-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TjrjwIN89YfPM61CqYdv0Gc0xF2HJIUI03aSdlvkf0RvZadsK49ypCEduytD0iod aTNu4hXM8Q6g0kEgmC63Hg== 0000910680-96-000010.txt : 19960131 0000910680-96-000010.hdr.sgml : 19960131 ACCESSION NUMBER: 0000910680-96-000010 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19960129 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARISTO INTERNATIONAL CORP CENTRAL INDEX KEY: 0000782145 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 112706304 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25296 FILM NUMBER: 96508452 BUSINESS ADDRESS: STREET 1: 152 W 57TH ST STREET 2: 29TH FL CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125862400 MAIL ADDRESS: STREET 1: 152 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: ASTRO STREAM CORP DATE OF NAME CHANGE: 19920703 10KSB 1 1995 FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ Commission File No. 0-25296 ARISTO INTERNATIONAL CORPORATION ----------------------------------- (Name of small business issuer in its charter) Delaware 11-2706304 ------------------- ------------ (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 152 West 57th Street, 29th Floor New York, New York 10019 ----------------------------------- (Address of principal executive offices) (Zip Code) (212) 586-2400 ------------------- (Issuer's telephone number, including area code) Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, par value $0.001 per share ---------------------------------------------- (Title of Class) Check whether the issuer has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No__ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Registrant's revenues for its most recent fiscal year were $157,627. As of January 19, 1996, the aggregate market value of the Common Stock of the Registrant, its only class of voting securities, held by non-affiliates of the Registrant was approximately $63,081,960, calculated on the basis of the average closing bid and asked prices of such stock on the National Association of Securities Dealers Automated Quotient System-SmallCap Market on that date, as reported by the National Association of Securities Dealers, Inc. The number of shares of the Registrant's Common Stock outstanding on January 19, 1996 was 13,490,613. PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Aristo International Corporation ("Aristo" or the "Company") develops entertainment and video game software for CD-ROM-based personal computer and dedicated video game platforms, with an emphasis on games that are capable of being played on networked systems. The Company also licenses proprietary software tools through its wholly-owned subsidiary, Borta, Inc. ("Borta"). Borta is a licensed developer for all major gaming platforms, including Nintendo, Sega, Sony, Atari, 3DO, Windows/Microsoft, and Macintosh/Apple. COMPANY BACKGROUND; RECENT EVENTS The Company was incorporated in the state of Delaware on July 12, 1984, under the name "The Astro-Stream Corporation." On May 3, 1995, Aristo International Corporation, a New York corporation (the "Merging Corporation"), was merged (the "Merger") with and into the Company, with the Company being the surviving corporation. Pursuant to the Merger, the name of the Company was changed to "Aristo International Corporation" and the former shareholders of the Merging Corporation became the owners of 90% of the issued and outstanding common stock of the Company. Prior to the Merger, the Company had no operations. The Merging Corporation was incorporated in 1990 to invest in licensable and patentable consumer products for the mass market. As a development stage business, the Merging Corporation researched and developed four licensable consumer products: Hidden Eyes, patented non-prescription reading glasses; Hot 'N Not, a portable food lunch box; Tip Top, a low-cost innovation in beverage packaging; and Encore, a non-aerosol dispensing device. Since mid-1994, the Merging Corporation had focused primarily on the entertainment software business currently engaged in by the Company as outlined below. On July 31, 1995, the Company acquired 100% of the stock of Borta, Inc., a company involved in the creation and development of multimedia digital entertainment. On October 4, 1995, the Company's Common Stock commenced trading on the NASDAQ SmallCap Market under the symbol "ATSP." INDUSTRY OVERVIEW During the 1994 calendar year, personal computers outsold televisions for the first time, due in large part to the explosion of the multi-media market. Interactive multi-media software incorporates the manipulation of various media in digital form, including sound, graphics, video, animation and text. Motion Picture Experts Group ("MPEG") video compression is becoming the standard means of on-line video transmission as more and more CD-ROM and computer entertainment companies and products utilize MPEG to produce full screen VHS, and better quality images. -2- According to a recent survey there are currently 9.5 million Internet users in the United States, with 51% of these users accessing the Internet for the first time within the last year. To allow more people to have access to the Internet, a number of companies are currently developing network computers costing approximately $500 each that will allow people to connect to the Internet. Additionally, the major video game manufacturers are adapting their game platforms for use as home Internet terminals. PRODUCTS Software Tools. Aristo is currently producing both a "Windows" palette manipulation tool and an interactive motion picture video tool. Development Products. The Company has active video game development contracts in force with T*HQ, Inc. (for Sega Game Gear and Nintendo Game Boy versions of "Urban Strike"), SAI (for four sports titles) and Telegames, Inc. in association with Williams (for a sports title). Revenues are generated on the game side from development contracts which are a combination of milestone-based advances and royalties on product sales. Original titles, i.e. those based on concepts created in-house, typically generate higher royalty percentages, and Aristo has three original concepts ready for development. Cross-platform conversion contracts are also written with software publishers, and are typically a one-time fee based transaction. The Company has recently completed development of a series of companion products to the television shows "Baywatch", "Frasier", "Melrose Place" and "Beverly Hills 90210" for Byron Preiss, Inc. These titles are now on sale in major retail chains throughout the United States. On-line Products. The Company has signed a Letter of Intent with PSINet, the Internet access provider, for the provision of multi-player, networked/on-line game software. The first category of games will be sports titles developed for SAI, Inc. Aristo will share in the PSINet subscription revenues, and get development fees from the publisher. The Company co-developed and co-sponsored the Rolling Stones "Voodoo Lounge" web site on the Internet (http://www.stonesworld.com). Compression Products. The Company is developing a line of product software which makes full use of the latest MPEG video compression technology. COMPETITION The multimedia PC entertainment industry is intensely competitive with a large and ever increasing number of products being offered. This competition is strongest for the limited shelf space that major software retailers have available. The Company's strategy has been to enter into licensing and distribution agreements with major software publishers where the risks of publishing fall to the publishers who have the connections and resources to put the Company's products on the store shelves. As a developer, the Company competes with many companies, the vast majority of which are small, privately-held operations. Aristo relies on software publishers for distribution and marketing support. Beyond existing relationships, access to these publishers is facilitated by the Company's Advisory Board whose members include Michael Katz (former President of Atari and Sega of America), and Bobby Orbach (fifteen years of experience in software distribution). -3- EMPLOYEES Borta currently employs a development team of twenty-five engineers and graphic artists. Most of the products currently under development at Borta are based on software engines developed by Borta over the last two years. The Company is now leveraging these assets, along with licensed content, to provide the Company's game and multi-media products. Apart from Borta's thirty person operating center in Virginia, the Company employs a professional and administrative staff of ten people at the Company's headquarters in New York City. Aristo recognizes that there is strong dependency on commercial, technological and artistic talent in this business arena. To mitigate the dependency on a given individual or customer, Aristo formed a board of advisors which includes Nolan Bushnell, founder of Atari and an acknowledged pioneer in all aspects of video game-based entertainment. In addition, Borta provides the Company with a bank of proprietary software and a core team of senior engineers and graphic artists who have worked with Ron Borta for several years. ITEM 2. DESCRIPTION OF PROPERTY The Company's executive offices are located on the 29th floor of a building located at 152 West 57th Street in New York, New York, and occupy approximately 5,000 square feet of office space at that location. The Company occupies this space under a ten year lease which expires in 2002. Additionally, the Company's engineering and design facilities are located at Loudon Technology Center, Sterling, Virginia, occupying approximately 7,000 square feet at that location. This space is occupied under a three year lease which expires in 1998. The Company believes that these executive offices and engineering and design facilities are adequate for its current needs and that additional space will be available at competitive prices to provide for anticipated growth. ITEM 3. LEGAL PROCEEDINGS KELLY DRYE & WARREN VS. ARISTO INTERNATIONAL CORPORATION AND THE 439 FORMER SHAREHOLDERS OF RECORD OF THE ASTRO-STREAM CORPORATION. As a part of the merger of the Merging Corporation into The Astro-Stream Corporation (See Note 1(b) to the Financial Statements), the Company committed to obtain NASDAQ Small Cap Listing for the Common Stock of the surviving corporation. In connection with that commitment, it deposited $100,000 into an escrow account with Kelley Drye & Warren, which was to be distributed to the former Astro-Stream shareholders if the listing was not obtained and to be released back to the Company upon achieving the listing in compliance with the terms of the escrow agreement. The listing of the Common Stock on NASDAQ was obtained on September 29, 1995. A contest has developed between the parties as to whether the performance by the Company was timely. When both parties claimed the escrow, Kelley Drye & Warren, as escrow agent, filed an interpleader complaint on October 3, 1995 naming both the Company and the former Astro-Stream shareholders as defendants in the New York Supreme Court for New York County. Both the Company and the former shareholders have answered. The Company is vigorously contesting the claim of the former Astro-Stream shareholders to the funds. ARISTO INTERNATIONAL CORPORATION VS. PLASTIQUES DU VAL DE MARNE. For several years following its incorporation, the Company was involved in the development of a variety of consumer products, one of which was the design and manufacture of optical quality non-prescription "pince nez" style reading glasses that could -4- be easily carried in pocket or purse. The Company originally contracted with a Paris based plastic injection molding fabricator to produce the molds and manufacture the product. This company, Plastiques du Val de Marne ("PVM"), defaulted under the contract and the Company commenced an action on June 5, 1992 in the New York Supreme Court for New York County for a recoupment of advanced payments made prior to the time it elected to terminate the contract for PVM's non-performance. The Company received a judgment for $97,891.40, which is now being enforced in France. The Company has been advised that the judgment is not subject to collateral attack in France and, therefore, expects to collect the entire amount awarded to it. POLYMER TECHNOLOGIES, INC. VS. ARISTO INTERNATIONAL CORPORATION. Another product that the Company attempted to develop was a lunch box that was subdivided into compartments, some of which would permit cold foods (or drinks) to remain cold while others would allow hot foods to be kept hot. The Company contracted with Polymer Technologies, Inc., a New Jersey based company, to manufacture the prototype and then the finished product. Polymer was unsuccessful in ever producing a prototype that would perform within the design parameters established by the Company. Polymer then commenced suit for damages on May 6, 1993 in the U.S. District Court for the Southern District of New York in the amount of $64,595. The Company is aggressively defending itself and believes that the case by Polymer is without merit. In addition, the Company has filed counterclaims against Polymer for amounts paid to it. TOM FRIED VS. BORTA, INC., BORTA ASSOCIATES, RON BORTA AND LESLIE DAVIS. This action was commenced by a former employee of Borta alleging a claim for royalties from work performed while an employee and for additional wages. This action was filed on May 12, 1995 in the Circuit Court of Fairfax County, Virginia. The Company believes the claim, which is in the amount of $118,000, is groundless, and the Company is vigorously defending this matter. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Registrant's Common Stock, par value $0.001 per share (the "Common Stock"), commenced trading on October 4, 1995 on the NASDAQ Small Cap Market under the symbol ATSP. Prior to October 4, 1995, the Company's shares were quoted in the so called "pink sheets" in the over-the-counter market, and a market price for the shares could not be identified. For the period from October 4, 1995 through October 31, 1995, the high and low bid quotations of the Company's Common Stock on the NASDAQ SmallCap Market as reported by the National Association of Securities Dealers, was $10-1/2 and $7, respectively. These quotations reflect the inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of January 19, 1996, the Company had 13,490,613 shares of Common Stock outstanding held by 782 record holders. -5- The Company has never paid dividends on its Common Stock. It is the present policy of the Company to retain earnings and capital for use in its business. Any payment of dividends on the Common Stock in the future will be dependent upon the Company's financial condition, results of operations, current and anticipated cash requirements, plans for expansion, restrictions, if any, under debt obligations, as well as other factors that the Board of Directors may deem relevant. In addition, the Company has issued and outstanding 33,350 shares of preferred stock. Pursuant to the terms of this preferred stock, so long as any shares of preferred stock are outstanding, the Company may not declare, pay, or set apart for payment any dividend on any of the shares of Common Stock of the Company, or make any payment on account of any of the shares of Common Stock, unless and until all accrued and unpaid dividends on the shares of preferred stock shall have been paid in full. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis should be read in conjunction with the financial statements contained in Item 7 of this Annual Report on Form 10-KSB. PLAN OF OPERATION During the next 12 months, the Company will continue the development of software for use in interactive multi-player network gaming and video conference communication on the World Wide Web and hardware as well as software for the utilization of Motion Picture Expert Group (MPEG) encoding for full screen video on Multimedia PC's. The Company will place substantial emphasis on developing relationships with software publishers and major players in the film, cable and telecommunications industries which have existing distribution systems for our products. During fiscal 1995, the Company began development of eleven products for four separate publishers (see Item 1 -"Products - Development Products") and signed a letter of intent with PSINet for the development of multi-player, networked/on-line game software. This development will continue through fiscal 1996, with initial product introductions planned for the second to fourth quarters. The Company's employee base grew from 8 full-time employees in fiscal 1994 to 36 full-time employees during fiscal 1995. The majority of this growth, approximately 25 employees, was added through the acquisition of Borta in July 1995. It is anticipated that this growth will continue in fiscal 1996 to more than 50 full-time employees. This expansion will occur primarily in the areas of game development, engineering and graphics, which will increase production capabilities of original concept games. GENERAL The Company's revenues are comprised of software development fees, royalties on software products and royalties received on consumer product licenses. Cost of revenues, which include the salaries of the software programmers and engineers, as well as depreciation of the fixed assets used in the development of the software are included in research and development -6- Revenue from software development contracts is recognized when prescribed milestones, as defined in the specific contracts, are reached. Royalties on software and the Company's consumer products is recognized as earned. The Company's financial statements do not contain a provision for income tax expense from its inception through October 31, 1995 as the Company has incurred operating losses since inception. The Company has paid minimum state and local taxes during the years, as required. As of October 31, 1995, Aristo had available unused net operating loss carry-forwards of approximately $9.8 million. These tax benefits, which may provide future tax benefits, expire in the period from 2006 to 2010 and may be subject to limitation under 382 of the Internal Revenue Code. The Company has fully reserved for these potential future tax benefits.
SELECTED FINANCIAL INFORMATION Year Ended October 31, ---------------------------------------------------- 1993 1994 1995 ------------ ----------- ----------- Revenues $ 58,334 $ 16,005 $ 157,627 Operating Expenses Selling, general administrative 1,577,812 2,141,400 3,678,823 Research and development 82,025 47,205 603,133 ------------ ----------- ----------- Total Operating Expenses 1,659,837 2,188,605 4,281,956 ------------ ----------- ----------- Operating loss (1,601,503) (2,172,600) (4,124,329) Interest and other income (expense) - net (34,807) (56,044) 7,872 ------------ ----------- ----------- Net loss $(1,636,310) $(2,228,644) $(4,116,457) ============ =========== =========== Net loss per share $ (0.22) $ (0.24) $ (0.40) ============ =========== =========== Weighted average shares outstanding 7,574,958 9,244,593 10,388,926 ============ =========== ===========
COMPARISON OF YEAR ENDED OCTOBER 31, 1995 VS. OCTOBER 31, 1994 Consolidated revenues for 1995 were $157,627, an increase of $141,622 as compared to 1994. Revenues from the development of software generated by the Company's subsidiary, Borta, Inc. (see Item 1) represented 94% of revenues in 1995. Royalties on the Company's consumer products represented 6% of revenues in 1995 compared to 100% of revenues in 1994. Selling, general and administrative expenses for the period ended October 31, 1995 increased to $3,678,823 from $2,141,400 for the period ended October 31, 1994. Approximately 13%, or $194,339, of the increase in selling, general and administrative expenses was due to an increase in travel and entertainment -7- expenses. This increase was the result of visits to potential interactive multimedia acquisition targets. An additional 43% of the increase was due to professional and consulting fees. Accounting expenses increased $131,644, primarily due to services relating to the merger with Astro-Stream, including an audit of the three fiscal years through fiscal 1994. Consulting expenses increased $365,505 primarily due to costs associated with designing and developing a strategic plan for the interactive multimedia market. Legal fees increased $160,710 primarily due to services relating to the merger with Astro-Stream as well as increased legal services relating to transactions in the interactive multimedia marketplace. Borta incurred $99,325 in selling, general and administrative expenses for the three months ended October 31, 1995, the period during which Borta was a subsidiary of Aristo. These costs represent 6% of the increase in Aristo's consolidated selling, general and administrative expense in 1995. Additionally, $117,857 of deferred compensation expense, related to stock options granted to the President of Borta, was recorded during 1995. The expense, which was new in 1995, represents 8% of the increase in consolidated selling, general and administrative expenses during 1995. Other increases included $219,238 for salaries and wages related to additional executive personnel. Research and development expenses increased to $603,133 for the year ended October 31, 1995 from $47,205 for the year ended October 31, 1994. The increase is attributable to the development work done by Borta during the three months it was a subsidiary of the Company. Interest and other income (expense)-net increased to $7,872 from $(56,044) in 1994 due to the gain on the settlement of a lawsuit recorded in 1995, in the amount of $76,466 offset by an increase in interest expense on convertible term loans. The gain on the lawsuit represents the judgment by the Supreme Court of the State of New York, County of New York on January 30, 1995 in favor of the Company and further provides that the Company be paid interest from February 6, 1992. Additionally, interest accrued through the date of the judgment of $21,425 has been recorded. COMPARISON OF YEAR ENDED OCTOBER 31, 1994 VS. OCTOBER 31, 1993 Revenues during 1994 decreased $42,329, 73%, from $58,334 in 1993 as a result of a decline in sales of Aristo's consumer product Hidden Eyes(TM). Selling, general and administrative expenses for the period ended October 31, 1994 increased to $2,172,492 from $1,577,812 from the period ended October 31, 1993. Approximately 68% of the increase was due to an increase in professional and consulting fees. Accounting expenses increased $108,765 and legal fees increased $89,959, primarily due to potential acquisitions. There was a $297,963 increase in consulting expenses during 1994, primarily due to an increase in consulting fees paid to another company for the services of the Company's President. Other increases included $203,131 for salaries and wages related to additional executive personnel. Research and development expenses decreased to $34,820 in the year ended October 31, 1994 from $82,025 for the year ended October 31, 1993. This decrease is attributable to the completion of existing research and development projects related to low-tech consumer products and no initiation of additional development projects. -8- LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed activities with the sale of common stock and convertible notes for cash amounting to approximately $10,082,000 and with the exchange of stock for $931,000 in products and services. The principal stockholders intend to use their best efforts to finance or obtain financing sufficient for the Company's requirements. Aristo has a revolving credit facility with a bank in the amount of $500,000. The term of the facility expires on May 15, 1996. As of October 31, 1995, $406,000 had been drawn upon, of which $250,000 of such credit facility is collateralized by a certificate of deposit. Consequently, if for any reason the credit facility is not renewed, the amount to be repaid by Aristo would be limited to the uncollateralized portion of the facility, which as of October 31, 1995 was $156,000. Aristo anticipates renewing this facility and has no reason to believe that the facility will not be renewed upon request. In the event that the credit facility is not renewed, Aristo presently anticipates that the facility would be repaid by the liquidation of the $250,000 collateral and from working capital. The Company expects to continue to increase expenditures in connection with new product development and market expansion. Based on its available cash position, its revolving credit facility and its demonstrated ability to raise capital through equity financing, the Company believes that it has sufficient resources to meet its financial requirements and operational needs over the next twelve months. CONVERTIBLE TERM LOANS On July 31, 1995, the Company issued a $240,000 note ("Original Note") maturing on December 31, 1995 plus interest of $20,000. On December 29, 1995, the Company issued a new note ("New Note") for $260,000 which represents the principal and accrued interest in the Original Note. The New Note replaces and supersedes the Original Note. Under the terms of the New Note, the principal is payable on January 1, 1997 with quarterly interest payments of $13,000 payable on April 1, 1996; July 1, 1996; October 1, 1996 and January 1, 1997. On December 29, 1995 the holder of the New Note indicated its intent to convert the New Note into 47,273 shares of common stock at a conversion price of $5.50 per share effective January 1, 1997. On March 29, 1995, the Company issued a promissory note for cash, due on April 30, 1996, to a stockholder for $200,000, collateralized by certain of the Company's patents, bearing interest at 10% payable quarterly. On December 29, 1995, the stockholder exercised its right to convert the note into 66,667 common shares of the Company. On December 29, 1994, the Company issued a promissory note for cash, to a stockholder for $500,000, and on December 29, 1995 the Company issued a new note which replaces and supersedes the note dated December 29, 1994. Under the terms of the new note, the note is payable in eight monthly installments, beginning on May 1, 1996. The note bears interest at a rate equal to 10% per annum, payable on the last day of each month. The stockholder shall have the option, until May 1, 1996, to convert the note into 90,909 shares of common stock of the Company at an exercise price of $5.50 per share, in lieu of payment of principal. -9- ITEM 7. FINANCIAL STATEMENTS Page Report of Independent Accountants........................................... 11 Consolidated Balance Sheets at October 31, 1994 and 1995.................... 12 Consolidated Statements of Operations for the fiscal years ended October 31, 1994 and 1995 and the cumulative period from June 4, 1990 (inception) to October 31, 1995.................... 13 Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal years ended October 31, 1992, 1993, 1994 and 1995 and the cumulative period from June 4, 1990 (inception) to October 31, 1991........................... 14 Consolidated Statements of Cash Flows for the fiscal years ended October 31, 1994 and 1995 and the cumulative period from June 4, 1990 (inception) to October 31, 1995.................... 15 Notes to Consolidated Financial Statements.................................. 18 -10- [COOPERS & LYBRAND Letterhead] REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Aristo International Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES (a development stage enterprise) as of October 31, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the fiscal years then ended and the cumulative period from June 4, 1990 (inception) to October 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aristo International Corporation and Subsidiaries as of October 31, 1994 and 1995, and the consolidated results of their operations and their consolidated cash flows for the fiscal years then ended and the cumulative period from June 4, 1990 (inception) to October 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand New York, New York December 21, 1995, except as to Notes 5(b) and 12, for which the date is January 5, 1996 11
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES (a development stage enterprise) Consolidated Balance Sheets October 31, 1994 and 1995 ASSETS: 1994 1995 ---------- ----------- Current assets: Cash and cash equivalents $ 502,993 $ 540,297 Restricted cash 336,831 442,430 Marketable securities 66,000 1,500 Prepaid expenses and other current assets 20,713 236,319 ------------- ------------- Total current assets 926,537 1,220,546 Fixed assets - at cost, net 76,088 252,456 Patents, net 82,762 77,034 Capitalized software, net 7,907,937 Goodwill, net 1,164,161 Other assets 254,211 426,195 ------------- ------------- Total assets $ 1,339,598 $ 11,048,329 ============= ============= LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIT): Current liabilities: Note payable - bank $ 406,000 $ 406,000 Convertible term loans - stockholders 375,000 Payable to stockholder 500,000 Capital leases - current 25,313 Accounts payable and accrued expenses 272,463 661,045 ------------- ------------- Total current liabilities 678,463 1,967,358 ------------- ------------- Capital leases - long term 59,209 Deferred rent 172,705 158,891 Convertible term loans - stockholders 1,025,000 565,000 ------------- ------------- Total liabilities 1,876,168 2,750,458 ------------- ------------- Commitments and contingencies Stockholders' equity (deficit): Preferred stock, $.001 par value; authorized 1,000,000 shares; 33,350 shares issued and outstanding in 1995 33 Common stock, $.001 par value; authorized 19,000,000 shares; issued and outstanding 7,955,951 and 13,199,945, respectively 7,956 13,200 Additional paid-in capital 6,279,398 21,871,438 Deferred compensation expense (1,846,429) Deficit accumulated during the development stage (6,823,924) (11,740,371) ------------- ------------- Total stockholders' equity (deficit) (536,570) 8,297,871 ------------- ------------- Total liabilities and stockholders' equity (deficit) $ 1,339,598 $ 11,048,329 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 12 ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES (a development stage enterprise) Consolidated Statements of Operations For the fiscal years ended October 31, 1994 and 1995 and the cumulative period from June 4, 1990 (inception) to October 31, 1995
Cumulative Since June 4, 1990 1994 1995 (see Note 1(b)) ----------- ----------- ---------------- Royalty revenue $ 16,005 $ 9,327 $ 116,999 Production revenue 148,300 148,300 ----------- ----------- ------------ Total revenue 16,005 157,627 265,299 Selling, general and administrative expenses (2,141,400) (3,678,823) (9,457,431) Research and development expenses (47,205) (603,133) (1,622,853) Interest expense (46,525) (101,237) (234,145) Interest and other income (expense) (9,519) 109,109 108,749 ----------- ----------- ------------ Net loss (2,228,644) (4,116,457) (10,940,381) Dividends on preferred stock - (4,585) (4,585) ----------- ----------- ------------ Net loss applicable to common stockholders $(2,228,644) $(4,121,042) $(10,944,966) =========== =========== ============ Weighted average number of common shares outstanding 9,244,593 10,388,926 =========== =========== Net loss per share $ ( 0.24) $ (0.40) =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 13 ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES (a development stage enterprise) Consolidated Statements of Stockholders' Equity (Deficit) For the fiscal years ended October 31, 1992, 1993, 1994 and 1995 and for the period from June 4, 1990 (inception) to October 31, 1991
Preferred Stock Common Stock(1) Additional --------------- ------------- Paid-In Shares Amount Shares Amount Capital ------ ------ ------ ------ ------- Issuance of common stock for initial capitalization ($0.18 per share) 3,334,780 $ 3,335 $596,665 Sale of Common Stock during November for cash ($0.12 per share) 1,764,099 1,764 218,526 Sale of stock during October for cash ($1.29 per share) 155,067 155 199,845 Exchange of common stock during October for services at estimated value ($1.28 per share) 78,367 78 99,922 Net loss for the year ended October 31, 1991 ---------- ------- ----------- Balance, October 31, 1991 5,332,313 5,332 1,114,958 Sale of common stock during the year for cash ($0.85 per share) 1,589,023 1,589 1,348,411 Sale of common stock during the year for cash ($1.17 per share) 235,102 235 274,765 Exchange of common stock during August for services at estimated value ($1.28 per share) 78,367 79 99,921 Net loss for the year ended October 31, 1992 ---------- ------- ----------- Balance, October 31, 1992 7,234,805 7,235 2,838,055 Sale of common stock during the year for cash ($1.63 per share) 611,932 612 999,388 Sale of common stock during the year for cash ($1.28 per share) 195,085 195 249,805 Exchange of common stock during May for services at estimated value ($1.29 per share) 116,717 117 149,883 Exchange of common stock during October for services at estimated value ($1.33 per share) 15,006 15 19,985 Exchange of common stock during October for patent rights at estimated value ($1.28 per share) 39,184 39 49,961 Purchase of treasury stock for cash ($0.04 per share) Net loss for the year ended October 31, 1993 ---------- ------- ----------- Balance, October 31, 1993 8,212,729 8,213 4,307,077 Sale of common stock during the year for cash ($1.46 per share) 1,030,447 1,030 1,498,970 Exchange of common stock during January for services at estimated value ($1.33 per share) 15,007 15 19,985 Exchange of common stock during January for services at estimated value ($1.46 per share) 34,181 34 49,966 Conversion of note payable and accrued interest into common stock ($1.53 per share) 171,741 172 261,892 Conversion of note payable into common stock ($1.26 per share) 159,236 159 199,841 Repayment of stock subscription receivable Retirement of treasury stock during October (1,667,390) (1,667) (58,333) Net loss for the year ended October 31, 1994 ---------- ------- ----------- Balance, October 31, 1994 7,955,951 7,956 6,279,398 Conversion of note payable into common stock ($1.23 per share) 834,529 835 1,024,165 Sale of common stock during November for cash ($1.53 per share) 235,936 236 359,764 Sale of common stock during March for cash ($2.22 per share) 450,195 450 999,550 Exchange of common stock in March for graphic illustrations ($2.22 per share) 115,050 115 255,440 Issuance of common stock per anti-dilution provision 38,350 38 (38) Sale of preferred stock during May for cash ($3.00 per share) 33,350 $33 100,017 Equity acquired from the reverse acquisition with Astro-Stream 1,098,997 1,099 806,205 Issuance of common stock as a result of the acquisition of Borta ($4.67 per share) 1,818,182 1,818 8,498,182 Grant of common stock ($5.50 per share) 357,143 357 1,963,929 Sale of common stock during August for cash ($4.50 per share) 66,666 67 299,933 Sale of common stock during August for cash ($5.50 per share) 93,500 94 514,156 Exchange of common stock in August for consulting services ($6.50 per share) 25,000 25 162,475 Exchange of common stock in August for consulting services ($5.75 per share) 3,687 4 21,196 Exchange of common stock in August for consulting services ($5.50 per share) 395 0 2,172 Sale of common stock during September for cash ($5.50 per share) 96,364 96 529,904 Sale of common stock during October for cash ($5.50 per share) 10,000 10 54,990 Amortization of deferred compensation expense Dividend on preferred stock Net loss for the period ended October 31, 1995 ------ ----- ---------- ------- ----------- Balance, October 31, 1995 33,350 $33 13,199,945 $13,200 $21,871,438 ====== ===== ========== ======= ===========
1 All common share information has been restated since inception to reflect the conversion of the outstanding shares of Aristo's common stock into 90% of the common stock of Astro-Stream, pursuant to the merger agreement. The accompanying notes are an integral part of these consolidated financial statements. (1 of 2 Page 14)
Deficit Common Stock Accumulated Held in During the Deferred Treasury Stock Development Compensation ------------------- Subscription Stage Expense Shares Amount Receivable Total ---------- --------- ------ ------ ---------- ----- Issuance of common stock for initial capitalization ($0.18 per share) $ 600,000 Sale of common stock during November for cash ($0.12 per share) 220,290 Sale of stock during October for cash ($1.29 per share) 200,000 Exchange of common stock during October for services at estimated value ($1.28 per share) 100,000 Net loss for the year ended October 31, 1991 $(1,478,158) (1,478,158) ----------- ---------- Balance, October 31, 1991 (1,478,158) (357,868) Sale of common stock during the year for cash ($0.85 per share) 1,350,000 Sale of common stock during the year for cash ($1.17 per share) 275,000 Exchange of common stock during August for services at estimated value ($1.28 per share) 100,000 Net loss for the year ended October 31, 1992 (1,480,812) (1,480,812) ----------- ---------- Balance, October 31, 1992 (2,958,970) (113,680) Sale of common stock during the year for cash ($1.63 per share) $(80,000) 920,000 Sale of common stock during the year for cash ($1.28 per share) 250,000 Exchange of common stock during May for services at estimated value ($1.29 per share) 150,000 Exchange of common stock during October for services at estimated value ($1.33 per share) 20,000 Exchange of common stock during October for patent rights at estimated value ($1.28 per share) 50,000 Purchase of treasury stock for cash ($0.04 per share) (1,667,390) $(60,000) (60,000) Net loss for the year ended October 31, 1993 (1,636,310) (1,636,310) ----------- --------- --------- -------- ---------- Balance, October 31, 1993 (4,595,280) (1,667,390) (60,000) (80,000) (419,990) Sale of common stock during the year for cash ($1.46 per share) 1,500,000 Exchange of common stock during January for services at estimated value ($1.33 per share) 20,000 Exchange of common stock during January for services at estimated value ($1.46 per share) 50,000 Conversion of note payable and accrued interest into common stock ($1.53 per share) 262,064 Conversion of note payable into common stock ($1.26 per share) 200,000 Repayment of stock subscription receivable 80,000 80,000 Retirement of treasury stock during October 1,667,390 60,000 -- Net loss for the year ended October 31, 1994 (2,228,644) (2,228,644) ----------- --------- --------- -------- ---------- Balance, October 31, 1994 (6,823,924) -- -- -- (536,570) Conversion of note payable into common stock ($1.23 per share) 1,025,000 Sale of common stock during November for cash ($1.53 per share) 360,000 Sale of common stock during March for cash ($2.22 per share) 1,000,000 Exchange of common stock in March for graphic illustrations ($2.22 per share) 255,555 Issuance of common stock per anti-dilution provision -- Sale of preferred stock during May for cash ($3.00 per share) 100,050 Equity acquired from the reverse acquisition with Astro-Stream (795,405) 11,899 Issuance of common stock as a result of the acquisition of Borta ($4.67 per share) 8,500,000 Grant of common stock ($5.50 per share) $(1,964,286) -- Sale of common stock during August for cash ($4.50 per share) 300,000 Sale of common stock during August for cash ($5.50 per share) 514,250 Exchange of common stock in August for consulting services ($6.50 per share) 162,500 Exchange of common stock in August for consulting services ($5.75 per share) 21,200 Exchange of common stock in August for consulting services ($5.50 per share) 2,172 Sale of common stock during September for cash ($5.50 per share) 530,000 Sale of common stock during October for cash ($5.50 per share) 55,000 Amortization of deferred compensation expense 117,857 117,857 Dividend on preferred stock (4,585) (4,585) Net loss for the period ended October 31, 1995 (4,116,457) (4,116,457) ----------- ---------- ------- --------- -------- ---------- Balance, October 31, 1995 $(11,740,371) $(1,846,429) -- -- -- $8,297,871 =========== ========== ======= ========= ======== ==========
(2 of 2 Page 14) ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES (a development stage enterprise) Consolidated Statements of Cash Flows For the fiscal years ended October 31, 1994 and 1995 and the cumulative period from June 4, 1990 (inception) to October 31, 1995
Cumulative Since June 4, 1990 1994 1995 (see Note 1(b)) ----------- ------------ ------------ Cash flows from operating activities: Net loss during development stage $(2,228,644) $(4,116,457) $(10,940,381) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 21,407 481,817 540,602 Expenses paid by issuance of common stock 70,000 441,428 1,481,428 Deferred royalty income (8,333) Deferred rent 29,600 (13,814) 158,891 Loss on disposal of fixed asset 19,200 Net realized loss on sale of marketable securities 31,092 20,753 51,845 Net unrealized gain on marketable securities (6,713) (1,000) (7,713) Changes in assets and liabilities: Increase in prepaid expenses and other current assets (16,408) (159,573) (180,286) (Decrease) increase in accounts payable and accrued expenses (122,091) 232,427 516,954 ----------- ------------ ------------ Net cash used in operating activities (2,230,090) (3,114,419) (8,359,460) ----------- ------------ ------------ Cash flows from investing activities: Investment in Borta net of cash acquired (238,615) (238,615) Expenditures for equipment, leasehold improvements, patents and organization costs (41,203) (156,442) (346,247) Purchases of marketable securities (414,516) (1,103,085) (1,517,601) Sales of marketable securities 324,137 1,147,832 1,471,969 Purchase of computer software (110,000) (110,000) Increase in other assets (232,119) (174,953) (426,194) Increase in restricted cash (105,599) (442,430) ----------- ------------ ------------ Net cash used in investing activities (363,701) (740,862) (1,609,118) ----------- ------------ ------------ Cash flows from financing activities: Net (repayments) proceeds from notes payable - bank (39,500) (46,143) 359,857 Proceeds from notes payable - stockholders 793,500 Repayments of notes payable - stockholders (160,000) (343,500) Capital leases 84,522 84,522 Proceeds acquired in connection with Astro-Stream merger 59,494 59,494 Proceeds from issuance of preferred stock 100,050 100,050 Proceeds from issuance of common stock 1,580,000 2,759,247 7,554,537 Proceeds from issuance of convertible term loans 1,025,000 940,000 1,965,000 Purchase of treasury stock (60,000) Dividends on preferred stock (4,585) (4,585) ----------- ------------ ------------ Net cash provided by financing activities 2,405,500 3,892,585 10,508,875 ----------- ------------ ------------ Net (decrease) increase in cash and cash equivalents (188,291) 37,304 540,297 Cash and cash equivalents, beginning of period 691,284 502,993 ----------- ------------ ------------ Cash and cash equivalents, end of period $ 502,993 $ 540,297 $ 540,297 =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 15 ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES (a development stage enterprise) Consolidated Statements of Cash Flows, continued
Cumulative Since 1994 1995 June 4, 1990 ---------- ---------- ------------ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 63,629 $ 101,237 $ 171,749 ========= ========== ========== Income taxes $ 6,031 $ 5,178 $ 19,626 ========= ========== ==========
Supplemental schedule of noncash investing and financing activities: The Company, on June 4, 1990, issued 3,334,780 shares of common stock in exchange for technical know-how and patents valued at $600,000. During October 1993, the Company issued 39,184 shares of common stock in exchange for the rights to a patent valued at $50,000. During 1994, notes payable of $250,000 and $12,064 of accrued interest thereon were converted into 171,741 shares of common stock. During 1994, a note payable of $200,000 was converted into 159,236 shares of common stock. During 1994, the Company retired 1,667,390 shares of treasury stock valued at $60,000. During 1995, convertible term loans of $1,025,000 were converted into 834,529 shares of common stock. During 1995, the Company issued 115,050 shares of common stock in exchange for original graphic illustrations valued at $255,555. In connection with the Merger with Astro-Stream, the Company assumed liabilities of $47,595 and acquired cash of $59,494. The accompanying notes are an integral part of these consolidated financial statements. 16 ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES (a development stage enterprise) Consolidated Statements of Cash Flows, continued The Company purchased all of the capital stock of Borta, Inc. The details of the business acquired are as follows: Fair value of current assets acquired $ 67,418 Fair value of fixed assets acquired 43,258 Intangible assets of business acquired: Capitalized software 8,086,750 Excess of cost over net assets acquired (goodwill) 5,008,049 Deferred tax liability (3,800,772) Liabilities assumed (104,703) Intercompany payable to the Company (50,000) ---------- Total purchase price consideration 9,250,000 Common stock issued 8,500,000 ---------- Total cash to be paid to seller 750,000 Liabilities to former stockholder 500,000 ---------- Cash paid to sellers at closing of the acquisition 250,000 Less, cash acquired 11,385 ---------- Net cash payment at closing of the acquisition $ 238,615 ==========
In connection with the purchase of Borta, the Company issued 357,143 shares of restricted common stock valued at $1,964,286 to the President of Borta as deferred compensation. These shares are subject to forfeiture (see note 9(b)). During 1995, the Company issued 25,000 shares of common stock in exchange for consulting services valued at $162,500. During 1995, the Company issued 4,082 shares of common stock in exchange for consulting services valued at $23,372. The accompanying notes are an integral part of these consolidated financial statements. 17 Notes to Consolidated Financial Statements 1. ORGANIZATION, MERGER AND ACQUISITION: (a) ORGANIZATION Aristo International Corporation ("Aristo") was incorporated in New York on June 4, 1990. The Company was formed to invest in innovative consumer products. Since 1994, management has focused on entertainment software for the consumer market. The consolidated financial statements include the accounts of Aristo and its wholly-owned subsidiaries (collectively, the "Company"). As a development stage enterprise, the Company has devoted all of its efforts through October 31, 1995 to research and development, raising capital, acquiring equipment, financial planning, opening new markets and finding strategic partners. Since inception, the Company has financed its operations through the private sale of stock and convertible notes for cash amounting to approximately $10,082,000 and with the exchange of stock of approximately $931,000 in products and services. The principal stockholders intend to continue to use their best efforts to finance or obtain financing sufficient for the Company's requirements (see note (12)). (b) MERGER On May 3, 1995, The Astro-Stream Corporation ("Astro-Stream") acquired all of the outstanding common stock of the Company through the issuance of 9,889,290 shares of Astro-Stream's common stock, par value $.001, constituting 90% of Astro-Stream's issued and outstanding common stock immediately following the merger of the Company into Astro-Stream (the "Merger"). Before the Merger, Astro-Stream was an inactive company, engaged in seeking out a suitable business for acquisition or merger. After the Merger, Astro-Stream changed its name to Aristo International Corporation. For accounting purposes, the Merger was treated as a recapitalization of the Company with the Company as the acquirer (reverse acquisition). All common stock of the Company was retroactively restated to reflect the equivalent number of Astro-Stream shares that were deemed to be issued by the Company in the transaction. The cumulative loss of Astro-Stream at the time of the merger amounted to $795,405 and is included in the deficit accumulated during the development stage of the Company. Pursuant to the Merger, the Company committed to obtain NASDAQ SmallCap Listing for the surviving corporation. In order to secure that commitment, the Company deposited $100,000 in an escrow account which was to be distributed to the former Astro-Stream shareholders if the listing was not obtained or released to the Company upon achieving the listing. The listing was obtained as of September 29, 1995. The parties have contested as to whether the performance by the Company was timely and whether there was failure on the part of the former 18 Astro-Stream shareholders in the effort to obtain the listing. The Company is vigorously contesting the claim of the former Astro-Stream shareholders to the funds and believes the deposit will be returned to the Company. The deposit is included in restricted cash on the balance sheet. (c) Acquisition On July 31, 1995, the Company, through its newly formed wholly-owned subsidiary BAIC Acquisition Corp., purchased all of the outstanding stock of Borta, Inc. ("Borta") for consideration aggregating $9,250,000 (the "Acquisition"). The consideration consisted of $8,500,000 (1,818,182 shares) of newly issued common stock and $750,000 in cash. Of the $750,000 in cash payments, $250,000 was paid at the closing and the remaining $500,000 will be paid in installments through February 28, 1996. Borta is involved in the creation and development of new multimedia digital entertainment and is engaged in original game development, cross-platform conversions, software tools and techniques and enabling technologies for game platforms. The Acquisition was accounted for using the purchase method of accounting and, accordingly, the results of operations are included in these financial statements from the effective date of the Acquisition. The Acquisition cost has been allocated to the assets acquired and liabilities assumed, based upon their fair value at the acquisition date, including $87,285 to net current liabilities, $43,258 to fixed assets, $8,086,750 to capitalized software and $1,207,277 to excess of cost over net assets acquired (goodwill). The value assigned to the capitalized software was determined based upon the anticipated discounted after-tax cash flows for the period estimated to encompass the remaining life of the technology existing at the Acquisition date. Following are pro forma results of operations for the twelve months ended October 31, 1995, as if the Acquisition had occurred as of the beginning of the year. The unaudited pro forma consolidated results of operations do not purport to represent what the Company's results of operations would actually have been if the Acquisition, in fact, had occurred on that date. The pro forma consolidated results of operations for the twelve months ended October 31, 1994 are not material to the financial statements and are therefore not presented. Year Ended October 31, 1995 ---------------- Revenue $ 352,391 Operating expenses 4,605,914 -------------- Net loss $ (4,253,523) ============== Loss per share $ (0.41) ============== 19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION: All significant intercompany accounts and transactions have been eliminated in consolidation. FIXED ASSETS: Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed by the straight-line method over the shorter of their estimated useful lives or the term of the lease. Maintenance and repairs are charged to income as incurred, whereas the cost of significant improvements is capitalized. CAPITALIZED LEASES: Capitalized leases are amortized by the straight-line method over the estimated useful lives of the depreciable assets. Accumulated amortization as of October 31, 1995 is $2,888. RESEARCH AND DEVELOPMENT: Research and development costs are charged to operations in the periods in which they are incurred. PATENTS: As a result of research and development programs conducted, the Company has applied for, or has received, a number of patents to protect proprietary inventions of significant importance to the Company. Costs, principally legal fees, directly associated with the application of the respective patents, are being amortized on a straight-line basis over their estimated useful lives or seventeen years, whichever is shorter. Accumulated amortization as of October 31, 1994 and 1995 was $14,624 and $20,352, respectively. ORGANIZATION COSTS: Organization costs are amortized by the straight-line method over their estimated useful lives of five years. Accumulated amortization as of October 31, 1994 and 1995 was $11,859 and $14,826, respectively. Organization costs were fully amortized as of October 31, 1995. GOODWILL: The excess of acquisition cost over amounts assigned to the identifiable assets acquired (goodwill) is being amortized on a straight-line basis over seven years. Accumulated amortization as of October 31, 1995 is $43,116. 20 SOFTWARE DEVELOPMENT COSTS: The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Marketed" ("SFAS 86"). SFAS 86 requires that certain software product development costs ("Capitalized Costs"), incurred after technological feasibility has been established, be capitalized and amortized, commencing upon the general release of the software product to the Company's customers, over the economic life of the software product. The Company's policy is to amortize capitalized software costs by the greater of (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on (seven years). It is reasonably possible that those estimates of anticipated future gross revenues, the remaining estimated economic life of the product, or both will be reduced significantly in the near term due to competitive pressures. As a result, the carrying amount of the capitalized software costs may be reduced materially in the near term. Software development costs incurred prior to reaching technological feasibility are expensed as incurred and included in research and development costs. ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s). Actual results could differ from those estimates. ROYALTY INCOME: Royalty income is accrued on the basis of reported transactions of licensees or the minimum requirements of license agreements. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. The Company manages its credit risk by depositing its cash with two commercial banks. INCOME TAXES: Deferred tax liabilities and assets are determined on the basis of the differences between the tax bases of assets and liabilities and their respective financial-reporting amounts ("temporary differences") at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. 21 LOSS PER SHARE: Net loss per share is computed on the basis of the loss for the period divided by the weighted average number of shares of common stock outstanding during the period. The loss per share for all periods presented excludes the number of common shares issuable upon conversion of convertible notes since such inclusion would be anti-dilutive. Impact of the Future Adoption of Recently Issued Accounting Standards: The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121") in March 1995. SFAS 121 requires companies to review their long-lived assets and certain identifiable intangibles (collectively, "Long-Lived Assets") for impairment whenever events or changes in circumstances indicate that the carrying value of a Long-Lived Asset may not be recoverable. Impairment is measured using the lower of a Long-Lived Assets' book value or fair value, as defined. The Company will be required to adopt the provisions of SFAS 121 at the beginning of the year ending October 31, 1997. The Company believes that, based upon current operations and prospects, the future adoption of SFAS 121 is not expected to have a material impact on the Company's financial position or results of operations. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123. "Accounting for Stock-Based Compensation" ("SFAS 123") in October 1995. The Company will be required to adopt the provisions of SFAS 123 at the beginning of the year ending October 31, 1997. SFAS 123 requires companies to estimate the fair value of common stock, stock options, or other equity instruments ("Equity Instruments") issued to employees using pricing models which take into account various factors such as current price of the common stock, volatility and expected life of the Equity Instruments. SFAS 123 permits companies to either provide pro forma note disclosure, or adjust operating results, for the amortization of the estimated value of the Equity Instrument, as compensation expense, over the vesting period of the Equity Instrument. The Company has not fully evaluated the impact the adoption of SFAS 123 will have on its financial position or results of operations at this time. 3. MARKETABLE SECURITIES: The Company considers its marketable equity securities to be "available for sale" as defined by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", and, accordingly, unrealized gains and losses are reported as a net amount in a separate component of stockholders' equity until realized. The cost of securities held at October 31, 1994 and 1995 approximates fair value. For the years ended October 31, 1994 and 1995, net realized losses were $31,092 and $20,753, respectively. 22 4. FIXED ASSETS: As of October 31, 1994 and 1995, fixed assets consist of: 1994 1995 -------- -------- Furniture and fixtures $ 32,966 $ 82,888 Office equipment 47,556 210,399 Leasehold improvements 22,632 22,632 -------- -------- 103,154 315,919 Less, Accumulated depreciation and amortization (27,066) (63,463) -------- -------- $ 76,088 $252,456 ======== ======== Depreciation expense for the years ended October 31, 1994 and 1995 was $12,713 and $29,692, respectively. 5. FINANCING: (a) LINE OF CREDIT The Company has borrowed $406,000 under a revolving line of credit with a commercial bank, due on demand, which provides for short-term financing up to a maximum amount of $500,000. Interest is payable at a rate of 7.35% for borrowings up to $250,000 and 1 1/2% above the bank's prime lending rate (8.75% at October 31, 1995) for borrowings in excess of $250,000. This line is collateralized by a $250,000 certificate of deposit with the bank which is included in restricted cash on the balance sheet. (b) CONVERTIBLE TERM LOANS On December 29, 1994, the Company issued a promissory note for cash, to a stockholder for $500,000, and on December 29, 1995 the Company issued a new note which replaces and supersedes the note dated December 29, 1994. Under the terms of the new note, the note is payable in eight monthly installments, beginning on May 1, 1996. The note bears interest at a rate equal to 10% per annum, payable on the last day of each month. The stockholder shall have the option, until May 1, 1996, to convert the note into 90,909 shares of common stock of the Company at an exercise price of $5.50 per share, in lieu of payment of principal. On March 29, 1995, the Company issued a promissory note for cash, due on April 30, 1996, to a stockholder for $200,000, collateralized by certain of the Company's patents, bearing interest at 10% payable quarterly. On December 29, 1995, the stockholder exercised its right to convert the note into 66,667 common shares of the Company. 23 On July 31, 1995, the Company issued a $240,000 note ("Original Note") maturing on December 31, 1995 plus interest of $20,000. On December 29, 1995, the Company issued a new note ("New Note") for $260,000 which represents the principal and accrued interest on the Original Note. The New Note replaces and supersedes the Original Note. Under the terms of the New Note, the principal is payable on January 1, 1997 with quarterly interest payments of $13,000 payable on April 1, 1996; July 1, 1996; October 1, 1996 and January 1, 1997. On December 29, 1995 the holder of the New Note indicated its intent to convert the New Note into 47,273 shares of common stock at a conversion price of $5.50 per share effective January 1, 1997. 6. COMMITMENTS: (a) LEASES The Company leases office space under a lease agreement expiring March 31, 2002. The lease includes scheduled base rent increases over the term of the lease. The total amount of the base rent payments is being charged to expense by the straight-line method over the term of the lease. The Company has recorded a deferred credit to reflect the excess of accrued rent expense over total cash payments since inception of the lease. The Company is obligated under an unconditional, irrevocable letter of credit in the amount of $86,831 as collateral for the office space. The letter of credit is collateralized by an escrow cash account of equal amount included in restricted cash on the balance sheet. In addition, in connection with the Borta Acquisition, the Company has entered into an agreement, expiring August 31, 1998, to lease office space. The Company has the right to terminate this lease at the end of the first year, with 120 days written notice, provided that the Company has not defaulted on any of the terms and conditions of the lease. Future minimum rental payments under these lease agreements are: Rental October 31 Commitment ---------- ---------- 1996 $ 308,250 1997 319,437 1998 310,283 1999 222,443 2000 222,443 Thereafter 315,127 ---------- $1,697,983 ========== 24 Rent expense for the fiscal years ended October 31, 1994 and 1995 and the cumulative period from June 4, 1990 (inception) to October 31, 1995 was $198,450, $213,638 and $806,158, respectively. (b) The company has entered into certain capital leases for computer equipment and office furniture. These leases expire in 1998. Future minimum rental payments under these lease agreements are: Rental October 31 Commitment ---------- ---------- 1996 $ 25,313 1997 30,198 1998 29,011 ---------- $ 84,522 ========== (c) EMPLOYMENT AGREEMENTS In connection with the Borta acquisition, the Company entered into two employment agreements, one with Borta's president and the other with Borta's chief operating officer. Both agreements expire on July 31, 1998. The aggregate commitment for future salaries under the employment agreements is $270,000 per annum. In addition, Borta's president is entitled to receive an annual bonus equal to 7 1/2% of Borta's earnings before interest and taxes, as defined. The Company has entered into an employment agreement with its chief executive officer and president for $350,000 per annum effective May 3, 1995 through May 2, 2000. In addition, the employment agreement includes the option to purchase 200,000 shares of common stock of the Company. These options shall vest in equal amount on each May 3 during the term of the employment agreement in accordance with the provisions of the 1994 Plan (see note 9). (d) FUNDING OF BORTA In connection with the Borta acquisition, the Company has committed to fund the ongoing operations of Borta based upon a plan pre-approved by the Company. 7. INCOME TAXES: There is no provision for federal, state or local income taxes for all periods presented, since the Company has incurred operating losses since inception. The Company has paid minimum state and local taxes during the years, as required. In addition, the Company has fully reserved for the potential future tax benefits resulting from the utilization of net operating loss carry-forwards and the realization of deferred rent. 25 Deferred tax assets, as of October 31, 1995, consists of the following: Net operating loss carry-forwards $ 4,604,765 Capitalized software (3,665,030) Other 67,158 ----------- Total deferred tax assets 1,006,893 Less, Valuation allowance (1,006,893) Net deferred tax assets $ - =========== As of October 31, 1995, the Company has available unused net operating loss carry forwards of approximately $9,797,000 which may provide future tax benefits, expiring in various years from 2006 to 2010. 8. CAPITAL STRUCTURE: At its inception (June 4, 1990), the Company issued 3,334,780 shares of common stock in exchange for technical know-how and patents related to certain consumer products which were to be developed further by the Company. These shares were assigned a value of $600,000, which represents the historical cost incurred by the Company's president and chief executive officer. During the year ended October 31, 1991, this amount was charged to operations as research and development costs. The valuation of all common stock issued in exchange for services, product and patents approximates the value of common stock sold to third parties for cash, at the time of issuance. On April 20, 1994, the Company issued 171,741 shares of common stock to a stockholder as a result of a conversion of a note payable for $250,000 plus $12,064 in accrued interest. On September 30, 1994, the Company issued 159,236 shares of common stock to a corporate stockholder as a result of a conversion of a $200,000 note payable. In addition, at the effective date of the Merger, the Company issued this stockholder an additional 38,350 shares of common stock pursuant to an anti-dilutive provision of the convertible note payable. On December 12, 1994, the Company issued 834,529 shares of common stock to stockholders as a result of a conversion of notes payable for $1,025,000. During March 1995, the Company issued 115,050 shares of common stock to its chief executive officer in exchange for original graphic illustrations. These illustrations are to be used for a screen saver project being developed by the Company. During May 1995, the Company issued 33,350 shares of preferred stock for $100,050 in 26 cash. The preferred stock provides for cumulative monthly dividends, in arrears, amounting to 11% per annum, starting June 15, 1995. No dividends can be declared or paid on the common stock until any dividends accrued and unpaid on the preferred stock have been paid. The preferred shares are redeemable at the option of the Company. If the redemption date of the preferred shares is on or prior to December 31, 1995, the redemption price for the shares shall be $105,000, plus any accrued and unpaid dividends. Thereafter, the redemption price for the shares of preferred stock shall be $110,000, plus any accrued and unpaid dividends. In connection with the Borta acquisition, the Company issued 1,818,182 shares of common stock to the former shareholders of Borta. Additionally, the Company issued 357,143 shares of common stock, valued at $1,964,286, as deferred compensation which are restricted and subject to forfeiture (see notes 1(c) and 9(b)). During August 1995, the Company issued 25,000 shares of common stock valued at $162,000 as a commission on the Borta Acquisition. During August 1995, the Company issued 4,082 shares of common stock in exchange for consulting services valued at $23,372. 9. STOCK OPTIONS: (a) 1994 PLAN On December 9, 1994, the Board of Directors adopted the Company's 1994 Stock Option Plan (the "1994 Plan") which provides for the granting of options for the purchase of up to an aggregate of 500,000 shares of common stock to key employees, and to consultants, advisors and directors who are not employees. Options may be either incentive stock options ("ISO") or non-qualified options. Under the 1994 Plan, the option price shall be established by a compensation committee of the Board of Directors. The exercise price of the ISOs granted shall not be less than the fair market value of the shares on the effective date of the grant or not less than 110% of the fair market value of the shares on the effective date of the grant if the optionee owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company. 300,000 options have been granted under the 1994 Plan, as of October 31, 1995, of which 40,000 options are exercisable at $2.44 per share. The remaining 260,000 options are exercisable at varying times through fiscal 1999 at prices ranging from $2.44 per share to $8.00 per share. All options expire 5 years from the date of grant. 27 (b) 1995 PLAN On July 28, 1995, the Board of Directors adopted the Company's 1995 Stock Option Plan (the "1995 Plan") which provides for the granting of options for the purchase of up to an aggregate of 1,000,000 shares of common stock to employees and non-employees. Under the 1995 Plan, the option price shall be established by a compensation committee of the Board of Directors. Under the 1995 Plan, either ISOs or non-qualified options may be granted: ISO's can only be granted to employees. With respect to ISOs, the exercise price shall not be less than the fair market value of the shares on the effective date of the grant or not less than 110% of the fair market value of the shares on the effective date of the grant if the optionee owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company. All options granted, other than those discussed below, vest over a five-year period and expire ten years from the date of grant. The following transactions took place in connection with the Borta acquisition: 400,000 stock options were granted under the 1995 plan to the former stockholders of Borta at an exercise price of $5.50 per share and become exercisable on October 31, 2000 and may become exercisable earlier if certain earning performance milestones are achieved (the "Milestones") for the 1996, 1997 and 1998 fiscal years, defined as earnings before interest and taxes as detailed below: 1996* $ 4,856,766 1997 $ 9,653,562 1998 $ 14,786,497 *Includes activity from July 31, 1995 to October 31, 1996. 242,859 stock options at an exercise price of $1.00 per share were granted to the former stockholders of Borta. These options become exercisable on the January 31, following the fiscal years ending October 31, 1996, 1997 and 1998 provided that Borta achieves the Milestones for each Fiscal year, as defined. The right to purchase shares of common stock shall not be cumulative, so that if Borta does not achieve the Milestones, as defined, the options exercisable with respect to the applicable fiscal year of Borta shall terminate and shall not be exercisable in subsequent years. In accounting for these options, the Company will recognize noncash compensation expense as the Milestones are achieved or upon the probable attainment of the Milestone. Compensation expense will be measured as the difference between the 28 aggregate fair value of the Company's common stock that can be acquired upon the exercise price of the vested options. As of October 31, 1995, none of the Milestones have been achieved nor was it probable that the Milestones would be attained and accordingly, no compensation expense has been recognized to date. 357,143 shares of common stock were awarded to the president of Borta. These shares are restricted and are subject to forfeiture until October 31, 2000, provided, however, that the risk of forfeiture shall lapse on January 31, 1997, 1998 and 1999 with respect to 30%, 30% and 40% of such shares, respectively, if Borta achieves certain Milestones for the fiscal years ending 1996, 1997 and 1998, respectively, as defined. The Company has recorded deferred stock compensation expense, representing the fair market value at the date of the grant, as a separate component of stockholders' equity for the non-vested portion of stock granted. As of October 31, 1995 the Company has amortized $117,857 of the deferred stock compensation expense. 10. RELATED PARTIES: The Company has entered into an agreement with a corporate stockholder to provide consulting services. In consideration for these services, such corporate stockholder received fees totaling approximately $70,000, $75,000 and $228,000 during the years ended October 31, 1994 and 1995 and the cumulative period from June 4, 1990 (inception) to October 31, 1995, respectively. In addition, the Company has issued to this corporate stockholder 273,451 shares of common stock in exchange for $350,000 of services during the three fiscal years ended October 31, 1993. No additional stock has been issued to this stockholder in exchange for services. In addition, the Company obtained the services of its chief executive officer from another company of which the Company's CEO is the principal stockholder. Fees paid to this company during the years ended October 31, 1994 and 1995 and the cumulative period from June 4, 1990 (inception) to October 31, 1995, total approximately $626,000, $456,700 and $2,084,700, respectively. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of all financial instruments approximate their carrying values based on the interest rates for similar instruments. 12. SUBSEQUENT EVENTS: Subsequent to October 31, 1995, the Company entered into subscription agreements to issue and sell 264,000 shares of stock in exchange for $1,452,000 in cash. As of January 5, 1996 all subscribed amounts have been received. 29 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The following table sets forth certain information concerning the present directors and executive officers of the Company and the present key officers of its subsidiaries: Name Age Position ---- --- -------- Shmuel Cohen 37 President, Chief Executive Officer and Director of the Company Edward J. Hughes 55 Chief Financial Officer of the Company Ronald Borta 42 President of Borta, Inc. Leslie Davis 32 Chief Operating Officer of Borta, Inc. Robert J. Kropp 37 General Counsel of the Company Joseph Ettinger 56 Director of the Company Yael Cohen 35 Director of the Company All directors hold office until their respective successors are elected, or until death, resignation or removal. Officers hold office until the meeting of the Board of Directors following each Annual Meeting of Stockholders and until their successors have been chosen and qualified. Shmuel Cohen founded the Company in 1990 and has been President, Chief Executive Officer and a director of the Company since the Company's inception. From 1989 to 1991, Mr. Cohen was employed by Lamia Enterprises, Ltd. as its President. Mr. Cohen is the husband of Yael Cohen. Edward J. Hughes joined the Company in August 1995 as chief financial officer. From 1993 to 1995, Mr. Hughes was the Senior Vice President and Chief Financial Officer of Global Processing Alliance, Inc., a joint venture between Bankers Trust Company and First Fidelity Bancorp N.J. which provides check processing and related services. From 1986 to 1993, Mr. Hughes was the Executive Vice President and Chief Financial Officer of Science Management Corporation, a publicly-traded management consulting firm. -30- Ron Borta has been the President of Borta since November 1993. From January 1992 to November 1993, Mr. Borta was Director of Applications Development at TV Answer, Inc. of Reston, Virginia. From 1990 to January 1992, Mr. Borta was a director of Stephens Engineering of Lanham, Maryland. Mr. Borta is the husband of Leslie Davis. Leslie Davis has been the Chief Operating Officer of Borta since November 1993. From April 1992 to November 1993, Ms. Davis was employed by TV Answer, Inc., where she created the Quality Assurance Monitoring System for TV Answer software and assisted in the uniform implementation of development policies and processes. Prior to April 1992, Ms. Davis was employed by Stephens Engineering. Ms. Davis is the wife of Ron Borta. Robert J. Kropp joined the Company in November 1995 as General Counsel. From 1993 to 1995, Mr. Kropp was the Assistant General Counsel of Autotote Corporation, a New York-based hardware and software provider to the parimutuel wagering industry. From 1991 to 1993 Mr. Kropp was an associate with the law firm of Edwards and Angell. Joseph Ettinger has been a director of the Company since September 1992. From 1989 to 1992, Mr. Ettinger was employed by CLAL (Israel) Ltd. as Senior Vice President and General Representative (USA and Canada). Since 1992, Mr. Ettinger has been the President and Chief Executive Officer of Castellon, Ltd., a non-U.S. financial services company that presently owns approximately 16% of the Company's Common Stock. Yael Cohen has been a director of the Company since July 1990. Ms. Cohen, who is the wife of Shmuel Cohen, has not been employed during the past five years. Directors of the Company do not receive fixed compensation for their services as directors; however, the Board of Directors may authorize the payment of a fixed sum to directors for their attendance at regular and special meetings of the Board as is customary for similar companies. Directors will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with their duties to the Company. Other than as described above, there are no family relationships among any of the directors or executive officers of the Company. The Company has obtained a key man life insurance policy covering Shmuel Cohen in the amount of $3,000,000. The Company is the sole beneficiary under this policy. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors, and any persons who own more than 10% of any class of the Company's equity securities, to file certain reports relating to their ownership of such securities and changes in such ownership with the Securities and Exchange Commission and to furnish the Company with copies of such reports. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company, all Section 16(a) filing requirements applicable to such officers, directors and greater that 10% owners, during its last fiscal year, have been complied with except that Edward Hughes inadvertently failed to file on a timely basis a Form 5 to reflect becoming an executive officer, Shmuel Cohen, Joseph Ettinger and Yael Cohen were each inadvertantly late in filing a report upon becoming directors (and in the case of Mr. Cohen, an executive officer), and Shmuel Cohen and Castellon Limited were each inadvertently late in filing one report with regard to one transaction. -31- ITEM 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE. The following table sets forth information concerning the annual and long term compensation during the Company's last three fiscal years of Shmuel Cohen, the Company's chief executive officer, and the other most highly compensated executive officers of the Company and its subsidiaries, whose salary and bonus for the 1995 fiscal year exceeds $100,000, for services rendered in all capacities to the Company and its subsidiaries.
Annual Compensation Long Term Awards ----------------------------------------------------- ---------------------------------------- Name and Other Annual Securities Underlying Restricted Stock Principal Position Year Salary Bonus Compensation Options Awards - ----------------------- ------ ---------- ------- ------------ --------------------- ---------------- Shmuel Cohen, 1995 $29,167 -- $456,700 (1) 40,000 -- President and Chief 1994 -- -- 626,000 (1) -- -- Executive Officer 1993 -- -- 327,000 (1) -- -- of the Company Ron Borta, 1995 $43,750 $250,000 -- 334,286 $1,964,286 (2) President of Borta, Inc. 1994 -- -- -- -- -- 1993 -- -- -- -- --
- -------------------- (1) Represents amounts paid to Artmedia Ltd., a corporation controlled by Mr. Cohen, in consideration of the provision by Artmedia of the services of Mr. Cohen, the chief executive officer of Artmedia, as Chief Executive Officer of the Company. (2) Represents the aggregate fair market value of 357,143 shares of restricted stock on July 28, 1995 (the date of award). These shares are subject to forfeiture until October 31, 2000. The risk of forfeiture lapses on January 31, 1997, 1998 and 1999 with respect to 30%, 30% and 40% of such shares, respectively, if Borta, Inc., the Company's wholly-owned subsidiary ("Borta"), achieves certain earnings milestones for Borta's fiscal years ending October 31, 1996, 1997 and 1998, respectively. The shares on which the rights of forfeiture have not previously lapsed shall be forfeited in the event that Mr. Borta's employment with Borta is terminated for cause or Mr. Borta voluntarily terminates his employment with Borta prior to October 31, 2000, unless such termination arises on account of his death, disability or voluntary termination of employment after January 31, 1999. From the date of award, Mr. Borta is entitled to vote all such shares and to receive dividends, if any, declared and paid on the shares of Common Stock unless and until such shares are forfeited. As of the end of the Company's 1995 fiscal year, all of these shares of restricted stock were issued and outstanding and the aggregate fair market value of these restricted shares (based on the closing bid price of the Common Stock on the National Association of Securities Dealers Automated Quotation System - Small Cap Market on October 31, 1995) was $2,410,715. -32- OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth the details of options granted to those individuals listed in the Summary Compensation Table who received options during fiscal 1995.
% of Total Options Number of Granted to Options Employees in Fiscal Exercise Price Name Granted Year Per Share Expiration Date - ------------ --------- ------------------- -------------- --------------- Shmuel Cohen 200,000(1) 23.9% $2.44 December 9, 2004 Ronald Borta 126,286(2) 15.1% $1.00 October 31, 2000 Ronald Borta 208,000(3) 24.9% $5.50 October 31, 2000
- ------------------ (1) 40,000 of these options are currently exercisable. (2) These options are exercisable on January 31, 1997, 1998 and 1999 with respect to 25%, 25% and 50% of such shares, respectively, if Borta achieves certain earnings milestones for Borta's fiscal years ending October 31, 1996, 1997 and 1998, respectively. These options to purchase shares are not cumulative so that if Borta does not achieve the targeted milestone with respect to the applicable fiscal year, the options attributable to such fiscal year shall terminate and shall not be exercisable in subsequent years. (3) These options are exercisable on October 31, 2000 and may become exercisable earlier on January 31, 1997, 1998 and 1999 with respect to 30%, 30% and 40% of such shares, respectively, if Borta achieves certain earnings milestones for Borta's fiscal years ending October 31, 1996, 1997 and 1998, respectively. OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE No options were exercised by any named executive officers during fiscal 1995. The following table contains information at October 31, 1995, concerning the number and value of unexercised options held by Messrs. Cohen and Borta.
Number of Unexercised Options Value of Unexercised In-the-Money Held at Fiscal Year-End Options Held at Fiscal Year-End Name (Exercisable/Unexercisable) (Exercisable/Unexercisable) (1) - ---------------- ------------------------------- ----------------------------------- Shmuel Cohen 40,000 / 160,000 $212,000 / $848,000 Ronald Borta 0 / 334,286 $0 / $1,236,859
- ----------------------- (1) Based on the fair market value of the underlying securities (the closing bid price of Common Stock on the National Association of Securities Dealers Automated Quotation System - Small Cap Market) at fiscal year end (October 31, 1995), minus the exercise price. -33- EMPLOYMENT AGREEMENTS Mr. Cohen and the Company have entered into an employment agreement that provides that Mr. Cohen will serve as Chief Executive Officer and President of the Company for a term beginning on May 3, 1995, the date of the consummation of the merger with Aristo International Corporation, a New York corporation, and ending five (5) years thereafter. Mr. Cohen's compensation under his employment agreement includes a salary of $350,000 per annum and options to purchase 200,000 shares of Common Stock. 40,000 of these options vested on May 3, 1995 and are currently exercisable. The remaining 160,000 options vest in equal amounts on May 3, 1996, 1997, 1998 and 1999. The exercise price of each option is $2.44. Mr. Cohen and the Company have also entered into an agreement that provides contractual protections against changes in or loss of employment in case of a change of control of the Company. On July 28, 1995, Borta entered into an employment agreement with Ron Borta, the President of Borta. This employment agreement expires on October 31, 1998 and provides for an annual salary of $150,000 during the term thereof. The employment agreement provides for a signing bonus of $750,000. $250,000 of this signing bonus was paid upon execution of the employment agreement and the remainder will be paid in installments through February 28, 1996. In addition, Mr. Borta is entitled to receive an annual bonus equal to 7-1/2% of Borta's earnings before interest and taxes. Mr. Borta beneficially owns approximately 11% of the Company's Common Stock. STOCK OPTION PLANS The Company currently maintains two stock option plans. The Company's 1994 Stock Option Plan (the "1994 Stock Option") provides for the granting of options to key employees (including directors and officers who are key employees) and to consultants, advisors and directors who are not employees, of the Company and its present and future subsidiaries, to purchase up to 500,000 shares of the Company's Common Stock. The Company's 1995 Stock Option Plan (the "1995 Stock Option Plan" and together with the 1994 Stock Option Plan, the "Stock Option Plans") provides for the granting of options to key employees (including directors and officers who are key employees) and to consultants, advisors and directors who are not employees, of the Company and its present and future subsidiaries, to purchase up to 1,000,000 shares of the Company's Common Stock. Options granted under the Stock Option Plans may either be incentive stock options ("ISOs"), within the meaning of Section 422 of the Code, or non-qualified options ("NQSOs"). ISOs, however, may only be granted to employees of the Company and its subsidiaries. The Stock Option Plans are to be administered by a Stock Option Committee (the "Committee") consisting of at least two members of the Board of Directors, each of whom is a "disinterested person" within meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). It is also intended that each member of the Committee will be an "outside director" within the meaning of Section 162(m) of the Code. Within the limits of the Stock Option Plans, the Committee is authorized to determine, among other things, to whom and the time or times at which options are to be granted, the type of options to be granted, the number of shares which will be subject to any option, the term of each option, the exercise price of each option, the time or times and conditions under which options may be exercised , and such other terms not inconsistent with the Stock Option Plans as the Committee may deem appropriate. -34- The exercise price of each option will be determined by the Committee; provided, however, that the exercise price of an ISO may not be less than the fair market value of the Company's Common Stock on the date of grant (110% of such fair market value if the optionee owns (or is deemed to own) more than 10% of the voting power of the Company or is an outside director). Options may be granted for terms determined by the Committee; provided, however, that the term of an ISO may not exceed 10 years (5 years if the optionee owns (or is deemed to own) more than 10% of the voting power of the Company) or is an outside director. The maximum number of shares of the Company's Common Stock for which options may be granted to an employee in any calendar year is 100,000. Each option is payable in full upon exercise or, if the applicable contract permits, in installments. Payment of the exercise price of an option may be made in cash, or, if the applicable Contract permits, in shares of the Company's Common Stock or any combination thereof. No option may be granted pursuant to the 1994 Stock Option Plan after December 9, 2004 and no option may be granted pursuant to the 1995 Stock Option Plan after July 27, 2000. The Board of Directors may at any time terminate or amend the Stock Option Plans; provided, however, that, without the approval of the Company's stockholders, no amendment may be made which would (a) increase the maximum number of shares available for the grant of options (except as a result of the anti-dilution adjustments described above), (b) materially increase the benefits accruing to participants under the Stock Option Plans, or (c) change the eligibility requirements for individuals who may receive options. No termination or amendment may adversely affect the rights of an optionee with respect to an outstanding option without his or her consent. As of January 22, 1996, options to purchase 320,000 shares of Common Stock have been granted under the 1994 Stock Option Plan, none of which have been exercised, and options to purchase 642,859 shares of Common Stock have been granted under the 1995 Stock Option Plan, none of which have been exercised. -35- ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of the outstanding shares of the Company's Common Stock as of January 15, 1996 by (i) each person known by the Company to own more than five percent (5%) of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) each of the executive officers named in the Summary Compensation Table herein under "Executive Compensation", and (iv) all directors and executive officers of the Company as a group.
Name and Address Amount and Nature Percent of Beneficial Owner of Beneficial Ownership of Class(1) - ------------------- ----------------------- -------- Castellon Limited(2) 2,205,957 16.3% Russell Court St. Stephens Green Dublin, Ireland Shmuel Cohen(2) 2,262,631 (3) 16.7% 32 Bayside Terrace Harbor Hills, New York 11023 N.Y. Holdings, Ltd.(2) 775,336 5.7% c/o Hertzog, Fox & Neeman 4 Weizman Street Tel Aviv 64239 Israel Joseph Ettinger(2)(4) 2,205,957 16.3% Yael Cohen 0 (5) ------ Ron Borta 1,484,416 (6) 11% Directors and executive officers as a group (4 persons) 4,468,588 33.0%
- ---------------------------- (1) Based on 13,530,613 shares outstanding. (2) Pursuant to a ten year proxy agreement, Mr. Cohen, Castellon Limited and NY Holdings Ltd. have agreed that for so long as each party is a stockholder of the Company, each party will vote his or their shares of common stock, currently constituting approximately 38.8% of the Company's common stock, for the election of three directors to be designated by Mr. Cohen, two directors to be designated by Castellon Limited and one director to be designated by NY Holdings, Ltd. The sole beneficial owner of Castellon Limited is Mr. Joseph Ettinger and the sole beneficial owner of NY Holdings, Ltd. is Mr. Yaakov Neeman. (3) Includes 40,000 shares issuable upon exercise of currently exercisable stock options. (4) Mr. Ettinger is the President and sole beneficial owner of Castellon Limited and may therefore be deemed to be the beneficial owner of all of the shares of common stock of the Company owned by Castellon Limited. (5) Excludes all shares of the Company owned by Mr. Shmuel Cohen. Ms. Cohen is the wife of Mr. Cohen and may therefore be deemed to shares beneficial ownership of the shares owned by Mr. Cohen. Ms. Cohen disclaims beneficial ownership of these shares. (6) Includes (i) 181,818 shares owned by Leslie Davis, Mr. Borta's wife, and (ii) 357,143 shares which are restricted and are subject to forfeiture until October 31, 2000. -36- ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On August 1, 1995, the Company issued to Castellon Limited a promissory note in the principal amount of $240,000, plus interest in the amount of $20,000, due and payable on December 31, 1995. On December 29, 1995, the Company issued to Castellon Limited a new promissory note in the principal amount of $260,000, and the $240,000 promissory note issued on August 1, 1995 was canceled. Under the terms of the new note, the principal amount thereof is due and payable on January 1, 1997, and interest on the principal amount is due and payable in four installments of $13,000 each on April 1, 1996, July 1, 1996, October 1, 1996 and January 1, 1997. At the option of Castellon Limited, this new note is convertible into shares of common stock at an exercise price of $5.50 per share. On July 1, 1995, the Company entered into a consulting agreement with Castellon Limited, a stockholder of the Company which presently owns approximately 16.3% of the Company's Common Stock. Pursuant to this consulting agreement, Castellon Limited is paid a fee of $10,000 per month for consulting services rendered to the Company relating to joint ventures, strategic partnership and investor relations outside the U.S. Prior to July 1, 1995, Castellon Limited provided consulting services to the Company pursuant to other written agreements. During the years ended October 31, 1994 and 1995 and during the cumulative period from June 4, 1990 (inception) to October 31, 1995, the Company paid to Castellon Limited fees totaling approximately $70,000, $75,000 and $228,000, respectively, in consideration of such consulting services. Mr. Joseph Ettinger, a director of the Company, is the President of Castellon Limited. In May 1995, the Company sold to Castellon Limited 33,350 shares of preferred stock in consideration of the payment by Castellon of $100,050 in cash. The terms of this preferred stock provides for cumulative monthly dividends, payable in arrears, at a rate per annum equal to 11% of the amount paid by Castellon in consideration of such preferred stock, commencing June 15, 1995. So long as any shares of preferred stock are outstanding, the Company may not declare, pay, or set apart for payment any dividend on any of the shares of Common Stock of the Company, or make any payment on account of any of the shares of Common Stock, unless and until all accrued and unpaid dividends on the shares of preferred stock shall have been paid in full. The shares of preferred stock are redeemable at any time at the option of the Company. The aggregate redemption price of the shares of preferred stock is $110,000, plus any accrued and unpaid dividends. On September 30, 1994, the Company issued 159,236 shares of Common Stock to Castellon Limited as a result of the conversion of a $200,000 promissory note by Castellon Limited. In addition, on May 3, 1995, as a result of the merger with Astro-Stream, the Company issued to Castellon 38,350 shares of Common Stock pursuant to an anti-dilution provision of this promissory note. During March 1995 the Company issued 115,050 shares of Common Stock to Shmuel Cohen, its Chief Executive Officer, in exchange for original graphic illustrations. From June 4, 1990 through September 30, 1995, the Company obtained the services of Shmuel Cohen, its chief executive officer, from another company of which Mr. Cohen is the sole stockholder. Fees paid to this company for the services of Mr. Cohen during the fiscal years ended October 31, 1994 and 1995 and for the cumulative period from June 4, 1990 (inception) to October 31, 1995 were approximately $456,700, $626,000 and $2,084,700, respectively. On February 1, 1995, the Company entered into an employment agreement with Shmuel Cohen, its Chief Executive Officer. See "Executive Compensation - Employment -37- Agreement." Commencing October 1995, the Company began compensating Mr. Cohen as chief executive officer pursuant to this employment agreement, and since such date has not paid fees to any other person in connection with the services of Mr. Cohen. On July 28, 1995, Borta entered into an employment agreement with Ron Borta, the President of Borta. See "Executive Compensation - Employment Agreements." On July 28, 1995, the Company granted to Ron Borta options to purchase 208,000 shares of Common Stock at an exercise price of $5.50 per share. These options shall become exercisable on October 31, 2000 and may become exercisable earlier if Borta achieves certain earnings milestones for its 1996, 1997 and 1998 fiscal years. In addition, on July 28, 1995, the Company granted to Mr. Borta options to purchase 126,286 shares of Common Stock at an exercise price of $1.00 per share. These options shall become exercisable on January 31, 1997, 1998 and 1999 with respect to 25%, 25% and 50% of such shares, respectively, if Borta achieves certain earnings milestones for Borta's fiscal years ending October 31, 1996, 1997 and 1998, respectively. These options to purchase shares are not cumulative so that if Borta does not achieve the targeted milestone with respect to the applicable fiscal year, the options attributable to such fiscal year shall terminate and shall not be exercisable in subsequent years. On July 28, 1995, the Company awarded 357,143 shares of Common Stock to Mr. Borta. These shares are restricted and are subject to forfeiture until October 31, 2000. The risk of forfeiture lapses on January 31, 1997, 1998 and 1999 with respect to 30%, 30% and 40% of such shares, respectively, if Borta achieves certain earnings milestones for Borta's fiscal years ending October 31, 1996, 1997 and 1998, respectively. On July 28, 1995, Borta entered into an employment agreement with Leslie Davis, the Chief Operating Officer of Borta. This employment agreement expires on October 31, 1998 and provides for an annual salary of $120,000 during the term thereof. Ms. Davis is the wife of Ron Borta. On July 28, 1995, the Company granted to Leslie Davis options to purchase 40,000 shares of Common Stock at an exercise price of $5.50 per share. These options shall become exercisable on October 31, 2000 and may become exercisable earlier if Borta achieves certain earnings milestones for its 1996, 1997 and 1998 fiscal years. In addition, on July 28, 1995, the Company granted to Ms. Davis options to purchase 24,286 shares of Common Stock at an exercise price of $1.00 per share. These options shall become exercisable on January 31, 1997, 1998 and 1999 with respect to 25%, 25% and 50% of such shares, respectively, if Borta achieves certain earnings milestones for Borta's fiscal years ending October 31, 1996, 1997 and 1998, respectively. These options to purchase shares are not cumulative so that if Borta does not achieve the targeted milestone with respect to the applicable fiscal year, the options attributable to such fiscal year shall terminate and shall not be exercisable in subsequent years. -38- ITEM 13. EXHIBIT LIST AND REPORTS ON FORM 8-K. (a) The following Exhibits are filed as part of this Report.
Exhibit Number Description Method of Filing - ------- ----------- ---------------- 2.1 Merger Agreement between the Incorporated by reference to Registrant and Aristo International an Exhibit to the Registrant's Corporation, dated October 28, 1994. Current Report on Form 8-K, File No. 33-1260-NY, filed on November 16, 1994. 2.2 Agreement and Plan of Merger among Incorporated by reference to an the Registrant, BAIC Acquisition Corp., Exhibit to the Registrant's Borta, Inc. and the shareholders of Current Report on Form 8-K, File Borta, Inc., dated July 28, 1995. No. 33-1260-NY, filed on August 15, 1995. 3.1 Restated and Amended Certificate Filed herewith. of Incorporation of the Registrant. 3.2 By-Laws of the Registrant. Filed herewith. 4.1 Specimen Stock Certificate. Filed herewith. 10.1 1994 Stock Option Plan of the Filed herewith. Registrant. * 10.2 1995 Stock Option Plan of the Filed herewith. Registrant. * 10.3 Employment Agreement between the Filed herewith. Registrant and Shmuel Cohen dated February 1, 1995. * 10.4 Employment Agreement between Filed herewith. Borta, Inc. and Ronald Borta, dated July 28, 1995. * 10.5 Employment Agreement between Filed herewith. Leslie Davis and Borta, Inc., dated July 28, 1995. * - -------------------------------------- * Management contract or compensatory plan or arrangement. -39 10.6 Change in Control Agreement, dated Filed herewith. February 1, 1995, between the Registrant and Shmuel Cohen. * 10.7 Consulting Agreement, dated July Filed herewith. 1, 1995, between the Registrant and Castellon Limited. * 10.8 Restricted Stock Letter Agreement, Filed herewith. dated July 28, 1995, between the Registrant and Ron Borta. * 20.1 Information Statement of the Incorporated by reference to the Registrant, dated March 20, 1995, Registrant's definitive Information as supplemented on March 29, 1995. Statement dated March 20, 1995, File No. 0-25296, filed on March 24, 1995, as supplemented by certain materials filed on March 30, 1995. 22.1 List of Subsidiaries Filed herewith. 27 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K. On August 15, 1995, the Company filed a Current Report on Form 8-K with respect to the merger on July 31, 1995 of Borta, Inc., a Virginia corporation, with and into BAIC Acquisition Corp., a wholly-owned subsidiary of the Registrant. On September 29, 1995, the Company filed a Form 8-K/A Amendment No. 1 amending the above Form 8-K to include the pro forma financial information required pursuant to Item 7(b) of Form 8-K. - -------------------------------------- * Management contract or compensatory plan or arrangement. -40- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ARISTO INTERNATIONAL CORPORATION By:/S/ SHMUEL COHEN ------------------------- Shmuel Cohen President and Chief Executive Officer Dated: January 28, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /S/ SHMUEL COHEN President, Chief Executive January 28, 1996 - --------------------- Officer and Director Shmuel Cohen /S/ EDWARD J. HUGHES Chief Financial Officer January 28, 1996 - --------------------- Edward J. Hughes /S/ JOSEPH ETTINGER Director January 28, 1996 - --------------------- Joseph Ettinger /S/ YAEL COHEN Director January 28, 1996 - --------------------- Yael Cohen -41- ARISTO INTERNATIONAL CORPORATION EXHIBIT INDEX Exhibit Page Number Description Number - ------ ----------- ------ 2.1 Merger Agreement between the Registrant and Aristo International Corporation, dated October 28, 1994 (incorporated by reference to an exhibit to the Registrant's Current Report on Form 8-K, File No. 33-1260-NY, filed on November 16, 1994). 2.2. Agreement and Plan of Merger among the Registrant, BAIC Acquisition Corp., Borta, Inc. and the shareholders of Borta, Inc., dated July 28, 1995 (incorporated by reference to an exhibit to the Registrant's Current Report on Form 8-K, File No. 33-1260-NY, filed on August 15, 1995). 3.1 Restated and Amended Certificate of Incorporation of the Registrant. 3.2 By-Laws of the Registrant. 4.1 Specimen Stock Certificate. 10.1 1994 Stock Option Plan of the Registrant. 10.2 1995 Stock Option Plan of the Registrant. 10.3 Employment Agreement between the Registrant and Shmuel Cohen dated February 1, 1995. 10.4 Employment Agreement between Borta, Inc. and Ronald Borta, dated July 28, 1995. 10.5 Employment Agreement between Leslie Davis and Borta, Inc., dated July 28, 1995. 10.6 Change in Control Agreement, dated February 1, 1995, between the Registrant and Shmuel Cohen. 10.7 Consulting Agreement, dated July 1, 1995, between the Registrant and Castellon Limited. 10.8 Restricted Stock Letter Agreement, dated July 28, 1995, between the Registrant and Ron Borta. -42- Exhibit Page Number Description Number - ------ ----------- ------ 20.1 Information Statement of the Registrant, dated March 20, 1995, as supplemented on March 29, 1995 (incorporated by reference to the Registrant's definitive Information Statement dated March 20, 1995, File No. 0-25296, filed on March 24, 1995, as supplemented by certain materials filed on March 30, 1995). 22.1 List of Subsidiaries 27 Financial Data Schedule -43- EX-3 2 RESTATED AND AMENDED CERT. OF INCORPORATION EXHIBIT 3.1 ----------- RESTATED AND AMENDED CERTIFICATE OF INCORPORATION OF THE ASTRO-STREAM CORPORATION --------------------------------- Pursuant to the General Corporation Law of the State of Delaware ---------------------------------- The Astro-Stream Corporation (the "Corporation"), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The present name of the Corporation is The Astro-Stream Corporation. 2. The name under which the Corporation was incorporated was "The Astro- Stream Corporation," and its original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on July 12, 1984. 3. The Certificate of Incorporation of the Corporation is hereby amended by striking out Articles First, Fourth, Fifth, Sixth, Seventh, Ninth and Tenth thereof and by substituting in lieu thereof new Articles First, Fourth, Fifth, Sixth, Seventh and Ninth which are set forth in the Restated Certificate of Incorporation hereinafter provided for. 4. The provisions of the Certificate of Incorporation of the Corporation as heretofore amended, and as herein amended, are hereby restated and integrated into the single instrument which is hereinafter set forth, and which is entitled Restated and Amended Certificate of Incorporation of the Aristo International Corporation, without any further amendments other than the amendments herein certified and without any discrepancy between the provisions of the Certificate of Incorporation as heretofore amended and the provisions of the said single instrument hereinafter set forth. 5. The amendments and the restatement of the Certificate of Incorporation set forth herein certified have been duly authorized and adopted by the Board of Directors of the Corporation and duly approved and adopted by the stockholders of the Corporation in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. Prompt written notice of the adoption of the amendments and of the restatement of the Certificate of Incorporation herein certified has been given to those stockholders who have not consented in writing thereto, as provided in Section 228 of the General Corporation Law of the State of Delaware. 6. The text of the Corporation's Certificate of Incorporation as heretofore amended, is hereby restated and amended to read as set forth in full as follows: -2- RESTATED AND AMENDED CERTIFICATE OF INCORPORATION OF ARISTO INTERNATIONAL CORPORATION FIRST: The name of the Corporation is Aristo International Corporation (the "Corporation"). SECOND: The registered office of the corporation is to be located at c/o United Corporate Services Inc., 410 South State Street, in the City of Dover, County of Kent, State of Delaware 19901. The name of its registered agent at that address is United Corporate Services, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of all classes of stock which the corporation shall have authority to issue is 20,000,000 of which (i) 1,000,000 shall be Preferred Stock, par value $.001 per share; and (ii) 19,000,000 shall be Common Stock, par value $.001 per share. A statement of the designations of the authorized classes of stock or of any series thereof, and the powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, or of the authority of the board of directors to fix by resolution or resolutions such designations and other terms not fixed by the Certificate of Incorporation, is as follows: 1. The Preferred Stock may be issued in one or more series, from time to time, with each such series to have such designation, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue of such series adopted by the board of directors of the corporation, subject to the limitations prescribed by law and in accordance with the provisions hereof, the board of directors being hereby expressly vested with authority to adopt any such resolution or resolutions. The authority of the board of directors with respect to each such series shall include, but not be limited to, the determination or fixing of the following: (i) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the -3- board of directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the board of directors; (ii) The dividend rate of such series, the conditions and times upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock or series thereof, or any other series of the same class, whether the corporation shall be required to pay such dividends on specified dates, if funds are legally available for the payment thereof, or, whether the payment of such dividends shall be entirely at the discretion of the board of directors, whether such dividends shall be payable in cash or by the issuance of Common or Preferred Stock of the corporation, and whether dividends shall be cumulative or non-cumulative; (iii) Whether or not the shares of such series shall be subject to redemption by the corporation and the conditions thereof, and the times, prices and other terms and provisions upon which the shares of the series may be redeemed; (iv) Whether or not the shares of the series shall be subject to the operation of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if such retirement or sinking fund be established, the annual amount thereof and the terms and provisions relative to the operation thereof; (v) Whether or not the shares of the series shall be convertible into or exchangeable for shares of any other class or classes, with or without par value, or of any other series of the same class, and, if provision is made for conversion or exchange, the times, prices, rates, adjustments and other terms and conditions of such conversion or exchange; (vi) Whether or not the shares of the series have voting rights, in addition to the voting rights provided by law, and, if so, subject to the limitation hereinafter set forth, the terms of such voting rights; (vii) The rights of the shares of the series in the event of voluntary or involuntary liquidation, dissolution, or upon the distribution of assets of the corporation; and (viii) Any other powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of the shares of such series, as the board of directors -4- may deem advisable and as shall not be inconsistent with the provisions of this Certificate of Incorporation. 2. The holders of shares of the Preferred Stock of each series shall be entitled to receive dividends, in accordance with the provisions of the resolution of the board of directors creating each series, out of funds legally available for the payment thereof, at the rates fixed by the board of directors for such series, and no more, before any dividends, other than dividends payable in Common Stock, shall be declared and paid, or set apart for payment, on the Common Stock with respect to the same dividend period. 3. Whenever, at any time, dividends on the then outstanding Preferred Stock as may be required with respect to any series outstanding shall have been paid or declared and set apart for payment on the then outstanding Preferred Stock, and after complying with respect to any retirement or sinking fund or funds for any series of Preferred Stock, the board of directors may, subject to the provisions of the resolution or resolutions creating any series of Preferred Stock, declare and pay dividends on the Common Stock. 4. The holders of shares of the Preferred Stock of each series shall be entitled upon liquidation or dissolution or upon the distribution of the assets of the corporation to such preferences as provided in the resolution or resolutions creating such series of Preferred Stock, and no more, before any distribution of the assets of the corporation shall be made to the holders of shares of Common Stock. Whenever the holders of shares of the Preferred Stock shall have been paid the full amounts to which they shall be entitled, the holders of shares of the Common Stock shall be entitled to share ratably in all assets of the corporation remaining unless otherwise provided in the resolution or resolutions creating such series of Preferred Stock. 5. At all meetings of the stockholders of the corporation, the holders of shares of the Common Stock shall be entitled to one vote for each share of Common Stock held by them. Except as otherwise provided by a resolution or resolutions of the board of directors creating any series of Preferred Stock or by the General Corporation Law of Delaware, the holders of shares of the Common Stock issued and outstanding shall have and possess the exclusive right to notice of stockholders' meetings and the exclusive power to vote. The holders of shares of the Preferred Stock issued and outstanding shall, in no event, be entitled to more than one vote for each share of Preferred Stock held by them unless otherwise required by law. 6. The Preferred Stock purchased, redeemed or converted pursuant to any of the provisions of the resolution of the board of directors creating each -5- series, shall, at the discretion of the board of directors, be held in the treasury of the corporation subject to reissuance, or shall, from time to time, in the discretion of the board of directors, upon the filing and recording of such certificate as may be in accordance with the laws of the State of Delaware, be returned to the status of authorized and unissued shares of Preferred Stock, in which event such shares shall no longer be part of the series created in connection with the original issuance thereof. 7. No holder of the Common Stock or the Preferred Stock of the corporation shall be entitled as such, as a matter of right, to subscribe for, or purchase any part of, any new or additional issue of stock of the corporation of any class or of any issue of securities convertible into stock, or of any warrants or rights to purchase stock, whether now or hereafter authorized and whether issued for money or for a consideration other than money. Subject to the provisions of this Article FOURTH, upon such terms, in such manner and under such conditions, in conformity with law, as may be fixed by the board of directors, the board of directors shall have the power to issue bonds, debentures, or other obligations, either convertible or non-convertible, into the corporation's stock, and warrants and rights to purchase the corporation's stock. FIFTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the following provisions are inserted in this Restated Certificate of incorporation for the regulation and conduct of the business and affairs of the Corporation: 1. The business and affairs of the corporation shall be managed by, or under the direction of, a board of directors consisting of not less than three (3) nor more than fifteen (15) persons. The exact number of directors within the minimum and maximum limitations specified herein shall be fixed from time to time by resolution of a majority of the whole board of directors. All directors of the corporation shall hold office until their respective successors shall be elected and qualified or until their earlier resignation or removal. The directors shall have the power, from time to time, to increase or decrease their own number, within the minimum and maximum limitations specified herein, by resolution of the board of directors as hereinabove provided. 2. Directors may be removed from office with or without cause by the holders of a majority of the outstanding shares of capital stock of the corporation entitled to vote at an election of directors. 3. Newly created directorships resulting from an increase in the number of directors and all vacancies occurring in the Board, including vacancies occurring in the Board by reason of the removal of directors, may be filled by the affirmative vote of a majority of the -6- directors then in office, though less than a quorum of the Board of Directors, and directors so chosen shall hold office until their respective successors shall be elected and qualified. 4. The directors of the Corporation, by the affirmative vote of a majority of the whole Board, at any regular or special meeting, shall have the power to adopt, amend or repeal By-Laws of the Corporation, provided, however, that such power of the Board shall not divest the stockholders of the corporation of their power to adopt, amend or repeal By-Laws of the Corporation. 5. In addition to the powers and authorities conferred upon the Board of Directors of the Corporation by this Restated Certificate of Incorporation, the Board of Directors of the Corporation may exercise all such powers and take all such actions as may be exercised or taken by the Corporation, subject, however, to the provisions of the laws of the State of Delaware, this Restated Certificate of Incorporation and the By-Laws of the Corporation. 6. Any vote or votes authorizing liquidation of the Corporation or proceedings for its dissolution may provide, subject to the rights of creditors and preferred stockholders, if any, for the distribution pro-rata among the stockholders of the Corporation of the assets of the Corporation, wholly or in part, in cash or in kind, whether such assets be in cash or other property, and any such vote or votes may authorize the Board of Directors of the Corporation to determine the valuation of the different assets of the Corporation for the purpose of such liquidation and may divide or authorize the Board of Directors to divide such assets or any part thereof among the stockholders of the Corporation, in such manner that every stockholder will receive a proportionate amount in value (determined as aforesaid) of cash and/or property of the Corporation upon such liquidation or dissolution even though each stockholder may not receive a strictly proportionate part of each such asset. SIXTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages or breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Neither the amendment nor repeal of this Article nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article Sixth, shall eliminate or reduce the effect of this Article Sixth in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article Sixth would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. SEVENTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of -7- Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. EIGHTH: No Stockholder shall have any preemptive right to subscribe to an additional issue of stock or to any security convertible into such stock. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Restated Certificate of Incorporation, in the manner now or hereinafter prescribed by the laws of the State of Delaware. Notwithstanding anything in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of not less than 66-2/3% of the outstanding shares of capital stock of the Corporation entitled to vote at an election of directors (considered for this purpose as one class) shall be required for (i) the adoption of any By-Law inconsistent with any provision of paragraphs 2, 3, 4 or 5 of Article Fifth, or Articles Sixth or Ninth of this Restated Certificate of Incorporation or (ii) the amendment or repeal of any By-Law which may be adopted by the stockholders of the Corporation and shall set forth the substance of, or be in furtherance of, paragraphs 2, 3, 4 or 5 of Article Fifth, or Articles Sixth or Ninth of this Restated Certificate of Incorporation. IN WITNESS WHEREOF, The Astro-Stream Corporation has caused this Restated Certificate of Incorporation to be executed by Peter Sheib, President, and attested by its Assistant Secretary, this 3rd day of May, 1995. THE ASTRO-STREAM CORPORATION By: /s/ Peter Sheib --------------------------- Peter Sheib President -8- Attest: /s/ Michael Loew - --------------------------- Michael Loew Assistant Secretary -9- EX-3 3 BY-LAWS OF REGISTRANT EXHIBIT 3.2 ----------- BY-LAWS OF ARISTO INTERNATIONAL CORPORATION ARTICLE I. OFFICES The registered office of Aristo International Corporation (the "Corporation") in the State of Delaware is located in the City of Dover, State of Delaware, and the name of the registered agent of the Corporation at such office is United Corporate Services Inc. The Corporation may also have offices at such other places, within or without the State of Delaware, as the board of directors (the "Board") may from time to time determine. ARTICLE II. MEETINGS OF STOCKHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the 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 at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as specified in the notice of meeting. SECTION 2. QUORUM. Except as otherwise required by law, by the Corporation's certificate of incorporation (the "Certificate of Incorporation") or these by-laws, at all meetings of stockholders, a majority of the issued and outstanding stock entitled to vote present in person or by proxy shall constitute a quorum. If such quorum is not present, a majority of the issued and outstanding stock entitled to vote present thereat may adjourn the meeting from time to time without notice, other than the announcement at the meeting of the date, time and place of the adjourned meeting, until a quorum is present, and thereupon any business may be transacted at the adjourned meeting which might have been transacted at the meeting as originally called. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 3. VOTING. At every meeting of the stockholders except as may be otherwise provided by law or in the Certificate of Incorporation, every stockholder of the Corporation entitled to vote thereat shall be entitled to one vote for each share of stock entitled to vote standing in his name on the books of the Corporation on the record date as determined in accordance with Article V, Section 4 of these by-laws. Directors shall be elected by a plurality of the votes cast at a meeting of stockholders (at which a quorum is present) by the holders of shares entitled to vote in the election, except as otherwise required by law or by the Certificate of Incorporation. Except as otherwise required by the Certificate of Incorporation, by-laws, or by any regulations of any security exchange, whenever any corporate action, other than the election of directors, is to be taken by vote of the stockholders, it shall be authorized by a majority of the votes cast at a meeting of stockholders (at which a quorum is present) by the holders of shares entitled to vote thereon. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine such stock ledger, the list required by Article II, Section 11of these by-laws, or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Upon the demand of any stockholder entitled to vote, the vote at any election of directors, or the vote upon any question before a meeting, shall be by ballot; but otherwise the method of voting shall be discretionary with the presiding officer at the meeting. SECTION 4. SPECIAL MEETINGS. A special meeting of the stockholders of the Corporation may be called by the the President. Special meetings shall be held at such place within or without the State of Delaware as may be specified in the notice of meeting or waiver thereof. Business transacted at all special meetings shall be confined to the purposes stated in the notice of meeting. SECTION 5. NOTICE OF MEETINGS. Written notice of every meeting of the stockholders shall be given by or under the direction of the Secretary or an Assistant Secretary, either personally or by mail, by telegraph or by any other lawful means of communication, upon each stockholder of record entitled to vote at such meeting, not less than 10 or more than 60 days before the meeting. In the event of the death, absence, incapacity or refusal of the specified officer, notice of a meeting may be given by a person designated by either the Secretary, the person or persons requesting the meeting or the Board. If mailed, the notice of a meeting shall be directed to a stockholder at his address as it appears on the records of the Corporation. The notice of every meeting of the stockholders shall state the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called. Except as otherwise expressly provided by law, no notice of any meeting of stockholders shall be required to be given to any stockholder who shall attend such meeting in person or by proxy, or who shall, in person or by attorney thereunder authorized, waive such notice in writing or by telegraph, cable, radio or wireless either before or after such meeting. SECTION 6. PRESIDING OFFICER AND SECRETARY. At all meetings of the stockholder, the President of the Corporation, or in his absence a Vice President, or if none be present the appointee of the meeting, shall preside. The Secretary of the Corporation, or in his absence an Assistant Secretary, or if none be present the appointee of the Presiding Officer of the meeting, shall act as secretary of the meeting. -2- SECTION 7. PROXIES. Any stockholder entitled to vote at any meeting of stockholders may vote either in person or by proxy, but no proxy shall be voted after three years from its date, unless such proxy provides for a longer period. Every proxy must be executed in writing by the stockholder himself, or by his duly authorized attorney, and dated, but need not be sealed, witnessed or acknowledged. Proxies shall be delivered to the secretary of the meeting before the meeting begins or to the Inspectors of Election at the meeting. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. SECTION 8. INSPECTOR OF ELECTION. At each meeting of the stockholders at which the vote for directors, or the vote upon any question before the meeting, is taken by ballot, the polls shall be opened and closed by, and the proxies and ballots shall be received and taken in charge by, and all questions touching on the qualifications of voters and the validity of proxies and the acceptance and rejection of the same shall be decided by two Inspectors of Election. Such Inspectors of Election may be appointed by the Board before the meeting, but if no such appointment shall have been made, they shall be appointed by the meeting. If for any reason any Inspector of Election previously appointed shall fail to attend or refuse or be unable to serve, an Inspector of Election in his place shall be appointed by the meeting. Any appointment of Inspectors of Election by the meeting shall be by per capita vote of the stockholders present and entitled to vote. SECTION 9. LIST OF STOCKHOLDERS. At least 10 days prior to every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each, shall be prepared by the Secretary or an Assistant Secretary. Such list shall be open to examination at a place within the city where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not so specified, at the place where the meeting is held and shall be open, during normal business hours for a period of 10 days prior to the meeting, to the examination of any stockholder for any purpose germane to the meeting. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Except as may be otherwise provided in the Certificate of Incorporation, any action required by law to be taken at any meeting of stockholders, or any action which may be taken at any meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. -3- Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III. BOARD OF DIRECTORS SECTION 1. POWERS, NUMBER AND ELECTION OF DIRECTORS. The business and affairs of the Corporation shall be managed by its Board of Directors, consisting of not less than three nor more than 15 persons. The exact number of directors shall be fixed from time to time by resolution of the Board. A director need not be a stockholder. As used herein, the term "whole Board" shall mean the total number of directors authorized at the time, whether or not any vacancies exist. SECTION 2. VACANCIES. Any vacancy in the Board caused by death, resignation, disqualification, removal, an increase in the number of directors (caused by the Board or otherwise) or any other cause may be filled by a majority of the directors then in office although less than a quorum, or by the stockholders, and directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their respective successors shall be elected and qualified. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. SECTION 3. RESIGNATIONS AND REMOVAL. Any director may resign from his office at any time by delivering his resignation in writing to the Corporation, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective. Any director or directors may be removed from office either for or without cause by the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote at an election of directors. The vacancies created by the removal of a director or directors may be filled, at the meeting held for the purpose of removal, by the affirmative vote of a majority in interest of the stockholders entitled to vote. SECTION 4. MEETINGS. The Board may hold its meetings in such place or places within or without the State of Delaware as the Board from time to time by resolution may determine or as shall be specified in the respective notices or waivers of notice thereof, and the directors may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation not inconsistent with these by-laws as they may deem proper. The Board from time to time by resolution may fix a time and place (or varying times and places) for the annual and other regular meetings of the Board; provided that unless a time and place is so fixed for any annual meeting of the Board, the same shall be held immediately following the annual meeting of the stockholders at the same place at which such meeting shall have been held. -4- No notice of the annual or other regular meetings of the Board need be given. Other meetings of the Board shall be held whenever called by the Chairman of the Board, the President or by one-third of the directors then in office; and the Secretary or an Assistant Secretary shall give notice of each such meeting to each director not later than the day before the day of the meeting, personally or by mailing, telegraphing, cabling or telephoning such notice to him at his address as it appears on the books of the Corporation or by leaving such notice at his residence or usual place of business. No notice of a meeting need be given if all the directors are present in person. Any business may be transacted at any meeting of the Board, whether or not specified in a notice of the meeting. SECTION 5. MEETINGS BY CONFERENCE TELEPHONE. Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. The chairman or the secretary of the meeting shall make sure that all persons participating in the meeting (i) can hear each other and (ii) understand that their participation will constitute a meeting of the Board or such committee. SECTION 6. UNANIMOUS CONSENT OF DIRECTORS IN LIEU OF MEETING. Any action required or permitted to be taken at any meeting of the Board may be taken without a meeting, if a written consent thereto is signed by all members of the Board, and such written consent is filed with the minutes of proceedings of the Board. SECTION 7. QUORUM. One-third of the whole Board shall constitute a quorum for the transaction of business. If there be less than a quorum at any meeting of the Board, a majority of those present (or if only one be present, then that one) may adjourn the meeting from time to time, and no further notice thereof need be given other than announcement at the meeting which shall be so adjourned of the time of, and the place to which, the meeting is adjourned. The act of a majority of the directors present at any meeting at which there is a quo rum shall be the act of the Board, except as may be otherwise specifically provided by law or by the Certificate of Incorporation or by these by-laws. SECTION 8. COMPENSATION OF DIRECTORS. The Board shall have authority to fix the compensation of directors for acting in either that capacity or any other capacity. SECTION 9. SERVICE OF DIRECTORS IN OTHER CAPACITIES. Nothing here contained shall be construed so as to preclude any director from serving the corporation in any other capacity, or from serving any of its stockholders, subsidiaries or affiliated corporations in any capacity, and receiving compensation therefor. -5- SECTION 10. COMMITTEES. An Executive Committee of three or more directors may be designated by resolution passed by a majority of the whole Board. To the extent permitted by law and provided in any such resolution, the Executive Committee shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. It shall not have the power or authority to amend the Certificate of Incorporation, adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amend these by-laws. The Board may also designate one or more committees in addition to the Executive Committee by resolution or resolutions passed by a majority of the whole Board; such committees shall consist of three or more directors of the Corporation and, to the extent permitted by law and provided in the resolution or resolutions designating them, shall have or may exercise the specific powers of the Board in the management of the business and affairs of the Corporation. The act of a majority of the members of any committee of the Board shall be the act of that committee, and said committee may meet at stated times or on notice. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. ARTICLE IV. OFFICERS AND AGENTS SECTION 1. GENERAL PROVISIONS. The officers of the Corporation shall be a Chairman of the Board, a President, a Treasurer and a Secretary, and may include a Vice Chairman of the Board and one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries, all of whom shall be appointed by the Board as soon as may be practicable after the election of directors in each year. Any two offices may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law or by these By-Laws to be executed, acknowledged or verified by any two or more officers. Each of such officers shall serve until the annual meeting of the Board next succeeding his appointment and until his successor shall have been chosen and shall have qualified. The Board may appoint such officers, agents and employees as it may deem necessary or proper, who shall respectively have such authority and perform such duties as may from time to time be prescribed by the Board. All officers, agents and employees appointed by the Board shall be subject to removal at any time by the affirmative vote of a majority of the whole Board. Other agents and employees may be removed at any time by the Board, by the officer appointing them, or by any other superior officer upon whom such power of removal may be conferred by the Board. Any -6- officer may resign at any time upon written notice to the corporation. The salaries of the officers of the Corporation shall be fixed by the Board, but this power may be delegated to any officer. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. SECTION 2. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall be a member of the Board and shall preside at its meetings. He shall have such powers and perform such duties as may be prescribed by the Board. SECTION 3. THE PRESIDENT. The President shall, subject to the direction and under the supervision of the Board, have such powers and perform such duties as generally pertain to the office of President, as well as such further powers and duties as may be prescribed by the Board. He shall, subject to the direction and under the supervision of the Board, be the chief executive officer of the Corporation and shall have general charge of the business and affairs of the Corporation and shall keep the Board fully advised. He shall have power in the name of the Corporation and on its behalf to execute any and all deeds, mortgages, contracts, agreements and other instruments in writing. He shall employ and discharge employees and agents of the Corporation, except such as shall hold their offices by appointment of the Board, but he may delegate these powers to other officers as to employees under their immediate supervision. The President shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, the President shall preside at all meetings of the Board of Directors. SECTION 4. THE VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if any, shall be a member of the board. If the office of Chairman of the Board and President be vacant, or if the Chairman of the Board and the President be absent, he shall preside at meetings of the stockholders and of the Board. He shall have such powers and perform such duties as may be prescribed by the Board. SECTION 5. VICE PRESIDENTS. Each Vice President shall have such powers and perform such duties as the Board or the Chairman of the Board, the President or the Vice Chairman of the Board, if any, may from time to time prescribe, and shall perform such other duties as may be prescribed in these by-laws. In the absence or inability to act of the Chairman of the Board, the President and the Vice Chairman of the Board, if any, the Vice President next in order as designated by the Board or, in the absence of such designation, senior in length of service in such capacity, who shall be present and able to act, shall perform all the duties and may exercise any of the powers of the President, subject to the control of the Board. The performance of any duty by a Vice President shall be conclusive evidence of his power to act. SECTION 6. THE TREASURER. The Treasurer shall have the care and custody of all funds and securities of the Corporation which may come into his hands and shall deposit the same to the credit of the Corporation in such bank or banks or other depositary or depositaries as the Board may designate. He may endorse all commercial documents requiring endorsements for or on behalf of the Corporation and may sign all receipts and vouchers for -7- payments made to the Corporation. He shall render an account of his transactions to the Board as often as it shall require the same and shall at all reasonable times exhibit his books and accounts to any director, and shall cause to be entered regularly in books kept for that purpose full and accurate account of all moneys received and disbursed by him on account of the Corporation. He shall, if required by the Board, give the Corporation a bond in such sums and with such sureties as shall be satisfactory to the Board, conditioned upon the faithful performance of his duties and for the restoration to the Corporation in case of his death, resignation, retirement or removal from office of all books, papers, vouchers, money and other property of whatever kind in his possession, or under his control, belonging to the Corporation. He shall have such further powers and duties as are incident to the position of Treasurer, subject to the control of the Board. SECTION 7. THE SECRETARY. The Secretary shall record the proceedings of meetings of the Board and of the stockholders in a book kept for that purpose and shall attend to the giving and serving of all notices of the Corporation. He shall have custody of the seal of the Corporation and shall affix the seal to all certificates of shares of stock of the Corporation (if required by the form of such certificates) and to such other papers or documents as may be proper and, when the seal is so affixed, he shall attest the same by his signature wherever required. He shall have charge of the stock certificate book, transfer book and stock ledger, and such other books and papers as the Board may direct. He shall, in general, perform all duties of Secretary, subject to the control of the Board. SECTION 8. ASSISTANT TREASURERS. In the absence or inability of the Treasurer to act, any Assistant Treasurer may perform all the duties and exercise all of the powers of the Treasurer, subject to the control of the Board. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Treasurer shall also perform such other duties as the Treasurer or the Board may from time to time assign to him. SECTION 9. ASSISTANT SECRETARIES. In the absence or inability of the Secretary to act, any Assistant Secretary may perform all the duties and exercise all the powers of the Secretary, subject to the control of the Board. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Secretary shall also perform such other duties as the Secretary or the Board may from time to time assign to him. SECTION 10. OTHER OFFICERS. Other officers shall perform such duties and have such powers as may from time to time be assigned to them by the Board. SECTION 11. DELEGATION OF DUTIES. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may confer, for the time being, the powers or duties, or any of them, of such officer upon any other officer, or upon any director. SECTION 12. PROXIES IN RESPECT OF SECURITIES OF OTHER CORPORATIONS. Unless otherwise provided by resolution adopted by the Board, the -8- Chairman of the Board, the President, the Vice Chairman of the Board or any Vice President may from time to time appoint an attorney or attorneys or an agent or agents to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation to vote or to consent in respect of such stock or other securities, and the Chairman of the Board, the President, the Vice Chairman of the Board or any Vice President may instruct the person or persons so appointed as to the manner of exercising such powers and rights, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies, powers of attorney or other written instruments as he may deem necessary in order that the Corporation may exercise such powers and rights. ARTICLE V. CAPITAL STOCK SECTION 1. CERTIFICATE FOR SHARES. Certificates for shares of stock of the Corporation certifying the number and class of shares owned shall be issued to each stockholder in such form, not inconsistent with the Certificate of Incorporation and these By-Laws, as shall be approved by the Board. The certificates for the shares of each class shall be numbered and registered in the order in which they are issued and shall be signed by the Chairman of the Board or the President or the Vice Chairman of the Board, if any, or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. All certificates exchanged or returned to the Corporation shall be cancelled. SECTION 2. TRANSFER OF SHARES OF STOCK. Transfers of shares shall be made only upon the books of the Corporation by the holder, in person or by his attorney lawfully constituted in writing, and on the surrender of the certificate or certificates for such shares properly assigned. The Board shall have the power to make all such rules and regulations, not inconsistent with the Certificate of Incorporation and these by-laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board, in its discretion, may issue a new certificate of stock in place of any certificate theretofore issued and alleged to have been lost, stolen or destroyed, and may require the owner of any certificate of stock alleged to have been lost, stolen or destroyed, or his legal representatives, to give the Corporation a bond in such sum as the Board may direct, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction -9- of any certificate or the issuance of such new certificate. Proper evidence of such loss, theft or destruction shall be procured, if required, by the Board. The Board in its discretion may refuse to issue such new certificate, save upon the order of some court having jurisdiction in such matters. SECTION 4. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any right, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed: a.The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the date next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; b.The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; and c.The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VI. INTERESTED DIRECTORS AND OFFICERS No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: -10- a.The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quo rum; or b.The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or c.The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction. ARTICLE VII. INDEMNIFICATION SECTION 1. ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against expenses, including, without limitation, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of the Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under this Article VII (the "Expenses"), judgments, fines and penalties actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the 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 plead of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with -11- respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against Expenses, judgments, fines or penalties actually and reasonably incurred by him or on his behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person if fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery of Delaware or such other court shall deem proper. SECTION 3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article VII, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article VII, or in defense of any claim, issue or matter therein, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. SECTION 4. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any indemnification under Sections 1 and 2 of this Article VII (unless ordered by a court) shall be paid by the Corporation unless a determination is made (1) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders, that indemnification of the director, officer, employee or agent is not proper in the circumstances because he has not met the applicable standard of conduct set forth in Sections 1 and 2 of this Article VII. SECTION 5. ADVANCEMENT OF EXPENSES. Expenses incurred by a person referred to in Sections 1 and 2 of this Article VII in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance at the written request of a director, -12- officer, employee or agent, if such person shall undertake to repay such amount to the extent that it is ultimately determined that such person was not entitled to such indemnification; provided, however, such an undertaking shall not be secured and shall be accepted without reference to such person's financial ability to make such repayment and shall not be claimable against such person's spouse or children. The Board may, in the manner set forth above in Section 4, and upon approval of such director, officer, employee or agent of the Corporation, authorize the Corporation's counsel to represent such person, in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding. SECTION 6. PROCEDURE FOR INDEMNIFICATION. Any indemnification under Sections 1, 2 and 3, or advance Expenses under Section 5 of this Article VII, shall be made promptly, and in any event within 45 days, upon the written request of the director, officer, employee or agent. The right to indemnification or advancement of Expenses as granted by this Article VII shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within 45 days. Such person's Expenses incurred in connection with successfully establishing such right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advancement of Expenses under Section 5 of this Article VII where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Sections 1 or 2 of this Article VII, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board, its independent legal counsel, and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 1 and 2 of this Article VII, nor the fact that there has been an actual determination by the Corporation (including its Board, its independent legal counsel, and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. SECTION 7. OTHER RIGHTS. The indemnification and advancement of Expenses provided by, or granted pursuant to, this Article VII shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of Expenses may be entitled under any law (common or statutory), agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation. SECTION 8. INSURANCE. The Corporation shall purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him or on his behalf in -13- any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VII, provided that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the entire Board. SECTION 9. CONTINUATION OF RIGHT TO INDEMNIFICATION. The indemnification and advancement of Expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. SECTION 10. SAVINGS CLAUSE. If this Article VII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee and agent of the Corporation as to Expenses, judgments, fines and penalties with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article VII that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE VIII. CORPORATE SEAL The seal of the Corporation shall be circular in form and shall contain the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Delaware" inscribed thereon. The seal may be affixed to any instrument by causing it, or a facsimile thereof, to be impressed or otherwise reproduced thereon. ARTICLE IX. WAIVER Whenever any notice whatsoever is required to be given by law, or under the provisions of the Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or -14- special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. ARTICLE X. CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts, acceptances, bills of exchange and other orders or obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board shall from time to time determine. ARTICLE XI. AMENDMENTS Except as provided in the Certificate of Incorporation, these by-laws or any of them may be amended or repealed, and new by-laws may be adopted (a) by the stockholders, at any annual meeting, or at any special meeting called for that purpose, by the vote of a majority of the issued and outstanding stock entitled to vote thereat, or (b) by the Board at any duly convened meeting by a majority vote of the whole Board, but any such action of the Board may be amended or repealed by the stockholders at any annual meeting or any special meeting called for that purpose; provided, however, that no amendment may be made which will conflict with any provision of law or of the Certificate of Incorporation. Notwithstanding anything in the foregoing to the contrary, the affirmative vote of the holders of not less than 66-2/3% of the outstanding shares of capital stock of the Corporation entitled to vote at an election of directors (considered for this purpose as one class) shall be required for the adoption of any by-laws inconsistent with any provision of paragraphs 2, 3, 4 or 5 of Article FIFTH or Articles SIXTH or NINTH of the Certificate of Incorporation. -15- EX-4 4 SPECIMEN OF STOCK CERTIFICATE EXHIBIT 4.1 ----------- [FORM OF STOCK CERTIFICATE] [FACE] ARISTO INTERNATIONAL CORPORATION INCORPORATED UNDER THE LAWS OF DELAWARE Number Shares AR __________ ______ CUSIP 040438 10 3 SEE REVERSE FOR CERTAIN DENOMINATIONS This Certifies that _________________________________ is the owner of ____________________ fully paid and non-assessable shares of common stock of the par value of $.001 each of ARISTO INTERNATIONAL CORPORATION (hereinafter called the "Corporation"), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation of the Corporation to all of which the holder hereof by acceptance hereof assents. This Certificate is not valid unless countersigned by the Transfer Agent. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: _________________ ___________________ _______________________ Assistant Secretary President [REVERSE SIDE] The Company will furnish to any shareholder upon request and without charge a full statement of the designation, relative rights, preferences and limitations of the shares of each class authorized to be issued and the designation, relative rights, preferences and limitations of each series of preferred shares which the Company is authorized to issue so far as the same have been fixed, and the authority of the Board of Directors of the Company to designate and fix the relative rights, preferences and limitations of other series. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TENCOM -- as tenants in common UNIF GIFT MIN ACT-- ___ ____ Custodian __ ___ TENENT -- as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JTTEN -- as joint tenants with right of survivorship and not as tenants Act__________________________ in common (State) Additional abbreviations may also be used though not in the above list. For value received, ____________ hereby sell, assign and transfer units PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [__________________________________________] _____________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________ shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _____________________________________________________________Attorney to transfer the said stock on the books of the within named Company with full power of substitution in the premises. Dated ___________________________ NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGE- MENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: __________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17 Ad-15. EX-10 5 EX-10.1 1994 STOCK OPTION PLAN EXHIBIT 10.1 ------------ 1994 STOCK OPTION PLAN of ARISTO INTERNATIONAL CORPORATION 1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is designed to provide an incentive to key employees (including directors and officers who are key employees) and to consultants, advisors and directors who are not employees of Aristo International Corporation, a Delaware corporation (the "Company"), and its present and future subsidiary corporations, as defined in Paragraph 19 ("Subsidiaries"), and to offer an additional inducement in obtaining the services of such individuals. The Plan provides for the grant of "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options ("NQSOs"), but the Company makes no warranty as to the qualification of any option as an "incentive stock option" under the Code. 2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 12, the aggregate number of shares of Common Stock, $.001 par value per share, of the Company ("Common Stock") for which options may be granted under the Plan shall not exceed 500,000. Such shares of Common Stock may, in the discretion of the Board of Directors of the Company (the "Board of Directors"), consist either in whole or in part of authorized but unissued shares of Common Stock or shares of Common Stock held in the treasury of the Company. The Company shall at all times during the term of the Plan reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of the Plan. Subject to the provisions of Paragraph 13, any shares of Common Stock subject to an option which for any reason expires, is cancelled or is terminated unexercised or which ceases for any reason to be exercisable shall again become available for the granting of options under the Plan. 3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a committee of the Board of Directors (the "Committee") consisting of not less than two directors, each of whom shall be a "disinterested person" Within the meaning of Rule 16b-3 (or any successor rule or regulation) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). A majority of the members of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, and any acts approved in writing by all members without a meeting, shall be the acts of the Committee. Subject to the express provisions of the Plan, the Committee shall have the authority, in its sole discretion, to determine with respect to Employee Options and Consultants Options: the key employees who shall receive Employee Options (as defined in Paragraph 19) and the consultants and advisors who shall receive Consultant Options (as defined in Paragraph 19); the times when they shall receive options; whether an Employee Option shall be an ISO or a NQSO; the number of shares of Common Stock to be subject to each option; the term of each option; the date each option shall become exercisable; whether an option shall be exercisable in whole, in part or in installments, and, if in installments, the number of shares of Common Stock to be subject to each installment; whether the installments shall be cumulative; the date each installment shall become exercisable and the term of each installment; whether to accelerate the date of exercise of any installment; whether shares of Common Stock may be issued on exercise of an option as partly paid, and, if so, the dates when future installments of the exercise price shall become due and the amounts of such installments; the exercise price of each option; the form of payment of the exercise price; whether to restrict the sale or other disposition of the shares of Common Stock acquired upon the exercise of an option and to waive any such restriction; whether to subject the exercise of all or any portion of an option to the fulfillment of contingencies as specified in the contract referred to in Paragraph 11 (the "Contract"), including without limitation, contingencies relating to entering into a covenant not to compete with the Company and its Parent (as defined in Paragraph 19) and Subsidiaries, to financial objectives for the Company, a Subsidiary, a division, a product line or other category, and/or the period of continued employment of the optionee with the Company or its Subsidiaries, and to determine whether such contingencies have been met; and with respect to Employee Options, Consultant Options and Outside Director Options: the amount, if any, necessary to satisfy the Company's obligation to withhold taxes or other amounts; the fair market value of a share of Common Stock; with the consent of the optionee, to cancel or modify an option, provided such option as modified would be permitted to be granted on such date under the terms of the Plan; to construe the respective Contracts and the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; and to make all other determinations necessary or advisable for administering the Plan. The determinations of the Committee on the matters referred to in this Paragraph 3 shall be conclusive. No member or former member of the Committee shall be liable for any action, failure to act or determination made in good faith with respect to the Plan or any option granted hereunder. In addition, the Company shall indemnify and hold harmless each member and former member of the Committee from and against any liability, claim for damages and expenses in connection therewith by reason of any action, failure to act, determination made in good faith under or in connection with the Plan or any option granted hereunder to the fullest extent permitted with respect to directors under the Company's certificate of incorporation, by-laws or applicable law. 4. ELIGIBILITY; GRANT. The Committee may from time to time, consistent with the purposes of the Plan, grant (a) Employee Options to key employees (including officers and directors who are key employees) of the Company or any of its Subsidiaries, (b) Consultant Options to consultants and advisors of the Company or any of its Subsidiaries, and (c) Outside Director Options to directors of the Company who at the time of grant are neither common law employees of the Company or of any of its Subsidiaries nor a member of the Committee. Such options granted shall cover such number of shares of Common Stock as the Committee may determine; provided, however, that the maximum number of shares subject to Employee Options that may be granted to any individual during any calendar year under the Plan shall not exceed 200,000 shares; and provided further that the aggregate market value (determined at the time the option is granted) of the shares of Common Stock for which any eligible employee may be granted ISOs under the Plan or any other plan of the Company, or of a Parent or a Subsidiary of the Company, which are exercisable for the first time by such optionee during any calendar year shall not exceed $100,000. The $100,000 ISO - 2 - limitation shall be applied by taking ISOs into account in the order in which they were granted. Any option (or the portion thereof) granted in excess of such amount shall be treated as a NQSO. Every individual who on the date of the merger of the Company with The Astro-Stream Corporation is an Outside Director shall be granted on such date an Outside Director Option to purchase 2,500 shares of Common Stock. Thereafter, immediately following each annual meeting of stockholders of the Company at which directors are elected, every individual who at such time is an Outside Director shall be granted an Outside Director Option to purchase 2,500 shares of Common Stock. In the event the remaining shares available for grant under the Plan are not sufficient to grant the Outside Director Options to each Outside Director in any year, the number of shares subject to the Outside Director Options for such year shall be reduced proportionately. The Committee shall not have any discretion with respect to the selection of directors to receive Outside Director Options or the amount, the price or the timing with respect thereto. A director who is not a common law employee of the Company or any of its subsidiaries shall not be entitled to receive any options under the Plan other than Outside Director Options if he qualifies as an Outside Director at such time. 5. EXERCISE PRICE. The exercise price of the shares of Common Stock under each Employee Option and Consultant Option shall be determined by the Committee; provided, however, that the exercise price of an ISO shall not be less than the fair market value of the Common Stock subject to such option on the date of grant; and provided further that if, at the time an ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, of any of its Subsidiaries or of a Parent, the exercise price of such ISO shall not be less than 110% of the fair market value of the Common Stock subject to such ISO on the date of grant. The exercise price of the shares of Common Stock under each Outside Director Option shall be equal to the fair market value of the Common Stock subject to such option on the date of grant. The fair market value of a share of Common Stock on any day shall be (a) if the principal market for the Common Stock is a national securities exchange, the average between the high and low sales prices per share of the Common Stock on such day as reported by such exchange or on a consolidated tape reflecting transactions on such exchange, (b) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), and (i) if actual sales price information is available with respect to the Common Stock, the average between the high and low sales prices per share of the Common Stock on such day on NASDAQ, or (ii) if such information is not available, the average between the highest bid and the lowest asked prices per share for the Common Stock on such day on NASDAQ, or (c) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is not quoted on NASDAQ, the average between the highest bid and lowest asked prices per share for the Common Stock on such day as reported on the NASDAQ OTC Bulletin Board Service, National Quotation Bureau, Incorporated or a comparable service; provided that if clauses (a), (b) and (c) of this Paragraph are all inapplicable, or if no trades have been made or no quotes are available for such day, - 3 - the fair market value of a share of Common Stock shall be determined by the Committee by any method consistent with applicable regulations adopted by the Treasury Department relating to stock options. 6. TERM. The term of each Employee Option and Consultant Option granted pursuant to the Plan shall be such term as is established by the Committee, in its sole discretion, at or before the time such option is granted; provided, however, that the term of each ISO granted pursuant to the Plan shall be for a period not exceeding 10 years from the date of grant thereof, and provided further that if, at the time an ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, of any of its Subsidiaries or of a Parent, the term of the ISO shall be for a period not exceeding five years from the date of grant. Each Outside Director Option shall be exercisable for a term of five years commencing on the date of grant. Options shall be subject to earlier termination as hereinafter provided. 7. EXERCISE. An option (or any part or installment thereof), to the extent then exercisable, shall be exercised by giving written notice to the Company at its principal office stating which option is being exercised, specifying the number of shares of Common Stock as to which such option is being exercised and accompanied by payment in full of the aggregate exercise price therefor (or the amount due on exercise if the Contract with respect to an Employee Option or Consultant Option permits installment payments) (a) in cash or by certified check, or (b) if the applicable Contract permits, with previously acquired shares of Common Stock having an aggregate fair market value, on the date of exercise, equal to the aggregate exercise price of all options being exercised, or with any combination of cash, certified check or shares of Common Stock. In such case, the fair market value of the Common Stock shall be determined in accordance with Paragraph 5. The Committee may, in its discretion, permit payment of the exercise price of an option by delivery by the optionee of a properly executed notice, together with a copy of his irrevocable instructions to a broker acceptable to the Committee to deliver promptly to the Company the amount of sale or loan proceeds sufficient to pay such exercise price. In connection therewith, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. A person entitled to receive Common Stock upon the exercise of an option shall not have the rights of a stockholder with respect to such shares of Common Stock until the date of issuance of a stock certificate to him for such shares; provided, however, that until such stock certificate is issued, any option holder using previously acquired shares of Common Stock in payment of an option exercise price shall continue to have the rights of a stockholder with respect to such previously acquired shares. In no case may a fraction of a share of Common Stock be purchased or issued under the Plan. - 4 - 8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly provided in the applicable Contract, any holder of an Employee Option whose employment with the Company (and its Parent and Subsidiaries) has terminated for any reason other than his death or Disability (as defined in Paragraph 19) may exercise such option, to the extent exercisable on the date of such termination, at any time within three months after the date of termination, but not thereafter and in no event after the date the option would otherwise have expired; provided, however, that if his employment is terminated either (a) for cause, or (b) without the consent of the Company, such option shall terminate immediately. Except as may otherwise be expressly provided in the applicable Contract, Employee Options granted under the Plan shall not be affected by any change in the status of the holder so long as he continues to be an employee or a consultant or advisor of the Company, its Parent or any of the Subsidiaries (regardless of having been transferred from one corporation to another). For the purposes of the Plan, an employment relationship shall be deemed to exist between an individual and a corporation if, at the time of the determination, the individual was an employee of such corporation for purposes of Section 422(a) of the Code. As a result, an individual on military, sick leave or other bona fide leave of absence shall continue to be considered an employee for purposes of the Plan during such leave if the period of the leave does not exceed 90 days, or, if longer, so long as the individuals right to reemployment with the Company (or a related corporation) is guaranteed either by statute or by contract. If the period of leave exceeds 90 days and the individuals right to reemployment is not guaranteed by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. Except as may otherwise be expressly provided in the applicable Contract, the holder of a Consultant Option whose consulting or advisory relationship with the Company (and its Parent and Subsidiaries) has terminated for any reason may exercise such option to the extent exercisable on the date of such termination, at any time within three months after the date of termination, but not thereafter and in no event after the date the option would otherwise have expired; provided, however, that if such relationship was terminated either (a) for cause or (b) without the consent of the Company (other than as a result of the death or Disability of the holder or a key employee of the holder), such option shall terminate immediately. Except as may otherwise be expressly provided in the applicable Contract, Consultant Options granted under the Plan shall not be affected by a change in the relationship with the holder, so long as the holder of the option continues to be a consultant of the Company, its Parent or any of its Subsidiaries (regardless of having ceased to be a consultant for any other of such corporations). Except as may otherwise be expressly provided in the applicable Contract, the Outside Director Option of a holder whose directorship with the Company has terminated for cause shall terminate immediately. Nothing in the Plan or in any option granted under the Plan shall confer on any person any right to continue in the employ or as a consultant or advisor of the Company, its Parent or any of its Subsidiaries, or as a director of the Company, or interfere in any way with any right of the - 5 - Company, its Parent or any of its Subsidiaries to terminate the holder's relationship at any time for any reason whatsoever without liability to the Company, its Parent or any of its Subsidiaries. 9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be expressly provided in the applicable Contract, if an optionee dies (a) while he is employed by the Company, its Parent or any of its Subsidiaries, (b) within three months after the termination of his employment (unless such termination was for cause or without the consent of the Company) or (c) within one year following the termination of his employment by reason of Disability, his Employee Option may be exercised, to the extent exercisable on the date of his death, by his Legal Representative (as defined in Paragraph 19), at any time within one year after death, but not thereafter and in no event after the date the option would otherwise have expired. Except as may otherwise be expressly provided in the applicable Contract, any optionee whose employment has terminated by reason of Disability may exercise his Employee Option, to the extent exercisable upon the effective date of such termination, at any time within one year after such date, but not thereafter and in no event after the date the option would otherwise have expired. The termination of a Consultant Option as a result of the death or Disability of the holder of the option (or a key employee thereof) shall be governed by Paragraph 8. The term of an Outside Director Option shall not be affected by the death or Disability of the optionee. If an optionee holding an Outside Director Option dies during the term of the option, the option may be exercised at any time during its term by the optionee's legal representative. 10. COMPLIANCE WITH SECURITIES LAWS. The Committee may require, in its discretion, as a condition to the exercise of any option that either (a) a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Common Stock to be issued upon such exercise shall be effective and current at the time of exercise, or (b) there is an exemption from registration under the Securities Act for the issuance of shares of Common Stock upon such exercise. Nothing herein shall be construed as requiring the Company to register shares subject to any option under the Securities Act. The Committee may require the optionee to execute and deliver to the Company his representations and warranties, in form and substance satisfactory to the Committee, that (a) the shares of Common Stock to be issued upon the exercise of the option are being acquired by the optionee for his own account, for investment only and not with a view to the resale or distribution thereof, and (b) any subsequent resale or distribution of shares of Common Stock by such optionee will be made only pursuant to (i) a Registration Statement under the Securities Act which is effective and current with respect to the shares of Common Stock being sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption, the optionee shall prior to any offer of sale or sale of such shares of Common Stock provide the Company with a favorable written opinion of counsel, in form and substance satisfactory to the Company, as to the applicability of such exemption to the proposed sale or distribution. - 6 - In addition, if at any time the Committee shall determine in its discretion that the listing or qualification of the shares of Common Stock subject to such option on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to, or in connection with, the granting of an option or the issue of shares of Common Stock thereunder, such option may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an appropriate Contract which shall be duly executed by the Company and the optionee, and shall contain such terms and conditions not inconsistent herewith as may be determined by the Committee. 12. ADJUSTMENTS UPON CHANGES COMMON STOCK. Notwithstanding any other provisions of the Plan, in the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, merger in which the Company is the surviving corporation, split-up, combination or exchange of shares or the like, the aggregate number and kind of shares subject to the Plan, the aggregate number and kind of shares subject to each outstanding option and the exercise price thereof, the maximum number of shares subject to Employee Options that may be granted to any individual in any calendar year the number and kind of shares subject to future grants of Outside Director Options shall be appropriately adjusted by the Board of Directors, whose determination shall be conclusive. 13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the Board of Directors on December 9, 1994. No option may be granted under the Plan after December 9, 2004. The Board of Directors, without further approval of the Company's stockholders, may at any time suspend or terminate the Plan, in whole or in part, or amend it from time to time in such respects as it may deem advisable, including, without limitation, in order that ISOs granted hereunder meet the requirements for "incentive stock options" under the Code, to comply with the provisions of Rule 16b-3 promulgated the Exchange Act or Section 162(m) of the Code, and to conform to any change in applicable law or to regulations or rulings of administrative agencies; provided, however, that no amendment shall be effective without the requisite prior or subsequent stockholder approval which would (a) except as contemplated in Paragraph 12, increase the maximum number of shares of Common Stock for which options may be granted under the Plan, (b) materially increase the benefits to participants under the Plan or (c) change the eligibility requirements or individuals entitled to receive options hereunder. Notwithstanding the foregoing, the provisions regarding the selection of directors for participation in, and the amount, the price and the timing of, Outside Director Options shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act or the rules thereunder. No termination, suspension or amendment of the Plan shall, without the consent of the holder of an existing option affected thereby, adversely affect his rights under such option. The power of the Committee to construe and administer any options granted under the Plan prior to the termination or suspension of the Plan nevertheless shall continue after such termination or during such suspension. - 7 - 14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan shall be transferable otherwise than by will or the laws of descent and distribution, and options may be exercised, during the lifetime of the holder thereof, only by him or his legal representatives. Except to the extent provided above, options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. 15. WITHHOLDING TAXES. The Company may withhold cash and/or shares of Common Stock to be issued with respect thereto having an aggregate fair market value equal to the amount which it determines is necessary to satisfy its obligation to withhold Federal, state and local income taxes or other amounts incurred by reason of the grant or exercise of an option, its disposition, or the disposition of the underlying shares of Common Stock. Alternatively, the Company may require the holder to pay to the Company such amount, in cash, promptly upon demand. The Company shall not be required to issue any shares of Common Stock pursuant to any such option until all required payments have been made. Fair market value of the shares of Common Stock shall be determined in accordance with Paragraph 5. Notwithstanding anything in the Plan or in any Contract to the contrary, the Company may not withhold shares of Common Stock to satisfy the tax withholding consequences of the exercise of an option by a holder who is subject to the reporting requirements of Section 16(a) of the Exchange Act (as it constitutes a deemed exercise of a stock appreciation right ("SARI') under Rule 16b-3 under the Exchange Act), unless (a) the Company has filed all periodic reports and statements required to be filed by it pursuant to Section 13(a) of the Exchange Act for at least one year prior to the date of such exercise, (b) the Company on a regular basis releases for publication quarterly and annual summary statements of sales and earnings in the manner contemplated in the rules promulgated under Section 16 of the Exchange Act, (c) except when the date of exercise of such SAR is automatic or fixed in advance under the Plan and is outside the control of the holder, the election by such holder to receive cash in full or partial settlement of the SAR, as well as the exercise of the SAR for cash, is made during the period beginning on the third business day following the date of release of the summary statements referred to in clause (b) and ending on the 12th business day following such date, and (d) the option has been held for at least six months from the date of grant to the date of cash settlement. 16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend or legends upon the certificates for shares of Common Stock issued upon exercise of an option under the Plan and may issue such "stop transfer" instructions to its transfer agent in respect of such shares as it determines, in its discretion, to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, (b) implement the provisions of the Plan or any agreement between the Company and the optionee with respect to such shares of Common Stock, or (c) permit the Company to determine the occurrence of a "disqualifying disposition," as described in Section 421(b) of the Code, of the shares of Common Stock transferred upon the exercise of an ISO granted under the Plan. - 8 - The Company shall pay all issuance taxes with respect to the issuance of shares of Common Stock upon the exercise of an option granted under the Plan, as well as all fees and expenses incurred by the Company in connection with such issuance. 17. USE OF PROCEEDS. The cash proceeds from the sale of shares of Common Stock pursuant to the exercise of options under the Plan shall be added to the general funds of the Company and used for such corporate purposes as the Board of Directors may determine. 18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board of Directors may, without further approval by the stockholders, substitute new options for prior options of a Constituent Corporation (as defined in Paragraph 19) or assume the prior options of such Constituent Corporation. 19. DEFINITIONS. (a) Subsidiary. The term "Subsidiary" shall have the same definition as "subsidiary corporation" in Section 424(f) of the Code. (b) Parent. The term "Parent" shall have the same definition as "Parent corporation" in Section 424(e) of the Code. (c) Constituent Corporation. The term "Constituent Corporation" shall mean any corporation which engages with the Company, its Parent or any Subsidiary in a transaction to which Section 424(a) of the Code applies (or would apply if the option assumed or substituted were an ISO), or any Parent or any Subsidiary of such corporation. (d) Disability. The term "Disability" shall mean a permanent and total disability within the meaning of Section 22(e)(3) of the Code. (e) Employee Option. The term "Employee Option" shall mean an option granted pursuant to the Plan to an individual who, at the time of grant, is a key employee of the Company or a Subsidiary of the Company. (f) Consultant Option. The term "Consultant Option" shall mean a NQSO granted pursuant to the Plan to a person who, at the time of grant, is a consultant or advisor of the Company or a Subsidiary of the Company, and at such time is neither a common law employee of the Company or any of its Subsidiaries nor a director of the Company. (g) Outside Director. The term "Outside Director" shall mean an individual who is a director of the Company, but who is neither a common law employee of the Company or any of its Subsidiaries. - 9 - (h) Outside Director Option. The term "Outside Director Option" shall mean a NQSO granted pursuant to the Plan to an Outside Director. (i) Legal Representative. The term "Legal Representative" shall mean, with respect to an optionee, his executor, administrator or other person at the time entitled by law to his rights under an option granted pursuant to the Plan. 20. GOVERNING LAW. The Plan, such options as may be granted hereunder and all related matters shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflict of law provisions. 21. PARTIAL INVALIDITY. The invalidity or illegality of any provision herein shall not affect the validity of any other provision. 22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a majority of the votes present in person or by proxy at the next duly held meeting of the Company's stockholders at which a quorum is present. No options granted hereunder may be exercised prior to such approval, provided that the date of grant of any options granted hereunder shall be determined as if the Plan had not been subject to such approval. - 10 - EX-10 6 EX-10.2 1995 STOCK OPTION PLAN EXHIBIT 10.2 ------------ 1995 STOCK OPTION PLAN OF ARISTO INTERNATIONAL CORPORATION 1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is designed to provide an incentive to employees of Aristo International Corporation, a Delaware corporation (the "Company"), and its present subsidiary, Borta, Inc., a Delaware corporation ("Borta"), and any future subsidiary corporations of the Company, as defined in Paragraph 19 ("Subsidiaries"), to increase their interest in the welfare of the Company and Borta and to offer an additional inducement in obtaining and retaining the services of such individuals. The Plan provides for the grant of "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options ("NQSOs"), but the Company makes no warranty as to the qualification of any option as an "incentive stock option" under the Code. 2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 12, the aggregate number of shares of Common Stock, par value $0.001 per share, of the Company ("Common Stock") for which options may be granted under the Plan shall not exceed 1,000,000. Such shares of Common Stock may, in the discretion of the Board of Directors of the Company (the "Board of Directors"), consist either in whole or in part of authorized but unissued shares of Common Stock or shares of Common Stock held in the treasury of the Company. The Company shall at all times during the term of the Plan reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of the Plan. Subject to the provisions of Paragraph 13, any shares of Common Stock subject to an option which for any reason expires, is cancelled or is terminated unexercised or which ceases for any reason to be exercisable shall again become available for the granting of options under the Plan. 3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board of Directors or a committee of the Board of Directors consisting of not less than two directors designated by the Board of Directors to administer the Plan (collectively, the "Committee"). A majority of the members of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, and any acts approved in writing by all members without a meeting, shall be the acts of the Committee. Subject to the express provisions of the Plan, the Committee shall have the authority, in its sole discretion, to determine the employees who shall receive Employee Options (as defined in Paragraph 19); the times when they shall receive options; whether an Employee Option shall be an ISO or a NQSO; the number of shares of Common Stock to be subject to each option; whether to accelerate the date of exercise of any installment; whether shares of Common Stock may be issued on exercise of an option as partly paid, and, if so, the dates when future installments of the exercise price shall become due and the amounts of such installments; the exercise price of each option; the form of payment of the exercise price; the fair market value of a share of Common Stock; whether to restrict the sale or other disposition of the shares of Common Stock acquired upon the exercise of an option and to waive any such restriction; whether to subject the exercise of all or any portion of an option to the fulfillment of contingencies as specified in the contract referred to in Paragraph 11 (the "Contract"), including without limitation, contingencies relating to entering into a covenant not to compete with the Company, Borta and Subsidiaries, to financial objectives for the Company, Borta, a Subsidiary, a division, a product line or other category, and/or the period of continued employment of the optionee with the Company, Borta or any Subsidiaries, and to determine whether such contingencies have been met; the amount, if any, necessary to satisfy the Company's obligation to withhold taxes or other amounts; with the consent of the optionee, to cancel or modify an option, provided such option as modified would be permitted to be granted on such date under the terms of the Plan; to construe the respective Contracts and the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; and to make all other determinations necessary or advisable for administering the Plan. The determinations of the Committee on the matters referred to in this Paragraph 3 shall be final, conclusive and binding on all persons, including the Company, Borta, any Subsidiary, grantees, any person claiming any rights under the Plan from or through any grantee and stockholders, and any controversy or claim arising out of or related to this Plan or the options granted hereunder shall be determined unilaterally by, and at the sole discretion of, the Committee. No member or former member of the Committee shall be liable for any action, failure to act or determination made in good faith with respect to the Plan or any option granted hereunder. In addition, the Company shall indemnify and hold harmless each member and former member of the Committee from and against any liability, claim for damages and expenses in connection therewith by reason of any such action, failure to act or determination under or in connection with the Plan or any option granted hereunder to the fullest extent permitted with respect to directors under the Company's certificate of incorporation, by-laws and applicable law. 4. ELIGIBILITY FOR ISO'S. The Committee may from time to time, consistent with the purposes of the Plan, grant options which are ISO's to employees of the Company, Borta or any Subsidiaries, who are either (a) employees of the Company, Borta or any Subsidiary on the date on which this Plan become effective (the "Effective Date") or (b) employees of the Company, Borta or any Subsidiary for a period of more than one year. Such options granted shall cover such number of shares of Common Stock as the Committee may determine; provided, however, that the aggregate market value (determined at the time the option is granted) of the shares of Common Stock for which any eligible employee may be granted ISOs under the Plan or any other plan of the Company, or of Borta or any Subsidiary, which are exercisable for the first time by such optionee during any calendar year shall not exceed $100,000. The $100,000 ISO limitation shall be applied by taking ISOs into account in the order in which -2- they were granted. Any option (or the portion thereof) granted in excess of such amount shall be treated as a NQSO. 5. EXERCISE PRICE. The exercise price of the shares of Common Stock under each option shall be determined by the Committee; provided, however, that the exercise price of an ISO shall not be less than the fair market value of the Common Stock subject to such option on the date of grant; and provided further that if, at the time an ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, of Borta, any Subsidiary, the exercise price of such ISO shall not be less than 110% of the fair market value of the Common Stock subject to such ISO on the date of grant. The fair market value of a share of Common Stock on any day shall be (a) if the principal market for the Common Stock is a national securities exchange, the average between the high and low sales prices per share of the Common Stock on such day as reported by such exchange or on a consolidated tape reflecting transactions on such exchange, (b) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), and (i) if actual sales price information is available with respect to the Common Stock, the average between the high and low sales prices per share of the Common Stock on such day on NASDAQ, or (ii) if such information is not available, the average between the highest bid and the lowest asked prices per share for the Common Stock on such day on NASDAQ, or (c) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is not quoted on NASDAQ, the average between the highest bid and lowest asked prices per share for the Common Stock on such day as reported on the NASDAQ OTC Bulletin Board Service, National Quotation Bureau, Incorporated or a comparable service; provided,however, that if clauses (a), (b) and (c) of this Paragraph are all inapplicable, or if no trades have been made or no quotes are available for such day, the fair market value of a share of Common Stock shall be determined by the Committee. 6. TERM. The term of each option granted pursuant to the Plan shall be for a period of five (5) years. Options shall be subject to earlier termination as hereinafter provided. 7. EXERCISE. An option (or any part or installment thereof), to the extent then exercisable, shall be exercised by giving written notice to the Company at its principal office stating which option is being exercised, specifying the number of shares of Common Stock as to which such option is being exercised and accompanied by payment in full of the aggregate exercise price therefor and any income tax required to be withheld (a) in cash or by certified check, or (b) if the applicable Contract permits, with previously acquired shares of Common Stock having an aggregate fair market value, on the date of exercise, equal to the aggregate exercise price of all options being exercised and any income tax required to be withheld, or with any combination of cash, certified check, bank draft, wire transfer or postal or express money -3- order payable to the order of the Company, or shares of Common Stock. In such case, the fair market value of the Common Stock shall be determined in accordance with Paragraph 5. A person entitled to receive Common Stock upon the exercise of an option shall not have the rights of a stockholder with respect to such shares of Common Stock until the date of issuance of a stock certificate to him for such shares; provided, however, that until such stock certificate is issued, any option holder using previously acquired shares of Common Stock in payment of an option exercise price shall continue to have the rights of a stockholder with respect to such previously acquired shares. In no case may a fraction of a share of Common Stock be purchased or issued under the Plan. The number of shares of Common Stock which are issued pursuant to the exercise of an Option shall be charged against the maximum limitation on shares set forth in Paragraph 2. 8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly provided in the applicable Contract, any holder of an Employee Option whose employment with the Company, Borta and any Subsidiaries has terminated for any reason other than his death or Disability (as defined in Paragraph 19) may exercise such option, to the extent exercisable on the date of such termination, at any time within thirty (30) days after the date of termination, but not thereafter and in no event after the date the option would otherwise have expired; provided, however, that if his employment is terminated either (a) for cause, or (b) without the consent of the Company, such option shall terminate immediately. Except as may otherwise be expressly provided in the applicable Contract, Employee Options granted under the Plan shall not be affected by any change in the status of the holder so long as he continues to be an employee of the Company, Borta or any Subsidiary (regardless of having been transferred from one corporation to another). For the purposes of the Plan, an employment relationship shall be deemed to exist between an individual and a corporation if, at the time of the determination, the individual was an employee of such corporation for purposes of Section 422(a) of the Code. As a result, an individual on military, sick leave or other bona fide leave of absence shall continue to be considered an employee for purposes of the Plan during such leave if the period of the leave does not exceed ninety (90) days, or, if longer, so long as the individual's right to reemployment with the Company (or a related corporation) is guaranteed either by statute or by contract. If the period of leave exceeds ninety (90) days and the individual's right to reemployment is not guaranteed by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. Nothing in the Plan or in any option granted under the Plan shall confer on any person any right to continue in the employ of the Company, Borta or any Subsidiary, or interfere in any way with any right of the Company, Borta or any Subsidiary to terminate the holder's -4- relationship at any time for any reason whatsoever without liability to the Company, Borta or any Subsidiary. 9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be expressly provided in the applicable Contract, if an optionee dies (a) while he is employed by the Company, Borta or any Subsidiary, (b) within thirty (30) days after the termination of his employment (unless such termination was for cause or without the consent of the Company) or (c) within one year following the termination of his employment by reason of Disability, his Employee Option may be exercised, to the extent exercisable on the date of his death, by his Legal Representative (as defined in Paragraph 19), at any time within one year after death, but not thereafter and in no event after the date the option would otherwise have expired. Except as may otherwise be expressly provided in the applicable Contract, any optionee whose employment has terminated by reason of Disability may exercise his Employee Option, to the extent exercisable upon the effective date of such termination, at any time within one year after such date, but not thereafter and in no event after the date the option would otherwise have expired. 10. COMPLIANCE WITH SECURITIES LAWS. The Committee may require, in its discretion, as a condition to the exercise of any option that either (a) a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Common Stock to be issued upon such exercise shall be effective and current at the time of exercise, or (b) there is an exemption from registration under the Securities Act for the issuance of shares of Common Stock upon such exercise. Nothing herein shall be construed as requiring the Company to register shares subject to any option under the Securities Act. The Committee may require the optionee to execute and deliver to the Company his representations and warranties, in form and substance satisfactory to the Committee, that (a) the shares of Common Stock to be issued upon the exercise of the option are being acquired by the optionee for his own account, for investment only and not with a view to the resale or distribution thereof, and (b) any subsequent resale or distribution of shares of Common Stock by such optionee will be made only pursuant to (i) a Registration Statement under the Securities Act which is effective and current with respect to the shares of Common Stock being sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption, the optionee shall prior to any offer of sale or sale of such shares of Common Stock provide the Company with a favorable written opinion of counsel, in form and substance satisfactory to the Company, as to the applicability of such exemption to the proposed sale or distribution. In addition, if at any time the Committee shall determine in its discretion that the listing or qualification of the shares of Common Stock subject to such option on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to, or in connection with, the granting of an option or the issue of shares of Common Stock thereunder, such option may not be exercised in whole or -5- in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an appropriate Contract which shall be duly executed by the Company and the optionee, and shall contain such terms and conditions not inconsistent herewith as may be determined by the Committee. 12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Not- withstanding any other provisions of the Plan, in the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, merger in which the Company is the surviving corporation, split-up, combination or exchange of shares or the like, the aggregate number and kind of shares subject to the Plan and the aggregate number and kind of shares subject to each outstanding option and the exercise price thereof, shall be appropriately adjusted by the Board of Directors, whose determination shall be conclusive. 13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the Board of Directors on July 27, 1995. No option may be granted under the Plan after July 27, 2000. The Board of Directors, without further approval of the Company's stockholders, may at any time suspend or terminate the Plan, in whole or in part, or amend it from time to time in such respects as it may deem advisable, including, without limitation, in order that ISOs granted hereunder meet the requirements for "incentive stock options" under the Code or to conform to any change in applicable law or to regulations or rulings of administrative agencies; provided, however, that no amendment shall be effective without the requisite prior or subsequent stockholder approval which would (a) except as contemplated in Paragraph 12, increase the maximum number of shares of Common Stock for which options may be granted under the Plan, (b) materially increase the benefits to participants under the Plan or (c) change the eligibility requirements for individuals entitled to receive options hereunder. No termination, suspension or amendment of the Plan shall, without the consent of the holder of an existing option affected thereby, adversely affect his rights under such option. The power of the Committee to construe and administer any options granted under the Plan prior to the termination or suspension of the Plan nevertheless shall continue after such termination or during such suspension. 14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan shall be transferable otherwise than by will or the laws of descent and distribution, and options may be exercised, during the lifetime of the holder thereof, only by him or his Legal Representatives. Except to the extent provided above, options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. 15. WITHHOLDING TAXES. The Company may withhold cash and/or shares of Common Stock to be issued with respect thereto having an aggregate fair market value equal to the amount which it determines is necessary to satisfy its obligation to withhold Federal, -6- state and local income taxes or other amounts incurred by reason of the grant or exercise of an option, its disposition, or the disposition of the underlying shares of Common Stock. Alternatively, the Company may require the holder to pay to the Company such amount, in cash, promptly upon demand. The Company shall not be required to issue any shares of Common Stock pursuant to any such option until all required payments have been made. Fair market value of the shares of Common Stock shall be determined in accordance with Paragraph 5. 16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend or legends upon the certificates for shares of Common Stock issued upon exercise of an option under the Plan and may issue such "stop transfer" instructions to its transfer agent in respect of such shares as it determines, in its discretion, to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, (b) implement the provisions of the Plan or any agreement between the Company and the optionee with respect to such shares of Common Stock, or (c) permit the Company to determine the occurrence of a "disqualifying disposition," as described in Section 421(b) of the Code, of the shares of Common Stock transferred upon the exercise of an ISO granted under the Plan. The Company shall pay all issuance taxes with respect to the issuance of shares of Common Stock upon the exercise of an option granted under the Plan, as well as all fees and expenses incurred by the Company in connection with such issuance. 17. USE OF PROCEEDS. The cash proceeds from the sale of shares of Common Stock pursuant to the exercise of options under the Plan shall be added to the general funds of the Company and used for such corporate purposes as the Board of Directors may determine. 18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board of Directors may, without further approval by the stockholders, substitute new options for prior options of a Constituent Corporation (as defined in Paragraph 19) or assume the prior options of such Constituent Corporation. 19. DEFINITIONS. (a) Subsidiary. The term "Subsidiary" shall have the same definition as "subsidiary corporation" in Section 424(f) of the Code. (b) Constituent Corporation. The term "Constituent Corporation" shall mean any corporation which engages with the Company, Borta or any Subsidiary in a transaction to which Section 424(a) of the Code applies (or would apply if the option assumed or substituted were an ISO), or any Parent or any Subsidiary of such corporation. -7- (c) Disability. The term "Disability" shall mean a permanent and total disability within the meaning of Section 22(e)(3) of the Code. (d) Employee Option. The term "Employee Option" shall mean an option granted pursuant to the Plan to an individual who, at the time of grant, is a employee of the Company, Borta or any Subsidiary. (e) Legal Representative. The term "Legal Representa- tive" shall mean, with respect to an optionee, his executor, administrator or other person at the time entitled by law to his rights under an option granted pursuant to the Plan. 20. GOVERNING LAW. The Plan, such options as may be granted hereunder and all related matters shall be governed by, and construed in accordance with, the laws of the State of Dela- ware, without regard to conflict of law provisions. 21. PARTIAL INVALIDITY. The invalidity or illegality of any provision herein shall not affect the validity of any other provision. -8- EX-10 7 EX-10.3 EMPLOYMENT AGREEMENT - S. COHEN EXHIBIT 10.3 ------------ EMPLOYMENT AGREEMENT Employment Agreement, dated as of February 1, 1995, by and between ARISTO INTERNATIONAL CORPORATION, a New York corporation having an address at 152 West 57th Street, New York, New York 10019 (hereinafter called "Company"), and SHMUEL COHEN, an individual residing at 22 Martin Court, Kings Point, New York 11024 (hereinafter called "Employee"). W I T N E S S E T H: WHEREAS, Company desires to employ Employee upon the terms and conditions stated herein; and WHEREAS, Employee desires to employed by Company upon the terms and conditions stated herein. NOW, THEREFORE, in consideration of the mutual covenants, conditions and premises contained herein, the parties hereby agree as follows: 1. EMPLOYMENT. Company hereby employs Employee for the period beginning on the date (the "Commencement Date") of a Qualifying Public Offering (as hereinafter defined) and ending five (5) years after the Commencement Date, unless earlier terminated pursuant hereto (such period hereinafter called the "Employment Period"). Qualifying Public Offering" shall mean (i) the consummation of (A) a proposed merger between Company and The Astro-Stream Corporation ("Astro-Stream") or (B) a transaction that would result in Company's shareholders owning shares of Astro-Stream or (ii) any other transaction which results in Company becoming a public company or Company's shareholders owning shares of a public company. 2. DUTIES. Subject to the direction of the Board of Directors of Company, Employee shall be employed as Chief Executive officer and President of Company. Employee shall only be required to render his services within the New York metropolitan area. 3. TIME. Employee agrees that he will devote substantially all of his time and attention' during regular business hours to the business and affairs of Company. 4. COMPENSATION. (a) For all services performed by Employee for Company during the Employment Period, Company will pay Employee, in accordance with the normal pay practice of the Company, an annual salary of $350,000 during the term of this Agreement. 'Contract Year' shall mean the initial twelve (12) month period beginning on the date hereof and each subsequent twelve (12) month period during the term of this Agreement (b) Employee shall be entitled to participate in the health, retirement, profit sharing, insurance or similar benefits, if any, 'Which Company provides, or in the future will provide, to its executive employees. (c) Employee shall also on the Commencement Date and on each of the next four anniversaries thereof receive stock options to purchase 40,000 shares of the Company's Common Stock . 5. REIMBURSEMENT OF EXPENSES. Employee shall be reimbursed for his reasonable expenses directly related to the business of Company, which reimbursement shall be in accordance with Company's then regular procedures and upon presentation of evidence -2- satisfactory to Company that such expenses were in fact incurred and either paid or are then presently due and owing. 6. VACATION. Employee shall be entitled to six (6) weeks vacation each year during the Employment Period. 7. DISABILITY; DEATH. In the event Employee shall, because of illness or incapacity, physical or mental, be unable to perform substantially all of his duties hereunder for a period of sixteen (16) consecutive weeks, or for noncontinuous periods aggregating more than twenty-six (26) weeks in any twelve (12) month period, Company may, at any time thereafter while-such disability continues, terminate this Agreement by notice thereof to Employee specifying the termination date. This Agreement shall terminate upon the death of Employee. Upon termination in accordance with this Section 7, Company shall pay to Employee his salary pursuant to Section 4(a) to the end of the month during which termination occurs. 8. TERMINATION. This Agreement may be terminated by Company for "Cause" (as hereinafter defined) at any time immediately upon notice to Employee. The term "Cause" shall mean any: (i) conviction for act of fraud, dishonesty or illegality performed in his capacity as an employee of Company; (ii) material breach by Employee of a material provision of this Agreement, which breach is not cured within-thirty (30) days after written notice thereof by Company to Employee; or (iii) willful refusal to obey any lawful order of the Board of Directors of Company; provided, however, that such order shall be in keeping with Employee's services set forth under Section 2 of this Agreement. -3- Upon termination in accordance with this Section 8, Employee shall not be entitled to any compensation for the period subsequent to such termination. 9. NON-SOLICITATION; CONFIDENTIALITY; NON-COMPETE. (a) Employee agrees that he will not, for a period of one (1) year following termination of this Agreement, employ, associate in any business relationship with, endeavor to entice away from Company or otherwise interfere with any officer of or consultant to Company during the twelve (12) month period preceding such termination. (b) Employee shall not, directly or indirectly, at any time during the term of this Agreement or thereafter, reveal, divulge, or make known to any person or entity, or use for Employee's personal benefit, any information with respect to the patents or know-how of Company or information acquired during the course of his employment hereunder with regard to the financial, business or of the affairs of Company or of any customer or potential customer of Company other than material already in the public domain. Employee shall, at any time requested by Company (either during or after the term of this Agreement), promptly deliver to Company all memoranda, notes, reports, lists, drawings, diagrams, tapes, discs and documents (and all copies thereof) relating to the business of Company which he may then possess or have under his control. (c) From the date hereof and for a period of one (1) year from the date of the termination of this Agreement, Employee shall not engage in or have any interest in, directly or indirectly, any business which is competitive with the business conducted by Company at the date of termination of this Agreement. -4- 10. REMEDIES, DAMAGES. (a) Employee agrees that violation of Section 9 would cause irreparable injury to Company for which the remedy at law would be inadequate, and that Company shall be entitled in any court of law or equity or in any arbitration proceeding in accordance with this Section 10, whichever forum is designated by Company, to preliminary, permanent and other injunctive relief against any breach of the provisions contained in Section 9 and such punitive and compensatory damages as shall be awarded. 11. REPRESENTATION BY EMPLOYEE. Employee represents and warrants that he is free to enter into this Agreement and to perform his duties hereunder. 12. MISCELLANEOUS. (a) This Agreement constitutes the entire agreement between Employee and Company with respect to the subject matter hereof, supersedes all prior agreements or understandings among the parties hereto and may not be modified, amended or terminated except by a written agreement signed by all of the parties hereto. (b) No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. (c) If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. -5- (d) The section headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said sections. (e) This Agreement shall be governed by the laws of the State of New York (without giving effect to principles of conflicts of law). The parties hereto agree that the Supreme Court of the State of New York for the County of New York or, if it has or can acquire jurisdiction, the United States District Court for the Southern District of New York shall have personal jurisdiction and proper venue over any dispute between Company and Employee. (f) Any notice, process or other communication to be given hereunder shall be in writing and delivered personally or sent by certified or registered mail, postage prepaid, to Company at its principal business address, and if to Employee, addressed to Employee at Employee's address as it first appears this Agreement, or to such other address as any party may have furnished to the others in writing. Unless otherwise provided in this Agreement, notice given pursuant to this section shall be deemed given as of the date of its mailing. Any notice, process or other communication hereunder may be given by counsel to Company or Employee, as the case may be. A copy of any notice, process or other communication hereunder shall be given to Company and Employee. (g) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -6- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above mentioned. EMPLOYEE: ---------------------------------- Shmuel Cohen COMPANY: ARISTO INTERNATIONAL CORPORATION By:____________________________________ Name: Title: ---------------------------------- Joseph Ettinger, Director -7- EX-10 8 EX-10.4 EMPLOYMENT AGREEMENT - R. BORTA EXHIBIT 10.4 ------------ EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of July 27, 1995, between Ron Borta, 14 Oak Lane, Sterling, Virginia 20165 (the "Employee") and Borta, Inc. 100 Carpenter Drive, Suite 206, Sterling, Virginia 20164 ("Employer"), a Delaware corporation engaged in the worldwide multimedia business. WHEREAS, the Employee's unique skills, knowledge and experience with respect to Employer, and Employer's business, and Employee's ongoing participation and employment by Employer are a most significant and material inducement in Employer's decision to enter into an employment agreement with Employee. WHEREAS, Employer desires to employ Employee as the President of Employer, and the Employee desires to be employed in such capacity; NOW THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the Employer and the Employee hereby agree as follows. 1. Employment Duties and Agreements (a) The Employer hereby agrees to employ the Employee (the "Employment") as the President of Employer, with such senior executive and management duties, responsibilities, obligations and powers commensurate with such role, as will be described herein and which are assigned to the President by the Board of Directors of Employer; and (b) The Employee hereby accepts the Employment and agrees to serve the Employer during the period described in Section 1(d) hereof. In rendering service to the Employer, the Employee shall be subject to, and agrees to act in accordance with, the instructions and directions of Employer's Board of Directors, and all applicable policies and rules thereof. (c) During the Employment, Employee will be responsible for the operations and management of the business of Employer on a day to day basis with primary responsibility to oversee and participate in the creation of games and other multimedia products for Employer. Additionally, should Employer enter into agreements with individuals or with such entities involved in the development of multimedia products, including but not limited to electronic gaming, at the request of Employer or Employer's affiliates Employee will participate in various aspects 1 of such businesses and with individuals in Employee's area of expertise. As part of Employee's duties he will identify and appoint and oversee executives of Employer and other staff necessary to operate and manage Employer; the appointment of executives of Employer shall be to be subject to prior approval by Employer's Board of Directors. Employee will keep the Employer's Board of Directors updated with written reports concerning Employer on an ongoing basis per the policies and practices of Employer. All agreements, whether oral or written obligating Employer or it's affiliates for obligations whether financial or otherwise (a) not contemplated in the approved budget; or (b) in excess of one year in length; or (c) not financial in nature, must be approved by the General Counsel of Employer. (d) The initial employment term shall be three (3) years from the execution of this Agreement, ("Initial Employment Term"), renewable on terms subject to good faith negotiations and mutual approval on an annual basis with three (3) months written notice prior to the expiration of the initial term, and thereafter each annual term ("Subsequent Annual Employment Terms"). However, it is understood that it is the essence of this Employment agreement that Employee will provide his services to oversee and supervise the fulfillment and exploitation of Employer's contracts and business for not less than eighteen (18) months from execution of this Employment Agreement. Should Employee fail to oversee the fulfillment and exploitation of such business of Employer for such period of time to the best of his ability according to reasonable industry standards, and on an exclusive non-compete basis, he will be in breach of the employment agreement and cause irreparable damage to Employer, and be subject to all equitable and other legal remedies available to Employer, including Employer's right to terminate Employee pursuant to the terms of paragraphs 3(b), 3(b)(vii) and 4(a) of this Agreement. (e) Employee shall be elected and appointed as a member of Employer's Board of Directors. (f) The principal office of the Employee shall be at 100 Carpenter Drive, Suite 206, Sterling, VA 20164 or other office in the vicinity of Employer's present office; provided, that Employee may be required to travel and render services outside such area at such reasonable times as may be necessary to perform his duties hereunder. (g) During the Employment, the Employee shall devote on an exclusive basis his professional full time and energy, attention, skills and ability to the performance of the Employment and shall faithfully and diligently endeavor to promote the 2 business and best interests of the Employer and it's affiliates and shall make available to the Employer and it's affiliates when and if requested, all knowledge possessed by him relating to any aspect of his duties and responsibilities hereunder, and shall introduce Employer's executives and Board of Directors and executives of Employer's affiliates to all individuals personally known to Employee in the worldwide multimedia industry that Employer's and it's affiliates' executives and Board of Directors wish to meet or do business with. For the purposes of this Employment Agreement the term worldwide multimedia industry shall be defined as "that industry involved in computer graphics, video, film, graphics, and, audio (individually, and in any combination thereof), for use in display on computers, and/or film and video mediums or other distribution mediums now known or hereinafter devised, whether used for entertainment, information or educational purposes." Nothing in this Paragraph 1(g) precludes Employee from making passive investments of up to 5% interest in any entity or business which may be competitive with Employer or it's affiliates, nor any passive investment, of any amount, in any entity or business which is not competitive with Employer or it's affiliates. Employee hereby agrees to allow Employer to use his name, bio and likeness in connection with information dissemination concerning their respective companies. Employee agrees not to make public announcements, or publicity about Employer without first consulting with Employer's Board of Directors. Employee agrees to appear and participate with Employer and it's affiliates in the general promotion of Employer and it's affiliates as it may reasonably request. 2. Compensation (a) Base Salary As compensation for the performance by the Employee of his obligations hereunder during the Employment, and provided that Employee satisfactorily performs his obligations hereunder, the Employer shall pay the Employee a base salary (the "Base Salary") equal to $150,000 per annum. The Employee's Base Salary shall be payable in equal installments no less frequently than twice each month. (b) Additional Compensation (i) Signing Bonus As additional compensation Employee will be entitled to a signing bonus of $750,000 payable $250,000 upon execution of this Agreement; $250,000 3 on November 1, 1995 and $250,000 on February 28, 1996. (ii) Annual Bonus As compensation for the performance by the Employee of his obligations hereunder, the Employer shall pay the Employee within ninety (90) days after the end of each fiscal year during the Employment commencing from the end of the 1996 fiscal year a bonus (the "Annual Bonus") equal to seven and one-half percent (7 1/2%) of Employer's earnings before interest and taxes "EBIT"calculated in accordance with generally accepted accounting principals ("GAAP"), which is defined as revenues adjusted for returns and allowances less operating expenses, in each year with the understanding that the first year terminates October 31, 1996. The actual amount of EBIT for each year will be determined by independent certified public accountants appointed by Employer's Board of Directors to audit its financial statements. No amount of any annual bonus shall be considered earned unless and until it is payable pursuant to the terms of this paragraph 2 (b) (ii). (c) Other Benefits (i) During the Employment, the Employee shall be entitled to participate in such medical, disability, life, accident or other insurance or welfare plans, programs or arrangements as are offered generally to the executives of Employer and it's affiliates. (ii) The Employee shall be entitled to 4 weeks paid vacation with respect to each calendar year of the Employment, which vacation shall be subject to such rules and regulations as Employer shall adopt with respect to paid vacation for executives of the Employer. (d) Payments Subject to Withholding The compensation provided to the Employee pursuant to this Agreement shall be subject to any required federal, state, local and other governmental withholdings or deductions required under applicable tax laws. 3. Termination Events 4 (a) The Employment shall commence on the date hereof, and will continue unless terminated, by a Termination Event, as defined below. (b) For purposes of this Agreement, the following events shall constitute "Termination Events": (i) The expiration of the Initial Employment Term or the expiration of any Subsequent Annual Employment Terms when there are no provisions for automatic renewals or extensions. (ii) the Employee's death; (iii)the Employee's failure to substantially perform the duties required of him hereunder for a period of 3 consecutive months or for shorter periods aggregating 3 months during any 6-month period on account of a physical or mental disability or incapacity, as verified by a written statement from a physician mutually agreeable to Employer and Employee; (iv) the termination of the Employment by the Employer for "Cause". For purposes of this Agreement the term Cause, when used in connection with the termination of the Employment by the Employer or Aristo, shall mean the Employee's (A) commission of fraudulent or criminal acts; or (B) failure to act exclusively in the worldwide multimedia industry as defined above in paragraph 1(g) on behalf of Employer in breach of this Employment Agreement; or (C) acting solely or with others in competition to Employer without Employer's Board of Director's prior written consent. (D) Employee's failure to substantially perform the duties required of him hereunder for a period of three (3) consecutive months or for shorter periods aggregating three (3) months during any six month period. (E) material breach of this Agreement (v) the voluntary termination of the Employment by the Employee, other than for "Good Reason". For purposes of this Agreement, the term Good Reason, when used in connection with the voluntary termination of the Employment by the Employee, shall mean the assignment to the Employee of any duties inconsistent with the terms of this Agreement or that could result in an assertion of a breach hereof. (vi) The voluntary termination of the Employment by the Employee for Good Reason. 5 (vii)This Agreement shall not limit the right of the Board of Director's of Employer to terminate the Employment at any time, whether or not for Cause. 4. Payments Upon Termination of Employment In the event of the termination of the Employment, either by the Employer or by the Employee, the Employee shall be entitled to receive payments from the Employer as follows: (a) Payments in the Event of a Termination Event Described in Paragraphs 3(b)(i)-(v) Upon the termination of the Employment as a result of a Termination Event described in Section 3(b) (i) - (v), above, the Employee shall be entitled to any (i) Base Salary, vacation pay and Annual Bonus due and owing at the date of such termination but not yet paid and (ii) amount of Annual Bonus and/or Signing Bonus already due and payable prior to termination pursuant to the terms of Section 2(b) above. The Employee shall not be entitled to any other compensation or payments hereunder after the date of, or otherwise with respect to, such termination of the Employment. (b) Payments Upon Termination of Employment as a Result of Events Described in Paragraphs 3(b)(vi) or 3(b)(vii). Upon the termination of the Employment as a result of Termination Event described in Section 3(b), (vi) and (vii) above, the Employee shall be entitled to and paid on last date of employment (i) any Base Salary, vacation pay, and Annual Bonus and Signing Bonus due and owing at the date of such termination, but not yet paid, as well as the Base Salary and Signing Bonus that would have been payable to Employee through the expiration of the Initial Employment Term, plus 50% of his annual salary for an additional six (6) months after said Initial Employment Term. 5. Ownership of Work Product and Ideas (a) During the Employment, any discoveries, inventions, patents, materials, licenses and ideas related to the worldwide multimedia industry (whether or not patentable or copyrightable and whether created and owned by Employee personally or owned by Employer prior or after the execution of this Agreement ) ("Work Product") and all business opportunities 6 introduced to Employee during the Employment Term within the worldwide multimedia industry, as defined in paragraph 1(d) above will be owned by and belong exclusively to Employer, and Employee will have no personal interest in such. Employee will, in such connection, promptly disclose such Work Product and business opportunities to Employer and assign to Employer upon it's Board of Director's request and without additional compensation, all rights to such Work Product and business opportunities. Employee will offer Employer a right of first refusal and last negotiation on all business opportunities in the worldwide multimedia industry which he may now own an interest in. The Employee agrees that any process, invention, improvement, discovery, program or system (1) described in a patent application filed by the Employee or any third party which acquired such process, invention, improvement, discovery, program or system from the Employee or (2) disclosed by the Employee to any third party (whether or not for compensation), in either case within 2 years after the termination of the Employment, shall be deemed to be developed during the Employment and belong to Employer unless Employee demonstrates that such process, invention, improvement, discovery, program or system was conceived and developed subsequent to the termination of the Employment, and is not based on information developed by the Employer, or any affiliated company and disclosed to Employee during the Employment. It is understood and agreed, however, that all inventions, and ideas, whether or not patentable or copyrightable, owned or developed by Employee prior to May 31, 1995 which are not related to the worldwide multimedia industry, are the sole property and will remain the sole property of Employee and not owned by Employer during and after the employment term. 6. Protection of Confidential Information (a) Employee acknowledges that during the course of his employment, he will acquire Proprietary Information and Trade Secrets (as hereinafter defined), of Employer and it's potential affiliated companies: ("Employer and affiliated companies"). For purposes of this Agreement: (i) "Proprietary Information" shall mean all unpublished materials and information created, discovered, owned or otherwise controlled by 7 Employer and affiliated companies relating to the products of Employer and affiliated companies, including, but not limited to financial information, data or statements, product research and development, existing and future product plans, designs and schematics, patents, client lists, computer data, documentation, algorithms, processes and know-how (whether or not reduced to writing and whether or not patentable or copyrightable), and business and marketing plans and strategies, pricing policies, cost and profit information, supplier identities, packaging and the like, whether disclosed orally, in writing, or by inspection. Proprietary information shall also include all other materials and information which have been clearly identified by Employer as Proprietary Information, Trade Secrets or Confidential Information. The term "Proprietary Information" shall not include any information which is now generally known or available or which hereafter through no act or failure on the part of Employee becomes generally known or available; (ii) "Trade Secrets" shall mean the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula or improvement which is secret and is not generally available to the public, which Employer and affiliated companies may consider confidential, and which gives the one who uses it an advantage over competitors who do not know of or use the Trade Secret. The Trade Secrets may include, without limitation, information relating to programs or products now existing or currently under design or development. (b) Non-Disclosure Employee agrees to hold the Proprietary Information and Trade Secrets of which Employee may acquire knowledge hereunder in the strictest confidence unless ordered to disclose same subject to legal proceeding instituted by third parties or as required to fulfill authorized government requirements. Employee further agrees not to disclose any Proprietary Information or Trade Secrets except to the Board of Directors of Employer, employees and consultants of Employer and affiliated companies, if any, who reasonably require the same for the purposes hereof and who are bound by a confidentiality agreement in form and substance. (c) Return of Documents and Materials The Employee agrees to use his best efforts to deliver promptly upon the termination of the Employment, and at any other time as the Employer may request, all documents, technology, software, source codes, object codes, hardware (and all copies thereof), in whatever medium, relating to the business of 8 the Employer, or any affiliated company, he possesses or has under his control. 7. Covenant Not to Compete and Covenant Not to Solicit (a) Employee agrees that during the Employment Terms as such are defined in Paragraph 1 (d) ("Initial Non-Compete Term") he will not compete directly or indirectly with Employer or any of it's affiliated companies within the worldwide multimedia industry; and (b) Upon termination of said Employment Terms, provided that such termination occurs because of expiration or because Employee is terminated for cause or voluntarily, as both are defined in Paragraph 3(b)(i)-(v) above, and for two (2) years after such termination, ("Second Non-Compete Term"), Employee will not compete directly or indirectly with Employer or any of it's affiliated companies, within the worldwide multimedia industry; and (c) Should Employee be terminated by Employer's Board of Directors other than for cause prior to the expiration of any Employment Term, or Employee leaves for Good Reason as both are defined in paragraphs 3(b)(vi) and(vii), Employee will not compete directly or indirectly with Employer or any of it's affiliated companies for a period of one (1) year from such involuntary termination ("Third Non-Compete Term"); and (d) Employee agrees that during any or all of the Non-Compete Terms set forth in this paragraph 7, he will not directly or indirectly, either as a principal, agent, employee, employer, consultant, 5% or more stockholder, partner, or in any other personal representative capacity whatsoever whether through a corporation, partnership, trust, sole proprietorship or any other organization, engage in, or assist any person to engage in, businesses directly or indirectly competitive with Employer and any of it's affiliated companies, nor will he solicit or assist others to solicit or divert any Proprietary Information, Trade Secrets, business or customers from Employer and any of it's affiliated companies, or solicit or divert employees of Employer to terminate his or her employment with Employer and any of it's affiliated companies. However, it is understood and agreed that during the Second and Third Non-Compete Terms as defined above, Employee may engage in or induce others, who are not employees of Employer or any of it's affiliated companies, to engage in business opportunities in the multimedia industry offered to Employer or any of it's affiliated companies during the Initial Non-Compete Term, but which Employer or any of it's affiliated companies refused to pursue during such Initial Non-Compete Term. It is also understood and agreed that Employee may during the Second and Third Non-Compete Terms request Leslie Davis to leave her 9 employment with Employer to work with him. 8. CONFLICTING AGREEMENTS Employee warrants and represents that he has disclosed to Employer any existing or proposed agreements to which Employee is a party that may adversely affect Employee's ability to render his services to Employer hereunder. 9. INDEMNIFICATION Employee hereby indemnifies and holds harmless Employer and it's affiliated companies, and their directors, officers, agents and employees from and against all claims, demands and causes of action (including without limitation, reasonable attorneys fees, court costs and other liabilities) arising out of or in connection with Employee's breach of his obligations under this Agreement or inaccuracies in his representations or warranties under this Agreement, or any of his activities prior to the execution of this Agreement. Nothing in this section imposes on Employee the obligation to indemnify the Employer or it's affiliated companies with respect to any damages resulting from Employer's or any of it's affiliated companies intentional torts or acts of negligence. 10. GENERAL PROVISIONS (a) No Waiver. No provision of this Agreement shall be deemed to have been waived unless such waiver is in writing signed by the waiving party. No failure by any party to insist upon the strict performance of any provision of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach, of such provision or any other provision. No waiver of any provision of this Agreement shall be deemed a waiver of any other provision of this Agreement or waiver of such provision with respect to any subsequent breach, unless expressly provided in writing. (b) Notices. All notices required or permitted to be given under this Agreement shall be in writing. Notices may be served by certified or registered mail, postage pre-paid with return receipt requested, by private courier, prepaid; by facsimile or other telecommunication device capable of transmitting or creating a written record with copy sent by U.S. mail or by personal delivery three days after initial fax transmission; or personally. Mailed notices shall be deemed delivered three days after mailing, properly addressed, return receipt signed. Couriered notices shall be deemed 10 delivered on the date the courier warrants a delivery has occurred. Fax notices shall be deemed delivered when receipt is either confirmed by confirming transmission equipment or acknowledged by the addressee or its office. Personal delivery shall be effective when accomplished upon signature of receipt. All notices shall be given to the parties at the addresses first given above unless a party changes his or it's address by giving notice to the other party as provided herein. (c) Integration; Amendment. This Agreement constitutes the entire Agreement of the parties relating to the subject matter hereof. There are no terms, conditions or obligations other than those contained in this Agreement. This Agreement supersedes all prior communications, representations or agreements between the parties relating to the subject matter hereof. This Agreement may not be amended except in writing executed by the parties. (d) Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not effect the other provisions hereof, all of which shall remain enforceable in accordance with their terms. Should any of the obligations hereunder be found illegal or unenforceable, such obligations shall be enforceable within whatever terms a court of competent jurisdiction shall deem allowable by law. Employee may not assign, sell, subcontract, delegate or otherwise transfer his obligations under this Agreement, without the prior written consent of Employer's Board of Directors, and any attempted assignment or delegation shall be void and without effect. (e) Successors. This Agreement shall inure to the benefit of the successors and assigns of the Employer or affiliated companies as if such Agreement had been originally negotiated and entered into by and between Employee and any such successor or assign, provided such assignee undertakes in writing to perform all of Employer's obligations hereunder. (f) Governing Law. The parties hereto intend that this Agreement shall be governed by and construed in accordance with the laws of the State of New York for agreements wholly negotiated, entered into and performed within the State of New York. The parties hereto each consent to the jurisdictions of the State and Federal courts located in the City and County of New York. Each party agrees that it hereby waives any objection to such jurisdiction as a forum non-conveniens. (g) Injunctive Relief. Employee acknowledges that Employer and it's affiliated companies, are new and evolving companies in the worldwide multimedia 11 industry and that protection of Proprietary Information, Trade Secrets, and compliance with non-compete covenants provided in Paragraph 7 are important to future prospects for growth and business development of Employer and it's affiliated companies. Employee acknowledges that the Employer and it's affiliated companies may not have an adequate remedy at law in the event of any breach or threatened breach by Employee of any provision of Paragraph 6 and 7, and that Employer or it's affiliated companies may suffer irreparable damage and injury as a result. Accordingly, in the event of any such breach or threatened breach, Employee hereby consents to Employer's or it's affiliated companies application for injunctive relief against him by any court of competent jurisdiction without the posting of any bond or security therefor. (h) Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. All exhibits referenced and attached to this Agreement are by this reference incorporated into and made part of this Agreement. The section headings in this Agreement are included for convenience only; they do not give full notice of the terms of any portion of this Agreement, and are not relevant to the interpretation of any provision of this Agreement. (i) Survival. All rights and obligations shall cease upon termination of this Agreement, except for the rights and obligations set forth in or arising out of paragraphs 6,7, and 10(g), which shall survive the termination of this Agreement. 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above. By: /s/ RON BORTA ______________________________________ Ron Borta ("Employee") BORTA, INC. ("Employer") By: /s/ Shmuel Cohen ______________________________________ Shmuel Cohen Title: Chairman EX-10 9 EX-10.5 EMPLOYMENT AGREEMENT - L.DAVIS EXHIBIT 10.5 ------------ EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of July 27, 1995, between Leslie Davis, 14 Oak Lane, Sterling, Virginia 20165 (the "Employee") and Borta, Inc. 100 Carpenter Drive, Suite 206, Sterling, Virginia 20164 ("Employer"), a Delaware corporation engaged in the worldwide multimedia business. WHEREAS, the Employee's unique skills, knowledge and experience with respect to Employer,and Employer's business, and Employee's ongoing participation and employment by Employer are a most significant and material inducement in Employer's decision to enter into an employment agreement with Employee. WHEREAS, Employer desires to employ Employee as the Chief Operating Officer ("COO") of Employer, and Employee desires to be employed in such capacity; NOW THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the Employer and the Employee hereby agree as follows. 1. Employment Duties and Agreements (a) The Employer hereby agrees to employ the Employee (the "Employment") as the Chief Operating Officer of Employer, with such senior and management duties, responsibilities, obligations and powers commensurate as will be described herein and which as are assigned to the Employee by the Board of Directors of Employer; and (b) The Employee hereby accepts the Employment and agrees to serve the Employer during the period described in Section 1(d) hereof. In rendering service to the Employer, the Employee shall be subject to, and agrees to act in accordance with, the instructions and directions of the Employer's Board of Directors and all applicable policies and rules thereof. (c) During the Employment, Employee will with Employer's President will be responsible for the operations and management of the business of Employer on a day to day basis. Additionally, should Employer enter into agreements with individuals or with such entities involved in the development of multimedia products, including but not limited to electronic gaming, at Employer's request Employee will participate in various aspects of such businesses and with individuals in Employee's area of expertise. As part of Employee's duties she will participate in identifying and appointing and overseeing executives of Employer and other staff necessary to operate and manage Employer; the appointment of executives of Employer shall be subject to prior approval by Employer's Board of Directors. Employee will keep the Employer's Board of Directors updated with written reports concerning Employer on an ongoing basis per the policies and practices of Employer. All agreements, whether oral or written obligating Employer or it's affiliates for obligations whether financial or otherwise (a) not contemplated in the approved budget; or (b) in excess of one year in length; or (c) not financial in nature, must be approved by the General Counsel of Employer. (d) The initial employment term shall be three (3) years from the execution of this Agreement, ("Initial Employment Term"), renewable on terms subject to good faith negotiations and mutual approval on an annual basis with three (3) months written notice prior to the expiration of the initial term, and thereafter each annual term ("Subsequent Annual Employment Terms"). However, it is understood that it is the essence of this Employment agreement that Employee will provide her services to help oversee Employer's business for not less than eighteen (18) months from execution of this Employment Agreement. Should Employee fail to help oversee the business of Employer for such period of time to the best of her ability according to reasonable industry standards, and on an exclusive non-compete basis, she will be in breach of the employment agreement and cause irreparable damage to Employer , and be subject to all equitable and other legal remedies available to Employer, including Employer's right to terminate Employee pursuant to the terms of paragraphs 3(b), 3(b)(vii), and 4(a) of this Agreement. (e) Employee shall be elected and appointed as a member of Employer's Board of Directors. (f) The principal office of the Employee shall be at 100 Carpenter Drive, Suite 206, Sterling, VA 20164 or other office in the vicinity of Employer's present office; provided, that Employee may be required to travel and render services outside such area at such reasonable times as may be necessary to perform her duties hereunder. (g) During the Employment, Employee shall devote on an exclusive basis her professional time and energy, attention, skills and ability to the performance of the Employment and shall faithfully and diligently endeavor to promote the business and best interests of the Employer and it's affiliates and shall make available to the Employer and it's affiliates when and if requested all knowledge possessed by her relating to any aspect of her duties and responsibilities hereunder, and shall 2 introduce Employer's executives, and Board of Directors and executives of Employer's affiliates to all individuals personally known to Employee in the worldwide multimedia industry that Employer's and it's affiliates' executives or Board of Directors wish to meet or do business with. For the purposes of this Employment Agreement the term worldwide multimedia industry shall be defined as "that industry involved in computer graphics, video, film, graphics, and audio (individually, and in any combination thereof), for use in display on computers, and/or film and video mediums or other distribution mediums now known or hereinafter devised, whether used for entertainment, information or educational purposes." Nothing in this Paragraph 1(g) precludes Employee from making passive investments of up to 5% interest in any entity or business which may be competitive with Employer or it's affiliates, nor any passive investment, of any amount, in any entity or business which is not competitive with Employer or it's affiliates. Employee hereby agrees to allow Employer to use her name, bio and likeness in connection with information dissemination concerning their respective companies. Employee agrees not to make public announcements, or publicity about Employer without first consulting with Employer's Board of Directors. Employee agrees to appear and participate with Employer and it's affiliates in the general promotion of Employer and it's affiliates as it may reasonably request. 2. Compensation (a) Base Salary As compensation for the performance by the Employee of her obligations hereunder during the Employment, and provided that Employee performs her obligations hereunder, the Employer shall pay the Employee a base salary (the "Base Salary") equal to $120,000 per annum. The Employee's Base Salary shall be payable in equal installments no less frequently than twice each month. (b) Other Benefits (i) During the Employment, the Employee shall be entitled to participate in such medical, disability, life, accident or other insurance or welfare plans, programs or arrangements as are offered generally to the executives of Employer and it's affiliates. (ii) The Employee shall be entitled to 4 weeks paid vacation with respect to each calendar year of the Employment, which vacation shall be subject to 3 such rules and regulations as Employer shall adopt with respect to paid vacation for executives of Employer. (c) Payments Subject to Withholding The compensation provided to the Employee pursuant to this Agreement shall be subject to any required federal, state, local and other governmental withholdings or deductions required under applicable tax laws. 3. Termination Events (a) The Employment shall commence on the date hereof, and will continue unless terminated by a Termination Event, as defined below. (b) For purposes of this Agreement, the following events shall constitute "Termination Events": (i) The expiration of the Initial Employment Term or the expiration of any Subsequent Annual Employment Terms when there are no provisions for automatic renewals or extensions. (ii) the Employee's death; (iii)the Employee's failure to substantially perform the duties required of her hereunder for a period of 3 consecutive months or for shorter periods aggregating 3 months during any 6-month period on account of a physical or mental disability or incapacity, as verified by a written statement from a physician mutually agreeable to Employer and Employee; (iv) the termination of the Employment by the Employer for "Cause". For purposes of this Agreement the term Cause, when used in connection with the termination of the Employment by the Employer, shall mean the Employee's (A) commission of fraudulent or criminal acts; or (B) failure to act exclusively in the worldwide multimedia industry as defined above in paragraph 1(g) on behalf of Employer in breach of this Employment Agree- ment; or (C) acting solely or with others in competition to Employer without Employer's Board of Directors prior written consent. (D) Employee's failure to substantially perform duties required of her 4 hereunder for a period of three (3) consecutive months or for shorter periods aggregating three months during any six (6) month period. (E) material breach of this Agreement. (v) the voluntary termination of the Employment by the Employee, other than for "Good Reason". For purposes of this Agreement, the term Good Reason, when used in connection with the voluntary termination of the Employment by the Employee, shall mean the assignment to the Employee of any duties inconsistent with the terms of this Agreement or that could result in an assertion of a breach hereof. (vi) The voluntary termination of the Employment by the Employee for Good Reason. (vii)This Agreement shall not limit the right of the Board of Director's of Employer to terminate the Employment at any time, whether or not for Cause. 4. Payments Upon Termination of Employment In the event of the termination of the Employment, either by the Employer or by the Employee, the Employee shall be entitled to receive payments from the Employer as follows: (a) Payments in the Event of a Termination Event Described in Paragraph 3(b)(i) - (v) Upon the termination of the Employment as a result of a Termination Event described in Section 3(b) (i)-(v), above, the Employee shall be entitled to any Base Salary, and vacation pay due and owing at the date of such termination but not yet paid . The Employee shall not be entitled to any other compensation or payments hereunder after the date of, or otherwise with respect to, such termination of the Employment. (b) Payments Upon Termination of Employment as a Result of Events Described in Paragraphs 3(b)(vi) or 3(b)(vii). Upon the termination of the Employment as a result of a Termination Events described in Section 3(b), (vi) or 3(vii) above, the Employee shall be entitled to and paid on last date of employment (i) any Base Salary, and vacation pay, due and owing at the date of such termination but not yet paid, plus the Base Salary that would have been payable to Employee 5 through the expiration of the Initial Employment Term. 5. Ownership of Work Product and Ideas During the Employment, any discoveries, inventions, patents, materials, licenses and ideas related to the worldwide multimedia industry (whether or not patentable or copyrightable and whether created and owned by Employee personally or owned by Employer prior or after the execution of this Agreement ("Work Product") and all business opportunities introduced to Employee during the Employment Term within the worldwide multimedia industry as defined in paragraph 1(d) above will be owned by and belong exclusively to Employer , and Employee will have no personal interest in such. Employee will, in such connection, promptly disclose such Work Product and business opportunities to Employer and assign to Employer upon it's Board of Director's request and without additional compensation, all rights to such Work Product and business opportunities. Employee will offer Employer a right of first refusal and last negotiation on all business opportunities in the worldwide multimedia industry which she may now own an interest in. The Employee agrees that any process, invention, improvement, discovery, program or system (1) described in a patent application filed by the Employee or any third party which acquired such process, invention, improvement, discovery, program or system from the Employee or (2) disclosed by the Employee to any third party (whether or not for compensation), in either case within 2 years after the termination of the Employment, shall be deemed to be developed during the Employment and belong to Employer , unless Employee demonstrates that such process, invention, improvement, discovery, program or system was conceived and developed subsequent to the termination of the Employment, and is not based on information developed by the Employer, or any affiliated company and disclosed to Employee during the Employment. It is understood and agreed, however, that all inventions, and ideas, whether or not patentable or copyrightable, owned or developed by Employee prior to May 31, 1995 which are not related to the worldwide multimedia industry, are the sole property and will remain the sole property of Employee and not owned by Employer during and after the employment term. 6. Protection of Confidential Information 6 (a) Employee acknowledges that during the course of her employment, she will acquire Proprietary Information and Trade Secrets (as hereinafter defined), of Employer and it's potential affiliated companies: (Employer and affiliated companies). For purposes of this Agreement: (i) "Proprietary Information" shall mean all unpublished materials and information created, discovered, owned or otherwise controlled by Employer and affiliated companies relating to the products of Employer and affiliated companies, including, but not limited to financial information, data or statements, product research and development, existing and future product plans, designs and schematics, patents, client lists, computer data, documentation, algorithms, processes and know-how (whether or not reduced to writing and whether or not patentable or copyrightable), and business and marketing plans and strategies, pricing policies, cost and profit information, supplier identities, packaging and the like, whether disclosed orally, in writing, or by inspection. Proprietary information shall also include all other materials and information which have been clearly identified by Employer as Proprietary Information, Trade Secrets or Confidential Information. The term "Proprietary Information" shall not include any information which is now generally known or available or which hereafter through no act or failure on the part of Employee becomes generally known or available; (ii) "Trade Secrets" shall mean the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula or improvement which is secret and is not generally available to the public, which Employer and affiliated companies may consider confidential, and which gives the one who uses it an advantage over competitors who do not know of or use the Trade Secret. The Trade Secrets may include, without limitation, information relating to programs or products now existing or currently under design or development. (b) Non-Disclosure Employee agrees to hold the Proprietary Information and Trade Secrets of which Employee may acquire knowledge hereunder in the strictest confidence unless ordered to disclose same subject to legal proceeding instituted by third parties or as required to fulfill authorized government requirements. Employee further agrees not to disclose any Proprietary Information or Trade Secrets except to the Board of Directors and employees and consultants of Employer , if any, who reasonably require the same for the purposes hereof and who are bound by a confidentiality agreement in form and substance. 7 (c) Return of Documents and Materials The Employee agrees to use her best efforts to deliver promptly upon the termination of the Employment, and at any other time as the Employer may request, all documents, technology, software, source codes, object codes, hardware (and all copies thereof), in whatever medium, relating to the business of the Employer, or any affiliated company, she possesses or has under her control. 7. Covenant Not to Compete and Covenant Not to Solicit (a) Employee agrees that during the Employment Terms as such are defined in Paragraph 1(d) ("Initial Non-Compete Term") she will not compete directly or indirectly with Employer or any of it's affiliated companies within the worldwide multimedia industry; and (b) Upon termination of said Employment Terms, provided that such termination occurs because of expiration or because Employee is terminated for cause or voluntarily, as both are defined in Paragraph 3(b)(i)-(v) above, and for two (2) years after such termination, ("Second Non-Compete Term"), Employee will not compete directly or indirectly with Employer or it's affiliated companies within the worldwide multimedia industry; and (c) Should Employee be terminated by Employer's Board of Directors other than for cause prior to the expiration of any Employment Term, or Employee leaves for Good Reason as both are defined in paragraphs 3(b)(vi) and 3(b)(vii), Employee will not compete directly or indirectly with Employer or any of it's affiliated companies for a period of one (1) year from such involuntary termination ("Third Non-Compete Term"); and (d) Employee agrees that during any or all of the Non-Compete Terms set forth in this paragraph 7, she will not directly or indirectly, either as a principal, agent, employee, employer, consultant, 5% or more stockholder, partner, or in any other personal representative capacity whatsoever whether through a corporation, partnership, trust, sole proprietorship or any other organization, engage in, or assist any person to engage in, businesses directly or indirectly competitive with Employer and any of it's affiliated companies, nor will she solicit or assist others to solicit or divert any Proprietary Information, Trade Secrets, business or customers from Employer or any of it's affiliated companies or solicit or divert employees of Employer or any of it's affiliated companies to terminate his or her employment with Employer. However, it is understood and agreed that during the Second and Third Non-Compete Terms as defined above, Employee may engage in or induce others, 8 who are not employees of Employer or any of it's affiliated companies, to engage in business opportunities in the multimedia industry offered to Employer or any of it's affiliated companies during the Initial Non-Compete Term, but which Employer or any of it's affiliated companies refused to pursue during such Initial Non-Compete Term, as long as such businesses do not directly or indirectly compete with Employer or any of it's affiliated companies. It is also understood and agreed that Leslie Davis may during the Second and Third Non-Compete Terms request Ron Borta to leave his employment with Employer to work with her. 8. CONFLICTING AGREEMENTS Employee warrants and represents that she has disclosed to Employer any existing or proposed agreements to which Employee is a party that may adversely affect Employee's ability to render her services to Employer hereunder. 9. INDEMNIFICATION Employee hereby indemnifies and holds harmless Employer and it's affiliated companies and their directors, officers, agents and employees from and against all claims, demands and causes of action (including without limitation, reasonable attorneys fees, court costs and other liabilities) arising out of or in connection with Employee's breach of her obligations under this Agreement or inaccuracies in her representations or warranties under this Agreement, or any of her activities prior to the execution of this Agreement. Nothing in this section imposes on Employee the obligation to indemnify the Employer or it's affiliated companies with respect to any damages resulting from Employer's intentional torts or acts of negligence. 10. GENERAL PROVISIONS (a) No Waiver. No provision of this Agreement shall be deemed to have been waived unless such waiver is in writing signed by the waiving party. No failure by any party to insist upon the strict performance of any provision of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach, of such provision or any other provision. No waiver of any provision of this Agreement shall be deemed a waiver of any other provision of this Agreement or waiver of such provision with respect to any subsequent breach, unless expressly provided in writing. 9 (b) Notices. All notices required or permitted to be given under this Agreement shall be in writing. Notices may be served by certified or registered mail, postage pre-paid with return receipt requested, by private courier, prepaid; by facsimile or other telecommunication device capable of transmitting or creating a written record with copy sent by U.S. mail or by personal delivery three days after initial fax transmission; or personally. Mailed notices shall be deemed delivered three days after mailing, properly addressed, return receipt signed. Couriered notices shall be deemed delivered on the date the courier warrants a delivery has occurred. Fax notices shall be deemed delivered when receipt is either confirmed by confirming transmission equipment or acknowledged by the addressee or its office. Personal delivery shall be effective when accomplished upon signature of receipt. All notices shall be given to the parties at the addresses first given above unless a party changes his, her, or it's address by giving notice to the other party as provided herein. (c) Integration; Amendment. This Agreement constitutes the entire Agreement of the parties relating to the subject matter hereof. There are no terms, conditions or obligations other than those contained in this Agreement. This Agreement supersedes all prior communications, representations or agreements between the parties relating to the subject matter hereof. This Agreement may not be amended except in writing executed by the parties. (d) Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not effect the other provisions hereof, all of which shall remain enforceable in accordance with their terms. Should any of the obligations hereunder be found illegal or unenforceable, such obligations shall be enforceable within whatever terms a court of competent jurisdiction shall deem allowable by law. Employee may not assign, sell, subcontract, delegate or otherwise transfer her obligations under this Agreement, without the prior written consent of Employer's Board of Directors, and any attempted assignment or delegation shall be void and without effect. (e) Successors. This Agreement shall inure to the benefit of the successors and assigns of the Employer or affiliated companies as if such Agreement had been originally negotiated and entered into by and between Employee and any such successor or assign, provided such assignee undertakes in writing to perform all of Employer's obligations hereunder. (f) Governing Law. The parties hereto intend that this Agreement shall be governed by and construed in accordance with the laws of the State of New York for agreements wholly negotiated, entered into and performed within the State of New York. The parties hereto each consent to the jurisdictions of the State and Federal courts located in the City and County of New York. Each party agrees that it 10 hereby waives any objection to such jurisdiction as a forum non-conveniens. (g) Injunctive Relief. Employee acknowledges that Employer and it's affiliated companies are new and evolving companies in the worldwide multimedia industry and that protection of Proprietary Information, Trade Secrets, and compliance with non-compete covenants provided in Paragraph 7 are important to future prospects for growth and business development of Employer and it's affiliated companies. Employee acknowledges that the Employer and it's affiliated companies may not have an adequate remedy at law in the event of any breach or threatened breach by Employee of any provision of Paragraph 6 and 7, and that Employer or it's affiliated companies may suffer irreparable damage and injury as a result. Accordingly, in the event of any such breach or threatened breach, Employee hereby consents to Employer's or it's affiliated companies application for injunctive relief against her by any court of competent jurisdiction without the posting of any bond or security therefor. (h) Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. All exhibits referenced and attached to this Agreement are by this reference incorporated into and made part of this Agreement. The section headings in this Agreement are included for convenience only; they do not give full notice of the terms of any portion of this Agreement, and are not relevant to the interpretation of any provision of this Agreement. 11 (i) Survival. All rights and obligations shall cease upon termination of this Agreement, except for the rights and obligations set forth in or arising out of paragraphs 6,7, and 10(g), which shall survive the termination of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above. By: /s/ Leslie Davis ______________________________________ Leslie Davis ("Employee") BORTA, INC. ("Employer") By: /s/ Shmuel Cohen ______________________________________ Shmuel Cohen Title: Chairman 12 EX-10 10 EX-10.6 CHANGE IN CONTROL AGREEMENT EXHIBIT 10.6 ------------ AGREEMENT AGREEMENT dated February 1, 1995, between ARISTO INTERNATIONAL CORPORATION, a New York corporation having its principal office at 152 West 57th Street, New York, New York 10019 (the "Company"), and SHMUEL COHEN ("Employee"). W I T N E S S E T H: WHEREAS, in consideration of the contribution that has been, and can continue to be, made by Employee toward the success of the business of the Company, the Company desires to enter into this Agreement; NOW, THEREFORE, it is agreed as follows: 1. TERM AND OPERATION OF AGREEMENT. This Agreement shall be effective for a term (the "Term") commencing as of the date of a Qualifying Public Offering (as hereinafter defined) (the "Commencement Date") and ending on the earlier of five (5) years after the Commencement Date or the termination of Employee's employment prior to a Change in Control of the Company (as hereinafter defined); provided, however, that if there is a Change in Control subsequent to the Commencement Date but prior to the termination of this Agreement in accordance with the foregoing, then the Term shall be automatically extended for a period ending on the second anniversary of the date of such Change in Control. "Qualifying Public Offering" shall mean the first to occur of (i) consummation of (A) a proposed merger between the Company and The Astro-Stream Corporation ("Astro-Stream") or (B) a transaction that would result in the Company's shareholders owning shares of Astro-Stream or (ii) any other transaction that results in the Company becoming a public company or the Company's shareholders owning shares of a public company. For purposes of this Agreement, Employee's employment by the Company shall be deemed to be continuing (i) for any period during which, in accordance with any contract between him and the Company ("Employment Agreement"), provision shall be made for Employee to perform services as an employee of the Company and Employee shall be entitled to compensation from the Company for same, or (ii) if there is no Employment Agreement, for any period during which Employee is in fact performing services as an employee of the Company and receiving compensation from the Company for same. Anything in this Agreement to the contrary notwithstanding, neither this Agreement nor any provision hereof shall be operative until a Change in Control has occurred, at which time this Agreement and all of its provisions shall become operative immediately. 2. CHANGE IN CONTROL-TERMINATION OF EMPLOYMENT AND COMPENSATION IN EVENT OF TERMINATION. (a) After a Change in Control has occurred, Employee may terminate his employment within two years after he has obtained actual knowledge of the occurrence of any of the following events: (i) Failure to elect or appoint, or re-elect or re-appoint, Employee to, or removal of Employee from, his office and/or position with the Company as constituted prior to the Change in Control, except in connection with the termination of Employee's employment pursuant to subparagraph 3(a) hereof. (ii) A reduction in Employee's overall compensation (including any reduction in pension or other benefit programs or perquisites) or a significant change in the nature or scope of the authorities, powers, functions or duties normally attached to Employee's position with the Company as referred to in clause (i) of subparagraph 2(a) hereof. (iii) A determination by Employee made in good faith that, as a result of a Change in Control, he is unable effectively to carry out the authorities, powers, functions or duties attached to his position with the Company as referred to in clause (i) of subparagraph 2(a) hereof, and the situation is not remedied within thirty (30) calendar days after receipt by the Company of written notice from Employee of such determination. (iv) A breach by the Company of any provision of this Agreement not covered by clauses (i), (ii) or (iii) of this subparagraph 2(a), which is not remedied within thirty (30) calendar days after receipt by the Company of written notice from Employee of such breach (v) A change in the location at which substantially all of Employee's duties with the Company are to be performed to a location which is not within a 20-mile radius of the address of the place where Employee is performing services on the date of the Change in Control. (vi) A failure by the Company to obtain the assumption of, and the agreement to perform, this Agreement by any successor (within the meaning of paragraph 8). An election by Employee to terminate his employment under the provisions of this subparagraph 2(a) shall not be deemed a voluntary termination of employment by Employee for the purpose of interpreting the provisions of any of the Company's employee benefit plans, programs or policies. Employee's right to terminate his employment for good reason shall not be affected by his illness or incapacity, whether physical or mental, unless the Company shall at the time be entitled to terminate his employment under paragraph 3(a)(ii) of this Agreement. Employee's continued employment with the Company for any period of time less then two years after a Change in Control shall not be considered a waiver of any right he may have to terminate his employment pursuant to this paragraph 2(a). (b) After a Change in Control has occurred, if Employee terminates his employment with the Company pursuant to subparagraph 2(a) or if Employee's employment is terminated by the Company for any reason other than pursuant to paragraph 3(a) hereof, Employee (i) shall be entitled to his salary, bonuses, awards, perquisites and benefits, including, without limitation, benefits and awards under the Company's stock option plans and the Company's pension and retirement plans and programs, through the Termination Date (as hereinafter defined) and, in addition thereto, (ii) shall be entitled to be paid in a lump-sum, on the Termination Date, an amount of cash (to be computed, at the expense of the Company, by the partner of Coopers & Lybrand, independent certified public accountants to the Company or such other independent certified accountants regularly employed by the Company (the "Accountants"), in charge of the Company's account immediately prior to the Change in Control, whose computation shall be conclusive and binding upon Employees and the Company) equal to 2.99 times Employee's base amount, as defined in Section 28OG(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). Such lump-sum payment is hereinafter referred to as the "Termination Compensation". Upon payment of the Termination Compensation, any Employment Agreement between Employee and the Company shall terminate and be of no further force or effect; provided, however that (x) if Employee shall, in terminating his employment with the Company pursuant to paragraph 2(a), include in his Notice of Termination (as hereafter defined) his election to enforce his rights under the provisions of his Employment Agreement and not under the provisions of this Agreement or (y) if Employee shall, within thirty calendar days after he has obtained actual knowledge of the termination of his employment by the Company other than pursuant to paragraph 3(a) of this Agreement, notify the Company that he intends to enforce his rights under the Employment Agreement, then, in each such case, any Employment Agreement between Employee and the Company shall remain in full force effect and the provisions of this Agreement shall terminate and be of no further force or effect and Employee shall hold, for the benefit of the Company, any payment on account of the Termination Compensation theretofore received by him hereunder, pending the satisfaction of the Company's obligations to Employee under the provisions of any Employment Agreement between Employee and the Company (whereupon Employee shall return any such Termination Compensation to the Company). (c) For purposes hereof, a Change in Control shall be deemed to have occurred if there has occurred, after the Commencement Date, (i) a change in control as the term "control" is defined in Rule 12b-2 promulgated under the Act; (ii) when any "person" (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Act), except for an employee stock ownership trust (or any of the trustees thereof), becomes a beneficial owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the Company's then outstanding securities having the right to vote on the election of directors; (iii) during any period of not more than two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i), (ii), (iv), (v), (vi) or (vii) of this subparagraph 2(b)) whose election by the Board or nomination for executive by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were either directors at the beginning of the period or whose election or nomination for election was previously approved, cease for any reason to constitute at least 75% of the entire Board of Directors; (iv) when a majority of the directors elected at any annual or special meeting of stockholders (or by written consent in lieu of a meeting) are not individuals nominated by the Company's incumbent Board of Directors; (v) if the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the holders of voting securities of the Company outstanding immediately prior thereto being the holders of at least 80% of the voting securities of the surviving entity outstanding immediately after such merger or consolidation; (vi) if the shareholders of the Company approve a plan of complete liquidation of the Company; or (vii) if the shareholders of the Company approve an agreement for the sale or disposition of all or substantially all of the Company's assets. However, the foregoing notwithstanding, no Change in Control shall be deemed to have occurred as a result of the consummation of the transaction contemplated by the letter of intent dated August 12, 1994 between the Company and Astro-Stream. (d) Notwithstanding anything in this Agreement to the contrary; Employee shall have the right, prior to the receipt by him of any amounts due thereunder, to waive the receipt thereof or, subsequent to the receipt by him of any amounts due hereunder, to treat some or all of such amounts as a loan from the Company which Employee shall repay to the Company, within 90 days from the date of receipt, with interest at the rate provided in Section 7872 of the Code. Notice of any such waiver of treatment of amounts received as a loan shall be given by Employee to the Company in writing and shall be binding upon the Company. (e) It is intended that the "present value" of the payments and benefits to Employee, whether under this Agreement or otherwise, which are includable in the computation of "parachute payments" shall not, in the aggregate, exceed 2.99 times the "base amount" (the terms "present value", "parachute payments" and "base amount" being determined in accordance with Section 28OG-of the Code). Accordingly, if Employee receives payments or benefits from the Company prior to payment of the Termination Compensation which, when added to the Termination Compensation, would, in the opinion of the Accountants, subject any of the payments or benefits to Employee to the excise tax imposed by Section 4999 of the Code, the Termination Compensation shall be reduced by the smallest amount necessary, in the opinion of the Accounts, to avoid such tax. In addition, the Company shall have no obligation to make any payment or provide any benefit to Employee subsequent to payment of the Termination Compensation that, in the opinion of the Accountants, would subject any of the payments or benefits to Employee to the excise tax imposed by Section 4999 of the Code. No reduction in Termination Compensation or release of the Company from any payment or benefit obligation in reliance upon any aforesaid opinion of the Accountants shall be permitted unless the Company shall have provided to Employee a copy of any such opinion, specifically entitling Employee to rely thereon, no later than the date otherwise required for payment of the Termination Compensation or any such later payment or benefit. 3. TERMINATION BY THE COMPANY. (a) Employee's employment may be terminated by the Company without any further liability under this Agreement if Employee shall (i) die; (ii) be totally unable to perform the duties and services attached to his position with the Company for a period of not less than 365 consecutive days due to illness or incapacity, whether physical or mental; (iii) violate any written contractual covenant of Employee, then in effect in favor of the Company, prohibiting Employee from competing with the Company in any manner materially detrimental to the Company; or (iv) be convicted of a felony involving an act against the Company, and said conviction shall not have been reserved or be subject to further appeal, it being expressly understood, however, that conviction for violation of a criminal statute by reason of actions taken in the course of performance of Employee's duties as an executive of the Company shall not be deemed to involve an act against the Company for purposes hereof unless involving a theft, embezzlement or other fraud against the Company or any of its officers, directors or employees, or unless involving an act of physical harm to any of such persons. (b) After a Change in Control has occurred, if Employee's employment is terminated by the Company pursuant to subparagraph 3(a) hereof, Employee (or his widow, or if she shall not survive him, any party designated by Employee by notice to the Company, or Employee's estate, in the absence of such notice) shall receive the sums (if any) Employee would otherwise have received if a Change in Control had not occurred. 4. NOTICE OF TERMINATION AND TERMINATION DATE. (a) Any termination of Employee's employment by the Company or by Employee shall be communicated by a Notice of Termination to the other party hereto. For purposes hereof, a "Notice of Termination" shall mean a notice which shall state the "Termination Date" (as hereinafter defined) and the specific reasons, and shall set forth in reasonable detail the facts and circumstances, for such determination and, in the case of Employee's termination of employment pursuant to paragraph 2(a)(iii) hereof, shall state that Employee has made the good faith termination required by that subparagraph. (b) "Termination Date" shall mean the date specified in the Notice of Termination as the last day of Employee's employment by the Company, which date shall not be sooner than the date on which the Notice of Termination is given. (c) If, within thirty (30) calendar days after any Notice of Termination is given, or, if later, prior to the Termination date (as determined without regard to this paragraph 4(c)), the party hereto receiving such Notice of Termination notifies the other party hereto that a dispute exists concerning the termination, the Termination Date shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties hereto, by a binding arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the Termination Date shall be extended by a notice of dispute only if such notice is given in good faith and the party hereto giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of such dispute, the Company will continue to pay to Employee his full compensation (including perquisites and other benefits) in effect when the notice of dispute was given and continue Employee as a participant in all employee benefit plans and programs in which he was participating when the notice of dispute was given, until the dispute is finally resolved as hereinabove provided. 5. MITIGATION. Employee shall not be required to use his best efforts to mitigate the payment of the Termination compensation by seeking other employment. To the extent that Employee shall, during or after the Term, receive compensation from any other employment, the payment of Termination compensation shall not be adjusted. 6. ARBITRATION. In the event any dispute arises between the parties hereto, Employee and the Company shall each have the right to seek arbitration in New York, New York under the rules of the American Arbitration Association by giving written notice of intention to arbitrate to the other party. Any award rendered in any such arbitration proceeding shall be non-appealable and final and binding upon the parties hereto, and judgment thereon may be entered in any court of competent jurisdiction. If Employee prevails in any litigation or arbitration proceeding brought in accordance herewith, or if any such litigation or arbitration proceeding is settled, Employee shall be entitled, to the extent not prohibited by applicable law, to reimbursement from the Company for his reasonable attorneys' fees and expenses incurred in connection with such litigation or arbitration proceeding. 7. INDEMNIFICATION. (a) The Company agrees that all rights to indemnification existing immediately prior to a Change in Control and all rights to indemnification existing immediately prior to the Termination Date in favor of Employee as provided in the respective corporate charters and by-laws of the Company and its subsidiaries shall survive the Termination Date and shall continue in full force and effect for a period of not less than ten years after the Termination Date. Until the expiration of such period, the Company shall also indemnify Employee to the fullest extent permitted by the New York Business Corporation Law; provided that, in the event that any claim shall be asserted or made within such ten-year period, all rights to indemnification in respect of any such claim shall continue until disposition of such claim. Without limitation of the foregoing, in the event that Employee becomes involved in any capacity in any action, proceeding or investigation in connection with any activities involving the Company occurring prior to, and including the Termination Date, the Company will, subject to paragraph 7(b), advance to Employee his legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. (b) Employee shall give prompt written notice to the Company of the commencement of any action, suit or proceeding for which indemnification may be sought under this paragraph 7, and the Company, through counsel reasonably satisfactory to Employee, may assume the defense thereof; provided, however, that Employee shall be entitled to participate in any such action, suit or proceeding with counsel of his own choice but at his own expense; and provided further, the Employee shall be entitled to participate in any such action, suit or proceeding with counsel of his own choice at the expense of the Company if, in the good faith judgment of Employee's counsel, representation by the Company's counsel may present a conflict of interest or there may be defenses available to Employee which are different from or in addition to those available to the Company. In any event, if the Company fails to assume the defense within a reasonable time, Employee may assume such defense and the reasonable fees and expenses of his attorneys shall be borne by the Company. No action, suit or proceeding for which indemnification may be sought shall be compromised or settled in any manner which might adversely affect the interest of the Company without the prior written consent of the Company. Notwithstanding anything in this Agreement to the contrary, the Company shall not, without the written consent of Employee, (i) settle or compromise any action, suit or proceeding or consent to the entry of any judgment which does not include as an unconditional term thereof the delivery by the claimant or plaintiff to Employee of a written release from all liability in respect of such action, suit or proceeding or (ii) settle or compromise any action, suit or proceeding in any manner that may materially and adversely affect Employee other than as a result of money damages or other money payments for which the Company fully pays. (c) The Company shall cause to be maintained in effect, for not less than two years after the Termination Date, the then current policies of the directors' and officers' liability insurance maintained by the Company and the Company's subsidiaries provided that the Company may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous so long as no lapse in coverage occurs as a result of such substitution, and shall use its best efforts to provide such insurance for an additional three years after the expiration of such two-year period, the availability of such insurance at commercially reasonable rates (or, if not available at reasonable rates, then the Company shall purchase similar insurance but with such lower limits of liability, without change in retention amounts, as may be available for a premium comparable to that paid by the Company for the last year of such two-year period), with respect to all matters occurring prior to and including the Termination Date; provided that, in the event that any claim shall be asserted or made within such period during which insurance has been or is to be provided, such insurance shall be continued in respect of any such claim until final disposition of any and all such claims. The Company shall pay all expenses, including reasonable attorneys, fees, that may be incurred by Employee in enforcing the indemnity and other obligations provided for in this paragraph 7. The covenant in this paragraph 7 shall survive the Termination Date and shall continue without time limit (except as expressly provided in this paragraph 7). 8. ASSIGNABILITY. This Agreement may not be assigned by Employee and all of its terms and conditions shall be binding upon and inure to the benefit of Employee and his heirs and legal representatives and the Company and its successors and assignees. Successors of the Company shall include, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the assets of the Company, whether by merger, consolidation, purchase or otherwise, and such successor shall thereafter be deemed the "Company" for purposes hereof. 9. NOTICES. All notices, requests, demands and other communications provided for hereby shall be in writing and shall be deemed to have been duly given when delivered personally or sent by registered or certified mail, return receipt requested, to the party entitled thereto at the address first above written (in the case of the Company) or to such address as contained in the Company's records (in the case of Employee). 10. MODIFICATION. This Agreement may be modified or amended only by an instrument in writing signed by Employee and the Company and any provision hereof may be waived only by an instrument in writing signed by the party hereto against whom any such waiver is sought to be enforced. 11. SEVERABILITY. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision contained herein. 12. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 13. CAPTIONS. The captioned heading-a herein are for convenience of reference only and are not intended and shall not be construed to have any substantive effect. IN WITNESS WHEREOF the parties hereto have executed this executed this Agreement as of the date first above written. /s/ Shmuel Cohen ________________________________ Shmuel Cohen ARISTO INTERNATIONAL CORPORATION By:_____________________________ Name: Title: /s/ Joseph Ettinger ________________________________ Joseph Ettinger, Director EX-10 11 EX-10.7 CONSULTING AGREEMENT EXHIBIT 10.7 ------------ AGREEMENT AGREEMENT dated as of the 1st day of July, 1995 by and between ARISTO INTERNATIONAL CORPORATION, a Delaware corporation (the "Company"), having its offices at 152 West 57th Street, New York, New York 10019 and CASTELLON LIMITED, an Irish corporation ("Castellon"), having its offices at Russell Court Street, Steven Green, Dublin 2, Ireland. W I T N E S S E T H: WHEREAS, the Company desires to retain the services of Castellon and Castellon desires to render such services upon the terms and conditions herein set forth; and NOW, THEREFORE, in consideration of the mutual covenants contained herein and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and Castellon hereby agree as follows: 1. Term. The term of this Agreement shall be for a period of one (1) year from July 1, 1995 to June 30, 1996. 2. Retainer and Duties. The Company hereby retains Castellon and Castellon agrees to render services to the Company outside the United States of America. Castellon hereby agrees to assist the Company in raising capital of a minimum amount of $750,000 during the 1995 calendar year (which agreement the parties hereto acknowledge is a material term of this Agreement) and in its financing activities, and to render to the Company such consulting services relating to joint ventures, strategic partnerships and investor relations outside the United States of America, as the President or the Board of Directors of the Company may reasonably request from time to time and at such times as the parties shall mutually agree. Castellon shall make available a person satisfactory to the Company (the "Representative") outside the United States of America to meet with representatives of the Company on a periodic basis and to perform the services referenced in this Section 2. The Representative shall devote no less than ten hours per week to such services. Castellon's obligation to provide services shall include, but shall not be limited to, the foregoing. Neither Castellon nor anyone on Castellon's behalf is authorized in any way to commit the Company to any expense or agreement of any amount or kind without the Company's prior written consent and neither Castellon nor anyone on Castellon's behalf will make any representations, promises, or commitments to any third party on the Company's behalf. 3. Compensation. For the performance of the duties and services to be rendered by Castellon hereunder, the Company shall pay Castellon a fee of $10,000 per month payable in arrears at the end of each month. All costs and expenses incurred by Castellon in the performance of its duties and services hereunder shall be borne solely by Castellon. 4. Termination by the Company. The Company shall have the right to terminate this Agreement if (a) Castellon becomes the subject of a voluntary or involuntary petition in bankruptcy or any proceeding relating to insolvency, receivership, liquidation or assignment for the benefit of creditors or (b) for "cause" (as hereinafter defined). "Cause" shall mean any: (i) act of fraud, dishonesty or illegality; (ii) willful, grossly negligent or repeatedly negligent conduct adversely affecting the reputation or business of the Company; (iii) material breach by Castellon of this Agreement; (iv) failure to perform Castellon's duties with reasonable diligence; or -2- (v) willful refusal to obey any lawful order of the President or of the Board of Directors of the Company. 5. Termination by Castellon. Castellon shall have the right to terminate this Agreement (a) if the Company becomes the subject of a voluntary or involuntary petition in bankruptcy or any proceeding relating to insolvency, receivership, liquidation or assignment for the benefit of creditors or (b) upon thirty (30) days prior written notice to the Company. 6. Miscellaneous. (a) This Agreement constitutes the entire Agreement between Castellon and the Company with respect to the subject matter hereof, supersedes all prior agreements or understandings among the parties hereto and may not be modified, amended or terminated except by a written agreement signed by all of the parties hereto. (b) No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. (c) If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. (d) The section headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said sections. (e) This Agreement shall be governed by the laws of the State of New York (without giving effect to principles of conflicts of law). The parties hereto agree that the Supreme -3- Court of the State of New York for the County of New York or, if it has or can acquire jurisdiction, the United States District Court for the Southern District of New York shall have personal jurisdiction and proper venue over any dispute between the Company and Castellon. Castellon hereby waives personal service of any summons, complaint or other process. In addition, Castellon agrees that process in any dispute between Castellon and the Company may also be served on Castellon by personal service on Mr. Joseph Ettinger. (f) Any notice, process or other communication to be given hereunder shall be in writing and delivered personally or sent by certified or registered mail, postage prepaid, to the Company at its principal business address, and if to Castellon, addressed to Castellon at Castellon's address as it appears in the stock records of the Company, or to such other address as any party may have furnished to the others in writing. Unless otherwise provided in this Agreement, notice given pursuant to this section shall be deemed given as of the date of its mailing. Any notice, process or other communication hereunder may be given by counsel to the Company or Castellon, as the case may be. A copy of any notice, process or other communication hereunder shall be given to the Company and Castellon. (g) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -4- (h) Any controversy arising under, out of, in connection with or relating to, this Agreement, or the breach hereof, shall be determined and settled by arbitration in New York, New York, by a person or persons mutually agreed upon, or in the event of a disagreement as to the selection of the arbitrator or arbitrators, in accordance with the rules then obtaining of the American Arbitration Association. Any award rendered therein shall specify the findings of fact of the arbitrators and the reasons for such award, with the reference to and reliance on relevant law. Any such award shall be final and binding on each and all of the parties hereto and their personal representatives, and judgment may be rendered thereon in any court having jurisdiction thereof. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. ARISTO INTERNATIONAL CORPORATION By: /s/ Shmuel Cohen ------------------------- Shmuel Cohen President CASTELLON LIMITED By:_________________________ Name: Title: -5- CASTELLON LIMITED Russell Court Street Steven Green Dublin 2, Ireland July 1, 1995 Aristo International Corporation 152 West 57th Street New York, New York 10019 Gentlemen: Reference is made to the Agreement dated as of July 1, 1995 (the "Agreement"), between Aristo International Corporation ("Aristo") and Castellon Limited ("Castellon"). Castellon hereby agrees to make available Joseph Ettinger to Aristo to perform Castellon's duties under the Agreement, including, without limitation, those duties set forth in the third sentence of Section 2 of the Agreement. Castellon hereby agrees that, notwithstanding anything to the contrary contained herein or in the Agreement, any failure, for any reason whatsoever, to satisfy the agreement set forth in the previous sentence shall constitute "cause" under Section 4 of the Agreement. CASTELLON LIMITED By: /s/ Joseph Ettinger ---------------------- Joseph Ettinger President CONSENTED AND AGREED TO: ARISTO INTERNATIONAL CORPORATION By: /s/ Shmuel Cohen ----------------------- Shmuel Cohen President EX-10 12 EX-10.8 RESTRICTED STOCK LETTER AGREEMENT EXHIBIT 10.8 ------------ Exhibit 10.8 ------------ ARISTO INTERNATIONAL CORPORATION 152 West 57th Street New York, New York 10019 July 28, 1995 Ron Borta 14 Oak Lane Sterling, Virginia 20165 Dear Ron: Aristo International Corporation, a Delaware corporation ("Aristo"), hereby awards to you 357,143 shares of the Common Stock, $.001 par value per share (the "Common Stock"), of Aristo, subject to the terms contained herein. The Common Stock shall be issued to you on the date hereof in your name and shall contain a restrictive legend specifying the terms or referring to this document. In addition, Aristo may affix such other legends as required by the Securities Act of 1933 ("1933 Act") and may issue such stop transfer instructions to its transfer agent in respect to the shares of Common Stock as it in its discretion deems necessary or appropriate. From the date of issuance, you shall be entitled to vote the 357,143 shares of Common Stock and to receive dividends, if any, declared thereon unless and until these shares are forfeited as described herein. The shares of Common Stock will be subject to forfeiture until October 31, 2000 provided however that the right of forfeiture shall lapse (i) on January 31, 1997 with respect to 30% of the total number of shares of Common Stock subject hereto in the event that Borta, Inc., a wholly-owned subsidiary of Aristo ("Borta"), achieves the milestones for its 1996 fiscal year as set forth on Schedule 2(a) attached hereto, (ii) on January 31, 1998 with respect to 30% of the total number of shares of Common Stock subject hereto in the event that Borta achieves the milestones for its 1997 fiscal year as set forth on Schedule 2(b) attached hereto, and (iii) on January 31, 1999 with respect to 40% of the total number of shares of Common Stock subject hereto in the event that Borta achieves the milestones for its 1998 fiscal year as set forth on Schedule 2(c) attached hereto. In addition, the shares of Common Stock on which the rights of forfeiture have not previously lapsed as described above, shall be forfeited and transferred to Aristo, in the event that your employment with Borta or any successor thereto is terminated for cause or you voluntarily leave the employment prior to Ron Borta July 28, 1995 Page 2 October 31, 2000 ("Termination Event"), unless such termination arose on account of your death, disability or voluntary termination of employment after January 31, 1999. This award is not transferable otherwise than by will or the laws of descent and distribution and may be exercised, during your lifetime, only by you or your legal representatives. This letter shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflict of law provisions. Very truly yours, ARISTO INTERNATIONAL CORPORATION By:/s/ Shmuel Cohen ------------------------------- Shmuel Cohen President AGREED AND ACCEPTED: /s/ Ron Borta - ------------------------------ Ron Borta EX-22 13 EX-22.1 LIST OF SUBSIDIARIES EXHIBIT 22.1 ------------ SUBSIDIARIES OF ARISTO INTERNATIONAL CORPORATION ------------------------------------------------ Subsidiary State of Incorporation ---------- ---------------------- Borta, Inc. Delaware EX-27 14 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 (Replace this text with the legend) 0000123456 Aristo International Corporation 1 YEAR OCT-31-1995 NOV-01-1994 OCT-31-1995 1 540,297 1,500 142,300 20,000 0 1,220,546 315,919 (63,463) 11,048,329 1,967,358 0 13,200 0 33 8,284,638 11,048,329 148,300 157,627 0 3,678,823 603,133 20,000 101,237 (4,116,457) 0 (4,116,457) 0 0 0 (4,116,457) (0.40) 0
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