-----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, D8KX9M8yOYjSs1MJfgZh+qnePmpaboyOQ03/P1FLFCudOXysZzQho5JVw7C+Ac42 +IyXICWbhRcLxP5uTXzmTA== 0000950116-99-002057.txt : 19991115 0000950116-99-002057.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950116-99-002057 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: C3D INC CENTRAL INDEX KEY: 0001080290 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 134064492 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12G SEC ACT: SEC FILE NUMBER: 000-28081 FILM NUMBER: 99751207 BUSINESS ADDRESS: STREET 1: 2625 NE 11TH COURT CITY: FORT LAUDERDALE STATE: FL ZIP: 33304 BUSINESS PHONE: 9545683007 MAIL ADDRESS: STREET 1: 2625 NE 11TH COURT CITY: FORT LAUDERDALE STATE: FL ZIP: 33304 FORMER COMPANY: FORMER CONFORMED NAME: LATIN VENTURE PARTNERS INC DATE OF NAME CHANGE: 19991109 10-12G 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES ACT OF 1934 C3D INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Florida 13-4064492 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 2625 NE 11th Court, Fort Lauderdale, Florida 33304 --------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (954) 568-3007 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $.001 per share (Title of Class) The registrant, C3D Inc. (individually "C3D," collectively with all of its directly and indirectly owned subsidiaries, the "Company"), is filing this Registration Statement pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the Securities and Exchange Commission (the "SEC") promulgated thereunder. Upon the effectiveness of this Registration Statement, the Common Stock (as defined hereinafter) will be registered under Section 12(g) of the Exchange Act. Following effectiveness of this Registration Statement, C3D will be required and expects to file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information filed by C3D at the SEC's public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. It is expected that C3D's filings will be also available to the public from commercial document retrieval services and at the world wide web site maintained by the SEC at http://www.sec.gov. The current Internet address of the Company is http://www.c-3d.net. Except where the context indicates otherwise, references in this document to "we," "us" and "our" refer to the Company. 2 FORWARD LOOKING STATEMENTS Some of the information in this Registration Statement or the documents incorporated by reference in this Registration Statement may contain forward-looking statements. You can identify these statements by the appearance of words and phrases such as "will likely result," "may," "believes," "are expected to," "is anticipated to," "is forecasted to," "is designed to," "plans to," "predict," "seek," "estimate," "projected," "intends to" or other similar words and phrases. Important factors that could cause actual results to differ materially from expectations include: o market conditions and demand for new data storage technology; o our competitors' ability to successfully develop new technologies to satisfy demand for data storage; o difficulties in achieving sales, gross margin and operating expense targets based on competitive market factors; o difficulties in competing successfully in the markets for new products with established and emerging competitors; o difficulties with single source supplies, product defects or product delays; o our status as a going concern; o difficulties in forming and maintaining successful joint venture relationships; o difficulties in negotiating and receiving licensing royalties; o difficulties in obtaining, maintaining and using intellectual property protections; o changes in data storage technological protocols and standards; o volatility in interest rates and currency exchange rates; o difficulties in state, federal, foreign and international regulation and licensing requirements; o economic and political instability in the foreign countries where we conduct operations; o litigation actions by directors, employees, investors and others; o limited operation and management history; o dependence on key personnel; o risks associated with Year 2000 computer systems problems; and o other factors discussed in the Registration Statement. 3 All of the above factors could cause our actual results to differ materially from historical results and those presently anticipated. When considering forward-looking statements, you should keep these factors in mind as well as the other cautionary statements in this Form 10. RISK FACTORS No History of Revenue As a research and development enterprise, the Company has no revenue history and therefore has not achieved profitability. The Company expects to continue to incur operating losses until late in the third or fourth quarter of fiscal year 2001. The operating subsidiaries of Constellation Holdings incurred a net loss of $1,657,458 for the six-months ended June 30, 1999 and $3,191,902 for the year ended December 31, 1998. The Company has never been profitable and there can be no assurance that, in the future, the Company will be profitable on a quarterly or annual basis. In addition, over the next twelve months, the Company plans to increase its operating expenses from approximately $350,000 per month to $1,200,000 per month in order to fund research and development, broaden its customer support capabilities and increase its administration resources. However, the Company expects to receive revenues by the end of fiscal year 2000. Nevertheless, it is possible that the revenue of the Company may never be sufficient to recognize a profit. Limited Operating History C3D began operations as of October 1, 1999, and C3D has no prior operating history other than that associated with the acquisition of certain assets of Constellation 3D Technology Limited, a British Virgin Island corporation ("Constellation Tech"). However, C3D's subsidiaries were in operation before October 1, 1999, when they were owned by Constellation 3D Holdings Limited, an Irish company ("Constellation Holdings") or Constellation Tech. Nevertheless, the Company's proposed operations will be subject to the problems, expenses, difficulties, complications, and delays frequently encountered in connection with starting a new operation. The Company as a Going Concern Due to its lack of operating revenues accumulated, operating losses of $7,462,105 and need for additional working capital, there is no assurance that the Company will be able to continue as a going concern. As a result of these factors, the Company's Independent Certified Public Accountants modified their opinion on the Company's Financial Statements wherein they expressed substantial doubt about the Company's ability to continue as a going concern. 4 Need for Additional Capital The Company believes that it has sufficient working capital to sustain its operations through November 1999. However, as a research and development company in the data storage technology field, the Company continually expends large amounts of capital over short periods of time. The Company is currently generating no revenues and does not expect to do so until the end of fiscal year 2000. There is no assurance that revenues generated in future operations, if any, will be sufficient to finance the complete cost of the Company's research and development. Additional funds will be required before the Company achieves positive cash flow from operations. Future capital requirements and profitability depend on many factors, including, but not limited to, the timely success of product development projects and the timeliness and success of joint venture and corporate alliance strategies and marketing. The Company is actively in the process of seeking to raise additional capital. However, there can be no assurances that financing or additional funds needed will be available when needed or, if available, on terms acceptable to the Company. Additional equity financing, if obtained, could result in substantial dilution to shareholders. Foreign Operations In addition to its activities in the United States, the Company conducts business operations in Israel, Russia and Ukraine. In recent history, these three nations have experienced significant economic and political instability. It is possible that present or future economic or political instability in those nations will have a material adverse impact on the Company's ability to conduct its business and/or its financial condition. Need for Additional Technology The Company believes that it has developed a substantial amount of technology for developing its products. Nevertheless the Company foresees the need to recruit more employees with revelent technological knowledge and capabilities and/or purchase the right for specific technologies and/or purchase rights on entries having the previous mentioned assets. However, there can be no assurances that the Company will succeed in performing these acquisitions. Proprietary Rights Protection Although the Company intends to rely on trade secret, trademark, copyright and other intellectual property laws to protect its Fluorescent Memory Technology, currently the Company relies and expects to rely almost entirely on patent laws for such protection. While the Company currently intends to vigorously enforce its intellectual property rights, there can be no assurance that the steps taken by the Company to protect its Fluorescent Memory Technology and to enforce its rights will be successful. The Company individually holds three U.S. patents relating to its Fluorescent Memory Technology. The Company holds more than forty U.S. and foreign regular patent applications relating to its Fluorescent Memory Technology. However, there can be no assurance that patents will be issued for those patent applications. As of November 1, 1999, the Company holds ten pending provisional patent applications. There is no assurance that the Company will timely exercise its right to convert provisional patent applications into regular or international patent applications or that patents will be issued for any regular or international patent applications into which the Company does convert such provisional patent applications. 5 The Company expects that it will develop trade secrets. The Company may seek patent or copyright protection for such trade secrets. There is no assurance that the Company will develop trade secrets or seek patent or copyright protection for any or all of them. The Company intends to enter into confidentiality and non-disclosure agreements to protect one or more trade secrets which it or its employees or independent contractors may develop, but there is no assurance that the Company will do so or that the confidentiality necessary to protect a Company trade secret will be maintained. Such failure to maintain one or more trade secrets could have a material adverse financial impact on the Company. Pending Intellectual Property Applications The Company has filed intent to use trademark applications with the U.S. Patent and Trademark Office for the trademarks "CLEARCARD" and "CONSTELLATION 3D". There is no assurance that these applications will mature into registrations or that the Company will even use these marks. Furthermore, the Company has acquired the internet domain names "C-3D.NET", "C-TRID.COM", "C-TRID.NET", "CONSTELLATION3D.COM", and "CONSTELLATION3D.NET". Currently, the Company maintains a web site at http://www.c-3d.net. There can be no assurance that any patents, copyrights, trade secrets, trademarks or domain names developed or obtained by the Company will provide substantial or sufficient value or protection to the Company. Furthermore, there is no assurance that their validity will not be challenged or that affirmative defenses to infringement will not be asserted. With respect to trademarks, affirmative defenses to both infringement or dilution may be asserted. If another party were to succeed in developing data storage technology comparable to the Company's Fluorescent Memory Technology without infringing, diluting, misusing, misappropriating or otherwise violating the Company's intellectual property rights, the Company's financial condition might have a material adverse affect. 6 Possible Intellectual Property Litigation As is typical in the data storage industry, from time to time, the Company may in the future be notified of claims that it may be infringing, diluting, misusing, misappropriating or otherwise violating patents, copyrights, trademarks, trade secrets and/or other intellectual property rights of third parties. It is not possible to predict the outcome of such claims, and there can be no assurance that such claims will be resolved in the Company's favor. If one or more of such claims is resolved unfavorably, there can be no assurance that such outcomes will not have a material adverse effect on the Company's business or financial results. In particular, the data storage industry has been characterized by significant litigation relating to infringement of patents and other intellectual property rights. There can be no assurance that future intellectual property claims will not result in litigation. If infringement, dilution, misuse, misappropriation or another intellectual property rights violation were established, the Company and/or its joint ventures could be required to pay substantial damages or be enjoined from developing, marketing, manufacturing and selling the infringing product(s) in one or more countries, or both. In addition, the costs of engaging in intellectual property litigation may be substantial regardless of outcome. If the Company seeks licensure for intellectual property that it cannot otherwise lawfully use, there can be no assurance that the Company will be able to obtain such licensure on satisfactory terms. Intellectual Property Ownership In the future, a Company employee or contractor, and not the Company, might be the legal and/or record owner of one or more patents, patent applications or other intellectual property which is material to protecting the Company's data storage technology. The Company typically requires that its employees and contractors assign to the Company all right, title and interest in and to the intellectual property which they develop for the Company. However, there can be no assurance that the Company will obtain legal or record ownership of, or one or more licenses to use, such intellectual property on satisfactory terms. It is possible that failure to obtain such legal or record ownership, or one or more licenses to use, such intellectual property will have a material adverse effect on the Company's business or financial results. 7 Product Liability Considerations The Company may face inherent business risk of exposure to product liability claims in the event that the use or misuse of its products is alleged to have resulted in the death or injury of a customer, consumer or user or to have had some other adverse effect. Although the Company might obtain product liability insurance and the Company might protect itself against product liability claims by contractually requiring joint ventures (a) to have continuous quality control inspections, detailed training and instructions in the manufacture of its products; (b) to indemnify the Company for damages caused by the joint venture's own tortious acts or omissions; and/or (c) to obtain and maintain adequate product liability insurance, product liability lawsuits may affect the reputation of the Company's products and services or otherwise diminish the financial resources of the Company. If product liability suits are brought, there is no assurance that any existing product liability insurance of the Company or a joint venture or any existing indemnification by the Company's joint ventures will be adequate to cover the liability claims. However, there is no assurance that product liability insurance will continue to be available to the Company or the Company's joint ventures in sufficient amounts at acceptable costs. Supply of Components and Raw Materials It is not uncommon in the data storage technology manufacturing and assembly industry that certain components are available only from a few or sole-source suppliers. However, the Company anticipates that the key components for its products will be available from a number of source suppliers and that the Company and its joint ventures will not experience difficulty in obtaining a sufficient supply of key components on a timely basis. As discussed below, the Company intends to develop relationships with qualified manufacturers with the goal of securing high-volume manufacturing capabilities and controlling the cost of current and future models of the Company's products. However, there can be no assurance that the Company will be able to obtain a sufficient supply of components on a timely basis or on commercially reasonable terms or realize any future cost savings. Sales may be adversely affected for these or similar reasons. The inability to obtain sufficient components and equipment, to obtain or develop alternative sources of supply at competitive prices and quality or to avoid manufacturing delays could prevent the Company's joint ventures from producing sufficient quantities of the Company's products to satisfy market demand. In addition, in the case of a component purchased exclusively from one supplier, the Company's joint ventures could be prevented from producing any quantity of the affected product(s) until such component becomes available from an alternative source. Such adverse events could cause delays to product shipments, thereby increasing the joint venture's material or manufacturing costs or causing an imbalance in the inventory levels of certain components. Moreover, difficulties in obtaining sufficient components may cause the Company's joint venture to modify the design of the Company's products to use a more readily available component, and such design modifications may result in product performance problems. Any or all of these problems could result in the loss of customers, provide an opportunity for competing products to achieve market acceptance and otherwise adversely affect the Company's business and financial results. The Company does not believe that there are any raw materials on which its products depend whose unavailability is a material risk to the financial condition of the Company. 8 Seasonality Some of the Company's products are targeted to the retail consumer. However, the Company's management does not believe that the markets for the Company's products, to the extent that any will exist, will be seasonal. The Company does not believe that there will be a significantly higher proportional share of total sales occurring in the fourth quarter or sales slowdowns commonly occurring during the first quarter and summer months. Revenues and growth rates for any prior quarter will not necessarily be indicative of revenues or growth rates to be expected in any future quarter. Customers As solely a research and development company, the Company has not yet had any customers for its products. As discussed above, the Company intends to establish joint ventures with strategic partners to market and sell the Company's Fluorescent Memory Technology. In the future, it is possible that the Company or its joint ventures will have sales to one or more customers which equal ten percent or more of the Company's consolidated revenues. However, the Company does not intend to become financially dependent on a small number of, or any single, customer. Government Contracts No material portion of the Company's business is subject to renegotiations of profits or termination of contracts at the election of any government or governmental department, agency or authority. Directors' and Officers' Involvement in Other Projects Some of the officers and directors of the Company serve and are expected to serve as directors, officers and/or employees of companies other than the Company. See "Directors, Executive Officers and Certain Significant Employees." While the Company believes that such officers and directors will be devoting adequate time to effectively manage the Company, there can be no assurance that such other positions will not negatively impact an officer's or a director's duties for the Company and that such impact will not have a material adverse effect on the Company's financial condition. 9 Compliance with Environmental Laws The Company does not believe that compliance with domestic, international or foreign environmental provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material adverse effect on the capital expenditures, earnings or the competitive position of C3D or any of its subsidiaries. Legal and Regulatory Controls The Company is not aware of any particular electrical, telecommunication, environmental, health or safety laws and standards that will apply to the Company's products. While the Company does not anticipate regulation of its products, there can be no assurances that the Company or its joint ventures will not have to comply with laws and regulations of domestic, international or foreign government or legal authorities, compliance with which could have a material adverse affect on the Company. The Company does not expect that it will be subject to any legal or regulatory review or approval process. However, if it is subject to such process, such process, together with any need for extensive data prior to making application with a governmental or legal authority, could result in several years elapsing prior to commercial distribution of the Company's products. Market Risk The Company expects that, like many companies, it may be exposed to some degree of market risk. However, although changes in interest rates and currency exchange rates could have a material adverse impact on the Company's financial condition, the Company believes that such an effect is unlikely. Therefore, the Company does not anticipate that it will enter into derivative transactions (e.g., foreign currency forward or option contracts) to hedge against known or forecasted market changes. No Dividends The Company does not intend to pay dividends to the holders of any of the Company's outstanding stock for the foreseeable future. Therefore, investors who anticipate the need for immediate or future income by way of dividends from their investment should refrain from the purchase of the Company's shares. Year 2000 The Year 2000 issue arises with the change in century and the potential inability of information systems to correctly "rollover" dates to the new century. To save on computer storage space, many systems were programmed with a 10 two-digit century (e.g., December 31, 1999 would appears as 12/31/99) assuming that all years would be part of the 20th century. On January 1, 2000, systems with this programming will default to 01/01/1900 instead of 01/01/2000 and calculations using or reporting the date will not be correct and errors will arise. To prevent this from occurring, information systems need to be updated to ensure that they recognize the year 2000. The Company does not anticipate any material exposure to the Year 2000 issue. The Company expects that it will design all of its products to be Year 2000 compliant so that the Company's products accurately and unambiguously display, reconfigure, interpret and process all date codes designating the Year 2000 and beyond, including leap years. However, there is no assurance that the Company or its joint ventures will be able to make all of its products Year 2000 compliant. Moreover, the Company and its joint ventures may have to add personnel and buy and/or design new software and hardware earlier than planned to complete Year 2000 compliance efforts, which could cause an unexpected increase in expenses. Also, the Company's expenses and the expenses of its joint ventures may increase faster than expected, because Year 2000 issues are causing and are expected to cause a shortage in the availability of programmers. In addition, the user of a Company's product may encounter a Year 2000 problem because of the interaction of a third party's product with the Company's product. The Company lacks actual first-hand knowledge of a specific Year 2000 problem which could have a material impact on the Company's ability to conduct its business. However, it is possible that some of the computer software and/or firmware programs and/or operating systems used with, in or for the Company's business or the business of a joint venture cannot or will not accurately and unambiguously display, reconfigure, interpret or process all date codes designating the Year 2000 and beyond, including leap years, thereby possibly resulting in a system failure or miscalculation which could have a material impact on the Company's ability to conduct its business or its financial condition. Also, a material portion of the Company's operations occur outside of the United States. The Year 2000 readiness of foreign countries is a risk factor that the Company cannot fully and accurately assess. While the Company is making contingency plans should any problems arise, there is no assurance that the Company's contingency plans will be able to address all possible problems that can arise as a result of the Year 2000 issue. Dependence on Employees The Company's success depends, to a great extent, upon its ability to attract and retain highly qualified technical and management personnel, including experts in the field of data storage technology and the sciences underlying such technology. Such individuals are in high demand and are often subject to competing offers. The Company faces competition for such personnel from other companies, research and academic institutions, government entities 11 and other organizations. There can be no assurances that the Company will be able to attract and retain other qualified personnel needed for its business. Furthermore, the Company does not currently maintain "key man" insurance for any personnel. Competitors in the Data Storage Technology Industry The Company estimates that there will be approximately fourteen enterprises researching, developing and/or producing data storage technology which the Company believes to be the Company's material competitors. The data storage technology industry is fiercely competitive, and a number of the Company's competitors have already established their names, brands, products and technologies in the marketplace. Some competitors are expected to have significant market shares. Mergers, acquisitions and research and development by the Company's competitors might further increase their market shares. While the Company believes that its Fluorescent Memory products and joint venture strategies will result in competitive advantages, there is no assurance that any such advantages will be obtained or, if obtained, can be maintained over time, that a competitor will not invent a superior technology, or that the Company's products and services will be able to penetrate the data storage market. Many of the Company's current and potential competitors have or may have advantages over the Company such as greater financial, personnel, marketing, sales and public relations resources. Existing or future competitors may develop or offer products that provided significant performance, price, creative or other advantages over those offered by the Company. 12 BUSINESS Overview The Company is a development stage company. It has no prior operating history other than the acquisition of certain assets of Constellation Tech. The Company has no revenue history and therefore has not achieved profitability. C3D is a corporation headquartered in Fort Lauderdale, Florida. The Company, an international enterprise with operations in the United States, Israel, Russia and Ukraine, researches and develops data storage technology products with flexibility in commercial applications. The Company has developed what it believes to be a state-of-the-art optical, data storage product that surpasses the physical limits of two-dimensional memory technology. Research and development work on the Company's technology has been conducted and is being conducted in the United States, Israel, Russia and Ukraine. The mission of the Company is to develop state-of-the-art technologies and products to serve the growing data storage needs of customers in government, business, education and consumer segments through continuous research and product innovation. By providing new data storage solutions to its customers through joint ventures and licensing agreements, the Company intends to become the pre-eminent provider in the data storage research and development market, thus providing significant returns to its shareholders. The Company's new technology implements the concept of the volumetric storage of information. Data is recorded on multiple layers located inside a disk or a card, as opposed to the single or double layer method available in optical disks ("ODs"), compact discs ("CDs") and DVDs. The recording, reading and storing of the information is done by using fluorescent materials embedded in pits and grooves in each of the layers. The fluorescent material emits radiation when excited by an external light source. The information is then decoded as modulations of the intensity and color of the emitted radiation. The Company's research has determined that these fluorescent multilayer disks and cards furnish the user with considerably improved storage space and storage time and deliver substantial performance advantages when compared to the CDs and DVDs produced. Company History and Structure C3D was incorporated on December 27, 1995 under the name Latin Venture Partners, Inc. The name of the company was changed to C3D Inc. on March 24, 1999 in anticipation of a proposed transaction with Constellation Holdings. From its inception until October 1, 1999, C3D had no business operations. 13 On July 1, 1999, Constellation Holdings sold all of its assets to Constellation Tech. In consideration for those assets, Constellation Tech assumed all liabilities and obligations of Constellation Holdings. After the Acquisition (as defined below), all the record and beneficial shareholders of Constellation Holdings are all of the record and beneficial shareholders of Constellation Tech. On October 1, 1999, C3D purchased certain assets of Constellation Tech for total consideration of 9,750,000 shares of Common Stock and C3D's assumption of certain liabilities and obligations of Constellation Tech (the "Acquisition"). In the Acquisition, C3D acquired the following assets: o Constellation's Tech's then sole existing membership interest in TriDStore IP, L.L.C.; o all of the issued and outstanding ordinary shares in TriD Store Vostok; o 99 ordinary shares of the 100 ordinary shares then allotted of C-TriD Israel Ltd.; and o all of the issued and outstanding shares of common stock of TriD SV, Inc. TriDStore IP, L.L.C. is a Delaware limited liability company formed on February 2, 1998, formerly known as OMD Devices, L.L.C., until March 9, 1999. TriDStore IP, L.L.C. owns a substantial majority of the material intellectual property owned by the Company, which consists mostly of patent registrations and applications. See "Risk Factors -- Intellectual Property/Proprietary Rights." TriD Store Vostok is a Russian company formed on January 15, 1999. The Company conducts its Russian operations through TriD Store Vostok. C-TriD Israel Ltd. is an Israeli company formed on December 2, 1996. C3D is the record owner of 99 of 100 allotted ordinary shares but is the beneficiary of all 100 allotted ordinary shares, one of which is held in trust for C3D by Rapid Trusts Ltd., an Israeli trust. The Company conducts its Israeli operations through C-TriD Israel Ltd. TriD SV, Inc. is a Delaware corporation formed on August 10, 1998. As of November 1, 1999, TriD SV, Inc. has had no operations. 14 The Company's organizational structure is as follows: [organizational chart appears here] Products The Company has developed Fluorescent Memory Technology and plans to develop end-user products over the next two years. With each of these products, the Company intends to seek and establish joint ventures with strategic partners who are already established with market share and manufacturing capabilities in the appropriate markets. The initial three products that are expected to be developed by the Company include: o Micro Read/Write ("R/W") Disk; o ClearCard Read Only Memory ("ROM"); and o ClearCard Read/Write. Micro Read/Write Disk Micro Read/Write is a 30 millimeter recordable disk that is expected to fit in many portable devices. The Company anticipates that this technology will be applied to devices such as laptop and hand-held computers, digital cameras 15 and video recorders and players. For laptop and hand-held computers, it is expected to offer lightweight, high capacity storage and quick access to data. The Company believes that for cameras and video players, Micro R/W will not only offer the same gains as for laptop and hand-held computers, but that it also will offer higher quality video. The Company also believes that this technology will be ideal for downloading information from the Internet. ClearCard ROM The Company intends for this technology to be applied to many portable devices including global positioning and navigating systems, hand-held gaming devices, automobile systems and electronic book devices. It is anticipated that ClearCard ROM will be read in very low-cost players. ClearCard R/W This technology is one step beyond ClearCard ROM in that it is expected to offer a one-time recording function. The Company anticipates that ClearCard R/W will be used with the same low-cost players for reading as ClearCard ROM. While many of the same product applications apply to this technology, the expected added benefit of ClearCard R/W is its ability to allow a user to download or determine the information that he or she is interested in having on a particular device. The Company believes that this technology will present a storage advantage for Internet-based data. Products and Markets in Development The Company believes that three-dimensional Fluorescent Memory Technology will allow the creation of user-oriented products with new performance qualities that form a solid base for consumer technologies. The following are products in the development stage which the Company intends to bring to market through joint ventures and strategic partnerships: o Fluorescent Memory Disk ROM (diameter of 120 millimeters with 140 to 420 gigabytes (GB) of data storage capacity) is expected to provide the user with a wide range of large volume archive and reference information, as well as with much more detailed video information. The Company believes that this product will produce home cinema technology with cinema-tape quality; o Fluorescent Memory Disk ROM and Fluorescent Memory Disk R/W (diameter of 120 millimeters with 70 gigabytes (GB) of data storage capacity) is expected to be a product, allowing the user to create his or her own library of digital material; 16 o Fluorescent Memory Disk ROM, Fluorescent Memory Disk R/W and Fluorescent Memory Disk RAM (diameter of 120 millimeters with various data storage capacities) is a product which is expected to permit users to utilize supplied archive and reference data, and add to one's own recordings for constant storage; o Fluorescent Memory Disk ROM (diameter of 30 to 40 millimeters with 12 to 15 gigabytes (GB) of data storage capacity) is designed for information storing in portable devices; o Fluorescent Memory Disk R/W and Fluorescent Memory Disk ROM (diameter of 30 to 40 millimeters with 10 to 13.5 gigabytes (GB) of data storage capacity) is expected to be a base for extra-portable information recording and storing device with new quality functions. It is anticipated that it will enable the addition of the user's own data, audio and video recordings, as well as those received via the Internet. The Company intends that this product will provide new possibilities for the individual to integrate into the global information network; o Fluorescent Memory Disk R/W (diameter of 30 to 40 millimeters with 9 to 12 gigabytes (GB) of data storage capacity) is a new product expected to promote digital photo and video systems' development. The Company intends that the product will promote the further development of recorded photo and video on PCs and the restoration of them by means of photographic printing or different video-restoration systems; o Super Fluorescent Memory Disk ROM (diameter of 120 millimeters with 1.4 terabytes (TB)) of data storage capacity) is intended to promote the idea of advanced reference books and archives, art and cinema collections, new generations of video games (with virtual reality effects and extended video environment development and real presentation effect); o Super Fluorescent Memory Disk R/W (diameter of 120 millimeters with 1 terabyte (TB) of data storage capacity) is designed as a base for stable storage systems for large and extra-large with high data access rate; o Super Fluorescent Memory Disk RAM (diameter of 120 millimeters with 1 terabyte (TB) of data storage capacity) is intended to be a base for secondary memory systems for large and extra-large PCs with much greater access restrictions because of the ability to remove the disk from the system; o ClearCard-ROM (credit card-sized memory carrier with 1 to 20 gigabytes (GB) of data storage capacity) is expected to take the form of a one square centimeter-sized spot on a card. Such a card is 17 intended to be a mass produced product designed for persons to carry and to use in inexpensive miniature reading devices and electronic books; and o Recordable R/W and Recordable ClearCard (with 1 to 3 gigabytes (GB) of data storage capacity) are envisioned as a part of `I-net Video Terminal' systems. The Company anticipates that Recordable ClearCard will be recorded at the locations of various providers of information such as bookstores and information kiosks and that they will be read in inexpensive reading devices for ClearCard-ROM. The Company believes that its Fluorescent Memory Technology has a wide variety of applications and markets. It is expected that these technologies will continue to evolve after they are brought to market and the Company begins to better understand how customers and users respond to these technologies. Strategic Partners and Joint Ventures The data storage industry is a very capital-intensive industry. The core competency of the Company lies in research and development of data storage technologies. The facilities that the Company leases are used for research and development or administrative purposes. The Company does not plan to vertically integrate its business to manufacture, or to undertake mass manufacturing of, the products that it proposes to introduce to the market. The Company plans to enter the market through licensing, strategic alliances and joint venture programs. The Company expects to engage in research and development and administration only and to outsource the marketing and mass production of its Fluorescent Memory Technology. As a result of its joint venture approach to entering the market, the Company does not plan to engage in marketing efforts on its own. Instead, it intends to rely on others' expertise in this area. Despite this intention, the Company believes that it will need to develop market intelligence so as to keep abreast of the technological requirements demanded by its customers. The Company believes also that in order to negotiate the most advantageous licensing agreements with joint venture partners and other licensees, the Company will need to maintain a knowledge of the market size and growth parameters for each of the target markets. Similarly, the Company expects that an intimate knowledge of pricing and cost trends in the market will be required to realize the most value from each licensing agreement into which it will enter. Notwithstanding the foregoing, the Company may engage directly in marketing its Fluorescent Memory Technology at some time in the future. The Company intends to identify a partner for introducing the Company's products to the market based on the following criteria: 18 o The partner should have an established presence in the data storage market. The Company believes that an established presence includes market share and leadership, as well as ownership of assets in the form of capital, production facilities, employees, etc. The Company expects that it would provide the necessary intellectual property; o The partner should be able and willing to make the investments needed for successful product launch, including marketing, advertising, sales and promotions; and o The partner should also have the ability to differentiate itself on the basis of the quality and quantity of service. The Company believes that it is imperative that the partner be able to dedicate enough quality service and support staff long-term to the marketing of the Company's products. The Data Storage Technology Market and Competition The data storage industry is very dynamic and very competitive. Trends can quickly change and competing companies are constantly involved in product improvement and innovation in order to keep up with customers' increasing demand for faster and smaller storage devices with high capacity. The driving forces of the data storage market include, but are not limited to, diverse applications such as analysis of meteorological data, printing payroll checks, writing letters, browsing the Internet, editing television commercials, searching a data warehouse, or playing a computer game. Businesses have witnessed a significant increase in the amount of data used and stored in the past decade, and the Company believes that they will continue to do so for the next few years to come. Trends in the Data Storage Industry Increased Demand for Removable Storage The Company believes that there is a rising demand for removable disk drives of varying storage capacity due to the significant advantages of removable drives compared to floppy disks. While both floppy disks and removable drives are portable and can interface with other systems, the removable disk drive can substantially exceed the floppy disk in terms of storage capacity. Transition from Older Drive Technologies to New Technologies The Company anticipates that the CD and ODD industry will undergo a major transition over the next several years as drive producers begin manufacturing technologies that have been recently introduced. The Company, after reviewing Frost & Sullivan, "World Compact Disc and Optical Disk Drive 19 Market" (1997), believes these new technologies, including the DVD drive, will account for the majority of the CD and ODD market. The Company believes that new technology with varying applications and cost effectiveness, including the Company's Fluorescent Memory Technology, will be readily accepted into the market. Downward Price Pressure in the CD/ODD Industry Price declines have played a significant role in the mainstream acceptance of CD/ODD technology. The Company anticipates that new technology acceptance over existing technologies will be gauged by pricing. The Company predicts that, as new technologies are introduced, they will have a price premium over existing technologies. However, the Company believes that, as these new technologies are accepted and unit shipments increase, they will benefit from economies-of-scale, allowing them to significantly compete with older technologies. Consequently, the Company believes that it must (i) lower its production costs in order to maintain adequate margin, (ii) must increase its production volume and (iii) remain on the cutting edge of data storage technology with the innovation of new products. Increased Demand for Increased Performance The Company anticipates that data storage performance levels will increase in a pattern similar to the past, resulting in faster spin rate, shorter access times and higher capacities. Performance increases have become relatively common in the industry, and many consumers now expect them on a regular basis. In keeping with this user demand for performance, the Company believes that it must maintain its current emphasis on research and development in order to maintain the Company's viability. Magnetic Storage Continues to Dominate the Mass Storage Industry Magnetic disk drives ("MDDs") and ODDs comprise the substantial majority of the data storage market in terms of market share. Historically, MDDs have been in higher demand for mass storage use and have cost less per gigabyte of data storage memory space than ODDs. It is expected that most mass storage industry leaders will continue to use magnetic drives as their primary storage medium. The Company believes that in order to remain competitive with the magnetic mass storage industry, it must continue to improve the cost-effectiveness, as well as product acceptance by the public, of its Fluorescent Memory Technology. Competing Products and Technologies The Company's Fluorescent Memory Technology disks and cards are in competition with other types of storage devices, which come in various formats. While hard disk drives are the most common form of mass data storage, they are 20 not the only storage media available to computer users. A variety of options exist, each with unique price and performance characteristics that meet specific requirements. Some other forms of storage devices are Removable Storage Devices, such as Tape Drives, Magneto-Optical ("MO") Disks, Personal Computer ("PC") Cards, ROM and One Time Programmable Cards, Static Random Access Memory Cards, Flash Cards, ODDs, CDs, and Redundant Arrays of Inexpensive Disks, among others. Removable Mass Storage Devices The trend of processing sensitive data on desktop PCs instead of on mainframe computers has resulted in removable mass storage solutions becoming increasingly important. Floppy diskettes, which have been the most commonly used removable storage devices, often have been insufficient for certain data-intensive applications. For these applications, high capacity removable mass storage devices offer advantages. Removable mass storage devices, which are particularly suitable for secondary storage applications like data backup and archiving, rather than as a primary form of on-line storage, come in many forms, such as tape cartridges, Compact Disk Read Only Memory ("CD-ROMs") and other ODs, MO disks, and PC cards. Tape Drives The magnetic tape drive was one of the first computer storage technologies, and was commonly used on early mainframe computers. However, its inability to randomly access or write data like disk drives makes it much slower than newer data storage technologies. It has therefore been replaced as the primary storage device in most computer applications. However, due to its high storage capabilities and low cost-to-megabyte ratio, it is still very much in use as a storage medium for archiving large amounts of data. Additionally, recent advances in tape technology, such as digital audio tape cartridges, have also made tape a preferred technology for backing up network servers and other critical data. Optical Disk Drives The three primary optical disk storage technologies are available, as follows: CD-ROM drives, Read/Write drives and rewritable optical disks. ODDs can hold relatively large amounts of data. Rewriteable optical disks typically are used for data backup and archiving massive amounts of data, such as image databases. ODDs are used for a diverse mixture of applications. The principal performance advantage of ODDs as compared to MDDs is their ability to provide greater track density than MDDs, thus enabling them to store more data per disk. The principal disadvantage of ODDs as compared to MDDs is a slower average data access time. The Company believes that its Fluorescent Memory Technology has a cost/price advantage over the currently available ODDs. 21 CD-ROM drives are by far the most widely used ODDs and are the computer industry's standard for distribution of software products. They are typically used to distribute large databases and documents that require only periodic access and, thus, saving data from a CD-ROM to a hard disk drive would not be an efficient use of hard disk drive space. Read/Write drives, on the other hand, are used almost exclusively for archival storage where it is important that the data cannot be changed or erased after it is written for example, for financial records storage. Retail price levels for CD-RW rewritable drives have decreased. The writable CD format, which was heretofore dominated by write-once CD-R drives, is currently being replaced by CD-RW as a result of the combination of CD-RW's media flexibility and lower prices. The Company anticipates rapid growth for rewritable DVD drives starting in fiscal year 2000, with shipment levels rising to rival those of CD-RW drives. The Company believes that its proposed fluorescent memory rewritable disks and drives will be the medium through which the Company will be able to gain a large share of the market for rewritable data storage media. Magneto-Optical Disks Magneto-optical disk systems combine the technology of traditional magnetic media, like hard disk drives, with optical disk technology. It is expected that MO technology will allow users to store hundreds of megabytes of data on a disk that looks similar to a traditional 3.5-inch floppy disk and typically comes in a 3.5-inch or 5.25-inch form factor. MO disks have many advantages. They provide relatively high data densities. The data stored on them can be changed at will and is resistant to magnetic fields, unlike a traditional floppy or hard disk. The disadvantage of MO technology is that, because of the relatively high intensity of the magnetic field created with the combined use of the read/write head and laser, the two rotations required for writing data make them twice as slow as hard disk drives during write operations. The Company believes that its Fluorescent Memory Technology, due to its faster read/write capability coupled with high capacity, has a distinct advantage in this product category. Personal Computer Cards PC Cards are built using the Personal Computer Memory Card International Association standard, and can be either storage or Input/Output cards. By virtue of being compact, highly reliable, lightweight and requiring less power, some consider them to be ideal for battery-powered notebook and palmtop computers, hand-held personal digital assistants and personal communicator devices. Due to their diminutive size, PC cards used for storage, commonly called "memory cards," make transporting data relatively easy. They can be used for program storage or data interchange between systems. A big deterrent to the widespread use of PC cards is their high cost relative to hard disk drives. The Company believes that the ClearCard that the Company proposes for introduction to the market will not be as expensive as a PC Card and, thus, will have a distinct advantage in this product category. 22 Competing Technologies in Development and Advancement In addition to the existing storage devices, there are some comparable data storage technologies in the research and development phase, such as the following technologies: Magnetic Hard Disk Drives. One of the original data storage media, some view magnetic disk drives as the most reliable source of storage media. Despite the advent of alternate technologies, magnetic storage remains dominant, particularly where mass storage is concerned. Magnetic disk heads fly on a slider approximately one ten-millionth of a meter over the surface of the storage medium. During the writing process, small magnetic domains are written and the magnetic fields of these domains are detected during the read process. The information can be overwritten indefinitely. The area density of magnetic recording has grown about 60% per year during the last decade. Devices with an area density of 4 gigabytes per square inch are in production, and area densities of 20 gigabytes per square inch have been created. However, the magnetic domains become unstable at a physical and technical limit called the super-paramagnetic limit. Therefore, further growth in area density is limited, although it is not certain where this limit puts an end to the further density increase of magnetic memory. Furthermore, many magnetic memory carriers are not easily removable, are not easily disposable and are relatively expensive. Optical Disk Drives. Optical Disk Drives, which include compact disc drives, DVDs, and magneto-optical drives, came onto the scene in the mid 1980's and have gained mainstream acceptance, particularly CD-ROM drives as a result of their entertainment or educational uses. The Company anticipates that the advent of rewritable optical disks will make the optical disk drive an increasingly important segment of the data storage industry. In ODDs, such as CDs, DVDs, and MOs, light from a semiconductor laser is focused onto the storage layer to perform writing or reading. The storage layer is protected through the disk substrate or a thick overcoat, making this technology well-suited for removable media. CDs, CD-ROM, and DVD media are commonly used around the world for both entertainment and commercial purposes. The Company expects that, at least in the next few years, they will continue to be commonly used in these ways around the world. Near Field Drives. In some of the proposed near field recording, light is focused onto the front surface of the storage medium, thereby avoiding some problems with distortions of the focused beam in the protected layer. High density is achievable, but at high cost, as the medium is exposed to dust and remains vulnerable to crashes of the drive head. Thus, this technology is not suitable for portable devices. The storage capacity is limited because in near field optics data is stored in a thin layer at the surface. 23 Volumetric/Holographic. Volumetric or holographic storage allows data to be stored in three dimensions, which increases actual storage capacity exponentially. Although holographic storage was considered feasible almost 40 years ago, attempts at commercialization have not achieved great success largely due to a lack of applicable components and of a suitable storage material. Atomic Force Microscopy. In the field of probe-based storage, scientists are fabricating tiny silicon cantilevers 10 microns long and 0.3 microns thick, with an even smaller silicon probe tip (.008 micron in diameter). The tip rests on a rotating plastic disk. To store data, heat from an electric pulse through the tip momentarily softens the surface of the plastic, and the slight force that the tip exerts on the plastic pokes a tiny depression. As the tip is pulled across the tip on playback, its dip into the pit is detected. Researchers report that this technique can reliably read and write data at a density of 64 gigabits per square inch and have developed the basics for a read only system holding a CD's worth of data on a disk the size of a penny. Scanning Tunneling Microscopy reportedly has the potential to store as many as 1,000,000 gigabytes per square inch, although the Company expects that commercial usage of this technique is not in the foreseeable future. The technique involves moving xenon on a nickel surface with a scanning tunneling microscope. As attempted, this process required a temperature of near absolute zero and several hours to complete. Market Segmentation The three primary CD and ODD market segments are (i) CD Drive, (ii) Stand-alone Drives and (iii) CD and ODD Jukebox. The CD Drive segment can be further broken into the CD and ODD drive, the CD and DVD drive, the CD-ROM drive, the CD-R drive, the DVD-ROM drive, the CD-RW drive and the DVD-RAM drive markets. Stand-alone drives include both the magneto optical drive and large form factor markets. The CD and ODD Jukebox market includes magneto optical drive jukeboxes, large form factor jukeboxes and CD drive jukeboxes. Geographically, the CD and ODD market is segmented into four regions - the United States, European, Pacific Rim and Rest-of-World ("ROW") markets. A common pattern in the way these markets behave is that the United States is usually an early adopter of a new technology, with Europe following later. The Pacific Rim and ROW markets are heavily impacted by the economic well being of the constituent nations, which in turn decide whether that market is going to be an early or late adopter. However, the Pacific Rim and ROW markets are also the ones with good growth projections for all the storage device product categories. With this trend in perspective, the Company believes that it can be inferred that these markets will adopt and proliferate the Fluorescent Memory Technology. 24 The Company expects that the Company and its partners should therefore focus their marketing efforts worldwide if they are to achieve the goal of their technology becoming the industry standard for the data storage industry. CD and ODD Market After reviewing the Frost & Sullivan, "World Compact Disc and Optical Disk Drive Market" (1997), the Company projects the revenues for the total CD and ODD market will reach $19.12 billion in fiscal year 2000 and to increase to $25 billion in fiscal year 2003. The Company further expects CD and DVD drives to account for 96.37% of unit shipments and 85.5% of revenues. A slight decrease in these numbers, perhaps no more than 1%, is expected to occur in fiscal year 2003 due to growth in other segments such as 3.5-inch MO drives. The United States, which was originally the largest market for CD and ODD revenues, is projected to account for only 46.8% of the market in 2003, totaling $11.69 billion. The Pacific Rim and European markets, on the other hand, are projected to grow to 24.6% and 21.5% respectively in fiscal year 2003. This change in market share is attributed to the early adoption by the US compounded by a healthy economy. The Pacific Rim, though an early adopter, suffered because of its economic setback, and the European market is a late adopter. The ROW segment is expected to grow from 5.3% in 2000 to 7% of the total market in 2003. The Company believes that these growth projections are indicative of the viability of the Fluoresent Memory Technology in the data storage market. CD and DVD Drive Market The CD and DVD Drive market is expected to continue its rapid rate of growth during the next few years. It is projected that the market will have overall revenues of $16.34 billion in 2000 and $21.17 billion in fiscal year 2003. The Company believes that its entry into the market at this point in time is crucial because of the tremendous growth potential that it offers. The Company believes also that any further delay will only result in loss of market share to competitors, and loss of opportunity. CD and DVD Drive Growth Projections by Product Category. Based on the Frost & Sullivan study, the Company anticipates the replacement of CD-ROM drives with DVD-ROM drives as the primary drives in the next few years. In the recordable sub-segment, there is a transition projected to occur from CD-R drives to CD-RW drives, and then from CD-RW drives to DVD-RAM drives. The major change that is anticipated in the market is the shift from CD technology to DVD technology, and that the DVD technology will become the market's mass storage medium of choice. This is due to higher storage capacity of the DVD technology and also because DVD is backward compatible with most CD media. It is further anticipated that the DVD technology will be used in three different industries - computers, movies and music - which will allow it to reach the economies of 25 scale not experienced by other optical technologies. The study forecasts that DVD technology will account for 61% of the total CD and DVD drive market shipments. CD and DVD Drive Growth Projections by Geographic Segments. The United States, which was an early adopter of the CD technology, continues to have the largest market share in terms of revenues. However, market forecasts predict that by the year 2002, market share will decline to about 48.4%. It is anticipated that the US market share of the CD and DVD drive market will decline to 46.4% of the total market in 2003. It is also expected that the European market share will be 22.19%, the Pacific Rim market share will be 24.3% and that of the ROW market will be 7.2% in 2003. Additionally, the ROW region may very well account for a larger portion of sales due to stronger economic growth of its constituent nations. CD-ROM Drive Market For multimedia applications, the usage of CD-ROM systems is in accessing large databases and also in distributing other large software packages. Growth in the installed base of CD-recordable drives and CD jukeboxes has further strengthened the CD-ROM format. Frost & Sullivan forecast the unit shipments for CD-ROM to reach 65.8 million units in fiscal year 2000, which is equivalent to revenues of $5.52 billion. However, as DVD-ROMs gain increased presence, revenues from CD-ROM are expected to decline to $1.34 billion in fiscal year 2003. CD-Recordable Drive Market The Compact Disc-Recordable ("CD-R") drive market has become an important part of the CD and DVD drive market. The advantages that CD-R drives offer include low media cost, high reliability, the ability to perform a random data search, and media able to be read by a large installed base of CD-ROM drives. However, this technology is expected to be replaced in the CD and DVD markets in fiscal year 2000 by the technologies that allow for recording and rewriting data such as CD-RW and DVD-RAM. The Company believes that this product category will be a high-growth area for the Company should the Company enter into this market because the Company believes that its Fluorescent Memory Technology could potentially become the technology that replaces existing technologies. DVD Read Only Memory Market The DVD Read Only Memory ("DVD-ROM") is a high-density, read-only, optical disk format. It is expected to become the logical successor to the CD-ROM technology, and also that its sales will be further enhanced with the introduction of the DVD-RAM technology. Revenues for the DVD-ROM drives are projected to reach $12.63 billion in 2003. It is also anticipated that DVD-ROM drives will replace CD-ROM drives as the choice medium of data storage in 2003. 26 CD-Rewritable Drive Market The CD-Rewritable ("CD-RW") drive technology is expected to gain market acceptance due to the additional applications it opens up to the CD format. However, it is not expected to be sustained for long because DVD-RAM technology is expected to offer greater data storage density. The Frost & Sullivan study predicts that by fiscal year 2003, unit shipments of CD-R drives will decrease to 5 million units. DVD Random Access Memory Market DVD-RAM refers to the optical technology that allows users to record information on DVD media. It is expected to replace technologies such as CD-R and CD-RW. By fiscal year 2003, unit shipments of these drives are forecast to be at 9.4 million. The Company expects that the disks and drives that the Company intends for High Definition Television format stand to gain from this projection of market growth. World Magneto-Optical and Large Form Factor Market The magneto-optical and large form factor market is expected to earn revenues up to $1.23 billion in fiscal year 2000, and approximately $1.7 billion in fiscal year 2003. World MO and Large Form Factor Product Segmentation. Of all the products in the MO and large form factor market, the 3.5-inch MO has had the highest growth in the overall stand-alone market from fiscal year 1998 to the present. Despite its rapidly falling prices, it is expected that the 3.5-inch MO will account for 73.5% of revenues, and 93.1% of unit shipments of the entire of the MO and large form factor market in fiscal year 2003. The Company believes that ClearCard-ROM and ClearCard-R disks and drives, by virtue of their small size and high capacity, can take advantage of this growing product segment. The 5.25-inch, on the other hand, is projected to account for only 8.5% of the of the total shipments of MO and large form factor ODD shipments. It is also expected that it will account for only 26.8% of the stand-alone ODD revenues in fiscal year 2000 and approximately 22% in 2003. The 12-inch and 14-inch Read/Write drive products are targeted at niche markets, and their revenues and unit shipments are expected to decline to 5.4% and 0.1%, respectively, by fiscal year 2003. World MO and Large Form Factor Geographic Segmentation. The United States market, which has been an early adopter of new optical technology, has a major share of the MO and large form factor ODD market. It is projected that United States will have a 42% share of the total ODD market, which is then projected to increase to 46.7% in fiscal year 2003. Europe, on the other hand, is expected to have a shrinking market share that decreases from 19.9% in fiscal year 2000 to 18.6% in fiscal year 2003. However, the European market's revenue 27 is expected to increase from $244.8 million in fiscal year 2000 to $317 million in fiscal year 2003. The 3.5-inch and 5.25-inch MO were successful in the Pacific Rim market. Despite growing revenues in the ODD market in this region, its market share is declining due to the rapid growth in US market share. Revenues from Pacific Rim ODD market are expected to reach $417.7 million in fiscal year 2000, and $500.1 million in fiscal year 2003. The Rest of the World segment is also expected to have increased revenues from ODD sales due to increasing adoption of all high-technology products by the nations in this region. It is expected that this segment will have revenues of $50.7 million in 2000 and $91.2 million in fiscal year 2003 which translates to market shares of 4.1% and 5.4%, respectively. World CD and Optical Disk Drive Jukebox Market. The most common applications for this these products are storage-intensive applications. Growth of the jukebox market has been attributed to the increasing needs of government agencies and private businesses for of reliable mass storage solutions. The need of engineering, education, medical imaging and storage, legal document imaging, and other such storage-intensive areas also have contributed to the jukebox market. The Company believes that the entry of Fluorescent Memory Technology could potentially force this product segment into obsolescence, because the basic idea behind an FMD device is to eliminate the need for multiple layers of disks and drives, and instead provide for storage of terabytes of data on one disk or card. CD and ODD Jukebox Product Segmentation. Growth in the magneto optical (MO - 5.25-inch and 3.5-inch form factors) segment's market share has eroded by a more rapid growth in the CD jukebox segment. By fiscal year 2003, this segment is expected to contribute to 56.1% of the total CD and ODD jukebox market. The large form factor (12-inch and 14-inch) segment is considered to be the most mature of all segments in the CD and ODD jukebox market, and is expected to remain on a course of slow steady growth. By fiscal year 2003, this segment is projected to account for only 0.8% of the total jukebox shipments. The CD jukebox segment is forecasted to have the largest number of units shipped in the total CD and ODD jukebox market by fiscal year 2003. In that year, it is expected to contribute 36.9% of the entire jukebox market's earnings. CD and ODD Jukebox Geographic Segmentation. The US was an early adopter of the jukebox technology. Growth of the US market's share of the CD and ODD jukebox market is attributed to the overall size and health of its economy. However, as other regions of the world become technologically more sophisticated, the US market share is expected to decrease to about 50.6% in 2003 from 53.5% in fiscal year 2000. 28 The European market share has been declining steadily due to strict market regulations as compared to the other regions. It is projected that this market will have an 18.2% share of the CD and ODD jukebox market in fiscal year 2003, which is equal to revenues of $387.2 million. The Pacific Rim region is the fastest growing market for the CD and ODD jukebox technology. It is anticipated that this region will account for 21.7% of the market in fiscal year 2000 and grow to 24.3% in fiscal year 2003, equivalent to revenues of $516.9 million. The adoption of newer technologies by countries in the ROW segment will result in increased revenues from the CD and ODD jukebox sales. Sales in this region are expected to account for 5.7% of the total market in 2000 and 6.9% in fiscal year 2003, which translate into sales of $146.8 billion. Employees As of October 1, 1999, the Company had 59 employees, including 17 in the research and development office in Israel, 35 in the research and development office in Moscow, one subcontractor in Ukraine and five in management, finance and administration and one in research and development in North America. None of the Company's employees are covered by a collective bargaining agreement. Common Stock The Company's common shares, $.001 par value per share (the "Common Stock"), have been traded under the symbol "CDDD" using the National Association of Securities Dealers' Over-the Counter Bulletin Board service since April 8, 1999. PROPERTIES C-TriD Israel Ltd. has entered into two operating lease agreements for the real property it uses at 2 Prof. Bergman Str., Rechovot 76327 Israel. The first lease was to expire on May 14, 1999, but C-TriD Israel Ltd. exercised its option to extend the lease period until May 14, 2000. There is another option to extend the lease period until May 14, 2001. The second lease is to expire on April 5, 2001, but there is an option to extend the lease period until April 4, 2003. The Company conducts research and development at the Rechovot facilities. TriD Store Vostok leases two sets of facilities in Moscow, Russia primarily to conduct research and development. The lease for the facilities at 119146, Moscow, 2nd Frunzenskaya ul., 8, Building 1, expires December 1, 1999, and the lease for the facilities at MSU Science Park Building 5, Locations 513A, 514 and 522 expires December 30, 1999. C3D leases facilities at 1875 Charleston Road, Mountain View, California 94043. The lease is month-to-month and includes the right of C3D to certain services such as secretarial support. The Company conducts research and development at these facilities. Presently, C3D is using the Fort Lauderdale, Florida office located at 2625 NE 11th Court, Fort Lauderdale, Florida 33304, owned by one of C3D's directors. The offices are primarily being used as the Company's headquarters and for administrative functions of C3D. The Company currently has no lease arrangement for the Fort Lauderdale offices but is not at material risk of losing its capacity to adequately use the facilities. The Company has determined that, for the foreseeable future, the facilities at all of the addresses referenced are suitable, adequate and capable of the necessary productivity for the activities undertaken and to be undertaken there. The Company expects that it will continue to fully utilize these facilities and that it will renew its leases and rental agreements before their termination or find other adequate facilities to conduct the operations. The Company might acquire additional facilities, as it deems appropriate. 30 SELECTED HISTORICAL FINANCIAL DATA The following selected historical consolidated financial data of C3D for, and as of (1) each of the years ended December 31, 1996, 1997 and 1998 and (2) the six-month period ended June 30, 1999 has been derived from the Company's consolidated financial statements, including the notes thereto, which have been audited by BDO Seidman, LLP, independent auditors. The selected historical consolidated financial data for, and as of each of the years ended December 31, 1995 has been derived from the Company's unaudited consolidated financial statements. The results for the six-month period ended June 30, 1999 are not necessarily indicative of results to be expected for the full fiscal year. The information set forth below is qualified in their entirety by reference to, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" below and the Financial Statements and Notes thereto included elsewhere in this Registration Statement.
Six Months Ended June 30, Years Ended December 31 -------- ---------------------------------------------------------- 1999 1998 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- (unaudited) Statement of Operations Data: Interest Income............................. $ 14,858 $ -- $ -- $ -- $ -- $ -- Operating Expenses.......................... 699,850 -- -- -- -- -- Net Loss for the period..................... (684,992) -- -- -- -- -- Loss per common share....................... $ (0.14) $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.00) Weighted average number of shares outstanding 4,678,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
As of June 30, As of December 31, -------------- ---------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (unaudited) (unaudited) Balance Sheet Data: Cash and cash equivalents................... $ 704,754 $ -- $ -- $ -- $ -- Working capital (deficiency)................ 540,443 -- -- -- -- Due to related parties...................... 53,862 -- -- -- -- Advances to related companies............... 1,234,837 -- -- -- -- Total assets................................ 1,949,208 -- -- -- -- Non-current liabilities..................... -- -- -- -- -- Stockholders' equity........................ $1,778,028 $ -- $ -- $ -- $ --
31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR C3D INC. The following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed in these forward-looking statements as a result of various factors, including risk factors set forth in this Registration Statement. The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this Registration Statement. Overview C3D was incorporated on December 27, 1995, under the name Latin Venture Partners, Inc. The name of the company was changed to C3D Inc. on March 24, 1999 in anticipation of a proposed transaction with Constellation Tech. C3D incurred expenses of $5,000 during the incorporation process in 1995 and did not incur any further expenses until 1999, when C3D was involved in two equity offerings and began negotiations with Constellation Tech. Accordingly, discussions of periods prior to 1999 have not been included. C3D and Constellation Tech entered into an asset purchase agreement which was completed on October 1, 1999, whereby C3D acquired certain assets and liabilities from Constellation Tech, including the following directly and indirectly owned subsidiaries: o 99 of the 100 issued and outstanding shares of C-TriD Israel Ltd., which operates research and development facilities in Rechovat Park and Tel Aviv, Israel; o all of the issued and outstanding shares of TriD Store Vostok, which operates research and development facilities in Moscow, Russia; o the sole membership interest of Constellation Tech in TriDStore IP, L.L.C., which has had no active operations but which, as of November 3, 1999, holds the patents and the patent applications for the Company's Fluorescent Memory Technology; and o all of the issued and outstanding shares of TriD SV, Inc., which has had no operations but is expected to head C3D's California operations. 32 Results of Operations For the six-months ended June 30, 1999, C3D incurred net losses of $684,992, which is attributable to management fees, consulting fees, professional fees and general and administrative expenses. These expenses were incurred in the course of completing two private placements and to support negotiations for the acquisition between C3D and Constellation Tech. Management fees. Management fees for the six-month period ended June 30, 1999 were $482,500, of which $400,000 relates to compensation provided by the issuance of 100,000 shares to two directors of C3D for services rendered. The deemed value is based on the $4 per share price of C3D's common stock as of the date of such issuance. The remaining $82,500 was management fees paid to C3D staff for services rendered. Consulting fees. Consulting fees for the six-month period ended June 30, 1999 were $32,000. These fees were paid to independent consultants for their services to complete the two private placements and other administration work. Professional fees. Professional fees for the six-month period ended June 30, 1999 were $109,159, the majority of which were related to legal support for the C3D's application for listing on the NASD's Over-the-Counter Bulletin Board service, the closing of two private placements, the negotiations with Constellation Tech, and the initial preparation of C3D's registration statement. General and administrative. General and administrative costs for the six-month period ended June 30, 1999 were to $20,483. The costs represent rent, telephone, and other general corporate expenses. Travel and accommodation. Travel costs for the six-month period ended June 30, 1999 were $50,024, which reflect costs incurred to raise the private placement funds and the costs of directors travelling to board meetings. Interest earned. C3D earned $14,858 in interest revenue from cash advances made to Constellation Tech. Liquidity and Capital Resources As at June 30, 1999, C3D's cash position was $704,754 and its working capital was $540,443. 33 Since its inception, C3D has financed its operations solely from capital contributions from shareholders. During the six-month period ended June 30, 1999, C3D received proceeds of $2,063,020 from the sale of Common Stock. Net cash used in operating activities was $174,543 for the six-month period ended June 30, 1999 including a net loss of $684,992 and the non-cash transaction of $400,000 paid by the issuance of Stock. For the six-months ended June 30, 1999, C3D has advanced Constellation Tech $1,219,979 in anticipation of the closing of the acquisition for certain assets and liabilities of Constellation Tech. The advances are backed by a promissory note issued to C3D. C3D earned interest of $14,858 on the note for a total balance owing of $1,234,837. Due to its lack of operating revenues, operating losses and need for working capital, there is no assurance that the Company will be able to continue as a going concern. As a result of these factors, the Company's Independent Certified Public Accountants modified their opinion on the Company's ability to continue as a going concern. Income Taxes C3D has not generated any taxable income to date and therefore has not paid any federal income taxes since its inception. Deferred tax assets created primarily from net operating loss carryforwards have been fully reserved as management is unable to conclude that future realization is more likely than not. 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR CONSTELLATION 3D HOLDINGS LIMITED Overview Effective July 1, 1999, Constellation Tech entered into a purchase agreement with Constellation Holdings pursuant to which Constellation Tech acquired all of the assets of Constellation Holdings. For purposes of this discussion, Constellation Holdings will be the operating company, because during the period reported, June 30, 1999, the operations of the Company were still in Constellation Holdings. Constellation Holdings was incorporated on September 25, 1997 but commenced operations in January of 1997 through its Israeli subsidiaries, O.M.D. Optical Memory Devices Ltd. and Tridstore Ltd. Both subsidiaries were active in 1997 and 1998 and performed the initial research and development of the Company's Fluorescent Memory Technology. On January 1, 1998, Constellation Holdings incorporated C-TriD Israel Ltd. ("C-TriD") in Park Rabin Rechovot, Israel, and the activities in Israel started moving to it. For the six-months ended June 30, 1999, C-TriD's main function has been the testing and ongoing development of the Company's current products, the Micro Read/Write Disk and ClearCard ROM. Research and development is expected to increase at the Israeli facility for further testing and the development of new products such as ClearCard R/W. In January 1999, Constellation Holdings formed TriD Store Vostok ("Vostok") in Russia. Vostok is also conducting research and development of the Company's technology, supporting C-TriD's research and development activity because of the Russian subsidiary's extensive talent pool and reduced labor costs. In February 1998 Constellation Holdings incorporated TriDStore IP, L.L.C. ("TriDStore"), a Delaware limited liability company that has had no active operations but currently holds the patents and patent applications for the Company's Fluorescent Memory Technology. At present, TriDStore holds three United States patents, more than forty United States and foreign regular patent applications and ten pending provisional applications. The Company plans to continue to use TriDStore as a holding company for its patent registrations and applications. In August 1998, Constellation Holdings formed TriD SV, Inc. ("TriD SV"), a Delaware corporation that had no operations when it was a subsidiary of Constellation Holdings. It is anticipated that TriD SV will be the operating vehicle of the California operations. A significant employee of the Company currently resides and conducts operations in Mountain View, California and expects to increase activities in California significantly when the Company's products have reached the point of commercialization. Mountain View is expected to be an ideal location for the Company, because the area has the infrastructure and talent pool for the data storage industry already in place. 35 On October 1, 1999, C3D completed its acquisition of C-TriD, Vostok, TriDStore, and TriD SV, and the assumption of certain liabilities and obligations of Constellation Tech. The acquisition, more fully described in the attached notes to the financial statements, will be accounted for as a reverse takeover whereby Constellation Tech is deemed the parent for reporting purposes and C3D is considered the acquired entity. This treatment conforms with generally accepted accounting principles. All financial statements referenced in this management discussion, covering the interim six-month period ended June 30, 1999 and the fiscal years ended December 31, 1998 and 1997, represent the consolidated operations of Constellation Holdings, the predecessor of Constellation Tech for accounting purposes, and its wholly owned subsidiaries. Constellation Holdings, itself, was active and was responsible for paying subcontractors outside of Israel and Russia and also supported the North American operations. The reported results essentially reflect the activities Constellation Holdings and the subsidiaries. These statements precede the acquisition date so they are presented on a stand-alone basis. Pro forma information is also presented in this registration statement. The Company plans to continue its focus on research and development of its data storage technology and to develop strategic alliances with established companies in the data storage industry. The Company expects that its operating expenses will increase significantly during the foreseeable future as the result of its plans to: o increase expenditures on marketing the joint venture proposal by incurring expenditures of approximately $200,000 per month; o enhance existing capabilities of products by increasing the levels of research and development expenditures and capital assets from the current levels of $200,000 and $25,000 per month, respectively, to $600,000 and $40,000 per month, respectively; o increase expenditures on administration from the current levels of $100,000 per month to $200,000 per month; o increase monthly expenditures on professional fees for patent registration and joint venture agreements from $50,000 per month to $150,000 per month; and 36 o establish full manufacturing operations at its California location by hiring additional staff and transferring equipment and personnel to the United States increasing such expenses approximately $1,000,000 over the next twelve months. The Company must raise additional funds as a result of the planned significant increase in its operating expenditures and anticipates that it will require approximately $20 million in order to fund its operations over the next twelve months. The Company has sufficient working capital to support its operations through November 1999 and is in the process of negotiating for additional capital. The Company is currently exploring additional financing alternatives, including the possibility of a private equity offering. There can be no assurance, however, that such financing will be available to the Company or, if it is, that it will be available on terms acceptable to the Company. If the Company is unable to obtain the financing necessary to support its operations, its may be unable to continue as a going concern. The Company has a limited operating history upon which to base an evaluation of its business. The Company's business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets such as electronic commerce. These risks include, but are not limited to, rapid technological change, inability to manage growth, competition from more established companies, dependence on suppliers, internal system problems, risks relating to the year 2000 issue, inability to obtain sufficient financing and an unproven business record. Results of Operations for the Six-Months Ended June 30, 1999 Compared to Six-Months Ended June 30, 1998 Revenue. Constellation Holdings generated no revenue for the six-month period ended June 30, 1999 or the six-month period ended June 30, 1998. Research and System Development Expenses. Constellation Holdings incurred research and development expenses of $1,062,305 for the six-month period ended June 30, 1999, as compared to $629,823 for six-month period ended June 30, 1998. Research and development expenses consist primarily of expenses incurred for the development of the data storage technology, including compensation of technical staff and contractors, materials consumed in the development process, and professional fees for patent registration of intellectual property. The significant costs were payroll for staff and contractors which amounted to $604,565 for the six-months ended June 30,1999 and $344,285 for the six-months ended June 30, 1998. Professional fees were $383,252 for patent registration for the six-months ended June 30, 1999, and $274,731 for the six-months ended June 30, 1998. The increase in patent registration was due to the Constellation's Fluorescent Memory Technology becoming more proven and patentable. Materials consumed amounted to $17,881 for the six-months ended June 30, 1999, and $42,037 for the six-months ended June 30, 1998. This decrease was due to the reduction of new materials required as the Company's products went from prototypes to testing in 1999. 37 General and Administrative Expenses. General and administrative expenses consist of management compensation, rent, professional fees, telephone, travel and other general corporate expenses. General and administrative expenses were $554,863 for the six-months ended June 30, 1999 compared to $698,810 for the six-months ended June 30, 1998. Constellation Holdings paid substantially less for management and facilities charges for the six-months ended June 30, 1999, than it did for the six-months ended June 30, 1998. Payroll expenses and management fees relating to general and administrative expenses were $170,335 for the six-months ended June 30, 1999, and $280,064 for the six-months ended June 30, 1998. The decrease was due to the reduction of management fees charged by Constellation Memory Division from $200,000 for the six-months ended June 30, 1998 to $100,000 for the six-months ended June 30, 1999. Office and maintenance charges were $197,442 for the six-months ended June 30, 1999, and $117,951 for the six-months ended June 30 1998. The increase in office and maintenance charges reflects the increase in the number of facilities Constellation Holdings is operating from one in Israel for the six-months ended June 30, 1998 to three facilities for the six-months ended June 30, 1999 consisting of one in Israel, one in Russia, and one in North America. Travel and accommodation expenses were $92,777 in the six-months ended June 30, 1999 and $175,071 for the six-months ended June 30, 1998. The decrease in travel and accommodation expenditures was due to the reduction of fund-raising activities of Constellation Holdings management for the six-months ended June 30, 1998 over the six-months ended June 30, 1999 when Constellation Holdings was seeking capital. Interest and other charges. Constellation Holdings has recorded interest expenses of $29,920 for the six-months ended June 30, 1999 compared to $55,724 for the six-months ended June 30, 1998. Interest expense consist of $15,062 for bank overdrafts and $14,858 for loans from C3D for the six-months ended June 30, 1999 and $55,724 and $0, respectively, for the six-months ended June 30, 1998. Constellation Holdings' interest expense decreased due to the reduction in interest rates charged by creditors compared to the six-months ended June 30, 1998 Income Taxes. Constellation Holdings has generated minimal inter-company taxable income to date and therefore has paid $11,000 for the six-months ended June 30, 1999 and $0 for the six-months ended June 30, 1998. The taxes were incurred in the Russian subsidiary due to their treatment of inter-company advances as taxable revenue. Results of Operations for the Year Ended December 31, 1998 Compared to the Year Months Ended December 31, 1997 Revenue. Constellation Holdings generated no revenue in the fiscal years ended December 31, 1998 and 1997. 38 Research and System Development Expenses. Constellation Holdings incurred research and development expenses of $1,534,948 for the year ended December 31, 1998 and $1,491,707 for the fiscal year ended December 31, 1997. Research and development expenses consist primarily of expenses incurred for the development of the data storage technology, including compensation of technical staff and contractors, materials consumed in the development process, and professional fees for intellectual property. The increases in operating expenditures were due to the start-up of the Israeli subsidiary, C-TriD, which became active in January 1998. The significant costs were payroll for staff and contractors which amounted to $965,114 for the fiscal year ended December 31,1998 and $537,419 for 1997. The increase in payroll expenditures was due to the increase in staff levels to 35 for the fiscal year ended December 31, 1998 from 25 for the fiscal year ended December 31, 1997. Materials consumed amounted to $139,565 for the year ended December 31, 1998 and $75,991 for the fiscal year ended December 31, 1997 reflecting the increased usage of materials by staff. Professional fees were $312,612 for patent registration for the fiscal year ended December 31, 1998 and $0 for the fiscal year ended December 31, 1997, when the Company did not have a product at the stage of patent registration. General and Administrative Expenses. General and administrative expenses consist of management compensation, rent, professional services, telephone expense, travel and other general corporate expenses. General and administrative expenses were $1,660,477 for the fiscal year ended December 31, 1998 compared with $1,067,187 for the fiscal year ended December 31, 1997. This increase reflected the hiring of additional management, increased facilities charges and expansion of operations. Payroll expenses and management fees relating to general and administrative expenses were $690,066 in the fiscal year ended December 31, 1998 and $590,444 for the year ended December 31, 1997. Office and maintenance charges were $491,322 in the fiscal year ended December 31, 1998 and $109,105 for the fiscal year ended December 31, 1997. The increase in office and maintenance was primarily due to the expansion of facilities in Israel to keep pace with the increased activity of the Company. The Company upgraded facilities at Rechovat Park, Israel at the end of the year resulting in expenditures of $64,500 for the fiscal year ended December 31, 1998 compared with $0 for the fiscal year ended December 31, 1997. Office and maintenance charges also increased due to the Company's increased expenditures on rent, general maintenance , and communications to $118,334 for the fiscal year ended December 31, 1998 and from $61,159 for the fiscal year ended December 31, 1997. Travel and accommodation expenses were $327,355 in the fiscal year ended December 31, 1998 and $261,126 for the year ended December 31, 1997. Interest and other charges. Constellation Holdings has recorded net interest income of $6,985 for the fiscal year ended December 31, 1998 and a net interest expense of $53,851 for the fiscal year ended December 31, 1997. Interest income and expense consisted entirely of bank overdrafts. 39 Income Taxes. Constellation Holdings has generated minimal inter-company taxable income to date and therefore has paid $3,462 for the year ended December 31, 1998 and $0 for the year ended December 31, 1997. The taxes were incurred in the Israeli subsidiary, C-TriD, due to their treatment of inter-company advances as taxable revenue. Liquidity and Capital Resources As of June 30, 1999, Constellation Holdings' cash position was $112,800 and its working capital deficit was $2,815,135 compared to a cash position of $123,097 and a working capital deficit of $1,136,513 for fiscal year ended December 31, 1998. Since inception, Constellation Holdings has financed its operations from capital contributions and short-term financings from shareholders. During the six-month period ended June 30, 1999, Constellation Holdings received net proceeds of $1,227,721 from short term loans from shareholders and related parties, including $1,234,837 in advances from C3D. Constellation Holdings received proceeds of $4,328,528 from the sale of common stock and had a net redemption of short term loans of $4,413,567 for the fiscal year ended December 31, 1998. The Company currently has sufficient working capital to support its operations through November 1999 and is in the process of negotiating for additional capital. There can be no assurance, however, that such financing will be available to the Company or, if it is, that it will be available on terms acceptable to the Company. If the Company is unable to obtain the financing necessary to support its operations, its may be unable to continue as a going concern. Due to its lack of operating revenues, operating losses and need for working capital, there is no assurance that the Company will be able to continue as a going concern. As a result of these factors, the Company's Independent Certified Public Accountants modified their opinion on the Company's ability to continue as a going concern. Net cash used in operating activities was $1,221,831 for the six-month period ended June 30, 1999, including a net loss of $1,657,458 and an increase in payables of $424,591. The Company's current operating expenditures are approximately $350,000 per month and the Company plans to increase its operating expenditures to $1,200,000 a month in order to expand its operations. The Company has not generated any revenues to date and does not anticipate cash flow from operations to be sufficient to fund its cash requirements until late in 2001. Constellation Holdings incurred capital expenditures of $29,865 for the six-month period ended June 30, 1999 and $129,761 for the six-month period ended June 30, 1998. These expenditures were primarily for laboratory equipment associated with Constellation Holdings' continued research and development. 40 The Company currently has no commitments for any credit facilities such as revolving credit agreements or lines of credit that could provide additional working capital. Based on its existing capital resources, the Company believes that it will be able to fund operations through November 1999. The Company's capital requirements depend on several factors, including the success and progress of research development programs, the resources devoted to developing products, the extent to which products achieve market acceptance and other factors. The Company anticipates that it will require substantial additional financing to fund its working capital requirements. There can be no assurance, however, that additional funding will be available or, if available, that it will be available on terms acceptable to the Company. If adequate funds are not available, it may not be able to continue. There can be no assurance that the Company will be able to raise additional cash if its cash resources are exhausted. The Company's ability to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the Company's business performance. Constellation Holdings has been in the development stage since its inception. It has had no operating revenue to date, has accumulated losses of $7,462,105, and will require additional working capital to complete its business development activities and generate revenue adequate to cover operating and further development expenses. Thus, there is no assurance that the Company will be able to continue as a going concern. Market Risk Market risk inherent in financial instruments outside the financial statements is considered immaterial. Year 2000 Issue The Company has identified several Year 2000 computer failures that it is reasonably likely to face. However, only a small subset of these failures could possibly have a material adverse effect on the Company's financial condition or result in harm to the Company's operations. The Company believes that the expected cost and availability of resources to recover information not properly processed after December 31, 1999 will not exceed $20,000. However, there can be no assurance that the Company's Year 2000 remediation efforts, or those of third parties, will be properly and timely completed, and the failure to do so could have a material adverse effect on the Company, its business, results of operation, and its financial condition. The Company has determined that its suppliers may face Year 2000 problems that may affect the suppliers' ability to provide the materials that the Company needs to continue its research operations. If one or more of its suppliers is unable to fill orders for the Company as a result of a Year 2000 41 computer failure, the Company is prepaid to utilize other suppliers to satisfy its material requirements. Thus, the Company does not believe that the failure of one or more its suppliers will have a material adverse effect on the Company. The Company has determined that its operations in Russia, which accounts for a material portion of the Company's business, may be materially adversely affected by the Year 2000 computer problems. The Company reasonably believes that the Russian government may not be equipped to handle all possible problems that may arise as a result of a Year 2000 computer problem. The Company has put contingency plans in place to deal with a possible Year 2000 computer problem, including, but not limited to, equiping all of its Russian facilities with electrical generators, and hiring additional personnel to address any software failures that may occur. Finally, in a worst case scenario, the Company is prepared to relocate its key personnel and operations to the United States. Recent Accounting Pronouncements Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The Statement establishes accounting and reporting standards requiring that every derivative instrument (including some types of derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133, as amended by SFAS No. 137 defining SFAS No. 133's effective date, is effective for fiscal years beginning after June 15, 2000, and must be applied to instruments issued, acquired, or substantively modified after December 31, 1997. Also, SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" and SOP 98-5, "Reporting the Costs of Start-up Activities" are effective for the year ended January 1, 2000. The Company does not expect the adoption of the accounting pronouncement to have a material effect on its financial position or results of operations. Financial data for C3D and Constellation Holdings is an Exhibit incorporated herein by reference. The Company did not hold any material market rate sensitive instruments. 42 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of November 8, 1999, including exercisable options of 175,000, there were 13,667,203 shares of Common Stock issued and outstanding. The following table sets forth the beneficial ownership of the Common Stock as of November 8, 1999 by each person known by C3D to own beneficially more than five percent of the issued and outstanding Common Stock, each of C3D's directors, and C3D's directors and executive officers as a group. Unless otherwise indicated, each person or entity named below has sole voting and investment power with respect to all shares of Common Stock shown as benefically owned by such person or entity, subject to the information set forth in the footnotes to the table below. The securities benefically owned by a person are determined in accordance with the definition of "beneficial ownership" set forth in the regulations of the Securities and Exchange Commission and, accordingly, may include securities owned by or for, among others, a spouse, children or certain other relatives of such person as well as other securities as to which the person has or shares voting or investment power or has the right to acquire within 60 days after November 8, 1999. The same shares may be beneficially owned by more than one person. Beneficial ownership may be disclaimed as to certain of the securities.
Number of Shares Name of Beneficial Owner Beneficially Owned Percent - -------------------------------------------------------------- ------------------ --------- Constellation 3D Technology Limited 235 West 76th Street, Suite 8D, New York, New York 10023 .... 9,750,000 70.4% Rapids Trusts Ltd.(2) 56 Mazah Street,Tel Aviv, Israel 55905 ....................... 9,750,000 70.4% United European Enterprises (3) 56 Mazah Street,Tel Aviv, Israel 55905........................ 5,362,500 38.7% Brigadier General Itzhak Yaakov(1)............................ 150,000 (4) 1.1% Professor Eugene Levich (1)(5)(6)............................. 1,787,500 12.9% Lev Zaidenberg (1)(5)(7)...................................... 1,787,500 12.9% Michael Goldberg (1)(5)....................................... 125,000 (8) * Leonardo Berezowsky (1)(5) (9)................................ 1,787,500 12.9% All directors and executive officers as a group... 5,637,500 (10) 40.7%
- ---------------------------- * Less than one percent. (1) The business address of such person is 2625 NE 11th Court, Fort Lauderdale, Florida 33304. (2) Rapids Trusts Ltd., an Israeli trust. Rapids Trusts Ltd. holds of record 100 % of Constellation 3D Technology Limited, for the benefit of certain persons and entities. (3) United European Enterprises, a Nevis company, is the beneficial owner of approximately 55% of the shares of Constellation Tech, which are held of record by Rapids Trusts Ltd. (4) Represents 50,000 shares of Common Stock issued and outstanding and 100,000 shares of Common Stock issuable upon exercise of options which are exercisable within 60 days of November 8, 1999. (5) Constellation Group, a British Virgin Islands company, hold 100% of United European Enterprises. Three Lichtenstein trusts, the Alex-L Foundation, the Lion & Heart Foundation and the Lediligi Foundation, hold 100% of Constellation Group. (6) Certain members of Professor Levich's family are among the beneficiaries of the Alex-L Foundation, that, along with the Lion & Heart Foundation and the Lediligi Foundation, control Constellation Group. (7) Certain members of Lev Zaiderberg's family are among the beneficiaries of the Lion & Heart Foundation, that, along with the Alex L. Foundation and the Lediligi Foundation, control the Constellation Group. (8) Represents 50,000 shares of Common Stock issued and outstanding and 75,000 shares of Common Stock issuable upon exercise of options which are exercisable within 60 days of November 8, 1999. (9) Leonardo Berezowsky and certain of his family members are among the beneficiaries of the Lediligi Foundation, that, along with the Alex-L Foundation and the Lion & Heart Foundation, control Constellation Group. (10) Includes: (a) 175,000 shares of Common Stock issuable upon Messrs. Yaakov and Goldberg's exercise of options which are exercisable within 60 days of November 8, 1999; (b) 5,362,500 shares of Common Stock over which the Lichtenstein trusts share indirect control. 43 C3D does not know of any arrangements, including any pledge by any person of securities of C3D, the operation of which may at a subsequent date result in a change in control of C3D. 44 DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES OF C3D
Name: Age: Position: - ----- ---- --------- Brigadier General Itzhak Yaakov 73 Chairman of the Board of Directors Professor Eugene Levich 51 President and Chief Executive Officer; Chief Operational Officer; Member of Board of Directors Michael Goldberg 50 Secretary; Director of Legal Affairs; Member of Board of Directors Lev Zaidenberg 45 Member of Board of Directors Leonardo Berezowksy 42 Senior Vice President of Finance and Chief Financial Officer Ronen Yaffe 29 Treasurer Professor Sergey A. Magnitskii 44 Chief Scientist Professor Jacob Malkin 49 Chief Chemist Professor Mark Alperovich 61 General Manager, Chemical Division Dr. Ingolf Sander 49 General Manager of Products
Directors and Executive Officers Brigadier General Itzhak Yaakov serves as Chairman of the Board of Directors of C3D. He was elected Chairman of the Board of Directors of C3D effective April 19, 1999. He graduated from the Israeli Institute of Technology as a Mechanical Engineer in 1953 and from the Massachusetts Institute of Technology in 1963 with a M.Sc. in Industrial Management. During his last 10 years of military service, he was Chief of Defense Research and Development for the State of Israel, and after retirement, was appointed Chief Scientist of the Ministry of Industry and Trade of Israel. He was the first Chairman of the US-Israeli Bi-national Industrial R&D Fund and Chairman of the Israeli Standard Institute. Since 1979, he has been a private businessman and a partner in the formation of several high-tech start-up companies in the field of electronics, telecommunications, robotics, electro-optics and medical equipment. He has been the sole owner of Yakov Consultants since 1985. From 1990 to the present, he has been a partner in Goncharoff Inc., engaged in trading in Russia. From 1995 to the present, he has been a partner in Tecnomatix NV, Belgium, which manufactures medical machines. His academic activity has included lecturing at the Hebrew University of Jerusalem and a professorship at Ben Gurion University in the Negev, as well as lecturing in several seminars and publishing several papers. He served as consultant to international organizations such as the Korean Technology Development Corporation, the World Bank, the International Financial Corporation, the Organization of American States and the United States Department of Commerce, as well as the governments of Taiwan, Venezuela, Singapore, Peru and Chile. He published several papers and a book about innovation and the management of R&D. 45 Professor Eugene Levich serves as President, Chief Executive Officer, Chief Operational Officer and Member of the Board of Directors of C3D. He was appointed President and Chief Executive Officer of C3D effective April 19, 1999 and Chief Operational Officer of C3D effective November 11, 1999. He was elected as a member of the Board of Directors of C3D effective April 19, 1999. Professor Levich received a M.Sc. in Physics from Moscow University in 1968 and a Ph.D. in Theoretical Physics from the Landau Institute in 1970. He has served in varying academic capacities at a range of research institutions, including Harvard University (as Visiting Fellow); Oxford University (Magdalene College) (three times as Senior Visiting Fellow at the Department of Theoretical Physics); City University of New York (as Professor at the Faculties of Physics and Engineering); the Weizman Institute of Sciences (as Associate Professor at the Department of Nuclear Physics); and Tel-Aviv University Faculty of Engineering (as Visiting Professor). Since 1990, Professor Levich has been working as a chief scientist and partner in high technology industries and has authored over 28 patents. He has published over 90 papers in the fields of astrophysics, plasma turbulence and chaos, nonlinear phenomena in optics and turbulence in fluids. His most recent scientific contribution in the field of turbulence control was in cooperation with Professor D. ter Haar (Professor Emeritus of Oxford University), entitled "The Origin of Coherence in Turbulence." Michael Goldberg serves as Secretary, Director of Legal Affairs and Member of the Board of Directors of C3D. He was appointed Secretary of C3D effective August 9, 1999, and Director of Legal Affairs of C3D effective March 8, 1999, and he was elected as a member of the Board of Directors of C3D effective April 19, 1999. Mr. Goldberg graduated as Asper Fellow from the University of Maryland Law School in 1974. Upon graduation from law school, he worked within the Criminal Division of the United States Attorney's Office in Washington, DC. He interned on security cases at the Department of Justice such as the Watergate case. He was the Assistant District Attorney in the City of Philadelphia, Commonwealth of Pennsylvania, covering narcotics, homicide and major trials. From 1978 to 1986, he was in private practice. Presently, he serves as Chairman and Chief Executive Officer of Rx Medical Services and as an advisor to private clients. Lev Zaidenberg serves as a Member of the Board of Directors of C3D. He was elected as a member of the Board of Directors of C3D on April 19, 1999. Mr. Zaidenberg received a B.Sc. in Applied Mathematics and a M.Sc. in Information Systems and Business Administration from Tel-Aviv University. From 1988 to 1994, he was a partner and executive at DCL Systems Engineering Ltd., responsible for the development of computer products for molecular modeling and financial trading. From 1984 to 1988, he served as Vice President of IET Ltd., leading the development and marketing of advanced expert systems for Computer Aided Design/Computer Aided Manufacturing, image processing, satellite data interpretation, military command and control, resource allocation and associated business applications. Since 1984, he has served as a consultant to the Israeli Defense Forces in computer auditing and security. Mr. Zaidenberg is Chief Executive Officer and President of Mutek Solutions, a software company with headquarters in Israel and subsidiaries in the United States and Germany. 46 Leonardo Berezowksy serves as Senior Vice President of Finance and Chief Financial Officer of C3D. He was appointed Senior Vice President of Finance and Chief Financial Officer effective November 5, 1999. Mr. Berezowsky received a B.A in Economics in 1980, a B.A. in Computer Sciences in 1981 and an M.A. in Economics in 1982 from the Hebrew University in Jerusalem. During the years 1980 to 1983, he served as Lecturer Assistant at that institution. During the years 1981 to 1983, he worked in software development and data analysis at the Hebrew University's Data Archive Department. During the years 1984 to 1986, he served as Systems and Financial manager in Pelanar SA (Argentina), a company involved in wool, leather and meat production and exporting activities. From 1986 to 1987, Mr. Berezowsky served as consultant for international projects for that company. From 1987 to 1994, he worked as Chief Financial Officer of a company engaged in research and development in the energy field. Since 1995, he has served as Chief Operational Officer of Constellation Group, high tech entrepreneurship company, mainly in the computer field. Since 1996, he has served as Chief Operational Officer of Mutek Solutions Ltd., a software company with headquarters in Israel and subsidiaries in the United States and Germany. Ronen Yaffe serves as Treasurer of C3D. He was appointed Treasurer effective November 5, 1999. From 1994 to 1998, he was a Manager for Deloitte Touche Tohmatsu International Israel Ltd., where he oversaw the audit of Israeli high-tech public and private companies and advised such companies regarding Enterprise Resource Providers. He also led the process of integrating Deloitte Touche's accounting software into Deloitte Touche's Israeli operations. In August 1996, he graduated from The School of Business Administration at the College of Management located in Tel Aviv, Israel. In 1998, he became a Certified Public Accountant. Significant Employees Professor Sergey A. Magnitskii serves as General Manager of Lasers and Electronics of C3D. Mr. Magnitskii received a Dr. Sci. in Physics from Moscow State University. From 1975 to 1976, he developed technologies in quantum electronics under thermo-nuclear fusion with Nobel Prize winner N. Basov. In 1976, he worked with the founder of nonlinear optics, academician Rem Khokhlov, to research experimental laser and nonlinear spectroscopy. He was a Professor of the Physics Department of Moscow State University and of the International Laser Center at Moscow State University. He has authored over 100 papers in international journals and has given 39 papers and 25 presentations at international conferences in the last three years. 47 Professor Jacob Malkin serves as General Manager of the Chemical Division. Professor Malkin received a Ph.D. from Moscow State University in 1972. At the age of 22, he was recruited as a chemist by the Institute of Chemical Physics of the Russian Academy of Sciences (formerly USSR Academy of Sciences) where he collaborated with chemist academician N.M. Emanuel on the development of new photo-chromic systems based on polymer materials. He received a Ph.D. from the Syemenov Institute of Chemical Physics in 1976. He was a Professor of Chemical Physics in 1985. He was a Professor of Physical Chemistry at Moscow Lomonosov Institute until 1989. He was elected Gastella Fellow at the Weizmann Institute of Sciences in 1990 for photo-dynamic therapy. For the study of photo-dissociation in molecular beams, he received grants for 5 years from the US-Israel Binational Fund and was Visiting Fellow at Heriott-Watt University (Edinburgh) in 1990 and he received a British Royal Society Award for this work. From 1991 to 1992, he was a Visiting Professor at the University of California, where he (together with Prof. P. Rentzepis) formulated basic principles for the applications of photo-chromic substances to three-dimensional memory devices based on the process of two-photon absorption. He was a Visiting Professor at the Imperial College (London) from 1994 to 1995. He has over 16 years of experience in the fields of photochemistry and spectroscopy with over 60 publications, including a theory of photo-dissociation of organic compounds. He authored the Computerized Encyclopedia of Photochemistry and Photobiology in 6 volumes. Professor Mark Alperovich serves as Chief Chemist of C3D. He received a Ph.D in chemistry from Moscow State University. C3D considers Professor Alperovich to be a world authority in photo-chemistry. He has developed key chemical substances for memory storage for ROM and R/W. He has authored and/or published a number of papers, patents and other scientific contributions. C3D considers Professor Alperovich to be one of the world leading experts and developers of dyes and photochromic substances. Dr. Ingolf Sander serves as General Manager of Products of C3D. He received a Ph. D. in Physics at Hamburg University. In 1984, he served as Director of Optical Disk Drive Research and Development for Verbatim-Kodak in Sunnyvale, California, where he headed a team of forty optical, electrical, mechanical, and software engineers from the product development phase to the commercial application of the world's first 3.5" Magnetic Optical drive. He was appointed Group Director to research holographic storage and R/W for CD editing. He developed a two-inch MO drive in a co-development with Philips Data Systems for personal computer application and optical scanner for three-dimensional characterization of surfaces. In 1995, he became a Vice President of Optitek in Mountain View, California, where he oversaw the development of holographic storage and fast image processing in the field of image registration, remapping, and Viterbi decoding. During the period from 1989 to 1995, he was Founder, President and Chief Executive Officer of LaserByte, in Sunnyvale, California. He established a joint venture with Hyundai to develop optical disk drives. He developed a methodology to improve read channel reliability and data throughput and set up a laboratory to investigate the use of drives for document storage and multi-media applications. In 1975, he worked at Philips Research Lab in Hamburg, then West Germany. He has authored 12 patents in the field of optical and magneto-optical memory. 48 Board of Directors All holders of C3D Common Stock generally may vote in the election of directors. The terms of all directors expire at the next annual shareholders' meeting following their election. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. C3D's Bylaws provide that annual meetings of shareholders will be held on such date and at such time fixed, from time to time, by the Board of Directors (provided that there will be an annual meeting held every calendar year at which the shareholders will elect a Board of Directors and transact such other business as may properly be brought before the meeting). C3D's Board of Directors anticipates that it will fix a date in the near future for an annual meeting. The Board of Directors has two committees, the Compensation Committee and the Audit Committee. The Compensation Committee, which consists of two directors, (1) reviews and recommends each year to the Board of Directors the form and amount of compensation to be received by executive officers of C3D; (2) initiates, at its discretion, investigations within the parameters of the foregoing responsibilities and for that purpose retains outside legal counsel, or any other such experts as it shall deem appropriate; and (3) reports to the entire Board of Directors at such time as the Compensation Committee determines, but not less than once each year. Each member of the Compensation Committee must be nominated by a Board member and elected by a majority of the Board of Directors. Each member of the Compensation Committee serves for a term of one year and until the member's successor has been duly elected and qualified, except in the event if any early resignation or removal. The current members of the Compensation Committee are Michael Goldberg and Lev Zaidenberg, who were elected effective June 17, 1999. The Audit Committee, which consists of two directors, (1) recommends accountants to C3D to audit the financial statements of C3D and its consolidated subsidiaries and to review the fees charged for such audits or for special engagements given to such accounts; (2) meets with the independent accountants, Chief Executive Officer and any other executives of the Company as the Audit Committee deems appropriate at such times as the Audit Committee determines to review (a) the scope of the audit plan, (b) the Company's financial statements, (c) the results of external and internal audits, (d) the effectiveness of the Company's system of internal controls, (e) any limitations imposed by Company personnel on the independent public accountants and (f) such other matters by the Audit Committee deems appropriate; and (3) reports to the entire Board of Directors at such time as the Audit Committee determines but not less than once each year. Each member of the Audit Committee must be nominated by a Board member and elected by a majority of the Board of Directors. Each member of the Audit Committee serves for a term of one year and until the member's successor has been duly elected and qualified, except in the event if any early resignation or removal. The current members of the Audit Committee are Michael Goldberg and Lev Zaidenberg, who were elected effective June 17, 1999. 49 None of C3D's directors or executive officers are parties to any arrangement or understanding with any other person pursuant to which said individual was elected as a director or officer of C3D. There is no relationship by blood, marriage or adoption not more remote than first cousin between any director, executive officer, or person nominated or chosen by C3D to become a director or executive officer. 50 EXECUTIVE COMPENSATION No executive officer of C3D other than the Chief Executive Officer had a total annual salary and bonus exceeding $100,000 for the last completed fiscal year. There is no additional individual who would have been one of C3D's four other most highly compensated executive officers had he served as an executive officer through the end of the fiscal year ended 1998. Summary Compensation Table
------------------------------------------- ---------------------------- Annual Compensation Long Term Compensation -------------------------------------------- ---------------------------- Other Annual Securities Fiscal Compensation Underlying All other Name and Principal Position Year Salary ($) Bonus($) ($) Options (#) Compensation - -------------------------------- ------ ---------- -------- ------------ ----------- ------------ Professor Eugene Levich, 1998 200,000 (1) Chief Executive Officer 1997 200,000 (1) 1996 --
- ---------------------------- (1) Professor Levich was not directly compensated by C3D for his position as Chief Executive Officer. However, Constellation Holdings paid management fees Constellation Memory Division, of which he is a principal. No executive officer of C3D has held any options or stock appreciation rights before December 31, 1998, the end of the last completed fiscal year. C3D has not had any long-term incentive plan or pension plan. Director Compensation For services rendered by General Yaakov as Director of C3D, starting April 1999, Yakov Consultants, of which General Yaakov is the sole owner, is to receive a monthly fee of $5,000 until C3D receives an investment of $2 million, and thereafter, $10,000 per month instead. There is no written contract for this compensation. 51 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Except as set forth below, there is no transaction, or series of similar transactions, since the beginning of C3D's last fiscal year, or any currently proposed transaction, or series of similar transactions, to which C3D or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $60,000 and in which any of the following persons had, or will have, a direct or indirect material interest: (1) any director or executive officer of C3D; (2) any nominee for election as a director; (3) any security holder who is known to C3D to own of record or beneficially more than five percent of any class of C3D's voting securities; and (4) any member of the immediate family of any of the foregoing persons. For services rendered by General Yaakov as Director of C3D, starting April 1999, Yakov Consultants, of which General Yakov is the sole owner, is to receive a monthly fee of $5,000 until C3D receives an investment of $2 million, and thereafter, $10,000 per month instead. There is no written contract for this compensation. On July 15, 1998, Ronen Yaffe, C3D's Treasurer, entered into an employment contract with C-TriD Israel Ltd. The contract is still effective. Pursuant to the contract, for services rendered as the Chief Financial Officer of C-TriD Israel Ltd., C-TriD Israel Ltd. is to pay Mr. Yaffe 17,500 New Israeli Shekel (approximately US $4,070) per month in addition to (1) a bonus if C-TriD Israel Ltd. distributes a bonus to its employees, as determined by the Board of Directors of C-TriD Israel Ltd. and dependent on Mr. Yaffe's performance and the financial results of C-TriD Israel Ltd. and (2) stock options in C-TriD Israel Ltd. if C-TriD Israel Ltd. adopts a stock option plan for its employees. On March 8, 1999, C3D's Board of Directors authorized the issuance of 50,000 shares of Common Stock to Brigadier General Itzhak Yaakov, Chairman of the Board of Directors of C3D, and 50,000 shares of Common Stock to Michael Goldberg, Secretary, Director of Legal Affairs and Member of the Board of Directors of C3D. Furthermore, the Board authorized the issuance to General Yaakov of options to purchase 100,000 shares of Common Stock and the issuance to Mr. Goldberg of options to purchase 75,000 shares of Common Stock. On June 17, 1999, the Compensation Committee of C3D set certain compensations. There are no written contracts for such compensations. Professor Eugene Levich, President, Chief Executive Officer and Chief Operational Officer of C3D, is to receive $15,000 per month as of June 1, 1999. Leonardo Berezowsky, the Senior Vice President of Finance and Chief Financial Officer of C3D, is to receive $10,000 per month, $5,000 monthly as of June 1, 1999, and $5,000 to accrue monthly until the financing next following June 17, 1999. Michael Goldberg, Secretary, Director of Legal Affairs and Member of the Board of Directors of C3D, is to receive $10,000 per month, $5,000 monthly as of June 1, 1999, and $5,000 to accrue monthly until the financing next following June 17, 1999. 52 On July 1, 1999, Constellation Holdings sold all of its assets to Constellation Tech. In consideration for those assets, Constellation Tech assumed of all liabilities and obligations of Constellation Holdings. After the acquisition, all the record and beneficial shareholders of Constellation Holdings became record and beneficial shareholders of Constellation Tech C3D and Constellation Tech entered into an asset purchase agreement which was completed on October 1, 1999, whereby C3D acquired certain assets and liabilities from Constellation Tech, including the following directly and indirectly owned subsidiaries: o 99 of the 100 issued and outstanding shares of C-TriD Israel Ltd.; o all of the issued and outstanding shares of TriD Store Vostok; o the sole membership interest of Constellation Tech in TriDStore IP, L.L.C.; and o all of the issued and outstanding shares of TriD SV, Inc.,. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or of which any of their property is the subject. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The securities of C3D, which are common shares, $.001 par value per share, are listed on the NASD's Over-the-Counter Bulletin Board service under the symbol "CDDD." C3D's securities are not and have not been listed or quoted on any exchange or other quotation system. Time Period High Bid Low Bid - --------------------------------------------- -------- ------- Fiscal Year Ending 1999: First Quarter............................ -- -- Second Quarter........................... $12.13 $ 1.75 Third Quarter............................ $23.75 $ 10.00 Fourth Quarter*.......................... $25.88 $ 16.06 - ---------------------------- * For the period October 1, 1999 through and including November 3, 1999. The price of C3D's Common Stock on the NASD's Over-the-Counter Bulletin Board on November 3, 1999 was $19.00 (high) and $17.88 (low). The close price on November 3, 1999 was $18.69. 53 Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of October 15, 1999, there were approximately 46 shareholders of record of the Common Stock. 54 RECENT SALES OF UNREGISTERED SECURITIES Section 4(2) Offering to MBA-on-Demand, L.L.C. ---------------------------------------------- On November 8, 1999, the Board of Directors of C3D authorized, pursuant to that certain Engagement Letter dated as of May 23, 1999, the issuance of 2,500 shares of Common Stock, which C3D valued at $28,750, to MBA-on-Demand, L.L.C., a Texas limited liability company, as consideration for services rendered pursuant to the Engagement Letter. In connection with such issuance, C3D granted to MBA-on-Demand, L.L.C. certain registration rights with respect to such Common Stock. C3D made the exempt offering under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). Section 4(2) Offering to Individual Investor -------------------------------------------- On November 1, 1999, C3D's Board of Directors authorized the issuance of 8,503 shares of Common Stock to an individual investor for a total purchase price of $125,000. In connection with such subscription, C3D paid a commission in the amount of $25,000 to Challis International Limited. The Company expects to make the offering of the Common Stock as an exempt offering under Section 4(2) of the Securities Act. Section 4(2) Offering to Constellation Tech ------------------------------------------- On October 1, 1999, in connection with the Acquisition, among other undertakings, C3D issued 9,750,000 shares of Common Stock to Constellation Tech as consideration for the sale of certain assets of Constellation Tech. C3D made the exempt offering under Section 4(2) of the Securities Act. See "Certain Relationships and Related Transactions." Section 4(2) Offering to Seattle Investments LLC ------------------------------------------------ On August 10, 1999, C3D issued $1 million of convertible subordinated debt to Seattle Investments LLC, a Nevis, West Indies limited liability company organized under the laws of Nevis, West Indies ("Seattle Investments"). In connection with such issuance, C3D granted to Seattle Investments certain registration rights with respect to the underlying Common Stock. On October 22, 1999, Seattle Investments converted its 10.0% Series A Convertible Note due December 31, 1999 into 202,945 shares of Common Stock. The issuance of the convertible note and the conversion were each made as an exempt offering under Section 4(2) of the Securities Act. 55 Regulation S Offering to Twenty-five Foreign Investors ------------------------------------------------------ On May 7, 1999, C3D issued 453,255 shares of its Common Stock at an aggregate offering price of $1,813,020 to twenty-five individuals and entities then residing outside of the United States pursuant to Regulation S under the Securities Act. Regulation D Offering to Sixteen Individuals -------------------------------------------- On March 24, 1999, C3D issued 3,125,000 shares of its Common Stock at an aggregate offering price of $250,000 to sixteen individuals. C3D filed under SEC Rule 504 for an exemption from registration of those common shares under the Securities Act. Issuance of Stock to Yaakov and Goldberg ---------------------------------------- As compensation for services rendered, on March 8, 1999, C3D's Board of Directors authorized the issuance of 50,000 shares of Common Stock, valued by the Board at an aggregate of $200,000, to Brigadier General Itzhak Yaakov, Chairman of the Board of Directors of C3D, and 50,000 shares of Common Stock, valued by the Board at an aggregate of $200,000, to Michael Goldberg, Secretary, Director of Legal Affairs and Member of the Board of Directors of C3D. Furthermore, as compensation for services rendered, the Board authorized the issuance to General Yaakov of options to purchase 100,000 shares of Common Stock and the issuance to Mr. Goldberg of options to purchase 75,000 shares of Common Stock. General Yaakov's options and Mr. Goldberg's options expire after five years. The Company expects to make the offering of the Common Stock as an exempt offering under Section 4(2) of the Securities Act. 56 DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED C3D's securities which are to be registered under Section 12(g) of the Exchange Act pursuant to this Registration Statement have been traded under the symbol "CDDD" using the NASD's Over-the-Counter Bulletin Board service since April 8, 1999. The authorized capital stock of C3D consists of 50,000,000 shares of common stock, $.001 par value per share. C3D's Board of Directors may authorize the issuance from time to time of shares of its Common Stock or any class or securities convertible into shares of its Common Stock of any class for such consideration as the Board of Directors deems advisable, subject to such restrictions or limitations, if any, as may be set forth in C3D's Bylaws. C3D has not issued, and the Board of Directors of C3D has not authorized the issuance of, more than the one class of shares or the division of the existing class into series. C3D's Board of Directors may from time to time declare, and C3D may pay, dividends on its outstanding shares in cash, property, stock or otherwise pursuant to the provisions of C3D's Articles of Incorporation. However, C3D's Board of Directors does not intend to declare, and C3D does not intend to pay, any dividends on its outstanding shares in cash, property, stock, or otherwise pursuant to the provisions of C3D's Articles of Incorporation in the foreseeable future. C3D's shareholders do not have preemptive rights unless provided by amendment to C3D's Articles of Incorporation or by a resolution of the Board of Directors of C3D. The holders of shares entitled to one-third of the votes at a meeting of shareholders will constitute a quorum. Acts of shareholders require the approval of holders of 50.01% of the outstanding votes of shareholders. 57 INDEMNIFICATION OF OFFICERS AND DIRECTOR C3D's Amended Articles of Incorporation provide for indemnification of officers and directors of C3D. They permit C3D, in its Bylaws or in any resolution of its shareholders or directors, to undertake to indemnify the officers and directors of C3D against any contingency or peril as may be determined to be in the best interests of C3D, and in conjunction therewith, to procure, at C3D's expense, policies of insurance. The Bylaws of C3D do not specifically provide for indemnification of officers or directors of C3D. C3D does not carry any director and officer policies of insurance for C3D officers or directors. In the future, C3D expects to obtain director and officer policies of insurance for C3D officers and directors. C3D has no other arrangements specifically providing for indemnification of C3D officers or directors. 58 PROFORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF C3D, INC. Introduction of Proforma Combined Condensed Balance Sheet (Unaudited) Proforma Combined Condensed Balance Sheets (Unaudited) Proforma Combined Condensed Statement of Loss (Unaudited) Notes to Proforma Combined Condensed Financial Statements (Unaudited) 59 Introduction to Proforma Combined Condensed Balance Sheets (Unaudited) On October 1, 1999 C3D, Inc. ("C3D") issued 9,750,000 shares of its common stock to acquire all of the issued and outstanding shares of common stock of Constellation Tech (the "merger transaction"). In connection with the acquisition, C3D canceled 975,000 shares of its common stock issued to founders of the Company. C3D did not acquire two subsidiaries of Constellation Tech having net assets of approximately $32,000. As the former shareholders of Constellation Tech will control C3D subsequent to the merger transaction, for accounting purposes Constellation Tech is treated as the acquirer and the merger transaction treated as a recapitalization of Constellation. The unaudited pro forma combined condensed financial statements of C3D are based upon the historical financial statements of the Company and Constellation Tech after giving effect to the merger transactions. These unaudited pro forma combined condensed financial statements are not necessarily indicative of the financial position and results of operations that would have been attained had the transaction actually taken place at the date indicated and do not purport to be indicative of the effects that may be expected to occur in the future. The accompanying unaudited pro forma combined condensed financial statements illustrate the effect of the acquisition on the Company's financial position and results of operations. The unaudited pro forma combined condensed balance sheet as of June 30, 1999 is based on the historical balance sheets of the Company and Constellation Tech and assumes the acquisition took place on that date. The combined condensed statements of loss for six months ended June 30, 1999 and the year ended December 31, 1998, are based on the historical statements of operations of the Company and Constellation Tech for the same period and assume the merger transaction occurred as of January 1, 1998. The accompanying unaudited pro forma combined condensed financial statements should be read in connection with the historical financial statements of the Company and Constellation Tech. 1 C3D Inc. (A Development Stage Company) Proforma Combined Condensed Balance Sheets (Unaudited) - --------------------------------------------------------------------------------
Constellation Proforma As of June 30, 1999 C3D Tech Adjustments Pro Forma - -------------------------------------------------------------------------------------------------------------------- ASSETS Cash $ 704,754 $ 112,800 $ (72,541) (1a) $ 745,013 Other receivable 6,869 155,248 (8,737) (1a) 153,380 - -------------------------------------------------------------------------------------------------------------------- Total Current Assets 711,623 268,048 (81,278) 898,393 Furniture and equipment, net 2,748 292,073 (58,009) (1a) 236,812 Advances to related companies 1,234,837 -- (1,234,837) (1b) -- ==================================================================================================================== Total Assets $ 1,949,208 $ 560,121 $ (1,374,124) $ 1,135,205 - -------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 117,318 $ 434,308 $ (107,094) (1a) $ 444,532 Due to related parties 52,730 1,409,021 (1,234,837) (1b) 226,914 Due to shareholder 1,132 241,490 -- 242,622 Other -- 998,364 -- 998,364 - -------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 171,180 3,083,183 (1,341,931) 1,912,432 - -------------------------------------------------------------------------------------------------------------------- Long-Term Liabilities -- 50,503 -- 50,503 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities 171,180 3,133,686 (1,341,931) 1,962,935 Commitments and Contingencies Stockholders' Equity Common stock, $.001 par value 50,000,000 shares authorized, 4,678,000, and 13,453,255 4,678 -- 8,775 (1a) 13,453 Additional paid in capital 2,463,342 4,888,540 (683,767) (1a) 6,668,115 Deficit accumulated during the development stage (689,992) (7,462,105) 642,799 (1a) (7,509,298) - -------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 1,778,028 (2,573,565) (32,193) (827,730) Total Liabilities and Stockholders' Equity $ 1,949,208 $ 560,121 $ (1,374,124) $ 1,135,205 ==================================================================================================================== See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited).
2 C3D Inc. (A Development Stage Company) Proforma Combined Condensed Statement of Loss (Unaudited) - --------------------------------------------------------------------------------
Constellation Proforma Six Months Ended June 30, 1999 C3D Tech Adjustments Pro Forma - -------------------------------------------- ------------------ ------------------ ------------------- ------------------ OPERATING EXPENSES: Interest (income) expense $ (14,858) $ 29,290 $ -- $ 14,432 General and administrative 699,850 554,863 -- 1,254,713 Research and development -- 1,062,305 -- 1,062,305 - ----------------------------------------------------------------------------------------------------------------------- Total operating expenses 684,992 1,646,458 -- 2,331,450 - ----------------------------------------------------------------------------------------------------------------------- OTHER INCOME Taxes 11,000 -- 11,000 - --------------------------------------------------------------------------------------------------- ------------------- Net loss $ (684,992) $ (1,657,458) $ -- $ (2,342,450) ======================================================================================================================= Basic and diluted loss per share $ (0.17) ======================================================================================================================= Weighted average number of shares (basic and diluted) 13,453,255 ======================================================================================================================= Year Ended December 31, 1998 - ----------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Interest (income) expense $ -- $ (6,985) $ -- $ (6,985) General and administrative -- 1,534,948 -- 1,534,948 Research and development -- 1,660,477 -- 1,660,477 - ----------------------------------------------------------------------------------------------------------------------- Total operating expenses -- 3,188,440 -- 3,188,440 - --------------------------------------------------------------------------------------------------------------------- OTHER INCOME Taxes -- 3,462 -- 3,462 - ----------------------------------------------------------------------------------------------------------------------- Net loss $ -- $ (3,191,902) $ -- $ (3,191,902) ======================================================================================================================= Basic and diluted loss per share $ (6,921.79) ======================================================================================================================= Weighted average number of shares (basic and diluted) 200 ======================================================================================================================= See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited).
3 C3D Inc. (A Development Stage Company) Notes to Proforma Combined Condensed Financial Statements (Unaudited) - --------------------------------------------------------------------------------
NOTE 1: (a) Acquisition of Constellation Tech -- Pursuant to the terms of the Asset Pro Forma Transactions Purchase Agreement dated October 1, 1999, C3D acquired substantially all the operating assets of Constellation Tech in exchange for 9,750,000 shares of the Company's common stock. In connection with the transaction, the Company cancelled 975,000 shares of its common stock issued to company founders. Two subsidiaries of Constellation Tech, having net assets of 432,193 at June 30, 1999, were not acquired by the Company As the former shareholders of Constellation Tech will control C3D after the acquisition, this business combination will be accounted for as a reverse take-over transaction under which Constellation Tech is deemed for accounting purposes to be the acquirer and C3D the acquired entity. Under these accounting principles, the Company's combined consolidated financial statements will represent Constellation Tech on a historical basis consolidated with the results of operations of C3D from the date of acquisition. The consideration issued will be applied to the assets acquired and liabilities assumed based on the relative fair values at the date of acquisition. For purposes of these pro forma combined condensed financial statements only, and based on the assets and liabilities of C3D as at June 30, 1999, this allocation is as follows: The asset purchase agreement provides for the cancellation of 975,000 shares of founders' common stock of the company. (b) To eliminate intercompany balances existing between C3D and Constellation Holdings as of June 30, 1999. C3D had advanced funds to Constellation Holdings for expenditures on its behalf. (c) Share capital as at June 30, 1999 in the pro forma combined condensed balance sheet is comprised of the following:
C3D Inc. (A Development Stage Company) Notes to Proforma Combined Condensed Financial Statements (Unaudited) - --------------------------------------------------------------------------------
NOTE 1: Number of Par value, Additional Pro Forma Transactions June 30, 1999 shares $.001 paid-in capital (continued) ------------------------------------------------------------------------------------ Share Capital, as set out in the audited consolidated financial statements of C3D 4,678,255 $ 4,678 $ 2,463,342 Cancellation of founders shares per purchase agreement (975,000) (975) 975 Net adjustment to pro forma equity for reverse take-over -- -- (674,992) Acquisition, including adjustment required by for par value of shares issued 9,750,000 9,750 4,878,790 ------------------------------------------------------------------------------------ 13,453,255 $ 13,453 $ 6,668,115 ==================================================================================== The weighted average number of share outstanding represents C3D's actual weighted average number of shares for the period presented increased by the shares issuable on completion of the pro forma transactions as described above. Per share information is presented as if the common shares issuable were issued at the beginning of 1999.
5 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Barry L. Friedman, P.C., Certified Public Accountant, previously served as auditor for C3D. He resigned as the auditor due to C3D's listing on the NASD's Over-the-Counter Bulletin Board service. BDO Seidman, LLP was appointed as auditor for C3D and its subsidiaries. There have not been any disagreements with Mr. Friedman on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures. Within C3D's past two fiscal years, Mr. Friedman has not issued a report containing an adverse disclaimer or qualified opinion concerning C3D or any of its subsidiaries. During the registrant's two most recent fiscal years, and the subsequent interim period prior to engaging BDO Seidman, LLP, neither the registrant nor someone on its behalf consulted BDO Seidman, LLP regarding (i) either the application of accounting principles to a specified transaction, either completed or proposed; or the types of audit opinion that might be rendered on the registrant's financial statements, and neither a written report was provided to registrant nor oral advice provided that BDO Seidman, LLP concluded was an important factor considered by the registrant in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph 304(a)(iv) of Regulation S-K and the related instructions to this item) or a reportable event (as described in paragraph 304(a)(1)(v) of Regulation S-K). 60 FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements The following financial statements and related schedules are included in this Item: Financial Statements of C3D Inc. Report of Independent Certified Public Accountants: Balance Sheets as of June 30, 1999, December 31, 1998 and December 31, 1997; Statements of Operation, Stockholder's Equity and Cash Flows for the six-months ended June 30, 1999 and each of the years in the three-year period ended December 31, 1998 and for the period from the date of inception (December 27, 1995) through June 30, 1999; and Notes to Consolidated Financial Statements. Financial Statements of Constellation 3D Holdings Limited Report of Independent Auditor: Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 and 1997; Consolidated Statements of Operation, Stockholder's Equity and Cash Flow for the six-months ended June 30, 1999 and 1998 and years ended December 31, 1998 and 1997, and for the period form the date of inception (September 25, 1997) through June 30, 1999; and Notes to Consolidated Financial Statements. (b) Exhibits 61 C3D Inc. (A Development Stage Company) Financial Statements Six months ended June 30, 1999 and 1998 Three years ended December 31, 1998 C3D Inc. (A Development Stage Company) - -------------------------------------------------------------------------------- Financial Statements Six months ended June 30, 1999 and 1998 Three years ended December 31, 1998 C3D, Inc. (A Development Stage Company) Contents - -------------------------------------------------------------------------------- Report of Independent Certified Public Accountants........................ 1 Financial Statements Balance Sheets....................................................... 2 Statements of Operations............................................. 3 Statements of Changes in Stockholders' Equity........................ 4 Statements of Cash Flows............................................. 5 Notes to Financial Statements........................................ 6 - 9 Report of Independent Certified Public Accountants Board of Directors and Stockholders of C3D Inc. We have audited the accompanying balance sheets of C3D Inc. (a development stage company) ("the Company") as of June 30, 1999, December 31, 1998 and December 31, 1997 and the related statements of operations, stockholders' equity and cash flows for the six months ended June 30, 1999 and 1998, each of the three years in the period ended December 31, 1998, and the period from the date of inception (December 27, 1995) through June 30, 1999. 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 from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of C3D Inc. (a development stage company) at June 30, 1999, December 31, 1998 and 1997, and the results of its operations and its cash flows for the six months ended June 30, 1999 and 1998, each of the three years in the period ended December 31, 1998, and the period from the date of inception (December 27, 1995) through June 30, 1999 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the development stage and has generated no operating revenue to date and will need to raise additional working capital for future development costs. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Seidman, LLP Seattle, Washington October 22, 1999 C3D Inc. (A Development Stage Company) Balance Sheets - --------------------------------------------------------------------------------
June 30, December 31, December 31, 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash $ 704,754 $ -- $ -- Other receivable 6,869 -- -- - ----------------------------------------------------------------------------------------------------------------------- Total Current Assets 711,623 -- -- Furniture and Equipment, net 2,748 -- -- Advances to Related Company 1,234,837 -- -- - ----------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,949,208 $ -- $ -- ======================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 117,318 $ -- $ -- Due to related parties 52,730 -- -- Due to shareholder 1,132 -- -- - ----------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 171,180 -- -- - ----------------------------------------------------------------------------------------------------------------------- Commitments and Contingencies Stockholders' Equity Common stock, $.001 par value ($.005 par value in 1997); 50,000,000 shares authorized, 4,678,000, 1,000,000 and 1,000,000 issued and outstanding 4,678 1,000 5,000 Additional paid in capital 2,463,342 4,000 -- Deficit accumulated during the development stage (689,992) (5,000) (5,000) - ----------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 1,778,028 -- -- - ----------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 1,949,208 $ -- $ -- ======================================================================================================================= See accompanying notes to financial statements.
2 C3D Inc. (A Development Stage Company) Statements of Operations - --------------------------------------------------------------------------------
Cumulative Amounts from Inception Six Months Ended Year Ended (December 27, 1995) June 30, December 31, through June 30, ---------------------- ----------------------------------- 1999 1999 1998 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: General and administrative $ 704,850 $ 699,850 $ -- $ -- $ -- $ -- - ------------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 704,850 699,850 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ OTHER INCOME Interest income (14,858) (14,858) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net loss $(689,992) $(684,992) $ -- $ -- $ -- $ -- ==================================================================================================================================== Net loss per common share -- basic and diluted $ (0.15) $ -- $ -- $ -- $ -- Weighted average number of common shares outstanding 4,678,000 4,678,000 1,000,000 1,000,000 1,000,000 ==================================================================================================================================== See accompanying notes to financial statements.
3 C3D Inc. (A Development Stage Company) Statements of Changes in Stockholders' Equity - --------------------------------------------------------------------------------
Common Stock Deficit ----------------------------- Accumulated Additional During Shares Amount Paid-in capital Development Stage Total - ---------------------------------------------------------------------------------------------------------------------------- C3D Inc. activities (Formerly known as Latin Venture Partners, Inc.): Issuance of common stock for cash 1,000,000 $ 5,000 $ -- $ (5,000) $ -- Net loss -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 1,000,000 5,000 -- (5,000) -- Net loss -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 1,000,000 5,000 -- (5,000) -- Change in par value -- August 3, 1998 -- (4,000) 4,000 -- -- Net loss -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 1,000,000 1,000 4,000 (5,000) -- Sale of common stock for cash ($.08/Share) 3,125,000 3,125 246,875 -- 250,000 Sale of common stock for cash ($4.00/Share) 453,255 453 1,812,567 -- 1,813,020 Common stock granted to directors ($4.00/Share) 100,000 100 399,900 -- 400,000 Net loss -- -- -- (684,992) (684,992) - ---------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1999 4,678,255 $ 4,678 $ 2,463,342 $ (689,992) $ 1,778,028 ============================================================================================================================ See accompanying notes to financial statements.
4 C3D Inc. (A Development Stage Company) Statements of Cash Flows - --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH Cumulative Six Months Year Ended Amounts from Ended June 30, December 31, Inception ----------------------- --------------------------- (December 27, 1995) through 1998 June 30, 1999 1999 (unaudited) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities Net loss $ (689,992) $ (684,992) $ -- $ -- $ -- $ -- Adjustments to reconcile net loss to net cash used in operating activities: Issuance of common stock for services 400,000 400,000 -- -- -- -- Change in assets and liabilities: Other receivable (6,869) (6,869) -- -- -- -- Accounts payable 117,318 117,318 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Used in Operating Activities (179,543) (174,543) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Investing Activities Purchase of furniture and equipment (2,748) (2,748) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Used in Investing Activities (2,748) (2,748) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Financing Activities Advances to related company (1,234,837) (1,234,837) -- -- -- -- Proceeds from issuance of common stock 2,068,020 2,063,020 -- -- -- -- Due to related parties 52,730 52,730 -- -- -- -- Due to shareholder 1,132 1,132 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided by Financing Activities 887,045 882,045 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Increase in Cash 704,754 704,754 -- -- -- -- Cash, beginning of period -- -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Cash, end of period $ 704,754 $ 704,754 $ -- $ -- $ -- $ -- ==================================================================================================================================== See accompanying notes to financial statements.
5 C3D Inc. (A Development Stage Company) Notes to Financial Statements - --------------------------------------------------------------------------------
NOTE 1: Operations -- C3D Inc. ("the Company") was incorporated in the State of Florida on Description of Business and December 27, 1995 under the name of Latin Ventures Partners, Inc. ("LVPI"). On August Summary of Significant 3, 1998 the State of Florida approved the Company's restated Articles of Incorporation, Accounting Policies which increased its capitalization from 7,500 common shares to 50,000,000 common shares. The par value was changed from $1.00 to $0.001. From inception through August 31, 1998 there was no activity within LVPI. On August 31, 1998, LVPI amended its articles of incorporation to provide for a 200:1 stock split, and to apply for listing on the OTC Bulletin Board. On March 24, 1999 LVPI changed its name to C3D Inc. in contemplation of the proposed asset purchase agreement to acquire substantially all the operations of Constellation 3D Technology, Ltd. ("Constellation Tech ") as discussed in Note 7. Accounting Estimates - The Company's financial statements are prepared in conformity with generally accepted accounting principles, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from the estimates. Furniture and Equipment - Furniture and equipment are stated at cost. Depreciation and amortization are computed utilizing straight-line and accelerated methods over estimated useful lives ranging from 3 to 5 years. Research and Development -- Costs will be expensed as incurred until technological feasibility has been obtained. Revenue Recognition -- The Company is a public shell with no operating revenues. After completion of the proposed asset purchase agreement, the operations of the Company will include the activities of Constellation Tech. Constellation Tech is conducting research and development activities to develop new multi-layer data storage media. It is the intent of this company to enter into strategic alliances to license its technology to its strategic partners.
6 C3D Inc. (A Development Stage Company) Notes to Financial Statements - --------------------------------------------------------------------------------
NOTE 1: Income Taxes - The Company accounts for income taxes in accordance with the provisions Description of Business of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," and Summary of ("SFAS 109"). SFAS 109 requires the recognition of deferred tax assets and liabilities Significant Accounting for the expected future income tax consequences of events that have been recognized Policies in a company's financial statements or tax return. Under this method, deferred tax (continued) assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and their tax basis using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. Valuation allowances are provided when management determines that the realization of deferred tax assets fails to meet the more likely than not standard imposed by SFAS 109. Net Loss Per Share -- Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Per share information for all prior periods have been adjusted to reflect the 200:1 stock split declared on August 3, 1998. As of June 30, 1999, the Company had outstanding options to purchase 175,000 shares of common stock which were not included in the calculation of loss per share as their effect was anti-dilutive. NOTE 2: The Company has been in the development stage since its inception. It has had no Development operating revenues to date, has accumulated losses of $689,992, and will require Operations additional working capital to complete its business development activities and generate revenues adequate to cover operating and further development expenses. This raises substantial doubt as to the Company's ability to continue as a going concern. The Company believes it can raise adequate working capital through future sales of its common stock in private placement transactions. To date, the Company has raised $2.1 million in private placements and will borrow an additional $300,000 from a stockholder. The Company intends to raise up to $20 million in a series of Private Placements to fund its research and development activities. However, there can be no assurance that the Company will be successful in its efforts to raise these funds. The financial statements do not contain any adjustments that might be necessary if the Company is unable to continue as a going concern.
7 C3D Inc. (A Development Stage Company) Notes to Financial Statements - --------------------------------------------------------------------------------
NOTE 3: In anticipation of the closing of the acquisition for certain assets and liabilities of Advances to Related Party Constellation Tech, C3D advanced Constellation Tech $1,219,979. The advances are backed by a promissory note to C3D. All amounts advanced are due on demand with interest thereon at the annual equal to eight percent. C3D earned interest of $14,858 on the note for a total balance owing of $1,234,837 as at June 30, 1999. NOTE 4: Furniture and equipment consists of the following: Furniture and Equipment June 30, December 31, 1999 1998 1997 ----------------------------------------------------------------------------------------- Furniture and equipment $ 2,748 $ -- $ -- ---------------------------------------------------------------------------------------- Less accumulated depreciation -- -- -- ----------------------------------------------------------------------------------------- Furniture and equipment, net $ 2,748 $ -- $ -- ========================================================================================= NOTE 5: At June 30, 1999 the Company has net deferred tax assets of $227,800 primarily due to Income Taxes net operating loss carry forwards, which begin to expire in 2018. A 100% valuation allowance has been recorded against the deferred tax asset as management has yet to establish that recovery of this asset is more likely than not. NOTE 6: Certain operating expenses are paid by a related company, which in turn is reimbursed Related Party by the Company. For the six months ended June 30, 1999, these expenses were $45,371. Transactions In addition, the Company paid the related company $11,000 under an informal rental agreement. The agreement may be cancelled at any time. The Company retained all key employees under consulting agreements during the six-month period ended June 30, 1999. These agreements may be cancelled at any time. The expense of these agreements totaled $82,500, $45,000 of which is included in related party payables.
8 C3D Inc. (A Development Stage Company) Notes to Financial Statements - --------------------------------------------------------------------------------
NOTE 7: On March 8, 1999 the Company approved the issuance of 100,000 shares of common stock to Stock and Stock Options certain board members for prior services performed on behalf of the Company. Grants Accordingly, $400,000 of general and administrative expense was recorded during the six-month period ended June 30, 1999. These board members were also granted options to purchase up to 175,000 shares of the Company's common stock at $4 per share. These options will vest immediately, and expire in 2004. No expense was recognized upon granting of the options as the strike price was equal to the market price as evidenced by the last sale of the Company's common stock to third parties. NOTE 8: On October 1, 1999, the Company completed the asset purchase agreement and acquired Subsequent Events substantially all the operations of Constellation Technology Ltd. ("Constellation Tech.") for a total consideration of 9,750,000 shares of the Company's $.001 par value common stock, and assumption of all liabilities and obligations. The asset purchase agreement also provides for the cancellation of 975,000 shares of founders' common stock of the company. Constellation Tech. has operations in the United States, Israel, and Russia researching and developing new data storage technology products. For financial statement purposes, the acquisition will be treated as a reverse acquisition whereby the Company was acquired by Constellation Tech., with the balance sheets to be combined using the respective historical cost bases. The results of operations will include the results of both companies from the date of acquisition. As the transaction is a reverse merger with a public shell and treated as recapitalization of Constellation, no pro forma information related to this transaction is provided. On August 10, 1999, C3D issued $1 million of convertible subordinated debt to Seattle Investments LLC, a limited liability company organized under the laws of Nevis, West Indies ("Seattle Investments"). On October 22, 1999, Seattle Investments converted its 10.0% Series A Convertible Note due December 31, 1999 into 202,945 shares of Common Stock. Subsequent to June 30, 1999, the Company issued an aggregate of 2,500 shares of common stock, which C3D valued at an aggregate of $28,750, to MBA-on-Demand, L.L.C., a Texas limited liability company, to compensate them for their services.
9 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) - -------------------------------------------------------------------------------- Consolidated Financial Statements Six months ended June 30, 1999 Year ended December 31, 1998 Three months ended December 31, 1997 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) Contents - -------------------------------------------------------------------------------- Report of Independent Certified Public Accountants......................... 1 Financial Statements Consolidated Balance Sheets........................................... 2 Consolidated Statements of Operations................................. 3 Consolidated Statements of Changes in Stockholders' Deficit........... 4 Consolidated Statements of Cash Flows................................. 5 Notes to Consolidated Financial Statements............................6 - 9 Report of Independent Certified Public Accountants Board of Directors and Stockholders of Constellation 3D Holdings Limited and Subsidiaries We have audited the accompanying consolidated balance sheets of Constellation 3D Holdings Limited and Subsidiaries (a development stage company) ("the Company") as of June 30, 1999, December 31, 1998 and December 31, 1997 and the related consolidated statements of operations, stockholders' deficit and cash flows for the six months ended June 30, 1999, the year ended December 31, 1998, the period from the date of inception (September 25, 1997) through December 31, 1997, and the period from the date of inception (September 25, 1997) through June 30, 1999. 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. The consolidated financial statements were prepared in accordance with the generally accepted accounting principles of Ireland, which do not differ in any material respects from the generally accepted accounting principles of the United States of America. We conducted our audits in accordance with auditing standards generally accepted in Ireland, which do not differ in any material respects from auditing standards in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the financial position of Constellation 3D Holdings Limited and Subsidiaries (a development stage company) at June 30, 1999, December 31, 1998 and 1997, and the results of its operations and its cash flows for the six months ended June 30, 1999, the year ended December 31, 1998, the period from the date of inception (September 25, 1997) through December 31, 1997 and the period from the date of inception (September 25, 1997) through June 30, 1999 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is in the development stage and has generated no operating revenue to date and will need to raise additional working capital for future development costs. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Simpson Xavier Dublin, Ireland October 31, 1999 1 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) Consolidated Balance Sheets - --------------------------------------------------------------------------------
June 30, December 31, December 31, 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash $ 112,800 $ 123,097 $ 2,818,719 Other receivable 155,248 171,261 36,047 - ----------------------------------------------------------------------------------------------------------------------- Total Current Assets 268,048 294,358 2,854,766 Furniture and Equipment, net 292,073 267,231 100,163 - ----------------------------------------------------------------------------------------------------------------------- Total Assets $ 560,121 $ 561,589 $ 2,954,929 ======================================================================================================================= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts payable $ 434,308 $ 442,889 $ 709,758 Due to C3D Inc. 1,234,837 -- -- Due to related parties 174,184 422,790 531,067 Due to shareholder 241,490 -- 4,152,521 Other 998,364 565,192 147,980 - ----------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 3,083,183 1,430,871 5,541,326 Commitments and Contingencies Long Term Liabilities 50,503 46,825 26,345 Stockholders' Deficit Common stock, $0.015 par value; 10,000,000 shares authorized, 1,250,000, 1,250,000 and 200 issued and outstanding 18,519 18,519 3 Additional paid in capital 4,870,021 4,870,021 -- Deficit accumulated during the development stage (7,462,105) (5,804,647) (2,612,745) - ----------------------------------------------------------------------------------------------------------------------- Total Stockholders' Deficit (2,573,565) (916,107) (2,612,742) - ----------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Deficit $ 560,121 $ 561,589 $ 2,954,929 ======================================================================================================================= See accompanying notes to consolidated financial statements
2 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) Consolidated Statements of Operations - --------------------------------------------------------------------------------
Cumulative Amounts from Inception Six Months Ended Year Ended Three Months (September 25, 1997) June 30, December 31, Ended December 31, through June 30, --------------------------- --------------------------------- 1999 1999 1998 (Unaudited) 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING EXPENSES: Interest (income) expense $ 76,156 $ 29,290 $ 55,724 $ (6,985) $ 53,851 Research and development 4,018,960 1,062,305 629,823 1,534,948 1,491,707 General and administrative 3,352,527 554,863 698,810 1,660,477 1,067,187 - ------------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 7,447,643 1,646,458 1,384,357 3,188,440 2,612,745 - ------------------------------------------------------------------------------------------------------------------------------------ OTHER INCOME Taxes 14,462 11,000 -- 3,462 -- - ------------------------------------------------------------------------------------------------------------------------------------ Net loss $ (7,462,105) $ (1,657,458) $ (1,384,357) $ (3,191,902) $ (2,612,745) ==================================================================================================================================== Net loss per common share -- basic and diluted $ (1.33) $ (6,921.79) $ (20.41) $ (13,063.73) Weighted average number of common shares outstanding 1,250,000 200 156,425 200 ==================================================================================================================================== See accompanying notes to consolidated financial statements.
3 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) Consolidated Statements of Changes in Stockholders' Deficit - --------------------------------------------------------------------------------
Deficit Common Stock Accumulated --------------------- During Additional Development Shares Amount Paid-in capital Stage Total - ----------------------------------------------------------------------------------------------------------------------- Constellation 3D Holdings Limited -- activities (Formerly known as Tandy $ -- $ -- $ -- $ -- Holdings Limited) Issuance of common stock for cash 200 3 -- -- 3 Net loss -- -- -- (2,612,745) (2,612,745) - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 200 3 -- (2,612,745) (2,612,742) Issuance of common stock for cancellation of shareholders' advances 1,249,800 18,516 4,870,021 -- 4,888,537 Net loss -- -- -- (3,191,902) (3,191,902) - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 1,250,000 18,519 4,870,021 (5,804,647) (916,107) Net loss -- -- -- (1,657,458) (1,657,458) - ----------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1999 1,250,000 $ 18,519 $ 4,870,021 $ (7,462,105) $ (2,573,565) ==================================================================================================================================== See accompanying notes to consolidated financial statements.
4 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH Cumulative Amounts Six Months Year Ended from Inception Ended June 30, December 31, (September 25, ------------------------------- ------------------------- 1997) through June 30, 1999 1999 1998 (Unaudited) 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities Net loss $ (7,462,105) $ (1,657,458) $ (1,384,357) $ (3,191,902) $ (2,612,745) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 43,948 5,023 13,363 33,129 5,796 Change in assets and liabilities: Other receivable (155,248) 16,013 (174,108) (135,214) (36,047) Accounts payable 1,432,672 424,591 (449,761) 150,343 857,738 - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Used in Operating Activities (6,140,733) (1,211,831) (1,994,863) (3,143,644) (1,785,258) - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Investing Activities Purchase of furniture and equipment (336,021) (29,865) (129,761) (200,197) (105,959) - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Used in Investing Activities (336,021) (29,865) (129,761) (200,197) (105,959) - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Financing Activities Issuance of common stock 4,888,540 -- 4,382,528 4,888,537 3 Advances from C3D Inc. 1,234,837 1,234,837 -- -- -- Due to shareholder 241,490 241,490 (3,882,500) (4,152,521) 4,152,521 Due to related parties 174,184 (248,606) (531,067) (108,277) 531,067 Net change in leases 50,503 3,678 -- 20,480 26,345 - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided by (Used in) Financing Activities 6,589,554 1,231,399 (31,039) 648,219 4,709,936 - ------------------------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash 112,800 (10,297) (2,155,663) (2,695,622) 2,818,719 Cash, beginning of period -- 123,097 2,818,719 2,818,719 -- - ------------------------------------------------------------------------------------------------------------------------------------ Cash, end of period $ 112,800 $ 112,800 $ 663,056 $ 123,097 $ 2,818,719 ==================================================================================================================================== See accompanying notes to consolidated financial statements
5 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------ NOTE 1: Operations -- Constellation 3D Holdings Limited and Subsidiaries ("the Company") Description of Business was incorporated in Ireland on September 25, 1997 under the name of Tandy and Summary of Holdings Limited. On March 13, 1998 Tandy Holdings Limited changed its name to Significant Accounting Constellation 3D Holdings Limited. In contemplation of the proposed asset Policies purchase agreement with C3D Inc., as discussed in Note 5, the Company transferred all assets and liabilities to Constellation Technology Ltd. ("Constellation Tech"), a British Virgin Island company, on September 19, 1999. The Company's subsidiaries are as follows: TriDStore IP, LLC, a wholly-owned subsidiary, is a Delaware limited liability company formed on February 2, 1998. It was formerly called "OMD Devices, LLC" unitl it filed an amendment to its Certificate of Formation on March 9, 1999. TriD Store Inc, a wholly owned subsidiary, is a Delaware Corporation formed on March 6, 1997. C-TriD Israel Limited, a wholly owned subsidiary, is an Israeli company formed on December 2, 1996. TriD SV, Inc., a wholly owned subsidiary, is a Delaware corporation formed on August 10, 1998. Tridistore Limited, a wholly owned subsidiary, is an Israeli corporation formed on November 27, 1996. JSC TriD Store Vostok, a wholly owned subsidiary, is a Russian company formed on January 15, 1999. Memory Devices Inc., a 60% owned subsidiary, is a Delaware company formed on March 8, 1997. OMD Optical Memory Devices Limited, a 67% owned subsidiary, is an Israeli corporation formed on November 27, 1996. The Company has operations in the United States, Israel, and Russia researching and developing new data storage technology products. They conduct research and development of optical memory storage technology
6 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------ NOTE 1: Principles of Consolidation -- The consolidated financial statements include Description of Business accounts of Constellation 3D Holding Limited and its subsidiaries. All and Summary of significant intercompany transactions have been eliminated. The results of Significant Accounting subsidiaries are included from the date of incorporation, on the basis that Policies results prior to the date of incorporation of the holding company are deemed (continued) immaterial in the context of the consolidated financial statements. Accounting Estimates - The Company's financial statements are prepared in conformity with generally accepted accounting principles, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from the estimates. Furniture and Equipment -- Furniture and equipment are stated at cost. Depreciation and amortization are computed utilizing straight-line over estimated useful lives ranging from approximately 3 to 17 years. Research and Development -- Costs will be expensed as incurred until technological feasibility has been obtained. Foreign Currency Translation -- The financial statements are expressed in US dollars. Transactions during the year have been translated at the rate of exchange ruling at the date of the transaction. Assets and liabilities denominated in foreign currencies are translated to US dollars at the rates of exchange ruling at the balance sheet date. The resulting profits or losses are dealt with through the profit and loss account. Revenue Recognition -- It is the intent of the Company to enter into licensing, strategic alliances and joint venture programs with companies that have an established presence in the data storage market. These partner companies would be primarily responsible for the production and marketing of the products developed by the Company. The Company intends to focus its activities in the area of research, development, and the administration of the Company's agreements.
7 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------ NOTE 1: Income Taxes - The Company recognizes deferred tax assets and liabilities for Description of Business the expected future income tax consequences of events that have been recognized and Summary of in a company's financial statements or tax return. Under this method, deferred Significant Accounting tax assets and liabilities are determined based on the temporary differences Policies between the financial statement carrying amounts and their tax basis using (continued) enacted tax rates in effect in the years in which the temporary differences are expected to reverse. Valuation allowances are provided when management determines that the realization of deferred tax assets is unlikely. Net Loss Per Share -- Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding. Per share information for all periods has been adjusted to reflect the 100:1 stock split declared on November 8, 1998. As of June 30, 1999, the Company had no outstanding options or other common stock equivalents. NOTE 2: The Company has been in the development stage since its inception. It has had no Development operating revenues to date, has accumulated losses of $7,462,105, and will require Operations additional working capital to complete its business development activities and generate revenues adequate to cover operating and further development expenses. This raises substantial doubt as to the Company's ability to continue as a going concern. The Company is currently seeking to raise equity or debt capital in the initial amount of $5 million with further funding of up to $15 million to complete research and development on its existing projects. The financial statements do not contain any adjustments that might be necessary if the Company is unable to continue as a going concern. NOTE 3: Furniture and equipment consists of the following: Furniture and Equipment June 30, December 31, 1999 1998 1997 -------------------------------------------------------------------------------------- Furniture and equipment $ 336,021 $ 306,156 $ 105,959 Less accumulated depreciation 43,948 38,925 5,796 -------------------------------------------------------------------------------------- Furniture and equipment, net $ 292,073 $ 267,231 $ 100,163 ======================================================================================
8 Constellation 3D Holdings Limited and Subsidiaries (A Development Stage Company) Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------ NOTE 4: In anticipation of the closing of the acquisition as discussed in Note 5, C3D advanced Related Party the Company $1,219,979. The advances are backed by a promissory note to C3D. All Transactions amounts advanced are due on demand with interest thereon at an annual rate equal to eight percent. Interest expense at June 30, 1999 was $14,858 for a total balance owing of $1,234,837. NOTE 5: On October 1, 1999, C3D Inc. acquired substantially all of the Company's operations Subsequent Events through an asset purchase agreement for a total consideration of 9,750,000 shares of the Company's $.001 par value common stock and assumption of certain liabilities and obligations. The asset purchase agreement also provides for the cancellation of 975,000 shares of founders' common stock of the company. For financial statement purposes, the acquisition has been treated as a reverse acquisition whereby C3D, Inc. was acquired by Constellation 3D Holdings Limited and Subsidiaries, with the balance sheets to be combined using the respective historical cost bases. The results of operations will include the results of both companies from the date of acquisition. The unaudited pro forma combined historical results of operations as though Constellation Tech. had been combined at the beginning of fiscal 1998 and the six month period ended June 30, 1999 are as follows: For the Six Months For the Year Ended Ended December 31, (unaudited) June 30, 1999 1998 --------------------------------------------------------------------------------------- Net loss ($2,328,000) ($3,191,902) Basic and diluted loss per share ($0.17) ($0.24) ======================================================================================= The unaudited pro forma results of operations may not be indicative of results that would have been obtained had the combination occurred at the beginning of the periods presented and are not necessarily indicative of future combined results.
9 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 2.1 Asset Purchase Agreement by and between C3D INC., a Florida corporation as Buyer, CONSTELLATION 3D TECHNOLOGY LIMITED, a British Virgin Islands corporation, as Seller, TRID STORE, INC., a Delaware corporation and TRID IP S.A., a Luxembourg corporation dated as of October 1, 1999. 3.1 Articles of Incorporation of Latin Venture Partners, Inc., filed December 27, 1995. 3.2 Articles of Amendment to Latin Venture Partners, Inc., filed August 3, 1998. 3.3 Articles of Amendment to Articles of Incorporation of Latin Venture Partners, Inc., filed March 24, 1999. 3.4 Bylaws of C3D Inc. 4.1 Investor's Rights Agreement, dated August 10, 1999, by and between C3D Inc. and Seattle Investments L.L.C. 4.2 Subscription Agreement by and between C3D Inc. and MBA-on-Demand, L.L.C.+ 10.1 Rental Contract, Unprotected According to the Tenant's Protection Law (Various Instructions) of 1968 as Drafted into the Tenant's Protection Law (Consolidated Version) of 1972, made and signed in Tel Aviv on March 25, 1997. 10.2 Rental Contract, Unprotected According to the Tenant's Protection Law (Various Instructions) of 1968 as Drafted into the Tenant's Protection Law (Consolidated Version) of 1972, made and signed in Tel Aviv on February 8, 1998.+
EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 10.3 Agreement N. 356/181298 on the rent of office premises, dated December 18, 1998 between MACHMIR Co., Ltd. as "Lessor" and ZAO "TriD Store Vostok" as "Renter." 10.4. The Rent Agreement, No. 5/8, dated July 5, 1999, between MSO Science Park as "Lessor" and ZAO "TriD Store Vostok" as "Tenant." 10.5 Attachment No. 1 to The Rent Agreement, No. 518, dated July 5, 1999, between MSO Science Park as "Lessor" and ZAO "TriD Store Vostok" as "Tenant." 10.6 Optima Services Agreement (Member), dated April 23, 1999, by and between Omni Offices Inc. and C3D Inc. 10.7 Employment Agreement dated July 15, 1998, by and between Memory Services (M.D.) (1996) Ltd. and Ronen Yaffe. 21.1 Subsidiaries of the Registrant* 27.1 Financial Data Schedule
- --------------------- * The subsidiaries of C3D and their places of organization are listed in the Business section of this Registration Statement. + to be filed by amendment SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. C3D INC. By: /s/ Eugene Levich ------------------------------------------ Eugene Levich, President, Chief Executive Officer and Chief Operational Officer Date: November 12, 1999 ------------------ EX-2.1 2 EXHIBIT 2.1 ASSET PURCHASE AGREEMENT by and between C3D INC., a Florida corporation, as Buyer CONSTELLATION 3D TECHNOLOGY LIMITED, a British Virgin Islands corporation, as Seller TRID STORE, INC., a Delaware corporation and TRID IP S.A., a Luxemburg corporation Dated as of October 1, 1999 TABLE OF CONTENTS ----------------- ARTICLE I - THE ASSET PURCHASE.................................................2 1.1 The Asset Purchase..................................................2 1.2 The Closing..........................................................2 1.3 Assets to be Sold....................................................2 1.4 Assumed Liabilities.................................................2 1.5 Subcontracting Services.............................................3 1.6 Transfer of Rights...................................................3 ARTICLE II - THE PURCHASE PRICE................................................3 2.1 The Purchase Price...................................................3 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER.....................3 3.1 Organization and Qualification.......................................3 3.2 Capitalization......................................................3 3.3 Authorization and Validity...........................................4 3.4 Consents and Approvals; No Violation.................................4 3.5 Contracts; Debt Instruments..........................................4 3.6 Actions Pending......................................................4 3.7 Labor Matters........................................................5 3.8 Title to Properties..................................................5 3.9 Taxes................................................................5 3.10 Patents, etc.........................................................5 3.11 Insurance Policies...................................................5 3.12 Disclosure...........................................................5 3.13 Acknowledgment Regarding the Asset Purchase..........................5 3.14 Investment Intent....................................................6 3.15 Other Representations and Warranties of the Seller...................6 ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE BUYER.......................6 4.1 Authorization and Validity...........................................6 4.2 Consents and Approvals; No Violation.................................7 4.3 Capitalization.......................................................7 4.4 Litigation...........................................................7 4.5 Absence of Benefit Plans.............................................8 4.6 Contracts; Debt Instruments..........................................8 4.7 Actions Pending......................................................8 4.8 Labor Matters........................................................8 4.9 Title to Properties..................................................8 4.10 Disclosure...........................................................8 4.11 Investment Intent....................................................8 4.12 Acknowledgment Regarding the Asset Purchase..........................9 i 4.13 Other Representations and Warranties of the Buyer....................9 ARTICLE V - COVENANTS.........................................................10 5.1 Mutual Covenants of the Seller and the Buyer........................10 ARTICLE VI - CONDITIONS TO CONSUMMATION OF THE TRANSACTION....................10 6.1 Conditions to Buyer's Obligations for the Closing...................10 6.2 Conditions to the Seller's Obligations for the Closing..............11 ARTICLE VII - TERMINATION; AMENDMENT; INDEMNIFICATION.........................11 7.1 Termination.........................................................11 7.2 Effect of Termination...............................................11 7.3 Amendment...........................................................12 7.4 Indemnification.....................................................12 ARTICLE VIII - MISCELLANEOUS..................................................12 8.1 Extension; Waiver...................................................12 8.2 Entire Agreement; Assignment........................................12 8.3 Survival; Enforcement of the Agreement..............................12 8.4 Validity............................................................12 8.5 Notices............................................................12 8.6 Descriptive Headings................................................13 8.7 Governing Law.......................................................13 8.8 Counterparts........................................................13 8.9 Delivery by Facsimile...............................................13 ii ASSET PURCHASE AGREEMENT This AGREEMENT, dated as of October 1, 1999 (the "Agreement"), is by and among C3D INC. (f/k/a Latin Venture Partners, Inc.), a corporation organized under the laws of Florida (the "Buyer"), CONSTELLATION 3D TECHNOLOGY LIMITED (f/k/a Dominion Intertrade Limited), a corporation organized under the laws of the British Virgin Islands (the "Seller"), TriD Store, Inc., a corporation organized under the laws of Delaware ("TriD Store, Inc."), and TriD IP S.A., a corporation organized under the laws of Luxembourg ("TriD IP S.A."). W I T N E S S E T H: WHEREAS, the Buyer and Constellation 3D Holdings, Limited, a corporation organized under the laws of Ireland ("Constellation"), were each a party that certain stock purchase agreement, dated as of March 8, 1999 (the "March 1999 Stock Purchase Agreement"), by and among the Buyer, Constellation, TriD IP S.A. and TriD Store, Inc.; and WHEREAS, the Buyer, Constellation, TriD IP S.A. and TriD Store, Inc. have each agreed, among other things, to fully amend and restate the March 1999 Stock Purchase Agreement in the form of this Agreement; and WHEREAS, pursuant to that certain stock purchase agreement, dated as of September 19, 1999 (the "September 1999 Stock Purchase Agreement"), by and between Constellation and the Seller pursuant to which Constellation sold all of the assets of Constellation set forth on Appendix I of the September 1999 Stock Purchase Agreement, including but not limited to the capital stock or other equity interests held by Constellation in C-Trid Israel Ltd., a corporation organized under the laws of Israel, TriDStore IP L.L.C., a limited liability company organized under the laws of Delaware ("TriDStore IP"), TriD SV, Inc., a corporation organized under the laws of Delaware, and TriD Store Vostok, a corporation organized under the laws of Russia ("Vostok") (the capital stock of Vostok was beneficially held by TriD Store, Inc. as trustee for Constellation), to the Seller for total consideration of US$1 and the assumption of all of the liabilities of Constellation; and WHEREAS, TriD Store, Inc. acknowledges that it beneficially held 1,000 ordinary shares of common stock of Vostok, which represents all of the issued and outstanding capital stock of Vostok, as trustee for Constellation, and that such shares are currently beneficially held by TriD Store, Inc. for the Seller pursuant to the September 1999 Stock Purchase Agreement; and WHEREAS, the Seller desires to sell to the Buyer the Seller's Offered Assets (as defined in Section 1.3 below) and the Boards of Directors of the Buyer, the Seller, TriD Store, Inc. and TriD IP S.A. have each determined that it is in the best interests of their respective companies and shareholders for the Buyer to acquire the Seller's Offered Assets upon the terms and subject to the conditions set forth herein; and WHEREAS, the Board of Directors of the Seller and its shareholders have approved the purchase by the Buyer of the Seller's Offered Assets (the "Asset Purchase") upon the terms and subject to the conditions set forth herein; and WHEREAS, each of the Buyer, the Seller, TriD Store, Inc. and TriD IP S.A. desires to provide for the consummation of the Asset Purchase and certain other transactions relating thereto upon the terms and subject to the conditions set forth herein. NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and intending to be legally bound hereby, the parties agree as follows: ARTICLE I THE ASSET PURCHASE 1.1 The Asset Purchase. Subject to and upon the terms and conditions set forth in this Agreement, the Seller will sell, transfer, convey, assign and deliver the Seller's Offered Assets to the Buyer for the Purchase Price (as defined in Section 2.1 below) and the Buyer agrees to purchase the Seller's Offered Assets from the Seller, all effective as of 12:01 a.m. on the Closing Date (as defined in Section 1.2 below) (the "Effective Time"). 1.2 The Closing. The closing of the transactions contemplated in this Agreement (the "Closing") will take place at the offices of Blank Rome Comisky & McCauley LLP in Philadelphia, Pennsylvania at 10:00 a.m., local time, on October 1, 1999 or within five Business Days (as defined below) following the date on which the last of the conditions set forth in Article 5 is satisfied or waived in accordance herewith, or at such other place, time or date as the parties may agree (the "Closing Date"). For purposes of this Agreement, a "Business Day" shall mean a day other than a Saturday, Sunday or a statutory holiday in Philadelphia, Pennsylvania. 1.3 Assets to be Sold. Subject to the terms and conditions of this Agreement, at Closing and as of the Effective Time, the Seller will sell, transfer, convey, assign and deliver to the Buyer, and the Buyer will purchase, assume and acquire from the Seller, free and clear of any and all encumbrances (other than the security interests in the Patent Collateral (as defined in the Patent Security Agreement) granted to Seattle Investments LLC pursuant to that certain Patent Security Agreement, dated as of August 10, 1999, by and between TriDStore IP and Seattle Investments LLC (the "Patent Security Agreement")) the Seller's Offered Assets as set forth on Schedule "A" attached hereto (the "Seller's Offered Assets"). 1.4 Assumed Liabilities. At Closing, the Buyer will assume and agree to pay, perform and observe and otherwise discharge, effective from and after the Closing Date all obligations and liabilities of the Seller (i) related to the Seller's Offered Assets, and (ii) as set forth on the audited balance sheet of the Seller as of September 30, 1999. The Buyer assumes no obligations or liabilities of the Seller other than as stated in the previous sentence. -2- 1.5 Subcontracting Services. The Seller shall use its best efforts to assist the Buyer in retaining the services of certain subcontracting personnel utilized by the Seller in connection with the operation of their respective businesses. 1.6 Transfer of Rights. The Seller agrees to transfer to the Buyer, to the extent permissible, the option to purchase Memde Israel Ltd., a corporation organized under the laws of Israel. ARTICLE II THE PURCHASE PRICE 2.1 The Purchase Price. In consideration of the sale, transfer, conveyance, assignment and delivery of the Seller's Offered Assets by the Seller to the Buyer, and in reliance upon the representations and warranties made herein by the Seller, the Buyer will, in full payment thereof, deliver to the Seller Nine Million Seven Hundred Fifty Thousand (9,750,000) shares of its common stock, par value $.001 per share (the "Common Stock"), at the Closing Date (the "Purchase Price"). ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER The Seller hereby represents and warrants to the Buyer as follows: 3.1 Organization and Qualification. (a) The Seller is a corporation duly organized and validly existing under the laws of the British Virgin Islands, and has all corporate power necessary to engage in all transactions in which it has been involved as well as any general business transactions in the future that may be desired by its directors. The Seller is in good standing under the laws of the British Virgin Islands. (b) The Seller has previously delivered to the Buyer complete and correct copies of its memorandum of association and articles of association, as currently in effect, of the Seller. 3.2 Capitalization. As of the Closing Date, the authorized, issued and outstanding shares of capital stock of the Seller and the names and addresses of the record owners thereof are as set forth on Schedule "B" attached hereto. There are no outstanding subscriptions, options, warrants, convertible securities in regard to the authorized but unissued common stock of the Seller. -3- 3.3 Authorization and Validity. The Seller has the requisite corporate power and authority to execute and deliver this Agreement and all agreements and documents contemplated hereby or executed in connection herewith (the "Ancillary Documents") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Documents by the Seller of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors and shareholders of the Seller, and no other corporate proceedings on the part of the Seller are necessary to authorize this Agreement and the Ancillary Documents or to consummate the transactions contemplated hereby and thereby. This Agreement has been, and any Ancillary Documents at the time of executions will have been, duly and validly executed and delivered by the Seller, and (assuming this Agreement and such Ancillary Documents each constitutes a valid and binding obligation of the Buyer) constitutes and will constitute the valid and binding obligations of the Seller, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 3.4 Consents and Approvals; No Violation. Neither the execution and delivery of this Agreement or any of the Ancillary Documents by the Seller nor the consummation of the transactions contemplated hereby or thereby will conflict with, or result in any violation of or default (with or without notice or lapse of time or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any lien upon any of the properties or assets of the Seller under, (a) the certificate of incorporation or bylaws of the Seller (or equivalent governing instruments), (b) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Seller or its properties or assets or (c) subject to any judgment, order decree, statute, law, ordinance, rule or regulation applicable to the Seller or its properties or assets, other than, in the case of clauses (b) or (c), any such conflicts, violations, defaults, rights or liens that would not have a material adverse effect. The Seller is not in violation of any provisions of laws or regulations of Federal, state or local government authorities and agencies, domestic or foreign ("Governmental Entities"). 3.5 Contracts; Debt Instruments. Except with respect to the loan made by Formula Ventures L.P. (through Argotec Ltd.) to C-TriD Israel Ltd. and assumed by the Seller pursuant to the September 1999 Stock Purchase Agreement, the Seller is not in violation of or in default under any loan or credit agreement, mortgage, lease, or any other contract to which it is a party or by which it or any of its properties are assets is bound, except for violations or defaults that would not have a material adverse effect. The Seller is not a party to, or bound by, any contract or agreement that materially limits the ability of the Seller to compete in any line of business or with any person in any geographic area during any period of time. 3.6 Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Seller, threatened against the Seller or any of its material properties or rights, by or before any court, arbitrator or administrative or governmental body, which if adversely decided, could have a material adverse effect. -4- 3.7 Labor Matters. Except for the pending labor disputes involving Dr. Glushko and Dr. Krupkin, the Seller is not involved in any labor strike, dispute, material slowdown, representation campaign or material work stoppage pending or threatened against or affecting such entities. 3.8 Title to Properties. (a) The Seller has good, valid and marketable title to, and valid leasehold interests in, all of its material properties and assets, if any. All such material properties and assets are free and clear of all liens, except for liens that, in the aggregate, do not and will not materially interfere with the ability of the Seller to conduct business as currently conducted; and (b) the Seller has complied in all material respects with the terms of all material leases to which it is a party and under which it is in occupancy, if any, and all such leases are in full force and effect. 3.9 Taxes. The Seller has filed all Federal, state and other income tax returns which are required to be filed, if any, and each has paid all taxes as shown on said returns and on all assessments received by it to the extent that such taxes have become due, or except such as any of the foregoing are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; and no tax lien has been filed and no claim is being asserted with respect to any tax or other similar charge. 3.10 Patents, etc. The Seller owns or has the right to use all patents, trademarks, service marks, trade names, copyrights, industrial designs, licenses and other rights, free from non-customary burdensome restrictions, which are necessary for the operation of its business substantially as presently conducted. Nothing has come to the attention of the Seller to the effect that (i) any product, process, method, substance, part or other material presently sold by or employed by the Seller in connection with its business may infringe any patent, trademark, service mark, trade name, copyright, industrial design, license or other right owned by any other Person, or (ii) there is pending or threatened any claim or litigation against or affecting the Seller contesting its right to sell or use any such product, process, method, substance, part or other material which would prevent, inhibit or render obsolete the production or sale of any products of, or substantially reduce the projected revenues of, the Seller, or otherwise have a material adverse effect. 3.11 Insurance Policies. The Seller maintains in force insurance policies in such amounts and against such liabilities as the Seller deems necessary taking into consideration. 3.12 Disclosure. This Agreement does not contain any untrue statement of a material fact or omit to state a material fact. There are no facts which the Seller has not disclosed to the Buyer which would have, or, so far as the Seller can now reasonably foresee, could have individually or in the aggregate, a material adverse effect. 3.13 Acknowledgment Regarding the Asset Purchase. The Seller acknowledges and agrees that the Buyer is acting solely in the capacity of an arm's length purchaser with respect to this Agreement, the Ancillary Documents and the transactions contemplated hereby and thereby. The Seller further acknowledges that the Buyer is not acting as a financial advisor of the Seller -5- (or in any similar capacity) with respect to this Agreement, the Ancillary Documents and/or the transactions contemplated hereby and thereby and that any statement made by the Buyer or any of its representatives or agents in connection with this Agreement, the Ancillary Documents and the transactions contemplated hereby and thereby is not advice or a recommendation and is merely incidental to the Buyer's purchase of the Seller's Offered Assets hereunder. 3.14 Investment Intent. The shares of Common Stock acquired by the Seller as consideration for the Asset Purchase are "restricted securities" as that term is defined in Rule 144 of the Rules and Regulations promulgated under the Securities Act of 1933, as amended (the "Securities Act") and shall bear a legend that such Common Stock has not been registered under the Securities Act. The Common Stock is being acquired by the Seller for its own account, and not with a present view to any distribution thereof that would violate the Securities Act or the applicable state securities laws of any state or foreign jurisdiction. The Seller will not distribute such Common Stock in violation of the Securities Act or the applicable securities laws of any state or foreign jurisdiction. 3.15 Other Representations and Warranties of the Seller. (a) The Seller is not party to any contract lease or agreement which would subject such entity to any performance of business obligations after the Closing not in the ordinary course of business. (b) The Seller has no other Subsidiaries other than as set forth on Schedule "C" attached hereto. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer represents and warrants to the Seller as follows: 4.1 Authorization and Validity. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has all corporate power necessary to engage in such transactions in which it has been involved as well as any general business transactions in the future that may be desired by its Board of Directors of the Buyer. The Buyer has the requisite power and authority to execute and deliver this Agreement and all agreements and documents contemplated hereby or executed in connection herewith, including without limitation the Ancillary Documents, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Documents by the Buyer and the consummation by the Buyer of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of the Buyer, and no other corporate proceedings on the part of the Seller are necessary to authorize this Agreement and the Ancillary Documents or to consummate the transactions contemplated hereby and thereby. This Agreement has been, and any Ancillary Document at the time of execution will have been, duly and validly executed and delivered by the Buyer and constitute and will constitute the valid and binding obligations of the Buyer, enforceable in accordance with their respective terms, -6- subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 4.2 Consents and Approvals; No Violation. Neither the execution and delivery of this Agreement by the Buyer nor the consummation of the transaction contemplated hereby will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any lien upon any of the properties or assets of the Buyer under, (a) the certificate of incorporation or bylaws (or equivalent governing instruments) of the Buyer, (b) any loan or credit agreement, note, bond, mortgage, or license applicable to the Buyer or its properties or assets or (c) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Buyer or its properties or assets, other than, in the case of clauses (b) or (c), any such conflicts, violations defaults, rights or liens that individually or in the aggregate would not have a material adverse effect on the ability of the Buyer to consummate the transactions contemplated hereby or by the Ancillary Documents. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by the Buyer in connection with the execution and delivery of this Agreement or any of the Ancillary Documents or the consummation of the transactions contemplated hereby and thereby. 4.3 Capitalization. The authorized capital stock of the Buyer consists of 50,000,000 shares of Common Stock. Upon completion of the Asset Purchase and after giving effect to (i) the cancellation of certificate number 1117 in the amount of 32,025,000 shares of Common Stock issued to Challis International Ltd., and (ii) the cancellation of certificate numbers 1001 and 1002 in the amounts of 900,000 and 75,000 shares of Common Stock, respectively, issued to Ronald A. Marini (each of (i) and (ii) shall occur as of the Effective Time), not more than 14,300,000 shares of Common Stock will be issued and outstanding. Except for (i) the conversion rights granted to Seattle Investments LLC in connection with the issuance by the Buyer of its 10.0% Series A Convertible Note (the "Convertible Note"), (ii) the right to acquire Common Stock granted to MBA-on Demand, L.L.C. pursuant to that certain Engagement Letter dated May 23, 1999, and (iii) the options granted to General Itzhak Yaakov and Michael Goldberg to purchase 100,000 shares and 75,000 shares, respectively, of Common Stock (the "Options") pursuant to a resolution of the Compensation Committee of the Board of Directors dated June 17, 1999, there are no outstanding subscriptions, options, warrants, convertible securities in regard to the authorized but unissued common stock of the Buyer. 4.4 Litigation. There are no claims, actions, suits, proceedings, arbitrations, investigations or audits by a third party against the Buyer, at law or in equity, and (ii) there is no litigation by a Governmental Entity pending or, to the knowledge of the Buyer, threatened against the Buyer, at law or at equity; nor does the Buyer have knowledge of any facts or circumstances that it believes would be likely to form the basis for any litigation described in the preceding clauses (i) and (ii) or any audit, investigation or other review with respect to the Purchaser. -7- 4.5 Absence of Benefit Plans. The Buyer has no employment contracts or any other agreements with any director or officer of the Buyer or any other party. 4.6 Contracts; Debt Instruments. The Buyer is not in violation of or in default under (nor does there exist any event or condition which upon the passage of time or the giving of notice, or both, would cause such a violation of or default under) any loan or credit agreement, note, bond, mortgage, indenture, lease, or any other contract, agreement, arrangement or understanding, to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not have a material adverse effect. The Buyer is not a party to, or bound by, any contract or agreement that materially limits the ability of such entity to compete in any line of business or with any person in any geographic area during any period of time. The Buyer is not aware of any indemnification, breach of contract or similar claims by or against the Buyer which are pending or threatened (or which could be reasonably expected to be made in the future) with respect to the acquisition of any business by the Buyer. 4.7 Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Buyer, threatened against the Buyer or any of its material properties or rights, by or before any court, arbitrator or administrative or governmental body, which if adversely decided, could have a material adverse effect. 4.8 Labor Matters. The Buyer is not involved in any labor strike or dispute pending or threatened. 4.9 Title to Properties. (a) The Buyer has good, valid and marketable title to, and valid leasehold interests in, all of its material properties and assets, if any. All such material properties and assets are free and clear of all liens, except for liens that, in the aggregate, do not and will not materially interfere with the ability of the Buyer to conduct business as currently conducted; and (b) the Buyer has complied in all material respects with the terms of all material leases to which it is a party and under which it is in occupancy, if any, and all such leases are in full force and effect. 4.10 Disclosure. This Agreement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements contained herein, in light of the circumstances under which they were made, not misleading. There are no facts which the Buyer has not disclosed to the Seller which would have, or, so far as the Buyer can now reasonably foresee, could have individually or in the aggregate, a material adverse effect. 4.11 Investment Intent. The Seller's Offered Assets are being acquired by the Buyer for its own account, and not with a present view to any distribution thereof that would violate the Securities Act of 1933, as amended (the "Securities Act"), or the applicable state securities laws of any state or foreign jurisdiction. The Buyer will not distribute the Seller's Offered Assets in violation of the Securities Act or the applicable securities laws of any state or foreign jurisdiction. -8- 4.12 Acknowledgment Regarding the Asset Purchase. The Buyer acknowledges and agrees that the Seller is acting solely in the capacity of an arm's length seller with respect to this Agreement, the Ancillary Documents and the transactions contemplated hereby and thereby. The Buyer further acknowledges that the Seller is not acting as a financial advisor of the Buyer (or in any similar capacity) with respect to this Agreement, the Ancillary Documents and/or the transactions contemplated hereby and thereby and that any statement made by the Seller or any of its representatives or agents in connection with this Agreement, the Ancillary Documents and the transactions contemplated hereby and thereby is not advice or a recommendation and is merely incidental to the Buyer's purchase of the Seller's Offered Assets hereunder. 4.13 Other Representations and Warranties of the Buyer. (a) Except for (i) the conversion rights granted to Seattle Investments LLC in connection with the issuance by the Buyer of the Convertible Note, (ii) the right to acquire Common Stock granted to MBA-on Demand, L.L.C. pursuant to that certain Engagement Letter dated May 23, 1999, and (iii) the Options, no person has any right, agreement, or option, present or future, contingent or absolute, or any right capable of becoming a right, agreement, or option to require the Buyer to issue any shares in its capital, or to convert any securities of the Buyer or of any other company into Common Stock. (b) Except for the Convertible Note, the proceeds of which were loaned by the Buyer to a certain subsidiary of the Seller, the Buyer has no outstanding debt for borrowed money. (c) The Buyer is not a party to any contract, lease, order or agreement which would subject it to any material performance or business obligations or restrictions in the future after the Closing Date. (d) The Buyer is not liable for any income, sales, withholding, real or personal property taxes to any governmental agencies whatsoever. (e) Except for the Convertible Note, the rights granted to MBA-On Demand and the Options, there are no outstanding subscriptions, options, warrants, convertible securities, or rights or commitments of any nature in regard to the Buyer's authorized but unissued Common Stock and/or other securities. (f) There are no outstanding judgments, UCC financing instruments or UCC securities interests filed against the Buyer. (g) The Buyer has no shareholder contracts or agreements and/or other agreements or understandings written or verbal. (h) The Buyer has no outstanding powers of attorney. (i) The Buyer has delivered to the Seller all written contracts, agreements, arrangements or understandings to which it is a party and has -9- provided the Seller with a detailed description of all oral contracts, agreements, arrangements or understandings to which it is a party. (j) The Buyer is currently registered on the electronic bulletin board and has filed all required documents in connection therewith. (k) No brokers' fees are owned by the Buyer in connection with this transaction. ARTICLE V COVENANTS 5.1 Mutual Covenants of the Seller and the Buyer. (a) The Seller will furnish the Buyer with whatever corporate records and documents are available, such as its memorandum and articles of association, financial statements and material contracts. The Buyer shall provide the Seller with whatever corporate records and documents are available, such as its certificate of incorporation, bylaws, financial statements and material contracts of the Buyer. (b) There are no share stock options, warrants or other rights or interests in or to the Seller's Offered Assets at the time of Closing. (c) The Seller and the Buyer will not encumber or mortgage any right or interest in the Seller's Offered Assets nor transfer any rights to such shares to any third party whatsoever. (d) The Buyer will not declare any dividend in cash or stock, or any other benefit prior to Closing. (e) The Buyer will not institute any bonus benefit, profit sharing, stock option, pension retirement plan or similar arrangement prior to Closing. ARTICLE VI CONDITIONS TO CONSUMMATION OF THE TRANSACTION 6.1 Conditions to Buyer's Obligations for the Closing. The obligation of the Buyer to effect the Asset Purchase is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Seller contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date and the Seller shall have performed in all material respects all of its obligations under this Agreement required to be performed prior to the Closing Date. -10- (b) The Seller shall provide a copy of the resolutions of its Board of Directors and shareholders authorizing and approving the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby or thereby. 6.2 Conditions to the Seller's Obligations for the Closing. The obligations of the Seller to effect the Asset Purchase are subject to the satisfaction of the following conditions: (a) The representations and warranties of the Buyer contained in this Agreement shall be true and correct in all material respects, on and as of the Closing Date, and the Buyer shall have performed in all material respects all of its obligations under this Agreement required to be performed prior to the Closing Date. (b) The Buyer shall provide a copy of the resolutions of its Board of Directors authorizing and approving the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby or thereby. ARTICLE VII TERMINATION; AMENDMENT; INDEMNIFICATION 7.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date: (a) By mutual written consent of the Seller and the Buyer; (b) By the Seller at its sole discretion in the event that there is discovery of a liability or obligation of material effect in its due diligence and if there is any liability or obligation uncovered in the form of the letters to be received by the attorney and accountant of the Buyer; and (c) By the Buyer at its sole discretion in the event that there is discovery of a liability or obligation of material effect in its due diligence and if there is any liability or obligation uncovered in the form of the letters to be received by the attorney and accountant of the Buyer. 7.2 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 7.1, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party or its directors, offices or shareholders. Nothing in this Section 7.2 shall relieve any party to this Agreement of liability for breach of this Agreement. -11- 7.3 Amendment. This Agreement may not be amended except by an instrument in writing signed by all of the parties hereto. 7.4 Indemnification. The Seller will indemnify the Buyer and its directors, officers, employees, agents, partners and Affiliates (each such person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses (including reasonable counsel fees, charges and disbursements) of whatever kind or nature arising out of, or in any way relating to any liabilities or obligations of the Seller not expressly assumed by the Buyer hereby. ARTICLE VIII MISCELLANEOUS 8.1 Extension; Waiver. The parties hereto, may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein, or (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of any party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed by all parties. 8.2 Entire Agreement; Assignment. This Agreement, the Ancillary Documents and the other documents and instruments contemplated hereby, (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, including the March 1999 Stock Purchase Agreement, among the parties or any of them with respect to the subject matter hereof, and (b) shall not be assigned by the operation of law of otherwise. 8.3 Survival; Enforcement of the Agreement. The representations and warranties in this Agreement shall survive the Closing for a period of 12 months following such Closing. 8.4 Validity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity of any other provisions of this Agreement, which shall remain in full force and effect. 8.5 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by cable, telegram or facsimile transmission, or three days after being delivered by registered or certified mail to the respective parties as follows: If to the Buyer: C3D Inc. 235 West 76th Street, Suite 8D New York, NY 10023 Facsimile: 212.580.4021 -12- With a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Alan L. Zeiger, Esquire Facsimile: 215.569.5628 If to the Seller: Constellation 3D Technology Limited 235 West 76th Street, Suite 8D New York, NY 10023 Facsimile: 212.580.4021 With a copy to: Efrima, Ben Yacov, Sherman, Milstein 56 Mazah Street Tel Aviv, Israel 55905 Attention: Jonathan Sherman Facsimile: 972-3-5602767 8.6 Descriptive Headings. The descriptive headings of the several sections and subsections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 8.7 Governing Law. This Agreement shall be governed by the laws of the State of Florida, without giving effect to principles of conflicts of law thereof. 8.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 8.9 Delivery by Facsimile. This Agreement, the Ancillary Agreements, and each other agreement or instrument entered into in connection herewith or therewith or contemplated hereby or thereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall reexecute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine as a defense to the formation or enforceability of a contract and each such party forever waives any such defense. * * * -13- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers hereunto duly authorized as of the date first above written. C3D INC. By: /s/ Michael Goldberg ------------------------ Name: Michael Goldberg Title: Director of Legal Affairs CONSTELLATION 3D TECHNOLOGY LIMITED By: /s/ Eugene Levich ------------------------ Name: Eugene Levich Title: President TRID STORE, INC. By: /s/ Eugene Levich ------------------------ Name: Eugene Levich Title: President TRID IP S.A. By: /s/ Eugene Levich ------------------------ Name: Eugene Levich Title: President [SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT DATED OCTOBER 1, 1999] -14- SCHEDULE "A" Seller's Offered Assets ----------------------- 100% of the equity interests held by the Seller in the following entities: TriDStore IP LLC, a Delaware limited liability company C-TriD Israel Ltd., an Israeli company TriD SV, Inc., a Delaware company TriD Store Vostok, a Russian company held in trusteeship by TriD Store, Inc. SCHEDULE "B" Shareholders of Seller ---------------------- Name of Seller Shareholder -------------- ----------- Constellation 3D Technology Limited Rapid Trusts Ltd. SCHEDULE "C" Subsidiaries
- -------------------------------------------------------------------------------------------------------------- Percentage of Shares/Interests Company State of Incorporation owned by Seller - -------------------------------------------------------------------------------------------------------------- TriDStore IP LLC Delaware 100% - -------------------------------------------------------------------------------------------------------------- TriD Store, Inc. Delaware 100% - -------------------------------------------------------------------------------------------------------------- C-TriD Israel Ltd. Israel 99% - -------------------------------------------------------------------------------------------------------------- TriD SV, Inc. Delaware 100% - --------------------------------------------------------------------------------------------------------------
EX-3.1 3 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF LATIN VENTURE PARTNERS, INC. The undersigned subscriber to these Articles of Incorporation is a natural person competent to contract and hereby form a Corporation for profit under Chapter 607 of the Florida Statutes. ARTICLE 1- NAME --------------- The name of the Corporation is LATIN VENTURE PARTNERS, INC., (hereinafter, "Corporation"). ARTICLE 2 - PURPOSE OF CORPORATION ---------------------------------- The corporation shall engage in any activity or business permitted under the laws of the United States and of the State of Florida. ARTICLE 3- PRINCIPAL OFFICE --------------------------- The address of the principal office of this Corporation is 343 Almeria Avenue, Coral Gables, Florida 33134. ARTICLE 4- INCORPORATOR ----------------------- The name and street address of the incorporator of this Corporation is: Elsie Sanchez 343 Almeria Avenue Coral Gables, Florida 33134 ARTICLE 5- MAILING ADDRESS -------------------------- The mailing address of the Corporation shall be 343 Almeria Avenue, Coral Gables, Florida 33134. ARTICLES 6- CORPORATE CAPITALIZATION ------------------------------------ 6.1 The maximum number of shares that this Corporation is authorized to have outstanding at any time is SEVEN THOUSAND FIVE HUNDRED (7,500) shares of common stock, each share having the par value of ONE DOLLAR ($1.00). 6.2 No holder of shares of stock of any class shall have any preemptive right to subscribe to or purchase any additional shares of any class, or any bonds or convertible securities of any nature: provided, however, that the Board of Director(s) may, in authorizing the issuance of shares of stock of any class, confer any preemptive right that the Board of Director(s) may deem advisable in connection with such issuance. 6.3 The Board of Director(s) of the Corporation may authorize the issuance from time to time of shares of its stock of any class, whether now or hereafter authorized, or securities convertible into shares of its stock of any class, whether now or hereafter authorized, for such consideration as the Board of Director(s) may deem advisable, subject to such restrictions or limitations, if any, as may be set forth in the bylaws of the Corporation. 6.4 The Board of Director(s) of the Corporation may, by Restated Articles of Incorporation, classify or reclassify any unissued stock from time to time by setting or changing the preferences, conversions or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or term or conditions of redemption of the stock. ARTICLE 7- POWERS OF CORPORATION -------------------------------- The Corporation shall have the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, subject to any limitations or restrictions imposed by applicable law or these Articles of Incorporation. ARTICLE 8- TERM OF EXISTENCE ---------------------------- This Corporation shall have perpetual existence. ARTICLE 9- REGISTERED OWNER(S) ------------------------------ The Corporation, to the extent permitted by law, shall be entitled to treat the person in whose name any share or right is registered on the books of the Corporation as the owner thereto, for all purposes, and except as may be agreed in writing by the Corporation, the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such share or right on the part of any other person, whether or not the Corporation shall have notice thereof. ARTICLE 10- REGISTERED OFFICE AND REGISTERED AGENT -------------------------------------------------- The initial address of registered office of this Corporation is The Law Firm of Lawrence J. Spiegel, Chartered doing business as AmeriLawyer(R), located at 343 Almeria Avenue, Coral Gables, Florida 33134. The name and address of the registered agent of this Corporation is The Law Firm of Lawrence J. Spiegel, Chartered doing business as AmeriLawyer(R), 343 Almeria Avenue, Coral Gables, Florida 33134. ARTICLE 11- BYLAWS ------------------ The Board of Director(s) of the Corporation shall have power, without the assent or vote of the shareholders, to make, alter, amend or repeal the Bylaws of the Corporation, but the affirmative vote of a number of Directors equal to a majority of the number who would constitute a full Board of Director(s) at the time of such action shall be necessary to take any action for the making, alteration, amendment or repeal of the Bylaws. ARTICLE 12 - EFFECTIVE DATE --------------------------- These Articles of Incorporation shall be effective immediately upon approval of the Secretary of State, State of Florida. ARTICLE 13 - AMENDMENT ---------------------- The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, or in any amendment hereto, or to add any provision to these Articles of Incorporation or to any amendment hereto, in any matter now or hereafter prescribed or permitted by the provisions of any applicable statute of the State of Florida, and all rights conferred upon shareholders in these Articles of Incorporation or any amendment hereto are granted subject to this reservation. IN WITNESS WHEREOF, I have hereunto set my hand and seal, acknowledged and filed the foregoing Articles of Incorporation under the laws of the State of Florida, this Dec. 26, 1995. /s/ Elsie Sanchez --------------------------- Elsie Sanchez, Incorporator ACCEPTANCE OF REGISTERED AGENT DESIGNATED ----------------------------------------- IN ARTICLES OF INCORPORATION ---------------------------- The Law Firm of Lawrence J. Spiegel, Chartered doing business as AmeriLawyer(R), having a business office identical with the registered office of the Corporation name above, and having been designated as the Registered Agent in the above and foregoing Articles of Incorporation, is familiar with and accepts the obligations of the position of Registered Agent under Section 607.0505, Florida Statutes. The Law Firm Of Lawrence J. Spiegel, Chartered doing business as AmeriLawyer(R) By: /s/ Lawrence J. Spiegel ------------------------------ Lawrence J. Spiegel, President EX-3.2 4 EXHIBIT 3.2 ARTICLES OF AMENDMENT TO LATIN VENTURE PARTNERS, INC. THE UNDERSIGNED, being the sole director and president of LATIN VENTURE PARTNERS, INC., does hereby amend the Articles of Incorporation of LATIN VENTURE PARTNERS, INC. effective as of July 29, 1998 as follows: ARTICLE I CORPORATE NAME The name of the Corporation shall be LATIN VENURE PARTNERS, INC. ARTICLE II PURPOSE The Corporation shall be organized for any and all purposes authorized under the laws of the state of Florida. ARTICLE III PERIOD OF EXISTENCE The period during which the Corporation shall continue is perpetual. ARTICLE IV SHARES The capital stock of this corporation shall consist of 50,000,000 shares of common stock, $.001 par value. ARTICLE V PLACE OF BUSINESS The address of the principal place of business of this corporation in the State of Florida shall be One Biscayne Tower, Suite 3750, Miami, FL 33131. The Board of Directors may at any time and form time to time move the principal office of this corporation. ARTICLE VI DIRECTORS AND OFFICERS The business of this corporation shall be managed by its Board of Directors. The number of such directors shall be not less then one (1) and, subject to such minimum may be increased or decreased from time to time in the manner provided in the By-Laws. ARTICLE VII DENIAL OF PREEMPTIVE RIGHTS No shareholder shall have any right to acquire shares or other securities of the Corporation except to the extent such right may be granted by an amendment to these Articles of Incorporation or by a resolution of the board of Directors. ARTICLES VIII AMENDMENT OF BYLAWS Anything in these Articles of Incorporation, the Bylaws, or the Florida Corporation Act notwithstanding, bylaws shall not be adopted, modified, amended or repealed by the shareholders of the Corporation except upon the affirmative vote of a simple majority vote of the holders of all the issued and outstanding shares of the corporation entitled to vote thereon. ARTICLE IX SHAREHOLDERS 9.1. Inspection of Books. The board of directors shall make reasonable rules to determine at what times and places and under what conditions the books of the Corporation shall be open to inspection by shareholders or a duly appointed representative of a shareholder. 9.2. Control Share Acquisition. The provisions relating to any control share acquisition as contained in Florida Statutes now, or hereinafter amended, and any successor provision shall not apply to the Corporation. 9.3. Quorum. The holders of shares entitled to one-third of the votes at a meeting of shareholder's shall constitute a quorum. 9.4. Required Vote. Acts of shareholders shall require the approval of holders of 50.01% of the outstanding votes of shareholders. ARTICLE X LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS To the fullest extent permitted by law, no director or officer of the Corporation shall be personally liable to the Corporation or its shareholders for damages for breach of any duty owed to the Corporation or its shareholders. In addition, the Corporation shall have the power, in its By-Laws or in any resolution of its stockholders or directors, to undertake to indemnify the officers and directors of this corporation against any contingency or peril as may be determined to be in the best interests of this corporation, and in conjunction therewith, to procure, at this corporation's expense, policies of insurance. ARTICLE XI CONTRACTS No contract or other transaction between this corporation and any person, firm or corporation shall be affected by the fact that any officer or director of this corporation is such other party or is, or at some time in the future becomes, an officer, director or partner of such other contracting party, or has now or hereafter a direct interest in such contract. I hereby certify that the following was adopted by a majority vote of the shareholders and directors of the corporation of July 30, 1998 and that the number of votes cast was sufficient for approval. IN WITNESS WHEREOF, I have hereunto subscribed to and executed this Amendment to Articles of Incorporation this on July 30, 1998. /s/ Ronald A. Marini - ----------------------------------- Ronald A. Marini President The foregoing instrument was acknowledged before me on July 30, 1998, by Ronald A. Marini, who is personally known to me. My commission Expires: /s/ ----------------------------- Notary Public EX-3.3 5 EXHIBIT 3.3 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF LATIN VENTURE PARTNERS, INC. ---------------------------- Pursuant to the provisions of section 607.1006, Florida Statues, this Florida profit corporation adopts the following articles of amendment to its articles of incorporation: FIRST: Amendment adopted: Article I is hereby amended to read as follows: The name of this corporation is C3D INC. SECOND: There is no change to the capital of the corporation. THIRD: This amendment was adopted on March 12th, 1999. FOURTH: The amendment was approved by the shareholders. The number of votes cast for the amendment was sufficient for approval. Signed this 12th day of March, 1999. /s/ John Jones ------------------------------------------ John Jones, President Prepared by: Alixe B. Cormick Barrister & Solicitor Venture Law Corporation #618 - 688 W. Hastings Street Vancouver, BC V6L 3E3 Tel: (604) 659-9188 Fax: (604) 659-9178 NOTARY WITNESS On March 12th, 1999, personally appeared before me, a Notary Public, John Jones, President of Latin Venture Partners, Inc., who acknowledged that he executed the above instrument. /s/ A.R. Jayes ------------------------------- Notary Public/Solicitor A.R. Jayes Solicitor Gentle Jayes 66 Grosvenor Street London, W1X OBD EX-3.4 6 EXHIBIT 3.4 BYLAWS OF C3D INC. (A FLORIDA CORPORATION) INDEX
PAGE NUMBER ARTICLE ONE - OFFICES Section 1. Principal Office.....................................................................1 Section 2. Other Offices........................................................................1 ARTICLE TWO - MEETINGS OF SHAREHOLDERS Section 1. Place................................................................................1 Section 2. Time of Annual Meeting...............................................................1 Section 3. Call of Special Meetings.............................................................1 Section 4. Conduct of Meetings..................................................................1 Section 5. Notice of Waiver of Notice...........................................................2 Section 6. Business and Nominations for Annual and Special Meetings.............................2 Section 7. Quorum...............................................................................2 Section 8. Voting Rights Per Share..............................................................3 Section 9. Voting of Shares.....................................................................3 Section 10. Proxies..............................................................................3 Section 11. Shareholder List.....................................................................4 Section 12. Action Without Meeting...............................................................4 Section 13. Fixing Record Date...................................................................4 Section 14. Inspectors and Judges................................................................5 Section 15. Voting for Directors.................................................................5 ARTICLE THREE - DIRECTORS Section 1. Number, Term; Election; Qualification................................................5 Section 2. Resignation; Vacancies; Removal......................................................5 Section 3. Powers...............................................................................5 Section 4. Place of Meetings....................................................................6 Section 5. Annual Meetings......................................................................6 Section 6. Regular Meetings.....................................................................6 Section 7. Special Meetings and Notice..........................................................6 Section 8. Quorum and Required Vote.............................................................6 Section 9. Action Without Meeting...............................................................7 Section 10. Conference Telephone or Similar Communications Equipment Meetings.....................7 Section 11. Committees............................................................................7 Section 12. Compensation of Directors.............................................................7 ARTICLE FOUR - OFFICERS Section 1. Positions............................................................................8 Section 2. Election of Specified Officers by Board..............................................8 Section 3. Election or Appointment of Other Officers............................................8 Section 4. Compensation.........................................................................8 Section 5. Term; Resignation; Removal; Vacancies................................................8 Section 6. Chairman of the Board................................................................9 Section 7. Chief Executive Officer..............................................................9 Section 8. President............................................................................9 Section 9. Vice Presidents......................................................................9 Section 10. Secretary.............................................................................9 Section 11. Chief Financial Officer..............................................................10 Section 12. Treasurer............................................................................10 Section 13. Other Officers; Employees and Agents.................................................10 ARTICLE FIVE - CERTIFICATES FOR SHARES Section 1. Issue of Certificates...............................................................10 Section 2. Legends for Preferences and Restrictions on Transfer................................11 Section 3. Facsimile Signatures................................................................11 Section 4. Lost Certificates...................................................................11 Section 5. Transfer of Shares..................................................................11 Section 6. Registered Shareholders.............................................................11 Section 7. Redemption of Control Shares........................................................12 ARTICLE SIX - GENERAL PROVISIONS Section 1. Dividends...........................................................................12 Section 2. Reserves............................................................................12 Section 3. Checks..............................................................................12 Section 4. Fiscal Year.........................................................................12 Section 5. Seal................................................................................12 Section 6. Gender..............................................................................12 ARTICLE SEVEN - AMENDMENT OF BYLAWS.....................................................................12
BYLAWS OF C3D INC. ARTICLE ONE OFFICES ------- Section 1. PRINCIPAL OFFICE. The principal office of C3D Inc., a Florida corporation (the "Corporation"), shall be located at such place determined by the Board of Directors of the Corporation (the "Board of Directors") in accordance with applicable law. Section 2. OTHER OFFICES. The Corporation may also have offices at such other places, either within or without the State of Florida, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE TWO MEETINGS OF SHAREHOLDERS ------------------------ Section 1. PLACE. All annual meetings of shareholders shall be held at such place, within or without the State of Florida, as may be designated by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Special meetings of shareholders may be held at such place, within or without the State of Florida, and at such time as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders shall be held on such date and at such time fixed, from time to time, by the Board of Directors, provided, that there shall be an annual meeting held every calendar year at which the shareholders shall elect a board of directors and transact such other business as may properly be brought before the meeting. Section 3. CALL OF SPECIAL MEETINGS. Special meetings of the shareholders shall be held if called in accordance with the procedures set forth in the Corporation's Articles of Incorporation (the "Articles of Incorporation") for the call of a special meeting of shareholders. Section 4. CONDUCT OF MEETINGS. The Chairman of the Board of Directors (or in his absence, the President, or in his absence, such other designee of the Chairman of the Board of Directors) shall preside at the annual and special meetings of shareholders and shall be given full discretion in establishing the rules and procedures to be followed in conducting the meetings, except as otherwise provided by law or in these Bylaws. 1 Section 5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by law, written or printed notice stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by first-class mail or other legally sufficient means, by or at the direction of the Chairman of the Board, President, or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If the notice is mailed at least thirty (30) days before the date of the meeting, it may be done by a class of United States mail other than first class. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at the address appearing on the stock transfer books of the Corporation, with postage thereon prepaid. If a meeting is adjourned to another time and/or place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the Board of Directors, after adjournment, fixes a new record date for the adjourned meeting. Whenever any notice is required to be given to any shareholder, a waiver thereof in writing signed by the person or persons entitled to such notice, whether signed before, during or after the time of the meeting stated therein, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, shall constitute an effective waiver of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of (a) lack of or defective notice of such meeting, unless the person objects at the beginning to the holding of the meeting or the transacting of any business at the meeting, or (b) lack of or defective notice of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the person objects to considering such matter when it is presented. Section 6. BUSINESS AND NOMINATIONS FOR ANNUAL AND SPECIAL MEETINGS. Business transacted at any special meeting shall be confined to the purposes stated in the notice thereof. At any annual meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting in accordance with the requirements and procedures set forth in the Articles of Incorporation shall be eligible for election as directors of the Corporation. Section 7. QUORUM. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Except as otherwise provided in the Articles of Incorporation or applicable law, shares representing one third of the votes pertaining to outstanding shares which are entitled to be cast on the matter by the voting group constitute a quorum of that voting group for action on that matter. If less than a quorum of shares are represented at a meeting, the holders of a majority of the shares so represented may adjourn the meeting from time to time. After a quorum has been established at any shareholders' meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. 2 Section 8. VOTING RIGHTS PER SHARE. Each outstanding share, regardless of class, shall be entitled to vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class are limited or denied by or pursuant to the Articles of Incorporation or the Florida Business Corporation Act. Section 9. VOTING OF SHARES. A shareholder may vote at any meeting of shareholders of the Corporation, either in person or by proxy. Shares standing in the name of another corporation, domestic or foreign, may be voted by the officer, agent or proxy designated by the bylaws of such corporate shareholder or, in the absence of any applicable bylaw, by such person or persons as the board of directors of the corporate shareholder may designate. In the absence of any such designation, or, in case of conflicting designation by the corporate shareholder, the chairman of the board, the president, any vice president, the secretary and the treasurer of the corporate shareholder, in that order, shall be presumed to be fully authorized to vote such shares. Shares held by an administrator, executor, guardian, personal representative, or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by such person, either in person or by proxy, but no trustee shall be entitled to vote shares held by such person without a transfer of such shares into his name or the name of his nominee. Shares held by or under the control of a receiver, a trustee in bankruptcy proceedings, or an assignee for the benefit of creditors may be voted by such person without the transfer thereof into his name. If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary of the Corporation is given notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, then acts with respect to voting shall have the following effect: (a) if only one votes, in person or by proxy, his act binds all; (b) if more than one vote, in person or by proxy, the act of the majority so voting binds all; (c) if more than one vote, in person or by proxy, but the vote is evenly split on any particular matter, each faction is entitled to vote the share or shares in question proportionally; or (d) if the instrument or order so filed shows that any such tenancy is held in unequal interest, a majority or a vote evenly split for purposes hereof shall be a majority or a vote evenly split in interest. The principles of this paragraph shall apply, insofar as possible, to execution of proxies, waivers, consents, or objections and for the purpose of ascertaining the presence of a quorum. Section 10. PROXIES. Any shareholder of the Corporation, other person entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact for such persons may vote the shareholder's shares in person or by proxy. Any shareholder of the Corporation may appoint a proxy to vote or otherwise act for such person by signing an appointment form, either personally or by his attorney-in-fact. An executed telegram or cablegram appearing to have been transmitted by such person, or a photographic, photostatic, or equivalent reproduction of an appointment form, shall be deemed a sufficient appointment form. An appointment of a proxy is effective when received by the Secretary of the Corporation (the "Secretary") or such other officer or agent which is authorized to tabulate votes, and shall be valid for up to 11 months, unless a longer period is expressly provided in the appointment form. The death or incapacity of the shareholder appointing a proxy does not affect the right of the Corporation to accept the proxy's authority unless notice of the death or incapacity is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy authority under the appointment is exercised. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. 3 Section 11. SHAREHOLDER LIST. After fixing a record date for a meeting of shareholders, the Corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of the meeting, arranged by voting group with the address of, and the number and class and series, if any, of shares held by each. The shareholders' list must be available for inspection by any shareholder for a period of ten (10) days prior to the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the Corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the Corporation's transfer agent or registrar. Any shareholder of the Corporation or such person's agent or attorney is entitled on written demand to inspect the shareholders' list (subject to the requirements of law), during regular business hours and at his expense, during the period it is available for inspection. The Corporation shall make the shareholders' list available at the meeting of shareholders, and any shareholder or agent or attorney of such shareholder is entitled to inspect the list at any time during the meeting or any adjournment. The shareholders' list is prima facie evidence of the identity of shareholders entitled to examine the shareholders' list or to vote at a meeting of shareholders. Section 12. ACTION WITHOUT MEETING. Any action required or permitted by law to be taken at a meeting of shareholders may be taken without a meeting or notice if a consent, or consents, in writing, setting forth the action so taken, shall be dated and 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 voting groups and shares entitled to vote thereon were present and voted with respect to the subject matter thereof, and such consent shall be delivered to the Corporation, within the period required by Section 607.0704 of the Florida Business Corporation Act, by delivery to its principal office in the State of Florida, its principal place of business, the Secretary or another officer or agent of the Corporation having custody of the book in which proceedings of meetings of shareholders are recorded. Within ten (10) days after obtaining such authorization by written consent, notice must be given to those shareholders who have not consented in writing or who are not entitled to vote on the action, in accordance with the requirements of Section 607.0704 of the Florida Business Corporation Act. Section 13. FIXING RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purposes, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy (70) days, and, in case of a meeting of shareholders, not less than ten (10) days, before the meeting or action requiring such determination of shareholders. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders or the determination of shareholders entitled to receive payment of a dividend, the date before the day on which the first notice of the meeting is mailed or the date on which the resolutions of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof, except where the Board of Directors fixes a new record date for the adjourned meeting. 4 Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance of any meeting may, but need not, appoint one or more inspectors of election or judges of the vote, as the case may be, to act at the meeting or any adjournment thereof. If any inspector or inspectors, or judge or judges, are not appointed, the person presiding at the meeting may, but need not, appoint one ore more inspectors or judges. In case any person who may be appointed as an inspector or judge fails to appear or act, the vacancy may be filled by the Board of Directors in advance of the meeting, or at the meeting by the person presiding thereat. The inspectors or judges, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots and consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate votes, ballots and consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting, the inspector or inspectors or judge or judges, if any, shall make a report in writing of any challenge, question or matter determined by him or them, and execute a certificate of any fact found by him or them. Section 15. VOTING FOR DIRECTORS. Unless otherwise provided in the Articles of Incorporation, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. ARTICLE THREE DIRECTORS --------- Section 1. NUMBER; TERM; ELECTION; QUALIFICATION. The number of directors of the Corporation shall be fixed from time to time, within the limits specified by the Articles of Incorporation, by resolution of the Board of Directors. Directors shall be elected in the manner and hold office for the term as prescribed in the Articles of Incorporation. Directors must be natural persons who are 18 years of age or older but need not be residents of the State of Florida, shareholders of the Corporation or citizens of the United States. Section 2. RESIGNATION; VACANCIES; REMOVAL. A director may resign at any time by giving written notice to the Board of Directors or the Chairman of the Board. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. In the event the notice of resignation specifies a later effective date, the Board of Directors may fill the pending vacancy (subject to the provisions of the Articles of Incorporation) before the effective date if they provide that the successor does not take office until the effective date. Director vacancies shall be filled, and directors may be removed, in the manner prescribed in the Corporation's Articles of Incorporation. Section 3. POWERS. The business and affairs of the Corporation shall be managed by the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised and done by the shareholders. 5 Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors, regular or special, may be held either within or without the State of Florida. Section 5. ANNUAL MEETINGS. Unless scheduled for another time by the Board of Directors, the first meeting of each newly elected Board of Directors shall be held, without call or notice, immediately following each annual meeting of shareholders. Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors may also be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board of Directors may be called by the President or Chairman of the Board and shall be called by the Secretary on the written request of any two directors. At least forty-eight (48) hours prior written notice of the date, time and place of special meetings of the Board of Directors shall be given to each director. Except as required by law, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Notices to directors shall be in writing and delivered to the directors at their addresses appearing on the books of the Corporation by personal delivery, mail or other legally sufficient means. Subject to the provisions of the preceding sentence, notice to directors may also be given by telegram, teletype or other form of electronic communication. Notice by mail shall be deemed to be given at the time when the same shall be received. Whenever any notice is required to be given to any director, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before, during or after the meeting, shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting and the manner in which it has been called or convened, except when a director states, at the beginning of the meeting or promptly upon arrival at the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened. The Chairman may, in his discretion, adjourn a meeting to a later time or new location. Section 8. QUORUM AND REQUIRED VOTE. One third of the prescribed number of directors determined as provided in the Articles of Incorporation shall constitute a quorum for the transaction of business and the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a greater number is required by the Articles of Incorporation. Whenever, for any reason, a vacancy occurs in the Board of Directors, a quorum shall consist of one third of the remaining directors until the vacancy has been filled. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn the meeting to another time and place, without notice other than announcement at the time of adjournment. At such adjourned meeting at which a quorum shall be present, any business may be transacted that might have been transacted at the meeting as originally notified and called. In the event of a tied vote, the Chairman shall be entitled to cast a second deciding vote. 6 Section 9. ACTION WITHOUT MEETING. Any action required or permitted to be taken at a meeting of the Board of Directors or committee thereof may be taken without a meeting if a consent in writing, setting forth the action taken, is signed by all of the members of the Board of Directors or the committee, as the case may be, and such consent shall have the same force and effect as a unanimous vote at a meeting. Action taken under this Section 9 is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed under this Section 9 shall have the effect of a meeting vote and may be described as such in any document. Section 10. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT MEETINGS. Directors and committee members may participate in and hold a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground the meeting is not lawfully called or convened. Section 11. COMMITTEES. The Board of Directors, by resolution adopted by a majority of the whole Board of Directors, may designate from among its members an executive committee and one or more other committees, each of which, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors in the business and affairs of the Corporation except where the action of the full Board of Directors is required by applicable law. Each committee must have two or more members who serve at the pleasure of the Board of Directors. The Board of Directors, by resolution adopted in accordance with this Article III, may designate one or more directors as alternate members of any committee. Vacancies in the membership of a committee may be filled only by the Board of Directors at a regular or special meeting of the Board of Directors. The executive committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or such member by law. Section 12. COMPENSATION OF DIRECTORS. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Similarly, members of special or standing committees may be allowed compensation for attendance at committee meetings or a stated salary as a committee member and payment of expenses for attending committee meetings. Directors may receive such other compensation as may be approved by the Board of Directors. 7 ARTICLE FOUR OFFICERS -------- Section 1. POSITIONS. The officers of the Corporation shall consist of a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents (any one or more of whom may be given the additional designation of rank of Executive Vice President or Senior Vice President), a Secretary, a Chief Financial Officer, Chief Operating Officer, and a Treasurer. Any two or more offices may be held by the same person. Officers other than the Chairman of the Board need not be members of the Board of Directors. The Chairman of the Board must be a member of the Board of Directors. Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of Directors at its first meeting after each annual meeting of shareholders shall elect a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents (including any Senior or Executive Vice Presidents), a Secretary, a Chief Financial Officer and a Treasurer. Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the Board of Directors, or, unless otherwise specified herein, appointed by the Chairman of the Board. The Board of Directors shall be advised of appointments by the Chairman of the Board at or before the next scheduled Board of Directors meeting. Section 4. COMPENSATION. The salaries, bonuses and other compensation of the Chairman of the Board and all officers of the Corporation to be elected by the Board of Directors pursuant to Section 2 of this Article IV shall be fixed from time to time by the Board of Directors or pursuant to its direction. The salaries of all other elected or appointed officers of the Corporation shall be fixed from time to time by the Chairman of the Board or pursuant to his direction. Section 5. TERM; RESIGNATION; REMOVAL; VACANCIES. The officers of the Corporation shall hold office until their successors are chosen and qualified. Any officer or agent elected or appointed by the Board of Directors shall be without prejudice to the contract rights, if any, of the person so removed. Any officer or agent appointed by the Chairman of the Board pursuant to Section 3 of this Article IV may also be removed from such office or position by the Board of Directors or the Chairman of the Board, with or without cause. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall be filled by the Board of Directors, or, in the case of an officer appointed by the Chairman of the Board, by the Chairman of the Board or the Board of Directors. Any officer of the Corporation may resign from his respective office or position by delivering notice to the Corporation, and such resignation shall be effective without acceptance. Such resignation shall be effective when delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the Board provides that the successor does not take office until such effective date. 8 Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the shareholders and the Board of Directors. The Chairman of the Board shall also serve as the chairman of any executive committee. Section 7. CHIEF EXECUTIVE OFFICER. Subject to the control of the Board of Directors, the Chief Executive Officer, in conjunction with the President, shall have general and active management of the business of the Corporation, shall see that all orders and resolutions of the Board of Directors are carried into effect and shall have such powers and perform such duties as may be prescribed by the Board of Directors. In the absence of the Chairman of the Board or in the event the Board of Directors shall not have designated a Chairman of the Board, the Chief Executive Officer shall preside at meetings of the shareholders and the Board of Directors. The Chief Executive Officer shall also serve as the vice-chairman of any executive committee. Section 8. PRESIDENT. Subject to the control of the Board of Directors, the President, in conjunction with the Chief Executive Officer, shall have general and active management of the business of the Corporation and shall have such powers and perform such duties as may be prescribed by the Board of Directors. In the absence of the Chairman of the Board and the Chief Executive Officer or in the event the Board of Directors shall not have designated a Chairman of the Board and a Chief Executive Officer shall not have been elected, the President shall preside at meetings of the shareholders and the Board of Directors. The President shall also serve as the vice-chairman of any executive committee. Section 9. VICE PRESIDENTS. The Vice Presidents, in the order of their seniority, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the President and the Chief Executive Officer, perform the duties and exercise the powers of the President. They shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board or the Chief Executive Officer shall prescribe or as the President may from time to time delegate. Executive Vice Presidents shall be senior to Senior Vice Presidents, and Senior Vice Presidents shall be senior to all other Vice Presidents. Section 10. SECRETARY. The Secretary shall attend all meetings of the shareholders and all meetings of the Board of Directors and record all the proceedings of the meetings of the shareholders and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors and shall keep in safe custody the seal of the Corporation and, when authorized by the Board of Directors, affix the same to any instrument requiring it. The Secretary shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. 9 Section 11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall be responsible for maintaining the financial integrity of the Corporation, shall prepare the financial plans for the Corporation and shall monitor the financial performance of the Corporation and its subsidiaries, as well as performing such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. Section 12. TREASURER. The Treasurer shall have the custody of corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board and the Board of Directors at its regular meetings or when the Board of Directors so requires an account of all his transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. Section 13. OTHER OFFICERS; EMPLOYEES AND AGENTS. Each and every other officer, employee and agent of the Corporation shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to such person by the Board of Directors, the officer so appointing such person or such officer or officers who may from time to time be designated by the Board of Directors to exercise such supervisory authority. ARTICLE FIVE CERTIFICATES FOR SHARES ----------------------- Section 1. ISSUES OF CERTIFICATES. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares of such a resolution by the Board of Directors, every holder of stock represented by certificates (and upon request every holder of uncertificated shares) shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board or a Vice Chairman of the Board, or the Chief Executive Officer, President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, representing the number of shares registered in certificate form. 10 Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The designations, relative rights, preferences and limitations applicable to each class of shares and the variations in rights, preferences and limitations determined for each series within a class (and the authority of the Board of Directors to determine variations for future series) shall be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the Corporation will furnish the shareholder a full statement of this information on request and without charge. Every certificate representing shares that are restricted as to the sale, disposition, or transfer of such shares shall also indicate that such shares are restricted as to transfer, and there shall be set forth or fairly summarized upon the certificate, or the certificate shall indicate that the Corporation will furnish to any shareholder upon request and without charge, a full statement of such restrictions. If the Corporation issues any shares that are not registered under the Securities Act of 1933, as amended, or not registered or qualified under the applicable state securities laws, the transfer of any such shares shall be restricted substantially in accordance with the following legend: "THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW, THEY MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT REQUIRED." Section 3. FACSIMILE SIGNATURES. Any and all signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon such 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. Section 4. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. Section 5. TRANSFER OF SHARES. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to recognize the exclusive rights of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Florida. 11 Section 7. REDEMPTION OF CONTROL SHARES. As provided by the Florida Business Corporation Act, if a person acquiring control shares of the Corporation does not file an acquiring person statement with the Corporation, the Corporation may, at the discretion of the Board of Directors, redeem the control shares at the fair value thereof at any time during the 60-day period after the last acquisition of such control shares. If a person acquiring control shares of the Corporation files an acquiring person statement with the Corporation, the control shares may be redeemed by the Corporation, at the discretion of the Board of Directors, only if such shares are not accorded full voting rights by the shareholders as provided by law. ARTICLE SIX GENERAL PROVISIONS ------------------ Section 1. DIVIDENDS. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in cash, property, stock (including its own shares) or otherwise pursuant to law and subject to the provisions of the Articles of Incorporation. Section 2. RESERVES. The Board of Directors may by resolution create a reserve or reserves out of earned surplus for any proper purpose or purposes, and may abolish any such reserve in the same manner. Section 3. CHECKS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 4. FISCAL YEAR. The fiscal year of the Corporation shall end on December 31 of each year, unless otherwise fixed by resolution of the Board of Directors. Section 5. SEAL. The corporate seal shall have inscribed thereon the name and state of incorporation of the Corporation. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 6. GENDER. All words used in these Bylaws in the masculine gender shall extend to and shall include the feminine and neuter genders. ARTICLE SEVEN AMENDMENT OF BYLAWS ------------------- Except as otherwise set forth herein, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the directors present at such meeting. 12 SECRETARY'S CERTIFICATE OF ADOPTION OF THE BYLAWS OF C3D INC. I hereby certify: That I am the duly elected Secretary of C3D INC., a Florida corporation; That the foregoing Bylaws comprising nine (9) pages, constitute the Bylaws of said corporation as duly adopted by the Board of Directors of the Corporation on April ___, 1999. IN WITNESS WHEREOF, I have hereunder subscribed my name this ___ day of April, 1999. ----------------------------------- John Jones, Secretary 13 EX-4.1 7 EXHIBIT 4.1 EXHIBIT 4.1 INVESTOR'S RIGHTS AGREEMENT THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is made as of the 10th day of August 1999, by and between C3D, INC., a Florida corporation (the "Company"), and the investor listed on the signature page hereto (the "Investor"). W I T N E S S E T H: WHEREAS, the Agreement is executed contemporaneously with that certain Purchase Agreement, of even date herewith, by and between the Company and Investor (the "Purchase Agreement") pursuant to which the Company will sell to Investor a 10.0% Series A Convertible Note due December 31, 1999 (the "Convertible Note") in principal amount of One Million Dollars ($1,000,000) subject to certain conditions. Capitalized terms used and not defined herein shall have the meanings ascribed to them in the Purchase Agreement; WHEREAS, it is a condition to the obligations of the parties under the Purchase Agreement that this Agreement be executed by the parties hereto, and the parties are willing to execute this Agreement and to be bound by the provisions hereof; NOW, THEREFORE, in consideration of the foregoing and the agreements set forth below, and intending to be legally bound hereby, the parties agree with each other as follows: 1. Amendment. 1.1 Procedure. Any provision of this Agreement may be amended, waived, discharged or terminated upon the written consent of the Company and Investor. 1.2 Rights of Investor. Investor shall have the absolute right to exercise or refrain from exercising any right or rights that it may have by reason of this Agreement, including, without limitation, the right to consent to the waiver or modification of any obligation under this Agreement, and Investor shall not incur any liability to any other holder of any securities of the Company as a result of exercising or refraining from exercising any such right or rights. 2. Right of First Offer. The Company covenants and agrees as follows: 2.1 Rights of Investor. Subject to the terms and conditions specified in this Section 2, the Company hereby grants to Investor a right of first offer with respect to future sales by the Company of any shares of, or debt or equity securities convertible into or exchangeable into or exercisable for any shares of, any class of its capital stock (the "Shares"). Each time the Company proposes to offer its Shares, the Company shall first make an offering of such Shares to Investor in accordance with the provisions set forth herein. 2.2 Notice. The Company shall deliver a written notice (the "Notice") to Investor stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares. 2.3 Purchase by Investor. By written notification received by the Company within twenty (20) calendar days after giving of the Notice, Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, the Shares. 2.4 Non-Exercise. If Investor elects not to purchase the Shares pursuant to subsection 2.3 hereof, the Company may, during the 90-day period following the expiration of the period provided in subsection 2.3, offer the Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement on such terms is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to Investor in accordance herewith. 2.5 Applicability. The right of first offer in this Section 2 shall not be applicable to (i) the issuance or sale of shares of Common Stock (or options or convertible instruments therefor) to officers, directors or employees of, or consultants, equipment lessors or independent contractors to, or persons having a business relationship with, the Company pursuant to a stock purchase or option or bonus plan or agreement or other equity incentive program or arrangement approved by the Board of Directors, (ii) a bona fide, firmly underwritten public offering of shares of Common Stock, (iii) the issuance of securities pursuant to the conversion, exchange or exercise of convertible, exchangeable or exercisable securities, (iv) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, or (v) the issuance of stock, warrants or other securities or rights to persons or entities with which the Company has business relationships provided such issuances are for other than primarily equity financing purposes as determined by the Company's Board of Directors. 2.6 Term. The right of first offer contained in this Section 2 shall commence on the Closing Date and shall terminate and be of no further force or effect upon the earlier to occur of: (i) the first anniversary of the Closing Date, (ii) the sale of securities pursuant to a registration statement is filed by the Company under the Securities Act of 1933, as amended (the "1933 Act"), in connection with the firm commitment underwritten offering of its securities to the general public is consummated, or (iii) the date the Company first becomes subject to the periodic reporting requirements of the 1934 Act pursuant to Sections 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). 3. Registration Rights. The Company covenants and agrees as follows: 3.1 Definitions. For purposes of this Section 3: (a) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the 1933 Act, and the declaration or ordering of effectiveness of such registration statement or document. 2 (b) The term "Registrable Securities" means (i) the common stock, par value $.001 per share, of the Company (the "Common Stock") and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i) and (ii) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his or her rights under this Section 3 are not assigned. (c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of common stock of the Company outstanding which are, and the number of shares of common stock of the Company issuable pursuant to then exercisable or convertible securities which are, Registrable Securities. (d) The term "SEC" shall mean the Securities and Exchange Commission. 3.2 Required Registration. In the event that Investor elects to convert the Convertible Note into shares of Common Stock, the Company hereby agrees to effect the registration of that portion of the Registrable Securities held by Investor on or before the first anniversary of the date of such conversion (the "Conversion Date"). (a) The Company is obligated to effect only one (1) such registration pursuant to this Section 3.2. (b) Notwithstanding the foregoing, if the Company shall furnish to Investor a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than one hundred eighty (180) days after the first anniversary of the Conversion Date. 3.3 Company Registration. If at any time after an underwritten firm commitment offering to the public of the Common Stock registered under the 1933 Act (the "Initial Public Offering"), the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than Investor) any of the Common Stock or other equity securities in connection with the public offering of such securities solely for cash (other than a registration relating solely to employee benefit plans, or a registration relating solely to an SEC Rule 145 transaction, or a registration on any registration form which does not permit secondary sales), the Company shall, subject to the provisions of Section 3.7, automatically and without the need for notice from Investor, cause to be registered under the 1933 Act all of the Registrable Securities held by Investor. 3.4 Obligations of the Company. Whenever required under this Section 3 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: 3 (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to Investor a copy of the prospectus, including a preliminary prospectus, in conformity with the requirements of the 1933 Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by him. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by Investor; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. If Investor participates in such underwriting, he shall also enter into and perform its obligations under such an agreement (f) Notify Investor at any time when a prospectus relating thereto is required to be delivered under the 1933 Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) Furnish, at the request of Investor, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 3, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to Investor, and (ii) a 4 letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to Investor. 3.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 3 with respect to the Registrable Securities of Investor that Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of Investor's Registrable Securities. 3.6 Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 3.2, including, without limitation, all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto, but excluding underwriting discounts and commissions relating to Registrable Securities. 3.7 Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 3.2 to include any of Investor's securities in such underwriting unless he accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as the underwriters determine in their sole discretion will not, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling shareholders according to the total amount of securities entitled to be included therein owned by each selling shareholder or in such other proportions as shall mutually be agreed to by such selling shareholders). 3.8 No Delay of Registration. Investor shall not have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 3. 3.9 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 3: (a) To the extent permitted by law, the Company will indemnify and hold harmless Investor, any underwriter (as defined in the 1933 Act) for Investor and each person, if any, who controls Investor or such underwriter within the meaning of the 1933 Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the 1933 Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (i) any untrue statement 5 or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the 1933 Act, or the 1934 Act or any state securities law; and the Company will pay to Investor or each of such underwriter or controlling person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 3.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by Investor, underwriter or controlling person. (b) To the extent permitted by law, Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the 1933 Act, any underwriter and any controlling person of any such underwriter, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the 1933 Act or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by Investor expressly for use in connection with such registration; and Investor will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 3.9(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 3.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of Investor, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 3.9(b) exceed the gross proceeds from the offering received by Investor. (c) Promptly after receipt by an indemnified party under this Section 3.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 3.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the 6 indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 3.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 3.9. (d) If the indemnification provided for in this Section 3.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Investor under this Section 3.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 3, and otherwise. 3.10. Reports Under 1934 Act. With a view to making available to Investor the benefits of Rule 144 promulgated under the 1933 Act and any other rule or regulation of the SEC that may at any time permit Investor to sell securities of the Company to the public without registration, the Company agrees to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; and (b) File with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act. 3.11 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 3 may only be assigned by Investor to a transferee or assignee of such securities, provided: (a) the Company is, within a reasonable time after such transfer, 7 furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act. 3.12 "Market Stand-Off" Agreement. Investor hereby agrees that, during the period of duration specified by the Company and an underwriter of the Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the 1933 Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except common stock included in such registration; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement effected by the Company which covers the Common Stock or other securities of the Company to be sold on its behalf to the public in an underwritten offering; (b) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements; (c) such market stand-off time period shall not exceed one hundred eighty (180) days; (d) in order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period; and (e) notwithstanding the foregoing, the obligations described in this Section 3.12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-14 or Form S-15 or similar forms which may be promulgated in the future. 3.13 Termination of Registration Rights. Investor shall not be entitled to exercise any right provided for in this Section 3, (a) after three (3) years following the closing of the Initial Public Offering (other than an offering relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction) or (b) at such time following the Initial Public Offering and for so long as Investor may sell all of his Registrable Securities in any single three (3) month period pursuant to Rule 144 (or such successor rule as may be adopted). 8 4. Miscellaneous. 4.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.2 Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York without giving effect to choice of law or conflicts of law principles thereof. 4.3 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 4.4 Notices. Notices given hereunder shall be deemed to have been duly given on the date of personal delivery or on the date of postmark if sent by certified or registered mail, return receipt requested or express overnight courier service, to the party being notified at his or its address specified on the signature page hereto or such other address as the addressee may subsequently notify the other parties of in writing. Copies of all notices shall also be sent simultaneously to Alan L. Zeiger, Esquire, Blank Rome Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania 19103 and to Seattle Investments LLC, c/o Kingston Smith, 60 Goswell Road, London EC1M 7AD. 4.5 Amendments and Waivers. Any amendment or waiver effected in accordance with this Agreement shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 4.6 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 4.7 Entire Agreement; Amendment. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 4.8 Counterparts. 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. 4.10 Delivery by Facsimile. This Agreement and each other agreement or instrument entered into in connection herewith or contemplated hereby, and any amendments hereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manner and respects as an 9 original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall reexecute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine as a defense to the formation or enforceability of a contract and each such party forever waives any such defense. * * * 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. C3D, INC. By: /s/ Eugene Levich ---------------------------------------- Eugene Levich President and Chief Executive Officer Address: 235 West 76th Street, Suite 8D New York, New York 10023 Facsimile: 212.580.4021 SEATTLE INVESTMENTS LLC By: Falcon Management LLC, as sole manager By: George Hobson ------------------------------------- Name: George Hobson Title: Address: c/o Kingston Smith 60 Goswell Road London EC1M 7AD Facsimile: 011.44.171.566.4010 [SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENT DATED AUGUST 10, 1999] 11 EX-10.1 8 EXHIBIT 10.1 RENTAL CONTRACT UNPROTECTED ACCORDING TO THE TENANTS' PROTECTION LAW (VARIOUS INSTRUCTIONS) OF 1968 AS DRAFTED INTO THE TENANTS' PROTECTION LAW (CONSOLIDATED VERSION) OF 1972 Made and signed in Tel Aviv on March 25, 1997 Between 1. I. Perel & Co. Ltd., private company no. 51-058094 2. Dar-Eli Construction and Investment Co. Ltd., private company no. 51-118394-9 both together and separately and with mutual guarantee between themselves of 159 Ygal Alon St., Tel Aviv hereinafter called "the lessor" on the one hand And between O.M.D. Optical Memory Devices Ltd., private company no. 51-2401605 through its authorized director Glosko Boris, ID no. 3-0375886-6 all together and separately and with mutual guarantee between themselves hereinafter called "the tenant" on the other hand Whereas The lessor holds and is the owner of a hall marked in drawing no. 252 temporary + kitchenette + 2 WCs + a protected room inside the property object of the rental rented with a total of about 239.14 sq. m. gross (including 10% participation in its relative part of the common property object of the rental ). These are the details of the common property object of the rental: a) The place where the garbage bins will be set according to the plan of the authorities; b) The entrances (lobbies) of the staircases; c) The elevator shafts; d) Airways and piping ducts; e) Elevators' 1 machine rooms; f) Entrance lobby to the property object of the rental from the elevator. g) The place for the electricity, telephone boxes (water meters) the hall is on the fifth floor (above the ground) facing southeast as it shows in the attached drawing painted yellow and marked with the Hebrew letter "aleph" and that is an inseparable part of the present rental contract, and that is situated in the building Wing no. 2 new building for high-tech industries with 6 floors and with halls for hi-tech industries (ground floor + 5 typical floors) with 2 staircases and 2 passenger elevators starting from the ground floor and until the upper floor, situated in the industrial park Rabin Park Rechovot temporary plot 1006 formerly parcel 70 block 3695. And whereas The lessor wishes to rent the property object of the rental to the tenant in rental unprotected by the Tenants' Protection Law (Consolidated Version) of 1972 and/or any law that shall come in its place or is added about the same matter (hereinafter - "Tenants' Protection Law"). And whereas The tenant has decided to rent the property object of the rental unprotected by the Tenants' Protection Law. [Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical Dar-Eli Memory Devices Ltd Construction and Investment Co. Ltd.] 51-240160-5] ACCORDINGLY, IT IS AGREED, DECLARED AND CONDITIONED BETWEEN THE PARTIES AS FOLLOWS: 1. The introduction to the present contract forms an inseparable part of it. 2 2. The parties declare: A. On August 20, 1968 there were no tenants in the property object of the rental , defined in the Tenants' Protection Law as having the right to hold the property object of the rental. B. The property object of the rental is located in a new building completed after August 20, 1968. C. The property object of the rental is not rented with key money and the tenant did not pay to the lessor any money and he is not bound to pay to the lessor any money, except the financial undertakings described in the present contract. D. The rental object of the present contract is not protected under the Tenants' Protection Law. E. The tenant declares and knows that the lessor advised it explicitly that according to the building permit held by the contractor Perel Dar-Eli and according to the plans of the Rechovot Local Authority the use of the building where the property object of the rental is situated is for hi-tech industries only and/or uses permitted according to the building permit and/or the competent authorities. However, it is expressly emphasized that a basic condition of the rental contract between the tenant and the lessor is that no use shall be made of the building where the property object of the rental is situated as a workshop, locksmith's workshop, carpentry, garage and other businesses and shops that cause noise or dirt and that the destination of the units in the building where the property object of the rental is situated as registered in the regulations of the condominium is high technology industries - excluding those that might cause a use that is contrary to the Abatement of Nuisances Law of 1961 and its regulations, and also according to the 3 decisions and broadening by the Local Building and Planning Commission of Rechovot and/or any exceptional use, and/or a change of use as allowed by the Rechovot Local Commission. The tenant also declares that it is of its knowledge that the halls in the first floor might serve as exhibition halls, bank branch, halls for commerce and services and so on, and that it is prevented from claiming that said use entails a nuisance or causes it any damage. Moreover, it is known to it that the structure of Wing C that is in the front of Wing A shall be used as an exclusive restaurant and/or cafeteria and/or another use as permitted by the competent authorities. 3. The present contract cancels previous contracts and agreements having as object the rental of the property object of the rental, in case they exist. 4. Canceled. 5. A. The lessor undertakes subject to the conditions of the present contract to rent the property object of the rental starting from May 15, 1997 and until May 14, 1999 (midnight) (hereinafter "the rental period"). B. In spite of the terms of art. 5 A. above, concerning the rental period, the tenant shall have an option given by the lessor to extend the rental period for two additional rental periods (each one of them with 12 months), that is, starting from May 15, 1999 and until May 14, 2000 (midnight) and another period from May 15, 2000 until May 14, 2001 (midnight). [Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical Dar-Eli Memory Devices Ltd Construction and Investment Co. Ltd.] 51-240160-5] 4 In order to dispel any doubts, in case the tenant exercises the option subject to the conditions of the present contract, then said option shall apply to the whole year of rental (of 12 months). The first extended rental period shall start from May 15, 1999 and end on May 14, 2000 (midnight) and the second extended rental period shall start on May 15, 2000 and end on May 14, 2001 (midnight), all according to the express condition that the tenant has fulfilled all his undertakings as detailed below: 1) The tenant has faithfully fulfilled all the instructions of rental in that he has not breached a fundamental breach of the contract during the rental period and has also made all the payments to the different authorities as required by the present contract. 2) It is agreed between the parties that the option to extend the rental period shall be exercised automatically for 12 full months of rental unless the tenant advises the lessor at least 75 days before the end of the rental period or the extended rental period in writing according to the address above that it is not its intention to extend the rental period as described in art. 5 B. above. C. The lessor shall be entitled to cancel the rental contract and bring it to an end, providing it has given advance notice about this in writing 60 days whenever the tenant has breached or does not fulfill in due time a fundamental condition of the present rental contract (hereinafter "fundamental breach"). In spite of the terms of this article, the tenant is given the possibility to repair the breach within 30 days from the day of delivery of said notice by the lessor and in case the breach is not repaired then the terms of the present article shall be fully valid. 6. A. The tenant undertakes to pay to the lessor for each month of the rental period of the property object of the rental the amount of US$ 2,497 + VAT 5 as against a tax invoice, equivalent to NIS 8,420 + VAT + linkage differentials. This amount includes payment for 4 uncovered parking spaces on the roof that will be for the use of the tenant, the places of the parking will be according to the attached parking plan marked with the Hebrew letter "Aleph 1" and their places are marked in the plan as 169, 170, 171 and 172. In order to dispel any doubts, the rental payment in dollars shall be translated into NIS according to the basic exchange rate known on the day of signature of the contract, that is, on March 25, 1997 and that is the representative rate of exchange of NIS 3.372 per US$1 and in total NIS 8,420 + VAT as required by law. The monthly rental payment shall be paid once every 3 months in advance until the end of the rental period, that is, May 14, 1999 (midnight) while pegged to the Cost-of-Living Index. 1) It is agreed by the parties that the said monthly rental payments shall be linked to the Consumer Price Index as defined in the following detailed definition, and they shall be according to the payment conditions the tenant undertakes to pay the linkage differences to the Consumer Price Index immediately with the demand from the lessor together with VAT according to the law as it applies during the demand for payment. 2) For purposes of the present contract, the following terms shall have the following interpretation: "Payment linked to the Consumer Price Index" - if it becomes clear from the Consumer Price index published from time to time before any payment is due from the tenant according to the present contract 6 (hereinafter "the new index") that the new index rose compared to the index published on March 16, 1997 (hereinafter "the basic index") the payment due from the tenant according to the present contract shall be paid with the increase in the same proportion of the raise of the new index compared to the basic index, but not less than the basic index, that is, 145.4 points. [Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical Dar-Eli Memory Devices Ltd Construction and Investment Co. Ltd.] 51-240160-5] 3) "Consumer Price Index" - The Consumer Price index includes fruit and vegetables, and it is set by the Central Bureau of Statistics and the Research Department, or by any other Government body, or any official index coming in its place, whether it comes or not, if another index comes, the index shall be according to the proportion set by the said Bureau between it and the exchanged index. In case said Bureau during 3 months from the day of publishing of the other index does not set the above proportion - the said proportion shall be set in consultation with economics experts, in such a way that each party to the contract appoint one economics expert on its behalf. If the two said experts do not reach agreement they shall appoint a third expert and the decision of the third expert shall bind the parties for all purposes. The dates of the payments mentioned in the present contract are a fundamental condition of the contract and breach of one of these conditions shall be considered a fundamental breach of the contract. In spite of the terms of the present article, it is agreed between the parties that a delay of up to 7 days in the payment of rental by the tenant to the lessor shall not be considered a fundamental breach of the conditions of the contract. 7 C. On the occasion of signature of the contract the tenant shall pay the lessor the amount of NIS 25,260 together with VAT as required by law on account of rental for the period May 15, 1997 - August 14, 1997 and the signature of the lessor on the present rental contract shall serve as proof for the receipt of the said amount. The balance of rental payments for the above period starting from August 15, 1997 shall be paid to the lessor according to art. 6 B. above. D. It is agreed between the parties that in case the tenant wishes to exercise the option mentioned in art. 5 B. above, then the rental period shall be extended by 12 additional months for each rental period extension and all subject to the terms of art. 5 B. 2) while the rental payment stays subject to the conditions of the contract as mentioned in art. 6 B. above. In order to dispel any doubts, the payment of VAT shall be made by postdated check to the 15 of the month of the reported month, that is, 15 of the month after the date of actual payment of the rental payment. In order to dispel any doubts, the rental payments paid during the period of option will be of a month of rental in the amount of NIS 8,420 together with VAT while this amount is pegged to the basic index to be published by the Central Bureau of Statistics on March 16, 1997, that is, 145.4 points compared to the index to be known on the day of actual payment of each and every payment. E. It is hereby agreed between the parties that if the check/note given by the tenant to the lessor as rental payment as above is not honored, this shall be considered also as a breach of other laws as non-payment of the 8 conditions of rental contract with all this means from the articles of the present contract and then the lessor shall have the right to enter the property object of the rental , to change locks and to hold it to remove chattels belonging to the tenant and depositing them on account of the tenant, and the tenant shall have no claims against the lessor for this action and this only after it is sent to the tenant a written notice by registered mail by the lessor that the tenant does not stand by the conditions of the contract and 15 passed from the day of delivery of the notice to the post office. F. It is hereby agreed that non payment of a check and/or note given by the tenant in due time shall cause that the tenant shall bear fees for lack of honoring the check and/or note with banking interests for overdrafts at the rate acceptable at the Union Bank of Israel Ltd. 7. The tenant hereby declares that it is known to it that besides the rental payments it must pay VAT as required by law. [Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical Dar-Eli Memory Devices Ltd Construction and Investment Co. Ltd.] 51-240160-5] 8. A. The tenant shall use the property object of the rental only for the purposes of high-tech offices business activity computers and all that is connected with that and shall receive for this a license from the authorities about managing its business in the property object of the rental. B. Any advertisement or sign of the tenant shall be paid by the tenant and be ordered in common through the lessor. The place, size, shape and color shall be set exclusively by the lessor and/or the architect and engineer of the building. 9 C. The tenant hereby declares that it has know-how about its business and its licenses for operations and that before signing the present contract it had the opportunity to check and it indeed actually checked the suitability of the property object of the rental for the purposes of the rental and the possibility to receive a license or licenses required to operate the purpose of the rental in the property object of the rental as it is, and that it found the property object of the rental and concerning the matter of receiving said license. The tenant undertakes to manage its business in the property object of the rental in the framework of the purposes of the rental according to all the licenses and permits required according to the law of any authority and/or government, city or any other body for business licenses and be granted at its account and responsibility any said license and permit in order to operate any business in the property object of the rental. 9. A. The tenant has checked the property object of the rental, found it suitable to the purposes of the rental and declares that it did not find any unsuitability. If any such unsuitability then it waives any remedy that is given to it for the unsuitability and also any claim because of hidden fault and/or after visual checking correct as of the time of signature of the present contract the terms of the present article shall be adapted even to construction made in the property object of the rental according to the building plans that the tenant undertakes to deliver within 14 days from the date of signature of the present contract. It is also known to the tenant that the weight on the ceiling areas - is the usable weight of 500 kg. per square meter and that before the introduction of equipment into the property object of the rental it must receive professional advice and instructions from the building engineer, Mr. Yaakov Chai. 10 B. The lessor undertakes at the moment of delivery of the possession of the property object of the rental, the property object of the rental as detailed in the attachment attached to the present rental contract. It is an inseparable part of it and marked with the Hebrew letter "Beit". C. Canceled. 10. The lessor and/or its representative are permitted to enter the structure of the property object of the rental at any reasonable time and with previous coordination in order to verify if the instructions of the present contract are being fulfilled by the tenant, but this check and/or right to check does not give to the tenant any right to breach and/or continue to breach the present contract. 11. A. It is expressly emphasized that the rental period is of two years only. That is, from May 15, 1997 till May 14, 1999 (midnight) only and all according to the conditions that the lessor received the improvement plans within 14 days from the date of signature of the present contract. The extended rental periods shall be as detailed above and under the express condition that the tenant has fulfilled its undertakings according to the conditions of the contract and in no case no more than the periods detailed in the present contract in arts. 5 A. and B. above. 12. The lessor declares that the property object of the rental was delivered to the tenant while it is connected to the electricity grid and to the water lines while it has arranged all matters concerning the connections to electricity counters at the Electricity Company and the Local Authority on its account only. 13. Besides the said rental payments, the tenant shall bear payments for the following matters that will be paid by it starting from the day the tenant has entered the property object of the rental. 11 a. General municipal taxes set by the Municipality and Business Tax in case it is due. b. Water supply and use of water and electricity bills, garbage fees and any city fees due by the tenant in the rented property object of the rental . c. Payment of expenses of service and maintenance insurance for the air-conditioners and smoke and fire detectors found in the property object of the rental. d. The payments set by the condominium commission or building commission where the property object of the rental is located and/or expenses for current maintenance and cleaning of the staircase and patio of said building. In order to dispel any doubts, the participation of the tenant in said expenses according to art. 13 d. shall be in proportion to the area under its use relative to the general area of all the tenants of the building. e. It is known to the tenant that the building where the property object of the rental is situated shall be managed by a condominium commission by or through a maintenance company or a management company that shall sign a contract with the condominium commission and that the tenant undertakes towards the lessor to bear all maintenance expenses of the property object of the rental and the common property object of the rental attached to it and all according to what is set for each tenant and unit owners where the property object of the rental is situated whether through the condominium commission or through the maintenance company or management company as decided upon by the condominium commission or the tenants and owners of units in the building it is agreed between the parties that in case the cost of management fees and maintenance expenses of the common property object of the rental only shall not be more than US2 at the representative rate of exchange per 1 sq. m. gross + VAT as required by law. 12 14. Any bill submitted according to art. 13 above by the body to whom it is due payment shall be an apparent proof for the matter of amount of the debt relative to bills for the period that only partially related to the periods when the tenant has rented the property object of the rental, then the tenant shall pay only its relative part. In spite of the above, it is agreed between the parties that the tenant shall have an extension of 21 days from the receipt demands from the authorities to check the debt for purposes of payment. After this it shall owe the payment. 15. The tenant shall be responsible for any fine, collection fee, interest and payment imposed for delays in executing said payments in art. 13, and it shall pay them within 21 days from the date it was required to do so. 16. The lessor is entitled to pay any notice of payment for matters mentioned in art. 13 above in case they are not paid by the tenant and the tenant has not received any notice from the several authorities to pay the debts. In this case, the tenant shall pay to the lessor any amount paid by it within 21 days from receipt of a notice about it from the lessor and against the legal certifications of the payments that were made, and the tenant shall not be entitled to object to the amount as per art. 13 above. And this as said after the tenant has received a respite of 21 days to check the amount of the debt to the several authorities. 17. A. The tenant undertakes to make careful use of the property object of the rental and it is responsible for any damage in the property object of the rental and/or any malfunction occurred and/or caused to it, except damages caused in the property object of the rental by normal wear and tear. 13 B. The tenant is not entitled to make any changes or any investments in the property object of the rental . If in spite of the instructions of the present article the tenant makes changes and additions in the property object of the rental, it shall not be entitled to any payment for them and the expenses of returning the property object of the rental to its previous state shall be borne by the tenant and they shall be paid by it within 21 days from the day of demand from the lessor. In case the tenant wishes to make any changes for purposes of the rental it must receive from the lessor its agreement but under the express condition that it is known to it that any addition added by the tenant to the structure of the property object of the rental shall belong to the lessor including electrical installation installed in the property object of the rental. C. Subject to the terms of sub-article B. above, the lessor agrees to make it possible for the tenant to make internal changes in the property object of the rental for purposes of the rental including construction of additional partitions and/or moving or cancellation of existing partitions and also to invest investment in the property object of the rental but not to destroy external walls and not to damage the foundations of the structure. And all this under the express condition that the tenant expressly declares to the lessor that during the evacuation of the property object of the rental the state of the property object of the rental shall stay as it was at the eve of the evacuation unless the lessor agrees that these investments shall stay in the property object of the rental - in this case any addition that the tenant leaves shall belong to the lessor without any consideration from its part. It is also agreed that in case there will be the need to whitewash the walls as a result of the use of the property object of the rental the tenant undertakes to whitewash them before it evacuates the property object of the rental. 14 D. Any waiver or agreement about any matter that one party has waived or agreed in favor of the other party shall only be valid if it is given in writing and it is signed by it. 18. At the end of the rental period or at the end of the extended rental period, all according to the situation, the tenant shall evacuate the property object of the rental of any person and/or chattel that does not belong to the lessor and return the possession of the property object of the rental to the lessor while the property object of the rental is clean and without any damage, except for reasonable wear and tear (evacuation according to the present article shall be called "evacuation of the property object of the rental"). A. If the tenant breaches any of the fundamental conditions of the contract the lessor shall be entitled after sending advance notice of 30 days that it shall vacate the property object of the rental immediately, in case the tenant does not vacate as required the lessor shall be entitled to remove the lessor by force through its previous agreement as given in the present article and all expenses for this evacuation shall be borne by the tenant only and also the tenant is responsible for any damage caused to the lessor as a result of the evacuation made by force by the lessor. 19. The tenant shall evacuate the property object of the rental immediately, in the event of any of the following: A. The tenant has made a fundamental breach of the present contract and received a notice in writing about it from the lessor to repair the breach within 30 days from the notice in registered letter and did not repair the breach. B. An order of apprehension of assets is given against the tenant or a receiving order for its assets is given or a dissolution order against the tenant and the order is not cancelled within 60 days from the date of the order or if the tenant has given notice of voluntary dissolution. 15 C. Without prejudice of the above, the tenant has not paid a payment of the payments imposed according to the present contract. For instance rental payments, municipal taxes, payments to the Electricity Company and so on, for more than a period of 3 months. D. Without prejudice to the above the tenant uses the property object of the rental for purposes other than expressly agreed above. E. In spite of the terms of the present article, it is agreed between the parties that this action shall not be taken by the tenant unless he was given beforehand an advance notice of 30 days in writing to repair the breach and the breach was not repaired by it. 20. A. If the tenant is obliged to evacuate the property object of the rental for any reason whatsoever, then the tenant shall pay the lessor for each day of delay in the evacuation of the property object of the rental as above previously agreed compensation of US$150 per day of delay. This amount shall be paid as exchanged into new Israeli shekels according to the representative rate of exchange of the dollar at the date of payment of the compensation agreed in the present article. The above agreed compensation is as defined in the Law of Contracts (Remedies against breach of contract) of Tashla"a - 1971. B. The above does not contain anything in order to prejudice the right of the lessor to sue for repossession and/or immediate evacuation of the tenant from the property object of the rental and return of the exclusive use and possession of the property object of the rental in its hand or any other remedy given it by the present contract or according to the law. And all under the express condition that the lessor has succeeded in its suit against the tenant. 16 21. A. The tenant undertakes to take measures of care in order to avoid damaging actions and/or damages against any person and/or asset and to prevent the disappearance of any object from the structure of the property object of the rental. B. The tenant undertakes to compensate the lessor for any amount as decided against the lessor for suits whose cause of action is damages or damages to a person and/or assets connected to the property object of the rental during the rental period whose source and/or are connected directly to its actions or omissions except events that happened in public areas. It is agreed between the parties that said compensation shall be valid in cases where the tenant is given a written notice about the suit as above and the provision of opportunity for the tenant to defend itself against it. 22. In any case that the tenant evacuates and/or abandons the property object of the rental within the rental period, whether by its own initiative or for any other reason whatsoever, the tenant shall pay the lessor the rental payment and all the other payments due from it according to the present contract, until the end of the rental period. 23. The tenant undertakes to insure on its account the contents of the property object of the rental with extended fire insurance including risks of burglary, inundation and earthquake for the period of use, and it undertakes to present to the lessor within 30 days from the date of start of the rental period a valid insurance policy as above and a copy of the temporary cover within 10 days there is nothing in the above in order to prejudice the responsibility of the tenant for any damage caused to the property object of the rental in the responsibility of the tenant the insurance policy shall 17 include a condition that the insurer has no right of return against the lessor and also the tenant undertakes to insure itself with third party liability insurance including fire, explosion, natural disasters and panic risks with the limits of responsibility of NIS 500,000 per case and NIS 1,000,000 according to the conditions of the policy. The tenant shall be the only responsible for any action whatsoever against the lessor for body damages that arises from the use of the property object of the rental and it also undertakes to compensate the lessor for such actions if they are submitted and decided against it. In order to dispel any doubts it is agreed between the parties that insurance for the structure of the property object of the rental shall be made by the lessor. 24. A. It is expressly agreed that the tenant is not allowed to rent the property object of the rental and/or deliver its possession to others unless it receives the agreement in writing for this from the lessor and also the tenant undertakes not to transfer the present contract or any right or permission or benefit arising from it to another or to allow the use of the property object of the rental or part of it in any way whatsoever, except by the workers of the tenant. B. In spite of the terms of art. 24 A. it is agreed between the parties that the tenant is entitled to grant in part of the property object of the rental the right of use to professionals or sub-tenants. But the tenant declares to the lessor that the sub-tenants is only by permission in the property object of the rental and that any responsibility towards the lessor falls on the tenant towards the lessor including evacuation of the property object of the rental by the sub-tenants according to the present rental contract. 25. The lessor is entitled to sell the property object of the rental without the agreement of the tenant to any third party under the condition that the third party knows that it is buying the property object of the rental with a tenant under contractual conditions between the tenant and the lessor and 18 that in this case there shall be valid the conditions of the contract even on the third party until the end including the option to extend the rental period in case and there will be an extension of the rental period. As mentioned in the conditions of the present rental contract. 26. Any payment that the other party must make according to the present contract and the other party has paid it for any justified reason the owing party undertakes to return immediately to the party who paid it and who does not owe its payment and all this against presentation of a proper receipt, together with linkage differences and interest according to the Interest and Linkage Law. 27. A. It is agreed between the parties that the tenant is not allowed to bring the present contract to an end before the end of the use period and even if the tenant stops the use or enjoyment of the property object of the rental for any reason whatsoever before the end of use period, it undertakes to continue paying for the use until the end of the rental period according to the present contract. The above does not prejudice the lessor's right to sue the tenant for any balance of use payment until the end of the use period according to the contract and also demand from the tenant any damages caused or to be caused to the property object of the rental and also demand from the tenant any payment that the tenant owes according to the contract and did not make it. B. It is agreed between the parties that in spite of the terms of art. 27 A. above and art. 22 above, the tenant shall be entitled to advise the lessor during all the rental period either the basic one or the first extension or the second extension if there will be such advance notice of 60 days about its wish to stop the contractual rental connection and all under the condition that it has the possibility to bring a substitute tenant to the satisfaction of the lessor and who enters into the place of the tenant and adopts the conditions of the present rental contract. In 19 this case if a proper substitute tenant is found and a new contract is signed with him about the property object of the rental the parties shall consider the rental contract as reaching its end after 60 days from the receipt of the advance notice and under the condition as said that a new rental contract was signed with the new tenant. If a substitute tenant is not found the tenant undertakes to fulfill the conditions of the contract until the end of the rental period of 12 full months. 28. A. To assure all the undertakings of the tenant according to the present contract and without prejudice of the other undertakings of the tenant including evacuation of the property object of the rental on time, the payment of any damage caused to the property object of the rental, and the payment of rental payments and the payments imposed on the tenant in the present contract. The tenant shall deposit into the hands of its attorney Adv. Ilan Shain at the signature of the contract. Autonomous and unconditional bank guarantee equivalent to 3 months of rental that is US$7,890 linked to the representative rate of exchange of the dollar hereinafter "the bank guarantee" this guarantee shall be collected by the lessor or its attorney subject to sub-article C. The tenant undertakes that the bank guarantee is valid until 3 months + 15 days after the end of the rental period. The cost of this guarantee shall be borne only by the tenant. Nevertheless what is said in any place even for what is said in any other place it is agreed that the bank guarantee shall be delivered to the lessor or its attorney not later than the day of entrance of the tenant into the property object of the rental and its presentation to the lessor is a condition to the delivery of possession of the property object of the rental to the tenant. 20 B. Besides the terms of sub-article A. the tenant shall deposit into the hands of the trustee attorney Adv. Ilan Shein (hereinafter: "the advocate") 2 non-commercial checks without dates to the order of the Electricity Company and the condominium commission of Park Rabin Building Pninat Binyanei Madah. These checks shall be returned to the tenant after a period of 30 days after the evacuation of the property object of the rental by the tenant and all this in case the tenant presents proper receipts that it has paid its debts to the Electricity Company and to the condominium commission. In case the tenant does not present these receipts then the lessor or the attorney shall be entitled to pay these debts with these checks after passing of this period in case the tenant leaves debts with the Electricity Company and to the condominium commission. [Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical Dar-Eli Memory Devices Ltd Construction and Investment Co. Ltd.] 51-240160-5] C. The tenant hereby gives to the lessor and/or the attorney Adv. Ilan Shein an advanced and irrevocable order that cannot be cancelled and/or changed in any way by it that in any case of lack of payment by the tenant of rental payment and/or other payments set in the present contract with the addition of said linkage in full and in due time and in any case of lack of evacuation of the property object of the rental and return of possession to the lessor according to the instructions of the present contract the lessor shall have the right by himself or through its attorney to execute the guarantee. It is agreed that the lessor and/or its attorney shall not act unless a written notice was sent by registered mail to the tenant with confirmation of receipt and 30 days passed from the day of sending the notice and the breach was not repaired. If the breaches are repaired by 21 the tenant and the tenant paid all its debts to all the authorities and presented proper receipts the guarantee bill shall be returned to the tenant by the lessor or its attorney. D. It is agreed between the parties that the receipt of the bank guarantee and/or the non-commercial checks according to the conditions of the present contract do not represent a waiver on the part of the lessor of the right to other remedies against the tenant whether these are remedies specified in the body of the contract or remedies at the lessor's disposal from any law effective at the date of signature of the contract or that will be in effect at the date of the breach. E. The non-delivery of any securities in due time that originates from the omission of the tenant is considered a fundamental breach of the contract by the tenant and the lessor shall be entitled without prejudice to its other rights to cancel the contract and/or delay the delivery of possession of the property object of the rental to the tenant according to its discretion. 29. It is expressly agreed and conditioned that the parties consider the present contract as a contract that allows the use of the property object of the rental for the period mentioned in the present contract only or any extended period if this is done in accordance to the contract and that at the end of said use period there shall expire any permission of use of the property object of the rental by the tenant and no person or body whatsoever except the lessor shall not have the right to use the property object of the rental anymore or to be in it. 30. It is agreed that in any case that the lessor does not exercise its rights springing from the present contract any delay or extension shall not be considered as any waiver and/or agreement and/or confession by it. 22 31. Any behavior extension or waiver of license to receive money or change shall not have the power to point to any intention of any party to waive any rights of its rights according to the present contract and shall not be valid legally for any change unless the change was made explicitly in writing and is signed by the parties in writing. 32. It is agreed between the parties that within 21 days from the date of signature of the present rental contract the tenant and the lessor shall communicate to the Municipality, to the Electricity Company to the telephone company and to other authorities the fact that the tenant is an unprotected tenant in the property object of the rental. 33. The parties set that because the property object of the rental is inside a new building the responsibility for faulty work or faulty building materials shall be of the lessor for the possession and maintenance period and in case of urgent repairs (electrical short circuits, bursting of pipes and so on) the fault shall be repaired within 24 hours from the time a notice about the fault. If the lessor does not do it then the tenant is entitled to make the repair on its account and the lessor undertakes to return to the tenant immediately even the expenses of this repair according to bills and/or receipts presented to it from competent professionals for the repairs that are not urgent and are repaired within 7 days. 34. The parties set that a breach of any instruction and/or condition of the conditions in articles: 5, 8, 9, 13, 17, 19 and 27 above are considered fundamental breach of the conditions of the present contract. 35. The parties choose for themselves for purposes of the present contract and all that is connected to it the following addresses: The lessor: As mentioned above (in the introduction). The tenant: As mentioned above (in the introduction). 23 Any notice sent by registered mail from any branch of the Israeli Post Office by one of the parties to the other according to the above addresses shall be deemed as received in its destination not later than 72 hours after it was delivered for mailing as above. 36. The parties have read carefully the contents of the present rental contract and signed it of their own free will. 37. In case the terms the lessor and/or the tenant speak of more than one person (or body), each of the individual lessors and/or tenants, according to the case, is responsible according to the present contract together and separately. Any time that one of the individual lessors and/or tenant signs any document, bill, letter, notice of confirmation of any kind in all matters pertinent to the present contract, its execution or concerning it, his signature shall bind the other individual lessors and/or tenants, according to the case and the signature on the present contract by the individual lessors and/or tenants shall be considered for all matters as giving the right to the individual lessors and/or tenants according to the case, among themselves and from one to the other, to bind the other individual lessors and/or tenants according to the case in all matters concerning the present contract. AND THEREFORE THEY HAVE CAUSED THEIR SIGNATURES TO BE SET UPON THIS: (-) (-) The lessor The tenant [Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical Dar-Eli Memory Devices Ltd Construction and Investment Co. Ltd.] 51-240160-5] 24 ATTACHMENT B That is an inseparable part of the rental contract Made and signed in Tel Aviv on March 25, 1997 Between 1. I. Perel & Co. Ltd., private company no. 51-058094 2. Dar-Eli Construction and Investment Co. Ltd., private company no. 51-118394-9 both together and separately and with mutual guarantee between themselves of 159 Ygal Alon St., Tel Aviv hereinafter called "the lessor" on the one hand And between O.M.D. Optical Memory Devices Ltd., private company no. 51-2401605 through its authorized director Glosko Boris, ID no. 3-0375886-6 of _______________________ hereinafter called "the tenant" on the other hand 1. According to the terms of the rental contract in art. 9 (D) the lessor undertakes to deliver the property subject of the rental to the tenant with the property subject of the rental having the following items on account of the lessor: A. Decorative ceiling of the Random type 1.22 x 0.61 according to the price of US$17 per meter. 25 B. Internal division with plaster walls (with the calculation of 25 sq. m. floor area per room) standard type straight with thickness of 10 cm with insulation 2 + mortar + Emulkir paint according to the price of US$30 per sq. m. C. Each room with a door will have fillings and painted lintel with Formica covering, or a laminated wood door with oil paint, or a Decoral door , according to the price of US$180 per unit of white paint. D. Floor-to-floor carpeting Logo or Coral Stone, or Bravo at a price of US$12 per net sq. m. (including labor, panels and depreciation). [Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical Dar-Eli Memory Devices Ltd Construction and Investment Co. Ltd.] 51-240160-5] E. Split air-conditioning or mini-central unit with conditioning power according to need in the manufacturer's standard. F. Fire and smoke detection system according to the standard. G. Lowered ceiling to cover the air-conditioner's motor. H. 20 light points. I. 20 electrical outlets. J. 15 telephone outlets. K. 15 built-in lighting points 120 x 20 louvre perspex according to the price of US$50 per unit (including installation). 26 L. 1 post office box at the entrance lobby at the ground floor. It is agreed between the parties that during the evacuation of the property subject of the rental all the items listed above shall stay as property of the lessor. AND THEREFORE THEY HAVE CAUSED THEIR SIGNATURES TO BE SET UPON THIS: (-) (-) The lessor The tenant [Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical Dar-Eli Memory Devices Ltd Construction and Investment Co. Ltd.] 51-240160-5] 27 EX-10.3 9 EXHIBIT 10.3 AGREEMENT N 356/181298 on the rent of office premises Moscow December 18, 1998 MACHMIR Co, Ltd., the legal company under the legislation of Russian Federation, presented by the general director Kudimov N.N., operating on the basis of the Charter, hereinafter referred to as "Lessor", on the one hand, and ZAO "TriD Store Vostok", the legal company under the legislation of Russian Federation, presented by the general director Diskin I.E., operating on the basis of the Charter, hereinafter referred to as "Renter", on the other hand, further mentioned together as "Parties", wishing to cooperate on a stable and mutually advantageous basis, have concluded the present Agreement as follows: Article 1. SUBJECT OF THE AGREEMENT 1.1 The lessor is obliged to grant the Renter in temporary use for the defined sum 198 square meters of office premises (further - "premises") for allocation of the office (without the right of sublease and redemption), on the second floor of the building, located at: 119146, Moscow, 2nd Frunzenskaya ul., 8, building 1, which the lessor owns according to the Certificate on depositing in the Property Registry No. 0018120. Plan of the premises is shown in the Attachment to the present agreement, which makes its essential part. 1.2 The rent is valid since December 18, 1998 until December 1, 1999 or on smaller period, in case of application of the positions, foreseen in article 6 of the present Agreement. 1.3 The present Agreement is valid since its signing by representatives of both Parties. Article 2. THE RIGHTS AND RESPONSIBILITIES OF THE PARTIES 2.1 The lessor commits oneself: 2.1.1 To grant to the Renter's disposal the premises for agreed purposes since December 18, 1998 under the acceptance report, stating technical conditions of premises and engineering equipment at the moment of leasing; 2.1.2 To render the Renter necessary assistance in registration of the present agreement in state bodies according to the requirements of the Russian legislation; 2.1.3 To provide for the Renter and persons, indicated by him in written notice, unconstrained access to the premises and places of common use during working days from 8 AM till 9 PM; in remaining time, in case of business necessity, with preliminary Lessor's notification and his written permission; 2.1.4 To provide for the validity period of the present agreement the electricity supply for lighting, office equipment and home appliances (installation of other apparatus consuming electric power requires the Lessor's consent; the payment for current consumption by such apparatus is made follow-up, basing on actual power of instruments); feed of hot and cold water, heating upon the existing norms in Moscow, and also operation of the water drain, sweeping of places of common use and adjacent territory, round-the-clock protection of the building and adjacent territory; 2.1.5 In case of crashes not through the Renter's guilt, to assist in elimination of their consequences; 2.1.6 To grant for the validity period of the present agreement for use of the Renter 4 city telephone lines, providing if needed telephone feed to the premises. The Miussky Telephone site at the expense of the Renter can re-assign the local telephone lines to the Renter with the consent of the Lessor; After termination or advance cancellation of this agreement, the agreement on use of the local telephone lines is restored and the telephone numbers are reverted to the former user - the lessor. The Renter pays the telephone bills during validity of this lease arrangement directly to the Service Company. In case the Renter detains from payments for more than one month, the Lessor switches off the phones in his use on the basis of notification of indebtedness until complete coverage of all debts before the phone site. 2.2 The lessor eliminates crashes and their consequences at his own expense, if they took place through his guilt. In case of any crash, the Parties compose a two-Partied report, indicating the reasons and order of liquidation of consequences. 2.3 The Renter accepts the following obligations: 2.3.1 To use premises extremely with the purposes, indicated in item 1.1 of the present Agreement; not to transfer his rights and responsibilities upon the agreement to third parties. 2.3.2 To pay the rent in due terms; 2.3.3 To use premises according to sanitary & fire-prevention rules and regulations of using the sanitary - technical and engineering equipment; to respect rules and norms of public behavior; The personal responsibility for fire prevention in the leased premises according to the current legislation (item 1.1.7 of the Fire prevention rules in the Russian Federation) is assigned to the chief of Company. -2- 2.3.4 To remove and to bear commodities and materials from the premises upon his invoices presenting them to the guards; 2.3.5 To carry out the necessary current repair of premises in time and at his own expense. Expenditures of the Renter on the current repair are not the basis for lowering the rent; 2.3.6 After cancellation of the present Agreement, the conditions of returned premises shall be not worse, than as fixed in the report mentioned in item 2.1.1 of the present Agreement with allowance of a natural wear. If the conditions of returned premises upon termination of the agreement is worse than the provided, the Renter reimburses to the Lessor the caused damage according to the legislation of Russian Federation. 2.3.7 To seal up the leased premises daily and to hand over on the guards' console with notification in the register. In case of absence of seals at the door of the premises, defective locks and absence of a signature in the guards' register, the Lessor is not responsible for loss and plunder of commodities and materials from the leased premises. At revealing of plunder of commodities and materials from leased premises when under protection and in case of habitual negligence of the protection servicing by the Lessor, the Renter can claim reimbursement of suffered damage, as fixed by competent authorities. Article 3. PAYMENTS AND ACCOUNTS BY AGREEMENT 3.1 For the premises in temporary use the Renter shall pay the Lessor the equivalent of 60.390 (sixty thousand three hundred ninety) US dollars per annum, basing on the rate of 305 US dollars per 1 square meter annually. 3.2 Rent and other payments upon this agreement are made in rubles at the rate of the Central Bank of Russian Federation on the date of payment. 3.3 The Renter transfers monthly in advance, not later than the 20th of the last month of prior quarter, the equivalent of 15.097,5 US dollars to the account, indicated by the Lessor at the moment of the first payment. 3.4 The date of payment is the date of receipt of the appropriate sums on the recipient's account. 3.5 All the sums, mentioned in the present article, include the value-added tax. -3- Article 4. THE RESPONSIBILITY OF THE PARTIES 4.1 For default, delayed incomplete fulfillment of the obligations indicated in article 3 of the present agreement, the Renter pays to the Lessor the fine at a rate of 0,5% of the delayed sum per each day of delay. In case of delay in rent payments over one month, the Lessor has the right to terminate the agreement by written notification of the Renter. On receipt of such notification, the Renter shall release the rented premises in 30 days. 4.2 In case of violation or inadequate fulfillment of his obligations and/or warranties by any Party under the present Agreement, he is obliged to reimburse to the other Party the losses, caused by such violation or inadequate fulfillment. 4.3 The payment of sanctions, fixed hereby, does not release the Parties from execution of their obligations or from elimination of violations. 4.4 The Renter and Lessor shall not bear responsibility for violation or inadequate fulfillment of their duties in case of force majeure circumstances, as stipulated in items 5.1-5.5 of the present Agreement. Article 5. FORCE MAJEURE 5.1. The Party is released from responsibility for partial or complete violation of its obligations under the present Agreement, if this violation or inadequate fulfillment was caused by force majeure circumstances arisen after conclusion of the present Agreement as a result of extreme events, which the Party could neither foresee, nor prevent by reasonable measures. Such extreme events include: the fire, flood and other natural phenomena, military operations, mass rioting, acts of government and management bodies of the Russian Federation, activities of municipal services realizing provision of the building. 5.2 At arise of circumstances, indicated in item 1 of the present article, the Party shall immediately notify the other Party in written form. The notice should contain description of circumstances, rating of their influence on fulfillment by the Party of its obligations under the present Agreement and time of performance of the obligations. 5.3 The Party shall immediately inform the other Party in written form on termination of circumstances, indicated in item 1 of the present article. The notice shall indicate the period of execution of the obligation under the present Agreement. 5.4 In cases, foreseen in item 1 of the present article, the period of execution by the Parties of their obligations under the present agreement is removed in proportion to time, during which such circumstances operate. 5.5 In case the indicated circumstances and their consequences continue to operate over a month or if at the approach of such circumstances it becomes clear that they and their consequences will operate over this period, the Parties can terminate the present Agreement by mutual agreement. Then, neither Party shall claim reimbursement of any losses suffered in connection with the present Agreement. -4- Article 6. ADVANCE TERMINATION AND CANCELLATION OF THE AGREEMENT 6.1 Changing terms of the present agreement requires written agreement between the Parties, and this agreement can be terminated after its expiry or in advance. The advance termination by any Party is possible by written notification of the other Party not less than 30 days before reputed date of termination. 6.2 The agreement can also be terminated by the Lessor, if the Renter infringes the contractual obligations stated in item 2.3.3, uses leased premises not as required, does not hinder with systematic gross violation by the employees company of the order and, despite of written warning terminating continues to infringe the obligations within 30 days from the date of the notice in writing. 6.3 At advance cancellation of the agreement, the Parties settle all the accounts upon this agreement, outstanding at the date of cancellation. Article 7. RESOLUTION OF DISPUTES 7.1 All disputes and dissents arising from the present Agreement or in connection with it shall be whenever possible settled by negotiations between the Parties. 7.2 In case the Parties can not reach an agreement, the dispute between them is subject to consideration in Arbitration Court of Moscow. Article 8. PARTICULAR TERMS 8.1 All inseparable (without detriment) improvements in the premises, made by the Renter in a location, become the property of the Lessor without reimbursing cost of these improvements to the Renter after cancellation or advance termination of the Agreement. 8.2 The lessor hereby guarantees that he is the proprietor of premises and possesses all necessary and sufficient rights on granting the premises to rent. 8.3 The lessor will have access to leased premises for inspection, repair under advance notification of the Renter, except for extreme cases, like a fire or flood, at which no warning is required. The Renter shall be immediately informed about such access in extreme situations. 8.4 During validity of this agreement, the Renter will have the right to make re-equipment and re-planning of leased premises only under the written approval of the Lessor. -5- 8.5 The Parties are obliged to provide confidentiality of financial and commercial information tangent of conditions of the present agreement. 8.6 All changes and additions to the present agreement should be made in writing and signed by the plenipotentiaries. Article 9. PROPERTIES OF THE PARTIES 9.1 Lessor: the closed joint-stock company "MACHMIR" INN 7704010953 119146, Moscow, 2nd Frunzenskaya ul., 8 Bank account 40702810500000000045 in ZAO AKB <> BIK 044583374 corr.acc. 30101810500000000374 9.2 Renter: ZAO "TriD Store Vostok" INN 119146 Moscow, 2nd Frunzenskaya ul., 8, building 1 Bank account in "Bank Austria" (Moscow) 000 BIK 044525746 corr. acc. 30101810400000000746 The present agreement is signed in triplicate in Russian, all copies having identical legal force, one for each Party and one - for registering bodies. On behalf of the Lessor On behalf of the Renter General director General director /s/ N.N. Kudimov /s/ I.E. Diskin --------------------- ------------------- N.N. Kudimov I.E. Diskin The translation was made by Tatiana V. Vassilieva completely and correctly on 1 page on November 05, 1999. General Director I.E. Diskin -6- EX-10.4 10 EXHIBIT 10.4 THE RENT AGREEMENT No. 5/8 July 05, 1999 The closed joint-stock company "MSU Science Park", hereinafter referred to as "Lessor", presented by the executive general director Movsesyan O.V., operating on the basis of the Charter, on the one hand, and ZAO "TriD Stor Vostok", hereinafter referred to as "Tenant", presented by the General Director I.E. Diskin, operating on the basis of the Charter, on the other hand, have concluded the present Agreement as follows: 1. Subject of the Agreement. 1.1 The Lessor transmits, and the Tenant hires (without the right of repayment) the following uninhabited locations hereinafter referred to as "Locations"), on the territory of the MSU Science Park: Building No. 5 Locations No. 513A, 514, 522 total square of 59,4 sq.m. 1.2 The Tenant uses Locations for its activities according to the presented concept and (or) affirmed project. The Tenant can change the sphere of activities, agreed at the conclusion of the present Agreement, under written consent of the Lessor. 1.3 The rent period is from July 01, 1999 until December 30, 1999. 2. Obligations of the Parties. 2.1 The Lessor will: 2.1.1 After signing of the present Agreement, allow the Tenant to use Locations indicated in item 1.1 of the Agreement, under the Acceptance Report. N.B.: The Lessor can leave the Location by parts upon their availability to maintenance under the Acceptance Report. 2.1.2 Allow the Tenant use of all shared locations and different services for additional payment. 2.1.3 Make overhaul of Locations occupied by the Tenant, together with overhaul of buildings and engineering networks on the territory of the Lessor. 2.1.4 In case of crashes affecting Locations of the Tenant, which occurred without the Tenant's fault immediately take all measures on their removal. Engineering communications can be switched off in case of emergency (crash, breakage, etc.). In these cases, the Tenant will not ask for lowering payment under this agreement or for compensation of damages. 2.1.5 Respect other conditions, foreseen by the present Agreement and the Charter of MSU Science Park MTY. 2.2 The Tenant will: 2.2.1 Use Locations according to item 1.2 of the Agreement only for mutually agreed activities. 2.2.2 Respect the service regulations, monitor fire safety according to the Instruction from 03.04.95 "Measures of fire safety in the MSU Science Park locations" and sanitary status of Locations before leaving them. 2.2.3 In the periods, fixed herein, pay for the rent, services and operation costs of the Lessor connected to the Locations. 2.2.4 Not make any re-planning and re-equipment of the leased Location without a written permission of the Lessor. 2.2.5 Make, at his own expense, the necessary current repairing of the leased Location, as well as its thorough repairs connected to his activities; the Tenant makes the necessary repair of Location as agreed at signing the contract in size and periods defined by a padding agreement to the present Agreement. 2.2.6 Dispose his and related organizations' logos, signboards and pointers at his own expense in places agreed with the Lessor. After termination of the rent, he will remove all signboards, made inscriptions, etc. 2.2.7 Inform the Lessor, in writing in two weeks prior his forthcoming release, and hand over the Location to the Lessor according to the Acceptance Report in a normal state of operability, with allowance of natural wear and tear. Note: The Location will be released with the participation of the Lessor's representative. 2.2.8 In case the Tenant leaves Location before the rent expires or due or termination of the Agreement, he pays the amount needed for making thorough and current repairing, imposed as his duty but not carried out. 2.2.9 Transmit to the Lessor free after expiration or advance termination of the Agreement all modifications, alterations and improvements, made in leased Location, which make its integral part and can not be removed harmlessly. 2.3 The Parties will respect confidentiality of all the information and trade secrets, arising as a result of conclusion and execution of the given Agreement. -2- 3. Payment Terms. 3.1 The Tenant pays to the Lessor for Location, mentioned in item 1.1 herein, the rent, including operational costs and expenditures connection to its servicing, at a rate of 230 US dollars for one square meter of leased premises annually, including VAT, in RUR at the rate of Central Bank of Russia at transfer date. The payment is made on a quarter basis, not later than on 15th date of the first month of each quarter. 3.2 The value of rent can be changed under the mutual agreement due to the change of servicing the leased premises. The padding rent is paid upon the invoices from the Lessor. 3.3 The final settlement of all payments is made in the end of each quarter, basing on actual expenditures of the Lessor. The difference upon recalculation is paid by the Tenant. 4. 4.1 In case of delay, the Lessor pays fine at the rate of 0,3% of the sum due per each day of delay. 4.2 For non-fulfillment of any obligation upon the present Agreement, the Tenant pays a penalty of 10% from annual rent. 4.3 Payment of sanctions upon the present Agreement does not release the Tenant from execution of his obligations or elimination of violations. 5. Maintenance of Order and Use of Locations. 5.1 The Lessor is not responsible for any faultiness detected after signing the Acceptance Report. The Tenant can not require their elimination or remedial. 5.2 The Lessor is not responsible for safety of property in leased locations, as well as of property outside the locations. 5.3 The Tenant bears responsibility for damage being a result of his activities or activities of third parties, using the Locations with his consent. The Tenant will remove or reimburse this damage. 5.4 The Tenant immediately informs the Lessor of any faultiness in the Locations. The Tenant is responsible for any damage not in his guilt, but about which he has not informed the Lessor in time. 5.5 The Tenant can make redecoration, including walls decoration, coloration and coating the floors. -3- 5.6 Maintenance of entrance halls, corridors, ladders and shared locations is the responsibility of the Lessor. 5.7 Maintenance of adjacent territory and access roads is the responsibility of the Lessor. 5.8 Changes, re-equipment and re-planning of Locations at the expense of the Tenant can be carried out only with a written permission of the Lessor. The permission can be given only provided that after ending of rent the Tenant puts Locations in a primal state at his own expense. 5.9 If the changes, made by Tenant under the written coordination with the Lessor, remain after termination of the Agreement, the Tenant can not claim reimbursement of their cost. 5.10 The Tenant will not conduct operations, which can hinder other clients of the Lessor, on working days from 9 AM till 6 PM. 5.11 The Tenant or his representatives can enter the leased Locations on working days during working hours. The entrance in other time will be agreed with the Lessor in writing. 5.12 Installation in Locations of heavy equipment (over 100 kilos weight) is subject to checking of its correspondence with the ultimate load on the floor and with a written permission of the Lessor. 5.13 Stacking or installation of equipment and subject of the Tenant outside of leased Location is forbidden. If by way of exception the Lessor gives a temporary permission on such a location, the Tenant bears responsibility for any damage, connected to it. 5.14 The vehicles of the Tenant and his employees are to be disposed on parking place of the Lessor at additional expense and in the order, fixed by the Lessor. Parking of the Tenant's vehicles or those upon his order in other places is allowed only for loading and unloading. 5.15 The Tenant is responsible for any damages caused by his means of transport, arrived upon his order. 5.16 In case of contamination by the Tenant's vehicles of the land lot or Locations, the Tenant will remove the contamination immediately. 5.17 The Tenant will place his wastes in the containers, specially assigned for this purpose. If the size of scraps exceeds a size of the container, the Tenant will export scraps from the Lessor's territory by himself. Allocation of scraps near to containers or on other sites of territory is forbidden. -4- 5.18 For the development of the Science Park infrastructure, duly overhaul of buildings and engineering networks, improving operation of leased Locations, the Lessor can attract padding resources of the Tenant on conditions defined by follow-up agreements. 6. Change of the Agreement and Resolution of Disputes. 6.1 The changes and additions to the present Agreement are real only under written consent of both Parties. 6.2 In case some provisions of the present Agreement lose force, other provisions remain valid. 6.3 Any dispute and inconsistencies relating the present Agreement, the Parties try to settle by means of negotiations. If the Parties can not achieve the compromise, the dispute is authorized in the order fixed by the legislation of the Russian Federation. 7. Advance Cancellation of the Agreement. 7.1 The present Agreement can be terminated in advance: 7.1.1 On mutual consent of the Parties on conditions defined by the appropriate written agreement, but not contradicting to the present Agreement and to the obligations of any Party before the third persons. 7.1.2 At advance cancellation of the Agreement under the initiative of the Tenant, he can not claim returning of the paid rent and other premiums for the unused rent period. 7.2 The agreement is subject to advance cancellation, and Tenant to eviction: 7.2.1 In the case of usage by the Tenant of the building or Location (as a whole or in part) not according to the lease Arrangement. 7.2.2 If the Tenant worsens the state of a Location intentionally or on imprudence. 7.2.3 If the Tenant has not paid the rent within two months after written warning of the Lessor. 7.2.4 If the Tenant does not make overhaul in case it is his duty upon the Agreement. 7.2.5 In case of state necessity for a leased Location (with return to the Tenant of the paid rent and other payments for the unused rent period). -5- 8. Force Majeure. 8.1 The Parties are released from partial or complete violation of the obligations under the present Agreement, if this violation was caused by force majeure, arising after signing of the present Agreement as a result of extreme circumstances (natural disasters, operation and acts of state bodies, etc.), which the Parties could neither foresee, nor prevent by reasonable means. 8.2 In case of force majeure the performance of obligations under the present Agreement is removed in time proportionally to duration of force majeure and its consequences, upon agreement between the parties (coordination protocol is necessarily attached). 9. Other Conditions 9.1 The Tenant has no paramount right on the new period of rent. 9.2 The present Agreement is in two copies of identical legal force, one for each party. 10. Legal Addresses and Properties of the Parties. 10.1 Lessor: ZAO Science Park MSU 119899, Moscow Vorobyovy gory, 1 building 75 Moscow State University Science Park Account No.: 40702810400040000875 in CB "Moscow Lights" BIC 044525983 Correspondent account 30101810700000000983, INN 7729088180, OKONH codes 95120, 95400, OKPO code 17363304 10.2 Tenant: ZAO "TriD Store Vostok" 119146, Moscow, 2nd Frunzenskaya ul., 8 Account 40702810500008996710 in "CB Bank Austria Creditanshtalt" Correspondent account 30101810400000000746 BIC 044525746 OKPO code 49930006 OKONH 95120 -6- Lessor: Tenant: Acting General Manager General Manager of MSU Science Park of ZAO "TriD Store Vostok" /s/ O.V. Movsesyan /s/ I.E. Diskin - ----------------------------- ------------------------------ O.V. Movsesyan I.E. Diskin The translation was made by Tatiana V. Vassilieva completely and correctly on 6 pages on November 05, 1999. General Director I.E. Diskin -7- EX-10.5 11 EXHIBIT 10.5 ATTACHMENT N 1 To the Rent Agreement No. 5/8 Dated July 05, 1999 THE ACCEPTANCE REPORT On Rent of Locations Moscow July 05, 1999 Limited Shareholders' company "MSU Science Park", hereinafter referred to as "Lessor", presented by the acting general director Movsesyan Oleg Vladimirovitch, operating on the basis of the Charter, on the one hand, and ZAO "TriD Store Vostok", hereinafter referred to as "Tenant", presented by General Director I.E. Diskin, operating on the basis of the Charter, on the other hand, state herein that the Lessor has handed over, and the Tenant has accepted for rent in building #5 locations ## 513A, 514, 522 with common space of 59,4 sq.m. The location is equipped with steam heating, electric lighting, power supply (European and domestic standard) and telephones No. _________________, No. ________________, No. __________________ and No. ______________. The locations and internal communications are accepted by the Tenant in use in properly functioning state with the standard (improved) furnish. The Tenant will maintain Locations during rent in the primary state. Any improvements in Locations conducted by the Tenant upon his initiative do not influence the mutual calculations. The Tenant will provide insurance of apparatus, machinery, audio- and video equipment, furniture, etc., located in the rented premises. From the Lessor: From the Tenant: Acting General Manager General Manager of MSU Science Park of ZAO "TriD Store Vostok" /s/ O.V. Movsesyan /s/ I.E. Diskin - ----------------------- --------------------- O.V. Movsesyan I.E. Diskin The translation was made by Tatiana V. Vassilieva completely and correctly on 1 page on November 05, 1999. General Director I.E. Diskin EX-10.6 12 EXHIBIT 10.6 EXHIBIT 10.6 OPTIMA SERVICES AGREEMENT (MEMBER) THIS SERVICES AGREEMENT, (this "Agreement") is made this April 23, 1999 by and between OMNI OFFICES INC. ("Optima")and the undersigned ("Client") C3D, Inc. for the short term use of certain services and facilities offered by Optima at 1875 Charleston Road, Mountain View, CA 94043 (the "Facility"). In consideration of the mutual covenants and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. TERM. The term of this Agreement shall begin on July 1, 1999 and end on July 30, 1999 (the "Initial Term"). Upon the expiration of the Initial Term, this Agreement shall be automatically renewed each month thereafter upon the same terms and conditions, except as may be otherwise provided herein, for successive one-month terms (each, a "Renewal Term") unless earlier terminated by either party upon thirty (30) days advance written notice received by Optima no later than the first day of any month during the term of this Agreement. The Initial Term, together with all Renewal Terms, is referred to herein as the "Term" of this Agreement. 2. BASIC FEE. Client shall pay $1,534.47 (the "Fee") per month during the Term, which shall entitle the Client to the services listed in Schedule "A". The Fee may be subject to escalation on the first day of each calendar year if, and in the same percentage increment that, the rent paid by Optima on the Facility is escalated pursuant to Optima's lease for the Facility (the "Optima Lease"). 3. SERVICES AND FEES. Optima hereby grants to Client the nonexclusive privilege and right, subject to the terms and conditions contained herein, to use in common with other customers, tenants, licensees, occupants and other parties with whom Optima may contract, certain office services (the "Services") provided by Optima between the hours of 9:00 A.M. and 5:00 P.M. Monday through Friday (except on public holidays) as described on Schedule "B". Charges for the Services shall be billed separately from the Fee at the rates indicated on Schedule "B". Client shall pay all such charges promptly upon receipt of each invoice for such charges. At any time the charges incurred by Client for the Services exceed the amount of the Expense Deposit stated below, Optima shall not be obligated to provide any further Services under this Agreement until the balance due is reduced below the amount of the Expense Deposit. 4. USE OF SERVICES. Client shall use the Services only for the following business purposes: computer peripherals and for no other use without Optima's prior written consent. The following individual shall be entitled to the Services and the use of the Facility, on behalf of Client: Ingolf Sandler. In addition for so long as they are employees of Client, shall be entitled to the Services, and the use of the Facility, on behalf of Client, except that Optima shall not be obligated to take or receive telephone messages for or on behalf of such individuals. Client shall be responsible for prompt payment of all invoices for Services provided to any of the individuals identified in this Paragraph 4. Furthermore, Client shall use the Services in compliance with all applicable laws and Client shall not use the Services for any purpose that may be dangerous to life, limb or property, or that may invalidate or increase the premium of any insurance policy carried on the Facility or the building containing the Facility or covering its operation. Client shall not suffer or permit the Facility to be used in any manner or anything to be brought into or kept therein that, in the judgment of Optima, shall in any way impair or tend to impair the character, reputation or appearance of the Facility, or that will impair or interfere with or tend to impair or interfere with any of the Services provided by Optima for the Facility. Client shall not be entitled to transfer, assign or sublease its rights to the Services or under this Agreement to any other person or entity. In addition, Client acknowledges receipt of a copy of Optima's Rules and Regulations, which are incorporated herein by reference, and agrees to strictly comply with them. Any unauthorized use of the Services by Client or any violation of the Rules and Regulations shall be deemed a default hereunder and in addition to any other remedies available to Optima hereunder and both at law and in equity, Optima shall be entitled to retain the Expense Deposit as partial liquidated damages and Client acknowledges that this provision is fair and reasonable under the circumstances and is not a penalty. 5. EXPENSE DEPOSIT. Client shall deposit in advance with Optima a deposit of $1,900.00 (the "Expense Deposit"). In the event of any default by Client hereunder, Optima may, cumulative to all other remedies found at law or in equity, apply or retain all or any part of the Expense Deposit to cure such default or to reimburse Optima for any damages, losses, claims or expenses Optima may have incurred by reason of the default. If at the end of the Term Client shall not be in default under this Agreement, the Expense Deposit, or any balance thereof, shall be returned to Client without interest. The Expense Deposit is not to be considered the final payment due under this Agreement. 6. NO LIABILITY. Client acknowledges and agrees that the Services provided are subject to human, electrical and mechanical error or other failure, which may result in the delay, omission or discontinuance of the Services. Client further acknowledges that the Services are without any warranty of any kind or character. Client's sole remedy, and Optima's sole obligation for any failure to render any Service, any error or omission, or any delay or interruption with respect thereto, is limited to an adjustment to Client's billing in an amount equal to the charge for such Service, for the period during which the failure, delay or interruption continues. WITH THE SOLE EXCEPTION OF THE REMEDY SET FORTH IN THIS PARAGRAPH, CLIENT EXPRESSLY AND SPECIFICALLY AGREES TO WAIVE, AND AGREES NOT TO MAKE, ANY CLAIM FOR DAMAGES, DIRECT OR CONSEQUENTIAL, INCLUDING WITH RESPECT TO LOST BUSINESS, ARISING OUT OF ANY FAILURE TO FURNISH ANY SERVICE, ANY ERROR OR OMISSION WITH RESPECT THERETO, OR ANY DELAY OR INTERRUPTION OF THE SAME. Notwithstanding anything in this Agreement to the contrary, there shall be no such billing adjustment if Client is in default hereunder. All personal property of Client located from to time at the Facility shall be at the sole risk of Client and Optima shall not be liable for and is hereby released from all liability with respect to damage thereto or theft thereof to the full extent allowed by law. 7. INDEMNITY. As part of the consideration hereunder, Client expressly indemnifies and holds Optima harmless from any and all claims, demands, losses, expenses, injury to either person or property, and any other damage or loss, including reasonable attorney's fees, which Optima may incur as a result of this Agreement. Client acknowledges that Optima shall have no liability to Client as to any claim for damages of any kind or character except such damages resulting directly from Optima's gross negligence. In no event shall Optima be liable for the conduct of any other client, tenant, occupant, licensee or invitee of the Facility, and such conduct shall not give Client the right to terminate this Agreement. 8. EMPLOYEES. Client recognizes that Optima has expended considerable time, effort and expense in training Optima's employees so as to provide high quality service to Client, and that the hiring by Client of Optima's present employees or any employee employed by Optima within a six (6) month period prior to the employment offer by Client to such employee would save Client, and cause Optima to expend, considerable time and expense in training and procurement, the amount 2 of which cannot be determined with certainty. Should Client, during the Term of this Agreement or a period of twelve (12) months thereafter, offer employment to or subsequently employ any employee of Optima who is or was an employee of Optima at any time during the six (6) month period immediately preceding such offer of employment by Client, Client shall pay to Optima, as a procurement fee and not as a penalty, a sum equal to forty percent (40%) of the annual salary last payable by Optima to such employee or $8,000.00, whichever is greater. The payment of said procurement fee shall be cumulative to any other rights and remedies available at law and in equity. 9. DEFAULT. In the event that Fee or charges for the Services are not paid within five (5) calendar days after receipt of an invoice for Services, or of written notice from Optima that same have not been paid when due, or if Client shall fail to comply with any of the terms and provisions of this Agreement, Optima may discontinue providing any Service to Client without further notice, including, without limitation, disconnecting telephone services, and Optima may exercise any and all other rights and remedies Optima may have under this Agreement or at law or in equity, Client agrees to pay reasonable attorneys fees and other disbursements incurred by Optima in enforcing any of Client's obligations under this Agreement. 10. SUBORDINATION. This Agreement and all rights of Client hereunder are and shall be subordinate to the Optima Leases, as modified or amended, any and all future leases of the Facility or mortgages, deeds to secure debt or other instruments encumbering the Facility. This Agreement shall terminate and be of no further force or affect upon termination of the Optima Lease. 11. NO INTEREST IN PROPERTY. Client expressly acknowledges and agrees that no easement, usufruct, lease or other estate or interest in real or personal property is granted by this Agreement. 12. NOTICES. All notices required by this Agreement shall be in writing and shall be deemed to have been given when hand-delivered or three (3) days after deposited, postage prepaid, with the United States Postal Service, certified, return receipt requested, and properly addressed as follows: If to Optima: OPTIMA OFFICES/Atlanta 1875 Charleston Road Mountain View, CA 94043 if to Client: (other than facility address) C3D, Inc. 747 3rd Avenue New York, NY 10017 13. INSURANCE. Client acknowledges that it shall be responsible for maintaining such insurance as Client deems necessary to protect against risk of injury or damage to person or property, including Client's property. Any fire and extended 3 risk casualty insurance that Client maintains shall include a waiver of subrogation in favor of Optima and the landlord under the Optima Lease, and any fire and extended risk insurance carried on the Facility by Optima shall likewise contain a waiver of subrogation in favor of Client. In the event the Facility is damaged, destroyed or taken by eminent domain or acquired by private purchase in lieu of eminent domain so as to render the Facility untenantable or unrestorable in Optima's judgment, then within thirty (30) days thereafter by written notice to the other party, either party shall be entitled to terminate this Agreement, but otherwise it shall remain in full force and effect. 14. ARBITRATION. In the event Client alleges any claim against Lessor, Lessor shall have the option of submitting the matter to arbitration on an expedited basis, pursuant to the procedure established by the American Arbitration Association in the metropolitan area in which the Premises are located in lieu of the institution of legal proceedings by Client; Client hereby waiving such right. The decision of the arbitrator shall be binding on the parties. The costs of arbitration shall be paid for by the non-prevailing party, as determined by the arbitrator. 15. CONSTRUCTION. This instrument contains the entire agreement between the parties relative to the subject matter hereof and may not be modified or waived except in a writing signed by Optima and Client. This Agreement shall be construed and enforced in accordance with Georgia law. In the event that any part of this Agreement shall be held to be unenforceable or invalid, the remaining parts of this Agreement shall nevertheless continue to be a valid and enforceable as though the invalid portions had not been a part hereof. Time is of the essence as to the performance of all covenants, terms and provisions of this Agreement by Client. IN WITNESS WHEREOF, Optima and Client have executed this Agreement as of the date first written above. OPTIMA: OMNI OFFICES INC. By: /s/ C. Thodas --------------------------- C. Thodas Title: ___________________________ CLIENT: C3D, Inc. By: /s/ Eugene Levich --------------------------- Title: CEO Schedule "A" ------------ Mail Receipt Telephone Set and Maintenance Voice Mail Office #31 8 Hours Small Conference Room Use Schedule "B" ------------ Services Fees - -------- ---- Secretarial $17.00 per 1/2 hour Training Room $85.00 per hour Copies $0.20 per page Faxes $1.00 per page Modem (out only) $5.00 per day Modem (two-way) $10.00 per day IBM PC/OMNINET $12.50 per hour MacIntosh/OMNINET $12.50 per hour Laser printer $0.20 per page Storage (container) $15.00 per month Binding $2.50 (soft cover) Shipping UPS - $2.00 per shipment + carrier costs Fed-Ex - $2.00 per package + carrier costs Express Mail - actual time + Messenger time AT&T Language Lines $3.29 per minute Office Supplies Cost + Secretarial time In House Travel Agency Included Call Announce $50.00 per month Additional Voice Mailboxes $25.00 per month Use of the other OPTIMA locations (based on availability and subject to the current rate charged at the destination OPTIMA location) *****RATES SUBJECT TO CHANGE WITH 30 DAY NOTICE***** 4 RULES AND REGULATIONS (1) Lessees will conduct themselves in a businesslike manner; proper attire will be worn at all times; the noise level will be kept to a level so as not to interfere with or annoy other lessees. (2) Lessee will not affix anything to the walls of the Premises without the prior written consent of the Lessor. (3) Lessee will not prop open any corridor doors, exit doors or doors connecting corridors during or after business hours. (4) Lessees using public areas may only do so with the consent of the Lessor, and those areas must be kept neat and attractive at all times. (5) All corridors, halls, elevators and stairways shall not be obstructed by Lessee or used for any purpose other than egress and ingress. (6) No advertisement or identifying signs or other notices shall be inscribed, painted or affixed on any part of the corridors, doors or public areas. (7) Lessee shall not, without Lessor's written consent, store or operate any computer (except a desk top computer) or any other large business machines, reproduction equipment, heating equipment, stove, speaker phones, radios, stereo equipment or other mechanical amplification equipment, refrigerator or coffee equipment, or conduct a mechanical business, do any cooking, or use or allow to be used on the Premises oil, burning fluids, gasoline, kerosene for heating, warming or lighting. No article deemed extra hazardous on account of fire or any explosives shall be brought into said Premises or Facility. No offensive gases, odors or liquids will be permitted. (8) If Lessee requires any special wiring for business machines or otherwise, such wiring shall be done by an electrician designated by Lessor at Lessee's cost. The electrical current shall be used for ordinary lighting purposes only, unless written permission to do otherwise shall first have been obtained from Lessor at an agreed cost to Lessee. (9) If Lessee requires any special wiring for telephone equipment or otherwise, such wiring shall be done by personnel designated by Lessor at Lessee's cost. Lessor reserves the right to limit the number and type of lines Lessee can install in Lessee's premises. 5 (10) Lessor and its agents shall have the right to enter the Premises at all reasonable hours for the purpose of making any repairs, alterations or additions which it shall deem necessary for the preservation, safety or improvements of said Premises. In addition, Lessor may enter the Premises to show same at any time within sixty (60) days prior to the end of the term. (11) Lessee shall give Lessor immediate access to the Premises to show said Premises on Lessee or Lessor giving notice of intent to vacate in accordance with the provisions of the Agreement. The Lessee shall in no way hinder the Lessor from showing said Premises. In addition, Lessor may enter the Premises to show same at any time within sixty (60) days prior to the end of the term. (12) Lessee may not conduct business in the hallways or corridors or any other areas except in its designated offices without written consent of Lessor. (13) Lessee will bring no animals into the Premises or Facility. (14) Lessee shall not remove furniture, fixtures or decorative material from offices without written consent of Lessor. (15) Lessor reserves the right to make such other reasonable rules and regulations as in its judgement may from time to time be needed for the safety, care and cleanliness of the Facility. (16) Lessee shall not smoke nor allow smoking in any area of the Facility and shall comply with all governmental regulations and ordinances concerning smoking. (17) Lessee shall not allow more than three (3) visitors in the reception lobby of the Premises at any one time. (18) Lessee shall cooperate and be courteous with all other occupants of the Facility and Lessor's staff and personnel. 6 EX-10.7 13 EXHIBIT 10.7 EMPLOYMENT AGREEMENT Duly executed at 15th on July 1998 BY AND BETWEEN Memory Devices (M.D.)(1996) Ltd. ("the Company") of the first part; AND Ronen Yaffe (I.D. 024914384) ("the Employee") of the second part WHEREAS the Company wishes to employ the Employee according to the terms and conditions set herein; and WHEREAS the employee agrees to be employed by the Company according to the said terms and conditions; Now therefore in considerations of the mutual promises and agreements, the parties hereto agree, declare and stipulate as follows: 1. The preamble and any appendix attached hereto shall constitute an integral part hereof. 2. It should be emphasized in reference to this document that "the Company" herein also includes certain subsidiary and/or affiliated companies of the Company. 3. The Company hereby employees the Employee as Chief Financial Officer ("CFO") and the Employee accepts such employment upon the terms and conditions of this agreement. 4. The Company hereby employs the Employee and the Employee hereby agrees to serve as CFO for an unlimited term of employment which shall be terminated (hereinafter called the "Term of Employment") (a) the death or disability (as defined herein) of the Employee or the termination of employment by the Company with cause, or (b) upon a 60 day prior notice, in the event the board of directors of the Company (or any person nominated by the board of directors to hold such powers), at its sole discretion, determines to end the employment of the Employee, or (c) upon a 60 day prior notice, in the event that the Employee determine to end his employment; or (d) immediately without notice if the agreement is terminated for cause (as defined below). (a) For the purpose of this Agreement, "disability" shall mean any physical or mental illness or injury as a result of which Employee remains absent from work for a period of two (2) successive months, or an aggregate of four (4) months in any twelve (12) month period. Disability shall occur upon the end of such two-month or four month period, as the case may be. (b) For the purpose of this Agreement, "cause" shall exist if the Employee (i) materially breaches of the terms of this Agreement; (ii) engages in willful misconduct or acts in bad faith with respect to the Company in connection with and related to the employment hereunder; (iii) is convicted of a felony or is held liable by a court of competent jurisdiction for fraud against the Company and/or any of its officers, directors or employees in their capacity as so; or (iv) fails to comply with any material instructions of the Company's Board of Directors given in good faith. (c) During the period following notice of termination by any party for any reason, the Employee shall cooperate with the Company and use his best efforts to assist the integration into the Company's organization of the person or persons who will assume the Employee's responsibilities. 6. During the Term of Employment the Employee shall, except during customary vacation periods and periods of illness, devote all necessary time and attention to the business of the Company and shall perform his duties diligently and promptly for the benefit of the Company and shall not undertake or accept any other paid or unpaid employment of occupation or engage in or be associated with, directly or indirectly, any businesses, duties or pursuits and shall devote his attention to promoting the best interests of the Company and he shall not, either during or outside such normal business hours engage in any activity inimical to such best interests. The Employee shall competently perform all assigned duties; carry out the policies, directives, and decisions of the Board; not withhold information from the Board, and refrain from any conduct which is illegal, dishonest, fraudulent, or detrimental to the Company or any affiliate's business. 7. The Employee represents and warrants to the Company that the execution and delivery of this Agreement and the fulfillment of the terms hereof (i) will not constitute a default under a breach of any agreement or instrument to which he is party or by which he is bound, including without limitation, any confidentially and non competition agreement, (ii) does not require the consent of any person or entity (iii) shall not utilize during the term of his employment any proprietary information of any third party, including prior employers of the Employee. 8. The Employee acknowledges that his position requires a special measure of personal trust as defined in the law of hours work - 1951 and therefore the Employee shall not be entitled to any additional compensation for extra hours of work. 9. The Employee shall be employed in the offices of the Company in Israel but it is agreed that Employee shall be required to spend time in other offices of the Company world wide and/or at sites outside of Israel. The Employee agrees to the above and shall not receive any special reimbursement for trips outside of Israel and/or time spent outside the Company's offices in Israel, except reimbursement of expenses. (a) For the purpose of this Agreement, "disability" shall mean any physical or mental illness or injury as a result of which Employee remains absent from work for a period of two (2) successive months, or an aggregate of four (4) months in any twelve (12) month period. Disability shall occur upon the end of such two-month or four month period, as the case may be. 10. In consideration for the services provided by the Employee to the Company, the Employee shall be entitled to compensation and other benefits as detailed in Appendix A' attached hereto. 11. The Employee undertakes, in addition to any other commitment it may take upon itself, and without derogating from any such undertaking, to confirm and fulfill all the undertakings set in the non disclosure, assignment of rights and non competition undertaking set in Appendix B' attached hereto. 12. Irrespective of the place where this agreement may be executed, in any event that differences may arise between the parties in any matter regarding this agreement or arising therefrom, such differences shall be determined by the laws of the State of Israel in the competent courts of Tel Aviv. 13. The instructions of this agreement will be abided with respect to all the extended periods with the necessary modifications as the case may be. 14. The Employee undertakes to keep the terms of this Agreement and the terms of any Appendix strictly confidential and not disclose this agreement and/or any of the terms therein and/or any part thereof, to any third party including any other employees of the Company. Any breach of this undertaking shall be deemed a material breach of the undertakings of the Employee according to the terms of this agreement. 15. The Employee hereby declares and confirms that he has read and understood the Agreement and the appendices attached thereto, had the opportunity to receive any additional information and clarifications required in connection thereto and had the opportunity to consult with professional advisors concerning the terms herein and only after all the above he executed this agreement. 16. The effective date of this agreement shall be as of July 20, 1998. In witness whereof the parties hereto have set thereof signatures: /s/ Ronen Yaffe /s/ Eugene Levich - -------------------------- ------------------------ Employee the Company APPENDIX A 1. In consideration for his employment and subject to the performance of the services required to be performed hereunder by the Employee, the Company shall pay to the Employee a Salary (as defined below) and additional benefits as detailed herein. 2. The Salary (as defined below), shall be defined and paid in NIS. 3. Salary. During the Term of Employment, the Company shall pay to the Employee the gross sum of NIS 17,500, (which includes the proportional part of the annual vacation compensation "dmei havraa" to be paid as part of every salary) less appropriate payroll taxes and other deductions, ("the Salary") with annual reviews and adjustments which shall be resolved no later than March 31st of each year, if any, at the discretion of the Board. From the Salary, the following shall be deducted- income tax, social security and any other tax and/or loan and/or another payment which may be due from time to time on a payment paid by the Company to the Employee, and which should be deducted from the payment due to the Employee according to the law and/or the relevant regulations and/or as agreed with the Employee and subject to any term or condition written herein above and hereunder in this Employment Agreement. The Salary shall be paid to the Employee each month, no later than 8 days from the end of the Calendar month for which the salary is paid. 4. Expenses The Company shall reimburse the Employee, upon presentation of proper documentation, for reasonable expenses incurred by the Employee in the performance of his assigned duties. In addition, the Company shall reimburse the Employee for the following expenses: (a) Reimbursement of expenses incurred by the Employee during his performance of his assigned duties overseas. The rate of such reimbursement inclusive of living expenses abroad will be determined from time to time by the Board. (b) The Company shall provide the Employee with a car, type and model to be determined by the Board, according to the customary type of cars provided to managers in the status of the Employee and shall replace the said car at lease once every 4 years. Any car maintenance expenses including insurance, petrol, car repairs, registration etc. shall be borne by the Company (and that shall be included in the Salary) and payment of expenses as aforesaid. The Employee shall bear the taxes levied on him due to the provision of the said car by the Company to him and such taxes shall be included in the Salary. (b) The Company shall pay the Employee travel expenses as required by law. 5. Employee Insurance, Specialization Fund, Severance pay and fringe benefits. (a) According to the Employee's request, the Company and the Employee shall insure that during his period of employment in the Company he shall be insured by an existing Employee Insurance Policy ("Bituach Menahalim"), registered in his name or by a new policy, in the event that it is no longer feasible to continue the existing policy in his name, or shall be insured through payments to a pension plan. The Company shall allocate for this end 5% of the amount of each monthly Salary to a remuneration fund ("tagmulim") and 8.33% to a severance fund and 2.33% as insurance for lack of ability to work and shall also deduct from the Employee's Salary 5% as his participation to the said remuneration fund. The said deductions from the Employee's Salary shall be made from his salary. (b) To avoid any doubts it is clearly understood by both parties that the payments in concept of severance either to Managerial Insurance or pension funds are done in concept of the Company's future obligation to pay severance to the Employee, and the Employee will be entitled to receive them upon termination of the agreement for any reason except for cause ad defined above, and provided that in the case the Employee is entitled to receive severance payment the amounts that accumulated in these plans cover the Company's obligation. Should the coverage as previously stated not be sufficient the Company will take duly care of completing the amounts to which the Employee is entitled according to the Law. (c) The Company shall allocate for a specialization fund (Keren Hishtalmot), in the Employee's name an amount of 7.5% of the Salary and shall deduct from his salary 2.5% as the Employee's allocation due to his participation in such fund, not to exceed the amounts allowed by the Income Tax Ordinance as a recognized deduction. In case that any law prohibits the Company from performing its obligations, in whole or in part, to the Employee according to the provisions of this clause, the Company shall seek other measures and tools to enable it to perform these obligations under other procedures so as to provide the Employee with benefits identical in amount to said obligations. 6. Vacations. The Employee shall be entitled each year to two (2) weeks vacation and the working days in the Passover and Sukot holidays - chol and Moaed), however this period does not include Fridays, Saturdays and holidays whose dates are during the vacation period of the Employee. The Employee shall be entitled to accumulate vacation days for a period of upto 2 years and shall not be entitled to redeem his vacation or a part thereof. 7. Illness. The Employee is entitled to receive the consideration due to illness during the period of illness upto the amount due for 30 days of sick leave each year and these will not be deemed as vacation days as defined in section 6 above. The sick leave days may not be and shall not be redeemable. The sick days may be accumulated from year to year a period not to exceed two years. 8. Reserve Duty. The Employee is entitled to receive the full consideration for the period his military reserve duty, subject to delivery of all the documents required for collection of the maximum possible amount paid by the Social Security due to such military reserve period. The Company shall receive the funds paid by the social security. 9. Options. The Employee shall be entitled to receive options of the Company, as determined by the board of directors, if the Company shall adopt an option plan for its employees. 10. Bonus. The Employee shall be entitled to receive a bonus if the Company shall distribute a bonus to its employees, as determined by the board of directors and dependant of the performance of the Employee and financial results of the Company. APPENDIX B' Date: _____________ To Memory Devices (96) (M.D.) LTD Re: Non disclosure, assignment of rights and non competition undertaking I the undersigned, Ronen Yaffe (Israeli I.D. 024914384) hereby confirm and undertake herewith as follows: 1. Due to the fact that I am employed by you and/or any subsidiary and/or any affiliate and/or parent company of yours (together referred to jointly as "the Company") and in the framework of my employment by the Company, I hereby state and undertake towards you that in relation to any information and document, including data, inventions, patents, ideas, software or parts of software, software applications, lists of customers and any technical, business or other information which I may receive in the framework of my employment in the Company and/or with any customer, supplier, supplier of services of any type and/or a third party with whom the Company is currently involved in business relations with, whether directly or indirectly, including the contents of this letter of undertaking (the "Information"), I shall act as set herein below. 2. I hereby undertakes that for the duration of my employment by the Company and during 5 more years past the termination of my employment due to any reason whatsoever, I shall keep in complete confidence and shall not reveal or transfer to any third parties, directly or indirectly, any of the Information, including of (but limited to) any information or professional secret and/or research and development and manufacturing processes which may come to my knowledge due to my work in the Company and/or in the course of my work in it. 3. a. I shall not be entitled to copy any document furnished to me by you and which contains the Information or that reached me in any other way, except for the purpose of which the Information was given to me and/or in connection with my employment by you. I further undertake not to remove the Information and/or any part thereof from the premises of the Company, without the prior written consent of the board of directors of the Company or a person nominated to provide such approvals by the board of directors of the Company. b. For the purpose of the instructions of this Letter, each and/or copying may be deemed as if it were the original document from which they were made. c. Document for the purpose of this Letter of Undertaking shall refer to: Any presentation of letters, figures or marks in visible shape, audible or given to visual, audible or other type of deciphering, as well as any form of maintenance of information by a mechanical, physical, chemical, magnetic, political, biological or electronic manner. 4. I shall not disclose the Information, in whole or in part, to any person whatsoever except as allowed according to the terms of this letter of undertaking. 5. a. I shall preserve the Information and/or any equipment and/or any document which includes the Information (or is owned by you) in a safe manner and will take every action required to the preservation of the documents which you shall forward to me. b. I shall inform you as soon as I have knowledge of a loss or suspicion to a loss of any document which included the Information and/or any part thereof. I shall also inform you as aforesaid about any suspicion of leakage of the Information and/or its transfer to third parties, should I find out about it. 6. The following information shall not be deemed part of the Information, provided it falls into one of the following categories through no act or omission committed by me. a. The Information is public knowledge at the time of its delivery to me or becomes so through no wrongful act of me. b. Is rightfully received from a third party without restrictions and can be evidenced as so. c. Is approved by release by your written authorization. 7. I shall return to you and/or destroy, upon your first request and/or in any event of termination of my employment by your Company for whatever reason, all the Information and shall return to you all equipment delivered to me by you and every document and/or magnetic media which includes the Information which is in my possession, along with any document which has been prepared by me and/or for me relating to the Information and/or which I received in the framework of my employment by the Company. I undertake to provide you, no later then 7 days after your request, with a sworn affidavit giving effect to the above. 8. I hereby agree and declare that all proprietary information including but not limited to trade secrets and know-how, patents and other rights in connection therewith developed by or with contribution of my efforts during the period of my employment by the Company, shall be the sole property of the Company and I shall have no rights therein and herein assign any and all rights I may have, if any, to the Company for no consideration. I further undertake that I shall execute any document necessary to assign any patents and/or any other intellectual property (including copyrights and/or trade secrets) to the Company and otherwise transfer such proprietary rights to the Company for no consideration. Further, any document and/or opinion prepare by me shall constitute a proprietary document belonging to you and I shall not utilize same for any purpose and shall not introduce same to any third party, except with your prior consent in writing and I shall have no claim and/or demand from the Company in connection with any rights as aforementioned. My execution of this document shall irrevocably empower the chairman of the board of directors of the Company and any other person nominated by board of directors to execute any document to give effect to the above and the said Chairman or other person so nominated shall have the right to execute any power of attorney, deed of assignment or contract to give effect to the above. Signature: /s/ Ronen Yaffe ---------------------- 9. I hereby agree and covenant that so long as (i) I am an employee of the Company, and/or (ii) I am a director or office holder of the Company, or designates a director of the Company, whichever is later (such period, the "Involvement Period"), and for a period of 24 (twelve) months thereafter, I shall not engage, directly or indirectly, in research, development and manufacture of products identical to, similar to, having similar functions to the products manufactured by the Company or completing with the products manufactured by the Company. The above shall also apply to products that are in the research and developments phase. I further undertake that I shall not solicit employees, customers or suppliers of the Company. I Further agree and covenant that so long as (i) I am an employee of the Company, and/or (ii) I am a director or office holder of the Company, or designates a director of the Company, whichever is later (such period, the "Involvement Period"), and for a period of 24 (twelve) months thereafter, I shall not engage, directly or indirectly, in marketing and distribution of products identical to, similar to, having similar functions to the products manufactured by the Company or competing with the products manufactured by the Company in identical markets as the Comp[any operates or intends to operate in. The above shall also apply to products that are in research and developments phase. I hereby agree that during a period of three years from the termination of my employment wit the Company (including any extension thereof) and during a period of one year following termination of employment of any employee of the Company, the later of the two, I shall not employ or join in any partnership, directly or indirectly, with any individual employed by the Company. 10. I acknowledge that the restricted period of time and geographical area specified in section 9 above are reasonable in view of the nature of business the Company is engaged in and my knowledge of the Company's business products. Notwithstanding the above, if the period of time or the geographical area specified under section 9 shall be determined to be unreasonable in any judicial proceeding, then the period of time and area restriction shall be specifically and locally reduced so this agreement can be enforced in such area and during such period of time as shall be determined to be reasonable by such judicial proceeding. 11. The undertakings herein shall also apply in respect of any information received by my by virtue of my employment and/or contacts with third parties as a representative of the Company (including due to the activity of the Company as a sub contractor and/or supplier and/or sub supplier and/or supplier of services) and this undertaking shall be deemed as if it were a contract in favor of a third party, for all respects and purposes, as if I have directly obligated myself toward these same third parties. 12. I also agree that in any event wherein I shall be required to sign an additional undertaking towards you and/or towards your clients, at your demand, I shall sign such an undertaking. 13. This letter is in addition to any other undertaking which I have committed myself to fulfill and nothing in the aforesaid shall derogate from any other undertaking towards you and/or towards third parties, which I have signed but shall only add on and enhance such undertaking. In the event of a contradiction between this letter and any other undertaking I executed, including my employment agreement, this letter shall govern. Signature: /s/ Ronen Yaffe ---------------------- 14. I undertake not to breach my above stated undertakings and I also undertake to indemnify your company in respect of damages, losses, expenses incurred or that may be incurred by you in the future as a result of a breach of any of my aforesaid undertakings. 15. This agreement shall be governed and construed in accordance with the laws of ______________. The competent courts situated in the district of ______shall have an exclusive jurisdiction in all matters relating to this agreement. 16. My above undertakings shall survive the termination of my employment by you and are not limited in except for my undertakings according to section 9 above., time. 17. Any reference to the Plural shall be construed as the Singular and vice versa. Signature /s/ Ronen Yaffe -------------------------- by:________________________________ title:_____________________________ EX-27.1 14 FINANCIAL DATA SCHEDULE
5 6-MOS 12-MOS DEC-31-1998 DEC-31-1998 JUN-30-1999 DEC-31-1999 704,745 0 0 0 6,869 0 0 0 0 0 711,623 0 2,748 0 0 0 1,949,208 0 171,180 0 0 0 0 0 0 0 4,678 1,000 1,788,350 0 1,949,208 0 0 0 0 0 0 0 0 0 699,850 0 0 0 0 0 (684,992) 0 0 0 (684,992) 0 0 0 0 0 0 0 (684,992) 0 (0.14) (0.00) (0.14) (0.00)
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