon.
/s/ Frank Delfine
-------------------------------------
Frank Delfine, President
/s/ Alexander Adelson
-------------------------------------
Alexander Adelson, Secretary
<PAGE>
State of New York )
) ss.
County of Suffolk )
On March 11, 1994, personally appeared before me, a Notary Public, Frank
Delfine, who acknowledged that he executed the above instrument.
Eleanor Y. Petix
---------------------------------
Notary Public
(Notary Stamp or Seal) Notary Public, State of New York,
No. 4830217,
Qualified in Suffolk County,
Commission expires 2/28/96
State of New York )
) ss.
County of Westchester )
On March 8, 1994, personally appeared before me, a Notary Public, Alexander
Adelson, who acknowledged that he executed the above instrument.
George Michael
--------------------------------
Notary Public
(Notary Stamp or Seal) Notary Public, State of New York,
No. 4680342,
Qualified in Westchester County,
Commission expires 3/30/94
<PAGE>
ARTICLES OF INCORPORATION
OF
PATRIOT COMMUNICATIONS TECHNOLOGY, INC.
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned incorporator being a natural person of the age of
eighteen years or more and desiring to form a body corporate under the laws of
the State of Nevada does hereby sign, verify and deliver in duplicate to the
Secretary of State of the State of Nevada, these Articles of Incorporation:
ARTICLE I
---------
NAME
----
The name of the corporation shall be: Patriot Communications Technology,
Inc.
ARTICLE II
----------
PERIOD OF DURATION
------------------
The corporation shall exist in perpetuity, from and after the date of
filing these Articles of Incorporation with the Secretary of State of the State
of Nevada unless dissolved according to law.
ARTICLE III
-----------
PURPOSES AND POWERS
-------------------
1. Purposes. Except as restricted by these Articles of Incorporation, the
corporation is organized for the purpose of transacting all lawful business for
which corporations may be incorporated pursuant to the Nevada General
Corporation Laws.
2. Powers. Except as restricted by these Articles of Incorporation, the
corporation shall have and may exercise all powers and rights which a
corporation may exercise legally pursuant to the Nevada General Corporation
Laws.
ARTICLE IVr
-----------
CAPITAL STOCK
-------------
1. Capital Stock. The aggregate number of shares which this corporation
shall have authority to issue is ten million (10,000,000) shares of a par value
of ($0.001 per share) which shares shall be designated "Common Stock" and ten
million (10,000,000) shares of a par value of ($0.01 per share) which shares
shall be designated "Preferred Stock". Both the Common Stock and Preferred Stock
may be subdivided and issued in series pursuant to resolutions of the board of
directors containing such designations, limitations, rights and preferences
which the board of directors, in its sole discretion, may determine to be
appropriate. After the subscription price for any stock has been paid to the
corporation, no shareholder and no capital stock shall be subject to assessment
to pay the debts of the corporation.
2. Dividends. Dividends in cash, property or shares of the corporation may
be paid upon the Common Stock and the Preferred Stock as and when declared by
the board of directors in conformance with the resolutions of the board of
directors authorizing the issuance of the stock, to the extent and in the manner
permitted by law; provided however, no Common Stock dividend shall be paid for
any year unless the holders of Preferred Stock, if any, shall have received any
Preferred Stock preferential dividends, if any, to which they are entitled.
<PAGE>
3. Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the corporation, and after paying or adequately providing for the
payment of all its obligations, the remainder of the assets of the corporation
shall be distributed, either in cash or in kind, in the order provided herein.
Such distributions shall be made first, to the holders of the Preferred Stock
until any amounts required to be distributed as a liquidation preference to the
holders of the Preferred Stock have been distributed. If the remainder of the
assets is insufficient to fully satisfy the liquidation preference(s) of the
Preferred Stock, then those assets shall be distributed pro rata to each series
of Preferred Stock beginning with the series having the most superior
liquidation preference and continuing according to the liquidation preference
priority of each series until the remaining assets have been fully distributed.
Second, the assets remaining after satisfaction of the liquidation preference(s)
of the Preferred Stock shall be distributed pro rata to the holders of the
Common Stock, unless otherwise provided in the resolutions of the board of
directors authorizing the issuance of the Common Stock in series, in which case
the priority for distribution in liquidation established in those resolutions
shall be followed.
4. Voting Rights; Cumulative Voting. Each outstanding share of Common
Stock shall be entitled to one vote and each fractional share of Common Stock
shall be entitled to a corresponding fractional vote on each matter submitted to
a vote of shareholders. A majority of the shares entitled to vote, represented
in person or by proxy, shall constitute a quorum at a meeting of shareholders.
Cumulative voting shall not be allowed in the election of directors of the
corporation. Except as otherwise provided by these Articles of Incorporation or
the Nevada Corporation Code, if a quorum is present, the affirmative vote of a
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders. Directors shall be elected
by a plurality of the shareholders in attendance or represented by proxy at any
meeting of shareholders held for the purpose of electing directors.
5. Denial of Preemptive Rights. No holder of any shares of the corporation,
whether now or hereafter authorized, shall have any preemptive or preferential
right to acquire any shares or securities of the corporation, including shares
or securities held in the treasury of the corporation.
6. Transfer Restrictions. The corporation shall have the right to impose
restrictions upon the transfer of any of its authorized shares or any interest
therein. The board of directors is hereby authorized on behalf of the
corporation to exercise the corporation's right to so impose such restrictions.
ARTICLE V
---------
TRANSACTIONS WITH INTERESTED DIRECTORS
--------------------------------------
No contract or other transaction between the corporation and one or more of
its directors or any other corporation, firm, association, or entity in which
one or more of its directors are directors or officers or are financially
interested shall be either void or voidable solely because of such relationship
or interest or solely because such directors are present at the meeting of the
board of directors or a committee thereof which authorizes, approves, or
ratifies such contract or transaction or solely because their votes are counted
for such purpose if:
2
<PAGE>
(a) The fact of such relationship or interest is disclosed or known to the
board of directors or committee which authorizes, approves, or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or known to the
shareholders entitled to vote and they authorize, approve, or ratify such
contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the corporation.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the board of directors or a committee thereof which
authorizes, approves, or ratifies such contract or transaction.
ARTICLE VI
----------
CORPORATE OPPORTUNITY
---------------------
The officers, directors and other members of management of this corporation
shall be subject to the doctrine of "corporate opportunities" only insofar as it
applies to business opportunities in which this corporation has expressed an
interest as determined from time to time by this corporation's board of
directors as evidenced by resolutions appearing in the corporation's minutes.
Once such areas of interest are delineated, all such business opportunities
within such areas of interest which come to the attention of the officers,
directors, and other members of management of this corporation shall be
disclosed promptly to this corporation and made available to it. The board of
directors may reject any business opportunity presented to it and thereafter any
officer, director or other member of management may avail himself of such
opportunity. Until such time as this corporation, through its board of
directors, has designated an area of interest, the officers, directors and other
members of management of this corporation shall be free to engage in such areas
of interest on their own and this doctrine shall not limit the rights of any
officer, director or other member of management of this corporation to continue
a business existing prior to the time that such area of interest is designated
by the corporation. This provision shall not be construed to release any
employee of this corporation (other than an officer, director or member of
management) from any duties which he may have to this corporation.
ARTICLE VII
-----------
LIMITATION OF LIABILITY AND INDEMNIFICATION
-------------------------------------------
A. Limitation of Liability.
-----------------------
1. No person serving as a director or officer of the corporation shall
have any personal liability to the corporation or to its stockholders for
damages for breach of fiduciary duty as a director or officer; provided,
however, that such restriction on personal liability shall not eliminate or
limit the liability of a director or officer for: (a) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law; or (b) the
payment of dividends in violation of NRS 78.300.
2. The corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee, fiduciary or agent of the corporation, or is or was serving
3
<PAGE>
at the request of the corporation as a director, officer, employee, fiduciary or
agent of another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee, fiduciary or
agent, or arising out of his status as such, whether or not the corporation has
the authority to indemnify him against such liability and expenses, in
accordance with and to the extent available under the Nevada General Corporation
Law.
B. Indemnification.
---------------
1. The corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by reason
of the fact that he is or was a director, officer, employee, fiduciary, or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit or
proceeding if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation, and that, with
respect to any criminal action or proceeding, he had reasonable cause to believe
that his conduct was unlawful.
2. The corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee, fiduciary
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee, fiduciary or
agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in paragraphs 1 and 2
above, or in defense of any claim, issue or matter therein, he must be
indemnified by the corporation against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense.
4
<PAGE>
4. Any indemnification under paragraphs 1 and 2, unless ordered by a
court or advanced pursuant to paragraph 5, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee, fiduciary or agent is proper in the
circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act,
suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders,
by independent legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
5. The certificate or articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this paragraph do not affect
any rights to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this article:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled
under the Certificate or Articles of Incorporation or any
bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a
court pursuant to paragraph 2 or for the advancement of
expenses made pursuant to paragraph 5, may not be made to or
on behalf of any director or officer if a final adjudication
establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was
material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee, fiduciary or agent and inures to the
benefit of the heirs, executors and administrators of such a
person.
ARTICLE VIII
------------
AMENDMENTS
----------
The corporation reserves the right to amend its Articles of Incorporation
from time to time in accordance with the Nevada Corporation Code.
5
<PAGE>
ARTICLE IX
----------
ADOPTION AND AMENDMENT OF BYLAWS
--------------------------------
The initial Bylaws of the corporation shall be adopted by its board of
directors. The power to alter or amend or repeal the Bylaws or adopt new Bylaws
shall be vested in the board of directors. The Bylaws may contain any provisions
for the regulation and management of the affairs of the corporation not
inconsistent with law or these Articles of Incorporation.
ARTICLE X
---------
PRINCIPAL PLACE OF BUSINESS,
----------------------------
REGISTERED OFFICE AND REGISTERED AGENT
--------------------------------------
The address of the principal place of business in the State of Nevada and
the initial registered office of the corporation is c/o The Prentice-Hall
Corporation System, Inc., 502 E. John Street, Room R, Carson City, Nevada 89706
and the name of the initial registered agent at such address is The
Prentice-Hall Corporation System, Inc. Either the principal place of business
registered office or the registered agent may be changed in the manner provided
by law.
ARTICLE XI
----------
INITIAL BOARD OF DIRECTORS
--------------------------
1. Governing Board. The governing board of the corporation shall be a board
of directors.
2. Initial Board of Directors. The number of directors of the corporation
shall be fixed by the Bylaws of the corporation. The name and address of the
person who shall serve as the initial director and until his successor is
elected and shall qualify is as follows:
NAME ADDRESS
---- -------
Henry F. Schlueter Kutak Rock
707 Seventeenth Street, Suite 2400
Denver, Colorado 80202
Alex Adelson C/O Kutak Rock
707 Seventeenth Street, Suite 2400
Denver, Colorado 80202
ARTICLE XII
-----------
INCORPORATOR
------------
The name and address of the incorporator is as follows:
6
<PAGE>
NAME ADDRESS
---- -------
Henry F. Schlueter c/o Kutak Rock
707 Seventeenth Street, Suite 2400
Denver, Colorado 80202
IN WITNESS WHEREOF, the above-named incorporator has signed these Articles
of Incorporation on March 9, 1992.
/s/ Henry F. Schlueter
--------------------------------------
Henry F. Schlueter
STATE OF COLORADO ]
CITY AND ] ss.
COUNTY OF DENVER ]
I, the undersigned, a Notary Public, hereby certify that on March 9, 1992,
the above-named incorporator personally appeared before me, and being by me
first duly sworn declared that he is the person who signed the foregoing
document as incorporator and that the statements therein contained are true.
WITNESS my hand and official seal.
/s/ Sherry C. Span
----------------------------------
Notary Public
[SEAL]
My commission expires: 9/21/92
7
BYLAWS
OF
PATRIOT COMMUNICATIONS TECHNOLOGY, INC.
Effective March 13, 1992
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TABLE OF CONTENTS
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ARTICLE I
OFFICES
1.1 Business Office ...................................................1
1.2 Registered Office .................................................1
ARTICLE II
SHARES AND TRANSFER THEREOF
2.1 Regulation ........................................................1
2.2 Stock Certificates: Facsimile Signatures and Validation............1
2.3 Fractions of Shares: Insurance; Payment of Value or
Issuance of Scrip .................................................1
2.4 Cancellation of Outstanding Certificates and Issuance
of New Certificates: Order of Surrender; Penalties
for Failure to Comply .............................................2
2.5 Lost, Stolen or Destroyed Certificates ............................2
2.6 Transfer of Shares ................................................2
2.7 Restrictions on Transfer of Shares ................................2
2.8 Transfer Agent ....................................................3
2.9 Close of Transfer Book and Record Date ............................3
ARTICLE III
STOCKHOLDERS AND MEETINGS THEREOF
3.1 Stockholders of Record ............................................3
3.2 Meetings ..........................................................3
3.3 Annual Meeting ....................................................3
3.4 Actions at Meetings not Regularly Called:
Ratification and Approval .........................................4
3.5 Notice of Stockholders' Meeting: Signature;
Contents; Service; Waiver .........................................4
3.6 Consent of Stockholders in Lieu of Meeting ........................4
3.7 Voting Record .....................................................5
3.8 Quorum ............................................................5
3.9 Manner of Acting ..................................................5
3.10 Stockholders' Proxies .............................................5
3.11 Voting of Shares ..................................................5
3.12 Voting by Ballot ..................................................6
3.13 Cumulative Voting .................................................6
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ARTICLE IV
DIRECTORS, POWERS AND MEETINGS
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4.1 Board of Directors ................................................6
4.2 General Powers ....................................................6
4.3 Performance of Duties .............................................6
4.4 Regular Meetings ..................................................7
4.5 Special Meetings ..................................................7
4.6 Notice ............................................................7
4.7 Waiver of Notice ..................................................7
4.8 Participation by Electronic Means .................................7
4.9 Quorum and Manner of Acting .......................................7
4.10 Organization ......................................................7
4.11 Informal Action by Directors ......................................8
4.12 Vacancies .........................................................8
4.13 Compensation ......................................................8
4.14 Removal of Directors ..............................................8
4.15 Resignations ......................................................8
ARTICLE V
OFFICERS
5.1 Number ............................................................8
5.2 Election and Term of Office .......................................8
5.3 Removal ...........................................................8
5.4 Vacancies .........................................................9
5.5 Powers ............................................................9
5.6 Compensation ......................................................10
5.7 Bonds .............................................................10
ARTICLE VI
DIVIDENDS 10
ARTICLE VII
FINANCE
7.1 Reserve Funds .....................................................10
7.2 Banking ...........................................................10
ARTICLE VIII
CONTRACTS, LOANS AND CHECKS
8.1 Execution of Contracts ............................................11
8.2 Loans .............................................................11
8.3 Checks ............................................................11
8.4 Deposits ..........................................................11
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Page
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ARTICLE IX
FISCAL YEAR ..............................................................11
ARTICLE X
CORPORATE SEAL ...........................................................11
ARTICLE XI
AMENDMENTS ...............................................................11
ARTICLE XII
COMMITTEES
12.1 Appointment ....................................................11
12.2 Authority ......................................................12
12.3 Tenure and Qualifications ......................................12
12.4 Meetings .......................................................12
12.5 Quorum .........................................................12
12.6 Informal Action by a Committee .................................12
12.7 Vacancies ......................................................12
12.8 Resignations and Removal .......................................12
12.9 Procedure ......................................................12
ARTICLE XIII
EMERGENCY BYLAWS .........................................................13
CERTIFICATE ............................................................. 13
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ARTICLE I
OFFICES
1.1 Business Office. The principal office and place of business of the
corporation is located in the State of New York at the Gydrodyne/Flower Field,
Building No. 7, Mills Pond Road, St. James, New York 11780, in the County of
Suffolk. Other offices and places of business may be established from time to
time by resolution of the Board of Directors or as the business of the
corporation may require.
1.2 Registered Office. The registered office of the corporation, required
by the General Corporation Law of Nevada to be maintained in the State of
Nevada, may be, but need not be, identical with the principal office in the
State of Nevada, and the address of the registered office may be changed from
time to time by the Board of Directors in accordance with the procedures set
forth in the Nevada General Corporation Law.
ARTICLE II
SHARES AND TRANSFER THEREOF
2.1 Regulation. The Board of Directors may make such rules and regulations
as it may deem appropriate concerning the issuance, transfer and registration of
certificates for shares of the corporation, including the appointment of
transfer agents and registrars.
2.2 Stock Certificates: Facsimile Signatures and Validation.
(A) Every stockholder shall be entitled to have a certificate, signed
by officers or agents designated by the corporation for the purpose, certifying
the number of shares owned by him in such corporation.
(B) Whenever any certificate is countersigned or otherwise
authenticated by a transfer agent or transfer clerk and by a registrar, then a
facsimile of the signatures of the officers or agents of the corporation may be
printed or lithographed upon such certificate in lieu of the actual signatures.
(C) In the event any officer who shall have signed, or whose facsimile
signature shall have been used on, any such certificate shall cease to be such
officer of the corporation, whether because of death, resignation or otherwise,
before such certificate shall have been delivered by the corporation, such
certificate may nevertheless be adopted by the corporation and be issued and
delivered as though the person who signed such certificate or whose facsimile
signature shall have been used thereon, had not ceased to be such officer of the
corporation.
2.3 Fractions of Shares: Issuance; Payment of Value or Issuance of Scrip.
The corporation is not obligated to, but may, execute and deliver a certificate
for or including a fraction of a share. In lieu of executing and delivering a
certificate for a fraction of a share, the corporation may, upon resolution of
the Board of Directors:
(A) make payment to any person otherwise entitled to become a holder
of a fractional share, which payment shall be in accordance with the provisions
of the Nevada General Corporation Law; or
(B) execute and deliver registered or bearer scrip over the manual or
facsimile signature of an officer of the corporation or of its agent for that
purpose, exchangeable as provided on the scrip for full share certificates, but
the scrip does not entitle the holder to any rights as a stockholder except as
provided on the scrip. The scrip may contain any other provisions or conditions
that the corporation, by resolution of the Board of Directors, deems advisable.
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2.4 Cancellation of Outstanding Certificates and Issuance of New
Certificates: Order of Surrender; Penalties for Failure to Comply. All
certificates surrendered to the corporation for transfer shall be cancelled and
no new certificates shall be issued in lieu thereof until the former certificate
for a like number of shares shall have been surrendered and cancelled, except as
hereinafter provided with respect to lost, stolen or destroyed certificates.
When the Certificate or Articles of Incorporation are amended in any way
affecting the statements contained in the certificates for outstanding shares,
or it becomes desirable for any reason in the discretion of the Board of
Directors, to cancel any outstanding certificate or shares and issue a new
certificate therefor conforming to the rights of the holder, the Board of
Directors may order any holders of outstanding certificates for shares to
surrender and exchange them for new certificates within a reasonable time to be
fixed by the Board of Directors. Such order may provide that no holder of any
such certificate so ordered to be surrendered shall be entitled to vote or to
receive dividends or exercise any of the other rights of stockholders of record
until he shall have complied with such order, but such order shall only operate
to suspend such rights after notice and until compliance. The duty of surrender
of any outstanding certificates may also be enforced by action at law.
2.5 Lost, Stolen or Destroyed Certificates. Any stockholder claiming that
his certificate for shares is lost, stolen or destroyed may make an affidavit or
affirmation of the fact and lodge the same with the Secretary of the
corporation, accompanied by a signed application for a new certificate.
Thereupon, and upon the giving of a satisfactory bond of indemnity to the
corporation not exceeding an amount double the value of the shares as
represented by such certificate (the necessity for such bond and the amount
required to be determined by the President and Treasurer of the corporation), a
new certificate may be issued of the same tenor and representing the same
number, class and series of shares as were represented by the certificate
alleged to be lost, stolen or destroyed.
2.6 Transfer of Shares. Subject to the terms of any stockholder agreement
relating to the transfer of shares or other transfer restrictions contained in
the Articles of Incorporation or authorized therein, shares of the corporation
shall be transferable on the books of the corporation by the holder thereof in
person or by his duly authorized attorney, upon the surrender and cancellation
of a certificate or certificates for a like number of shares. Upon presentation
and surrender of a certificate for shares properly endorsed and payment of all
taxes therefor, the transferee shall be entitled to a new certificate or
certificates in lieu thereof. As against the corporation, a transfer of shares
can be made only on the books of the corporation and in the manner hereinabove
provided, and the corporation shall be entitled to treat the holder of record of
any share as the owner thereof and shall not be bound to recognize any equitable
or other claim to or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, save as expressly
provided by the statutes of the State of Nevada.
2.7 Restrictions on Transfer of Shares. Subject to the limitation imposed
by Section 104.8204, Nevada Revised Statutes, a written restriction on the
transfer or registration of transfer of a security of the corporation may be
enforced against the holder of the restricted security or any successor or
transferee of the holder.
A restriction on the transfer or registration of transfer of the
securities of the corporation may be imposed either by the Articles of
Incorporation, these Bylaws or by an agreement among any number of security
holders or between one or more such holders and the corporation. No restriction
so imposed is binding with respect to securities issued prior to the adoption of
the restriction, unless the holders of the securities are parties to an
agreement or voted in favor of the restriction.
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2.8 Transfer Agent. Unless otherwise specified by the Board of Directors by
resolution, the Secretary of the corporation shall act as transfer agent of the
certificates representing the shares of stock of the corporation. He shall
maintain a stock transfer book, the stubs of which shall set forth among other
things, the names and addresses of the holders of all issued shares of the
corporation, the number of shares held by each, the certificate numbers
representing such shares, the date of issue of the certificates representing
such shares, and whether or not such shares originate from original issue or
from transfer. Subject to Section 3.7, the names and addresses of the
stockholders as they appear on the stubs of the stock transfer book shall be
conclusive evidence as to who are the stockholders of record and as such
entitled to receive notice of the meetings of stockholders; to vote at such
meetings; to examine the list of the stockholders entitled to vote at meetings;
to receive dividends; and to own, enjoy and exercise any other property or
rights deriving from such shares against the corporation. Each stockholder shall
be responsible for notifying the Secretary in writing of any change in his name
or address and failure so to do will relieve the corporation, its directors,
officers and agents, from liability for failure to direct notices or other
documents, or pay over or transfer dividends or other property or rights, to a
name or address other than the name and address appearing on the stub of the
stock transfer book.
2.9 Close of Transfer Book and Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may prescribe a period not exceeding
sixty (60) days prior to any meeting of the stockholders during which no
transfer of stock on the books of the corporation may be made, or may fix a day
not more than sixty (60) days prior to the holding of any such meeting as the
day as of which stockholders entitled to notice and to vote at such meeting
shall be determined; and only stockholders of record on such day shall be
entitled to notice or to vote at such meeting. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
ARTICLE III
STOCKHOLDERS AND MEETINGS THEREOF
3.1 Stockholders of Record. Only stockholders of record on the books of the
corporation shall be entitled to be treated by the corporation as holders in
fact of the shares standing in their respective names, and the corporation shall
not be bound to recognize any equitable or other claim to, or interest in, any
shares on the part of any other person, firm or corporation, whether or not it
shall have express or other notice thereof, except as expressly provided by the
laws of Nevada.
3.2 Meetings. Meetings of stockholders shall be held at the principal
office of the corporation, or at such other place, either within or without the
State of Nevada, as specified from time to time by the Board of Directors. If
the Board of Directors shall specify another location such change in location
shall be recorded on the notice calling such meeting.
3.3 Annual Meeting. The annual meeting of stockholders of the corporation
for the election of directors, and for the transaction of such other business as
may properly come before the meeting, shall be held on such date, and at such
time and place as the Board of Directors shall designate by resolution at any
time within the first nine months following the close of the corporation's
fiscal year. If the election of directors shall not be held within the time
period designated herein for any annual meeting of the stockholders, the Board
of Directors shall cause the election to be held at a special meeting of the
stockholders as soon thereafter as may be convenient. Failure to hold the annual
meeting at the designated time shall not work a forfeiture or dissolution of the
corporation.
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3.4 Actions at Meetings Not Regularly Called: Ratification and Approval.
Whenever all stockholders entitled to vote at any meeting consent, either by (i)
a writing on the records of the meeting or filed with the Secretary; or (ii)
presence at such meeting and oral consent entered on the minutes; or (iii)
taking part in the deliberations at such meeting without objection; the doings
of such meeting shall be as valid as if had at a meeting regularly called and
noticed. At such meeting any business may be transacted which is not excepted
from the written consent or to the consideration of which no objection for want
of notice is made at the time.
If a meeting be irregular for want of notice or of such consent,
provided a quorum was present at such meeting, the proceedings of the meeting
may be ratified and approved and rendered likewise valid and the irregularity or
defect therein waived by a writing signed by all parties having the right to
vote at such meeting.
Such consent or approval of stockholders may be made by proxy or
attorney, but all such proxies and powers of attorney must be in writing.
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3.5 Notice of Stockholders' Meeting: Signature; Contents; Service; Waiver.
The notice of stockholders' meetings shall be in writing and signed by the
President or a Vice President, or the Secretary, or the Assistant Secretary, or
by such other person or persons as designated by the Board of Directors. Such
notice shall state the purpose or purposes for which the meeting is called and
the time when, and the place, which may be within or without the State of
Nevada, where it is to be held.
A copy of such notice shall be either delivered personally to, or
shall be mailed postage prepaid to, each stockholder of record entitled to vote
at such meeting not less than ten (10) nor more than sixty (60) days before such
meeting. If mailed, it shall be directed to a stockholder at his address as it
appears on the records of the corporation, and upon such mailing of any such
notice the service thereof shall be complete, and the time of the notice shall
begin to run from the date upon which such notice is deposited in the mail for
transmission to such stockholder. Personal delivery of any such notice to any
officer of a corporation or association, or to any member of a partnership,
shall constitute delivery of such notice to such corporation, association or
partnership.
Notice duly delivered or mailed to a stockholder in accordance with
the provisions of this section shall be deemed sufficient, and in the event of
the transfer of his stock after such delivery or mailing and prior to the
holding of the meeting, it shall not be necessary to deliver or mail notice of
the meeting upon the transferee.
Any stockholder may waive notice of any meeting by a writing signed by
him, or his duly authorized attorney, either before or after the meeting. Such
waiver shall be deemed equivalent to any notice required to be given pursuant to
the Articles of Incorporation, the Bylaws, or the Nevada General Corporation
Law.
3.6 Consent of Stockholders in Lieu of Meeting. Any action which may be
taken by the vote of stockholders at a meeting, may be taken without a meeting
if authorized by the written consent of stockholders holding at least a majority
of the voting power, except that:
(A) If any greater proportion of voting power is required for such
action at a meeting, then the greater proportion of written consents is
required; and
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(B) This general provision for action by written consent does not
supersede any specific provision for action by written consent contained in the
Articles of Incorporation, the Bylaws or the Nevada General Corporation Law.
In no instance where action is authorized by written consent need a meeting
of stockholders be called or noticed.
3.7 Voting Record. The officer or agent having charge of the stock transfer
books for shares of the corporation shall make, at least ten days before such
meeting of stockholders, a complete record of the stockholders entitled to vote
at each meeting of stockholders or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each.
The record, for a period of ten days prior to such meeting, shall be kept on
file at the principal office of the corporation, whether within or without the
State of Nevada, and shall be subject to inspection by any stockholder for any
purpose germane to the meeting at any time during usual business hours. Such
record shall be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the whole time of
the meeting for the purposes thereof.
The original stock transfer books shall be the prima facie evidence as to
who are the stockholders entitled to examine the record or transfer books or to
vote at any meeting of stockholders.
3.8 Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of stockholders, except as otherwise provided by the Nevada
General Corporation Law and the Articles of Incorporation. In the absence of a
quorum at any such meeting, a majority of the shares so represented may adjourn
the meeting from time to time for a period not to exceed sixty (60) days without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
3.9 Manner of Acting. If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the stockholders, unless the vote of a
greater proportion or number or voting by classes is otherwise required by
statute or by the Articles of Incorporation or these Bylaws.
3.10 Stockholders' Proxies. At any meeting of the stockholders of the
corporation, any stockholder may be represented and vote by a proxy or proxies
appointed by an instrument in writing. In the event that any such instrument in
writing shall designate two or more persons to act as proxies, a majority of
such persons present at the meeting, or, if only one shall be present, then that
one shall have and may exercise all the powers conferred by such written
instrument upon all of the persons so designated unless the instrument shall
otherwise provide.
No such proxy shall be valid after the expiration of six (6) months from
the date of its execution, unless coupled with an interest, or unless the person
executing it specifies therein the length of time for which it is to continue in
force, which in no case shall exceed seven (7) years from the date of its
execution. Subject to the above, any proxy duly executed is not revoked and
continues in full force and effect until an instrument revoking it or a duly
executed proxy bearing a later date is filed with the Secretary of the
corporation.
3.11 Voting of Shares. Unless otherwise provided by these Bylaws or the
Articles of Incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
stockholders, and each fractional share shall be entitled to a corresponding
fractional vote on each such matter.
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3.12 Voting by Ballot. Voting on any question or in any election may be by
voice vote unless the presiding officer shall order or any stockholder shall
demand that voting be by ballot.
3.13 Cumulative Voting. No stockholder shall be permitted to cumulate his
votes.
ARTICLE IV
DIRECTORS, POWERS AND MEETINGS
4.1 Board of Directors. The business and affairs of the corporation shall
be managed by a board of not less than one (1) nor more than seven (7) directors
who shall be natural persons of at least 18 years of age but who need not be
stockholders of the corporation or residents of the State of Nevada and who
shall be elected at the annual meeting of stockholders or some adjournment
thereof. Directors shall hold office until the next succeeding annual meeting of
stockholders and until their successors shall have been elected and shall
qualify. The Board of Directors may increase or decrease the number of directors
by resolution.
4.2 General Powers. The business and affairs of the corporation shall be
managed by the Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders. The directors shall pass upon any and all
bills or claims of officers for salaries or other compensation and, if deemed
advisable, shall contract with officers, employees, directors, attorneys,
accountants, and other persons to render services to the corporation.
Any contractor or conveyance, otherwise lawful, made in the name of
the corporation, which is authorized or ratified by the Board of Directors, or
is done within the scope of the authority, actual or apparent, given by the
Board of Directors, binds the corporation, and the corporation acquires rights
thereunder, whether the contract is executed or is wholly or in part executory.
4.3 Performance of Duties. A director of the corporation shall perform his
duties as a director, including his duties as a member of any committee of the
board upon which he may serve, in good faith, in a manner he reasonably believes
to be in the best interests of the corporation, and with such care as an
ordinarily prudent person in a like position would use under similar
circumstances. In performing his duties, a director shall be entitled to rely on
information, opinions, reports, or statements, including financial statements
and other financial data, in each case prepared or presented by persons and
groups listed in paragraphs (A), (B), and (C) of this Section 4.3; but he shall
not be considered to be acting in good faith if he has knowledge concerning the
matter in question that would cause such reliance to be unwarranted. A person
who so performs his duties shall not have any liability by reason of being or
having been a director of the corporation. Those persons and groups on whose
information, opinions, reports, and statements a director is entitled to rely
upon are:
(A) One or more officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented;
(B) Counsel, public accountants, or other persons as to matters which
the director reasonably believes to be within such persons' professional or
expert competence; or
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(C) A committee of the board upon which he does not serve, duly
designated in accordance with the provisions of the Articles of Incorporation or
the Bylaws, as to matters within its designated authority, which committee the
director reasonably believes to merit confidence.
4.4 Regular Meetings. A regular, annual meeting of the Board of Directors
shall be held at the same place as, and immediately after, the annual meeting of
stockholders, and no notice shall be required in connection therewith. The
annual meeting of the Board of Directors shall be for the purpose of electing
officers and the transaction of such other business as may come before the
meeting. The Board of Directors may provide, by resolution, the time and place,
either within or without the State of Nevada, for the holding of additional
regular meetings without other notice than such resolution.
4.5 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the President or any two directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Nevada, as the place for
holding any special meeting of the Board of Directors called by them.
4.6 Notice. Written notice of any special meeting of directors shall be
given as follows:
(A) By mail to each director at his business address at least three
(3) days prior to the meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, so addressed, with postage
thereon prepaid; or
(B) By personal delivery or telegram at least twenty-four (24) hours
prior to the meeting to the business address of each director, or in the event
such notice is given on a Saturday, Sunday or holiday, to the residence address
of each director. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company.
4.7 Waiver of Notice. Whenever any notice whatever is required to be given
to directors, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
4.8 Participation by Electronic Means. Unless otherwise restricted, members
of the Board of Directors or any committee thereof, may participate in a meeting
of such board or committee by means of a conference telephone network or a
similar communications method by which all persons participating in the meeting
can hear each other. Participation in a meeting pursuant to this section
constitutes presence in person at such meeting. Each person participating in the
meeting shall sign the minutes thereof. The minutes may be signed in
counterparts.
4.9 Quorum and Manner of Acting. A quorum at all meetings of the Board of
Directors shall consist of a majority of the number of directors then holding
office, but a smaller number may adjourn from time to time without further
notice, until a quorum is secured. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by the laws of the
State of Nevada or by the Articles of Incorporation or these Bylaws.
4.10 Organization. The Board of Directors shall elect a chairman from among
the directors to preside at each meeting of the Board of Directors and at all
meetings of the stockholders. The Board of Directors shall elect a Secretary to
record the discussions and resolutions of each meeting.
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4.11 Informal Action By Directors. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof,
may be taken without a meeting if a written consent thereto is signed by all the
members of the board or such committee. Such written consent shall be filed with
the minutes of proceedings of the board or committee.
4.12 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office,
and shall hold such office until his successor is duly elected and shall
qualify. Any directorship to be filled by reason of an increase in the number of
directors shall be filled by the affirmative vote of a majority of the directors
then in office or by an election at an annual meeting, or at a special meeting
of stockholders called for that purpose. A director chosen to fill a position
resulting from an increase in the number of directors shall hold office only
until the next election of directors by the stockholders.
4.13 Compensation. By resolution of the Board of Directors and irrespective
of any personal interest of any of the members, each director may be paid his
expenses, if any, of attendance at each meeting of the Board of Directors, and
may be paid a stated salary as director or a fixed sum for attendance at each
meeting of the Board of Directors or both. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
4.14 Removal of Directors. Any director or directors of the corporation may
be removed from office at any time, with or without cause, by the vote or
written consent of stockholders representing not less than two-thirds of the
issued and outstanding capital stock entitled to ??????????
4.15 Resignations. A director of the corporation may resign at any time by
giving written notice to the Board of Directors, President or Secretary of the
corporation. The resignation shall take effect upon the date of receipt of such
notice, or at such later time specified therein. The acceptance of such
resignation shall not be necessary to make it effective, unless the resignation
requires such acceptance to be effective.
ARTICLE V
OFFICERS
5.1 Number. The officers of the corporation shall be a President, a
Secretary, a Treasurer, and a registered agent, and who shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two or more
offices may be held by the same person.
5.2 Election and Term of Office. The officers of the corporation to be
elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after the annual
meeting of the stockholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as practicable.
Each officer shall hold office until his successor shall have been duly elected
and shall have qualified or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided.
5.3 Removal. Any officer or agent may be removed by the Board of Directors
whenever in its judgment the best interests of the corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
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5.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term. In the event of absence or inability of
any officer to act, the Board of Directors may delegate the powers or duties of
such officer to any other officer, director or person whom it may select.
5.5 Powers. The officers of the corporation shall exercise and perform the
respective powers, duties and functions as are stated below, and as may be
assigned to them by the Board of Directors.
(A) President. The President shall be the chief executive officer of
the corporation and, subject to the control of the Board of Directors, shall
have general supervision, direction and control over all of the business and
affairs of the corporation. The President shall, when present, and in the
absence of a Chairman of the Board, preside at all meetings of the stockholders
and of the Board of Directors. The President may sign, with the Secretary or any
other proper officer of the corporation authorized by the Board of Directors,
certificates for shares of the corporation and deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time.
(B) Vice President. If elected or appointed by the Board of Directors,
the Vice President (or in the event there is more than one Vice President, the
Vice Presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election) shall, in the
absence of the President or in the event of his death, inability or refusal to
act, perform all duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any Vice
President may sign, with the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, certificates for shares of the corporation;
and shall perform such other duties as from time to time may be assigned to him
by the President or by the Board of Directors.
(C) Secretary. The Secretary shall: keep the minutes of the
proceedings of the stockholders and of the Board of Directors in one or more
books provided for that purpose; see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; keep a
register of the post office address of each stockholder which shall be furnished
to the Secretary by such stockholder; sign with the Chairman or Vice Chairman of
the Board of Directors, or the President, or a Vice President, certificates for
shares of the corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; have general charge of the stock transfer
books of the corporation; and in general perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the President or by the Board of Directors.
(D) Assistant Secretary. The Assistant Secretary, when authorized by
the Board of Directors, may sign with the Chairman or Vice Chairman of the Board
of Directors or the President or a Vice President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. An Assistant Secretary, at the request of the Secretary,
or in the absence or disability of the Secretary, also may perform all of the
duties of the Secretary. An Assistant Secretary shall perform such other duties
as may be assigned to him by the President or by the Secretary.
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(E) Treasurer. The Treasurer shall: have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of these Bylaws; and keep accurate books of accounts of the
corporation's transactions, which shall be the property of the corporation, and
shall render financial reports and statements of condition of the corporation
when so requested by the Board of Directors or President. The Treasurer shall
perform all duties commonly incident to his office and such other duties as may
from time to time be assigned to him by the President or the Board of Directors.
In the absence or disability of the President and Vice President or Vice
Presidents, the Treasurer shall perform the duties of the President.
(F) Assistant Treasurer. An Assistant Treasurer may, at the request of
the Treasurer, or in the absence or disability of the Treasurer, perform all of
the duties of the Treasurer. He shall perform such other duties as may be
assigned to him by the President or by the Treasurer.
5.6 Compensation. All officers of the corporation may receive salaries or
other compensation if so ordered and fixed by the Board of Directors. The Board
shall have authority to fix salaries in advance for stated periods or render the
same retroactive as the Board may deem advisable. No officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the corporation.
5.7 Bonds. If the Board of Directors by resolution shall so require, any
officer or agent of the corporation shall give bond to the corporation in such
amount and with such surety as the Board of Directors may deem sufficient,
conditioned upon the faithful performance of their respective duties and
offices.
ARTICLE VI
DIVIDENDS
The Board of Directors from time to time may declare and the corporation
may pay dividends on its outstanding shares upon the terms and conditions and in
the manner provided by law and the Articles of Incorporation.
ARTICLE VII
FINANCE
7.1 Reserve Funds. The Board of Directors, in its uncontrolled discretion,
may set aside from time to time, out of the net profits or earned surplus of the
corporation, such sum or sums as it deems expedient as a reserve fund to meet
contingencies, for equalizing dividends, for maintaining any property of the
corporation, and for any other purpose.
7.2 Banking. The moneys of the corporation shall be deposited in the name
of the corporation in such bank or banks or trust company or trust companies, as
the Board of Directors shall designate, and may be drawn out only on checks
signed in the name of the corporation by such person or persons as the Board of
Directors, by appropriate resolution, may direct. Notes and commercial paper,
when authorized by the Board, shall be signed in the name of the corporation by
such officer or officers or agent or agents as shall be authorized from time to
time.
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ARTICLE VIII
CONTRACTS, LOANS AND CHECKS
8.1 Execution of Contracts. Except as otherwise provided by statute or by
these Bylaws, the Board of Directors may authorize any officer or agent of the
corporation to enter into any contract, or execute and deliver any instrument in
the name of, and on behalf of the corporation. Such authority may be general or
confined to specific instances. Unless so authorized, no officer, agent or
employee shall have any power to bind the corporation for any purpose, except as
may be necessary to enable the corporation to carry on its normal and ordinary
course of business.
8.2 Loans. No loans shall be contracted on behalf of the corporation and no
negotiable paper or other evidence of indebtedness shall be issued in its name
unless authorized by the Board of Directors. When so authorized, any officer or
agent of the corporation may effect loans and advances at any time for the
corporation from any bank, trust company or institution, firm, corporation or
individual. An agent so authorized may make and deliver promissory notes or
other evidence of indebtedness of the corporation and may mortgage, pledge,
hypothecate or transfer any real or personal property held by the corporation as
security for the payment of such loans. Such authority, in the Board of
Directors' discretion, may be general or confined to specific instances.
8.3 Checks. Checks, notes, drafts and demands for money or other evidence
of indebtedness issued in the name of the corporation shall be signed by such
person or persons as designated by the Board of Directors and in the manner
prescribed by the Board of Directors.
8.4 Deposits. All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be the year adopted by resolution
of the Board of Directors.
ARTICLE X
CORPORATE SEAL
The Board of Directors may provide a corporate seal which shall be circular
in form and shall have inscribed thereon the name of the corporation and the
state of incorporation and the words "CORPORATE SEAL."
ARTICLE XI
AMENDMENTS
Any Article or provision of these Bylaws may be altered, amended or
repealed, and new Bylaws may be adopted by a majority of the directors present
at any meeting of the Board of Directors of the corporation at which a quorum is
present.
ARTICLE XII
COMMITTEES
12.1 Appointment. The Board of Directors by resolution adopted by a
majority of the full Board, may designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The designation
of such committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed by law.
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12.2 Authority. Any committee, when the Board of Directors is not in
session shall have and may exercise all of the authority of the Board of
Directors except to the extent, if any, that such authority shall be limited by
the resolution appointing the committee and except also that the committee shall
not have the authority of the Board of Directors in reference to declaring
dividends and distributions, recommending to the stockholders that the Articles
of Incorporation be amended, recommending to the stockholders the adoption of a
plan of merger or consolidation, filling vacancies on the Board of Directors or
any committee thereof, recommending to the stockholders the sale, lease or other
disposition of all or substantially all of the property and assets of the
corporation otherwise than in the usual and regular course of its business,
recommending to the stockholders a voluntary dissolution of the corporation or a
revocation thereof, authorize or approve the issuance or reacquisition of
shares, or amending the Bylaws of the corporation.
12.3 Tenure and Qualifications. Each member of a committee shall hold
office until the next regular annual meeting of the Board of Directors following
the designation of such member and until his successor is designated as a member
of such committee and is elected and qualified.
12.4 Meetings. Regular meetings of a committee may be held without notice
at such time and places as the committee may fix from time to time by
resolution. Special meetings of a committee may be called by any member thereof
upon not less than one day's notice stating the place, date and hour of the
meeting, which notice may be written or oral, and if mailed, shall be deemed to
be delivered when deposited in the United States mail addressed to the member of
the committee at his business address. Any member of a committee may waive
notice of any meeting and no notice of any meeting need be given to any member
thereof who attends in person. The notice of a meeting of a committee need not
state the business proposed to be transacted at the meeting.
12.5 Quorum. A majority of the members of a committee shall constitute a
quorum for the transaction of business at any meeting thereof, and any action of
such committee must be authorized by the affirmative vote of a majority of the
members present at a meeting at which a quorum is present.
12.6 Informal Action by a Committee. Any action required or permitted to be
taken by a committee at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
members of the committee entitled to vote with respect to the subject matter
thereof.
12.7 Vacancies. Any vacancy in a committee may be filled by a resolution
adopted by a majority of the full Board of Directors.
12.8 Resignations and Removal. Any member of a committee may be removed at
any time with or without cause by resolution adopted by a majority of the full
Board of Directors. Any member of a committee may resign from such committee at
any time by giving written notice to the President or Secretary of the
corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
12.9 Procedure. A committee shall elect a presiding officer from its
members and may fix its own rules of procedure which shall not be inconsistent
with these Bylaws. It shall keep regular minutes of its proceedings and report
the same to the Board of Directors for its information at the meeting thereof
held next after the proceedings shall have been taken.
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ARTICLE XIII
EMERGENCY BYLAWS
The Emergency Bylaws provided in this Article XIII shall be operative
during any emergency in the conduct of the business of the corporation resulting
from an attack on the United States or any nuclear or atomic disaster,
notwithstanding any different provision in the preceding articles of the Bylaws
or in the Articles of Incorporation of the corporation or in the Nevada General
Corporation Law. To the extent not inconsistent with the provisions of this
article, the Bylaws provided in the preceding articles shall remain in effect
during such emergency and upon its termination the Emergency Bylaws shall cease
to be operative.
During any such emergency:
(A) A meeting of the Board of Directors may be called by any officer
or director of the corporation. Notice of the time and place of the meeting
shall be given by the person calling the meeting to such of the directors as it
may be feasible to reach by any available means of communication. Such notice
shall be given at such time in advance of the meeting as circumstances permit in
the judgment of the person calling the meeting.
(B) At any such meeting of the Board of Directors, a quorum shall
consist of the number of directors in attendance at such meeting.
(C) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the principal office or
designate several alternative principal offices or regional offices, or
authorize the officers so to do.
(D) The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of succession in the
event that during such an emergency any or all officers or agents of the
corporation shall for any reason be rendered incapable of discharging their
duties.
(E) No officer, director or employee acting in accordance with these
Emergency Bylaws shall be liable except for willful misconduct. No officer,
director, or employee shall be liable for any action taken by him in good faith
in such an emergency in furtherance of the ordinary business affairs of the
corporation even though not authorized by the Bylaws then in effect.
(F) These Emergency Bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the stockholders, but
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action taken prior to the time of such repeal or
change. Any amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances of
the emergency.
CERTIFICATE
-----------
I hereby certify that the foregoing Bylaws, consisting of 17
pages, including this page, constitute the Bylaws of PATRIOT COMMUNICATIONS
TECHNOLOGY, INC., adopted by the Board of Directors of the corporation as of
March 13, 1992.
--------------------------------
Alexander M. Adelson, Secretary
13
Form of Common Stock Certificate
--------------------------------
NUMBER SHARES
This Certifies that is the
------------------------------------------------------
registered holder of Shares
----------------------------------------------------
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this .... day of ................ A.D.
[Corporate Seal]
WARRANT CERTIFICATE
Dated: , 1997
VOID AFTER 5:00 P.M., NEW YORK, NEW YORK LOCAL TIME
ON
_________________, 2002
PATCOMM CORPORATION
100,000 Warrants to Purchase 100,000 Shares
of
Common Stock, $.001 par value
Patcomm Corporation, a Nevada corporation (hereinafter referred to as the
"Company"), hereby certifies that _____________________ (hereinafter
"_________"), his successors and assigns, for value received, is entitled to
purchase from the Company at any time after ________________, 1998, and before
5:00 p.m., New York local time on __________________, 2002, _______ shares of
the Company's common stock, .$.001 par value (hereinafter referred to as the
"Underwriter Warrant Shares") (the number and character of such Underwriter
Warrant Shares being subject to adjustments as provided herein) at the purchase
price of $6.90 per Underwriter Warrant Share (hereinafter referred to as the
"Exercise Price"). This Warrant Certificate was issued pursuant to a certain
Underwriting Agreement dated _________________, 1997 between the Company and
Andrew Garrett, Inc. (the "Underwriter") providing for the issuance of an
aggregate of 1,000,000 shares of the Company entitling Andrew Garrett to
purchase an aggregate of up to 100,000 shares of the Company (collectively, the
"Underwriter Warrants"). Such Underwriter Warrant Shares are further described
in the Company's registration statement (the "Registration Statement") (SEC File
No. ), filed with, and declared effective by, the Securities and Exchange
Commission on ____________, 1997.
1. Exercise of Underwriter Warrants.
Upon presentation and surrender of this Warrant Certificate, with the
attached Purchase Form duly executed, at the principal office of the Company at
7 Flower Field, M100, St. James, N.Y. 11780, the Company shall deliver to the
holder hereof, as promptly as practicable, certificates representing the
Underwriter Warrant Shares being purchased. This Warrant Certificate may be
exercised in whole or in part and, in case of the exercise hereof in part only,
the Company, upon surrender hereof, will deliver to the holder a new Warrant
Certificate or Warrant Certificates of like tenor entitling said holder to
purchase the number of Underwriter Warrant Shares as to which this Warrant
Certificate has not been exercised.
2. Exchange and Transfer.
(a) At any time prior to the exercise hereof, upon presentation and
surrender to the Company, this Warrant Certificate may be exchanged, alone or
with other Warrants of like tenor registered in the name of the same holder, for
another Warrant Certificate or other Warrant Certificates of like tenor in the
name of such holder exercisable for the same aggregate number of Underwriter
Warrant Shares as the Warrant Certificate or Warrant Certificates surrendered.
1 Warrant Certificate
<PAGE>
(b) This Warrant Certificate may not be sold, transferred, hypothecated, or
assigned before ______________, 1998, except to officers of the Underwriter or
to other members of the underwriting group or dealers in the selling group or to
officers of such members or such dealers in the selling group, with respect to
the offering described in the Registration Statement.
3. Rights and Obligations of Warrantholders.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity; provided, however, in the event that any Underwriter Warrant Shares
issued to the holder hereof upon exercise of a portion or all of the Underwriter
Warrants represented hereby, such holder shall, for all purposes, be deemed to
have become the holder of record of such stock on the date on which this Warrant
Certificate, together with a duly executed Purchase Form, was surrendered,
irrespective of the date of delivery of such share certificate, except that if
at the date of surrender of such Warrant Certificate the transfer books for the
shares of common stock of the Company shall be closed, the holder of this
Warrant Certificate shall not be deemed to have become the holder of record of
such stock until the date on which such books shall be opened. Unless required
by law or applicable rule of any national securities exchange such transfer
books shall not be closed at any one time for a period longer than 40 days. The
rights of the holder of this Warrant Certificate are limited to those expressed
herein and the holder of this Warrant Certificate, by his acceptance hereof,
consents to and agrees to be bound by and to comply with all the provisions of
this Warrant Certificate, including without limitation all the obligations
imposed upon the holder hereof by Section 5. In addition, the holder of this
Warrant Certificate, by accepting the same, agrees that the Company and its
warrant agent may, prior to any presentation for registration or transfer, deem
and treat the person in whose name this Warrant Certificate is registered as the
absolute, true and lawful owner for all purposes whatsoever, and neither the
Company nor the warrant agent shall be affected by any notice to the contrary.
4. Warrant Stock and Common Stock Warrants.
The Company covenants and agrees that all Underwriter Warrant Shares
delivered upon exercise of this Warrant Certificate will, upon delivery, be duly
authorized, validly issued, fully paid and non-assessable, and free from all
stamp taxes, liens, and charges with respect to the purchase thereof. In
addition, the Company agrees at all times to reserve and keep available an
authorized number of shares of its common stock sufficient to permit the
exercise in full of all outstanding Underwriter Warrants.
5. Disposition of Warrant Certificates or Underwriter Warrant Shares.
The holder of this Warrant Certificate and any transferee hereof or of the
Underwriter Warrant Shares, by their acceptance thereof, hereby agree that (a)
no public distribution of the Underwriter Warrants or the Underwriter Warrant
Shares will be made in violation of the provisions of the Securities Act of
1933, as amended, or the Rules and Regulations promulgated thereunder (such Act
and Rules and Regulations being hereinafter referred to as the "Act") and (b)
during such period as delivery of a prospectus with respect to the Underwriter
Warrants or the Underwriter Warrant Shares may be required by the Act, any
public distribution of the Underwriter Warrants or Underwriter Warrant Shares
will be preceded or accompanied by, and made in a manner or on terms set forth
in, a prospectus then meeting the requirements of Section 10 of the Act and in
compliance with all applicable state laws. The holder of this Warrant
2 Warrant Certificate
<PAGE>
Certificate and any such transferee hereof further agree that if any
distribution of any of the Underwriter Warrants or Underwriter Warrant Shares is
proposed to be made by them otherwise that by delivery of a prospectus meeting
the requirements of Section 10 of the Act as set forth above, such action shall
be taken only after submission to the Company of an opinion of counsel,
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed distribution will not be in violation of the Act or of
applicable state law. Furthermore, it shall be a condition to the transfer of
the Warrant Certificate or Underwriter Warrants that any transferee thereof
deliver to the Company his or its written agreement to accept and be bound by
all of the terms and conditions of this Warrant Certificate.
6. Registration and Repurchase.
The Company further covenants and agrees as follows:
(a) Upon receipt by the Company at any one time during the period from
____________, 1998 to_______________, 2002 of a written request from the holders
of fifty (50%) percent of the Underwriter's Warrants or underlying shares, to
qualify or register the Underwriter Warrants and/or the Underwriter Warrant
Shares in whole or in part, under the Act, the Company will, as promptly as
practicable, at the Company's sole cost and expense: (i) prepare and file under
the Act, a registration statement relating to such Underwriter Warrant Shares
(the term "registration statement" as used in this Section 6(a) being deemed to
include any form which may be used to register a distribution of securities to
the public for cash, a post-effective amendment to a registration statement);
(ii) prepare and file with the appropriate Blue Sky authorities the necessary
documents to register or qualify such Underwriter Warrants and/or Underwriter
Warrant Shares; (iii) deliver to each of the other holders of Underwriter
Warrants and Underwriter Warrant Shares written notice of the Company's
intention to register such Underwriter Warrants and/or Underwriter Warrant
Shares at least 30 days prior to the anticipated filing date; (iv) if requested
by any of such other holders of Underwriter Warrants or Underwriter Warrant
Shares then in writing delivered to the Company within twenty (20) days of the
receipt of such written notice from the Company, included in such registration
statement, all or any part, of the Underwriter Warrants and/or Underwriter
Warrant Shares then held by such other holder, and (v) use its best efforts to
cause such registration statement to become effective and to keep such
registration statement and Blue Sky current and effective until such time as an
amendment is required to be filed pursuant to the provisions of Section 10(a)(3)
of the Act. In the event not all of the Underwriter Warrants and Underwriter
Warrant Shares shall have been registered as provided above, the Company shall
be obligated to file additional registration statements in accordance with the
terms set forth in this Section 6(a) to register the remaining balance of the
Underwriter Warrants or Underwriter Warrant Shares not so registered, except
that the expenses therefor shall be borne by the holders of the Underwriter
Warrants and Underwriter Warrant Shares in the event that the Company has
previously borne the expenses in connection with the registration of the
Underwriter Warrants or the Underwriter Warrant Shares pursuant to this Section
6(a) or 6(c).
(b) In addition to the provision in Section 6(a), in the event the Company
shall at any time during the period __________, 1997 to __________, 2004 seek to
further register or qualify any of its capital stock or the securities holdings
of any of its controlling shareholders, on each such occasion it shall furnish
the holders of the Underwriter Warrants or Underwriter Warrant Shares with at
least 30 days' written notice thereof and the holders of the Underwriter
Warrants or Underwriter Warrant Shares shall have the option, without cost or
expense, to include their Underwriter Warrants and Underwriter Warrant Shares in
such registration or qualification. The holders of the Underwriter Warrants or
Underwriter Warrant Shares shall exercise the "piggy back rights" under this
Section 6(b) by giving written notice to the Company within twenty (20) days of
receipt of the written notice from the Company.
(c) All expenses in connection with preparing and filing any registration
statement under Section 6(a) and 6(b) hereof (and any registration or
qualification under the securities or "Blue Sky" laws of states in which the
offering will be made under such registration statement) shall be borne in full
by the Company, subject to the last sentence of Section 6(a) above.
3 Warrant Certificate
<PAGE>
7. Indemnification and Notification.
(a) The Company will indemnify and hold harmless each holder of Underwriter
Warrants or Underwriter Warrant Shares, and each person, if any, who controls
such holder within the meaning of Section 15 of the Act, from and against any
and all losses, claims, damages, expenses and liabilities caused by any untrue
statement of a material fact contained in any registration statement, or
contained in a prospectus furnished thereunder or caused by any omission to
state a material fact therein necessary to make the statements therein not
misleading provided, however, that the foregoing indemnification and agreement
to hold harmless shall not apply insofar as such losses, claims, damages,
expenses and liabilities are caused by any such untrue statement or omission
based upon information furnished in writing to the Company by any such holder
expressly for use in any registration statement or prospectus.
(b) Each holder of Underwriter Warrants or Underwriter Warrant Shares will
indemnify the Company, and each person who controls the Company within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses and liabilities caused by an untrue statement of a material
fact contained in any registration statement, or contained in a prospectus
furnished hereunder or caused by an omission to state a material fact therein
necessary to make the statements therein not misleading insofar as such losses,
claims, damages, expenses and liabilities are caused by such untrue statement or
omission based upon information furnished in writing to the Company by any such
holder expressly for use in any registration statement or prospectus.
(c) Promptly after the receipt of any holder of Underwriter Warrants or
Underwriter Warrant Shares of notice of the commencement of any action, said
holder will, if a claim in respect thereof is to be made against the Company
under this Section 7, notify the Company in writing of the commencement thereof;
but the omission so to notify the Company will not relieve it from any liability
which it may have to them otherwise that under this Section 7. In case any such
action is brought against any holder of Underwriter Warrants or Underwriter
Warrant Shares and the Company is notified of the commencement thereof as
provided herein, the Company will be entitled to participate in, and to the
extent that it may wish, to assume the defense thereof, with counsel
satisfactory to such holder, and after notice from the Company to such holder of
the Company's election so to assume the defense thereof, the Company will not be
liable under this Section 7 for any legal or other expense subsequently incurred
by such holder in connection with the defense thereof other than reasonable
costs of investigation.
(d) Each holder of Underwriter Warrants or Underwriter Warrant Shares
agrees to cooperate fully with the Company in effecting registration and
qualification of the Underwriter Warrants or Underwriter Warrant Shares and of
such distribution, and shall indemnify and hold harmless the Company and any
person who may control the Company, each director of the Company, and each
officer who signed any registration statement from and against any and all
losses, claims, damages, expenses and liabilities caused by any statement or
omission in any such registration statement or prospectus or any amendment or
supplement thereto in reliance upon information furnished to the Company in
writing by any such holder expressly for inclusion therein.
8. Adjustments.
(a) Subject and pursuant to the provisions of this Section 8, the Exercise
Price, the Underwriter Warrants and the Underwriter Warrant Shares subject to
the Warrant Certificate, shall be subject to adjustment from time to time as
follows:
(i) In case the Company shall hereafter (A) pay a dividend or make a
distribution on its common stock, in common stock or any other shares of stock,
(B) subdivide its outstanding common stock into a greater number of shares, (C)
combine its outstanding common stock into a smaller number of shares, or (D)
issue any common stock by reclassification of its common stock then and in such
4 Warrant Certificate
<PAGE>
event, there shall be a proportional adjustment in the Exercise Price and in the
number of Underwriter Warrant Shares issuable upon exercise of each Underwriter
Warrant so that the registered holder of any Underwriter Warrant thereafter
exercised shall be entitled to receive the number of shares of common stock, at
the same aggregate cost, that he would have received immediately following such
action had such Underwriter Warrant been exercised immediately prior thereto.
Any adjustment made pursuant to this subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination, or reclassification.
(ii) No adjustment in the securities issuable shall be made unless such
adjustment would require an increase or decrease of at least 10% in both the
number of shares otherwise issuable and the Exercise Price; provided, however,
that any adjustments that, by reason of this subsection, are not required to be
made shall be carried forward and accounted for in connection with the
calculation of any subsequent adjustments. All calculations under this Section 8
shall be made to the nearest one-hundredth (1/100) of a share but in no event
shall the Company be obligated to issue fractional shares upon the exercise of
any Underwriter Warrant.
(iii) In the event that as a result of an adjustment made pursuant to
subsection (i) of this Section 8(a), the registered holder of any Underwriter
Warrant shall become entitled to receive any securities of the Company other
than Underwriter Warrant Shares, the number of such securities shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained in subsection (i) through (iii) of this
Section 8(a).
(b) In case of (i) any reclassification or change of outstanding
Underwriter Warrant Shares or other securities issuable upon exercise of the
Underwriter Warrants (other than a change in par value or as a result of a
subdivision or combination), or (ii) any consolidation or merger of the Company
with or into another corporation or Company (other than a merger in which the
Company is the continuing corporation and that does not result in any
reclassification or change of the then-outstanding Underwriter Warrant Shares or
other securities issuable upon exercise of the Underwriter Warrants other than a
change in par value or a subdivision or combination of the Underwriter Warrant
Shares), or (iii) any sale or conveyance to another corporation of all or
substantially all of the Company's assets, then, as a condition of such
reclassification, change, consolidation, merger, sale, or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provisions whereby the registered holder of each
Underwriter Warrant then outstanding shall receive, on exercise of such
Underwriter Warrant, the kind and amount of securities and property receivable
upon such reclassification, change, consolidation, merger, sale or conveyance by
a holder of the number of securities issuable upon exercise of such Underwriter
Warrant immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance. Such provisions shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8.
(c) Before taking any action that would cause an adjustment increasing the
then-par value of the Underwriter Warrant Shares issuable upon exercise of the
Underwriter Warrants above the Exercise Price, the Company shall have the right
to take any corporate action that may, in the opinion of its counsel, be
necessary so that the Company may validly and legally issue fully paid and non
assessable shares of common stock at such adjusted Exercise Price.
(d)(i) Upon any adjustment of the Exercise Price required to be made
pursuant to this Section 8, within 30 days thereafter the Company shall (A)
cause to be filed with the warrant agent written notice thereof stating the
adjusted Exercise Price and the adjusted number of Underlying Warrant Shares
purchasable or the kind and amount of any securities or property purchasable
5 Warrant Certificate
<PAGE>
upon exercise of an Underwriter Warrant, as the case may be, and setting forth
in reasonable detail the method of calculation and the facts upon which such
calculation is based, which certificate shall be conclusive evidence of the
correctness of such adjustment, and (B) cause to be mailed to each of the
holders of the Underwriter Warrants written notice of such adjustment. Such
notice may be given in advance and included as a part of the notice required to
be mailed under the provisions of Subsection 8(d)(ii).
(ii) In case at any time (A) the Company shall declare any dividend upon
its common stock payable otherwise than in cash or in common stock of the
Company; or (B) the Company shall offer for subscription to the holders of its
common stock any additional shares of stock of any class or any other securities
convertible into shares of stock or any rights to subscribe thereto; or (C)
there shall be any capital reorganization or reclassification of the capital
stock of the Company, or a sale of all or substantially all of the assets of the
Company, or a consolidation or merger of the Company with another corporation
(other than a merger in which the Company is the continuing corporation, and
which does not result in any reclassification or change of the then-outstanding
common stock or other capital stock issuable upon exercise of the Underwriting
Warrants other than a change in par value or a subdivision or combination of
such shares): or (D) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in any one or more of said
cases, the Company shall cause to be mailed to each of the holders of
outstanding Underwriting Warrants, at the earliest practicable time (and in any
event not less than 20 days before any record date or other date set for
definitive action), written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution of, or
grant of subscription rights, or such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation, or winding up shall take place,
as the case my be. Such notice shall also set forth such facts as shall indicate
the effect of such action (to the extent such effect may be known at the date of
such notice) on the kind and amount of the shares of stock and other securities
and property deliverable upon exercise of the Underwriter Warrants. Such notice
shall also specify the date as of which the record holders of the common stock
shall participate in said dividend, distribution, or subscription rights or
shall be entitled to exchange their common stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be (on which date, in the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, the right to exercise the Underwriter
Warrants shall terminate).
(iii) Without limiting the obligation of the Company to provide notice to
the holders of the Underwriter Warrant of corporate actions hereunder, it is
agreed that failure of the Company to give notice shall not invalidate such
corporate action of the Company.
(e) The number of shares of common stock outstanding at any given time
shall not include treasury shares and the issue or sale of any such treasury
shares shall be considered an issuance or sale of common stock for the purposes
of this Section 8.
(f) Notwithstanding any provision herein to the contrary, no adjustment to
either the Exercise Price or in the number of Underwriter Warrants or
Underwriter Warrant Shares subject to the Warrant Certificate shall be made
pursuant to Section 8 upon or by virtue of:
(A) the issuance or sale by the Company of the Underwriter Warrants or the
Underwriter Warrant Shares issuable upon exercise of the Underwriter Warrants;
or
(B) the Company's granting of employee stock purchase options or the
issuance of common stock pursuant thereto.
(g) If the Company, after the date hereof, shall take any action affecting
the shares of its common stock, other than action described in this Section 8,
which, in the good faith opinion of the Board of Directors of the Company, would
6 Warrant Certificate
<PAGE>
materially affect the rights of the holder of the Underwriter Warrants, then the
Exercise Prices and the numbers of Underwriter Warrant Shares obtainable upon
exercise of the Underwriter Warrants shall be adjusted in such manner, if any,
at any such time as the Board of Directors of the Company, in good faith, may
determine to be equitable in the circumstances. Failure of the Board of
Directors of the Company to consider (in minutes or a unanimous consent) an
adjustment prior to the effective date of any action by the Company affecting
the Common Shares shall be conclusive evidence that the Board of Directors of
the Company has determined that no adjustment be made in the circumstances.
(h) The forms of the Underwriter Warrants need not be changed because of
any change pursuant to this Article, and Underwriter warrants issued after such
change may state the same respective Exercise Prices and the same numbers of
shares as is stated in such Underwriter Warrants initially issued pursuant to
the Certificate.
Anything in this Section 8 to the contrary notwithstanding, the warrant
agent shall be under no obligation to act with respect to any of the
aforementioned adjustments until it receives written instructions from the
Company.
9. Survival. The various rights and obligations of the holder hereof and of
the Company as set forth in Sections 5, 6, and 7 hereof shall survive the
exercise of the Underwriter Warrants represented hereby and the surrender of
this Warrant Certificate, and upon the surrender of this Warrant Certificate and
the Exercise of all the Underwriter Warrants represented hereby, the Company,
shall, if requested by the holder, deliver to the holder hereof its written
acknowledgment of its continuing obligations under said Section. The holders of
the Underwriter Warrants shall, if requested by the Company, deliver to the
Company their written acknowledgment of their continuing obligations under said
Sections.
10. Notice. All notice required by this Warrant Certificate to be given or
made by the Company shall be given or made by first class mail, postage prepaid,
addressed to the registered holder hereof at the address of such holder as shown
on the books of the Company; provided that where notice is to be given pursuant
to Section 6, 7, and 8 hereof to holders of Warrant Shares who are not holders
of Warrant Certificates, such notice shall be given or made in the manner noted
above to the record owner of such Underwriter Warrant Shares at the address of
such owner as shown on the books of the Company.
11. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant
Certificate and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement satisfactory in form and amount to the
Company, or in the case of any such mutilation, upon surrender and cancellation
of this Warrant Certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant Certificate of like tenor.
Very truly yours,
PATCOMM CORPORATION
By:
--------------------------------
Frank Define, President
Attest:
- ---------------------------
Secretary
7 Warrant Certificate
<PAGE>
ASSIGNMENT
(To be executed by the registered holder to
effect a transfer of the within Warrant Certificate)
FOR VALUE RECEIVED ____________________________ hereby sells, assigns and
transfers unto _____________________________________ the right to purchase ____
shares of common stock of Patcomm Corporation, $.001 par value, evidenced by the
within Warrant Certificate, together with all right, title and interest therein,
and do irrevocably constitute and appoint ___________________________ to
transfer the said right on the books of said Company with full power of
substitution in the premises.
Dated:
------------------------------
-----------------------, 19---
---------------------------------
Signature
8 Warrant Certificate
<PAGE>
PURCHASE FORM
,19
---------- --
To: Patcomm Corporation
7 Flower Field, M100
St. James, N.Y. 11780
The undersigned hereby irrevocably elects to exercise the attached Warrant
Certificate to the extent of ________ Underwriter Warrant Shares of Patcomm
Corporation, and hereby makes payment of $_________ in payment of the purchase
price thereof. To the extent that less than all of the Underwriter Warrants are
exercised, please issue a new Warrant Certificate for the remaining Underwriter
Warrants to the undersigned.
-------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
--------------------------------------------------------------
(please type or print in block letters)
Address:
--------------------------------------------------------------
--------------------------------------------------------------
Tax I.D.:
----------------------------------
9 Warrant Certificate
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") AND HAVE NOT BEEN REGISTERED
WITH OR APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES REGULATORY AGENCY. NO SECURITIES REGULATORY AGENCY HAS REVIEWED
OR PASSED UPON THE MERITS OF THE OFFERING OF THESE NOTES OR THE ACCURACY OR
ADEQUACY OF THE DISCLOSURE RELATING TO THESE NOTES, NOR IS IT INTENDED THAT THEY
WILL REVIEW OR PASS UPON THESE MATTERS AND ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD OR TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS THAT COVERS SUCH SECURITIES OR PURSUANT TO AN EXEMPTION
THEREFROM. CONVERSION OF THIS CONVERTIBLE PROMISSORY NOTE WILL RESULT IN THE
ISSUANCE OF "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED UNDER RULE 144
PROMULGATED UNDER THE SECURITIES ACT AND SHARES OF COMMON STOCK ACQUIRED UPON
SUCH CONVERSIONS MAY ONLY BE SOLD IN THE PUBLIC MARKET PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS.
PATCOMM CORPORATION
CONVERTIBLE PROMISSORY NOTE
---------------------------
Due July 31, 1998
No. ____________________ $_________________
FOR VALUE RECEIVED, the undersigned, Patcomm Corporation, a Nevada
corporation (hereinafter "Maker"), promises to pay to _________________________
or order (hereinafter "Payee"), at the principal corporate office of Maker or,
in the discretion of the Maker, at the address of the holder hereof as shown on
the register maintained by the Maker for such purpose ("Registrar of Notes") the
principal sum of __________ Thousand Dollars ($_________), payable as
hereinafter provided, in such coin or currency of the United States of America
as at the time of payment shall be legal tender for the payment of public and
private debts.
This Note is one of a series of Notes, designated the Convertible
Promissory Notes, aggregating not more than Four Hundred Twenty Thousand Dollars
($420,000), issued by the Maker. All Convertible Promissory Notes shall rank
pari passu in respect of payment of principal and interest and upon any
dissolution, liquidation or winding-up of the Maker.
The principal sum hereof shall be payable in full on July 31, 1998,
(hereinafter the "Maturity Date"), when all unpaid principal and interest shall
become due and payable; provided that Maker in its sole and absolute discretion
may prepay this Note in whole in part at any time after April 30, 1998.
Interest at the rate of ten Percent (10%) per annum on the outstanding
balance shall be payable together with the principal payable on the Maturity
Date to the person in whose name this Note is registered at the close of
business on July 31, 1998. Interest shall accrue from the date payment was made
to the Company. Interest hereon shall be computed on the basis of a 365-day
year. Interest shall be payable at the principal corporate office of the Maker
or, in the discretion of the Maker, at the address of the holder hereof as shown
on the register maintained by the Maker for such purpose.
<PAGE>
IT IS FURTHER AGREED:
1. Conversion Privilege.
--------------------
(a) The Holder of this Note shall have the right upon the date of
Maturity or at the date of prepayment if Maker should elect to prepay this
Note, at such holder's option, to convert this Note in increments of Six
Hundred Dollars ($600.00) of the principal amount thereof or a integral
multiple thereof, into fully paid and non-assessable shares of Common Stock
at the rate of $3.00 per share (the "Conversion Price"). The Conversion
Price shall not be subject to adjustment, except that the minimum
conversion price of $3.00 per share shall be adjusted proportionately for
any stock split or stock dividend.
(b) In order to exercise the conversion privilege, the Holder shall
surrender this Note, accompanied by a proper notice of assignment thereof,
at the principal corporate office of the Maker or at any of the offices or
agencies maintained for such purpose by the Maker ("Conversion Agent") or
such Conversion Agent that the Holder elects to convert this Note or a
specified portion thereof. Such notice shall also state the name(s),
together with address(es), in which the certificate(s) for shares of Common
Stock which shall be issuable on such conversion shall be issued. As
promptly as practicable after the surrender of this Note as aforesaid, the
Maker shall issue and shall deliver at such Conversion Agent to such
holder, or on his written order, a certificate(s) for the number of full
shares of Common Stock issuable upon such conversion in accordance with the
provisions hereof. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which this Note
shall have been so surrendered and such notice received by the Maker as
aforesaid, and the person(s) in whose name(s) any certificate(s) for shares
of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder(s) of record of the Common Stock represented thereby
at such time, unless the stock transfer books of the Maker shall be closed
on the date on which this Note is so surrendered for conversion, in which
event such conversion shall be deemed to have been effected immediately
prior to the close of business on the next succeeding day on which such
stock transfer books are open, and such person(s) shall be deemed to have
become such holder(s) of record of the Common Stock at the close of
business on such later day. In either circumstance, such conversion shall
be at the Conversion Price in effect on the Maturity Date of the Note.
(c) In case this Note shall be surrendered for conversion of only a
portion of the principal amount thereof, the Maker shall pay the remaining
unconverted principal together with all accrued interest thereon as of the
Maturity Date according to the Holder's directions.
(d) The Conversion Price shall be $3.00 per share.
(e) In case of the voluntary or involuntary dissolution, liquidation
or winding up of the Maker; then the Maker shall cause to be filed with any
Conversion Agent, and shall cause to be mailed to the holder of this Note
at such holder's last address as the same appears on the books of the
Maker, at least twenty (20) days prior to the date on which the dissolution
liquidation or winding up is expected to become effective, a notice stating
the date on which dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other property deliverable upon such
dissolution, liquidation or winding up. Neither the failure to give such
notice nor any defect therein shall affect the legality or validity of the
proceedings described above.
Convertible Promissory 2 INITIALS..........
<PAGE>
(f) Not less than five (5) days prior to the Maturity Date, the Maker
shall cause to be filed with any Conversion Agent, and shall cause to be
mailed to the Holder of this Note at such Holder's last address as the same
appears on the books of the Maker, a notice setting forth the Conversion
Price and the number of shares into which the Holder may convert his Note.
Neither the failure to give such notice, nor any defect therein, shall
affect the legality or validity of the proceedings described herein.
(g) The Maker will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversions of this Note or any portion thereof pursuant
hereto; provided, however, that the Maker shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issue
or delivery of shares of Common Stock in a name other than that of the
Holder of this Note and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Maker
the amount of any such tax or has established, to the satisfaction of the
Maker, that such tax has been paid.
(h) The Maker covenants that all shares of Common Stock, which may be
delivered upon conversion of this Note or portions thereof, will upon
delivery be duly and validly issued fully paid and non-assessable, free of
all liens and charges and not subject to any preemptive rights.
(i) The Maker covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock, for the purpose of
effecting conversions of this Note, the full number of shares of Common
Stock deliverable upon the conversion of the total principal amount of this
Note not theretofore converted. The issuance of shares of Common Stock upon
conversion of this Note is authorized in all respects.
(j) Prior to the conversion of this Note, the Holder shall not be
entitled to any rights of a stockholder of the Maker, including without
limitation the right to vote, to receive dividends or other distributions
or to exercise any preemptive rights, and shall not be entitled to receive
any notice of any proceedings of the Maker, except as provided herein.
(k) The Maker may from time to time supplement or amend this Note
without the approval of any Holder in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective
or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the
Maker may deem necessary or desirable with respect to the Holder's
conversion rights and the Conversion Price which shall not adversely affect
the interest of the Holder.]
2. Unsecured. The indebtedness evidenced by this Note, including the
principal hereof and interest thereon, shall be unsecured.
3. Events of Default. Each of the following shall be an event of default
hereunder (each an "Event of Default"):
(a) Default in the payment of interest or the payment in full of the
principal as and when the same shall become due and payable (Maturity
Date), and continuation of such default for a period of ninety (90) days
after the date on which written notice of such default, requiring payment
of the unpaid installment, shall have been given to Maker by the holder of
this Note; or
Convertible Promissory Note 3 INITIALS......
<PAGE>
(b) Failure on the part of Maker duly to perform any other covenant or
agreement on the part of Maker contained in this Note for a period of sixty
(60) days after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to Maker by the holder of
this Note; or
(c) Entry of a decree or order by a court having jurisdiction in the
premises adjudging Maker a bankrupt or insolvent, or approving as properly
filed a petition seeking a reorganization of Maker under any applicable
federal or state law relating to bankruptcy, and continuation of such
decree or order undischarged or unstayed for a period of ninety (90) days;
or
(d) Entry of a decree or order by a court having jurisdiction in the
premises for the appointment of a receiver or trustee or assignee in
insolvency, bankruptcy or reorganization of Maker or of its property, or
for the winding up or liquidation of its affairs, and continuation of such
decree or order in force undischarged or unstayed for a period of ninety
(90) days.
4. Remedies Upon Default. Upon the happening and continuance of an Event of
Default, the holder of this Note remains pari passu with all other holders of
notes of even date. Holder is an unsecured creditor at that point with all the
rights attendant thereto.
5. Payment of Expenses. Maker promises to pay all reasonable costs and
expenses (including reasonable attorneys' fees) incurred in connection with the
collection of this Note upon a default by Maker and declaration by the holder of
this Note that the principal balance hereof is immediately due and payable.
6. Restriction on Transfer. This Note has not been registered under the
Securities Act of 1933 and cannot be transferred without either registration or
exemption from registration under that act and regulations promulgated
thereunder.
7. Waivers. Maker as maker of this Note waives presentment, demand, protest
and notice of dishonor and protest.
8. Notice. Any notice required or permitted to be given hereunder shall be
deemed sufficiently given as of the date it is mailed, first-class mail, postage
prepaid, if to the Maker to Mr. Frank Delfine, President, Patcomm Corporation, 7
Flower Field, M100, St. James, New York 11780, with a copy to Henry F.
Schlueter, Schlueter & Associates, 1050 17th Street, Suite 1700, Denver,
Colorado 80265, and if to Payee, to such address as appears in the Registrar of
Notes maintained by the Maker. Notice of any change in address shall be deemed
sufficiently given if given in accordance herewith.
Convertible Promissory Note 4 INITIALS .....
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
________ day of _________________, 1997.
PATCOMM CORPORATION
a Nevada Corporation
By:
-----------------------------------
Frank Delfine, President
ATTEST:
By:
-------------------------------
Convertible Promissory Note 5 INITIALS .....
LOCK-UP LETTER
Andrew Garrett, Inc.
310 Madison Avenue, Suite 406
New York, New York 10017
Gentlemen:
In connection with your acting as the representative of the underwriters in
the public offering (the "Offering") of securities of Patcomm Corporation (the
"Company"), and in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which the undersigned
acknowledges, the undersigned hereby agrees that (i) he has not taken and will
not take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute the
stabilization or manipulation of the price of the securities offered, (ii) he
waives any registration rights he may have with respect to the Offering, and
(iii) for a period of two years after the effective date of the Registration
Statement relating to the Offering he will not, directly or indirectly, issue,
offer, sell (including any short sale), grant any option for the sale of,
acquire any option to dispose of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of, any shares of Common Stock of the Company, or
securities convertible into or exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of such Common Stock or any
beneficial interest therein held by the undersigned as of the date the
Registration Statement relating to the Offering becomes effective, without the
prior written consent of Andrew Garrett, Inc.
Notwithstanding the restrictions contained herein, the undersigned may
transfer shares of Common Stock or securities convertible into or exercisable to
purchase shares of Common Stock:
(a) in accordance with the terms and conditions of the Underwriting
Agreement;
(b) to his spouse, parent, sibling, or lineal descendants, or to any trust
for the benefit of such persons; or
(c) to any distributee, legatee or devisee of the undersigned who acquires
shares by will or operation of law upon the death or dissolution of
the undersigned.
As a condition to a transfer to be made pursuant to paragraphs (b) or (c),
the transferee shall agree in writing to be bound by the terms of this agreement
to the same extent as the undersigned, but only through and until the date the
undersigned will be bound by the foregoing provisions (i.e., two years after the
effective date of the Registration Statement relating to the Offering). The
undersigned consents to the placement of a legend on the certificate(s)
evidencing ownership of Common Stock or other securities held by the undersigned
consistent with the foregoing, if requested by the representative.
Very truly yours,
Date:
------------------ -----------------------------------
Signature
-----------------------------------
Print Name
Form of Lock-Up Letter
FORM OF
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective this 1st day
of January, 1997, by and between Patcomm Corporation, a Nevada corporation (the
"Company"), and Frank Delfine, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and services of
Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and the
Company is willing to employ Executive, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as its President and
Chief Operating Officer, subject to the supervision and direction of the
Company's Board of Directors.
2. Term. The term of this Agreement shall be for a period of three (3)
years commencing on the date hereof, unless terminated earlier pursuant to
Section 9 below; provided, however, that Executive's obligations in Section 8
below shall continue in effect after such termination.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of Eighty-Eight
Thousand Dollars ($88,000) per annum, payable monthly in equal installments (the
"Base Salary"). The amount of the Base Salary may be increased at any time and
from time to time by the Board of Directors of the Company, and may be adjusted
annually by the Board of Directors in its sole discretion.
3.2 Incentive Bonus. In addition to the Base Salary, Executive shall be
eligible for an incentive bonus ("Incentive Bonus") each year in an amount
calculated as follows: (i) 3% of net income (after tax) for net income between
$1.00 and $1,499,000, plus (ii) 1% of net income (after tax) on amounts in
excess of $1,499,000. The Incentive Bonus shall be based upon the Company's
financial results as reflected in the audited Financial Statements of the
Company, and shall be paid, if earned, within 30 days after such Financial
Statements have been released in final form by the Company's accountants.
3.3 Additional Benefits. In addition to the Base Salary and the Incentive
Bonus, Executive shall be entitled to all other benefits of employment provided
to the employees of the Company.
3.4 Reimbursement. Executive shall be reimbursed for all reasonable
"out-of-pocket" business expenses for business travel and business entertainment
incurred in connection with his performance under this Agreement (1) so long as
such expenses constitute business deductions from taxable income for the
<PAGE>
Company and are excludable from taxable income to the Executive under the
governing laws and regulations of the Internal Revenue Code (provided, however,
that Executive shall be entitled to full reimbursement in any case where the
Internal Revenue Service may, under Section 274(n) of the Internal Revenue Code,
disallow to the Company some percentage of meals and entertainment expenses);
and (2) to the extent such expenses do not exceed the amounts allocable for such
expenses in budgets that are approved from time to time by the Company. The
reimbursement of Executive's business expenses shall be upon monthly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as may be
assigned to him from time to time by the Company's Board of Directors
commensurate with his experience and responsibilities in the position for which
he is employed pursuant to Section 1 above. Such duties shall be exercised
subject to the control and supervision of the Board of Directors of the Company.
4.2 General Specification of Duties. Executive's duties shall include, but
not be limited to, the duties and performance goals as follows:
(1) act as the President and Chief Operating Officer of the Company and
perform all duties, functions and responsibilities generally associated with
such positions;
(2) execute on behalf of the Company, in his capacity as President and
Chief Operating Officer, such documents as are required in the normal course of
business and as are requested by the Board of Directors;
(3) employ, pay, supervise and discharge all employees of the Company, and
determine all matters with regard to such personnel, including, without
limitation, compensation, bonuses and fringe benefits, all in accordance with
the Annual Plan (as defined in Section 4.3);
(4) establish procedures for implementing the policies established by the
Company;
(5) cause the Company to be operated in compliance with all legal
requirements;
(6) use best efforts to operate the Company in such a manner as to meet the
goals and objectives established in the Annual Plan approved by the Board of
Directors, as such may be amended from time to time with the concurrence of the
Board of Directors; and
(7) cause to be prepared, as directed by the Board of Directors, financial
statements, tax returns and other similar items respecting the operation of the
Company.
The foregoing specifications are not intended as a complete itemization of
the duties which Executive shall perform and undertake on behalf of the Company
in satisfaction of his employment obligations under this Agreement.
4.3 Annual Plan.
(1) Executive shall submit to the Board of Directors for its approval, not
later than 60 days before the beginning of each calendar year, an annual
business plan for the Company (the "Annual Plan"). The Annual Plan shall be
revised by Executive and submitted to the Board of Directors for its review (and
approval in the case of material changes from the approved Annual Plan) from
2 Delfine Employment Agreement
<PAGE>
time to time during each year to reflect changes in the Annual Plan because of
operations or otherwise. Each Annual Plan shall include the following
information:
(a) an annual forecast of income and expenses for the operation of the
company;
(b) a cash flow budget, estimate of profit, and source and use of cash
statements for the operation of the Company; and
(c) a payroll and staffing plan and budget for the operation of the
Company.
(2) During each year, Executive in the performance of his duties under this
Agreement shall use his best efforts to comply or cause compliance with the
applicable Annual Plan and budgets and shall not (except for emergency
expenditures or special circumstances requiring an unanticipated expenditure)
deviate materially from any expense category set forth in the Annual Plan, incur
any material additional expense or change materially the manner of operation of
the Company, without the approval of the Board of Directors.
4.4 Executive's Devotion of Time. Executive hereby agrees to devote his
full time, abilities and energy to the faithful performance of the duties
assigned to him and to the promotion and forwarding of the business affairs of
the Company, and not to divert any business opportunities from the Company to
himself or herself or to any other person or business entity.
4.5 Conflicting Activities.
(1) Executive shall not, during the term of this Agreement, be engaged in
any other business activity without the prior consent of the Board of Directors
of the Company; provided, however, that this restriction shall not be construed
as preventing Executive from investing his personal assets in passive
investments in business entities which are not in competition with the Company
or its affiliates, or from pursuing business opportunities as permitted by
paragraph 4.5(b).
(2) Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or anticipated
future business of the Company, in a manner consistent with the best interests
of the Company and with his duties under this Agreement. Should Executive
discover a business opportunity that does not relate to the current or
anticipated future business of the Company, he shall first offer such
opportunity to the Company. Should the Board of Directors of the Company not
exercise its right to pursue this business opportunity within a reasonable
period of time, not to exceed sixty (60) days, then Executive may develop the
business opportunity for himself; provided, however, that such development may
in no way conflict or interfere with the duties owed by Executive to the Company
under this Agreement. Further, Executive may develop such business opportunities
only on his own time, and may not use any service, personnel, equipment,
supplies, facility, or trade secrets of the Company in their development. As
used herein, the term "business opportunity" shall not include business
opportunities involving investment in publicly traded stocks, bonds or other
securities, or other investments of a personal nature.
5. Not Used in this Agreement
6. Severance. So long as this Agreement is in effect, Executive shall be
entitled to severance benefits equal to one weeks Base Salary for each full year
of service to the Company up to a maximum of eight weeks based upon Executive's
first day of employment by the Company and without regard to the date of
3 Delfine Employment Agreement
<PAGE>
execution of this Agreement. These benefits shall not include maintenance of any
life insurance policy or disability policy on Executive, or any medical or
health insurance policies or plans on Executive or his family except as required
under applicable law.
7. Confidentiality of Trade Secrets and Other Materials.
7.1 Trade Secrets. Other than in the performance of his duties hereunder,
Executive agrees not to disclose, either during the term of his employment by
the Company or at any time thereafter, to any person, firm or corporation any
information concerning the business affairs, the trade secrets or the customer
lists or similar information of the Company.
7.2 Ownership of Trade Secrets; Assignment of Rights. Executive hereby
agrees that all know-how, documents, reports, plans, proposals, marketing and
sales plans, client lists, client files and materials made by him or by the
Company are the property of the Company and shall not be used by him in any way
adverse to the Company's interests. Executive shall not deliver, reproduce or in
any way allow such documents or things to be delivered or used by any third
party without specific direction or consent of the Board of Directors of the
Company. Executive hereby assigns to the Company any rights which he may have in
any such trade secret or proprietary information.
8. Termination.
8.1 Basis for Termination.
(1) Executive's employment hereunder may be terminated at any time by
mutual agreement of the parties.
(2) This Agreement shall automatically terminate on the last day of the
month in which Executive dies or becomes permanently incapacitated. "Permanent
incapacity" as used herein shall mean mental or physical incapacity, or both,
reasonably determined by the Company's Board of Directors based upon a
certification of such incapacity by, in the discretion of the Company's Board of
Directors, either Executive's regularly attending physician or a duly licensed
physician selected by the Company's Board of Directors, rendering Executive
unable to perform substantially all of his duties hereunder and which appears
reasonably certain to continue for at least six consecutive months without
substantial improvement. Executive shall be deemed to have "become permanently
incapacitated" on the date the Company's Board of Directors has determined that
Executive is permanently incapacitated and so notifies Executive.
(3) Executive's employment may be terminated by the Company "with cause,"
effective upon delivery of written notice to Executive given at any time
(without any necessity for prior notice) if any of the following shall occur:
(a) any action by Executive which would be grounds for termination
under applicable law (currently covering any willful breach of duty,
habitual neglect of duty, and continued incapacity);
(b) any material breach of Executive's obligations in Sections 4 or 7
above; or
(c) any material acts or events which inhibit Executive from fully
performing his responsibilities to the Company in good faith, such as (i) a
felony criminal conviction; (ii) any other criminal conviction involving
Executive's lack of honesty or Executive's moral turpitude; (iii) drug or
alcohol abuse; or (iv) acts of dishonesty, gross carelessness or gross
misconduct.
4 Delfine Employment Agreement
<PAGE>
(4) Executive's employment may be terminated by the Company "without cause"
(for any reason or no reason at all) at any time by giving Executive 60 days
prior written notice of termination, which termination shall be effective on the
60th day following such notice. If Executive's employment under this Agreement
is so terminated, the Company shall (a) make a lump sum cash payment to
Executive within 10 days after termination of an amount equal to (i) Executive's
Base Salary for the balance of the year in which termination occurs, (ii) a pro
rata portion of the Incentive Bonus, if any, earned for the year in which
termination occurs prorated to the date of termination, plus (iii) any
unreimbursed expenses accruing to the date of termination; and (b) make a lump
sum cash payment equal to Executive's annual Base Salary, as increased pursuant
to Section 3.1, on each anniversary date of this Agreement for the balance of
the term specified in Section 2. For purposes of this provision, Executive's
annual Base Salary and the remaining portion of the term of the Agreement shall
be calculated as of the termination date. After the Company's termination of
Executive under this provision, the Company shall not be obligated to provide
the benefits to Executive described in Section 3.3 (except as may be required by
law).
(5) Executive may terminate his employment hereunder by giving the Company
60 days prior written notice, which termination shall be effective on the 60th
day following such notice.
8.2 Payment Upon Termination. Upon termination under paragraphs 8.1(1),
(2), (3), or (5), the Company shall pay to Executive within 10 days after
termination an amount equal to the sum of (1) Executive's Base Salary accrued to
the date of termination; and (2) unreimbursed expenses accrued to the date of
termination. After any such termination, the Company shall not be obligated to
compensate Executive, his estate or representatives except for the foregoing
compensation then due and owing, nor provide the benefits to Executive described
in Section 3.4 (except as provided by law).
8.3 Severance Provisions. The provisions of Sections 8.1 and 8.2 shall be
subject to and deemed modified by the terms of any severance benefits granted to
Executive as provided under Section 6.
8.4 Dismissal from Premises. At the Company's option, Executive shall
immediately leave the Company's premises on the date notice of termination is
given by either Executive or the Company.
9. Injunctive Relief. The Company and Executive hereby acknowledge and
agree that any default under Section 7 above will cause damage to the Company in
an amount difficult to ascertain. Accordingly, in addition to any other relief
to which the Company may be entitled, the Company shall be entitled to such
injunctive relief as may be ordered by any court of competent jurisdiction
including, but not limited to, an injunction restraining any violation of
Section 7 above and without the proof of actual damages.
10. Miscellaneous.
10.1 Transfer and Assignment. This Agreement is personal as to Executive
and shall not be assigned or transferred by Executive without the prior written
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
5 Delfine Employment Agreement
<PAGE>
10.2 Severability. Nothing contained herein shall be construed to require
the commission of any act contrary to law. Should there be any conflict between
any provisions hereof and any present or future statute, law, ordinance,
regulation, or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
10.3 Governing Law. This Agreement is made under and shall be construed
pursuant to the laws of the State of New York.
10.4 Counterparts. This Agreement may be executed in several counterparts
and all documents so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts.
10.5 Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements, arrangements, and
understandings with respect thereto. No representation, promise, inducement,
statement or intention has been made by any party hereto that is not embodied
herein, and no party shall be bound by or liable for any alleged representation,
promise, inducement, or statement not so set forth herein.
10.6 Modification. This Agreement may be modified, amended, superseded, or
cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation, or waiver.
10.7 Attorneys' Fees and Costs. In the event of any dispute arising out of
the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
10.8 Waiver. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
10.9 Cumulative Remedies. Each and all of the several rights and remedies
provided in this Agreement, or by law or in equity, shall be cumulative, and no
one of them shall be exclusive of any other right or remedy, and the exercise of
any one or such rights or remedies shall not be deemed a waiver of, or an
election to exercise, any other such right or remedy.
10.10 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
10.11 Notices. Any notice under this Agreement must be in writing, may be
telecopied provided that evidence of the transmission and receipt is created at
the time of transmission, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
mail, addressed to the party to be notified, postage-prepaid and registered or
6 Delfine Employment Agreement
<PAGE>
certified with a return receipt requested. The addresses of the parties for the
receipt of notice shall be as follows:
If to the Company: Patcomm Corporation
7 Flower Field, M100
St. James, NY 11780
(516) 862-6511
Attention: Alex Adelson, Chairman of the Board
If to Executive: Frank Delfine
170A Oakside Drive
Smithtown, NY 11787
(516) 265-5228
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
10.12 Survival. Any provision of this Agreement which imposes an obligation
after termination or expiration of this Agreement shall survive the termination
or expiration of this Agreement and be binding on Executive and the Company.
10.13 Right of Set-Off. Upon termination or expiration of this Agreement,
the Company shall have the right to set-off against the amounts due Executive
hereunder the amount of any outstanding loan or advance from the Company to
Executive.
10.14 Effective Date. This Agreement shall become effective as of the date
set forth on page 1 when signed by Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
FRANK DELFINE PATCOMM CORPORATION
By:
- --------------------------- ------------------------------------
Alex Adelson, Chairman of the Board
7 Delfine Employment Agreement
ESCROW AGREEMENT
AGREEMENT made this ___ day of ________, 1997, by and among the Issuer and
the Underwriter whose names and addresses appear on the Information Sheet (as
defined herein) attached to this Agreement and EUROPEAN AMERICAN BANK, a New
York banking corporation with offices at ____________________________________
____________________________ (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, the Issuer has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Registration Statement")
covering a proposed public offering of its securities (collectively, the
"Securities") as described on the Information Sheet; and
WHEREAS, the Underwriter proposes to offer the Securities, as agent for the
Issuer for sale to the public on a "best efforts, all or none" basis, 1,100,000
Shares of the Company, at a price per Share as set forth on the Information
Sheet; and
WHEREAS, the Issuer and the Underwriter propose to establish an escrow
account with the Escrow Agent in connection with such public offering and the
Escrow Agent is willing to establish such escrow account on the terms and
subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Information Sheet.
Each capitalized term not otherwise defined in this Agreement shall have
the meaning set forth for such term on the information sheet which is attached
to this Agreement and is incorporated by reference herein and made a part hereof
(the "Information Sheet").
2. Establishment of Escrow Account.
2.1 The parties hereto shall establish an interest bearing escrow account
at the offices of the Escrow Agent, and bearing the designation, set forth on
the Information Sheet (the "Escrow Account"). The Underwriter and Selected
Dealers will instruct subscribers to make checks for subscriptions payable to
the Escrow Agent. Any checks received that are made payable to a party other
than the Escrow Agent shall be returned to the Selected Dealer who submitted the
check.
2.2 On or before the date of the initial deposit in the Escrow Account
pursuant to this Agreement, the Underwriter shall notify the Escrow Agent in
writing of the effective date of the Registration statement (the "Effective
Date") and the Escrow Agent shall not be required to accept any amounts for
deposit in the Escrow Account prior to its receipt of such notification.
2.3 The Offering Period, which shall be deemed to commence on the effective
Date, shall consist of the number of calendar days or business days set forth on
the Information Sheet. The Offering Period shall be extended by an Extension
Period only if the Escrow Agent shall have received written notice from the
Underwriter and the Issuer thereof at least five (5) business days prior to the
expiration of the Offering Period. The Extension Period, which shall be deemed
to commence on the next calendar day following the expiration of the Offering
Period, shall consist of the number of calendar days or business days set forth
on the Information Sheet. The last day of the Offering Period, or the last day
of the Extension Period (if the Escrow Agent has received written notice thereof
1 Escrow Agreement
<PAGE>
as hereinabove provided), is referred to herein as the "Termination Date".
Except as provided in Section 4.3 hereof, after the Termination Date the
Underwriter shall not deposit, and the Escrow Agent shall not accept, any
additional amounts representing payments by prospective purchasers.
2.4 During the escrow period, the Issuer is aware and understands that it
is not entitled to any funds received into escrow, and no amounts deposited in
the Escrow Account shall become the property of the Issuer or any other entity,
or be subject to the debts of the Issuer or any other entity.
3. Deposits in the Escrow Account.
3.1 All amounts received from prospective purchasers of the Securities
shall be deposited in the Escrow Account, which amounts shall be in the form of
checks, cash, or wire transfers representing the payment of money. The
Underwriter will transmit funds to the Escrow Agent by noon of the next business
day following receipt. All checks deposited into the Escrow Account shall be
made payable to, or endorse in blank to, "European American Bank, as Escrow
Agent". Any check payable or endorsed other than to the Escrow Agent as required
hereby shall be returned to the Underwriter (together with any Subscription
Information, as defined below, or other documents delivered therewith) by noon
of the next business day following receipt of such check by the Escrow Agent,
and such check shall be deemed not to have been delivered to the Escrow Agent
pursuant to the terms of this Agreement.
3.2 The Underwriter and Selected Dealers agree that they shall promptly
deliver all moneys received from subscribers for the payment of the Units to the
Escrow Agent for deposit in the Escrow Account together with a written account
of each sale, which account shall set forth, among other things, the
subscriber's name and address, the number of Units purchased, the amount paid
therefor, and whether the consideration received was in the form of a check,
draft, or money order and the subscriber's social security or tax identification
number (collectively, the Subscription Information"). All moneys so deposited in
the Escrow Account are hereinafter referred to as the "Escrow Amount".
3.3 Simultaneously with each deposit into the Escrow Account made by the
Underwriter, it shall deliver to the Escrow Agent a copy of the "buy ticket"
setting forth the Subscription Information.
3.4 The Escrow Agent shall not be required to accept for deposit into the
Escrow Account checks which are not accompanied by the appropriate Subscription
Information. Wire transfers and cash representing payments by prospective
purchasers shall not be deemed deposited in the Escrow Account until the Escrow
Agent has received in writing the Subscription Information required with respect
to such payments.
3.5 The Escrow Agent shall not be required to accept any amounts
representing payments by prospective purchasers, whether by check, cash or wire
transfer, except during the Escrow Agent's regular banking hours.
3.6 Amounts deposited in the Escrow Account which have cleared the banking
system and have been collected by the Escrow Agent are herein referred to as the
"Fund".
3.7 The Escrow Agent shall refund any portion of the Fund prior to
disbursement of the Fund in accordance with Section 4 hereof upon instructions
in writing signed by both the Issuer and the Underwriter.
2 Escrow Agreement
<PAGE>
4. Disbursement from the Escrow Account.
4.1 Subject to Section 4.3 below, in the event that at the close of regular
banking hours on the Termination Date the amount in the Fund (a) shall be less
than the Minimum Dollar Amount, or (b) shall represent the sale of less than the
Minimum Unit Amount, as indicated by the Subscription Information submitted by
the Underwriter, then in either such case, the Escrow Agent shall promptly
refund to each prospective purchaser the amount of payment received from such
purchaser which is then held in the Fund or which thereafter clears the banking
systems, with interest thereon, and the Escrow Agent shall notify the Issuer and
the Underwriter of its distribution of the Fund.
4.2 Subject to section 4.3 below, in the event that at any time up to the
close of banking hours on the Termination Date, the amount in the Fund shall be
at least equal to the Minimum Dollar Amount and shall represent the sale of not
less than the Minimum Unit Amount, the Escrow Agent shall notify the Issuer of
such fact in writing within a reasonable time thereafter. The Escrow Agent shall
hold the Fund until the Escrow Agent receives, at least two (2) business days
prior to the date on which the Fund is to be disbursed, instructions in writing
signed by both the Issuer and the Underwriter as to the disbursement of the
Fund.
4.3 In the event that the Escrow Agent or the Underwriter has on hand at
the close of business on the Termination Date any uncollected amounts which when
added to the Fund would raise the amount in the Fund to the Minimum Dollar
Amount and result in the Fund representing the sale of the Minimum Unit Amount,
a Collection Period (consisting of the number of business days set forth on the
Information Sheet) shall be utilized to allow such uncollected amounts to clear
the banking system. During the Collection Period, the Underwriter and the Issuer
shall not deposit, and the Escrow Agent shall not accept, any additional
amounts. If at the close of business on the last day of the Collection Period an
amount sufficient to raise the amount in the Fund to the Minimum Dollar Amount
and which would result in the Fund representing the sale of the Minimum Unit
Amount shall not have cleared the banking system, the Escrow Agent shall notify
the Issuer and the Underwriter in writing of such fact and shall return all
amounts then in the Fund, and any amounts which thereafter clear the banking
system, to the prospective purchasers as provided in subsection 4.1 hereof. If a
sufficient amount has cleared by such time, the parties shall proceed as
provided in subsection 4.2 hereof.
4.4 Upon disbursement of the Fund pursuant to the terms of this Section 4,
the Escrow Agent shall be relieved of all further obligations and released from
all liability under this Agreement. It is expressly agreed and understood that
in no event shall the aggregated amount of payments made by the Escrow Agent
exceed the amount of the Fund.
5. Rights, Duties and Responsibilities of the Escrow Agent. It is expressly
understood and agreed that the duties of the Escrow Agent are purely ministerial
in nature, and that:
5.1 The Escrow Agent shall not be responsible for or be required to enforce
any of the terms or conditions of the underwriting agreement or any other
agreement between the Underwriter and the Issuer nor shall the Escrow Agent be
responsible for the performance by the Underwriter or the Issuer of their
respective obligations under this Agreement.
5.2 The Escrow Agent shall not be required to accept from the Underwriter
(or the Issuer or Selected Dealers) any Subscription Information pertaining to
prospective purchasers unless such Subscription Information is accompanied by
checks, cash or wire transfers representing the payment of money, nor shall the
Escrow Agent be required to keep records of any information with respect to
payments deposited by the Underwriter (or the Issuer or Selected Dealers) except
as to the amount of such payments; however, the Escrow Agent shall notify the
Underwriter within a reasonable time of any discrepancy between the amount set
forth in any Subscription Information and the amount delivered to the Escrow
Agent therewith. Such amount need not be accepted for deposit in the Escrow
Account until such discrepancy has been resolved.
3 Escrow Agreement
<PAGE>
5.3 The Escrow Agent shall be under no duty or responsibility to enforce
collection of any check delivered to it hereunder. The Escrow Agent is hereby
authorized to forward each check for collection and, upon collection of the
proceeds of each check, deposit the collected proceeds in the Escrow Account. As
an alternative, the Escrow Agent may telephone the bank on which the check is
drawn to confirm that the check has been paid.
Any check returned unpaid to the Escrow Agent shall be returned to the
Selected Dealer (or the Underwriter) that submitted the check. In such cases,
the Escrow Agent will promptly notify the Issuer of such return.
If the Issuer rejects any subscription for which the Escrow Agent has
already collected funds, the Escrow Agent shall promptly issue a refund check to
the rejected subscriber. If the Issuer rejects any subscription for which the
Escrow Agent has not yet collected funds but has submitted the subscriber's
check for collection, the Escrow Agent shall promptly issue a check in the
amount of the subscriber's check to the rejected subscriber after the Escrow
Agent has cleared such funds. If the Escrow Agent has not yet submitted a
rejected subscriber's check for collection, the Escrow Agent shall promptly
remit the subscriber's check directly to the subscriber.
5.4 The Escrow Agent shall be entitled to rely upon the accuracy, act in
reliance upon the contents, and assume the genuineness, of any notice,
instruction, certificate, signature instrument or other document which is given
to the Escrow Agent pursuant to this Agreement without the necessity of the
Escrow Agent verifying the truth or accuracy thereof. The Escrow Agent shall not
be obligated to make any inquiry as to the authority, capacity, existence or
identity of any person purporting to give any such notice or instructions or to
execute any such certificate, instrument or other document.
5.5 All funds deposited hereunder shall be invested by the Escrow Agent
only in investments permissible under SEC Rule 15c2-4, which is incorporated
herein by reference, such that the total amount on deposit in the Escrow Account
shall be readily available for disbursement pursuant to Section 4 hereof.
5.6 In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall receive instructions with respect to the Escrow
Account or the Fund which, in its sole determination, are in conflict either
with other instructions received by it or with any provision of this Agreement,
it shall be entitled to hold the Fund, or a portion thereof, in the Escrow
Account pending the resolution of such uncertainty to the Escrow Agent's sole
satisfaction, by final judgment of a court or courts of competent jurisdiction
or otherwise; or the Escrow Agent, at its sole option, may deposit the Fund (and
any other amounts that thereafter become part of the Fund) with the Clerk of a
court of competent jurisdiction in a proceeding to which all parties in interest
are joined. Upon the deposit by the Escrow Agent of the Fund with the Clerk of
any court, the Escrow Agent shall be relieved of all further obligations and
released from all liability hereunder.
5.7 The Escrow Agent shall not be liable for any action taken nor omitted
hereunder, or for the misconduct of any employee, agent or attorney appointed by
it, except in the case of willful misconduct. The Escrow Agent shall be entitled
to consult with counsel of its own choosing and shall not be liable for any
action taken, suffered or omitted by it in accordance with the advice of such
counsel.
5.8 The Escrow Agent shall have no responsibility at any time to ascertain
whether or not any security interest exists in the Fund or any part thereof or
to file any financing statement under the Uniform Commercial Code with respect
to the Fund or any part thereof.
4 Escrow Agreement
<PAGE>
6. Amendment; Resignation. This Agreement may be altered or amended only
with the written consent of the Issuer, the Underwriter and the Escrow Agent.
The Escrow Agent may resign for any reason upon three (3) business days' written
notice to the Issuer and the Underwriter. Should the Escrow Agent resign as
herein provided, it shall not be required to accept any deposit, make any
disbursement or otherwise dispose of the Fund, but its only duty shall be to
hold the Fund for a period of not more than five (5) business days following the
effective date of such resignation, at which time (a) if a successor escrow
agent shall have been appointed and written notice thereof (including the name
and address of such successor escrow agent) shall have been given to the
resigning Escrow Agent by the Issuer, the Underwriter and such successor escrow
agent, then the resigning Escrow Agent shall promptly refund the amount in the
Fund to each prospective purchaser, without interest therefrom, and the
resigning Escrow Agent shall notify the Issuer and the Underwriter in writing of
its liquidation and distribution of the Fund; whereupon, in either case, the
Escrow Agent shall be relieved of all further obligations and released from all
liability under this Agreement. Without limiting the provisions of Section 8
hereof, the resigning Escrow Agent shall be entitled to be reimbursed by the
Issuer and the Underwriter for any expenses incurred in connection with its
resignation, transfer of the Fund to a successor escrow agent or distribution of
the Fund pursuant to this Section 6.
7. Representations and Warranties. The Issuer and the Underwriter hereby
jointly and severally represent and warrant to the Escrow Agent that;
7.1 No party other than the parties hereto and the prospective purchasers
have, or shall have, any lien, claim or security interest in the Fund or any
part thereof.
7.2 No financing statement under the Uniform Commercial Code is on file in
any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Fund or any part thereof.
7.3 The Subscription Information submitted with each deposit shall, at the
time of submission and at the time of the disbursement of the Fund, be deemed a
representation and warranty that such deposit represents a bona fide sale to the
purchaser described therein of the amount of Securities set forth in such
Subscription Information.
7.4 All of the information contained in the Information Sheet is, as of the
date hereof, and will be at the time of any disbursement of the Fund, true and
correct.
8. Fees and Expenses. The Escrow Agent shall be entitled to the Escrow
Agent Fee set forth on the Information Sheet, payable upon execution of this
Agreement. In addition, the Issuer and the Underwriter jointly and severally
agree to reimburse the Escrow Agent for any reasonable expenses incurred in
connection with this Agreement, including but not limited to reasonable counsel
fees. Upon receipt of the Minimum Dollar Amount, the Escrow Agent shall have a
lien upon the Fund to the extent of its fees for services as Escrow Agent.
9. Indemnification and Contribution.
9.1 The Issuer and the Underwriter (collectively referred to as the
"Indemnitors") jointly and severally agree to indemnify the Escrow Agent and its
officers, directors, employees, agents and shareholder (jointly and severally
the "Indemnitees") against, and hold them harmless of any from, any all loss,
liability, cost, damage and expense, including, without limitation, reasonable
counsel fees which the Indemnitees may suffer or incur by reason of any action,
claim or proceeding brought against the Indemnitees arising out of or relating
in any way to this Agreement or any transaction to which this Agreement relates,
unless such action, claim or proceeding is the result of the willful misconduct
of the Indemnitees.
5 Escrow Agreement
<PAGE>
9.2 The provisions of this Section 9 shall survive any termination of this
Agreement, whether by disbursement of the Fund, resignation of the Escrow Agent
or otherwise.
10. Governing Law and Assignment. This Agreement shall be construed in
accordance with the governed by the laws of the State of New York and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that any assignment or transfer by any party of its rights
under this Agreement or with respect to the Fund shall be void as against the
Escrow Agent unless (a) written notice thereof shall be given to the Escrow
Agent; and (b) the Escrow Agent shall have consented in writing to such
assignment or transfer.
11. Notices. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, or by hand delivery with receipt acknowledged, or by the Express Mail
service offered by the United States Post Office, and addressed, if to the
Issuer or the Underwriter, at their respective addresses set forth on the
Information Sheet, and if to the Escrow Agent, at its address set forth above,
to the attention of the Trust Department.
12. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement or the application of
such provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
13. Execution in Several Counterparts. This Agreement may be executed in
several counterparts or by separate instruments and all of such counterparts and
instruments shall constitute one agreement, binding on all of the parties
hereto.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection herewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
EUROPEAN AMERICAN BANK
By:
---------------------------------------
PATCOMM CORPORATION
By:
---------------------------------------
Frank Delfine, President
ANDREW GARRETT, INC.
By:
---------------------------------------
Drew Sycoff, President
6 Escrow Agreement
<PAGE>
EUROPEAN AMERICAN BANK
ESCROW AGREEMENT INFORMATION SHEET
1. The Issuer.
Name: PATCOMM CORPORATION
Address: 7 Flower Field, M100
St. James, N.Y. 11780
State of Incorporation: Nevada
2. The Underwriter.
Name: ANDREW GARRETT, INC.
Address: 310 Madison Avenue, Ste. 406
New York, N.Y. 10017
State of Incorporation: New York
The term "Selected Dealer" as used herein shall include the Underwriter
and other co-underwriters and/or other Selected Dealers as part of the Selling
Group. All Selected Dealers shall be bound by this Agreement. However, for
purposes of communications and directives, the Escrow Agent need only accept
those signed by Andrew Garrett, Inc.
3. The Securities.
Description of the Securities to be offered: Shares of Common Stock, par value
$.001 per Share.
Offering Price per Share: $5.00
4. Minimum Amounts Required for Disbursement of the Escrow Account: $5,500,000.
Aggregate dollar amount which must be collected before the Escrow Account
may be disbursed to the Issuer ("Minimum Dollar Amount"): $5,500,000.
Total number of Units which must be subscribed for before the Escrow
Account may be disbursed to the Issuer ("Minimum Share Amount"): 1,100,000
Shares.
5. Plan of Distribution of the Securities.
Offering Period: 90 calendar days
Extension Period: 90 calendar days
Collection Period: Ten calendar days
6. The Escrow Account.
Title of the Escrow Account: Escrow Account for the Benefit of
Subscribers to Patcomm Corporation.
Branch address where the Escrow Account is to be established:
---------------------------------------------------------------
7. Escrow Agent Fee.
Amount due on execution of the Escrow Agreement: $
---------------------
7 Escrow Agreement
PATCOMM CORPORATION
INCENTIVE STOCK OPTION PLAN
1. Purpose of the Plan. The Patcomm Corporation Incentive Stock Option Plan
(the "Plan") is intended to provide additional incentive to key employees of
Patcomm Corporation (the "Company") and encourage their stock ownership.
2. Eligible Employees. All officers and employees of the Company shall be
eligible to participate in the Plan.
3. Reservation of Option Stock. The Board of Directors of the Company (the
"Board") shall reserve three hundred thousand (300,000) of the authorized but
unissued shares of the Company's no par value common stock (the "Common Stock")
for issuance upon the exercise of the options (the "Option Stock"). Such number
of shares shall be the aggregate number of shares which may be issued under
Options granted pursuant to this Plan.
4. Administration and Operation of the Plan. The Plan shall be administered
by the Compensation Committee of the Board or any committee of the Board
performing similar functions, as appointed from time to time by the Board (the
"Committee"). The Committee shall be constituted so as to permit the Plan to
comply with Rule 16b-3 promulgated by the Securities and Exchange Commission
(the "Commission") under the Securities Exchange Act of 1934, as amended ("Rule
16b-3"). The Plan is intended to qualify and operate pursuant to the provisions
of Rule 16b-3 as in effect at this time or in compliance with any amendments
adopted to that Rule in the future or in compliance with any successor rule
adopted by the Commission.
The Committee shall administer the Plan, and shall have discretionary
authority to (a) determine the persons to whom Options shall be granted, (b)
determine the quantity of shares to be included in each Option, (c) interpret
the Plan, and (d) promulgate such rules and regulations under the Plan as they
may deem necessary and proper. Decisions made by the Committee within their
discretionary authority shall be final and conclusive as to all parties and
shall not be subject to review.
5. Options. Upon the terms and conditions hereinafter set forth, the
Committee may grant on behalf of the Company options (the "Options" or,
individually, an "Option") to purchase shares of Common Stock to eligible
employees (the "Optionees" or, individually, the "Optionee"). The Options shall
be substantially in form and substance as set forth in Exhibit A.
6. Exercise Price. The exercise price of each Option shall be not less than
the fair market value of the Common Stock on the date of grant; provided,
however, that if the amount of stock owned by the Optionee is more than ten
percent (10%) of the total combined voting power of all classes of capital stock
of the Company as of the date of grant, the exercise price of each Option shall
be not less than one hundred ten percent (110%) of the fair market value of the
Common Stock on the date of grant. Fair market value for purposes of this
Section 6 shall be defined as the closing bid price on the date of grant, or if
there was no trading on the date of grant, then the closing bid price on the
last trading date prior to the date of grant, or, if none, then the price of the
last sale of stock, or as determined by the Committee.
7. Terms of Options. The term of an Option shall be for a period of no more
than ten (10) years from the date of grant of such Option, provided, however,
that if the amount of stock owned by the Optionee is more than ten percent (10%)
of the total combined voting power of all classes of capital stock of the
Company as of the date of grant the term of an Option shall be for a period of
no more than five (5) years from the date of grant of such Option.
<PAGE>
8. Exercise of Options. Subject to Section 14 hereof, an Option shall be
exercisable in whole or in part by written notice delivered to and received by
the Secretary of the Company at its principal office, any time during the term
of the Option. In no case, however, may an Option under this Plan be exercised
if there remains on the date of exercise an incentive stock option which was
granted before the granting of such Option to such Optionee to purchase stock in
the Company or in a corporation which (at the time of the granting of such
option) is a parent or subsidiary corporation of the Company, or in a
predecessor corporation of any such corporations.
The notice shall state the number of shares with respect to which the
Option is being exercised, shall contain a representation and agreement by the
Optionee substantially in the form and substance as set forth in the investment
letter attached hereto as Exhibit B, and shall be signed by the Optionee. The
option price shall be paid in cash, cash equivalents or secured notes acceptable
to the Committee, by arrangement with a broker which is acceptable to the
Committee where payment of the option price is made pursuant to an irrevocable
direction to the broker to deliver all or part of the proceeds form the sale of
the option shares to the Company by the surrender of shares of common stock
owned by the Optionee exercising the Option and having a fair market value on
the date of exercise equal to the option price, or by the surrender of options
to purchase common stock having a fair market value on the date of exercise
equal to the option price or in any combination of the foregoing.
In the event the Company or the shareholders of the Company enter into an
agreement to dispose of all or substantially all of the assets or stock of the
Company by means of a sale, reorganization or liquidation, or otherwise, an
Option shall become immediately exercisable with respect to the full number of
shares subject to that Option, notwithstanding the preceding provisions of this
Section 8, during the period commencing as of the date of such agreement and
ending when the disposition of assets or stock contemplated by the agreement is
consummated or the agreement is terminated. The Company shall seek to notify
Optionees in writing of any event which may constitute such sale,
reorganization, liquidation or otherwise.
The Option shall not be exercised at any time when its exercise, or the
delivery of shares referred to in the notice, would, in the opinion of the
Company, constitute the violation of any law, governmental regulation or ruling.
During the Optionee's lifetime, the Option shall be exercisable only by the
Optionee or, in the event of the Optionee's incapacity, by his guardian or other
legal representative.
9. Securities to be Unregistered. The Company shall be under no obligation
to register or assist the Optionee in registering either the Options or the
Option Stock under the federal securities law or any state securities law and
both the Options and all Option Stock shall be "restricted securities" as
defined in Rule 144 of the General Rules and Regulations of the Securities Act
of 1933 (the "Act"), and may not be offered for sale, sold or otherwise
transferred except pursuant to an effective registration statement under the
Act, or pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the Company.
Accordingly, all certificates evidencing shares covered by the Option, and any
securities issued and replaced or exchanged therefor, shall bear a restrictive
legend to this effect.
10. Assignment or Transfer. No Option may be assigned or transferred other
than by will or under the laws of descent and distribution, and no Option shall
be pledged or otherwise encumbered or subject to execution, attachment or
similar legal process. In the event of the death of an Optionee, his Option may
be exercised during its term by the person designated in the will of the
Optionee, or, if no testamentary disposition was made, by the legal
representative of the Optionee, within one (1) year following his death;
provided, however, such Option shall only be exercisable if it was exercisable
according to the terms hereof on the date of the Optionee's death. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option,
2 Incentive Stock Option Plan
<PAGE>
contrary to the provisions of this Agreement, or the levy of any execution,
attachment or similar process upon the Option, shall void the Option.
Notwithstanding the above, any "derivative security," as such term is defined
under Rule 16b-3, issued under the Plan shall be transferable by the Optionee
only to the extent such transfer is not or would not be prohibited by Rule
16b-3. In addition, the shares of Common Stock acquired upon exercise of Options
granted pursuant to this Plan shall not be transferable by the Optionee until
six months after the date of grant, unless the Committee consents to such
transfer.
11. Optionee as Shareholder. An Optionee shall have no rights as a
shareholder of the Company with respect to the shares of Option Stock covered by
an Option until the date of the issuance of stock certificate(s) to him. No
adjustment will be made for dividends or other rights with respect to which the
record date is prior to the date of such stock certificate or certificates.
12. Adjustment for Changes in Capital Structure. In the event of a change
in the capital structure of the Company as a result of any stock dividend, stock
split, combination or reclassification of shares, recapitalization, merger,
consolidation or reorganization, the number of shares covered by the Options
granted pursuant to this Plan shall be appropriately adjusted by the Committee,
whose determination shall be final.
13. Employment of Optionee. Except as otherwise provided in this Agreement,
the Optionee may not exercise any Option unless the Optionee has been
continuously employed with the Company, a parent or subsidiary, from the date of
grant to and including the later of the date of exercise or three months
following the termination of the employee's employment.
The existence of this Plan shall not impose or be construed as imposing
upon the Company, or any parent or subsidiary of the Company, any obligation to
employ the Optionee for any period of time, and shall not supersede or in any
way increase the obligations of the Company, or any parent or subsidiary of the
Company, under any employment contract now or hereafter existing with any
Optionee.
14. Termination. The Plan may be terminated at any time by action of the
Committee, but in all events this Plan shall terminate ten (10) years from the
date of its approval by the shareholders of the Company, or from its adoption by
the Board, whichever is earlier, and no Options shall be granted under the Plan
after such termination, although Options granted prior to such termination may
continue to be exercised after such date in accordance with the terms hereof.
The Plan shall also terminate upon (a) the merger or consolidation of the
Company with one or more other corporations in which the Company is not the
surviving corporation, (b) the dissolution or liquidation of the Company, (c)
the appointment of a receiver for all, or substantially all, of the assets or
business of the Company, (d) the appointment of a trustee for the Company after
a petition has been filed for the Company's liquidation under applicable
statutes, (e) the filing of a petition in bankruptcy on behalf of the Company
under applicable statutes, or (f) the sale, lease or exchange of all, or
substantially all, of the assets or business of the Company. The Company shall
notify an Optionee in writing thirty (30) days prior to the happening of any of
the events described in clauses (a) through (f) of the preceding sentence.
15. Limitation. The aggregate fair market value (determined on the date the
Option is granted) of stock subject to an Option granted to an Optionee in any
calendar year shall not exceed $100,000.
16. Amendment. No material change or modification of this Plan shall be
valid unless in writing and approved by the Committee, the Company's
shareholders and each Optionee affected by such change.
3 Incentive Stock Option Plan
<PAGE>
17. Governing Law. This Plan shall be governed and construed in accordance
with the laws of the State of Colorado.
IN WITNESS WHEREOF, the Board of Directors has adopted this Plan this ____
day of ______________, 1997.
PATCOMM CORPORATION
(The "Company")
By:
----------------------------------
Frank Delfine, President
ATTEST:
- ------------------------------------
Alex Adelson, Secretary
The Shareholders approved this Plan on ____________, 1997.
4 Incentive Stock Option Plan
<PAGE>
EXHIBIT A
PATCOMM CORPORATION
STOCK OPTION
Patcomm Corporation, a Colorado corporation (the "Company"), hereby grants
to ___________________ the right and option to purchase ____________ (______)
shares of the Common Stock, no par value, of the Company at the exercise price
of $________ per share. This option is granted as of the date set forth below
and shall expire _______ years from such date. This Option is subject to all the
terms and conditions of the Patcomm Corporation Incentive Stock Option Plan,
which are incorporated herein by this reference, and may not be assigned or
transferred except as provided therein. Further, the recipient of this Option
hereby acknowledges that if the shares of Common Stock acquired upon exercise of
this Option are not held for at least six months from the date of grant, the
grant of the Option will be deemed a purchase that may be matched against any
sales of Company securities occurring within six months of the grant and may
create liability for the recipient pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended.
Common Stock acquired pursuant to this Option may be subject to special tax
treatment under Internal Revenue Code Section 422 if held for at least two years
from the date set forth below and for at least one year from the date of
exercise of this Option.
Dated:______________________, 19____.
PATCOMM CORPORATION
(The "Company")
By:
-------------------------------
Frank Delfine, President
ATTEST:
- ------------------------------------
Alex Adelson, Secretary
The option represented by this certificate and the shares of common stock
underlying this option have not been registered under the Securities Act of 1933
(the "Act") and are "restricted securities" as that term is defined in Rule 144
under the Act. Neither the option nor the shares underlying the option may be
offered for sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Act, or pursuant to an exemption from
registration under the Act, the availability of which is to be established to
the satisfaction of the Company.
5 Incentive Stock Option Plan
<PAGE>
EXHIBIT B
Patcomm Corporation
Gentlemen:
I hereby elect to exercise Options to purchase __________ shares of Patcomm
Corporation (the "Company") Common Stock, no par value (the "Securities"),
pursuant to the Company's Incentive Stock Option Plan, dated _________________,
1996, and as subsequently amended.
I acknowledge to the Company that (1) the Securities to be issued to me are
being acquired for investment and not with a view to the distribution thereof,
(2) I will not offer, sell, transfer or otherwise dispose of the Securities
except in a transaction which does not violate the Securities Act of 1933, as
amended (the "Act"), and (3) the Securities are "restricted securities" as that
term is defined in Rule 144 of the General Rules and Regulations under the Act.
I acknowledge and understand that the Securities are unregistered and must
be held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. I also understand that the
Company is the only person which may register its securities under the Act.
Furthermore, the Company has not made any representations, warranties or
covenants to me regarding the registration of the Securities or compliance with
Regulation A or some other exemption under the Act.
I further acknowledge that I am fully aware of the applicable limitations
on the resale of the Securities. Rule 144 permits sales of "restricted
securities" upon compliance with certain requirements. If Rule 144 is available
for the resale of the securities, I may resell the Securities only in accordance
with its limitations.
I further acknowledge that I understand that the Company is subject to the
so called "short swing" profit provisions of Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and that if this exercise is
found to be in violation of those provisions, I will be obligated to make
payment to the Company of any profits which I derive as a result of the matching
of sales and purchases within the statutory period. I also understand that if
the shares of Common Stock to be acquired upon exercise of this Option have not
been held for at least six months from the date of grant, the grant of the
Option will be deemed a purchase that may be matched against any sales of
Company securities occurring within six months of the grant and may create
liability for me pursuant to Section 16(b) of the 1934 Act.
I acknowledge that I am liable for all withholding taxes if the shares
issued pursuant to this Option are disposed of within one year of issuance or
two years of the date of grant of the Option.
Any and all certificates representing the Securities, and any securities
issued in replacement or exchange therefor, shall bear substantially the
following legend, which I have read and understood.
The shares represented by this certificate have not been registered under
the Securities Act of 1933 (the "Act") and are "restricted securities" as
that term is defined in Rule 144 under the Act. The shares may not be
offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act, or pursuant to an exemption
from registration under the Act, the availability of which is to be
established to the satisfaction of the Company.
6 Incentive Stock Option Plan
<PAGE>
I further agree that the Company shall have the right to issue stop
transfer instructions to its transfer agent to bar the transfer or for failure
to pay necessary withholding taxes in the case of disposition of the shares
within one year of issuance of the shares or two years of the date of grant of
the Option of any of my certificates except in accordance with the Act. I
acknowledge that the Company has informed me of its intention to issue such
instructions.
Dated: ______________________, 19_____.
Very truly yours,
--------------------------------------
Optionee
--------------------------------------
(Please print or type name)
7 Incentive Stock Option Plan
PATCOMM CORPORATION
NON-QUALIFIED STOCK OPTION PLAN
1. Purpose. The purpose of the Patcomm Corporation Non-Qualified Stock
Option Plan (the "Plan") is to promote the growth and general prosperity of
Patcomm Corporation (herein called the "Company") and its subsidiaries by
permitting the Company to grant options to purchase shares of its Common Stock
("Options"), to attract and retain the best available personnel for positions of
substantial responsibility and to provide certain key employees, independent
contractors, technical advisors and directors of the Company with an additional
incentive to contribute to the success of the Company.
2. Administration and Operation of the Plan. The Plan shall be administered
by the Compensation Committee of the Board or any committee of the Board
performing similar functions, as appointed from time to time by the Board (the
"Committee"). The Committee shall be constituted so as to permit the Plan to
comply with Rule 16b-3 promulgated by the Securities and Exchange Commission
(the "Commission") under the Securities Exchange Act of 1934, as amended ("Rule
16b-3"). The Plan is intended to qualify and operate pursuant to the provisions
of Rule 16b-3 as in effect at this time or in compliance with any amendments
adopted to that Rule in the future or in compliance with any successor rule
adopted by the Commission.
The Committee shall administer the Plan, and shall have discretionary
authority to (a) determine the persons to whom Options shall be granted, (b)
determine the quantity of shares to be included in each Option, (c) interpret
the Plan, and (d) promulgate such rules and regulations under the Plan as they
may deem necessary and proper. Decisions made by the Committee within their
discretionary authority shall be final and conclusive as to all parties and
shall not be subject to review.
3. Eligibility. Upon the terms and conditions hereafter set forth, the
Committee may grant on behalf of the Company, options (the "Options" or,
individually, an "Option") to purchase shares of the Company's common stock to
any key employee, independent contractor, technical advisor or director of the
Company or any of its subsidiaries hereinafter organized or acquired. The
Options shall be substantially in form and substance as set forth in Exhibit A.
4. Stock to be Optioned. Subject to the provisions of Section 10, the
maximum number of shares which may be optioned and sold under the Plan is one
hundred fifty thousand (150,000) shares of no par value authorized, but
unissued, or reacquired Common Stock of the Company.
5. Term. The Plan shall become effective upon its adoption by the Company's
Board of Directors and by a majority of the outstanding security holders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 9.
6. Option Price. The option price for the Common Stock to be issued under
the Plan may be greater than, less than or equal to the market value of the
stock at the date of grant in the discretion of the Committee.
7. Exercise of Option.
(a) The number of shares optioned to an employee or director shall be
exercisable in whole or in part at any time during the term of the Option.
An Option may not be exercised for fractional shares of the stock of the
Company.
<PAGE>
In the event the Company or the Stockholders of the Company enter into
an agreement to dispose of all or substantially all of the assets or stock
of the Company by means of a sale, reorganization, liquidation or
otherwise, an Option shall become immediately exercisable with respect to
the full number of shares subject to that Option, notwithstanding the
preceding provisions of this Section 7(a), during the period commencing as
of the date of such agreement and ending when the disposition of assets or
stock contemplated by the agreement is consummated or the agreement is
terminated. The Company shall seek to notify Optionees in writing of any
event which may constitute such sale, reorganization, liquidation or
otherwise.
(b) An Option may only be exercised when written notice of such
exercise has been given to the Company at its principal business office by
the person entitled to exercise the Option and full payment for the shares
with respect to which the Option is exercised has been received by the
Company. The notice shall state the number of shares with respect to which
the Option is being exercised, shall contain a representation and agreement
by the Optionee substantially in the form and substance as set forth in the
investment letter attached hereto as Exhibit B, and shall be signed by the
Optionee. The Option Price shall be paid in cash, cash equivalents or
secured notes acceptable to the Committee, by arrangement with a broker
which is acceptable to the Committee where payment of the Option Price is
made pursuant to an irrevocable direction to the broker to deliver all or
part of the proceeds form the sale of the option shares to the Company by
the surrender of shares of common stock owned by the Optionee exercising
the Option and having a fair market value on the date of exercise equal to
the option price, or by the surrender of options to purchase common stock
having a fair market value on the date of exercise equal to the option
price or in any combination of the foregoing. Until the issuance of stock
certificates, no right to vote or receive dividends or any other rights as
a stockholder shall exist with respect to the optioned shares
notwithstanding the exercise of the Option. No adjustment will be made for
a dividend or other rights for which the record date is prior to the date
the stock certificate is issued except as provided in Section 10.
(c) An Option may be exercised by the Optionee only while he is, and
has continually been since the date of the grant of the Option, an
employee, independent contractor, technical advisor or director of the
Company, its subsidiaries, its parent or its successor companies, except
that to the extent that installments have accrued and remain unexercised on
the date of the Optionee's death, such Option of the deceased Optionee may
be exercised within one year after the death of such Optionee, but in no
event later than five years after the date of grant of such Option, by (and
only by) the person or persons to whom his rights under such Option shall
have passed by will or by laws of descent and distribution.
(d) An Option may be exercised in accordance with this Section 7 as to
all or any portion of the shares subject to the Option from time to time,
but shall not be exercisable with respect to fractions of a share.
8. Options not Transferable. Options under this Plan may not be sold,
pledged, assigned or transferred in any manner otherwise than by will or the
laws of descent or distribution, and may be exercised during the lifetime of an
Optionee only by such Optionee. Further, no Option shall be pledged or otherwise
encumbered or subject to execution, attachment or similar legal process. Any
attempted assignment, transfer, pledge, hypothecation or similar disposition of
the Option, contrary to the provisions of this Agreement, or the levy of any
execution, attachment or similar process upon the Option, shall void the Option.
Notwithstanding the above, any "derivative security," as such term is defined
under Rule 16b-3, issued under the Plan shall be transferable by the Optionee
only to the extent such transfer is not or would not be prohibited by Rule
16b-3. In addition, the shares of Common Stock acquired upon exercise of Options
granted pursuant to this Plan shall not be transferable by the Optionee until
six months after the date of grant, unless the Committee consents to such
transfer.
2 Non-Qualified Stock Option Plan
<PAGE>
9. Amendment or Termination of the Plan.
(a) The Committee, with approval by a majority of the outstanding
security holders and by each Optionee affected by such change, may amend
the Plan from time to time in such respects as the Committee and the
Company's security holders may deem advisable.
(b) The Committee may at any time terminate the Plan. Any such
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
terminated.
10. Adjustments Upon Changes In Capitalization. If all or any portion of an
Option is exercised subsequent to any stock dividend, split-up,
recapitalization, combination or exchange of shares, merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation, as
a result of which shares of any class shall be issued in respect of outstanding
shares of Common Stock or shares of Common Stock shall be changed into the same
or a different number of shares of the same or another class or classes, the
person or persons so exercising such an Option shall receive, for the aggregate
price payable upon such exercise of the Option, the aggregate number and class
of shares which, if shares of Common Stock (as authorized at the date of the
granting of such Option) had been purchased at the date of granting of the
Option for the same aggregate price (on the basis of the price per share
provided in the Option) and had not been disposed of, such person or persons
would be holding at the time of such exercise, as a result of such purchase and
any such stock dividend, split-up, recapitalization, combination or exchange of
shares, merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation; provided, however, that no fractional share shall
be issued upon any such exercise, and the aggregate price paid shall be
appropriately reduced on account of any fractional share not issued. In the
event of any such change in the outstanding Common Stock of the Company, the
aggregate number of and class of shares remaining available under the Plan shall
be that number and class which a person, to whom an Option had been granted for
all of the available shares under the Plan on the date preceding such change,
would be entitled to receive as provided in the first sentence of this Section
10.
11. Optionee as Shareholder. An Optionee shall have no rights as a
shareholder of the Company with respect to the shares of the Company' Common
Stock covered by such Option until the date of the issuance of stock
certificate(s) to him. No adjustment will be made for dividends or other rights
with respect to which the record date is prior to the date of such stock
certificate or certificates.
12. Employment of Optionee. The existence of this Plan shall not impose or
be construed as imposing upon the Company, or any parent or subsidiary of the
Company, any obligation to employ or contract for services with the Optionee for
any period of time, and shall not supersede or in any way increase the
obligations of the Company, or any parent or subsidiary of the Company, under
any employment or other contract now or hereafter existing with any Optionee.
13. Agreement and Representations of Optionee. As a condition to the
exercise of any portion of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required under the Securities Act of 1933
or any other applicable law, regulation or rule of any government agency.
3 Non-Qualified Stock Option Plan
<PAGE>
14. Securities to be Unregistered. The Company shall be under no obligation
to register or assist the Optionee in registering either the Options or the
Common Stock covered by an Option under the federal securities law or any state
securities law, and both the Options and all Common Stock issuable thereunder
shall be "restricted securities" as defined in Rule 144 of the General Rules and
Regulations of the Securities Act of 1933 (the "Act"), and may not be offered
for sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Act, or pursuant to an exemption from
registration under the Act, the availability of which is to be established to
the satisfaction of the Company. Accordingly, all certificates evidencing shares
covered by the Option, and any securities issued and replaced or exchanged
therefor, shall bear a restrictive legend to this effect.
15. Reservation of Shares of Common Stock. The Company, during the term of
this Plan, will at all times reserve and keep available, and will seek or obtain
from any regulatory body having jurisdiction, any requisite authority in order
to issue and sell such number of shares of its Common Stock as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain from any regulatory body having jurisdiction authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any shares
of its stock hereunder, shall relieve the Company of any liability in respect of
the non-issuance or sale of such stock as to which such requisite authority
shall not have been obtained.
16. Governing Law. This Plan shall be governed and construed in accordance
with the laws of the State of Colorado.
17. Definitions. As used herein, the following definitions shall apply:
(a) "Common Stock" shall mean Common Stock, no par value of the
Company.
(b) "Continuous Employment" shall mean employment without
interruption, by any one or more of the Company, its parent, its
subsidiaries and its successor companies. Employment shall not be
considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Company or in the case of transfers
between payroll locations of the Company or among the Company, its parent,
its subsidiaries or its successor companies.
(c) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
(d) "Option" shall mean a stock option granted pursuant to the Plan.
(e) "Parent" shall mean a "parent corporation" as defined in Section
425(e) and (g) of the Internal Revenue Code.
(f) "Plan" shall mean the Nonstatutory Stock Option Plan of the
Company.
(g) "Stockholders" shall mean the holders of outstanding shares of the
Company's Common Stock.
(h) "Subsidiary" shall mean a "subsidiary corporation" as defined in
Section 425(f) and (g) of the Internal Revenue Code.
(i) "Successor Company" means any company which acquires all or
substantially all of the stock or assets of the Company.
4 Non-Qualified Stock Option Plan
<PAGE>
IN WITNESS WHEREOF, the Board of Directors has adopted this Plan this 15th
day of November, 1996.
PATCOMM CORPORATION
(The "Company")
By:
--------------------------------
Frank Delfine, President
ATTEST:
- ------------------------------------
Alex Adelson, Secretary
5 Non-Qualified Stock Option Plan
<PAGE>
EXHIBIT A
PATCOMM CORPORATION
STOCK OPTION
Patcomm Corporation (the "Company") hereby grants to
________________________ the right and option to purchase ____________ shares of
the Common Stock, no par value, of the Company at the exercise price of
$______________ per share. This Option is granted as of the date set forth below
and shall expire _______ years from such date. This Option is subject to all the
terms and conditions of the Company Non-Qualified Stock Option Plan which are
incorporated herein by this reference, and may not be assigned or transferred
except as provided therein. Further, the recipient of this Option hereby
acknowledges that if the shares of Common Stock acquired upon exercise of this
Option are not held for at least six months from the date of grant, the grant of
the Option will be deemed a purchase that may be matched against any sales of
Company securities occurring within six months of the grant and may create
liability for the recipient pursuant to Section 16(b) of the Securities Exchange
Act of 1934, as amended.
Dated:______________________, 19____.
PATCOMM CORPORATION
(The "Company")
By:
-------------------------------
Frank Delfine, President
ATTEST:
- ------------------------------------
Alex Adelson, Secretary
The option represented by this certificate and the shares of common stock
underlying this option have not been registered under the Securities Act of 1933
(the "Act") and are "restricted securities" as that term is defined in Rule 144
under the Act. Neither the option nor the shares underlying the option may be
offered for sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Act, or pursuant to an exemption from
registration under the Act, the availability of which is to be established to
the satisfaction of the Company.
6 Non-Qualified Stock Option Plan
<PAGE>
EXHIBIT B
Patcomm Corporation
Gentlemen:
I hereby elect to exercise Options to purchase __________ shares of Patcomm
Corporation (the "Company") Common Stock, no par value (the "Securities"),
pursuant to the Company's Non-Qualified Stock Option Plan, dated November 15,
1996, and as subsequently amended.
I acknowledge to the Company that (1) the Securities to be issued to me are
being acquired for investment and not with a view to the distribution thereof,
(2) I will not offer, sell, transfer or otherwise dispose of the Securities
except in a transaction which does not violate the Securities Act of 1933, as
amended (the "Act"), and (3) the Securities are "restricted securities" as that
term is defined in Rule 144 of the General Rules and Regulations under the Act.
I acknowledge and understand that the Securities are unregistered and must
be held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. I also understand that the
Company is the only person which may register its securities under the Act.
Furthermore, the Company has not made any representations, warranties or
covenants to me regarding the registration of the Securities or compliance with
Regulation A or some other exemption under the Act.
I further acknowledge that I am fully aware of the applicable limitations
on the resale of the Securities. Rule 144 permits sales of "restricted
securities" upon compliance with certain requirements. If Rule 144 is available
for the resale of the securities, I may resell the Securities only in accordance
with its limitations.
I further acknowledge that I understand that the Company is subject to the
so called "short swing" profit provisions of Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and that if this exercise is
found to be in violation of those provisions, I will be obligated to make
payment to the Company of any profits which I derive as a result of the matching
of sales and purchases within the statutory period. I also understand that if
the shares of Common Stock to be acquired upon exercise of this Option have not
been held for at least six months from the date of grant, the grant of the
Option will be deemed a purchase that may be matched against any sales of
Company securities occurring within six months of the grant and may create
liability for me pursuant to Section 16(b) of the 1934 Act.
Any and all certificates representing the Securities, and any securities
issued in replacement or exchange therefor, shall bear substantially the
following legend, which I have read and understood.
The shares represented by this certificate have not been registered under the
Securities Act of 1933 (the "Act")) and are "restricted securities" as that term
is defined in Rule 144 under the Act. The shares may not be offered for sale,
sold or otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration under the
Act, the availability of which is to be established to the satisfaction of the
Company.
7 Non-Qualified STock Option Plan
<PAGE>
I agree that the Company shall have the right to issue stop transfer
instructions to its transfer agent to bar the transfer except in accordance with
the Act. I acknowledge that the Company has informed me of its intention to
issue such instructions.
I further agree that the Company shall have the right to take such action
as it deems necessary to make appropriate federal and state withholding payments
on my behalf.
Dated: ______________________, 19_____.
Very truly yours,
---------------------------------
Optionee
---------------------------------
(Please print or type name)
8 Non-Qualified Stock Option Plan
THIS LEASE made the 27th day of August, 1997, between GYRODYNE COMPANY OF
AMERICA, INC. hereinafter referred to as LANDLORD, and PATRIOT COMMUNICATIONS
TECHNOLOGY, INC. hereinafter jointly, severally and collectively referred to as
TENANT.
WITNESSETH, that the Landlord hereby leases to the Tenant, and the Tenant
hereby hires and takes from the Landlord AN AREA DEEMED TO BE APPROXIMATELY
2,805 SQUARE FEET OF SPACE in the building known as 7 FLOWERFIELD, SUITE 100,
102 AND 108 to be used and occupied by the Tenant AS THE ADMINISTRATION
HEADQUARTERS FOR CONSULTING SERVICES UTILIZING COMPUTER HARDWARE/SOFTWARE
SYSTEMS and for no other purpose, for a term to commence on SEPTEMBER 1, 1997,
and to end on AUGUST 31, 1998, unless sooner terminated as hereinafter provided,
at the ANNUAL RENT OF THIRTY THOUSAND SIX HUNDRED DOLLARS ($30,600.00) WHICH
SHALL BE SUBJECT TO ADJUSTMENT PURSUANT TO THE COVENANTS HEREIN AND NOT
RESTRICTED TO ADDENDUM SECTION V, PARAGRAPHS 4 (a), (b), (c), (d), (e) AND (f)
all payable in equal $2,550.00 monthly installments in advance on the first day
of each and every calendar month during said term, except the first installment,
which shall be paid upon the execution hereof.
THE TENANT JOINTLY AND SEVERALLY COVENANTS:
FIRST - That the Tenant will pay the rent as above provided.
SECOND - That, throughout said term the Tenant will take good care of the
demised premises, fixtures and appurtenances, and all alterations, additions and
improvements to either; make all repairs in and about the same necessary to
preserve them in good order and condition, which repairs shall be, in quality
and class, equal to the original work; promptly pay the expense of such repairs;
suffer no waste or injury; give prompt notice to the Landlord of any fire that
may occur; execute and comply with all laws, rules, orders, ordinances and
regulations at any time issued or in force (except those requiring structural
alterations), application to the demised premises or to the Tenant's occupation
thereof, of the Federal, State and Local Governments, and of each and every
department, bureau and official thereof, and of the New York Board of Fire
Underwriters; permit at all times during the usual business hours, the Landlord
and representatives of the Landlord to enter the demised premises for the
purpose of inspection, and to exhibit them for purposes of sale or rental;
suffer the Landlord to make repairs and improvements to all parts of the
building and to comply with all orders and requirements of governmental
authority applicable to said building or to any occupation thereof; suffer
Landlord to erect, use, maintain, repair and replace pipes and conduits in the
demised premises and to the floors above and below; forever indemnify and save
harmless the Landlord for and against any and all liability, penalties, damages,
expenses and judgments arising from injury during said term to person or
property of any nature, occasioned wholly or in part by any act or acts,
omission or omissions of the Tenant, or of the employees, guests, agents,
assigns or undertenants of the Tenant and also for any matter or thing growing
out of the occupation of the demised premises or of the streets, sidewalks or
vaults adjacent thereto; permit, during the six months next prior to the
expiration of the term the usual notice "To Let" to be placed and to remain
unmolested in a conspicuous place upon the exterior of the demised premises;
repair, at or before the end of the term, all injury done by the installation or
removal of furniture and property; and at the end of the term, to quit and
surrender the demised premises with all alterations, additions and improvements
in good order and condition.
Patriot Communications Technology, Inc. Lease Page 1 of 22
<PAGE>
THIRD - That the Tenant will not disfigure or deface any part of the
building, or suffer the same to be done, except so far as may be necessary to
affix such trade fixtures as are herein consented to by the Landlord; the Tenant
will not obstruct, or permit the obstruction of the street or the sidewalk
adjacent thereto; will not do anything, or suffer anything to be done upon the
demised premises which will increase the rate of fire insurance upon the
building or any of its contents, or be liable to cause structural injury to said
building; will not permit the accumulation of waste or refuse matter, and will
not, without the written consent of the Landlord first obtained in each case,
either sell, assign, mortgage or transfer this lease, underlet the demised
premises or any part thereof, permit the same or any part thereof to be occupied
by anybody other than the Tenant and the Tenant's employees, make any
alterations in the demised premises, use the demised premises or any part
thereof for any purpose other than the one first above stipulated, or for any
purpose deemed extra hazardous on account of fire risk, nor the violation of any
law or ordinance. That the Tenant will not obstruct or permit the obstruction of
the light, halls, stairway or entrances to the building, and will not erect or
inscribe any sign, signals or advertisements unless and until the style and
location thereof have been approved by the Landlord; and if any be erected or
inscribed without such approval, the Landlord may remove the same. No water
cooler, air conditioning unit or system or other apparatus shall be installed or
used without the prior written consent of Landlord.
IT IS MUTUALLY COVENANTED AND AGREED THAT
FOURTH - If the demised premises shall be partially damaged by fire or
other cause without the fault or neglect of Tenant, Tenant's servants,
employees, agents, visitors or licensees, the damages shall be repaired by and
at the expense of Landlord and the rent until such repairs shall be made shall
be apportioned according to the part of the demised premises which is usable by
Tenant. But if such partial damage is due to the fault or neglect of Tenant,
Tenant's servants, employees, agents, visitors or licensees, without prejudice
to any other rights and remedies of Landlord and without prejudice to the rights
of subrogation of Landlord's insurer the damages shall be repaired by Landlord
but there shall be no apportionment or abatement of rent. No penalty shall
accrue for reasonable delay which may arise by reason of adjustment of insurance
on the part of Landlord and/or Tenant, and for reasonable delay on account of
"labor troubles", or any other cause beyond Landlord's control. If the demised
premises are totally damaged or are rendered wholly untenantable by fire or
other cause, and if Landlord shall decide not to restore or not to rebuild the
same, or if the building shall be so damaged that Landlord shall decide to
demolish it or to rebuild it, then or in any of such events Landlord may, within
ninety (90) days after such fire or other cause, give Tenant a notice in writing
of such decision, which notice shall be given as in Paragraph Twelve hereof
provided, and thereupon the term of this lease shall expire by lapse of time
upon the third day after such notice is given, and Tenant shall vacate the
demised premises and surrender the same to landlord. If Tenant shall not be in
default under this lease, then, upon the termination of this lease under the
conditions provided for in the sentence immediately preceding, Tenant's
liability for rent shall cease as of the day following the casualty. Tenant
hereby expressly waives the provisions of Section 227 of the Real Property law
and agrees that the foregoing provisions of this Article shall govern and
control in lieu thereof. If the damage or destruction be due to the fault or
neglect of Tenant the debris shall be removed by, and at the expense of, Tenant.
FIFTH - If the whole or any part of the premises hereby demised shall be
taken or condemned by any competent authority for any public use or purpose then
the term hereby granted shall cease from the time when possession of the part so
taken shall be required for such public purpose and without apportionment of
award, the Tenant hereby assigning to the Landlord all right and claim to any
such award, the current rent, however, in such case to be apportioned.
Patriot Communications Technology, Inc. Lease Page 2 of 22
<PAGE>
SIXTH - If, before the commencement of the term, the Tenant be adjudicated
a bankrupt, or make a "general assignment," or take the benefit of any insolvent
act, or if a Receiver or Trustee be appointed for the Tenant's property, or if
this lease or the estate of the Tenant hereunder be transferred or pass to or
devolve upon any other person or corporation, or if the Tenant shall default in
the performance of any agreement by the Tenant contained in any other lease to
the Tenant by the Landlord or by any corporation of which an officer of the
Landlord is a Director, this lease shall thereby, at the option of the Landlord,
be terminated and in that case, neither the Tenant nor anybody claiming under
the Tenant shall be entitled to go into possession of the demised premises. If
after the commencement of the term, any of the events mentioned above in this
subdivision shall occur, or if Tenant shall make default in fulfilling any of
the covenants of this lease, other than the covenants for the payment of rent or
"additional rent" or if the demised premises become vacant or deserted, the
Landlord may give to the Tenant ten days' notice of intention to end the term of
this lease, and thereupon at the expiration of said ten days' (if said condition
which was the basis of said notice shall continue to exist) the term under this
lease shall expire as fully and completely as if that day were the date herein
definitely fixed for the expiration of the term and the Tenant will then quit
and surrender the demised premises to the Landlord, but the Tenant shall remain
liable as hereinafter provided.
If the Tenant shall make default in the payment of the rent reserved
hereunder, or any item of "additional rent" herein mentioned, or any part of
either or in making any other payment herein provided for, or if the notice last
above provided for shall have been given and if the condition which was the
basis of said notice shall exist at the expiration of said ten days period, the
Landlord may immediately, or at any time thereafter, re-enter the demised
premises and remove all persons and all or any property therefrom either by
summary dispossess proceedings, or by any suitable action or proceeding at law,
or by force or otherwise without being liable to indictment, prosecution or
damages therefor, and re-possess and enjoy said premises together with all
additions, alterations and improvements. In any such case or in the event that
this lease be "terminated" before the commencement of the term, as above
provided, the Landlord may either re-let the demised premises or any part or
parts thereof for the Landlord's own account, or may, at the Landlord's option,
re-let the demised premises, or any part or parts thereof as the agent of the
Tenant, and receive the rents therefor, applying the same first to the payment
of such expenses as the Landlord may have incurred and then to the fulfillment
of the covenants of the Tenant herein, and the balance, if any at the expiration
of the term first above provided for, shall be paid to the Tenant. Landlord may
rent the premises for a term extending beyond the term hereby granted without
releasing Tenant from any liability. In the event that the term of this lease
shall expire as above in this subdivision "Sixth" provided, or terminate by
summary proceedings or otherwise, and if the Landlord shall not re-let the
damaged premises for the Landlord's own account, then, whether or not the
premises be re-let, the Tenant shall remain liable for and Tenant hereby agrees
to pay to the Landlord, until the time when this lease would have expired but
for such termination of expiration, the equivalent of the amount of all of the
rent and "additional rent" reserved herein, less the avails of reletting, if
any, and the same shall be due and payable by the Tenant to the Landlord on the
several rent days above specified, that is upon each of such rent days the
Tenant shall pay to the Landlord the amount of deficiency then existing. The
Tenant hereby expressly waives any and all right of redemption in case the
Tenant shall be dispossessed by judgment or warrant of any court or judge, and
the Tenant waives and will waive all right to trial by jury in any summary
proceedings hereafter instituted by the Landlord against the Tenant in respect
to the demised premises. The words "re-enter" and "re-entry" as used in this
lease are not restricted to their technical legal meaning.
Patriot Communications Technology, Inc. Lease Page 3 of 22
<PAGE>
In the event of a breach or threatened breach by the Tenant of any of
the covenants or provisions hereof, the Landlord shall have the right of
injunction and the right to invoke any remedy allowed at law or in equity, as if
re-entry, summary proceedings and other remedies were not herein provided for.
SEVENTH - If the Tenant shall make default in the performance of any
covenant herein contained, the Landlord may immediately, or at any time
thereafter, without notice, perform the same for the account of the Tenant. If a
notice of mechanic's lien be filed against the demised premises or against
premises of which the demised premises are part, for, or purporting to be for,
labor or material alleged to have been furnished, or to be furnished to or for
the Tenant at the demised premises and if the Tenant shall fail to take such
action as shall cause such lien to be discharged within fifteen days after the
filing of such notice, the Landlord may pay the amount of such lien or discharge
the same by deposit or by bonding proceedings, and in the event of such deposit
or bonding proceedings, the Landlord may require the lienor to prosecure an
appropriate action to enforce the lienor's claim. In such case, the landlord may
pay any judgment recovered on such claim. Any amount paid or expense incurred by
the Landlord as in this subdivision of this lease provided, and any amount as to
which the Tenant shall at any time be in default for or in respect to the use of
water, electric current or sprinkler supervisory service, and any expense
incurred or sum of money paid by the Landlord by reason of the failure of the
Tenant to comply with any provision hereof, or in defending any such action,
shall be deemed to be "additional Rent" for the demised premises, and shall be
due and payable by the Tenant to the Landlord on the first day of the next
following month, or, at the option of the Landlord, on the first day of any
succeeding month. The receipt by the Landlord of any installment of the regular
stipulated rent hereunder or any of said "additional rent" shall not be a waiver
of any other "additional rent" then due.
EIGHTH - The failure of the Landlord to insist, in any one or more
instances upon a strict performance of any of the covenants of this lease, or to
exercise any option herein contained, shall not be construed as a waiver or a
relinquishment for the future of such covenant or option, but the sale shall
continue and remain in full force and effect. The receipt by the Landlord of
rent, with knowledge of the breach of any covenant hereof, shall not be deemed a
waiver of such breach and no waiver by the Landlord of any provision hereof
shall be deemed to have been made unless expressed in writing and signed by the
Landlord. Even though the Landlord shall consent to an assignment hereof no
further assignment shall be made without express consent in writing by the
Landlord.
NINTH - If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than the Tenant the Landlord
may collect rent from the assignee, under-tenant or occupant, and apply the net
amount collected to the rent herein reserved, and no such collection shall be
deemed a waiver of the covenant herein against assignment and underletting, or
the acceptance of the assignee, under-tenant or occupant as tenant, or a release
of the Tenant from the further performance by the Tenant of the covenants herein
contained on the part of the Tenant.
TENTH - This lease shall be subject and subordinate at all times, to the
lien of the mortgages now on the demised premises, and to all advances made or
hereafter to be made upon the security thereof, and subject and subordinate to
the lien of any mortgage or mortgages which at any time may be made a lien upon
the premises. The tenant will execute and deliver such further instrument or
instruments subordinating this lease to the lien of any such mortgage or
mortgages as shall be desired by any mortgagee or proposed mortgagee. The Tenant
hereby appoints the Landlord the attorney-in-fact of the Tenant, irrevocable, to
execute and deliver any such instrument or instruments for the Tenant.
Patriot Communications Technology, Inc. Lease Page 4 of 22
<PAGE>
ELEVENTH - All improvements made by the Tenant to or upon the demised
premises, except said trade fixtures, shall when made, at once be deemed to be
attached to the freehold, and become the property of the Landlord, and at the
end or other expiration of the term, shall be surrendered to the Landlord in as
good order and condition as they were when installed, reasonable wear and
damages by the elements excepted.
TWELFTH VOID
THIRTEENTH - The Landlord shall not be liable for any failure of water
supply or electrical current, sprinkler damage, or failure of spinkler service,
nor for injury or damage to person or property caused by the elements or by
other tenants or persons in said building or resulting from steam, gas,
electricity, water, rain or snow, which may leak or flow from any part of said
buildings, or from the pipes, appliances or plumbing works of the same, or from
the street or sub-surface, or from any other place, nor for interference with
light or other incorporeal hereditaments by anybody other than the Landlord, or
caused by operations by or for a governmental authority in construction of any
public or quasi-public work, neither shall the Landlord be liable for any latent
defect in the building.
FOURTEENTH - No diminution or abatement of rent, or other compensation
shall be claimed or allowed for inconvenience or discomfort arising from the
making of repairs or improvements to the building or to its appliances, nor for
any space taken to comply with any law, ordinance or order of a governmental
authority. In respect to the various "services," if any, herein expressly or
impliedly agreed to be furnished by the Landlord to the Tenant, it is agreed
that there shall be no diminution or abatement of the rent, or any other
compensation, for interruption or curtailment of such " service" which such
interruption or curtailment shall be due to the accident, alterations or repairs
desirable or necessary to be made or to inability or difficulty in securing
supplies or labor for the maintanance of such 'service" or to some other cause,
not gross negligence on the part of the Landlord. No such interruption or
curtailment of any such "service" shall be deemed a constructive eviction. The
Landlord shall not be required to furnish, and the Tenant shall not be entitled
to receive, any of such "services" during any period wherein the Tenant shall be
in default in respect to the payment of rent. Neither shall there be any
abatement or diminution of rent because of making of repairs, improvements or
decorations to the demised premises after the date above fixed for the
commencement of the term, it being understood that rent shall, in any event,
commence to run at such date so above fixed.
FIFTEENTH - The Landlord may prescribe and regulate the placing of safes,
machinery, quantities of merchandise and other things. The Landlord may also
prescribe and regulate which elevator and entrances shall be used by the
Tenant's employees, and for the Tenant's shipping. The Landlord may make such
other and further rules and regulations as, in the Landlord's judgment, may from
time to time be needful for the safety, care or cleanliness of the building, and
for the preservation of good order therein. The Tenant and the employees and
agents of the Tenant will observe and conform to all such rules and regulations.
SIXTEENTH VOID
SEVENTEENTH VOID
Patriot Communications Technology, Inc. Lease Page 5 of 22
<PAGE>
EIGHTEENTH - That during the seven months prior to the expiration of the
term hereby granted, applicants shall be admitted at all reasonable hours of the
day to view the premises until rented; and the Landlord and the Landlord's
agents shall be permitted at any time during the term to visit and examine them
at any reasonable hour of the day, and workmen may enter at any time, when
authorized by the Landlord or the Landlord's agents, to make or facilitate
repairs in any part of the building; and if the said Tenant shall not be
personally present to open and permit an entry into said premises, at any time,
when for any reason an entry therein shall be necessary or permissible
thereunder, the Landlord or the Landlord's agents may forcibly enter the same
without rendering the Landlord or such agents liable to any claim or cause of
action for damages by reason thereof (if during such entry the Landlord shall
accord reasonable care to the Tenant's property) and without in any manner
affecting the obligations and covenants of this lease; it is, however, expressly
understood that the right and authority hereby reserved, does not impose, nor
does the Landlord assume, by reason thereof, any responsibility or liability
whatsoever for the care or supervision of said premises, or any of the pipes,
fixtures, appliances or appurtenances therein contained or therewith in any
manner connected. ***
NINETEENTH - The Landlord has made no representations or promises in
respect to said building or to the demised premises except those contained
herein, and those, if any, contained in some written communication to the
Tenant, signed by the Landlord. This instrument may not be changed, modified,
discharged, or terminated orally.
TWENTIETH - If the Tenant shall at any time be in default hereunder, and if
the Landlord shall institute an action or summary proceeding against the Tenant
based upon such default, then the Tenant will reimburse the Landlord for the
expense of attorneys' fees and disbursements thereby incurred by the Landlord,
so far as the same are reasonable in amount. Also so long as the Tenant shall be
a tenant hereunder the amount of such expenses shall be deemed to be "additional
rent" hereunder and shall be due from the Tenant to the Landlord on the first
day of the month following the incurring of such respective expenses.
TWENTY-FIRST - Landlord shall not be liable for failure to give possession
of the premises upon commencement date by reason of the fact that premises are
not ready for occupancy, or due to a prior Tenant wrongfully holding over or any
other person wrongfully in possession or for any other reason: in such event the
rent shall not commence until possession is given or is available but the term
herein shall not be extended.
THE TENANT FURTHER COVENANTS:
TWENTY-SECOND - If the demised premises or any part thereof consist of a
store, or of a first floor, or of any part thereof, the Tenant will keep the
sidewalk and curb in front thereof clean at all times and free from snow and
ice, and will keep insured in favor of the Landlord, all plate glass therein and
furnish the Landlord with policies of insurance covering the same.
TWENTY-THIRD - If by reason of the conduct upon the demised premises of a
business not herein permitted, or if by reason of the improper or careless
conduct of any business upon or use of the demised premises, the fire insurance
rate shall at any time be higher than it otherwise would be, then the Tenant
will reimburse the Landlord, as additional rent hereunder, for that part of all
fire insurance premiums hereafter paid out by the Landlord which shall have been
charged because of the conduct of such business not so permitted, or because of
the improper or careless conduct of any business upon or use of the demised
premises, and will make such reimbursement upon the first day of the month
- -------------------
*** THIS PROVISION ALLUDES TO THE MINIMUM ACCESS GRANTED TO LANDLORD AND IS
MEANT TO BE EXPLAINED BY ANY OTHER PVOSISION SET FORTH HEREIN IN BOTH PRINTED
FORM AND THE RIDER ATTACHED HERETO.
Patriot Communications Technology, Inc. Lease Page 6 of 22
<PAGE>
following such outlay by the Landlord: but this covenant shall not apply to a
premium for any period beyond the expiration date of this lease, first above
specified. If any action or proceeding wherein the Landlord and Tenant are
parties, a schedule or "make up" of rate for the building on the demised
premises, purporting to have been issued by New York Fire Insurance Exchange, or
other body making fire insurance rates for the demised premises, shall be prima
facie evidence of the facts therein stated and of the several items and charges
included in the fire insurance rate then applicable to the demised premises.
TWENTY-FOURTH - If a separate water meter be installed for the demised
premises, or any part thereof, the Tenant will keep the same in repair and pay
the charges made by the municipality or water supply company for or in respect
to the consumption of water, as and when bills therefor are rendered. If the
demised premises, or any part thereof, be supplied with water through a meter
which supplies other premises, the Tenant will pay to the Landlord, as and when
bills are rendered therefor, the Tenant's proportionate part of all charges
which the municipality or water supply company shall make for all water consumed
through said meter, as indicated by said meter. Such proportionate part shall be
fixed by apportioning the respective charge according to floor area against all
of the rentable floor area in the building (exclusive of the basement) which
shall have been occupied during the period of the respective charges, taking
into account the period that each part of such area was occupied. Tenant agrees
to pay as additional rent the Tenant's proportionate part, determined as
aforesaid, of the sewer rent or charge imposed or assessed upon the building of
which the premises area a part.
TWENTY-FIFTH - That the Tenant will purchase from the Landlord, if the
Landlord shall so desire, all electric current that the Tenant requires at the
demised premises, and will pay the Landlord for the same, as the amount of
consumption shall be indicated by the meter furnished therefor. The price for
said current shall be the same as that charged for consumption similar to that
of the Tenant by the company supplying electricity in the same community.
Payments shall be due as and when bills shall be rendered. The tenant shall
comply with like rules, regulations and contract provisions as those prescribed
by said company for a consumption similar to that of the Tenant.
TWENTY-SIXTH.- If there now is or shall be installed in said building a
"sprinkler system" the Tenant agrees to keep the appliances thereto in the
demised premises in repair and good working condition, and if the New York Board
of Fire Underwriters or the New York Fire Insurance Exchange or any bureau,
department or official of the State of local government requires or recommends
that any changes, modification, alterations or additional sprinkler heads or
other equipment be made or supplied by reason of the Tenant's business, or the
location of partitions, trade fixtures, or other contents of the demised
premises, or if such changes, modification, alterations, additional sprinkler
heads or other equipment in the demised premises are necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate as fixed by said Exchange, or by any Fire
Insurance Company, the Tenant will at the Tenant's own expense, promptly make
and supply such changes, modifications, alterations, additional sprinkler heads
or other equipment. As additional rent hereunder the Tenant will pay to the
Landlord, annually in advance, throughout the term a prorata 5.24% portion
toward the contract price for sprinkler supervisory service.
TWENTY-SEVENTH.- The sum of see paragraph #1 of Addendum Section
V......Dollars is deposited by the Tenant herein with Landlord herein as
security for the faithful performance of all the covenants and conditions of the
lease by the said Tenant. If the Tenant faithfully performs all the covenants
and conditions on his part to be performed, then the sum deposited shall be
returned to said Tenant.
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TWENTY-EIGHTH.- This lease is granted and accepted on the especially
understood and agreed condition, that the Tenant will conduct his business in
such a manner, both as regards noise and kindred nuisances, as will in no wise
interfere with, annoy, or disturb any other tenants, in the conduct of their
several businesses, or the landlord in the management of the building; under
penalty of forfeiture of this lease and consequential damages.
TWENTY-NINTH.- The Landlord hereby recognizes no broker as the broker who
negotiated and consummated this lease with the Tenant herein, and agrees that
if, as, and when the Tenant exercises the option, if any, contained herein to
renew this lease, or fails to exercise the option, if any, contained therein to
cancel this lease, the Landlord will pay to said broker a further commission in
accordance with the rules and commission rates of the Real Estate Board in the
community. A sale, transfer, or other disposition of the Landlord's interest in
said lease shall not operate to defeat the Landlord's obligation to pay the said
commission to the said broker. The Tenant herein hereby represents to the
Landlord that the said broker is the sole and only broker who negotiated and
consummated this lease with the Tenant.
THIRTIETH.- VOID
THIRTY-FIRST.- The invalidity or unenforceability of any provision of this
lease shall in no way affect the validity or enforceability of any other
provision hereof.
THIRTY-SECOND.- In order to avoid delay, this lease has been prepared and
submitted to the Tenant for signature with the understanding that it shall not
bind the Landlord unless and until it is executed and delivered by the Landlord.
THIRTY-THIRD.- VOID
THIRTY-FOURTH.- The Landlord shall replace at the expense of the Tenant any
and all broken glass in the skylights, doors and walls in and about the demised
premises. The Landlord may insure and keep insured all plate glass in the
skylights, doors and walls in the demised premises, for and in the name of the
Landlord and bills for the premiums therefor shall be rendered by the Landlord
to the Tenant at such times as the Landlord may elect, and shall be due from and
payable by the Tenant when rendered, and the amount thereof shall be deemed to
be, and shall be paid as, additional rent.
THIRTY-FIFTH.- This lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in nowise be affected, impaired or excused
because Landlord is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repairs, additions, alterations or decorations or is unable to supply
or is delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from doing so doing by reason of governmental preemption in connection
with a National Emergency declared by the President of the United States or in
connection with any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency.
THE LANDLORD COVENANTS
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FIRST.-That if so long as the Tenant pays the rent and "additional rent"
reserved hereby, and performs and observes the covenants and provisions hereof,
the Tenant shall quietly enjoy the demised premises, subject , however, to the
terms of this lease, and to the mortgages above mentioned, provided however,
that this covenant shall be conditioned upon the retention of title to the
premises by Landlord.
SECOND.-VOID
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
IN WITNESS WHEREOF, the Landlord and Tenant have respectively signed and
sealed these presents the day and year first above written.
/s/ Peter Papadakis
-----------------------------------------
GYRODYNE COMPANY OF AMERICA, INC.
Landlord
In presence of:
/s/ Frank Delfine
-----------------------------------------
PATRIOT COMMUNICATIONS TECHNOLOGY, INC.
TENANT
GUARANTY
In consideration of the letting of the premises within mentioned to the
Tenant within named, and the sum of One Dollar, to the undersigned in hand paid
by the Landlord within named, the undersigned hereby guarantees to the Landlord
and to the heirs, successors and/or assigns of the Landlord, the payment by the
Tenant of the rent, within provided for, and the performance by the Tenant of
all of the provisions of the within lease. Notice of all defaults is waived and
consent is hereby given to all extension of time that any Landlord may grant.
/s/ Frank Delfine
---------------------------------------
PATRIOT COMMUNICATIONS TECHNOLOGY, INC.
STATE OF NEW YORK
COUNTY OF SUFFOLK
On this 27th day of August, 1997, before me peronally appeared FRANK
DELFINE to me known and known to be to the individual described in and who
executed the foregoing instrument, and duly acknowledged to me that he executed
the same.
Lynn Ierardi
Notary Public, State of NY
No. 5005509, Suffolk County
Term Expires 2/22/99
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<PAGE>
ADDENDUM TO LEASE
Between
GYRODYNE COMPANY OF AMERICA, INC.
(Landlord)
and
PATRIOT COMMUNICATIONS TECHNOLOGY, INC.
(Tenant)
SECTION I - UTILITIES AND SERVICE
1. CUSTODIAL SERVICES - The Landlord will, at its expense, provide custodial
services to the common rest rooms and the common corridors leading to the
demised premises. It is understood that Tenant has a private rest room in
Suite 100 and that custodial services to that unit will be proivded by
Tenant. Tenant shall not permit window cleaning or other exterior
maintenance and/or janitorial services in and for the premises to be
performed, except by such person(s) as shall be approved by Landlord and
except during reasonable hours designated for such purposes by Landlord.
2. PARKING - The Landlord will assign and the Tenant will have the use of TEN
(10) parking spaces in the parking lot assigned to the demised premises.
(Parking Lot #7N). Maintenance of parking areas and roads leading to the
demised premises shall be the sole responsibility of the Landlord.
3. ELECTRICITY - The electric power for the demised premises will be provided
via the Landlord's "house" meter(s) and the Tenant shall be billed, by the
Landlord, on the basis of the kilowatt consumption and demand recorded by
the meter(s) at the prevailing LILCO rate in effect at the time of the
meter reading by the Landlord.
4. LIGHT FIXTURES - The Landlord warrants that the overhead lighting fixtures
including cool white fluorescent tubes shall be in good working condition
at the time the Tenant commences initial occupancy of the demised premises
and for one month thereafter. Subsequently, the Tenant shall be
responsible, at its expense, for the replacement of tubes and/or ballasts.
Tenant shall, at the end of tenancy, return to the Landlord all lighting
fixtures with lamps and ballasts in good operating condition. In the event
Tenant vacates the premises and repairs/replacements are required, Landlord
shall bill Tenant for any and all work performed on the lighting fixtures
to restore them to their original condition less normal wear and tear.
5. AIR CONDITIONING MAINTENANCE - Landlord shall provide, in good working
condition, THREE (3), through the wall air conditioning unit(s) (one each
in Suites 100, 102 and 108) for use in the demised premises. Landlord shall
maintain said unit(s) during tenancy at Tenant's sole expense. For the
purposes of maintenance and liability, the air conditioning unit(s) shall
be considered equipment as defined by and subject to Addendum Section II -
Repairs, Access, Forced Entry, and Right of Recovery, Paragraph 2.
MAINTENANCE OF EQUIPMENT AND FIXTURES.
6. HEAT - Landlord, at its expense, shall provide heat during normal working
hours: 8:00AM to 5:00PM Mondays through Fridays, except holidays, in
accordance with Government guidelines.
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<PAGE>
7. GARBAGE - Tenant will handle and dispose of all rubbish, debris, garbage,
and waste from Tenant's operation in accordance with regulations
established by Landlord and those of all governmental agencies having
jurisdiction, and not permit the accumulation (unless in concealed metal
containers), or burning, of any rubbish or garbage in, on, or about any
part of Flowerfield, and not permit any garbage or rubbish to be collected
or disposed of from the premises, except by Landlord or its designee. All
Tenant's garbage must be put in plastic bags, securely tied at the top, and
placed in "GCA" dumpsters located currently at Building #18 or as located
at Landlord's sole discretion. Cardboard must be separated from garbage and
placed in the special containers designated for cardboard only. All
cardboard boxes and shipping packaging must be "flattened" before being
inserted into the designated receptacles. Landlord reserves the right to
require Tenant to acquire a dumpster(s) for Tenant's use if Landlord deems
Tenant is regularly generating excessive waste materials.
Additionally, Tenant shall not permit debris, waste materials, or garbage
to collect in front of around, alongside, or in back of the demised
premises. Tenant shall at all times keep the apron immediately in front of
the demised premises clean and orderly. In the event the Landlord deems the
"housekeeping" inadequate, then the Landlord shall have the right to clean
up the affected area and charge the Tenant for such cleanup.
Industrial waste, such as metal chips, oils, solvents, chemicals, sheet
metal, wood crates, pallets, etc. may not be placed in the dumpster. The
Tenant, at its expense, must dispose of all industrial waste in conformance
with New York State environmental Conservation Law. Landlord shall have the
right to demand and receive copies of bills of conveyance to a government
certified and/or government registered carting company for environmentally
sensitive and/or hazardous waste materials which were at any time at
Flowerfield as a result of Tenant's operations.
8. SEPTIC SYSTEM - It is mutually agreed and understood that a typical septic
system for one of Landlord's buildings includes a soil line from the
bathrooms to the septic tank, and an interconnect pipe(s) from the septic
tank to either a distribution box or directly to one or more cesspools. It
is agreed that the demised premises includes a set of bathrooms which are
common for more than one Tenant and that any expenses relating to repairs
for stopped-up toilets, backed-up sinks, and/or clogged drains and soil
lines, if directly attributable to the acts of the Tenant, shall be borne
solely by the Tenant. Structural repairs to the soil line, interconnect
pipe(s), distribution box, septic tank, or cesspool shall be the sole
responsibility of the Landlord provided that such repairs were not caused
by the misuse of the facilities by the Tenant.
It is understood that all materials removed from commercial building
cesspools by carters are tested for toxic chemicals by Suffolk County
Department of Health. Tenant shall be required, on demand, to provide
Landlord, within a reasonable period of time, a list of chemicals, if any,
by quantity and composition used in Tenant's operation which are listed
under Section 313 of the Superfund Amendments and Reauthorization Act
(SARA).
9. WATER - In the event that a municipal water authority water meter(s)
specific for Building #7 is provided during the leasehold term, it is
agreed that Tenant shall henceforth pay any and all charges for its water
usage. If the water meter is not Tenant specific, a computation predicated
on a ratio of rented square footage to total building square footage will
be utilized. Further, Tenant shall pay, calculated on 164,413 square feet
base, its prorata share for fire hydrant charges assessed by the water
authority.
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<PAGE>
10. FIRE PROTECTION EQUIPMENT - The Tenant shall be required to supply its own
fire extinguishers of the appropriate size and classification consistent
with the Smithtown Fire Code, ISO and the Fire Insurance Underwriter
Inspection regulations. Furthermore, the Tenant agrees to have said
extinguishers periodically inspected, recharged and/or serviced as
required, and tagged showing compliance to the aforesaid codes and
regulations.
In the event Tenant is requested to provide any of the local Fire
Departments which have jurisdiction with a list of hazardous chemicals,
Tenant shall provide same in an expeditious manner with a copy being given
to the Landlord.
The Landlord reserves the right to inspect the demised premises to assure
Tenant compliance with this requirement and to insist upon strict adherence
to the necessary procedures.
11. HAZARDOUS MATERIALS - Tenant shall not bring, keep or use in or upon the
demised premises of the building of which they form a part, any solvent
having a flash point below 110F, nor shall any liquid which emits volatile
vapors below the temperature of 100 F be brought, kept or used in or upon
the demised premises of the building except: If the process using such
liquids shall be conducted in a room of fire resistant construction, as
defined by the Fire Insurance Rating Organization. (FIRO) If more than one
but not more than two gallons of such liquids are kept on the premises,
they must be stored in safety cans and kept in a cabinet constructed by
Tenant in a manner approved by the FIRO. Reasonable amounts in excess of
ten gallons may be kept if they are stored in a vault constructed by Tenant
in a manner approved by FIRO. Any use or storage of such liquids shall at
all times be in accordance with the requirements of the FIRO, OSHA, NFPA,
and the Fire Department Board of fire Underwriters.
12. DUST COLLECTION EQUIPMENT - In the event Tenant's operation generates
airborne particles, such as sawdust, the Tenant shall be required to
install and maintain a dust collection system acceptable to the Landlord in
order to contain the dispersion of the generated dust. Tenant shall also be
responsible for any cleanup maintenance required of the area immediately
adjacent to the demised premises, which shall include hallways, foyers, and
outside areas. Tenant shall be responsible, on a monthly basis , to clean
and maintain any external doors which have been subjected to the
accumulation of dust.
Airborne particles such as vapor, generated by spraying glue, etc., will
require the installation of proper ventilation, exhaust equipment, and
explosion proof fixtures as required by Building Code Regulations. ALL
EXHAUST SYSTEMS TO THE ATMOSPHERE REQUIRE THE APPROPRIATE FILTERS FOR THE
SPECIFIC TYPE OF MATERIALS/VAPOR BEING VENTED.
13. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT - Tenant hereby represents
that it is familiar with the provisions of the Americans with Disabilities
Act. Tenant further represents that it is exempt from the provisions of the
Americans with Disabilities Act as an entity employing fewer than fifteen
individuals for each working day in each of twenty or more calendar weeks
in the current or preceding calendar year.
Patriot Communications Technology, Inc. Lease Page 12 of 22
<PAGE>
13. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT - Tenant hereby represents
that it is familiar with the Americans with Disabilities Act. Tenant
further represents that it will not require Landlord to bear the cost of
alterations to the demised premises which Tenant may require in order to
comply with the Americans with Disabilities Act.
14. ALARM SYSTEM - In the event the demised premises has an existing Landlord
owned alarm system, upon its election to utilize said alarm system, it
shall be the Tenant's sole financial responsibility to maintain the
systems, to discharge all the financial obligations related thereto and
return the system to Landlord in good operating condition.
In the event Tenant desires to utilize an existing alarm system or install
a leased or rented third party owned alarm system, then it is mutually
agreed and understood that Tenant agrees to a minimum of $100.00 exit
charge at the end of tenancy. Landlord has established this minimum charge
predicated on past experience of damage done to doors, window, walls,
painted surfaces, and the required availability of Landlord's personnel
when the third party vendor has to remove said system.
In the event Tenant desires to install a Tenant owned alarm system,
applicable exit charges, if any, would be assessed predicated on any damage
found at the end of tenancy.
15. KEYS - Landlord shall provide Tenant keys to the demised premises. Upon
receipt thereof, it will be the Tenant's responsibility to safeguard these
items. The loss of a key(s) will entail a charge to cover its replacement.
If such loss results in the necessity of replacing the lock, then a charge
will be levied against the Tenant for such replacement cost. The charge for
a lost key is Ten ($10.00) dollars; a door lock is Forty ($40.00) dollars.
Key Number: F-4 Number of Keys: ONE each (1)
Number of Main Gate Keys: TWO (2)
SECTION II - REPAIRS, ACCESS, FORCED ENTRY, AND RIGHT OF RECOVERY
1. STRUCTURAL REPAIRS - Notwithstanding terms and condition contained in the
second Covenant of the preprinted portion of the Lease, the Landlord will
be responsible for all structural repairs to the demises area, and for the
maintenance of the exterior of the building in which the demised premises
are located which repairs were not necessitated or otherwise caused by any
act of the Tenant, its servants, agents and/or employees, invitees,
subtenants and/or licensees.
2. MAINTENANCE OF EQUIPMENT AND FIXTURES - It is mutually agreed and
understood that with respect to all equipment and fixtures as exists in the
demised premises, the Tenant is responsible for maintaining same in safe
working condition. Said equipment and fixtures are deemed to include, but
not be limited to, light fixtures, fire alarms, personnel and overhead
doors, and fire extinguishers. Tenant agrees to hold harmless, defend, and
indemnify Landlord from any and all claims arising from direct, indirect,
or consequential injury or damage to any party, either personal or
property, which injury or damage may have been a result of Tenant's failure
to adequately maintain said equipment and/or fixtures.
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<PAGE>
3. ACCESS FOR INGRESS AND EGRESS - The sidewalks, stoops, areas, entry,
vestibules, passages, corridors, halls, elevators and stairways of the
demised premises and common areas shall not be encumbered or obstructed by
Tenant, its agents, clerks, servants or customers or be used by them for
any other purpose than for ingress and egress to and from the demised
premises. The demised premises may not be cluttered by boxes, garbage or
other material. If Landlord directs that any of the foregoing items be
removed from the demised premises, Tenant shall promptly comply with such
direction.
4. REPAIRS AND EMERGENCY ACCESS - Tenant shall permit Landlord and/or its
designee to erect, use, maintain and repair pipes, cables, conduits,
plumbing, vents and wires, in, to and through the premises, as and to the
extent that Landlord may now or hereinafter deem to be necessary or
appropriate for the proper operation and maintenance of the building in
which the premises are located or any other portion of Flowerfield. All
such work shall be done, so far as practicable, in such manner as to avoid
interference with Tenant's use of the premises. Notwithstanding anything
else contained herein to the contrary, in the event of an emergency,
Landlord may enter the premises of the Tenant immediately and Tenant shall
cooperate with the Landlord in providing said immediate access.
5. PRIVACY AND FORCED ENTRY - It is agreed and understood that if Tenant
changes or adds additional locks to any entrance or egress from the demised
premises, then Tenant shall provide Landlord with a key or a combination to
be utilized for access purposes. All locks changed must be returned to the
Landlord for reinstallation, at Tenant's expense, at the end of tenancy. In
the event a situation arises which in the opinion of the Landlord or Public
Safety Officials (Police, Fire Dept., Code Enforcement, etc.) necessitates
entrance to the premises during a period when Tenant is not available to
provide access, and Tenant has not provided said key or combination, then
any expenses resulting from damage to the premises required by a forced
entry shall be borne solely by the Tenant. The addition of locks and/or
security devices shall be deemed to be an alteration as defined under
Section III of this Addendum, and therefore, subject to all the provisions
governing alterations and reversion.
6. NO RENT ABATEMENT - No diminution or abatement of rent, or other
compensation shall be claimed or allowed for inconvenience or discomfort
arising from the making of repairs or improvements to the building or to
its fixtures nor for any space taken to comply with any law, ordinance or
other governmental authority. In respect to the various "services" if any,
herein expressly or impliedly agreed to be furnished by Landlord to Tenant,
it is agreed that there shall be no abatement of the rent or any other
compensation for interruption or curtailment of such "service" when such
interruption or curtailment shall be due to accident, alterations or
repairs desirable or necessary to be made or to inability or difficulty in
securing parts, supplies or labor for the maintenance of such "service" or
to some other cause, not gross negligence on the part of Landlord. No such
interruption or curtailment of any such "service" shall be deemed a
constructive eviction. Landlord shall not be required to furnish and Tenant
shall not be required to receive any such "services" during any period
wherein the Tenant shall be in default in payment of rent. Neither shall
there be diminution of rent because of making of repairs, improvements or
decorations to the demised premises after the date of commencement of the
lease term.
7. MAINTENANCE BY LANDLORD DURING TENANCY AND TENANT'S RIGHT OF RECOVERY -
Paragraph thirteen of the preprinted portion of the Lease is hereby amended
to add the following: "Tenant shall have no right of recovery against
Landlord in the event of loss or damage to the property and/or business of
the Tenant resulting from fire, or other casualty or cessation and/or
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<PAGE>
interruption of Tenant's business due to repairs and/or interruption of
Tenant's business due to repairs and/or compliance with mandated items
required on the part of the Landlord. Tenant hereby agrees to provide
access to premises for Landlord to comply with its obligations as
aforesaid, the time and duration of said access to be at the sole
discretion of the Landlord who will proceed in as reasonable a manner as
possible under the circumstances. It is hereby agreed that the Landlord's
determination shall be conclusive and binding on all parties hereto."
8. ACCESS AT END OF TENANCY - It is mutually agreed and understood that in
order for Landlord to relet the premises to a new tenant on the first day
of the month immediately following the vacation date stipulation in Section
VI paragraph #1 of this addendum, Landlord shall require and be granted by
Tenant, during normal working hours, unhindered access to the demised
premises during the last week of tenancy for the express purpose of making
repairs, which repairs shall include, but not be restricted to: dry wall
patching, spackling, painting, floor cleaning, equipment servicing, pipe
repairs, and HVAC maintenance.
SECTION III - ALTERATIONS
1. CONSENT BY LANDLORD AND PERMITS - It is hereby covenanted and agreed that
the Tenant shall not make alterations to any building(s) and/or property
Tenant has rented or has been given access to by the Landlord without the
express written consent of the Landlord. In the event Tenant is authorized
to make alterations, then Tenant shall be responsible for all permits and
inspections as may be required by state and local building codes. If as a
cause of Tenant's alterations and the governing ordinances shall require,
Tenant shall secure as necessary, either a current Certificate of Occupancy
or a Certificate of Conformance for the demised premises.
(a) CONTRACTOR'S INSURANCE - Prior to commencement of any work by or
for Tenant, Tenant shall furnish Landlord certificates evidencing the
existence of the following insurance:
(1) Worker's Compensation Insurance covering all persons employed
for such work and with respect to whom death or bodily injury claims
could be asserted against Landlord, Tenant or the demised premises.
(2) General liability insurance naming Landlord its designees,
and Tenant as insureds, with limits of not less than $1,000,000 in the
event of bodily injury to one person and not less than $2,000,000 in
the event of bodily injury to any number of persons in any one
occurrence, and with limits of not less than $100,000 for property
damage. Tenant, at its sole cost and expense, shall cause all such
insurance to be maintained at all times when the work to be performed
for or by Tenant is in progress. All such insurance shall be in a
company authorized to do business in New York, and all policies, or
certificates therefore, issued by the insurer and bearing notations
evidencing the payment of premiums, shall be delivered to Landlord.
Tenant agrees to compensate Landlord for the purpose of reviewing
plans and Tenant shall pay for all reasonable costs incurred resulting
from such review and inspections as Landlord may require.
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<PAGE>
(b) ELECTRICAL SYSTEM - The Tenant shall not, under any circumstances,
make changes to the existing electrical service servicing the
premises, the internal wiring leading from the distribution box/boxes
to overhead lights, wall outlets, buss ducts, etc., without the prior
written authorization of the Landlord. It is agreed that all
electrical work shall be done by a licensed electrician and said work,
at Landlord's sole discretion, may require Tenant to obtain New York
Board of Fire Underwriter approval.
(c) CARPETING - If the Tenant elects to install carpeting to cover any
floor section(s) of the premises, a water soluble glue must be used to
prevent damage to the floor in the event said carpeting is
subsequently removed. Any such damage shall be considered the fault of
the Tenant who will be responsible for any and all incurred expenses
to restore the floor to its original condition. In the event Tenant
occupies the demised premises with a carpet already "in-place" which
the Tenant finds acceptable, then, if required at the end of tenancy,
disposal of the in-place carpet shall be deemed to be Tenant's
responsibility as set forth above for new installations.
(d) EXTERIOR ARCHITECTURE -Tenant shall not change (whether by
alteration, replacement, rebuilding or otherwise) the exterior color
and/or architectural treatment of the premises or of the building in
which that same are located, or any part thereof.
(e) SIGNS - Notwithstanding terms and conditions contained in the
third Covenant of the preprinted portion of the Lease, Tenant shall be
permitted to affix to the building an identification sign provided the
design, color, and composition (includes neon type signs) are approved
by the Landlord in writing. Landlord shall provide Tenant with the
appropriate dimensions for the sign predicated on the building
exterior geometry and the size of the demised premises. In no event
shall the sign be larger than eight square feet of total area. Tenant
must submit a sketch or photo of the proposed sign for approval.
Placement of the sign will be at the sole discretion of the Landlord.
No other signs are permitted in, about, or on the Flowerfield Park
grounds unless specifically approved in writing by the Landlord.
Landlord reserves the right to remove any nonconforming sign(s) and
Tenant agrees to indemnify Landlord against any claims for any damages
arising either directly, indirectly, or consequentially from any acts
of Landlord in regards to the removal of said nonconforming sign(s).
Tenant waives any and all claims against Landlord for the removal of
any nonconforming signs.
Tenant shall be entitled to a name-location plate on the main
directory sign at no cost to the Tenant. The plate shall be consistent
with other plates on the sign in both overall size, color, and layout.
In the event Landlord does not provide said plate, Tenant agrees that
its only remedy shall be solely the cash value of the plate itself.
Landlord's acceptance of any name for listing on the Flowerfield Park
Directory will not be deemed, nor will it substitute for, Landlord's
consent, as required by this Lease, if such covenants be applicable,
to any sublease, assignment, or other occupancy of the demised
premises.
(f) TRADE FIXTURES - It is mutually agreed and understood that Tenant
has caused to be installed; assumed in place either by purchase,
lease, rental, default, or other manner; or otherwise has the
exclusive use of the herein defined trade fixtures listed below but
not restricted to the following:
NONE
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It is agreed that it shall be Tenant's sole financial
responsibility to remove Tenant's trade fixtures as have been defined
herein. Tenant shall be solely responsible for reverting the demised
premises to its original condition after vacation at the end of
tenancy unless Landlord has directed, in writing, that certain
improvements associated with the installation of the trade fixtures
are considered attached to the freehold and, therefore, property of
the Landlord.
(g) REMOVAL AND REVERSION - It is further agreed that Tenant shall not
remove or cause to be removed any fixtures, wiring, electrical panels,
plumbing, fans, equipment, water pipes, or any other installation that
was "in place" in or about the demised premises at the onset of
tenancy without the express written consent of the Landlord. Any and
all improvements, changes, and/or additions to the demised premises
shall be removed at Tenant's expense or left in place at the sole
discretion of the Landlord. In no event may Tenant remove any
electrical equipment that was in place in the demised premises prior
to Tenant's tenancy.
It is further agreed that if the herein defined lease shall be a
successor to or in lieu of another lease between Landlord and Tenant
for these demised premises and said prior lease would run continuously
or concurrently if not terminated, it is understood that Landlord does
not waive nor is Landlord diminished with respect to any claims for
removal or reversion which may have been perfected by any prior lease,
as stipulated herein, by virtue of this lease.
At the end of the Tenancy, the demised premises and all
improvements comprising a part thereof will be delivered to Landlord
in broom clean condition, vacant and together with all keys to the
demised premises.
SECTION IV - USE RESTRICTIONS
1. ZONING - It is mutually agreed and understood that in the event the
Tenant's use of the premises is held to be in violation of the Town or
Local law or ordinances, the lease shall be considered and will be
terminated by mutual consent and there shall be no further obligation on
the part of either Landlord or Tenant.
VARIANCE OR SPECIAL EXCEPTION - TENANT - In the event a variance or special
exception is required by the zoning ordinances for the specific use
provision or occupancy required by Tenant, any and all costs, such as
filing and legal fees, related to the filing and/or securing of a variance
or special exception shall be borne solely by the Tenant.
VARIANCE OR SPECIAL EXCEPTION - LANDLORD - Landlord warrants to make
available existing, on a best efforts basis, survey maps, building permits,
Certificates of Occupancy, and other documents required by Tenant in its
filing. There shall be no warranty, either express or implied, that
documents, if any, tendered by Landlord shall be complete, ample, or
sufficient for the purposes required by the Tenant. Landlord, at its sole
discretion, may elect not to permit tenancy if restrictive covenants are
attached to the variance or special exception such that observance of the
restrictive covenants would negatively impact Landlord or other tenants at
Flowerfield.
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<PAGE>
2. SUBLET - The Tenant shall not have the right to sublease any part of the
demised premises.
3. NON - NUISANCE - The Tenant agrees to conduct its work operations within
the demised premises in such manner as to be considered nuisance-free to
other Tenants, Landlord's neighbors, and the Landlord, and to perform good
"housekeeping" practices in order to satisfactorily conform to the Town of
Smithtown, County of Suffolk, and State of New York applicable laws and
ordinances. As the demised premises will be subject to periodic,
unannounced inspection by the Building, Environmental, and fire Inspectors
having the authority to cite any found violations which might have a
detrimental effect on the Tenant, the Landlord, or other tenants' business
operation, Landlord's neighbors or fire insurance premium rates, the
Landlord reserves the right to conduct its own inspections and request the
Tenant to take any required corrective action. In the event the Tenant,
upon receipt of a violation notice from Town, County, or State Officials;
Fire Insurance Underwriter inspectors; or the Landlord, fails to correct
the condition, then the Tenant shall be considered to have violated the
terms and conditions of this lease thus causing its termination as a
contractual agreement between the Tenant and the Landlord. Any fees or
penalties assessed by any municipal authority shall be paid for by Tenant.
4. PAINT SPRAYING - Tenant and Landlord mutually agree that Tenant will not
perform any paint spraying in the demises premises unless the Tenant has a
paint spray booth that meets Federal, State and Local safety and fire
requirements and the express written consent of the Landlord. Further it is
agreed that Tenant shall handle all flammable materials in a manner
consistent with Local and State fire regulations, and will utilize the
appropriate safety cans designed for specific flammable materials and a
properly vented safety storage cabinet for the storage of flammable
materials.
5. ACTIVITY RESTRICTIONS - The Tenant further agrees that he will not engage
in any of the following activities without the prior knowledge and written
consent of the Landlord:
(a) No Fire Sale: Conduct or permit any fire, bankruptcy, auction, or
"going out of business" sale (whether real or fictitious) in the
premises, or utilize any unethical method of business operation.
(b) Not Use Building Apron: Use, or permit to be used, the sidewalk
adjacent to, or any other space outside, the premises for display,
sale or any other similar undertaking.
(c) Not Misuse Plumbing Facilities: Use the plumbing facilities for
disposal of any materials destructive to the physical plumbing or
facilities, whether through the utilization of so-called "disposal" or
similar units or otherwise. The plumbing facilities shall include all
interior drains and exterior dry wells, collection basins, sumps, and
road drains. Not dispose of any materials that are environmentally
unacceptable to the local, state or federal governments. In the event
the Tenant misuses any plumbing facility, the Landlord shall have the
right to immediately have the affected facility properly cleaned and
restored and charge the Tenant any and all associated costs.
(d) No Liens: Subject any fixtures, furnishings or equipment in or on
the premises and affixed to the reality, to any mortgages, liens,
conditional sales agreements or encumbrances.
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(e) Not Damage the Premises: Perform any act or carry on any practice
which may damage, mar or deface the premises or any other part of
Flowerfield. Damage shall also be construed as resin, epoxy materials,
lacquer, paints, glues, or any other material which may become affixed
to Landlord's walls, floors, ceiling, and fixtures as a result of
actions of Tenant and require special treatment for removal. Tenant
shall be required, at its expense, to restore the demised premises to
its original condition less normal wear and tear.
(f) Freight Handling Equipment: Use any forklift truck, tow, or any
other machine for handling freight in the premises, unless the same
equipment, if powered, be powered by electricity or propane.
(g) Not Exceed Floor Loads: Place a load on any floor in the interior
delivery system, if any, or in the premises exceeding the floor load
per square foot which such floor was designed to carry, or install,
operate or maintain therein any heavy item of equipment, except in
such manner as to achieve a proper distribution of the weight.
(h) Not Exceed Electrical Load: Install, operate, or maintain in the
premises any electrical equipment which will overload the electrical
system therein, or any part thereof, beyond its reasonable capacity
for proper and safe operation as determined by Landlord in light of
the overall system and requirements thereof in Flowerfield, or which
does not bear Underwriter's approval.
(i) Not Tamper with LILCO or Landlord's "House" Electric Meters:
Tenant is expressly prohibited from tampering with electric meters in
any manner whatsoever which would alter the meter's measurement of
electric use. Tenant will hold Landlord harmless from all civil
claims, fines, and expenses and any criminal action resulting from
tampering with electric meters.
(j) Not contaminate the Premises: Refrain from the dumping of waste
oil or other contaminants, as defined by environmental and/or
governmental agencies, onto, about, or into the ground. The disposal
of all such materials must, by mutual agreement, conform to the
applicable environmental regulations. The Landlord shall not be
responsible for the Tenant's violation of the regulations and any
financial penalties resulting from such acts shall be borne solely by
the Tenant.
In the event Tenant shall be directed by a governmental agency or
by Landlord to cease and desist from any activity which results or may
result in contamination of Landlord's real property and Tenant should
fail to immediately comply, Landlord shall immediately, under this
provision, become Tenant's Attorney in Fact to exercise any and all
rights and to execute any and all documents necessary to secure
compliance. Tenant hereby approves of any reasonable action taken by
Landlord pursuant to said Power of Attorney and waives any and all
claims in relation thereto.
SECTION V - FINANCIAL OBLIGATIONS OF TENANT-ESCALATORS, PENALTIES, AND REMEDIES
1. RENT SECURITY - At the time this lease is signed by both parties, the
Tenant shall pay to the Landlord the sum of two thousand five hundred fifty
dollars ($2,550.00) as the first month's rent that is due and payable
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hereunder and the additional sum of two thousand five hundred fifty dollars
($2,550.00) "security" guaranteeing Tenant conformance to the terms and
conditions of this lease. It is mutually agreed and understood that Tenant
was required to maintain four thousand dollars ($4,000.00) security on
deposit with the Landlord conforming to the terms and conditions of a lease
ending August 31, 1997. Tenant requests and Landlord agrees to apply the
existing security, if any, to this lease. Tenant therefore shall pay the
Landlord the shortfall of none ($0) plus any outstanding security monies
due under the prior lease which is the difference between the existing
security and the new security required above.
Said security payment of two thousand five hundred fifty dollars
($2,550.00) shall be deposited, by the Landlord, in an interest bearing
account and henceforth, for the duration of the lease term, the Tenant
shall receive, from the Landlord, a return on said deposit at a rate not
less than the current Chemical Bank, and/or its successor(s) passbook rate
less .25% nor more than 8.0% per annum. Actual return to be determined by
the current market rates as defined herein. Said payments to be made
annually to the Tenant.
The following schedule shall apply for the calculation of monthly interest
rates which rate is based on the current annualized average monthly yield
on money market accounts at Chemical Bank and Loan or its successors:
<TABLE>
<CAPTION>
Money Market Average Tenant Monthly Interest Landlord
Monthly Yield Annualized Rate Accrued - Annualized Yield
----------------------------------------------------------------------------------
<S> <C> <C>
Curr Money Market rate but not
less than passbook to 5.50% actual yield -.25% .25%
From 5.501% to 6.7499% 5.25% 0.25% to 1.499%
From 6.75% to 9.5% 5.25%+curr yield-6.75% 1.5%
From 9.501 and up 8.00% curr yield-8.0%
</TABLE>
It is agreed that on each anniversary date of this lease, Tenant shall be
required to deposit additional security in the amount of the difference
between the monthly rental rate in effect on the current anniversary date
and the monthly rate in effect on the prior year's anniversary date.
It is mutually agreed that the security money deposited with the Landlord
is considered as a guarantee that Tenant shall conform to all the
covenants, addenda, terms and conditions of this lease. The security
deposit or any part thereof may be applied by the Landlord with no prior
notice to cure any default of Tenant under this lease and upon notice by
Landlord of such application, the Tenant shall replenish the security
deposit in full by promptly paying to the Landlord the amount so applied
within ten days from receipt of said notice. It is further understood and
agreed that the amount set forth in any notice as being the amount required
by the Landlord to maintain the security deposit at the proper amount shall
be deemed additional rent and failure to pay same shall be a default in the
payment of additional rent resulting in the Landlord having the option to
exercise all of its remedies pursuant to this agreement.
Under no circumstances shall the security deposit be considered as an
advance payment of the rent for the ending month(s) of this Lease. Said
deposit will be retained by the Landlord until after the Tenant has vacated
the premises at which time the Landlord shall inspect the premises to
determine if any damage has been caused by Tenant. If non exists, then the
deposit will be returned to the Tenant, otherwise the deposit will be
considered applicable to any necessary repairs to be made by Landlord.
Patriot Communications Technology, Inc. Lease Page 20 of 22
<PAGE>
PENALTY FOR NONPAYMENT OF LAST MONTH'S RENT - Tenant agrees that in the
event that the Tenant fails to pay the last month's rent due under this
Lease, that Tenant will agree to pay a penalty equivalent to an additional
month's rent plus the cost of any and all reasonable attorney's fees paid
by Landlord in connection with eviction proceedings commenced due to
Tenant's failure to pay the last month's rent.
2. (a) FIRE INSURANCE - Notwithstanding Covenant Twenty-third of the
preprinted portion of this lease, it is understood and agreed that in the
event the fire insurance premium on the demised building, where Tenant is
renting a portion thereof, is raised by virtue of the business conducted by
the Tenant in the premises, the Tenant will pay the Landlord the amount of
said increase.
(b) LIABILITY INSURANCE - Public Liability and Other Insurance: Tenant
covenants to provide on or before the commencement of the demised term and
to keep in force during the demised term a comprehensive liability policy
of insurance, including property damage, insuring Tenant and Gyrodyne
Company of America, Inc. as Landlord as an additional named insured under
the policy against any liability for injury to persons and/or property and
death of any person(s) occurring in on or about the premises, or any
appurtenances thereto. Such policy or policies to be written by one or more
responsible insurance companies authorized by the State of New York to do
business satisfactory to Landlord and the limits of liability thereunder
shall not be less than the amount of Five Hundred Thousand ($500,000)
dollars in respect to any one person injured killed, not less than the
amount of One Million ($1,000,000) dollars in respect to any one accident,
and not less than the amount of Fifty Thousand ($50,000) dollars in respect
to property damages.
All such insurance may be carried under the blanket policy covering the
premises and any other Tenant's properties. Tenant agrees to deliver to
Landlord, at least fifteen (15) days prior to the time such insurance is
first required to be carried by Tenant, and thereafter at least fifteen
(15) days prior to the expiration of any such policy, either a duplicate or
a certificate and true copy of all policies procured by Tenant in
compliance with its obligations hereunder, together with evidence of
payment thereof and including an endorsement which states that such
insurance may not be canceled, except upon ten (10) days written notice to
Landlord and only designee(s) of Landlord, and complete waiver of all
rights of subrogation against the Landlord, its servants, agents and/or
employees.
3. BROKER - The Tenant warrants and represents that no broker unless otherwise
set forth in this agreement and if one is set forth herein no other broker
is involved in the negotiation of this lease, nor in any of the
transactions connected therewith and agrees to indemnify and safe harmless
the Landlord from any claim for brokerage commissions due to acts of the
Tenant.
4. LEASE TERM AND ADJUSTMENTS - The term period of this lease shall be from
September 1, 1997 through August 31, 1998. Landlord herewith provides
Tenant an option to once extend the one year term of this lease for an
additional single year period in accordance with the escalation provisions
herein stipulated; items (a) through (f). In order to exercise its option,
Tenant must notify Landlord, in writing, of Tenant's intent to exercise its
one year renewal option at least 60 days prior to the expiration of each
lease term. In the event proper and timely notification as herein specified
is not executed by Tenant, Landlord shall no longer be bound by the terms
and conditions of the option offer. Time and method of notification is
deemed of the essence. The base annual rent for the first year of the lease
term period shall be $30,600.00 payable in monthly installments of
$2,550.00 each. Said base rent being subject to adjustments as follows:
Patriot Communications Technology, Inc. Lease Page 21 of 22
<PAGE>
(a) REAL ESTATE TAXES - $3,310.00 ($1.18 x 2,805 sq. ft.) of the base
annual rent is allocated to the Landlord's real estate tax on the
"Flowerfield" property which includes Building #7 and the demised
premises therein. It is agreed that if at any time the Town of
Smithtown, N.Y. or the Town of Brookhaven, N.Y. levies a tax increase,
whether in the form of a rate increase or assessment change on the
property, regardless of the basis for change, which increase shall be
effective during any portion of the lease term, then there will be an
adjustment in the annual rent which will be computed on the basis of
the percentage of tax change multiplied by the $3,310.00. The
resultant, converted to a monthly charge if in excess of $.02/sq. ft.,
shall be added to the monthly rental rate in effect at that time;
otherwise, a single billing will be made during either January or
February, annually, as applicable.
(b) HEAT/FUEL OIL COST - The base annual rent includes the Landlord's
cost for supplying heat to the demised premises. Said cost factor
being set at the "peg" price of oil at $.85 per gallon (including NYS
Sales Tax, NYS Use Tax, propane gas, associated electric costs,
service and boiler insurance). Thus, if at any time after the
commencement of this lease and the end of the lease term period, the
cost per gallon of oil increases above the "peg" price, the rent will
be adjusted at the rate of $.01 per year per square foot of space
(2,805 sq. ft.) for each $.01 per gallon increase. This annual rent
adjustment will be converted to a monthly charge and added to the rent
in effect at that time.
(c) INSURANCE - The base annual rent includes the Landlord's cost for
building, general liability, and related insurance. $1,290.00 ($.46 x
2,805 sq. ft.) of the base annual rent is allocated to the Landlord's
insurance requirements. The cost per square foot of $.46 is predicated
on a 164,413 sq. ft. rental base and a premium base of $75,900.68 for
the current period. In the event in any lease year, the premium for
Landlord's insurance requirements covering the leased premises
increases over the premium amount in effect on the date of execution
of this agreement, within ten (10) days from receipt of notification,
the Tenant shall pay its proportionate share of said increase to the
Landlord. Said obligation shall be deemed additional rent, and
Tenant's proportionate share of said increase shall be computed on the
basis of the percentage increase in insurance costs multiplied by the
$1,290.00. Notification by Landlord shall be deemed conclusive if sent
in writing, setting forth the computations resulting in a statement as
to Tenant's proportionate liability. Notwithstanding anything else
contained herein to the contrary, this obligation of the Tenant shall
remain in full force and effect even if the Landlord elects to
self-insure provided the Landlord presents a statement in writing
showing what the premium amount would be and the increase if the
Landlord had elected not to self-insure.
(d) GARBAGE/TRASH REMOVAL COST - FOR ESCALATION PURPOSES ONLY: $842.00
($.30 x 2,805 sq. ft.) of the base annual rent is allocated to
garbage/trash and recyclable material removal for the demised
premises. Landlord has reserved in the rental base a flat $.101 charge
per square foot for the removal of pallets, oversized debris, dumpster
area cleanup, land allocation expense and overhead charges. It is
mutually agreed that the $.30/sq. ft. rate is a pro rata apportionment
of cartage expenses for garbage and separable recyclables. Any change
in the Town of Smithtown Town Code which may: establish a commercial
cartage district, implement direct charge tipping fee(s) and/or
administrative assessment(s) on Landlord, change the composition of
required recyclable(s), or otherwise impact the total cartage expense
allocable to the demised premises shall be passed-through to Tenant.
Further, if at any time after the commencement of this lease and
before the end of the lease term period, the cartage rates charged to
the Landlord by the Landlord's carter increase, there will be an
adjustment in the annual rent predicated on Tenant's allocable base.
Tenant's base "peg" for all additional charges, regardless of source,
shall be 2,805/100,214 sq. ft. or 2.8% of the total current bill of
$30,000.60. The total cartage bill for calculation purposes shall be
deemed to include all Town of Smithtown and cartage company charges
plus applicable federal, state and local taxes. Any resultant
additional rental, converted to a monthly charge, shall be added to
the monthly rental rate in effect at that time.
Patriot Communications Technology, Inc. Lease Page 22 of 22
<PAGE>
(e) SECURITY GUARDS - $738.00 ($.263 x 2,805 sq. ft.) of the base
annual rent is allocated to security guard services for the demised
premises. Landlord has determined that security services during the
1997 calendar year, January 1st through December 31st, shall be
assessed at the rate of $21.92 per month per 1,000 square feet of
rented space based on a budgeted cost of $43,203.00 apportioned over
164,413 sq. ft. rental base. This provision shall not be construed to
limit Landlord's ability to continue to provide security guard
services to Tenant. Landlord may, in its sole discretion, extend or
curtail security guard services in any manner deemed necessary by
Landlord. Landlord may adjust Tenant's annual rent to reflect such
changes in security guard services.
(f) COST OF LIVING ADJUSTMENT - On each anniversary date of this
lease, there will be a "Cost of Living (C.O.L.)" rent adjustment based
upon the to-be-published Consumer Price Index for July, 1997 and each
succeeding July Consumer Price Index or a flat four (4%) percent
increase whichever is greater.
In this regard, $22,036.00 of the first year's base rent of $30,600.00
shall be the C.O.L. base subject to the first annual rent adjustment
without regard to abatements or concessions, if any. In making such
calculations, no effect shall be given to existing rent concessions or
abatements (if any). The amount of said rent adjustment added to the
C.O.L. base rent will establish the new C.O.L. base rent subject to
the following year's "Cost of Living" adjustment. The same formula
will be used to determine subsequent "C.O.L." adjustments.
"Price Index" shall mean the Consumer Price Index for All Urban
Consumers, published by the Bureau of Labor Statistics (BLS), U.S.
Department of Labor, New York, NY and Northeastern N.J.. region,
1982-84 = 100, or any other renamed local index covering the New York,
NY region.
If the BLS changes the publication frequency of the Price Index so
that a Price Index is not available to make a cost-of-living
adjustment of annual rent as specified herein, the cost-of-living
adjustment shall be based on the percentage difference between the
Price Index for the closest preceding month for which a Price Index is
available and the Price Index for the Base Month as defined in this
Lease.
In the event that the Consumer Price Index (CPI) ceases to use
1982-84=100 as the basis calculation, or if in Landlord's sole
judgment, a substantial change is made in the terms or number of items
contained in the CPI, then the CPI shall be adjusted (the
"Adjustment") to the figure that would have been arrived at (or as
close to such figure as shall be practical) had the manner of
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<PAGE>
computing the CPI in effect at the date of this lease not been
altered. Further, if in Landlord's sole judgment, such adjustment is
impossible or impractical, then the revised CPI shall be deemed to
replace the original CPI for purposes of this covenant.
If the BLS otherwise substantially revises, or ceases publication of,
the Price Index, then a substitute index for determining
cost-of-living adjustments, issued by the BLS or by a reliable
governmental or other nonpartisan publication, shall be reasonably
designated by Landlord.
5. ACCOUNTING METHODS - It is understood and agreed that upon presentation to
the Tenant of any computation with respect to rent, and/or additional rent,
or utilities, or computations as to the amount of money to be paid by the
Tenant concerning any obligation referred to in this lease to be performed
by the Tenant, provided said computations are predicated upon reasonable
accounting methods and procedures, then and in that event, computations of
the Landlord shall be deemed conclusive and binding upon Tenant and the
Tenant hereby waives the presentation of any and all invoices, checks or
bills prior to making said payment and during any trial concerning the
failure of the Tenant to make said payments.
6. LATE PAYMENT PENALTIES - Rent and any other Tenant incurred charges
appearing on the Landlord's monthly invoices are due and payable to the
Landlord on the first day of each month. There will be a four (4) day grace
period through the fifth (5th) day of the month for the payment of such due
bills. However any such unpaid bills after said date will be assessed at
the late charge rate of $3.00 per day or 2% per month, whichever is higher,
computed from the first day of the month in which said bill is due, to the
date of payment to the Landlord. This late charge shall be cumulative and
be deemed an additive to the rent for the month such due bill is issued.
Late Charges run concurrently (for example: October and November rents are
paid December 1st, therefore, a total late penalty of $273.00 would be
applicable - $183.00 for the 61 days outstanding on the October rent and
$90.00 for the 30 days outstanding on the November rent.)
Tenant's postdated check will be considered subject to the above assessment
if the check date exceeds the above stated payment deadline.
In the event a Tenant check fails bank clearance for any reason, the
Landlord shall charge the Tenant with a $20.00 penalty fee to cover bank
and administrative costs. If the Tenant fails to correct this deficiency
and has not paid the Landlord the monies due by the tenth day of the month,
then the late charge as set forth above shall be applicable.
The Landlord's failure to demand or collect said late charges shall in no
way be deemed a waiver of any right thereto or any other rights or remedies
that the Landlord may have under the terms of this lease, by summary
proceedings or otherwise.
7. ADDITIONAL RENT - Any and all payments and/or expenses required to be paid
by the Tenant shall be deemed additional rent and rent if same are due the
Landlord or in the event the Landlord expends said monies on behalf of the
Tenant for which the Tenant has an obligation to reimburse the Landlord.
8. CESSATION OF UTILITIES - Tenant hereby agrees that in the event the Tenant
has failed to pay to the Landlord any utility charges that are billed to
the Tenant by the Landlord and said charges remain unpaid and outstanding
for a period of 60 days, in addition to the other remedies the Landlord may
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<PAGE>
have, the Landlord shall have the right to terminate the providing of said
utilities to the leased premises of the Tenant. Notwithstanding anything
else contained herein to the contrary, in such event, the Tenant waives any
and all claims against the Landlord for any damages whatsoever,
consequential and/or punitive, that may be incurred by the Tenant as a
result of the termination of said utilities.
9. NOTICES AND SERVICE OF PROCESS - Any notice or demand which under the terms
of this lease or under any statute must or may be given or made by the
parties hereto or legal documents including, but not limited to, those
documents commencing legal action and/or proceedings shall be in writing
and shall be deemed properly served upon the Tenant if served personally or
by mailing same through the U.S. mail to either the address of the Tenant
as stated in the preprinted portion of the lease or the initialed Tenant
Fact Sheet or to any of the personal guarantors of said lease. If and when
said service is made, the Tenant hereby waives any jurisdictional defects
and/or claims of improper service.
10. DEFAULT - Tenant hereby agrees that in the event Tenant breaches the terms
and conditions of this lease for two consecutive monthly periods or three
times in any 12 month period, same shall be deemed a default thereby
permitting the Landlord, at its option to terminate this Lease as per the
terms and conditions of said Lease.
11. ALLOCATION OF PARTIAL PAYMENTS AND DISPUTES - In the event of a partial
payment or a payment on account, hereinafter for the purpose of this
provision these terms are used interchangeably, Tenant shall not have the
right to allocate payment(s) against specific charge(s) on an invoice(s)
submitted by Landlord. Further, Tenant waives the right to claim that
Landlord shall be diminished legally with respect to accepting said partial
payment in any arbitration or legal proceeding. Landlord and Tenant
herewith reaffirm Landlord's undiminished rights, with respect to partial
payment(s) by Tenant, to recovery by Landlord for amounts invoiced and
unremitted by Tenant; recovery of any penalties, as provided elsewhere
herein, that may be assessed Tenant for underpayment; and recovery of the
premises, if such recovery shall be the subsequent result of a default
declaration.
In the event of a dispute between Landlord and Tenant for any invoiced
amounts, other than those pertaining to base rent, Tenant shall be required
to remit payment in full as per the terms of the invoice, and if no payment
terms are stated, within thirty (30) days of invoice, with a written
protest detailing all allegations, financial calculations, and
documentation for those amounts in dispute. In the event the parties are
unable to resolve the dispute within sixty days of the remittance, both
parties agree to submit to binding arbitration with respect to the disputed
amount(s). Failure to remit disputed amounts shall be construed by Landlord
as non-payment and shall remain grounds for a default declaration by
Landlord. Unless a written notice to Landlord of a dispute, conveyed and
qualified under NOTICES AND SERVICE OF PROCESS herein, is made at the time
of remittance, Tenant waives all rights to recourse.
12. RENT ACCELERATION - Anything herein to the contrary notwithstanding, the
premises herein mentioned are demised for the whole term with the whole
amount of rent herein reserved, due and payable at the time of the making
of this lease and the payment of rent in installments as herein provided is
for the convenience of the Tenant only. If default by the Tenant in the
making of any installment payment of rent occurs, then the whole of the
rent reserved for the whole period shall then become due and payable to the
Landlord without notice or demand.
Patriot Communications Technology, Inc. Lease Page 25 of 22
<PAGE>
13. LANGUAGE PRECEDENCE - In the event of conflict between the preprinted
portion of this Lease and the Addendum hereto, the terms and conditions set
forth in the Addendum shall control.
14. HEADINGS - Headings used throughout this Lease are inserted for reference
purposes only, and are not to be considered or taken into account in
construing the terms or provisions of any covenant or paragraph hereof nor
to be deemed in any way to qualify, modify or explain the effect of any
such provisions or terms.
15. ATTORNEY'S FEES - All parties agree that $500.00 is reasonable as an
attorney's fees if the matter is resolved after service of Notice of
Petition and Petition and receipt of Tenant's response and prior to
appearing in court. In the event any further papers not associated with the
above resolution must be prepared and/or further expenditure of time is
required, then, and in that event, Landlord shall be entitled to additional
reasonable legal fees over and above the sum of $500.00 at the agreed upon
stipulated reasonable sum of $175.00 per hour.
16. ADDRESS DESIGNATION - Landlord has the full right at any time to name and
change the name of the building and property and to change the designated
address of the building and property. The building and property may be
named after any person, firm or otherwise, whether or not the name is, or
resembles, the name of a tenant of the building and property.
17. EARLY TERMINATION - Landlord herewith agrees, with the following
qualification, to release Tenant from this lease, if and only if, during
the term of this lease Tenant and Landlord enter into another lease for a
different premises at Flowerfield. Tenant shall remain liable for all
applicable covenants, such as, but not restricted to: reversion provisions,
exit charges, abandonment, etc., as if this lease had run its full course.
18. LEASE AMENDMENTS - If, in the event that the Landlord desires financing or
refinancing for the premise of which the demised premise form a part,
Tenant may not withhold, delay, or defer consent for any modifications to
the lease as a condition for the financing or refinancing.
Remedies - The Tenant is permitted fifteen (15) days after written notice
from the Landlord to conform to the conditions which are requested by the
lender. If Tenant fails or refuses to execute conditions requested by
Landlord, Landlord reserves the right to terminate the lease or perform the
execution of any document for and on behalf of Tenant as its
attorney-in-fact. Landlord as attorney-in-fact may only execute instruments
pertaining to conditions requested by lender.
SECTION VI - VACATION AND ABANDONMENT
1. HOLDOVER - In the event this lease is not renewed and the Tenant has failed
to vacate the premises prior to August 31, 1998 or as extended by Section
V, Paragraph 4. (f) then the Tenant agrees to pay the Landlord triple the
monthly rent then applicable for each month or portion thereof that Tenant
retains possession of the premises or any portion thereof, after the
expiration or termination of this lease and shall also pay all damages
sustained by Landlord by reason of such retention of possession.
Patriot Communications Technology, Inc. Lease Page 26 of 22
<PAGE>
In addition, Tenant will also pay those other items of additional rent
which would have been payable monthly pursuant to this lease, had this
lease not expired. The provisions of this section shall not constitute a
waiver by the Landlord of any reentry rights of the Landlord pursuant to
other provisions contained herein or as provided by law. At the sole option
of the Landlord, expressed by written notice to the Tenant, but not
otherwise, such holding over shall constitute a renewal of this lease for a
period of one year on the terms and conditions herein set forth at triple
the then current monthly rent. In the event the Landlord does not exercise
said option, then as previously set forth, the Tenant shall pay the
Landlord triple the then monthly rent during the holdover period.
2. GUARANTEES - It is mutually agreed and understood that if Tenant after the
conclusion of the hereinbefore defined lease term becomes a month-to-month
tenant, a tenant at will, or a holdover tenant, all personal, business, and
corporate guarantees applicable to the hereinbefore defined lease term
shall unequivocally also apply to the extended lease term.
3. (a) ABANDONED PROPERTY - It is hereby understood and agreed that in
the event the Tenant leaves any property on the demised premises or
any common areas in, on, or about Flowerfield, subsequent to the
expiration of the within lease that said property is hereby deemed
abandoned and the Landlord may dispose of said property at its option
without any liability on the part of the Landlord. It is further
understood and agreed that the Tenant waives any and all rights, title
and interest to said property, releases and waives any and all claims
thereto and further agrees that the Tenant will be responsible to the
Landlord for any and all expenses incurred by the Landlord concerning
said property.
(b) UNAUTHORIZED VEHICLES - Landlord retains the sole right to
reassign parking and may, with one week's written notice, change the
parking lot and/or parking area assignment of Tenant. Landlord shall
not unilaterally, however, reduce the agreed upon spaces allotted
Tenant above. It is understood and agreed that in the event any
vehicles of any parties, their servants, agents and/or employees,
invitees, licensees, subtenants, etc., are improperly parked on the
grounds of the Landlord, the Landlord is hereby granted express
permission to take any and all necessary steps to remove said vehicles
including but not limited to the towing of said vehicles. For the
purpose of this paragraph "improperly parked" shall mean any vehicle
parked in a loading zone; parked in an area designated with a sign as
a no parking zone; parked in other than a designated parking lot,
parked overnight without the express permission of the Landlord, or
parked overnight in other than a fenced-in reserved parking area. Any
and all expenses relating to the removal of said vehicles and/or the
safeguarding of said vehicles, if the Landlord elects to do so, shall
be the responsibility of either the owner of the vehicles or the
applicable tenant whose business led to said vehicles being on the
grounds of the Landlord and said parties hereby agree to immediately
reimburse the Landlord for said expenses together with interest at the
2% per month and same shall constitute additional rent to which the
failure to pay shall result in the Landlord exercising, at its option,
any of the remedies provided for herein. The Tenant specifically
waives any claim for damages arising from the removal of vehicles
owned and/or operated by the Tenant, its servants, agents and/or
employees and releases the Landlord from any such claims. In the event
claims are made by third parties as a result of the removal of said
vehicles or any damage caused to said vehicles, the Tenant hereby
agrees to hold harmless, indemnify and defend the Landlord concerning
said claims.
Patriot Communications Technology, Inc. Lease Page 27 of 22
<PAGE>
In the event Tenant fails to comply with this provision, Tenant hereby
appoints the Landlord as its Attorney in Fact, authorizing Landlord to
execute all documents and take any action on behalf of Tenant to
secure compliance herewith. Tenant hereby agrees that the exercising
of said Power of Attorney by Landlord is proper and waives any and all
claims concerning same.
(C) UNPLATED VEHICLES - It is agreed that motor vehicles without
license plates constitute a special situation. Any unregistered motor
vehicle parked on the Flowerfield premises will be subject to all the
conditions herein above described and to a ten ($10.00) dollar per day
parking fee effective after the first twenty-four hours of parking. In
the event Tenant fails to comply with this provision, Tenant hereby
appoints the Landlord as its Attorney in Fact, authorizing Landlord to
execute all documents and take any action on behalf of Tenant to
secure compliance herewith. Tenant hereby agrees that the exercising
of said Power of Attorney by Landlord is proper and waives any and all
claims concerning same.
(d) WASTE - Tenant at expiration of Lease shall be solely liable for
removal of any drums, cans, or containers over one gallon in addition
to its other responsibilities. In the event the drums, cans or
containers are not removed, until such time that same are complied
with, Tenant agrees not to demand return of any portion or its
securities being held by Landlord. In addition thereto, the Tenant
again appoints the Landlord as its Attorney in Fact to exercise any
and all rights, and to execute any and all documents necessary to
secure compliance with this provision. Tenant hereby approves of any
actions taken by the Landlord pursuant to said Power of Attorney and
waives any and all claims in relation thereto.
4. ENTIRE AGREEMENT - This Lease with attached preprinted portion and
Addendums is the complete agreement between Tenant and Landlord in its
entirety with respect to the premises leased herein and cannot be changed,
modified or terminated orally. There are no representations, agreements,
arrangements or understandings oral or written, between Tenant and Landlord
up to the date of this Lease, which are not fully contained herein.
Gyrodyne Company of America, Inc.
/s/ Peter Papadakis
-----------------------------------------
(Date) 8/27/97 (Landlord)
---------
Patriot Communications Technology, Inc.
/s/ Frank Delfine
-----------------------------------------
(Date) 8/27/97 (Tenant)
---------
Patriot Communications Technology, Inc. Lease Page 28 of 22
<PAGE>
Tenant Billing Change Form
1. Tenant Name Patriot Communications Technology, Inc.
2. Tenant Number 126
3. Tenant Address 7 Flowerfield, Suite 100, 102 & 108
St. James, NY 11780
Billing Address No change
4. Reason for Change 1 year renewal of lease with 1 year option
5. Effective Date 9/1/97
6. Log # _______________________________
7. Duration 1 year - 9/1/97-8/31/98
8. Comments 1) Increase base rent to $2,550.00/month
2) Increase security to $2,550.00
(nothing to bill for)
3) Sprinkler percentage - 5.24%
4) 2,805 square feet
Patriot Communications Technology, Inc. Lease Page 29 of 22
