Exhibit 10.1
EMPLOYMENT AGREEMENT
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This AGREEMENT (this "Agreement") dated as of October 1, 1998, is made
by and between Xxxxx Holdings Inc., a Delaware corporation (the "Company"),
having offices at 00000 Xxxxx Xxxxx Xxxxxx - Xxxxx 00, Xxxx, Xxxxxxxx 00000
and Alexander Xxxx Xxxxxxxx, residing at 00-00 00xx Xxxxxx, Xxxxxxxx, XX
00000 (the "Executive").
WHEREAS, the Executive is currently Chairman of the Board, President,
and Chief Executive Officer, of Astratek, Inc. ("Astratek") a New York
Corporation having its offices at 0 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx;
WHEREAS, Astratek, Inc. is a party to a Merger Agreement dated
_________________, whereby Astratek will be merged into a wholly owned
Subsidiary of the Company and become the surviving corporation of the merger
("Merger")and a wholly owned subsidiary of the Company;
WHEREAS, the Company wishes to provide for the continued services of
the Executive following the Merger, to serve as Chairman of the Board,
President and Chief Executive Officer, of Astratek, and to serve as Executive
Vice-President, Chief of Technology, and a member of the Board of Directors
of the Company;
WHEREAS, the Executive is willing to continue to serve in his current
capacities for Astratek following the Merger and is willing to also serve as
a Member of the Board of Directors of the Company as well as an Executive
Vice-President and Chief of Technology, on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
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1.1 "Affiliate" means any person or entity controlling, controlled by
or under common control with the Company including Astratek after the Merger.
1.2 "Board" means the Board of Directors of the Company.
1.3 "Cause" means (a) the Executive is convicted of a felony involving
actual dishonesty as against the Company or an Affiliate, or (b) the
Executive, in carrying out his duties and responsibilities under this
Agreement, is guilty of gross neglect or gross misconduct resulting, in
either case, in material harm to the Company and/or any Affiliate, or (c) the
Executive fails to follow the lawful directions of the Board of Directors of
Astratek, or of the Chief Executive Officer and the Board of Directors of
Xxxxx.
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1.4 "Commencement Date" has the meaning set forth in Section 3 below.
1.5 "Date of Termination" means (a) in the case of a termination for
which a Notice of Termination is required, the date of actual receipt of such
Notice of Termination or, if later, the date specified therein, as the case may
be, and (b) in all other cases, the actual date on which the Executive's
employment terminates during the Term of Employment. (As that term is defined in
Section 3 below.)
1.6 "Disability" means the Executive's inability to render, for a period
of one hundred and twenty (120)days in any period of six consecutive months,
services hereunder by reason of permanent disability, as determined by the
written medical opinion of an independent medical physician mutually
acceptable to the Executive and the Company. If the Executive and the
Company cannot agree as to such an independent medical physician, each shall
appoint one medical physician and those two physicians shall appoint a third
physician who shall make such a determination. Notwithstanding the above, the
Executive shall not be deemed disabled for the purposes of this Agreement
unless he would be deemed disabled under any long-term disability policy
obtained by Company and/or Astratek for the benefit of Executive, which
policy is approved in writing by Astratek and the Company.
1.7 "Good Reason" means and shall be deemed to exist if, without the
prior express written consent of the Executive, (a) in the absence of Cause, the
Executive is assigned any duties or responsibilities inconsistent in any
material respect with the scope of the duties or responsibilities associated
with the Executive's titles or positions, as set forth and described in Section
4 of this Agreement; (b) in the absence of Cause, the Executive suffers a
reduction in the duties, responsibilities or effective authority associated with
his titles and positions as set forth and described in Section 4 of this
Agreement; (c) in the absence of Cause, the Executive is not appointed to, or is
removed from, the offices or positions provided for in Section 4 of this
Agreement (other than membership on the Board of Directors of Company, so long
as Company has nominated Executive for election to the Board of Directors of
Company); (d) in the absence of Cause, the Company fails to substantially
perform any material term or provision of this Agreement, if following notice
the Company is given adequate time to cure any such failure (which time period
shall be less than thirty (30) days); (e) in the absence of Cause, the
Executive's compensation provided for hereunder is decreased; (f) the Company
fails to obtain the full assumption of this Agreement by a successor entity; (g)
the Company continually fails to reimburse the Executive for business expenses
in accordance with Section 5 of this Agreement; (h) the Company fails to use
reasonable efforts to maintain, or cause to be maintained, directors and
officers liability insurance coverage for the Executive as provided in Section
15.7 of this Agreement; (i) the Company purports to terminate the Executive's
employment for Cause and such purported termination of employment is not
effected in accordance with the requirements of this Agreement; or (j) there
shall be consummated (x)any liquidation of the Company or the sale of
substantially all of the assets of the Company and its Affiliates taken as a
whole, or (y) any merger, consolidation and/or other business combination
involving the Company and/ or Astratek or any combination of any such
transactions (a "Transaction"), other than a Transaction (A) involving only the
Company and Astratek or another
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Affiliate of the Company, or (B) immediately after which the shareholders of the
Company who were shareholders immediately prior to the Transaction continue to
own beneficially, directly or indirectly, in substantially similar proportions
to those in effect immediately prior to such Transaction, more than 50% of the
then outstanding voting securities of the Company; or (C) in which any Person or
group (as such term is defined in Rule 13d-5 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), of related Persons which is not an
Affiliate of the Company as of the Commencement Date shall beneficially own,
directly or indirectly, more than 50% of the then outstanding voting stock of
the Company. For purposes of this Agreement, "Person(s)" means any individual,
entity, or other person, as defined in Section 3(a) (9) of the Exchange Act, and
as used in Sections 13 (d) and 14 (d) thereof.
1.8 "Subsidiary" means each corporation, limited liability company,
partnership, joint venture or other form of business entity more than 50% of
whose equity is beneficially owned by a person or entity.
1.9 "Year" means each 12 month period during the Term of Employment,
the first day of which commences on the Commencement Date and terminates 12
months thereafter.
2. Employment
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The Company agrees to employ the Executive, and Executive agrees to serve the
Company and Astratek, upon the terms and conditions hereinafter set forth.
3 Term
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Subject to the terms of this Agreement, the employment of Executive will be
for a period of three (3) years, commencing on the effective date of the
Merger ("Commencement Date") and ending on the fourth anniversary of such
date (the "Term of Employment"). On such fourth anniversary, the Term of
Employment shall automatically be extended for an additional one year period,
unless not later than ninety days (90) prior to the end of the fourth Year,
either party to this Agreement shall have given written notice to the other
that the Term of Employment shall not be extended beyond its then current
expiration date.
4. Position, Responsibilities and Duties.
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4.1 Executive shall devote his full time, energy, skills and attention
to the performance of his duties and responsibilities hereunder and shall use
his best efforts to perform faithfully and efficiently the duties and
responsibilities contemplated by this Agreement.
4.2 Executive shall have the title and hold the position Of Chairman of
the Board, President and Chief Executive Officer of Astratek and the additional
title and position of Executive Vice- President and Chief of Technology for the
Company. Executive shall also serve, without additional compensation, as a
director of Company. The Company will in the absence of receipt of notice by
Executive of a proposed termination for Cause under Section 10.3
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nominate him for election to the Board of the Company, and recommend his
election to the shareholders in appropriate proxy or other election solicitation
material.
4.3 Executive shall report directly to the Chairman of the Board,
President and Chief Executive Officer of the Company. If the foregoing offices
are held by different individuals the Executive will report directly to the
Chairman of the Board. All other officers and employees of the Company in the
areas of research, development, engineering, technology, and product marketing
shall report to the Executive, as well as all employees of Astratek or
Subsidiaries of the Company or Astratek. No other employee, executive, or
officer of the Company or Astratek or any Subsidiary of Company or Astratek
shall have the authority or the responsibilities in those areas reserved for the
Executive herein.
4.4 Executive shall perform the duties and shall have the
responsibilities and authorities for Astratek as are normally associated with
the offices of Chairman of the Board, President and Chief Executive Officer for
a corporation of Astratek's size which is engaged in the business conducted by
Astratek. Executive shall perform such duties under the general direction of the
Chairman of the Board, President and Chief Operating Officer of the Company, in
consultation with the Company's Board and in accordance with the budget and
plans approved by the Boards of both the Company and Astratek. As Executive
Vice-President and Chief of Technology for the Company, the Executive shall, in
consultation with and under the general direction of the Board of Directors, and
the Company's Chief Executive Officer, be responsible for preparing the budget
for the Company and Astratek's research and development, and computer/products
marketing efforts, and establishing the strategy and overall direction of the
Company and Astratek's research and development efforts and for the
implementation of the corporate plans and policies for computer product
development.
4.5 Following the Merger, Company will conduct a search for a
President and Chief Executive Officer ("CEO") for Company, as well as a Chief
Financial Officer ("CFO") of Company, who will also hold the positions of CFO
of Astratek and Chief Operating Officer ("COO") of the Company and Astratek,
respectively. The individual selected for the CEO position will have
experience and stature in the software industry and the first such person
selected will be reasonably acceptable to both the Board of Directors of the
Company and the Executive. The individual selected for the CFO and COO
positions will be required to have experience in the software industry, and
the first such person selected will be reasonably acceptable to both the
Board of Directors of the Company and the Executive.
4.6 Following completion of the Merger, The Executive shall be
appointed to the Board of Directors of the Company. One additional Board
Member who has knowledge of and a background in the Computer Software
Industry, and is reasonably acceptable to both the Executive and the Company,
will be appointed to the Board of Directors of Company.
5. Compensation; Benefits; Expenses; and Bonus.
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5.1 As compensation for the services to be rendered
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hereunder, Astratek shall pay to Executive a base salary ("Base Salary") at
the rate of $160,000 per annum, payable in equal installments at such times
as shall be agreed upon by the Company and Executive but no less frequently
than monthly. Executive's Base Salary shall also be reviewed annually by the
Compensation Committee of the Board of Directors of Company, or the full
Board of Company if no such Committee is constituted, for consideration of
merit increases. In conducting any such annual review, the Compensation
Committee or the Board shall take into account any change in the Executive's
responsibilities, increases in the compensation of other executives of the
Company or Astratek, and the salaries being paid by public companies in the
computer software industry that have similar financial results and operating
performance, the performance of the Executive and other pertinent factors.
In addition to consideration for merit increases, commencing on January 1,
2000 and on each succeeding January 1 thereafter during the Term of
Employment Executive's Base Salary will be increased by the percentage
increase in the national consumer price index ("CPI") as issued by the United
States Department of Labor. The Base Salary, once increased by either merit
or CPI increase, shall then constitute the "Base Salary"
5.2 During the Term of Employment, the Executive shall be eligible to
participate, as determined by the Compensation Committee of the Board or the
full Board, in the event no separate Compensation Committee is established,
in all incentive compensation, bonus, and benefit plans and programs
howsoever defined and maintained by the Company and or Astratek for the
benefit of its executives and employees, including without limitation
bonuses, stock option plans or other stock-based compensation plans, or
equity appreciation plans, disability and retirement plans. In addition to
the foregoing, Astratek shall pay to the Executive a Performance Bonus based
on the operating results of Astratek. For any fiscal year ending during the
Term of Employment in which Earnings Before Taxes Interest Depreciation and
Amortization ("EBITDA") equals or exceed one million dollars ($1,000,000),
Executive shall receive a bonus computed as follows: one and one half per
cent (1.5%) of EBITDA equal to or in excess of one million dollars
($1,000,000), but less than ten million dollars ($10,000,000); and two and
one half per cent (2.5%) of EBITDA in excess of ten million dollars
($10,000,000), but less than fifteen million dollars ($15,000,000).
Executive shall not be entitled to a bonus on EBITDA in excess of fifteen
million dollars ($15,000,000). The foregoing performance bonus shall be paid
by Astratek within sixty (60) days of the carry over payment end of each
Fiscal Year of Astratek ending during the Term of Employment.
5.3 Company shall advance and/or reimburse reasonable travel and
other reasonable out-of-pocket expenses incurred or to be incurred by
Executive in rendering the services hereunder on behalf of Company in
accordance with Company's then current policies regarding same.
5.4 During the Term of Employment Executive shall be entitled to four
weeks of paid vacation (or longer if longer periods are provided to other
Executives of the Company or its Subsidiaries, and such other fringe benefits
and perquisites as may be provided to other Executives of the Company or its
Subsidiaries).
5.5 Company will pay the Executive the sums due under Sections 5.1,
5.2 and 5.3 to the extent that Astratek's cash flow from operations and other
sources of liquidity are insufficient to
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make such payments.
6. Insurance.
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6.1 Company shall, for so long as Executive is employed by it, pay
for the benefit of Executive the premiums on a life insurance policy insuring
the life of Executive in the amount of $250,000. The Company in its
discretion may at any time after the execution of this Agreement apply for
and procure as owner and for its own benefit, key man life insurance on the
life of Executive, and Executive shall have no interest whatsoever in any
such key man policy, Executive shall at the request of the Company cooperate
with the Company in assisting it to obtain or maintain such coverage.
6.2 Company shall, for so long as Executive is employed by it, pay
for the benefit of Executive and Executive's Family the premiums for medical
insurance, including basic as well as major medical coverage, pursuant to
such policies as are made available to other senior executives of the
Company, and on the same basis therefor. The Company shall also, for so long
as Executive is employed by it, obtain and pay the premiums for the benefit
of Executive disability insurance policy, as agreed by the parties.
7. Non-Competition and Confidential Information.
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7.1 Executive will not at any time, whether during or after the Term
of Employment, reveal to any person or entity any of the Confidential
Information of Company, which includes the information of its Affiliates, or
of any third party which the Company, or its Affiliates is under an
obligation to keep confidential. The term "Confidential Information" as used
throughout this Agreement shall mean all trade secrets, proprietary
information and other data or information (and any tangible evidence, record
or representation thereof), whether prepared, conceived or developed by
Executive or any other employee or contractor for the Company, or its
Affiliates or received by the Company or its Affiliates from an outside
source, which is in the possession of the Company or an Affiliate (whether or
not the property of the Company), which in any way relates to the present or
future business of the Company including its Affiliates, or any customer or
supplier of the Company or its Affiliates, and which is maintained in
confidence by the Company and/ or its Affiliates. Without limiting the
generality of the foregoing, "Confidential Information" shall mean all trade
secrets, know-how, proprietary information and other information or data
relating to the present or future business of the Company and its Affiliates,
including but not limited to:
(i) any idea, improvement, invention, innovation, development
technical data, design, formula, device, pattern, concept,
computer program, software, firmware, source code, object code,
algorithm, subroutine, object module, schematic, model, diagram,
flow chart, chip masking specification, user manual, training or
service manual, product specification, plan for a new or revised
product, compilation of information, or work in process, and any
and all revisions and improvements relating to any of the
foregoing (in each case whether or not reduced to tangible
form); and
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(ii) the name of any customer, employee, prospective customer or
consultant, any sales plan, marketing material, plan or survey,
business plan, product or development plan or specification,
business proposal, financial record, or business record or other
record or information relating to the business of the Company or
its Affiliates. Notwithstanding the foregoing, the term
Confidential Information shall not apply to information (w) which
the Company or an Affiliate has voluntarily disclosed to the
public without restriction, (x) which has otherwise lawfully
entered the public domain, (y) which the Company or an Affiliate
has permitted Executive to disclose by its prior written consent;
or (z) which Executive may disclose at a forum, workshop or round
table conference with the prior knowledge and consent of the
Company.
7.2 Executive further represents that Executive's performance of all
of the terms of this Agreement and as an Executive of the Company does not
and will not breach any agreement to keep in confidence Confidential
Information acquired by Executive prior to employment by the Company.
Executive has not entered into, and agrees not to enter into, any agreement
either written or oral in conflict herewith.
7.3 During the Term of Employment, Executive agrees not to make, use
or permit to be used any notes, memoranda, reports, lists, records, drawings,
sketches, specifications, software programs, data, documentation or other
materials of any nature relating to any matter within the scope of the
business of Company or its Affiliates concerning any of its dealings or
affairs otherwise than for the benefit of Company and its Affiliates.
Executive further agrees, after the termination of his Employment, not to use
or permit to be used any such notes, memoranda, reports, lists, records,
drawings, sketches, specifications, software programs, data, documentation or
other materials including Company's manuals and policy statements or those of
its Affiliates, it being agreed that all of the foregoing shall be and remain
the sole and exclusive property of the Company subject to the obligation of
confidentiality created herein. Executive agrees that within ten (10) days
after the termination of Executive's Term of Employment, Executive shall
either (i) deliver all of the foregoing, and all copies thereof, to the
Company, at its main office or (ii) destroy all of the foregoing, and all
copies thereof, and deliver a sworn notice to the Company certifying to such
destruction.
7.4 For a period of one (1) year following termination of Executive's
employment with Company, regardless of the reason for such termination, be it
voluntary by resignation of the Executive, or involuntary and at the request of
the Company, for Cause or otherwise (subject to the provisions of Section 10.4
(iv) of this Agreement), Executive agrees not to either directly or indirectly,
as an owner, manager, stockholder, consultant, director, officer or employee of
any business entity, participate in the development or provision of goods or
services which are competitive with goods or services sold or licensed, or under
development, by the Company or its Affiliates, or which are otherwise in
competition with Company and/or its Affiliates, without first obtaining the
prior written consent and authorization of the Company which Company may in its
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sole discretion grant or deny. The foregoing restriction shall not prohibit
Executive from owning up to one percent (1%) of the issued and outstanding
securities of any publicly held corporation. The determination of whether
services are competitive with those of Company or its Affiliates or an entity or
activity is otherwise competition shall be solely within the discretion of
Company's Board of Directors whose decisions will be final.
7.5 Upon the termination or expiration of this Agreement or at such
other time as Company and its Affiliates may request, Executive agrees to
return to Company all originals and copies, whether generated by Executive or
anyone else, of all versions of software code in hardcopy or machine readable
form, all document files, lists, forms, contracts, notebooks, rolodexes,
keys, credit cards, and any other material which came into, and continues to
be in, Executive's possession and relate to the Company, its Affiliates on
their respective businesses or their potential acquisitions and investments
to the extent such documents; notebooks; code; subsist in computers which are
the property of Executive and Executive will be deemed to have returned such
to the Company and/or its Affiliate by printing a hard copy of such and
submitting a certificate affirming under oath that the information has been
deleted.
7.6 Executive recognizes that the Company and its Affiliates develop
highly specialized products and services in competition with the other
business entities throughout the United States and the world, which products
and services are designed to compete in regional, nation-wide and world-wide
markets. In light of the highly competitive nature of the Company's products
and services, Executive agrees that the restrictions contained in this
Section 7 are reasonable and cannot be limited to any geographic area or to
any narrower field. The Executive acknowledges that the provision of this
Section 7 are essential to the continued goodwill and profitability of the
Company and necessary for the preservation of confidentiality of Confidential
Information and further acknowledges that the application or operation
thereof will not involve a substantial hardship upon his future livelihood.
Should any court determine that the provisions of this Paragraph shall be
unenforceable in respect of scope, duration or geographic area, such court
shall be empowered to substitute, to the extent enforceable, provisions
similar hereto or other provisions so as to provide to the Corporation, to
the fullest extent permitted by applicable law, the benefits intended by this
Section 7.
8. Publications
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While Company recognizes the importance of publishing technical articles and
making presentations at technical symposiums and the like and generally
encourages such academic activities, in the interests of insuring appropriate
protection on Executive's work product and insuring that Confidential
Information or other Proprietary nonpublic information of the Company is not
inadvertently disseminated, Executive agrees that he shall not publish or
cause to be published any articles, oral presentations, or other materials
related to the business or activities of the Company its Affiliates or its
clients without first obtaining the consent of the Company.
9. Developments Agreement
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9.1 If at any time or times during Executive's Employment, including
Executive's employment prior to the term hereof by Astratek, Executive
(either alone or with others) made or makes, conceives, discovers or reduces
to practice any invention, modification, discovery, design, development,
improvement, process, software program, work of authorship, documentation,
formula, data technique know-how, secret or any interest therein (whether or
not patentable or registrable under copyright or similar statutes or subject
to analogous protection) (herein called "Developments") that relate to the
business of Company, its Affiliates including Astratek or that of any
supplier or customer of Company of any of the goods and services sold,
licensed or under development by the Company or result from the use of
premises or personal property tangible or intangible owned, leased or
contracted for by Company or its Affiliates including Astratek such
Developments and the benefits thereof shall immediately become the sole and
absolute property of the Company or its Affiliates and Executive shall
promptly disclose to the Company (or any persons designated by it) each such
Development. Executive hereby assigns any rights which Executive may have or
acquire in the Developments and benefits and/or rights resulting therefrom to
the Company and its assigns without further compensation and shall
communicate, without cost or delay, and without publishing the same, all
available information relating thereto (with all necessary plans and models
to Company.
9.2 Upon disclosure of each Development to the Company, Executive
will, during the Term of Employment and at any time thereafter, at the
request and cost of the Company, sign, execute, make and do all such deeds,
documents, acts and things as the Company or its Affiliates and its duly
authorized agents may reasonably require:
(i) to apply for, obtain and vest in the name of the
Company or its Affiliates alone (unless the Company otherwise
directs) letters patent, copyrights or other analogous or other
forms of intellectual property protection in any country
throughout the world and when so obtained or vested to renew and
restore the same; and
(ii) to defend any opposition proceedings in respect of
such applications and any opposition proceedings or petitions or
applications for revocation of such letters patent, copyright, or
other analogous protection or other forms of intellectual
property protection. In the event the Company or its Affiliates
is unable, after reasonable effort, to secure Executive's
signature on a letters patent, copyright or other analogous or
other forms of intellectual property protection relating to a
Development, whether because of Executive's physical or mental
incapacity or for any other reason whatsoever, Executive hereby
irrevocably designates and appoints Company and its duly
authorized officers and agents as Executive's agent and
attorney-in-fact, to act for and in Executive's behalf and stead
to execute and file any such application or applications and to
do all other lawfully permitted acts to further the prosecution
and issuance of letters patent, copyright or other analogous
protection thereon with the same legal force and effect as if
executed by Executive.
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9.3 Executive understands that the Developments including, but not
limited to, those identified in the pages, if any, attached hereto which
Executive can demonstrate to the satisfaction of the Company or its
Affiliates were made or conceived prior to Employment by Company, or by
Astratek prior to the Merger, are excluded from this Agreement. Executive
understands that it may have to list a short description and is only
necessary to list the title and purpose of such Developments.
9.4 To the maximum extent permitted by law, all written material or
material committed to a fixed form and components thereof, prepared in the
course of Executive's employment with Company and its Affiliates, or prior to
the Commencement Date while Executive was an Employee of Astratek, including
rough drafts and other materials created in the developmental stages of
preparation of finished materials shall be regarded as "works for hire" for
Company. Executive agrees that all such materials and components thereof as
described, may be used by Company without additional compensation to
Executive and that Company shall have the right to change any such
materials. Executive furthermore assigns all rights, title and interest in
and to all said materials and components thereof, as aforedescribed,
including all worldwide copyright rights including any renewals or extensions
available thereon, and agrees to execute whatever powers of Attorney, or
other documents which Company deems necessary or advisable to apply for
obtain, or maintain such copyright protection or to otherwise better enjoy
the rights granted in this Section.
10. Death or Disability of Executive; Other Termination.
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10.1 The Company may terminate the Executive's employment hereunder
due to Disability. In the event of the Executive's death or a Termination of
the Executive's employment due to Disability, the Executive, his estate or
his legal representative, as the case may be shall be entitled to receive:
(i) Base Salary continuation at the rate in effect on the
date of Termination through the end of the year in which
the Executive died or became Disabled;
(ii) Any deferred compensation not yet paid to the Executive;
(iii) Reimbursement for expenses incurred but not yet paid
prior to such death or Disability;
(iv) Continued health insurance for Executive's family for
the year in which Executive died or became Disabled to
the extent that such benefits legally can be provided by
the Company; and
(v) Any other compensation or benefits which may be owed or
provided to the Executive in accordance with the terms and
provisions of any
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applicable agreements, plans and programs of or made by the
Company or Astratek including a Performance Bonus that
may be due which shall be computed in accordance with
the terms of paragraph 10.4 (ii).
10.2 The Company may terminate the Executive's employment hereunder
for Cause. If the Company terminates the Executive's employment for Cause,
the Executive shall be entitled to receive:
(i) his Base Salary at the rate in effect at the time of
such termination through the Date of Termination
(ii) any deferred compensation and any accrued vacation pay
as of the Date of Termination;
(iii) reimbursement for expenses incurred, but not yet paid
prior to such termination of employment; and
(iv) any other compensation or benefits which may be owed or
provided to the Executive in accordance with the terms
and provisions of any applicable agreements, plans and
programs of or made by the Company and/ or Astratek
through the Date of Termination.
10.3 In the event of a proposed Termination by the Company for Cause
under Section 1.3(c), the Executive shall be given written notice authorized
by a vote of at least a majority of the members of the Board of Company
(excluding Executive), that Company intends to terminate the Executive's
employment for Cause. Such notice shall specify the particular acts or acts,
or failure to act, which is or are the basis for the decision to so terminate
the Executive's Employment for Cause. The Executive shall be given the
opportunity within ten (10) calendar days of the receipt of such notice to
meet with the Board to defend such act or acts, or failure to act, and the
Executive shall be given ten (10) days after such meeting to correct such
acts or failure to act; provided that if such act or failure to act
reasonably requires a longer period to correct, Executive shall be provided
such longer period as shall be reasonably specified by the Board. If such
acts or failure to act are not correctable, or upon failure of the Executive,
within such periods provided above to correct such acts or failure to act,
the Executive's employment by the Company and Astratek shall automatically be
terminated for Cause immediately upon receipt of Notice of Termination, or as
of the date specified in the Board's Notice, respectively. Termination for
Cause under Sections 1.3(a) and (b) shall be immediate upon receipt of Notice
of Termination for Cause as provided herein.
10.4 In the event the Company seeks to terminate Executive's
Employment without Cause, or in the event the Executive effects a Voluntary
Termination of his employment for Good Reason, by giving 120 days prior
written notice to the Company of his intention to resign for Good Reason
(with a resignation for Good Reason, not being, nor shall it be deemed to be,
a breach of this Agreement), the Executive shall be entitled to all of the
rights and benefits which the Executive would be entitled to under this
Agreement as follows:
(i) at the Company's option, either a lump sum payment in
an amount equal
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to the present value of the Base Salary owed through the
end of the Term of Employment, or those payments of the
Base Salary through the Term of Employment, paid at
such times as is in accordance with the terms of this
Agreement;
(ii) any Performance Bonus pay due for the Fiscal Year in
which this Agreement is terminated, deferred
compensation and any accrued vacation pay, accrued
through the Date of Termination (calculated, pro rata,
with the Date of Termination being deemed the last day
of the Fiscal Year);
(iii) reimbursement for expenses incurred but not paid prior
to such termination of employment; any other
compensation benefits which may be owed or provided to
the Executive in accordance with the terms and provision
of any application of agreements, plans and programs of
or made by the Company or Astratek. All outstanding
warrants, options, which require a vesting period shall
immediately be vested and the Company shall be deemed to
have waived such vesting periods; and
(iv) The Executive shall be relieved from and as of the Date
of Termination from complying with the restrictions on
competitive activities set forth in Sections 7.4 (only
if the Executive is terminated by the Company without
Cause).
10.5 Company shall have the right to set off and apply against any
amount due and payable to Executive hereunder any other amount then due and
owing by Executive to Company or any Subsidiary or Affiliate thereof, whether
arising under this Agreement or otherwise.
11. Survival of Obligations.
-----------------------
Notwithstanding the expiration Term of Employment or the earlier
termination of this Agreement, any duty or obligation which has been
incurred and which has not been fully observed, performed and/or discharged,
and any right, unconditional or conditional, which has been created and has
not been fully enjoyed, enforced, and/or satisfied, shall survive such
expiration or termination until such duty or obligation has been fully
observed, performed and/or discharged and such right has been enforced,
enjoyed and/or satisfied. Additionally, the parties agree that the
obligations set forth in Sections 7 and 9 shall survive such termination or
expiration in accordance with their terms without time limitation.
12. Remedies.
--------
12.1 The parties recognize that irreparable damage will result in the
event that the provisions of Section 7 shall not be specifically enforced. If
any dispute arises concerning action in violation of any such provisions, the
parties hereto agree that an injunction may issue restraining such action
pending determination of such controversy and that no bond or other security
shall be required in
12
connection therewith. Such remedy shall, however, not be exclusive and shall be
in addition to any other remedies which the parties may have.
12.2 In the event that any action, suit or other proceeding in law or
in equity is brought to enforce the covenants contained in Section 7 hereof,
or to obtain money damages for the breach thereof, and such action results in
the award of a judgment for money damages or in the granting of any
injunction or restraining order in favor of Company, all expenses (including
reasonable attorneys' fees) of Corporation in such action, suit or other
proceeding shall be paid promptly by Executive.
13. Notices.
-------
All notices or other communications hereunder shall be in writing and
shall be given by hand-delivery to the other party or by registered or
certified mail return receipt requested, postage prepaid address as follows:
If to the Executive: Xxxxxxxxx X. Xxxxxxxx (at the address above)
With a copy to: Xxxxxx X. Xxxxxxxx, Esq./Xxxxxxx Xxx & Xxxxxxxx LLP,
000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000
If to the Company: Xxxxx Holdings Inc. (at the address above)
With a copy to: Xxxxx Xxxxxxxx, Esq., Xxxxx Xxxxxxxx Xxxxxx & Xxxxx
LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000
Or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and Communications shall be deemed to
have been given or delivered three days after the date mailed in any general
or branch United States Post Office enclosed in a registered, postpaid
envelope addressed to the address of the respective parties stated above, or
on the date of hand delivery if delivered by hand provided there is an
appropriate receipt, or one day after delivery to a nationally recognized
overnight carrier, or upon delivery if delivered by facsimile, with
confirmation back.
14. Waiver.
------
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
15. Indemnification.
---------------
13
15.1 General. The Company agrees that if the Executive is made a
-------
party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he is or was a director or officer of the Company, or
any other Affiliate or is or was serving at the request of the Company, or
any other Affiliate as a director, officer, member, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including, without limitation, service with respect to employee
benefit plans, whether or not the basis of such Proceeding is alleged action
in an official capacity as a director, officer, member, employee or agent
while serving as a director, officer, member, employee or agent, he shall be
indemnified and held harmless by the Company and/or the Affiliate as
permitted by and to the fullest extent authorized by Delaware law and any
other applicable law, as the same exists or may hereafter be amended, against
all Expenses incurred or suffered by the Executive in connection therewith,
and such indemnification shall continue as to the Executive even if the
Executive has ceased to be an officer, director or agent, or is no longer
employed by the Corporation and shall inure to the benefit of his heirs,
executors and administrators.
15.2 Expenses. As used in this Agreement, the term "Expenses" shall
--------
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements and costs, reasonable attorneys' fees,
reasonable accountants' fees, and disbursements and costs of attachment or
similar bonds, reasonable investigations, and any reasonable expenses of
establishing a right to indemnification under this Agreement.
15.3 Advances of Expenses. Expenses incurred by the Executive in
--------------------
connection with any Proceeding shall be paid by the Company or the Affiliate
in advance upon request of the Executive that the Company pay such Expenses
subject to the restrictions of Delaware law.
15.4 Notice of Claim. The Executive shall give to the Company notice
---------------
of any claim made against him for which indemnity will or could be sought
under this Agreement. In addition, the Executive shall give the Company
such information and cooperation as it may reasonably require and as shall be
within the Executive's power and at such times and places as are convenient
for the Executive.
15.5 Defense of Claim. With respect to any Proceeding as to which the
----------------
Executive notifies the Corporation of the commencement thereof:
(a) The Company will be entitled to participate therein at its
own expense; and
(b) Except as otherwise provided, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the Executive (subject to Xxxxx Xxxxxxxx,
Xxxxxx & Xxxxx LLP being hereby approved as counsel). The Executive
also shall have the right to employ his own counsel in such action,
suit or proceeding and the fees and expenses of such counsel shall be
at the expense of the Company, if the Company
14
fails to assume the defense of the action, as foresaid. The
Company shall not be entitled to assume the defense of any action,
suit or proceeding brought by or on behalf of the Company or the
Affiliate or as to which the Executive shall have reasonably
concluded, based on opinion of counsel, that there exists a conflict
of interest between the Company or the Affiliate and the Executive in
the conduct of the defense of such action, and Executive may engage
separate counsel in those circumstances.
(c) The Company shall not be liable to indemnify the Executive
under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent. The Company shall not
settle any action or claim in any manner which would impose any
penalty or limitation on the Executive without Executive's written
consent. Neither the Corporation nor the Executive will unreasonably
withhold or delay their consent to any proposed settlement.
15.6 Non-exclusivity. The right to indemnification and the payment of
---------------
expenses incurred in defending a Proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other
right which the Executive may have or hereafter may acquire under any
statute, provision of the certificate of incorporation or by-laws of the
Company or its Affiliates.
15.7 Directors and Officers Liability Policy. The Company agrees to
-----------------------------------------
use reasonable efforts to obtain or cause the Subsidiary to obtain a
Directors and Officers Liability Insurance Policy covering the Executive.
The Company shall use its reasonable efforts to maintain during the Term of
Employment (and for so long thereafter as is practicable in the circumstances
taking account of prevailing conditions as to availability of such insurance)
coverage to the Executive in an amount at least equal to that maintained
immediately prior to the Commencement Date.
16. Severability.
------------
The invalidity or unenforceability of any provisions hereof shall now
be in any affect the validity or enforceability of any other provision.
17. Modification.
------------
This Agreement cannot be changed, modified or discharged orally, but
only if consented to in writing by both parties.
18. Assignment.
----------
18.1 The Executive. This Agreement is personal to the Executive and
--------------
without the prior express written consent of the Company shall not be
assignable by the Executive, except that the Executive's rights to receive
any compensation or benefits under this Agreement may be transferred or
disposed of pursuant to testamentary disposition; or intestate succession.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's heirs, beneficiaries and/or legal
15
representatives.
18.2 The Company. This Agreement shall inure to the benefit of and be
-----------
binding upon the Company and its successors and assigns.
19. Withholding.
-----------
The Company may withhold from any amounts payable under this Agreement such
as Federal, State or Local Income Taxes as shall be required to be withheld
pursuant to any applicable law or regulations.
20. Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts made and to be performed
entirely within such State.
21. Contract Headings.
-----------------
All headings of the Sections of this Agreement have been inserted for
convenience of reference only, are not to be considered a part of this
Agreement, and shall in no way affect the interpretation of any of the
provisions of this Agreement.
22. Entire Agreement and Counterparts.
---------------------------------
The foregoing contains the entire agreement of the parties and supersedes
any prior understanding or agreement relating to the subject matter hereof.
This Agreement may be executed simultaneously in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
23. Representation.
--------------
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any Agreement between the
Company and any other persons, firm, organization or any applicable laws or
regulations.
16
IN WITNESS WHEREOF, the parties have signed this Agreement the day and
year first above written.
Xxxxx Holdings Inc.
By:_____________________________
Astratek, Inc.
By:_____________________________
By:_____________________________
Xxxxxxxxx X. Xxxxxxxx
17
ASTRATEK, INC.
REPORT ON AUDIT OF FINANCIAL
STATEMENTS
YEARS ENDED APRIL 30, 1998 AND 1997
August 6, 1998 and
October 22, 1998 as
to Note 4
INDEPENDENT AUDITORS' REPORT
Board of Directors
Astratek, Inc.
New York, New York
We have audited the accompanying balance sheets of Astratek, Inc. as of
April 30, 1998 and 1997, and the combined statements of operations and
accumulated deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, the financial position of Astratek, Inc. as of April 30, 1998 and 1997
and the results of its operations and its cash flows for the years then ended,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered a significant loss from
operations and has a working capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Managements' plans in regard
to these matters are described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/S/Xxxxxxx Xxxxx Xxxxxxx & Co., P.C.
Xxxxxxx Xxxxx Xxxxxxx & Co., P.C.
ASTRATEK, INC.
BALANCE SHEET
APRIL 30, 1998
Years Ended
April 30,
--------------------------------
1998 1997
-------------- ---------------
ASSETS
CURRENT ASSETS:
Cash $ 4,052 $ 231,949
Accounts receivable, net 81,700 -
Prepaid expenses and other current assets 2,195 -
-------------- --------------
TOTAL CURRENT ASSETS 87,947 231,949
FURNITURE, FIXTURES AND EQUIPMENT 79,838 -
CAPITALIZED SOFTWARE COSTS, net 596,654
DEFERRED FINANCE COSTS 72,913 -
OTHER ASSETS 33,225 -
-------------- --------------
$ 870,577 $ 231,949
============== ==============
LIABILITIES AND DEFICIT IN ASSETS
CURRENT LIABILITIES:
Accounts payable $ 429,863 $ -
Accrued expenses 140,684 -
Notes payable 31,500 -
Current portion of long-term debt, net of discount 561,250 229,944
-------------- --------------
TOTAL CURRENT LIABILITIES 1,163,297 -
-------------- --------------
COMMITMENTS
DEFICIT IN ASSETS:
Preferred stock, 2,500,000 shares authorized, none issued - -
Common stock, 12,500,000 shares authorized $.001 par,
2,105,000 shares issued and outstanding 2,105 100
Additional paid in capital 67,500 -
Accumulated deficit (362,325) 1,905
-------------- --------------
TOTAL DEFICIT IN ASSETS (292,720) 2,005
-------------- --------------
$ 870,577 $ 231,949
============== ==============
See notes to financial statements
ASTRATEK, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years Ended
April 30,
----------------------------------
1998 1997
---------------- ---------------
SALES $ 1,039,710 $ -
COST OF SALES 255,977 -
---------------- ---------------
GROSS PROFIT 783,733 -
OPERATING EXPENSES:
Selling, general and administrative 1,009,805 -
Research and development 61,008 -
Depreciation and amortization 8,356 -
---------------- ---------------
TOTAL OPERATING EXPENSES 1,079,169 -
---------------- ---------------
INCOME (LOSS) FROM OPERATIONS (295,436) -
INTEREST EXPENSE (INCOME) 68,794 (1,905)
---------------- ---------------
NET INCOME (LOSS) (364,230) 1,905
RETAINED EARNINGS - beginning of year 1,905 -
---------------- ---------------
ACCUMULATED DEFICIT - end of year $ (362,325) $ 1,905
================ ===============
See notes to financial statements
ASTRATEK, INC.
STATEMENT OF CASH FLOWS
Years Ended
April 30,
----------------------------------
1998 1997
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (364,230) $ 1,905
---------------- ---------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation 8,356 -
Amortization of deferred finance costs and debt discount 50,837 -
Amortization of capitalized software costs 36,345 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (81,700) -
Additions to capitalize software costs (632,999) -
(Increase) decrease in prepaid expenses and other current assets (2,195) -
(Increase) decrease in deferred finance costs (105,000) -
(Increase) decrease in other assets (33,225) -
Increase (decrease) in accounts payable 429,863 -
Increase (decrease) in accrued expenses 140,684 -
---------------- ---------------
Total Adjustments (189,034) -
---------------- ---------------
CASH PROVIDED BY (USED IN) OPERATIONS (553,264) 1,905
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (88,194) -
---------------- ---------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES (88,194) -
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 411,556 229,944
Proceeds from sale of common stock 2,005 100
---------------- ---------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES 413,561 230,044
---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (227,897) 231,949
CASH AND CASH EQUIVALENTS - beginning of year 231,949 -
---------------- ---------------
CASH AND CASH EQUIVALENTS - end of year $ 4,052 $ 231,949
================ ===============
CASH PAID FOR INTEREST $ 68,794 $ -
================ ===============
CASH PAID FOR INCOME TAX $ - $ -
================ ===============
See notes to financial statements
ASTRATEK, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - The company's financial statements
have been presented on the basis that it is a going concern,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company's viability as a going concern is dependent upon
the Company obtaining additional debt or equity funding and
achieving operating profitability.
There was negative working capital of $1,058,779 at April 30,
1998 and the Company recorded a loss of $347,659 for its
fiscal year ended April 30, 1998. Additionally, the Company
was in default of its major loan.
B. Business Activity - Astratek, Inc. ("The Company") was
incorporated in the state of New York on May 12, 1995 and was
inactive until commencing operations in May 1997. The Company
develops software products and provides consulting services.
C. Equipment - Equipment is carried at cost. Depreciation and
amortization is computed using the straight-line method over
the useful lives of the various assets, which is generally
five years for office equipment, and furniture and fixtures.
Leasehold improvements are amortized over the lesser of their
useful life or the lease term.
D. Fair Value of Financial Instruments - The carrying amounts
reported in the balance sheet for cash, receivables, and
accounts payable approximate their fair market value based on
the short-term maturity of these instruments.
E. Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
effect 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 those estimates. The Company's significant areas
of estimation, include estimates of the product lives and
future revenues of its software products.
F. Revenue Recognition - The Company licenses software to end
users under license agreements. The Company has recognized
revenues in accordance with Statement of Position 97-2
entitled "Software Revenue Recognition" ("SOP 97-2"), issued
by the American Institute of Certified Public Accountants
("AICPA").
G. Capitalized Software Costs - The Company accounts for costs of
developing computer software for sale in accordance with
Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed", under which costs incurred
prior to the establishment of a product's technological
feasibility are expensed as research and development and costs
incurred from the point of technological feasibility are
capitalized and amortized in the greater of the relation that
revenues earned bear to total expected revenues over the life
of the product or straight-line over the life of the product.
Costs incurred for enhancements to subsequent releases are
capitalized and amortization is adjusted prospectively.
Capitalized software costs are evaluated periodically and
written down to net realizable value when necessary.
Amortization of capitalized software costs for the period
ended April 30, 1998 totaled $36,345.
2. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are as follows for the year
then ended:
Furniture and fixtures $ 16,262
Software 8,287
Computer equipment 63,645
Less: Accumulated
depreciation (8,356)
----------------
$ 79,838
================
3. COMMITMENTS AND CONTINGENCIES
The Company leases it's office under a non-cancelable operating lease.
Rent expense for the year ended April 30, 1998 was $113,860 The lease
commenced December 1, 1997 and expires on November 30, 2002.
Minimum rental commitment until the lease expires is as follows:
1999 $ 115,655
2000 117,898
2001 132,898
2002 132,898
4. NOTES PAYABLE
Notes payable at April 30, 1998 consist of the following:
Creditor Maturity Date Interest Rate
Officer (C) None $ 7,500
Officer (C) None 24,000
Trust (A) (B) June 1, 2000 Floating Prime 610,000
-----------------
641,500
Less: Unamortized discount (48,750)
-----------------
592,750
Less: Short Term Notes (31,500)
-----------------
Long Term Notes,
classified as
current because of
default $ 561,250
=================
(A) Agreement dated June 1, 1997, subsequently assigned to a Trust, the
beneficiaries of which are relatives of an officer, shareholder and
director, to provide maximum funding of $750,000, collateralized by
substantially all of the assets of The Company. The Company incurred a
finders fee of $105,000 in connection with obtaining this funding,
which is recorded as deferred finance costs and is being amortized over
the term of the loan agreement. The debt went into default because of
the non-payment of interest. On October 22, 1998, the Company obtained
a waiver from the holder to forbear any action through November 30,
1998. In exchange, the Company agreed to pay a fee of $10,000 and to
convert $350,000 of principal into 378,829 shares of common stock.
(B) In connection with agreeing to provide funding the assignor entered
into a Securities Purchase Agreement under which he purchased 694,650
shares of the Company's common stock for $.01 per share. The Company
has valued these shares by reference to effecting fair market rate of
interest, estimated to be 3% over prime. Accordingly a discount of
$67,500 was recorded, which is being amortized over the term of the
loan agreement. A portion of these shares were subsequently assigned to
the Trust.
(C) To be repaid out of future profits, if any, at a maximum aggregate
amount of $2,000 per month.
5. PRODUCT ROYALTY AGREEMENT
The Company has entered into a product royalty agreement with a
marketer of computer software. Earned prepaid royalties of $210,000
have been received to date. The agreement requires that prepaid
royalties are credited to earned sales royalties $.75 for every $1.00
earned until the credit is exhausted.
6. ASSET PURCHASE AGREEMENT
In August 1997, The Company executed an agreement with Bankers Trust,
under which the Company acquired the rights to certain software which
was under development by certain principals of the Company in their
capacity as employees of Bankers Trust. In connection with the
agreement, the Company is obligated to pay to Banker's Trust 10% of its
revenues from Visual Audit for Excel, up to a maximum of $250,000, of
which approximately $21,000 is accrued at April 30, 1998. The
consideration to Banker's Trust by the Company was $26,929 in cash and
a payable of $100,000, which is included in accrued expenses.
7. INCOME TAXES
The Company follows SFAS 109 "Accounting for Income Taxes". At April
30, 1998, The Company had deferred tax assets aggregating approximately
$384,000 related to net operating loss carry forwards of approximately
$960,000 expiring in the year 2013. The Company had deferred tax
liabilities of approximately $239,000 related to capitalized software
costs. At April 30, 1998, the net deferred tax asset of $145,000 is
reserved by a valuation allowance.
8. MERGER AGREEMENT
In August 1998, the Company entered into a Merger Agreement, whereby
the Company would be acquired by a publicly traded Company.
ASTRATEK, INC.
UNAUDITED FINANCIAL STATEMENTS
FOR THE FOUR MONTHS ENDED
AUGUST 31, 1998
October 22, 1998
Board of Directors
Astratek, Inc.
New York, New York
We have compiled the accompanying balance sheet of Astratek, Inc. as of
August 31, 1998, and the related statements of operations and accumulated
deficit and cash flows for the four months then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures
required by generally accepted accounting principles. If the omitted disclosures
were included in the financial statements, they might influence the user's
conclusions about the Company's financial condition. Accordingly, the financial
statements are not designed for those who are not informed about such matters.
/S/Xxxxxxx Xxxxx Xxxxxxx & Co., P.C.
Xxxxxxx Xxxxx Xxxxxxx & Co., P.C.
ASTRATEK, INC.
BALANCE SHEET
AUGUST 31, 1998
(Unaudited - see accountants' compilation report)
ASSETS
CURRENT ASSETS:
Cash $ 74,577
Accounts receivable, net 135,821
Prepaid expenses and other current assets 3,293
--------------
TOTAL CURRENT ASSETS 213,690
FURNITURE, FIXTURES AND EQUIPMENT 75,100
CAPITALIZED SOFTWARE COSTS, net 774,342
DEFERRED FINANCE COSTS 61,245
OTHER ASSETS 33,225
--------------
$ 1,157,601
==============
LIABILITIES AND DEFICIT IN ASSETS
CURRENT LIABILITIES:
Accounts payable $ 276,568
Accrued expenses 200,226
Notes payable 182,500
Loans payable 300,000
Current portion of long-term debt, net of discount 610,750
--------------
TOTAL CURRENT LIABILITIES 1,570,045
--------------
COMMITMENTS
DEFICIT IN ASSETS:
Preferred stock, 2,500,000 shares authorized, none issued -
Common stock, 12,500,000 shares authorized $.001 par,
2,105,000 shares issued and outstanding 2,105
Additional paid in capital 67,500
Accumulated deficit (482,048)
--------------
TOTAL DEFICIT IN ASSETS (412,443)
--------------
$ 1,157,601
==============
ASTRATEK, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOUR MONTHS ENDED AUGUST 31, 1998
(Unaudited - see accountants' compilation report)
SALES $ 467,916
COST OF SALES 172,111
----------------
GROSS PROFIT 295,805
OPERATING EXPENSES:
Selling, general and administrative 302,733
Research and Development 59,556
Depreciation 5,598
----------------
TOTAL OPERATING EXPENSES 367,887
----------------
LOSS FROM OPERATIONS (72,082)
INTEREST EXPENSE 47,641
----------------
NET LOSS (119,723)
ACCUMULATED DEFICIT - beginning of period (362,325)
----------------
ACCUMULATED DEFICIT - end of period $ (482,048)
================
ASTRATEK, INC.
STATEMENT OF CASH FLOWS
FOUR MONTHS ENDED AUGUST 31, 1998
(Unaudited - see accountants' compilation report)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (119,723)
----------------
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation 5,598
Amortization of deferred finance costs and debt discount 19,168
Amortization of capitalized software costs 55,801
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (54,122)
Additions to capitalize software costs (233,488)
(Increase) decrease in prepaid expenses and other current assets (1,098)
(Increase) decrease in deferred finance costs -
(Increase) decrease in other assets -
Increase (decrease) in accounts payable (48,295)
Increase (decrease) in accrued expenses 59,542
----------------
Total Adjustments (196,893)
----------------
CASH PROVIDED BY (USED IN) OPERATIONS (316,616)
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (860)
----------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES (860)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 88,000
Proceeds from loan 300,000
----------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES 388,000
----------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 70,525
CASH AND CASH EQUIVALENTS - beginning of period 4,052
----------------
CASH AND CASH EQUIVALENTS - end of period $ 74,577
================
XXXXX HOLDINGS, INC. AND SUBSIDIARIES/ASTRATEK, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed financial statements
have been prepared to show the effects of the October 27, 1998 acquisition of
Astratek, Inc. ("Astratek") by Xxxxx Holdings, Inc. through a share exchange of
2,294,900 shares of the Company's common stock in exchange for all of the issued
common stock of Astratek. The acquisition is accounted for as a pooling of
interests business combination.
The following unaudited pro forma consolidated balance sheet presents
the pro forma financial position of the Company at June 30, 1998 as if the
acquisition of Astratek had occurred on such date. Included is an adjustment to
record the elimination of Astratek's previous shares and the issuance of the
Company's shares to former Astratek shareholders.
The unaudited pro forma consolidated statements of operations for the
years ended June 30, 1998 and 1997 reflect the combined results of the Company
and Astratek as if the acquisition had occurred on July 1, 1996.
The unaudited pro forma consolidated statements of operations do not
necessarily represent actual results that would have been achieved had the
companies been together as of July 1, 1996, nor may they be indicative of future
operations. These unaudited pro forma consolidated financial statements should
be read in conjunction with the Company's historical financial statements and
notes thereto.
XXXXX HOLDINGS, INC. AND SUBSIDIARIES/ASTRATEK,INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
Xxxxx Holdings, Inc.
and Subsidiaries Astratek, Inc.
Balance at Balance at Pro Forma
June 30, April 30, Adjustments
------------------- ----------------- ---------------
1998 1998 DR (CR) Total
------------------- ----------------- --------------- ----------------
CURRENT ASSETS:
Cash $ 2,406,045 $ 4,052 $ $ 2,410,097
Accounts receivable, net - 81,700 81,700
Interest receivable 276,005 - 276,005
Note receivable - officer 162,627 - 162,627
Prepaid expenses and other current assets - 2,195 2,195
-------------------- ----------------- ----------------
TOTAL CURRENT ASSETS 2,844,677 87,947 2,932,624
LONG TERM NOTES RECEIVABLE 6,000,000 - 6,000,000
PROPERTY AND EQUIPMENT 10,326 79,838 90,164
CAPITALIZED SOFTWARE COSTS, net - 596,654 596,654
DEFERRED FINANCE COSTS - 72,913 72,913
DEPOSITS AND OTHER ASSETS 9,834 33,225 43,059
--------------------- ----------------- --------------- ----------------
$ 8,864,837 $ 870,577 $ - $ 9,735,414
===================== ================= =============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 41,269 $ 570,547 $ $ 611,816
Notes payable 85,760 31,500 117,260
Current portion of long-term debt, net
of discount - 561,250 561,250
State audit reserve 700,000 - 700,000
Accrued termination costs, short-term 784,053 - 784,053
--------------------- ----------------- ----------------
TOTAL CURRENT LIABILITIES 1,611,082 1,163,297 2,774,379
ACCRUED TERMINATION COSTS, long-term 280,209 - 280,209
LONG-TERM NOTES PAYABLE , net of current portion 23,260 - 23,260
REDEEMABLE PREFERRED STOCK, Series A 1,219,141 - 1,219,141
STOCKHOLDERS' EQUITY:
Preferred Stock, Series B Cumulative
Convertible, $.0001 par value, 10,000,000
shares authorized, 1,000,000 shares
issued and outstanding 505,000 - 505,000
Common stock, $ .0001 par value,
100,000,000 shares authorized,
9,724,579 shares issued and outstanding -
(actual) and 12,019,479 (pro forma) 972 2,105 (1) (1,875) 1,202
Additional paid-in capital 14,045,838 67,500 (1) 1,875 14,115,213
Accumulated deficit (8,820,665) (362,325) (9,182,990)
--------------------- ----------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 5,731,145 (292,720) 5,438,425
--------------------- ----------------- ----------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,864,837 $ 870,577 $ - $ 9,735,414
==================== ================= =========== ===============
See notes to pro forma financial statements.
XXXXX HOLDINGS, INC. AND SUBSIDIARIES/ASTRATEK, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Xxxxx Holdings, Inc.
and Subsidiaries Astratek, Inc.
Year ended Year ended Pro Forma
June 30, April 30, Adjustments
---------------- --------------- ----------------
1997 1997 DR (CR) Total
---------------- --------------- ---------------- -------------
REVENUES $ - $ $ $ -
COST OF GOODS SOLD - -
---------------- -------------- -------------
GROSS PROFIT - - -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 836,894 (1) 160,000 996,894
---------------- -------------- -------------
OPERATING LOSS (836,894) - (996,894)
INTEREST INCOME (EXPENSE) - 1,905 1,905
---------------- -------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (836,894) 1,905 (994,989)
PROVISION FOR INCOME TAXES - - -
---------------- -------------- ---------------- -------------
LOSS FROM CONTINUING OPERATIONS $ (836,894) $ 1,905 $ 160,000 $ (994,989)
================ ============== ================ =============
LOSS FROM CONTINUING OPERATIONS PER SHARE $ (0.10) $ (0.10)
================ =============
WEIGHTED AVERAGE SHARES 8,084,278 2,294,900 10,379,178
================ ================ =============
See notes to pro forma financial statements.
XXXXX HOLDINGS, INC. AND SUBSIDIARIES/ASTRATEK, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Xxxxx Holdings, Inc.
and Subsidiaries Astratek, Inc.
Year ended Year ended Pro Forma
June 30, April 30, Adjustments
-------------------- ------------- -----------------
1998 1998 DR (CR) Total
-------------------- ------------- ----------------- ---------------
REVENUES $ - $ 1,039,710 $ $ 1,039,710
COST OF GOODS SOLD - 255,977 255,977
-------------------- -------------- --------------
GROSS PROFIT - 783,733 783,733
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,160,761 1,079,169 (1) 70,000 2,309,930
-------------------- -------------- --------------
OPERATING LOSS (1,160,761) (295,436) (1,526,197)
INTEREST INCOME (EXPENSE) 536,523 (68,794) 467,729
-------------------- -------------- --------------
LOSS BEFORE INCOME TAXES (624,238) (364,230) (1,058,468)
PROVISION FOR INCOME TAXES - - - -
-------------------- -------------- ---------------- --------------
LOSS FROM CONTINUING OPERATIONS $ (624,238) $ (364,230) $ 70,000 $ (1,058,468)
==================== ============== ================ ==============
LOSS FROM CONTINUING OPERATIONS PER SHARE $ (0.06) $ (0.09)
==================== ==============
WEIGHTED AVERAGE SHARES 9,724,579 2,294,900 12,019,479
==================== ================ ==============
See notes to pro forma financial statements.
XXXXX HOLDINGS, INC. AND SUBSIDIARIES/ASTRATEK, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
A. The following unaudited pro-forma adjustments are included in the
accompanying unaudited pro forma consolidated balance sheet at June
30, 1998:
(1) To record the acquisition of all of the issued stock of Astratek
for 2,294,900 shares of the Company's common stock, with the
acquisition accounted for as a pooling of interests business
combination.
B. The following pro-forma adjustments are included in the accompanying
unaudited pro forma consolidated statements of operations for the years
ended June 30, 1998 and June 30, 1997:
(1) To record the increased salary level per the employment agreement
with the officer of Astratek to a salary level of $160,000 per year.
(2) To reflect the additional shares issued in weighted average shares
outstanding.
.
