As filed with the Securities and Exchange Commission on July 8, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ASD GROUP, INC.
(Name of Small Business Issuer in its Charter)
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DELAWARE 8711 APPLIED FOR
<S> <C> <C>
(State or other jurisdiction of (Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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1 INDUSTRY STREET
POUGHKEEPSIE, NEW YORK 12603
(914) 452-3000
(Address and telephone number of principal executive offices
and principal place of business)
GARY D. HORNE, CHAIRMAN
1 INDUSTRY STREET
POUGHKEEPSIE, NEW YORK 12603
(914) 452-3000
(Name, address and telephone number of agent for service)
Copies of Communications to:
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A. JEFFRY ROBINSON, P.A. LAWRENCE B. FISHER, ESQ.
DALE S. BERGMAN, P.A. ORRICK, HERRINGTON & SUTCLIFFE
BROAD AND CASSEL 666 FIFTH AVENUE
201 SOUTH BISCAYNE BLVD., SUITE 3000 NEW YORK, NEW YORK 10103
MIAMI, FLORIDA 33131 TELEPHONE: (212) 506-5000
TELEPHONE: (305) 373-9400 TELECOPIER: (212) 506-5151
TELECOPIER: (305) 373-9443
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable on or after the effective date of
this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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PROPOSED Proposed Amount of
MAXIMUM Maximum Registra-
Amount OFFERING Aggregate tion
to be PRICE PER Offering Fee
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED Registered SHARE(1) Price(1)
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Common Stock, par value $.01 per share................ 1,967,424(2) $8.50 $16,723,104 $5,766.63
Investor Warrants to Purchase Common Stock............ 242,424 (3)
Common Stock underlying Investor Warrants............. 242,424 8.50 2,060,604 710.56
Placement Agent Warrants.............................. 24,242 (3)
Common Stock underlying Placement
Agent Warrants...................................... 24,242 8.50 206,057 71.06
Representative's Warrants to Purchase Common
Stock............................................... 150,000 (3)
Common Stock underlying the Representative's
Warrants(4)......................................... 150,000 $10.20 $1,530,000 527.59
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Total Registration Fee................................ $7,075.84
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) Includes (i) 225,000 shares of Common Stock that may be issued upon
exercise of a 45-day option granted to the Underwriters solely to cover
over-allotments, if any, and (ii) 242,424 shares of Common Stock to be
issued upon consummation of this Offering to holders of certain promissory
notes of the Company.
(3) No fee required pursuant to Rule 457(g) under the Securities Act of
1933, as amended.
(4) Pursuant to Rule 416 under the Securities Act of 1933, as amended,
this Registration Statement also covers such additional shares as may
become issuable as a result of anti-dilution provisions contained in the
Representative's Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 8, 1996
PROSPECTUS
1,500,000 SHARES
ASD GROUP, INC.
COMMON STOCK
ASD Group, Inc. (the "Company") hereby offers (the "Offering")
1,500,000 shares of common stock, par value $.01 per share (the "Common Stock").
Prior to this Offering, there has been no public market for the Common Stock and
there can be no assurance that a trading market will develop after the
completion of this Offering or, if developed, that it will be sustained. It is
currently anticipated that the initial public offering price of the Common Stock
will be between $8.00 and $8.50 per share of Common Stock. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price. The Company has applied for quotation of the Common Stock on The
Nasdaq National Market under the symbol "ASDG."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" COMMENCING ON PAGE 6 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to the
Public Discount(1) Company(2)
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Per Share......................... $ $ $
Total(3).......................... $ $ $
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(1) Does not include additional compensation payable to Keane Securities Co.,
Inc., the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Underwriters and other
compensation payable to the Representative.
<PAGE>
(2) Before deducting estimated expenses of $514,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within
45 days of this Prospectus to purchase up to an aggregate of 225,000
additional shares of Common Stock upon the same terms and conditions as
set forth above, solely to cover over-allotments, if any. If such
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to the Company will be $____________,
$____________ and $____________, respectively. See "Underwriting."
The shares of Common Stock are being offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters,
and subject to approval of certain legal matters by their counsel and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify this Offering and to reject any order in whole or in part. It is
expected that the delivery of the shares of Common Stock offered hereby will be
made against payment therefor at the offices of Keane Securities Co., Inc. in
New York, New York, on or about , 1996.
KEANE SECURITIES CO., INC.
THE DATE OF THIS PROSPECTUS IS ____________, 1996.
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This Prospectus also relates to the registration by the Company, at its
expense, (a) for the account of holders (the "Noteholders") of the Company's 10%
Senior Secured Notes dated June 30, 1999 (the "Notes), of (i) 242,424 shares of
Common Stock (the "Investor Shares"), (ii) warrants to purchase 242,424 shares
of Common Stock (the "Investor Warrants"), and (iii) 242,424 shares of Common
Stock issuable upon exercise of the Investor Warrants (the "Underlying Shares"),
and (b) for the account of Spencer Trask Securities Incorporated (the "Placement
Agent"), the Company's placement agent in connection with the offer and sale of
the Notes, and its assignees (which include the Noteholders), of (i) warrants to
purchase 24,242 shares of Common Stock (the "Placement Agent Warrants"), and
(ii) 24,242 shares of Common Stock issuable upon exercise of the Placement Agent
Warrants (the "Placement Agent Shares"). The Noteholders and the Placement Agent
and its assignees are hereinafter referred to as the "Selling Security Holders".
The Investor Shares, Investor Warrants, Underlying Shares, Placement Agent
Warrants and Placement Agent Shares are hereinafter collectively referred to as
the "Selling Security Holders' Securities". The Selling Security Holders'
Securities are not being underwritten in the Offering and the Company will not
receive any proceeds from the sale of the Selling Security Holders' Securities.
Sales of any shares of Common Stock or warrants by the Selling Security Holders,
or even the existence of the right to exercise such warrants, may depress the
price of the Common Stock in any market that may develop for the Common Stock.
The sale of the Selling Security Holders' Securities may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Security Holders) in the over-the-counter market
or in negotiated transactions, through the writing of options on the Selling
Security Holders' Securities, through a combination of such methods of sale, or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices. If any Selling
Security Holder sells his, her or its securities, or options thereon, pursuant
to this Prospectus at a fixed price or at a negotiated price which is, in either
case, other than the prevailing market price or in a block transaction to a
purchaser who resells, or if any Selling Security Holder pays compensation to a
broker-dealer that is other than the usual and customary discounts, concessions
or commissions or if there are any arrangements either individually or in the
aggregate that would constitute a distribution of the Selling Security Holders'
Securities, a post-effective amendment to the Registration Statement of which
this Prospectus is a part, would need to be filed and declared effective by the
Securities and Exchange Commission before such Selling Security Holders could
make such sale, pay such compensation or make such a distribution. The Company
is under no obligation to file a post-effective amendment to the Registration
Statement of which this Prospectus is a part under such circumstances.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH
<PAGE>
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, FINANCIAL INFORMATION,
NUMBER OF SHARES AND PER SHARE DATA SET FORTH IN THIS PROSPECTUS (I) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE UP TO AN
ADDITIONAL 225,000 SHARES OF COMMON STOCK, (II) ASSUMES NO EXERCISE OF THE
WARRANTS TO BE ISSUED BY THE COMPANY TO THE REPRESENTATIVE TO PURCHASE UP TO
150,000 SHARES OF COMMON STOCK (THE "REPRESENTATIVE'S WARRANTS"), (III) DOES NOT
GIVE EFFECT TO 266,666 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF CERTAIN
WARRANTS TO BE OUTSTANDING UPON CONSUMMATION OF THIS OFFERING; AND (IV) DOES NOT
GIVE EFFECT TO 100,000 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF
OPTIONS TO BE GRANTED PRIOR TO THE CONSUMMATION OF THE OFFERING PURSUANT TO THE
COMPANY'S 1996 STOCK OPTION PLAN (THE "1996 PLAN") AND 250,000 ADDITIONAL SHARES
OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE 1996 PLAN. SEE "MANAGEMENT",
"CERTAIN TRANSACTIONS" AND "UNDERWRITING." UNLESS OTHERWISE INDICATED, THIS
PROSPECTUS GIVES EFFECT TO THE 14,841.6 FOR ONE STOCK SPLIT EFFECTED JUNE 25,
1996. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES HEREIN TO THE "COMPANY"
ARE TO ASD GROUP, INC. AND ITS SUBSIDIARIES AND PREDECESSORS.
THE COMPANY
ASD Group, Inc. (the "Company") provides comprehensive contract
manufacturing and engineering services to original equipment manufacturers
("OEMs"). The Company specializes in the fabrication, assembly and testing of
complex industrial products and non-invasive medical equipment. The Company
manufactures complete systems, as well as assemblies, including printed circuit
boards, cable and wire harnesses and other electro-mechanical assemblies. The
Company complements its basic manufacturing services by providing its customers
with a broad range of sophisticated product engineering and design services.
Products manufactured by the Company range from highly sophisticated atomic
force microscopes (which measure the electrical field of an atom) to less
complex products such as sign plotting devices. Representative customers of the
Company include ENI (a division of Astec America, Inc.), General Electric Co.,
Gerber Scientific Co., International Business Machines Corporation ("IBM"),
Lockheed Martin Corporation (formerly Loral Federal Systems Company), Materials
Research Corporation (a Sony company), Motorola Corporation and the United
States Postal Service.
Downsizing by American industry, combined with rapid change, strong
competition and increasingly shorter product life cycles in various industries,
have made it considerably less attractive for OEMs to manufacture in-house,
particularly low unit volume products or short cycle electronic products. As a
result, many OEMs have adopted and are becoming increasingly reliant upon
manufacturing outsourcing strategies and on contract manufacturers to satisfy
2
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their mainstream manufacturing requirements. Management of the Company believes
that this trend will continue. According to published information, contract
manufacturers are expected to do nearly $25 billion of business in the United
States and Canada this year. According to reports by Technology Forecasters,
Inc., a Berkeley, California research firm, growth in this industry is
forecasted at 26% a year through 1999. Moreover, according to these reports,
electronics contract manufacturing worldwide will be a $50 billion business this
year and nearly double in 1999.
For the nine months ended March 31, 1995 and March 29, 1996, the
Company had net sales of $12,671,000 and $19,850,000, respectively, and net
income of $317,000 and $648,000, respectively. The Company believes that the
increase in net sales and net income was due in part to the Company's ability to
produce high quality products and deliver them on a timely basis and its
sophisticated engineering and manufacturing capabilities.
In addition, the Company's proprietary Production Operation Management
("POM") manufacturing software is an integral part of the Company's operations
as it assists the Company in controlling its manufacturing operations from
estimating to shipping to billing. The POM manufacturing software is a real
time system which allows the Company to track specific projects as they move
through the production cycle and to make adjustments as necessary in order to
control costs and achieve higher levels of quality control and efficiencies.
The Company focuses on servicing OEMs who produce complex, high dollar
value industrial products where high quality manufacturing is extremely
important. Management of the Company believes that profits for such products
tend to generate higher gross profit margins. The Company's objective is to
increase revenues and profits by utilizing its POM manufacturing software and
sophisticated manufacturing, engineering and design services to offer customers
comprehensive manufacturing solutions. The Company intends to realize its
objective by implementing the following strategies:
INCREASE SALES FROM EXISTING CUSTOMERS AND ADD NEW CUSTOMERS. The
Company plans to expand existing relationships and seek new customers in the
markets it currently serves. The Company plans to increase the amount of sales
to existing customers by devoting more time to these customers through an
increased sales force and by offering improved and expanded services such as
faster metal cutting machining centers, faster sheet metal punching equipment,
expanded painting facilities and more rapid and less expensive testing
procedures and equipment. The Company also plans to add new customers by
increasing its marketing efforts, including attending more trade shows,
expanding the number of advertisements in trade journals, increasing the number
of sales personnel, expanding the number of customers who receive direct
mailings, providing new sales literature and conducting CD-ROM based interactive
electronic presentations. The Company also plans to use a portion of the net
proceeds of this Offering to refurbish a currently idle second plant owned by
the Company which will enable the Company to handle the requirements of
additional customers. The Company's objective is to obtain multiple customers in
the markets it currently serves.
INCREASE PROFITS BY REDUCING COSTS. The Company plans to reduce costs
by enhancing the POM manufacturing software to augment its real time
productivity and quality measurement system using bar codes, and adding a
feature to the POM manufacturing
3
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software to enable each customer a window into the POM manufacturing software to
allow them to monitor via the Internet the progress of their jobs. Management of
the Company believes that the utilization of bar codes will reduce the labor
costs associated with the present method of reporting. Allowing customers to
access information themselves will also enable the Company to reduce overhead.
MARKETING OF POM MANUFACTURING SOFTWARE. Once the POM manufacturing
software has been upgraded, management of the Company plans to generate revenues
through the licensing of the POM manufacturing software to other contract
manufacturers in return for monthly usage fees. The Company also plans to market
other Internet services such as multimedia productions to third parties.
FACILITATE GROWTH OF THE COMPANY THROUGH ACQUISITIONS. The contract
manufacturing industry is now going through consolidation. The Company may also
acquire other contract manufacturers if management determines that such
acquisitions will enable the Company to improve net sales and profits. These
acquisitions may allow the Company to expand to other regions of the country and
possibly abroad. Management of the Company believes that the Company's
proprietary POM manufacturing software will enable the Company to realize
greater efficiencies with respect to any such acquisitions. The Company has no
current commitment or understanding with, and has not entered into negotiations
with, any acquisition candidates.
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THE OFFERING
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Common Stock offered by the Company......... 1,500,000 shares
Common Stock outstanding
prior to the Offering..................... 1,632,576 shares
Common Stock to be outstanding
after the Offering........................ 3,375,000 shares(1)
Use of Proceeds............................. For repayment of indebtedness, sales and marketing
activities, capital expenditures, working capital and
other general corporate purposes. See "Use of
Proceeds."
Risk Factors and Dilution................... An investment in the Common Stock involves a
high degree of risk and immediate and substantial
dilution to the purchasers in this Offering. See
"Risk Factors" and "Dilution."
Proposed Nasdaq National
Market Symbol............................. "ASDG"
</TABLE>
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(1) Includes 242,424 shares of Common Stock to be issued to the
Noteholders upon consummation of the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."
4
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SUMMARY FINANCIAL INFORMATION
The following summary financial information has been derived from the
consolidated financial statements of the Company. This information should be
read in conjunction with the consolidated statements, related notes and other
financial information included elsewhere in this Prospectus.
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NINE MONTHS ENDED
-------------------------
YEAR ENDED JUNE 30, MARCH 31, MARCH 29,
----------------------------
1994 1995 1995 1996
---- ---- ---- ----
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STATEMENT OF OPERATIONS DATA:
Net sales.................................. $14,866,000 $18,655,000 $12,671,000 $19,850,000
Income (loss) before
income taxes............................. (1,201,000) 757,000 528,000 848,000
Net income................................. 3,000 427,000 317,000 648,000
Net income per common share................ $ .00 $ .26 $ .19 $ .40
Weighted average number of common
shares outstanding....................... 1,632,576 1,632,576 1,632,576 1,632,576
</TABLE>
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MARCH 29, 1996
----------------------------
AS
ACTUAL ADJUSTED(1)
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BALANCE SHEET DATA:
Working capital................................... $ 5,156,000 $11,826,000
Current assets.................................... 10,190,000 15,360,000
Total assets...................................... 16,067,000 23,810,000
Current liabilities............................... 5,034,000 3,534,000
Long-term debt, net of current portion............ 9,295,000 7,295,000
Stockholders' equity.............................. 1,439,000 12,682,000
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(1) Adjusted to give effect to (a) the sale by the Company of 1,500,000
shares of Common Stock offered hereby at an assumed initial public
offering price of $8.25 per share after deducting the underwriting
discount and estimated expenses of this Offering and the initial
application of the estimated net proceeds therefrom, and (b) a non-cash
charge of (i) $1,120,000, net of income tax, incurred as a result of the
issuance of the Investor Shares and (ii) $137,000, net of income tax, for
the unamortized portion of the debt offering costs relating to the
repayment of the Notes from a portion of the net proceeds of this
Offering. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources," and Notes to Consolidated Financial Statements.
5
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RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. IN ADDITION TO THE
OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS
For Fiscal 1995, the Company's four largest customers accounted for
approximately 71% of net sales. For the nine months ended March 29, 1996, the
Company's five largest customers accounted for approximately 72% of net sales.
While the Company is pursuing a strategy of diversifying its customer base, the
Company expects to continue to depend upon a relatively small number of
customers for a significant percentage of its revenues for the foreseeable
future. Significant reductions in sales to any of the Company's large customers
would have a material adverse effect on the Company. There can be no assurance
that present or future customers will not terminate their manufacturing
arrangements with the Company or significantly change, reduce or delay the
amount of manufacturing services ordered from the Company. Any such termination
of a manufacturing relationship or change, reduction or delay in orders could
have an adverse effect on the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business-Customers, Sales
and Marketing."
LIMITED HISTORY OF PROFITABILITY
Although the Company had income before income taxes of $757,000 and
$848,000 for the fiscal year ended June 30, 1995 ("Fiscal 1995"), and the nine
months ended March 29, 1996, respectively, the Company had a loss before income
taxes of $1,201,000 for the fiscal year ended June 30, 1994 ("Fiscal 1994") and
a loss before income taxes of $2,481,000 for the fiscal year ended June 30, 1993
("Fiscal 1993"). There can be no assurance that the Company will continue to be
profitable. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The success of the Company's present and future operations will depend
to a great extent on the collective experience, abilities and continued services
of certain executive officers including Gary D. Horne, the Company's Chief
Executive Officer; Stanley F. Zuk, the Company's Chief Operating Officer; and
Robert Lettieri, the Company's Chief Financial Officer. The loss of the services
of any of such persons could have a material adverse effect on the Company. The
Company's ongoing business activities are dependent on highly skilled and
experienced individuals. The Company has devoted, and will continue to devote,
considerable efforts to recruiting skilled individuals. Competition for highly
skilled personnel is intense and the Company may have to provide qualified
personnel with competitive compensation packages, equity participation and other
benefits, which may limit the working capital available for the Company's
operations. No assurance can be given that the Company will be able to obtain
such employees when needed or on terms acceptable to the Company. See
"Business-Employees" and "Management."
6
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POTENTIAL FLUCTUATIONS IN FINANCIAL RESULTS
The Company's annual and quarterly operating results may be affected by
a number of factors, including the Company's ability to manage inventories and
fixed assets, shortages of components or labor, the degree of automation used in
the assembly process, fluctuations in material costs and the mix of material
costs versus labor. Manufacturing and overhead costs are also significant
factors affecting the annual and quarterly operating results of the Company.
Other factors include price competition, the ability to pass on excess costs to
customers, the timing of expenditures in anticipation of increased sales and
customer product delivery requirements. Any one of these factors, or a
combination thereof, could adversely affect the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON CERTAIN INDUSTRIES
The Company is dependent upon the continued growth, viability and
financial stability of its customers, which are in turn substantially dependent
on the growth of the computer, computer peripherals, telecommunications, postal
equipment, semiconductor, environmental, test equipment, process equipment,
industrial equipment and other industries in which they operate. These
industries have been characterized by rapid technological change, short product
life cycles and have recently experienced pricing and margin pressures. In
addition, many of the Company's customers in these industries are affected by
general economic conditions. The factors affecting the industries in which the
Company's customers operate, and/or the Company's customers in particular, could
have a material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business-Customers, Sales and Marketing."
VARIABILITY OF CUSTOMER REQUIREMENTS AND CUSTOMER FINANCING
The level and timing of orders placed by the Company's customers vary
due to the customers' attempts to balance their inventory, changes in customers'
manufacturing strategies and variations in demand for their products resulting
from, among other things, product life cycles, competitive conditions or general
economic conditions. Should the Company increase its expenditures in
anticipation of a future level of sales which does not materialize, its
profitability could be adversely affected. While several of the Company's
customers provide production requirements for one year in the form of yearly
purchase orders, others do not
7
<PAGE>
commit to firm production schedules for more than one quarter in advance. The
Company's inability to forecast the level of customer orders with certainty
makes it difficult to schedule production and maximize utilization of
manufacturing capacity.
In the past, the Company has been required to increase staffing and
other expenses in order to meet the demands of firm purchase orders of its
customers. In addition, the total quantity requirements of purchase orders from
some of the Company's customers have been decreased and/or delivery schedules
have been deferred as a result of changes in the customer's business needs,
thereby adversely affecting the Company. On other occasions, customers have
required rapid increases in production which have placed excessive burdens on
the Company's resources. Such customers' order fluctuations and deferrals have
had an adverse effect on the Company in the past, and there can be no assurance
that the Company will not experience such effects in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business-Backlog."
INTELLECTUAL PROPERTY RIGHTS
The Company's ability to compete successfully depends, in part, on its
ability to use and exploit its proprietary POM manufacturing software. To
maintain the secrecy of its proprietary POM manufacturing software, the Company
relies largely upon a combination of trade secret laws, copyright laws, internal
security systems, confidentiality procedures and employee agreements. Third
parties may attempt to exercise alleged rights in any of the copyrights or
other intellectual property rights or appropriate any copyrights or other
intellectual property rights established by the Company. The Company's
failure or inability to establish approximate copyrights or to adequately
protect any of its intellectual property rights, may have a material adverse
effect on the Company. See "Business-Intellectual Property Rights."
LIMITED AVAILABILITY OF COMPONENTS
A substantial part of the Company's revenues is derived from turnkey
manufacturing in which the Company provides materials sourcing, procurement,
assembly and testing. In turnkey manufacturing, the Company could be exposed to
the risk of component price increases, which could adversely affect the
Company's gross profit margins. Some of the products and assemblies manufactured
by the Company require one or more components that are ordered from, or which
may be available from, only one source. Some of these components are allocated
in response to supply shortages. In some cases, supply shortages could
substantially curtail production of all assemblies using a particular component.
While the Company has not experienced material shortages of components in the
recent past, there can be no assurance that such shortages will not occur in the
future. Any such shortages could have a material adverse effect on the Company.
See "Business-Suppliers."
MANAGEMENT OF GROWTH
One of the Company's strategies is to expand its relationships with its
existing customers and increase its customer base. In order to do this, the
Company will be required to continue to increase staffing as well as its
expenditures on capital equipment. The Company must continue to manage its staff
and capital properly to ensure that the increased costs of staffing and
8
<PAGE>
capital expenditures do not increase at a faster rate than sales. In addition,
as the Company's business and customer base grows, the Company's accounts
receivable may increase. While the Company maintains accounts receivable
insurance on certain of its customers, if one or more of the Company's principal
customers were to become insolvent, or otherwise were unable to pay for the
services provided by the Company, the Company's operating results and financial
condition could be adversely affected. Moreover, increased levels of accounts
receivable may negatively impact the Company's cash flow. See "Business-Business
Strategy."
COMPETITION
The Company operates in a highly competitive environment and competes
against numerous domestic and foreign manufacturers. The Company also faces
competition from current and prospective customers which evaluate the Company's
capabilities against the merits of manufacturing products internally versus the
merits of contract manufacturing. Certain of the Company's competitors,
including SCI Systems, Inc., Solectron Corporation, Jabil Circuit, Inc., and
Avex Electronics, have substantially greater geographic breadth, and financial,
research and development and marketing resources than the Company. To remain
competitive, the Company must continue to provide and develop technologically
advanced manufacturing services, maintain quality levels, offer flexible
delivery schedules, deliver finished products on a reliable basis and compete
favorably on the basis of price. There can be no assurance that the Company will
be able to compete favorably with respect to these factors in the future. See
"Business Competition."
TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT
The market for the Company's manufacturing services is characterized by
rapidly changing technology and continuing process development. The Company
believes that its future success will depend in large part upon its ability to
develop and market manufacturing services which meet changing customer needs,
maintain technological leadership and successfully anticipate or respond to
technological changes in manufacturing processes on a cost-effective and timely
basis. There can be no assurance that the Company's process development efforts
will be successful. See "Business-Business Strategy."
ENVIRONMENTAL COMPLIANCE
The Company is subject to a variety of environmental regulations
relating to the use, storage, discharge and disposal of hazardous chemicals used
during its manufacturing process. While the Company believes it is in compliance
with all environmental regulations, any failure by the Company to comply with
present and future regulations could subject it to future liabilities or the
suspension of production. In addition, such regulations could restrict the
Company's ability to expand its facilities or could require the Company to
acquire costly equipment or to incur other significant expenses to comply with
governmental regulations. See "Business-Government Regulation."
9
<PAGE>
POSSIBLE ADDITIONAL FINANCING REQUIREMENTS
The Company believes that its existing and anticipated capital
resources, including the estimated net proceeds of this Offering and cash flow
from operations, will enable it to fund its planned operations for a period of
at least 12 months from the date of this Prospectus. There can be no assurance
that the Company will realize cash flow from operations or that such cash flow
will be sufficient, in which case the Company may require additional financing
and may seek to raise funds through subsequent equity or debt financings, or
through other sources. Moreover, the Company's existing credit facility places
restrictions on the Company's ability to obtain financing. No assurance can be
given that additional funds will be available to the Company on acceptable
terms, if at all. Additional financings may result in dilution to existing
stockholders. If funds are needed but are not available in adequate amounts from
additional financing sources or from operations, the Company may be materially
and adversely affected. In addition, refinancing of the Company's existing
manufacturing credit facility is a condition precedent to consummation of this
Offering. No assurance can be given that the Company will be able to
successfully refinance this credit facility. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BROAD DISCRETION IN USE OF PROCEEDS
Approximately $4,300,000 (41%) of the estimated net proceeds from
this Offering (plus any proceeds received from the exercise of the Underwriters'
over-allotment option) will be for working capital and other general corporate
purposes. Accordingly, the Company's management will have broad discretion as to
the application of such proceeds. See "Use of Proceeds."
CONTROL OF THE COMPANY BY MANAGEMENT
After giving effect to the sale of the shares of Common Stock offered
hereby, the Company's directors and executive officers will own approximately
43.1% of the outstanding shares of Common Stock (approximately 40.4% if the
Underwriters' over-allotment option is exercised in full). As a result, the
Company's current management will have the ability to control substantially all
matters requiring approval by the stockholders, including the election of
directors. See "Principal Stockholders" and "Description of Securities."
IMPACT OF ISSUANCE OF INVESTOR SHARES AND REPAYMENT OF NOTES
Upon consummation of this Offering, the Company will issue 242,424
Investor Shares to the Noteholders without the receipt of additional
consideration and intends to repay the Notes from a portion of the net proceeds
of this Offering. As a result, upon issuance of the Investor Shares and
repayment of the Notes, the Company will record, in the first quarter of the
fiscal year ending June 30, 1997, a non-cash charge of (i) $1,120,000, net of
income tax, incurred as a result of the issuance of the Investor Shares, and
(ii) $137,000, net of income tax, for the unamortized portion of the debt
offering costs relating to the repayment of the Notes. See "Management's
Discussion and Analysis of
10
<PAGE>
Financial Condition and Results of Operations - Liquidity and Capital Resources"
and "Selling Security Holders".
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the shares of Common Stock offered hereby will incur
an immediate dilution in net tangible book value of $4.51 (or 54.7%) per share
of Common Stock. See "Dilution."
NO ASSURANCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF PUBLIC OFFERING PRICE,
POSSIBLE VOLATILITY OF COMMON STOCK PRICES
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market for the Common
Stock will develop or, if developed, be sustained after the Offering. The
initial public offering price of the Common Stock has been arbitrarily
determined by negotiations between the Company and the Representative and does
not necessarily bear any relationship to the Company's assets, book value,
results of operations or any other generally accepted criteria of value. See
"Underwriting."
The stock market has from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performances of
specific companies. Announcements of new technologies and changing policies and
regulations of the federal government and state governments and other external
factors, as well as potential fluctuations in the Company's financial results,
may have a significant impact on the price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have outstanding
3,375,000 shares of Common Stock. The 1,500,000 shares of Common Stock offered
hereby (1,725,000 shares if the Underwriters' over-allotment option is exercised
in full) will be freely transferable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"). The Company
is also registering, pursuant to the Registration Statement of which this
Prospectus is a part, (i) for the account of the Noteholders, 242,424 Investor
Shares, 242,424 Investor Warrants, and 242,424 Underlying Shares for resale by
the Noteholders; and (ii) for the account of the Placement Agent and its
assignees, 24,242 Placement Agent Warrants and 24,242 Placement Agent Shares for
resale by the holders thereof. The registration of such securities for the
account of the Selling Security Holders will permit the sale of such securities
in the open market or in privately negotiated transactions.
The Selling Security Holders have agreed (i) not to, directly or
indirectly, sell or dispose of any beneficial interest in such securities for a
period of nine months from the date of this Prospectus, without the prior
written consent of the Company and the Representative and (ii) not
11
<PAGE>
to exercise the Investor Warrants or the Placement Agent Warrants, as the case
may be, for a period of two years from the consummation of this Offering without
the prior written consent of the Company and the Representative. The remaining
1,632,576 outstanding shares of Common Stock, which are owned by the existing
stockholders, as well as the shares issuable upon exercise of any options
granted to these stockholders pursuant to the Company's 1996 Plan, will be
"restricted securities," as that term is defined in Rule 144 ("Restricted
Shares") and may only be sold pursuant to a registration statement under the
Securities Act or an applicable exemption from registration thereunder,
including exemptions provided by Rule 144. The directors and executive officers
of the Company who hold an aggregate of 1,632,576 shares of Common Stock have
agreed not to, directly or indirectly, sell or dispose of any beneficial
interest in such securities for a period of 15 months from the date of this
Prospectus without the prior written consent of the Company and the
Representative. No prediction can be made as to the effect that future sales of
Common Stock, or the availability of shares of Common Stock for future sale,
will have on the market price of the Common Stock prevailing from time to time.
The registration, sale or issuance, or the potential for registration, sale or
issuance, of Common Stock after the 15-month lock-up period could have an
adverse impact on the market price of the Common Stock. See "Description of
Securities," "Shares Eligible for Future Sale" and "Underwriting."
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of holders of Common Stock will be subject to, and
may be adversely affected by, the rights of holders of any Preferred Stock that
may be issued in the future. Although the Company has no present intention to
issue shares of Preferred Stock, any issuance of Preferred Stock, while
potentially providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Additionally, following this Offering, the Company will
become subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"), which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. Section 203 could have the effect of delaying or preventing
a change of control of the Company. See "Description of Securities."
ABSENCE OF DIVIDENDS
The Company has never paid any dividends on the Common Stock and does
not expect to pay any dividends on the Common Stock in the foreseeable future.
See "Dividend Policy."
12
<PAGE>
THE COMPANY
The Company initially provided design and engineering services to IBM's
main frame computer development and manufacturing operations in New York's
Hudson Valley ("IBM-Hudson Valley"). Over a 25-year period, the Company's
relationship with IBM-Hudson Valley evolved to the point where by the mid 1980's
the Company assembled, wired and tested a significant portion of the IBM-Hudson
Valley main frame computers that were produced. IBM-Hudson Valley became the
Company's principal customer, providing for over 90% of its revenues. Commencing
in 1990, IBM-Hudson Valley's main frame sales began to decline due to the
recession and the shift in technology to personal computer-based systems. In
December 1992, IBM-Hudson Valley eliminated the use of substantially all main
frame assembly vendors, including the Company. As a result, the Company had
significant reductions in revenues and incurred substantial losses. Accordingly,
during 1993 and 1994 the Company undertook a restructuring of its operations
wherein it implemented a significant downsizing, re-engineered its operations
and commenced intensive efforts to market its contract manufacturing services to
other OEMs.
The Company was incorporated in New York in May 1965 under the name
Dutchess Design & Development, Inc. In June 1996, the Company was reincorporated
in Delaware under its present name. The Company maintains its executive offices
at 1 Industry Street, Poughkeepsie, New York 12603. The Company's telephone
number is (914) 452-3000.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares
of Common Stock offered hereby at an assumed initial public offering price of
$8.25 per share are estimated to be approximately $10,500,000 (or approximately
$12,150,000 if the Underwriters' over-allotment option is exercised in full),
after deducting the underwriting discount, the non-accountable expense allowance
and other estimated Offering expenses payable by the Company.
The Company intends to use the estimated net proceeds of the Offering
as follows: (i) approximately $3,500,000 for repayment of certain indebtedness,
including $2,000,000 to repay the Notes and approximately $1,500,000 to certain
vendors in order to reduce the Company's accounts payable; (ii) approximately
$500,000 for sales and marketing activities, including hiring additional
personnel for sales, purchasing multimedia laptop computers for sales
presentations, updating and printing new sales literature, increasing the amount
of advertisements, increasing the number of trade shows at which the Company can
make presentations and other related sales expenses; (iii) approximately
$1,700,000 for purchasing new capital equipment and other improvements to the
Company's manufacturing facilities, which will be used to enable the Company to
expand its operations; (iv) approximately $500,000 for refining the Company's
POM manufacturing software (for the Company's own internal use as well as for
marketing the product to others) by hiring additional engineering and marketing
personnel; and (v) the balance, approximately $4,300,000 (plus any proceeds
received from the exercise of the Underwriters' over-allotment option), for
working capital and other general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
The amounts and timing of the above expenditures may vary and will
depend on numerous factors, including, but not limited to timing of orders from
major customers and timing of expenditures in response to such orders.
Management of the Company believes that the Company's existing and anticipated
capital resources, including the net estimated proceeds of this Offering
together with cash flow from operations, will enable it to fund its planned
operations for a period of at least 12 months from the date of this Prospectus.
There can be no assurance, however, that the Company will realize cash flow
from operations or that such cash flow will be sufficient to satisfy the
Company's requirements for any particular period of time.
Pending the aforementioned uses, the net proceeds from this Offering
will be invested in short-term, investment grade interest bearing obligations.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (a) as
of March 29, 1996 and (b) on an as adjusted basis giving effect to (i) the sale
of shares of Common Stock offered hereby at an assumed initial public offering
price of $8.25 per share, less the underwriting discount, the non-accountable
expense allowance and the Offering expenses payable by the Company and the
initial application of the estimated net proceeds therefrom and (ii) the
non-cash charge of (y) $1,120,000, net of income tax, incurred as a result of
the issuance of the Investor Shares, and (z) $137,000, net of income tax, for
the unamortized portion of the debt offering costs relating to the repayment of
the Notes. See "Risk Factors - Impact of Issuance of Investor Shares and
Repayment of Notes" and "Management's Discussion and Analysis and Results of
Operations - Liquidity and Capital Resources."
<TABLE>
<CAPTION>
MARCH 29, 1996
------------------------------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Current portion of long-term debt(1)........................... $ 1,033,000 $1,033,000
--------- ---------
Long-term debt(1).............................................. 9,295,000 7,295,000
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized; none
issued..................................................... -- --
Common stock, $.01 par value; 25,000,000 shares
authorized; 1,632,576 shares issued and
outstanding, actual; 3,375,000 shares issued
and outstanding, as adjusted............................... 16,000 34,000
Additional paid-in capital................................... -- 12,482,000
Retained earnings............................................ 1,423,000 166,000
--------- ----------
Total stockholders' equity................................. 1,439,000 12,682,000
--------- ----------
Total capitalization........................................... $ 10,734,000 $19,977,000
========== ==========
</TABLE>
- -------------------------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes to Consolidated Financial Statements
for information regarding the Company's long-term debt.
15
<PAGE>
DILUTION
At March 29, 1996, the net tangible book value of the Company was
$1,146,377 or $.70 per share. Net tangible book value per share represents the
Company's total tangible assets, less total liabilities, divided by the number
of shares of Common Stock outstanding. After giving effect to (a) the sale of
the 1,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $8.25 per share and the initial application of the estimated
net proceeds therefrom, and (b) the issuance of the Investor Shares and related
non-cash charge of (i) $1,120,000, net of income tax, incurred as a result of
the issuance of the Investor Shares, and (ii) $137,000, net of income tax, for
the unamortized portion of the debt offering costs relating to the repayment of
the Notes, the pro forma net tangible book value of the Company at March 29,
1996 would have been $12,634,377, or $3.74 per share. See "Risk Factors - Impact
of Issuance of Investor Shares and Repayment of Notes" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." This represents an immediate increase in net
tangible book value of $3.04 per share to the existing stockholders and an
immediate dilution in net tangible book value to new investors of $4.51 per
share. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $8.25
Net tangible book value per share before the Offering................... $ .70
Increase attributable to new investors.................................. 3.04
----
Pro forma net tangible book value per share after the Offering............ 3.74
----
Dilution to new investors................................................. $4.51
====
</TABLE>
If the Underwriters' over-allotment option is exercised
in full, the pro forma net tangible book value per share of Common Stock after
this Offering would be $3.97 per share which would result in dilution to new
investors in this Offering of $4.28 per share of Common Stock.
The following table summarizes on a pro forma basis, as of the date of
this Prospectus, the difference between the existing stockholders and new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid,
assuming an initial public offering price of $8.25 per share.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 1,875,000 55.6% $ 3,833 0.03% $ 0.002
Noteholders........................ 242,424 7.2 0 0.00 $ 0.000
New investors...................... 1,500,000 44.4 12,375,000 99.97 $ 8.250
--------- ---- ---------- -----
Total..................... 3,375,000 100.0% $12,378,833 100.00%
========= ===== ========== ======
</TABLE>
16
<PAGE>
DIVIDEND POLICY
The Company has not paid any cash dividends since its inception and
does not intend to pay any cash dividends on its Common Stock in the foreseeable
future. The payment of any dividends in the future will depend on the evaluation
by the Company's Board of Directors of such factors as it deems relevant at the
time. Currently, the Board of Directors believes that all of the Company's
earnings, if any, should be retained for the development of the Company's
business.
17
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data set forth below for the years ended
June 30, 1994 and 1995 and for the nine months ended March 29, 1996, and the
balance sheet data set forth below as of June 30, 1995 and March 29, 1996 have
been derived from the Company's financial statements, which have been audited by
Deloitte & Touche LLP, independent auditors, whose report with respect thereto
is included elsewhere in this Prospectus. The balance sheet data as of June 30,
1994 have been derived from the Company's audited balance sheet, which is not
included herein. The statement of operations data for the nine months ended
March 31, 1995 are derived from the unaudited financial statements of the
Company included elsewhere in this Prospectus. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial condition and results of operations for such period. The results of
operations for the nine months ended March 29, 1996 are not necessarily
indicative of the results to be expected for any other interim period or the
entire year. This data should be read in conjunction with the financial
statements and the notes thereto and other financial information appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, --------------------------
------------------------- MARCH 31, MARCH 29,
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $14,866,000 $18,655,000 $12,671,000 $19,850,000
Cost of goods sold.............................. 12,513,000 14,378,000 9,740,000 15,236,000
---------- ---------- ---------- ----------
Gross profit.................................. 2,353,000 4,277,000 2,931,000 4,614,000
Selling, general and administrative expense..... 3,316,000 2,757,000 2,056,000 3,290,000
--------- --------- --------- ---------
Income (loss) from operations................. (963,000) 1,520,000 874,000 1,324,000
Other income (expense).......................... 222,000 (1,000) (14,000) 205,000
Interest expense................................ 460,000 762,000 331,000 681,000
-------- -------- -------- --------
Income (loss) before income taxes............. (1,201,000) 757,000 528,000 848,000
Provision (benefit) for income taxes............ (1,204,000) 330,000 211,000 200,000
---------- -------- -------- --------
Net income.................................... $ 3,000 $ 427,000 $ 317,000 $ 648,000
------------ ---------- ---------- -----------
Net income per common share..................... $ .00 $ .26 $ .19 $ .40
========= =========== =========== ===========
Weighted average number of
common shares outstanding..................... 1,632,576 1,632,576 1,632,576 1,632,576
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 29,
------------------------ -----------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 1,196,000 $ 1,923,000 $ 5,156,000
Current assets.................................. 4,591,000 8,809,000 10,190,000
Total assets.................................... 11,069,000 14,868,000 16,067,000
Current liabilities............................. 3,395,000 6,885,000 5,034,000
Long-term debt, net of current portion.......... 7,020,000 6,897,000 9,295,000
Stockholders' equity............................ 364,000 790,000 1,439,000
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
The Company provides comprehensive contract manufacturing and
engineering services to OEMs. The Company was formed in 1965 to provide design
and engineering services to IBM-Hudson Valley. Over a 25 year period, the
Company's relationship with IBM-Hudson Valley evolved to the point where by the
mid 1980's the Company assembled, wired and tested a significant portion of
IBM-Hudson Valley's main frame computers. IBM-Hudson Valley became the Company's
principal customer, providing over 90% of its revenues. Commencing in 1990,
IBM-Hudson Valley's main frame sales began to decline due to the recession and
the shift in technology to personal computer-based systems. In December 1992,
IBM-Hudson Valley eliminated the use of substantially all main frame assembly
vendors, including the Company. As a result, the Company had significant
reductions in revenues and incurred substantial losses. Accordingly, during 1993
and 1994 the Company undertook a restructuring of its operations wherein it
implemented a significant downsizing, re-engineered its operations and commenced
intensive efforts to market its contract manufacturing services to other OEMs.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 29, 1996 AS COMPARED TO NINE MONTHS ENDED
MARCH 31, 1995
For the nine months ended March 29, 1996, the Company's net sales
increased by $7,180,000 or 56.7% to $19,850,000 from $12,671,000 for the nine
months ended March 31, 1995. The sales growth was primarily the result of the
expansion of the Company's relationships with its existing customers and a
broadening of the Company's customer base.
Cost of goods sold for the nine months ended March 29, 1996 increased
$5,496,000 or 56.4% to $15,236,000 from $9,740,000 for the nine months ended
March 31, 1995, primarily as a result of the higher sales level. Gross profit
expressed as a percentage of net sales increased slightly from 23.1% for the
nine months ended March 31, 1995 to 23.2% for the nine months ended March 29,
1996.
Selling, general and administrative expenses increased by $1,234,000 or
60% to $3,290,000 for the nine months ended March 29, 1996 from $2,056,000 for
the nine months ended March 31, 1995. The increase in expenses was primarily due
to increased staffing requirements and related expenses resulting from increased
demand for the Company's products. The nine months ended March 31, 1995 were
favorably impacted by recovery of bad debts which reduced expenses by $195,000.
Other income (expense) for the nine months ended March 29, 1996
consisted of income of $205,000 as compared to expense of $14,000 for the nine
months ended March 31, 1995. The other income was primarily the result of a gain
on the sale of the North Carolina facility in August 1995 in the amount of
$167,000.
19
<PAGE>
Interest expense increased to $681,000 for the nine months ended March
29, 1996 from $331,000 for the nine months ended March 31, 1995. The increase in
interest expense reflects both an increase in interest rates and amounts
borrowed, including the $2,000,000 senior financing raised from the Noteholders
and a $1,000,000 increase in principal in the Company's revolving bank line of
credit (the "Line of Credit") with Banker's Trust Company (the "Bank"). Interest
expense was also affected by an agreement with the Bank to pay an additional
interest fee to the Bank, based upon the Company's obtaining senior financing.
Of the $200,000 additional interest fee, $100,000 was expensed in Fiscal
1995 and $50,000 was expensed during the nine months ended March 29, 1996.
Net income increased by $331,000 or 104.5% to $648,000 for the nine
months ended March 29, 1996 from $317,000 for the nine months ended March 31,
1995. Contributing to the improvement in net income was a lower income tax
provision. The effective income tax rate for the nine months ended March 29,
1996 decreased to 23.6% from 40% for the nine months ended March 31, 1995. This
decrease resulted from a reduction of the previously established deferred tax
asset valuation allowance relating to the utilization of a capital loss
carryforward of $172,000 in December 1995.
FISCAL 1995 AS COMPARED TO FISCAL 1994
During Fiscal 1995, the Company's net sales increased by $3,789,000 or
25.5% to $18,655,000 from $14,866,000 for Fiscal 1994. The sales growth was
primarily the result of the Company's broadening of its customer base and
expansion of its relationships with existing customers.
Cost of goods sold for Fiscal 1995 increased $1,865,000 to $14,378,000
from $12,513,000 for Fiscal 1994, an increase of 14.9%. The increase in cost of
goods sold was related to an increase in variable costs, primarily material and
direct labor. Gross profit as a percentage of net sales increased by 7.1% to
22.9% in Fiscal 1995 from 15.8% in Fiscal 1994. The improvement in gross profit
reflects the efficiencies achieved by management through cost reduction and the
use of the Company's POM manufacturing software. During Fiscal 1994, the Company
continued to reduce its operational labor force while still retaining staffing
that was considered critical to maintaining product quality and cost efficiency.
Costs associated with maintaining the Company's production facilities were also
reduced by closing one plant, reducing the Company's maintenance staff and
finding more cost-effective alternatives to servicing equipment. Although the
Company reduced its operating costs, the sales volume in Fiscal 1994 was below
the break-even point.
Selling, general and administrative expenses decreased by $559,000 or
16.9% to $2,757,000 for Fiscal 1995 from $3,316,000 for Fiscal 1994. During
Fiscal 1995, the Company recovered $205,000 of bad debts as compared to Fiscal
1994 when the Company incurred $633,000 of bad debt expense, a net decrease of
$838,000. All other selling, general and administrative expenses increased by
$279,000 in Fiscal 1995 as compared to Fiscal 1994.
During Fiscal 1994, the Company had other income of $222,000 primarily
resulting from a rebate from workers' compensation insurance.
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Net income for Fiscal 1995 increased by $424,000 to $427,000 from
$3,000 in Fiscal 1994. In Fiscal 1994, the Company incurred a loss before income
taxes of $1,201,000 and had net income of $3,000 as a result of a $531,000
reduction in the deferred tax asset valuation allowance and the Fiscal 1994
income tax benefit generated in that year. During Fiscal 1994, management of the
Company believed that due to expected future taxable income, it was more likely
than not that a significant portion of these deferred tax benefits would be
realized and, therefore, the valuation allowable was reduced at June 30, 1994 by
$531,000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $1,972,000 for the nine months ended
March 29, 1996 as compared to $1,019,000 for the nine months ended March 31,
1995. The increase in cash used in operations was primarily the result of an
increase in inventory and a reduction in current liabilities. Working capital
increased to $5,156,000 at March 29, 1996 from $1,792,000 at March 31, 1995. The
increase in working capital resulted primarily from financing activities,
improvements in the collection of accounts receivable and an increase in net
income.
Financing activities during the nine months ended March 29, 1996
generated $3,000,000, $2,000,000 of which was generated from the issuance of the
Notes as described below and $1,000,000 of which resulted from an increase in
borrowing under the Line of Credit. During this period, the Company repaid
$1,207,000 of long-term debt.
Net cash used in operations was $637,000 for Fiscal 1995, as compared
to $1,313,000 for Fiscal 1994. During Fiscal 1995, an inventory increase needed
to fulfill increased sales levels was funded largely through extended credit
from vendors. Working capital increased to $1,923,000 at June 30, 1995 from
$1,196,000 at June 30, 1994.
Financing activities during Fiscal 1995 provided $511,000, as compared
to $1,220,000 from financing activities during Fiscal 1994. Cash generated from
financing activities in both fiscal years was provided from increased borrowings
under the Line of Credit.
The Line of Credit currently permits borrowings of up to $3,730,000.
The amount available for borrowings under the Line of Credit is determined
pursuant to a formula based upon the Company's eligible accounts receivable and
inventory. As of March 29, 1996, $3,309,000 was outstanding under the Line of
Credit and the Company had $371,000 available for additional borrowings.
The Line of Credit currently bears interest at the rate of 9.75%
(prime plus 1 1/2%). The Line of Credit is secured by a first lien on
substantially all of the Company's assets other than a second lien on inventory.
In addition, the Bank holds mortgages on two of the Company's properties, which
mortgages had an aggregate principal balance of approximately $3,461,000 as of
March 29, 1996. The Bank has extended to the Company a machinery and equipment
loan with an outstanding principal balance as of March 29, 1996 of $541,000.
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The Line of Credit contains certain financial operating covenants,
including requirements that the Company maintain minimum net worth levels,
prohibitions on the ability of the Company to incur certain additional
indebtedness and restrictions on the ability of the Company to make capital
expenditures, to incur or suffer to exist certain liens and to take certain
other actions, including restricting the payment of dividends by certain
subsidiaries to the Company. The Company is currently in compliance with all
covenants under the Line of Credit.
Prior to or simultaneously with the consummation of this Offering, the
Company intends to refinance its indebtedness to the Bank and secure a new asset
based credit facility with an increased borrowing limit. Accordingly, on May 31,
1996, the Company entered into an agreement with the Bank which will permit the
Company to repay its existing indebtedness to the Bank at a discount of
approximately $460,000, provided such option is exercised on or before December
31, 1996. As of the date of this Prospectus, the Company has not reached an
agreement with a new lender to refinance the indebtedness to the Bank and there
can be no assurance that it will do so on terms satisfactory to the Company.
Refinancing of the Line of Credit is a condition precedent to consummation of
this Offering.
In December 1995 and February 1996, the Company sold an aggregate of
$2,000,000 in aggregate principal amount of Notes to the Noteholders. Interest
on the Notes accrues at the rate of 10% per annum and is payable quarterly. The
Notes, which are secured by a first lien on the Company's inventory, will be due
and payable upon consummation of this Offering and a portion of the net proceeds
of this Offering will be used to effect such repayment. See "Use of Proceeds."
In addition, the Noteholders will receive, upon consummation of this Offering,
such number of shares of Common Stock of the Company determined by dividing
$2,000,000 by the public offering price of the shares of Common Stock and
Investor Warrants to purchase an equal number of shares of Common Stock.
Moreover, the Placement Agent, or its assignees, will receive Placement Agent
Warrants to purchase a number of shares of Common Stock equal to 10% of the
number of shares of Common Stock issued to the Noteholders. Assuming a public
offering price of $8.25 per share, the Noteholders will receive 242,424 Investor
Shares and 242,424 Investor Warrants to purchase an additional 242,424
Underlying Shares. In addition, the Placement Agent and its assignees (which
include the Noteholders) will receive 24,242 Placement Agent Warrants to
purchase 24,242 Placement Agent Shares. The Investor Warrants and Placement
Agent Warrants will be exercisable at a price of $8.25 per share for a five-year
period from consummation of this Offering; provided, however, that the Investor
Warrants and Placement Agent Warrants will not be exercisable for a period of
two years from the consummation of this Offering without the prior written
consent of the Company and the Representative. In the event the public offering
price is more than or less than $8.25 per share, the number of Investor Shares
issuable to the Noteholders, the number of shares underlying the Investor
Warrants and the Placement Agent Warrants and the number of shares of Common
Stock previously issued to the stockholders of the Company will be adjusted such
that total shares of Common Stock held by the existing stockholders of the
Company and issuable to the Noteholders will be 1,875,000 shares. The number of
Investor Warrants and Placement Agent Warrants will also be subject to
adjustment. The Investor Shares, the Investor Warrants and the Underlying Shares
have been registered for resale in the Registration Statement of which this
Prospectus forms a part. See "Selling Security Holders" and "Shares Eligible for
Future Sale."
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Since the Investor Shares will be issued to the Noteholders without the
receipt of additional consideration, upon issuance of the Investor Shares, the
Company will be required to record, in the first quarter of the fiscal year
ending June 30, 1997, a non-cash charge of $1,120,000, net of income tax. In
addition, upon repayment of the Notes from a portion of the net proceeds of this
Offering, the Company will be required to record in the same period a non-cash
charge of $137,000, net of income tax, for the unamortized portion of the debt
offering costs relating to the repayment of the Notes. See "Risk Factors--Impact
of Issuance of Investor Shares and Repayment of Notes" and "Use of Proceeds."
The Company anticipates that it will incur capital expenditures of
approximately $1,700,000 during the fiscal year ending June 30, 1997. Such
expenditures will be primarily for refurbishment of the Company's currently idle
second plant and for the acquisition of additional assembly and manufacturing
equipment. See "Use of Proceeds."
Management of the Company believes that the Company's existing and
anticipated capital resources, including the estimated net proceeds of this
Offering and cash flow from operations, will enable it to fund its planned
operations for a period of at least 12 months from the date of this Prospectus.
There can be no assurance that these assumptions will be correct, in which case
the Company may require additional financing, and may seek to raise funds
through subsequent equity or debt financings, or through other sources. No
assurance can be given that additional funds will be available to the Company
to finance its development on acceptable terms, if at all. Additional financings
may result in dilution to existing stockholders. If funds are needed but are not
available in adequate amounts from additional financing sources or from
operations, the Company's business may be materially and adversely affected.
NET OPERATING LOSS CARRYFORWARDS
As of March 29, 1996, the Company had a Federal net operating loss
carryforward of approximately $2,700,000 which expires in 2009.
IMPACT OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and SFAS No. 123, "Accounting for Stock-Based Compensation." The
Company intends to adopt SFAS Nos. 121 and 123 by the required dates and does
not believe that their adoption will have a material effect on the Company.
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BUSINESS
GENERAL
The Company provides comprehensive contract manufacturing and
engineering services to OEMs. The Company specializes in the fabrication,
assembly and testing of complex industrial products and non-invasive medical
equipment. The Company manufactures complete systems, as well as assemblies,
including printed circuit boards, cable and wire harnesses and other
electro-mechanical assemblies. The Company complements its basic manufacturing
services by providing its customers with a broad range of sophisticated product
engineering and design services. Products manufactured by the Company range from
highly sophisticated atomic force microscopes (which measure the electrical
field of an atom) to less complex products such as sign plotting devices.
Representative customers of the Company include ENI (a division of Astec
America, Inc.), General Electric Co., Gerber Scientific co., IBM, Lockheed
Martin Corporation (formerly Loral Federal Systems Company), Materials Research
Corporation (a Sony company), Motorola Corporation and the United States Postal
Service.
Downsizing by American industry, combined with rapid change, strong
competition and increasingly shorter product life cycles in various industries,
have made it considerably less attractive for OEMs to manufacture in-house,
particularly low unit volume products or short cycle electronic products. As a
result, many OEMs have adopted and are becoming increasingly reliant upon
manufacturing outsourcing strategies and on contract manufacturers to satisfy
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<PAGE>
their mainstream manufacturing requirements. Management of the Company believes
that this trend will continue. According to published information, contract
manufacturers are expected to do nearly $25 billion of business in the United
States and Canada this year. According to reports by Technology Forecasters,
Inc., a Berkeley, California research firm, growth in this industry is
forecasted at 26% a year through 1999. Moreover, according to these reports,
electronics contract manufacturing worldwide will be a $50 billion business this
year and nearly double in 1999.
For the nine months ended March 31, 1995 and March 29, 1996, the
Company had net sales of $12,671,000 and $19,850,000, respectively, and net
income of $317,000 and $648,000, respectively. The Company believes that the
increase in net sales and net income was due in part to the Company's ability to
produce high quality products and deliver them on a timely basis and its
sophisticated engineering and manufacturing capabilities.
In addition, the Company's POM manufacturing software is an integral
part of the Company's services as it assits the Company in controlling its
manufacturing operations from estimating to shipping to billing. The POM
manufacturing software is a real time system which allows the Company to track
specific porjects as they move through the production cycle and to make
adjustments as necessary in order to control costs and achieve higher levels of
quality control and efficiencies.
INDUSTRY OVERVIEW
OEMs originally utilized contract manufacturing sources primarily to
reduce labor costs in the production of electronic assemblies and to provide for
additional manufacturing capacity in times of peak demand. These early contract
manufacturers typically were employed on a consignment basis in which the OEM
provided the circuit and production designs, procured all components and
performed the final product listing.
During the early 1980's, the commercialization of the personal computer
began to fuel substantial growth in the electronics and other industries and,
with it, the growth of contract
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manufacturers. Despite rapid growth in the electronics industry, the market soon
became characterized by intense price competition and demands for more frequent
product introductions. In an effort to survive and meet the requirements of the
marketplace, OEMs were forced to restructure and focus their resources on core
strategic strengths, such as product development, software design and marketing,
and to outsource capital intensive manufacturing operations to specialists. As
contract manufacturers began to perform more turnkey services, the relationship
between OEMs and contract manufacturers became more strategic in nature, with
the two now linked in a close relationship to deliver cost effective, high
quality products quickly to the marketplace.
OEMs utilize contract manufacturers for the following reasons:
REDUCE TIME TO MARKET. Due to intense competitive pressures in the
electronics, industrial products and medical equipment industries, OEMs are
faced with increasingly shorter product life-cycles and therefore have a growing
need to reduce the time required to bring a product to market. OEMs can
generally reduce their time to market by using the established manufacturing
expertise and infrastructure of contract manufacturers.
REDUCE CAPITAL INVESTMENT. As electronics, industrial products and
medical equipment have become more technologically advanced, the manufacturing
process has become increasingly automated requiring a greater level of
investment in capital equipment. Contract manufacturers enable OEMs to gain
access to advanced manufacturing facilities, thereby reducing the OEMs' overall
capital equipment requirements.
FOCUS RESOURCES. Because the electronics, industrial products and
medical equipment industries are experiencing greater levels of competition and
more rapid technological change, many OEMs increasingly are seeking to focus
their resources on activities and technologies in which they add the greatest
value. By offering comprehensive design, assembly and turnkey manufacturing
services, contract manufacturers allow OEMs to focus on core technologies and
activities such as product development, marketing and distribution.
ACCESS LEADING MANUFACTURING TECHNOLOGY. Products and manufacturing
technology have become increasingly sophisticated and complex, making it
difficult for OEMs to maintain the necessary technological expertise in process
development and control. OEMs are motivated to work with a contract manufacturer
in order to gain access to the contract manufacturer's process expertise and
manufacturing know-how.
IMPROVE INVENTORY MANAGEMENT AND PURCHASING POWER. OEMs are faced with
increasing difficulties in planning, procuring and managing their inventories
efficiently due to frequent design changes, short product life-cycles, large
investments in electronic components, component price fluctuations and the need
to achieve economies of scale in materials procurement. OEMs can generally
reduce production costs by using the procurement capabilities of the contract
manufacturer. By utilizing a contract manufacturer's expertise in inventory
management, OEMs can generally better manage inventory costs and increase their
return on assets.
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BUSINESS STRATEGY
The Company focuses on servicing OEMs who produce complex, high dollar
value industrial products where high quality manufacturing is extremely
important. Management of the Company believes that profits for such products
tend to generate higher gross profit margins. The Company's objective is to
increase revenues and profits by utilizing its POM manufacturing software and
sophisticated manufacturing, engineering and design services to offer customers
comprehensive manufacturing solutions. The Company intends to realize its
objective by implementing the following strategies:
INCREASE SALES FROM EXISTING CUSTOMERS AND ADD NEW CUSTOMERS. The
Company plans to expand existing relationships and seek new customers in the
markets it currently serves. The Company plans to increase the amount of sales
to existing customers by devoting more time to these customers through an
increased sales force and by offering improved and expanded services such as
faster metal cutting machining centers, faster sheet metal punching equipment,
expanded painting facilities and more rapid and less expensive testing
procedures and equipment. While the Company has an on-going quality improvement
program, the Company will intensify its efforts in educating its employees on
the Company's quality requirements and in measuring its employees conformance to
these requirements. Additionally, the Company will improve on its monthly
quality assurance technical audits in conformance with the international quality
process specification and have an outside certified auditor audit the quality
management system every six months. The Company also intends to increase the
frequency of its customer satisfaction surveys from quarterly to monthly. The
Company is also planning to publish a news letter quarterly to be mailed to
customers. The Company plans to diversify its customer base by increasing its
marketing efforts. The Company intends to do this by attending more trade shows,
expanding the number of advertisements in trade journals, expanding the number
of sales personnel, expanding the number of customers who receive direct
mailings, and providing new sales literature, conducting CD-ROM based
interactive electronic presentations and enhancing its presentation on the
Internet world wide web. The Company also plans to use a portion of the net
proceeds of this Offering to refurbish a currently idle second plant owned by
the Company which will enable the Company to handle the requirements of
additional customers. The Company's objective is to obtain multiple customers in
the markets it currently serves.
INCREASE PROFITS BY REDUCING COSTS. The Company plans to reduce costs
by enhancing the POM manufacturing software to augment its real time
productivity and quality measurement system using bar codes, and adding a
feature to the POM manufacturing software to enable each customer a window into
the POM manufacturing software to allow them to monitor via the Internet the
progress of their jobs. Management of the Company believes that the utilization
of bar codes will reduce the labor costs associated with the present method of
reporting. Allowing customers to access information themselves will also enable
the Company to reduce overhead.
MARKETING OF POM MANUFACTURING SOFTWARE. Once the POM manufacturing
software has been sufficiently enhanced, management of the Company plans to
generate revenues through the
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licensing of the POM manufacturing software to other contract manufacturers in
return for monthly usage fees. The Company also plans to market other Internet
services such as multimedia productions to third parties.
FACILITATE GROWTH OF THE COMPANY THROUGH ACQUISITIONS. The contract
manufacturing industry is now going through consolidation. The Company may also
acquire other contract manufacturers if management determines that such
acquisitions will enable the Company to improve net sales and profits. These
acquisitions may allow the Company to expand to other regions of the country and
possibly abroad. Management of the Company believes that the Company's
proprietary POM manufacturing software will enable the Company to realize
greater efficencies with respect to any such acquisitions. The Company has no
current commitment or understanding with, and has not entered into negotiations
with, any acquisition candidates.
POM MANUFACTURING SOFTWARE
The Company's proprietary POM manufacturing software is integral to
the Company's operations. The POM manufacturing software tracks all of the
Company's operations on a real time basis. As a result, the POM manufacturing
software assists the Company in controlling costs and achieving higher levels of
quality control and efficiencies.
Specifically, after an order is placed, the POM manufacturing software
allows the Company's industrial engineers and estimators to create a
hierarchical data base of the components of a customer's product in order to
estimate the total cost of the product and to produce a priced bill of materials
("BOM") which includes purchased items and labor broken down into sequenced
tasks. Thereafter, the POM manufacturing software automatically produces printed
requests for quotations to the appropriate supplier. As a result, the Company
can provide the customer with a completely priced printed BOM broken down by
each assembly and fabricated part which breakdown includes price of labor, raw
materials and purchased components.
When the Company releases the product for manufacturing, the software
provides the Company's purchasing department with electronic purchase
requisitions automatically generated from the BOM. Once the purchasing
department negotiates final prices and selects the suppliers, the POM
manufacturing software automatically prints and sends purchase orders to the
suppliers and automatically prints lists of raw materials and components
("Kits") for each work center so that the Company's materials management
department can supply these items to the manufacturing department when
scheduled. The POM manufacturing software automatically provides the purchasing
department lists of purchased items that must be expedited in order to satisfy
the delivery dates. If necessary, the POM manufacturing software will also
provide the purchasing department printed amendments to purchase orders to
change the quantity and delivery dates of Kits that have had delivery dates or
quantities to be manufactured which are altered by the Company's production
management department in response to customer demand. The POM manufacturing
software automatically prints bar-coded work orders listing sequenced labor
tasks to be performed for each work center in response to a production lot
defined by the Kit. As purchased items are received and entered into the POM
manufacturing software, the POM manufacturing software update the appropriate
Kit, updates work-in-process values and electronically compares quantities to
the POM purchase orders. As labor is expended on each work order and recorded
each day, the POM manufacturing software updates the work-in-process values and
compares the actual labor hours per task to the estimated labor hours and then
produces
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reports to management of estimated compared to actual results to date for each
job showing purchasing efficiency and labor efficiency compared to the
estimating standard.
If requested, for a specified job, the POM manufacturing software can
produce a detailed report showing each purchase order received, each invoice
sent to the customer, each labor transaction, and each receiving transaction. On
demand from production administration as verified by its shipping department,
the POM manufacturing software can print an invoice for services rendered or
product shipped. When an invoice is printed, the POM manufacturing software
updates the accounts receivable in the financial system and deducts the dollar
amount of parts and labor from the work-in-process system. On demand, the POM
manufacturing software prints a work-in-process report showing dollars in labor
and dollars in purchased parts for each active job, prints a statement for each
customer showing the invoices that are projected to become due through the next
week, automatically prints projected accounts receivable collections by customer
by week, prints a rating letter to each supplier informing the supplier of its
quality rating based on comparison of purchase order quantity and delivery date
requirements compared to receiving transactions and prints the productivity
performance measurement of each employee involved in this process.
There are numerous advantages to the Company and its customers through
utilization of the POM manufacturing software. First, the priced bill of
materials sent to the customer inures customer confidence as the customer
realizes the Company understands the customer's product and the customer can
evaluate the Company's pricing strategy in detail. In addition, because POM
manufacturing software automatically produces requests for quotations, purchase
requisitions, and purchase orders, overhead costs are reduced. Since the POM
manufacturing software provides timely comparison of actual costs to estimated
costs as each job progresses, the Company's production management team is more
likely to spot inefficiencies early in the production cycle and then take
corrective action thereby maximizing profit. In addition, because POM
manufacturing software evaluates, on a daily basis, the productivity levels of
all direct employees, management believes that greater productivity is achieved.
Finally, because the POM manufacturing software is used to provide weekly
statements to its customers, management believes accounts receivable collection
is faster thereby enhancing cash flow.
The Company intends to have the existing POM manufacturing software
upgraded to provide for the use of bar code tracking, which will enhance the
Company's ability to provide real time productivity analysis of each direct
worker and to provide the status of each order being processed in the plant. The
Company also plans to upgrade the POM manufacturing software to provide each
customer with a dial-up window accessed over the Internet that displays the
status of each order and a cost breakdown of each of the customer's products
including a cost breakdown of each sub-assembly. As a result, the Company's
customers will have immediate access to all information regarding their order.
Management of the Company believes that none of the Company's competitors have
similar capabilities. The Company ultimately plans to market its POM
manufacturing software, as well as complementary Internet software applications
and services, such as home page design (including multi-media productions), to
third parties. However, there can be no assurance that it can successfully do
so.
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INDUSTRIES AND PRODUCTS
The following table lists the industries in which the Company expects
to continue to conduct significant business and the products for which the
Company expects to provide manufacturing services (based on net sales for Fiscal
1995).
<TABLE>
<CAPTION>
INDUSTRY SPECIFIC PRODUCT OR PRODUCT COMPONENT
- -------- -------------------------------------
<S> <C>
Communications Cellular telephone automated assembly components; printed
circuit cards for automated telephone attendants
Computer Chassis, frames, panels, wire harness and cables, jumpers,
test equipment, process equipment
Environmental Cleaning equipment using environmentally friendly
chemicals
Information Processing Test equipment for copiers
Instrumentation Printed circuit cards for laser measurement instruments
Medical Components for blood analyzers; power components for
medical equipment; automated process equipment
Semiconductor Sputtering equipment components;
loaders and elevator components for
ovens; power components for
semiconductor equipment; atomic
force microscope inspection
equipment; test equipment
Sign-Making Sub-systems for plotters; sub-systems for four color process
sign making
Transportation Electronic traffic display signs; airport control components
Other Letter sorting and handling
components, parcel drop system,
electronic voting machine
components; control systems for
power distribution; printed circuit
boards for elevator control systems
</TABLE>
SERVICES
The Company provides comprehensive contract manufacturing and
engineering services to OEMs. Such services include:
PRODUCT ENGINEERING AND DESIGN SERVICES. The Company also assists its
customers in designing or evaluating designs of products. The Company designs or
evaluates designs for ease and quality of manufacture and, when appropriate,
recommends changes to reduce manufacturing costs or lead times or to increase
the quality of finished assemblies. The Company supports its customers with
sophisticated product engineering and design services using computer aided
design equipment with computer aided machinery software. Product engineering and
design include electrical design, electronic circuit design, mechanism design,
electro-mechanical design, printed circuit board design and software
engineering. The Company also assists its customers with overall product
redesign with the objective of reducing manufacturing costs. The goal of the
Company's engineering and product design services is to create a more stable
volume of turnkey manufacturing and an elevated level of strategic partnering
with principal customers.
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MANUFACTURING. The Company custom manufactures complete systems,
printed circuit board assemblies, cable and wire harnesses and other
electro-mechanical assemblies. Manufacturing services offered by the Company
include sourcing and procurement of raw materials and parts, precision metal
fabrication, welding, painting, silk screening, assembly and testing.
In order to achieve high levels of performance in its manufacturing
operations, the Company combines advanced manufacturing technology, such as
computer-aided manufacturing and testing, with state-of-the-art manufacturing
techniques. The Company's management is committed to quality control and seeks
to impart high levels of quality in every operation of the Company. This is
accomplished by setting the quality and labor efficiency objectives for every
operation, tracking performance against those objectives, identifying work flow
and policy changes required to deliver higher quality. The Company's quality
management system conforms to ISO 9002, the international standard for quality.
In implementing its manufacturing approach, the Company emphasizes
timely delivery and accurate and up to date documentation for each product. The
Company develops an appropriate production process and a complete set of
manufacturing process instructions, inspection plans and a quality assurance
plan for each product. An analysis of each customer's materials specification is
performed to identify component suppliers. The Company then plans and executes
purchase orders, receives, inspects and warehouses components, expedites
critical components and delivers a complete set of components to the production
floor for assembly. The Company uses its POM manufacturing software to monitor
and control all aspects of the manufacturing process, including material
resource planning, shop floor control, work-in-process tracking, statistical
process control and activity based product costing.
Responsiveness to customers, particularly as to engineering changes
once manufacturing has commenced, is an important component of the Company's
manufacturing approach. Many products manufactured by the Company are in the
early stages of their product life cycle and therefore may have ongoing design
or engineering changes. Upon receiving an engineering change notice, the Company
identifies the impact of such changes in the production process, current
inventory and open purchase orders. To support continuous production flow while
minimizing excess and obsolete inventory costs for the customer, the Company
restructures bills of material and expedites orders for new components, as
authorized. The Company also identifies and implements changes to manufacturing
instructions and test plans. In order to assure prompt customer service, the
Company assigns each project a product manager, quality assurance engineer,
product engineer, test engineer and customer service representative. The Company
maintains regular contact with its customers to assure adequate information
exchange, document control and activities coordination necessary to support a
high level of quality and on-time delivery.
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SYSTEM ASSEMBLY. The Company's assembly activities range from assembly
of higher level sub-systems and systems to printed circuit board assembly and
assembly of complex electro-mechanical components. The Company specializes in
printed circuit board assembly, cable and wire harness assembly and
electro-mechanical assembly, all utilizing specialized tools and techniques.
QUALITY ASSURANCE. The Company's quality assurance procedures are an
integral part of providing customers with turnkey manufacturing solutions. The
Company provides computer-aided in-circuit and functional testing, which
contributes significantly to the Company's ability to deliver high quality
products on a consistent basis. The Company has developed specific strategies
and routines to test printed circuit board's and other assemblies. In-circuit
tests verify that all components have been properly inserted and that electrical
circuits are complete. Functional tests determine if the assembly is performing
to customer specifications. The Company either designs and procures test
fixtures and develops its own test software or utilizes the customer's existing
test fixtures and test software. In addition, the Company provides environmental
stress tests of the printed circuit board or system assemblies.
The Company's quality management system has recently been certified
under ISO-9002, an international quality standard. The Company's cable and wire
harnesses and assemblies are manufactured to Underwriters Laboratories and
Canadian Standards Association specifications and the Company has been certified
by both organizations. The Company's printed circuit board manufacturing process
has been certified by BBAC (a British communications equipment manufacturing
quality specification).
CUSTOMERS, SALES AND MARKETING
The Company serves a wide variety of markets, including the computer,
computer peripherals, telecommunications, postal equipment, semiconductor,
environmental, test equipment, process equipment, industrial equipment and other
industries. Representative customers of the Company include ENI (a division of
Astec America, Inc.), General Electric Co., Gerber Scientific Co., International
Business Machines Corporation ("IBM"), Lockheed Martin Corporation (formerly
Loral Federal Systems Company), Materials Research Corporation (a Sony company),
Motorola Corporation and the United States Postal Service. A majority of the
Company's customers are located in the Northeast.
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For Fiscal 1995 the Company's four largest customers accounted for
approximately 71% of net sales. For the nine months ended March 29, 1996, the
Company's five largest customers accounted for approximately 72% of net sales.
Accordingly, in addition to expanding existing relationships, the Company is
pursuing a strategy of diversifying its customer base. Currently, the Company
contacts potential customers through participation at contract manufacturing
shows, strategically placed advertisements, and direct mail campaigns which are
then followed by telephone sales and visits from the Company's sales
representatives. The Company also advertises over the Internet at its own
website. Following consummation of this Offering, the Company plans to expand
its marketing efforts by attending more trade shows, increasing the number of
advertisements in trade journals, increasing the number of sales personnel,
increasing the number of customers who receive direct mailings, and providing
new sales literature and CD-ROM based interactive electronic presentations. The
Company's objective is to obtain multiple customers in the markets it currently
serves.
COMPETITION
The Company operates in a highly competitive environment and competes
against numerous domestic and foreign manufacturers. The Company's competitors
include SCI Systems, Inc., Solectron Corporation, Avex Electronics Inc. (a
privately-held company), Jabil Circuit, Inc., Plexus Corp., DOVatron
International, Inc., IEC Electronics Corp., Sanmina Corporation and Benchmark
Electronics, Inc. In addition, the Company may encounter competition in the
future from other large electronic manufacturers which are selling, or may begin
to sell, contract manufacturing services. The Company may also face competition
from the manufacturing operations of its current and prospective customers,
which the Company believes continually evaluate the merits of manufacturing
products internally versus the merits of contract manufacturing.
The Company believes that the primary basis of competition in its
targeted markets are time to market, capability, price, manufacturing quality,
advanced manufacturing technology and reliable delivery. Management believes
that it generally competes favorably with respect to each of these factors. To
remain competitive, the Company must continue to provide technologically
advanced manufacturing services, maintain quality levels, offer flexible
delivery schedules, deliver finished products on a reliable basis and compete
favorably on the basis of price. There can be no assurance that the Company can
compete effectively with respect to these factors in the future.
BACKLOG
The Company's backlog at March 29, 1996 was approximately $16.7
million, compared to backlog at March 31, 1995 of approximately $12.1 million.
Backlog consists of firm purchase orders and commitments which are to be filled
within the next 12 months. However, since orders and commitments may be
rescheduled or canceled, management of the Company believes that backlog is not
a meaningful indicator of future financial performance.
33
<PAGE>
The level and timing of orders placed by the Company's customers may
vary due to the customers' attempts to balance their inventory, changes in
customers' manufacturing strategies and variations in demand for the customers'
products resulting from, among other things, product life cycles, competitive
conditions or general economic conditions. Most customers do not commit to firm
production schedules for more than one quarter in advance. The Company's
inability to forecast the level of customer orders with certainty makes it
difficult to schedule production and maximize utilization of manufacturing
capacity.
SUPPLIERS
The Company procures components from a broad group of suppliers,
determined on an assembly-by-assembly basis. Some of the products and assemblies
manufactured by the Company require one or more components that may be available
from only a single source. Some of these components are allocated in response to
supply shortages. The Company attempts to ensure the continuity of supply of
these components. In cases where unanticipated customer demand or supply
shortages occur, the Company attempts to arrange for alternative sources of
supply, where available, or defers planned production to meet the anticipated
availability of the critical components. In some cases, supply shortages could
substantially curtail production of all assemblies using a particular component.
While the Company has not experienced material shortages in the recent past,
such shortages could produce significant short-term interruptions of the
Company's future operations.
INTELLECTUAL PROPERTY RIGHTS
The Company regards its manufacturing processes, proprietary software
and circuit designs as proprietary trade secrets and confidential information.
To maintain the trade secrecy of its proprietary software, the Company relies
largely upon a combination of trade secret laws, copyright laws, internal
security systems, confidentiality procedures and employee agreements. Third
parties may attempt to exercise alleged rights in any of the copyrights or
other intellectual property rights or appropriate any copyrights or other
intellectual property rights established by the Company, and the Company's
failure or inability to establish approximate copyrights or to adequately
protect any of its intellectual property rights, may have a material adverse
effect on the Company.
GOVERNMENT REGULATION
The Company's operations are subject to certain federal, state and
local regulatory requirements relating to environmental, waste management,
health and safety matters. Management believes that the Company's business is
operated in compliance with applicable regulations promulgated by the
Occupational Safety and Health Administration and the Environmental Protection
Agency and corresponding state agencies which, respectively, pertain
34
<PAGE>
to health and safety in the workplace and the use, discharge and storage of
chemicals employed in the manufacturing process. Current costs of compliance are
not material to the Company. However, new or modified requirements, not
presently anticipated, could be adopted creating additional expenses for the
Company.
EMPLOYEES
As of June 14, 1996, the Company employed 238 full-time employees. The
Company employs approximately 21 people in finance, sales and administration,
194 people in manufacturing operations and 22 people in various engineering
functions. Currently none of the Company's employees are members of a union.
Management considers its relationships with its employees to be satisfactory.
PROPERTIES
The Company's principal operations are conducted in Poughkeepsie, New
York, in an approximately 75,000 square foot plant situated on a 5.5 acre parcel
of land. The facility, which is owned by the Company, is subject to a $1,971,419
mortgage as of March 29, 1996. In addition, the Company owns a second 65,000
square foot plant in Poughkeepsie, which is subject to a mortgage in the amount
of $1,489,713 as of March 29, 1996. Commencing in the second quarter of the year
ending June 30, 1997, the Company intends to use this second plant situated on a
4.9 acre parcel of land and which is currently inactive, for future expansion.
See "Use of Proceeds." The Company also owns approximately 55.76 acres of vacant
land zoned for light industrial use in Poughkeepsie. Management of the Company
believes that the Company's facilities are sufficient for its current and
reasonably anticipated operations.
LEGAL PROCEEDINGS
The Company is involved in pending and threatened legal actions and
proceedings arising in the ordinary course of its business. In the opinion of
management, the outcome of such legal actions and proceedings will not have a
material adverse effect on the Company.
35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Gary D. Horne 59 Chairman of the Board, Chief
Executive Officer and Director
Stanley F. Zuk 59 President, Chief Operating Officer
and Director
Robert Lettieri 49 Chief Financial Officer
Kenneth Kreuser 47 Senior Vice President - Operations
and Director
Stephen Lynn 41 Vice President - Finance, Secretary
and Treasurer
Gregory Horne 35 Vice President - Information Sys-
tems and Director
</TABLE>
GARY D. HORNE is a co-founder of the Company and has served as Chief
Executive Officer since the inception of the Company in 1965. Prior to joining
the Company, Mr. Horne worked from 1956 through 1957, serving IBM as a design
draftsman and then worked from 1957 through 1960 for Graphics Techniques, Inc.,
an IBM design engineering contractor, as a design engineer. From 1960 to 1965,
Mr. Horne worked for International Design, Inc., an IBM design engineering
contractor, as branch manager.
STANLEY F. ZUK is a co-founder of the Company and has served as Chief
Operating Officer since the inception of the Company in 1965. He is responsible
for all aspects of manufacturing. Prior to joining the Company, Mr. Zuk worked
for two years at General Electric and six years as design/drafting manager at
International Design, Inc.
ROBERT LETTIERI has been with the Company since 1995 as Chief Financial
Officer. From 1987 to 1995, Mr. Lettieri served as Chief Financial Officer for
two mid-sized companies, Fine Host Corporation, a concessionaire of food service
and souvenirs at stadiums, race tracks and other sports facilities, and S&S
Companies, a distributor and property manager of tobacco, confectionery and
other products typically sold in vending machines. From 1979 to 1987, Mr.
Lettieri was Operations Controller for the Cosmetic and Fragrance Division of
Revlon and Group Director of Analysis and Control of the Health Care Group of
Revlon.
36
<PAGE>
KENNETH KREUSER has been with the Company since 1989 and has acted as
Senior Vice President - Operations since 1991 and was elected to the Board of
Directors in June 1993. Mr. Kreuser served in various roles in manufacturing
management positions and as purchasing manager between 1977 and 1984. Prior to
joining the Company, he worked in the defense industry for two years.
STEPHEN LYNN has been with the Company since 1973 and has served as
Vice President-Finance since 1986 and Secretary/Treasurer since 1993. Mr. Lynn
has worked in various operations management positions at the Company.
GREGORY HORNE was employed by the Company from 1979 to 1982 and has
been with the Company from 1991 to the present. He has served as Vice President
- - Information Systems since January 1995. Mr. Horne was elected to the Board of
Directors in January 1994. Prior to this position, Mr. Horne served as a
software programmer, systems analyst and Network Administrator for the Company.
From 1982 to 1990, Mr. Horne was employed by Watchtower Bible and Tract Society
of New York, Inc. as a network operating system programmer.
Gregory Horne is Gary D. Horne's son. There are no other family
relationships among the Company's directors and executive officers.
In addition to the foregoing, for a period of three years after the
date of this Prospectus, the Representative shall have the right to designate
one nominee to the Company's Board of Directors. The Representative has not
identified its designee as of the date of this Prospectus. See "Underwriting."
Prior to the consummation of this Offering, the Company will seek to secure the
services of at least two non-employee directors.
Directors of the Company hold their offices until the next annual
meeting of the Company's stockholders and until their successors have been duly
elected and qualified or their earlier resignation, removal from office or
death. There are no committees of the Board of Directors. Upon consummation of
this Offering, the Company intends to establish audit and compensation
committees, each consisting of a majority of non-employee directors.
Officers of the Company serve at the pleasure of the Board of Directors
and until the first meeting of the Board of Directors following the next annual
meeting of the Company's stockholders and until their successors have been
chosen and qualified.
DIRECTOR COMPENSATION
The Company currently has no policy with respect to director
compensation. However, commencing in August 1996, non-employee directors of the
Company will each be granted an option to purchase 7,500 shares of Common Stock
and, thereafter, will each be granted an option to purchase 7,500 shares on
August 1st of each year. Each person who becomes a non-employee director after
August 1, 1996 will be granted an option on the date such person becomes a
director (the "Appointment Date") to purchase 7,500 shares of Common Stock and
an additional option to purchase 7,500 shares of Common Stock on each
anniversary of the Appointment Date. These options become exercisable in 12
equal monthly installments, beginning the first day of
37
<PAGE>
the month following the date of grant, provided the optionee has continuously
served as a non-employee director. All options granted to employee directors are
granted at fair market value on the date of the grant and expire ten years from
the date of the grant.
LIMITATION ON LIABILITY OF DIRECTORS
As permitted by Delaware law, the Company's Certificate of
Incorporation contains an article limiting the personal liability of directors.
The Certificate of Incorporation provides that a director of the company shall
not be personally liable for monetary damages for a breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, which prohibits the unlawful payment of
dividends or the repurchase or redemption of stock, or (iv) for any transaction
from which the director derived an improper personal benefit. This article is
intended to afford directors additional protection, and limit their potential
liability, from suits alleging a breach of the duty of care by a director.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides information
with respect to the compensation paid or accrued by the Company and its
subsidiaries to the Company's Chief Executive Officer and Chief Operating
Officer in all their capacities for Fiscal 1995. No other executive officer of
the Company received salary and bonus compensation in Fiscal 1995 in excess of
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
COMPENSATION
- ------------
ANNUAL COMPENSATION OTHER
------------------- ANNUAL
Name and Principal Position YEAR SALARY BONUS COMPENSATION(1)
($) ($) ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gary D. Horne, 1995 $111,250 $0 $0
Chairman and Chief
Executive Officer
Stanley F. Zuk, 1995 $106,050 $0 $0
President and
Chief Operating Officer
</TABLE>
- -------------------------
(1) The table does not include amounts for personal benefits extended to
Mr. Horne or Mr. Zuk by the Company, such as health or life insurance.
The Company believes that the incre-
38
<PAGE>
mental cost of such benefits to Mr. Horne or Mr. Zuk during Fiscal 1995
did not exceed the lesser of $50,000 or 10% of his total annual salary and
bonus.
STOCK OPTION PLAN
Under the Company's 1996 Stock Option Plan (the "1996 Plan"), 350,000
shares of Common Stock are reserved for issuance upon exercise of the options.
The 1996 Plan is designed to serve as an incentive for retaining qualified and
competent directors, employees, consultants and independent contractors of the
Company. Prior to consummation of this Offering, the Board of Directors intends
to grant options to purchase 100,000 shares of Common Stock pursuant to the 1996
Plan. Moreover, commencing in August 1996, non-employee directors of the Company
will each be granted an option to purchase 7,500 shares of Common Stock and,
thereafter, will each be granted an option to purchase 7,500 shares of Common
Stock on August 1st of each year. See "Management - Director Compensation."
The Company's Board of Directors, or a committee thereof, administers
and interprets the 1996 Plan and is authorized to grant options thereunder to
all eligible employees of the Company, including directors and executive
officers (whether or not employees) of the Company, as well as consultants and
independent contractors. The 1996 Plan provides for the granting of both
"incentive stock options" (as defined in Section 422 of the Internal Revenue
Code of 1986, as amended) and nonstatutory stock options. Incentive stock
options may only be granted, however, to employees. Options can be granted under
the 1996 Plan on such terms and at such prices as determined by the Board, or a
committee thereof, except that the per share exercise price of incentive stock
options granted under the 1996 Plan will not be less than the fair market value
of the Common Stock on the date of grant and, in the case of an incentive stock
option granted to a 10% stockholder, the per share exercise price will not be
less than 110% of such fair market value as defined in the 1996 Plan.
Options granted under the 1996 Plan that would otherwise qualify as
incentive stock options will not be treated as incentive stock options to the
extent that the aggregate fair market value of the shares covered by the
incentive stock options which are exercisable for the first time by any
individual during any calendar year exceeds $100,000.
Options granted under the 1996 Plan will be exercisable after the
period or periods specified in the option agreement. Options granted under the
1996 Plan are not exercisable after the expiration of ten years from the date of
grant and are not transferable other than by will or by the laws of descent and
distribution. Adjustments in the number of shares subject to options granted
under the 1996 Plan can be made by the Board of Directors or the appropriate
committee in the event of a stock dividend or recapitalization resulting in a
stock split-up, combination or exchange of shares. Under the 1996 Plan, options
may become immediately exercisable in the event of a change in control or
approval by stockholders of the Company of a merger, reorganization,
liquidation, dissolution or disposition of all or substantially all of the
assets of the Company. The 1996 Plan also authorizes the Company to make loans
to optionees to enable them to exercise their options.
39
<PAGE>
The Underwriting Agreement between the Company and the Underwriters
provides that for a period of 24 months from the date of this Prospectus, the
Company will not, without the consent of the Representative, adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or arrangement permitting, granting, issuing or selling any
shares of Common Stock or options, warrants or any other derivative security of
the Company covering in the aggregate more than 350,000 shares of Common Stock.
Moreover, any grant, issuance or sale within said period cannot have an exercise
price or sale at a price per share less than the greater of (i) the fair market
value of the Common Stock on the date of grant, issuance or sale, or (ii) $8.00
per share of Common Stock; provided, however, options to purchase 75,000 shares
of Common Stock may be granted at market price to any person(s) not an officer,
director, stockholder or employee of the Company as of the date of this
Prospectus.
40
<PAGE>
CERTAIN TRANSACTIONS
ACQUISITION OF AFFILIATED ENTITY
On June 4, 1996, the Company acquired all the outstanding capital stock
of High Technology Computers, Inc. ("HTC") from Gary D. Horne and Stanley F. Zuk
in exchange for 400,723 and 103,891 shares of the Company's Common Stock,
respectively. HTC has conducted the Company's cable harness and other wire
technology product contract manufacturing operations for non-IBM customers since
1983. Management of the Company believes that this transaction was consummated
on terms no less favorable than could have been obtained from unaffiliated third
parties.
ADVANCES FROM STOCKHOLDER
In order to assist the Company with meeting its working capital needs,
Gary D. Horne has periodically advanced funds to the Company. Such advances,
including interest at the rate of 8% per annum, aggregated approximately
$539,000 and $571,000 at June 30, 1995 and March 29, 1996, respectively. Such
advances are repayable on demand; however, Mr. Horne has agreed with the Company
not to make demand until 13 months from the date of this Prospectus. The Company
intends to repay such advances as cash flow permits. No further advances from
stockholders are contemplated after the consummation of this Offering.
DEFERRED COMPENSATION AGREEMENTS
In January 1993, the Company entered into deferred compensation
agreements (the "Deferred Compensation Agreements") with John Halik and James
Yessian, two co-founders and former employees of the Company. Pursuant to the
Deferred Compensation Agreements, the Company agreed to pay Messrs. Halik and
Yessian $30,000 per year in deferred compensation for a 15-year period.
TRANSACTIONS WITH NETCOMP, INC.
The Company purchases computers, computer supplies and services from
Netcomp, Inc. ("Netcomp"), which operates the ComputerLand franchise in
Poughkeepsie, New York. Netcomp is owned by Gary D. Horne and Stanley F. Zuk.
Purchases from Netcomp aggregated approximately $28,000 and $48,000 during
Fiscal 1994 and Fiscal 1995, respectively, and $30,000 and $52,000 during the
nine months ended March 31, 1995 and March 29, 1996, respectively.
TRANSACTION WITH GREGORY HORNE
In December 1995, the Company entered into an agreement with Gregory
Horne to sell 24 shares of the Company's Common Stock to Mr. Horne for $100,000,
of which $30,000 was paid upon execution of the agreement and the balance was
payable at the rate of $10,000 per
41
<PAGE>
year, without interest. In June 1996, the Company and Mr. Horne mutually agreed
to rescind the transaction, whereupon Mr. Horne surrendered his stock
certificates to the Company and the Company refunded the $30,000 payment to Mr.
Horne.
APPROVAL OF AFFILIATED TRANSACTIONS
Following completion of this Offering, all transactions between the
Company and its directors, executive officers and principal stockholders will be
on terms no less favorable than could be obtained from unaffiliated third
parties and have been and will be approved by a majority of the independent
outside directors of the Company.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial
ownership of the Common Stock as of June 30, 1996, by (i) each person who owns
beneficially more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors and executive officers and (iii) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
NUMBER OF OWNED
NAME AND ADDRESS SHARES BENEFICIALLY PRIOR TO AFTER
OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
- ---------------------- ------------------- -------- --------
<S> <C> <C> <C>
Gary D. Horne 1,172,486 71.8% 34.7%
Stanley F. Zuk 281,990 17.3% 8.4%
Kenneth Kreuser 0 0% 0%
Stephen Lynn 0 0% 0%
Gregory Horne 0 0% 0%
Estate of Richard Backofen 178,099 10.9% 5.3%
c/o Edith Backofen
43 Mooress Hill Road
New Windsor, NY 12553
All directors and executive
officers as a group (five persons) 1,454,476 89.1% 43.1%
</TABLE>
- ------------------
* Less than 1%.
(1) The business address of all directors and executive officers of the
Company is c/o 1 Industry Street, Poughkeepsie, New York 12603.
(2) The Company believes that all persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned by them.
43
<PAGE>
SELLING SECURITY HOLDERS
This Prospectus also relates to the registration by the Company, at its
expense, (a) for the account of the Noteholders of (i) 242,424 Investor Shares,
(ii) 242,424 Investor Warrants, and (iii) 242,424 Underlying Shares, and (b) for
the account of the Placement Agent, and its assignees (which include the
Noteholders), of (i) 24,242 Placement Agent Warrants, and (ii) 24,242 Placement
Agent Shares. The Selling Security Holders' Securities are not being
underwritten in the Offering and the Company will not receive any proceeds from
the sale of the Selling Security Holders' Securities. Sales of any shares of
Common Stock or warrants by the Selling Security Holders, or even the existence
of the right to exercise such warrants, may depress the price of the Common
Stock in any market that may develop for the Common Stock.
The sale of the Selling Security Holders' Securities by the Selling
Security Holders may be effected from time to time in transactions (which may
include block transactions by or for the account of the Selling Security
Holders) in the over-the-counter market or in negotiated transactions, through
the writing of options on the Selling Security Holders' Securities, through a
combination of such methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Security Holders may effect such transactions
by selling the Selling Security Holder Securities directly to purchasers,
through broker-dealers acting as agents for the Selling Security Holders or to
broker-dealers who may purchase the Selling Security Holders' Securities as
principals and thereafter sell such securities from time to time in the
over-the-counter market, in negotiated transactions, or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Security Holders and/or the
purchasers for whom such broker-dealers may act as agents or to whom they may
sell as principals or both (which compensation as to a particular broker-dealer
may be in excess of customary commissions).
The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales, may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of such securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
Sales of any shares of Common Stock or even the existence of the
right to exercise the Investor Warrants and Placement Agent Warrants may
depress the price of the Common Stock in any market that may develop for
the Common Stock.
The Selling Security Holders have agreed (i) not to, directly
or indirectly, agree or offer to sell or dispose of any beneficial interest
in the Selling Security Holders' Securities for a period of nine months
from the date of this Prospectus, without the prior written consent of the
Company and the Representative and (ii) not to exercise the Investor Warrants
or the Placement Agent Warrants for a period of two years from the
consummation of the Offering without the prior written consent of the Company
and the Representative. The remaining 1,632,576 outstanding shares of
Common Stock, which are owned by existing stockholders, as well as shares
issuable upon exercise of any options granted to the stockholders pursuant
to the 1996
44
<PAGE>
Plan, the Investor Warrants and the Placement Agent Warrants
will be Restricted Shares and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from
registration thereunder. including exemptions provided by Rule 144. The
Company's directors and executive officers who hold an aggregate of
1,632,576 shares of Common Stock have agreed with the Underwriters not to,
directly or indirectly, agree or offer to sell or dispose of any shares owned
by them for a period of 15 months from the date of this Prospectus without
the prior written consent of the Company and the Representative.
The following table sets forth certain information with respect
to the Selling Security Holders for whom the Company is registering the
Selling Security Holders Securities for resale to the public. None of
the Selling Security Holders has had any position with, held any office,
or had any other material relationship with the Company.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP SHARES BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) TO BE AFTER THE OFFERING(1)(4)
NAME AND ADDRESS SHARES PERCENT SOLD SHARES PERCENT
- -------------------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
William Becker(2) 173,938 5.0% 173,938 0 0%
P.O. Box 170
Convent Station, NJ 07961
Sanford I. Feld(3) 173,938 5.0% 173,938 0 0%
Box 670, #12 Quimby Lane
Bernardsville, NJ 07924
Frederic Becker 49,697 1.5% 49,697 0 0%
c/o Wilentz, Goldman & Spitzer
90 Woodbridge Center Dr.
Woodbridge, NJ 07095
Richard Becker 19,879 * 19,879 0 0%
c/o Wilentz, Goldman & Spitzer
90 Woodbridge Center Dr.
Woodbridge, NJ 07095
Alan Jacobs 29,819 * 29,819 0 0%
4 Hadwell Road
Short Hills, NJ 07078
Arnold Rifkin 29,819 * 29,819 0 0%
60 Fairfield Drive
Short Hills, NJ 07078
Jules L. Marx 26,667 * 26,667 0 0%
429 Harding Drive
South Orange, NJ 07079
William P. Dioguardi 1,212 * 1,212 0 0%
c/o Spencer Trask Holdings Incorporated
535 Madison Avenue
18th Floor
New York, NY 10022
Laura McNamara 485 * 485 0 0%
c/o Spencer Trask Holdings Incorporated
535 Madison Avenue
18th Floor
New York, NY 10022
45
<PAGE>
Oshkim Limited Partners 727 * 727 0 0%
c/o Spencer Trask Holdings Incorporated
535 Madison Avenue
18th Floor
New York, NY 10022
Spencer Trask Holdings Incorporated 2,909 * 2,909 0 0%
535 Madison Avenue
18th Floor
New York, NY 10022
</TABLE>
- ------------------------------
* Less than 1%
(1) Includes shares of Common Stock issuable upon exercise of outstanding
Investor Warrants and Placement Agent's Warrants.
(2) Includes shares of Common Stock held by a trust of which Mr. Becker is the
trustee.
(3) Includes shares of Common Stock held by Mr. Feld's employee pension plan and
trust.
(4) Assumes the sale of all shares of Common Stock registered hereby.
46
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 25,000,000 shares of Common Stock,
par value $.01 per share, and 1,000,000 shares of preferred stock, par value
$.01 per share (the "Preferred Stock"). As of the date of this Prospectus, there
are 1,632,576 shares of Common Stock and no shares of Preferred Stock issued and
outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held
of record and to a pro rata share of any dividends declared on the Common Stock
by the Board of Directors from funds legally available therefor. Upon
liquidation of the Company, each stockholder is entitled to share ratably in any
assets available for distribution after payment of all debts. Stockholders have
no preemptive, conversion or other subscription rights and there are no
redemption rights or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and all shares to be issued in
connection with the exercise of the Underwriter's Warrants, when issued against
payment therefor, will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue a total of 1,000,000 shares of
Preferred Stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue Preferred
Stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. In the event of issuance, the Preferred Stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. The Company has no present
intention to issue any shares of its Preferred Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of holders of Common Stock will be subject to, and
may be adversely affected by, the rights of holders of any Preferred Stock that
may be issued in the future. Although the Company has no present intention to
issue shares of Preferred Stock, any issuance of Preferred Stock, while
potentially providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Additionally, following this Offering, the Company will
become subject to the anti-takeover provisions of Section 203 of the DGCL, which
will prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three
47
<PAGE>
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Section 203 could have the effect of delaying or preventing a change of control
of the Company.
TRANSFER AGENT
New York, has been appointed as
the transfer agent and registrar for the Common Stock.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have approximately
3,375,000 outstanding shares of Common Stock. Of these shares, the 1,500,000
shares registered in the Offering (1,725,000 assuming exercise of the
Underwriter's over-allotment option) will be freely tradable without restriction
under the Securities Act, except for any shares purchased by affiliates of the
Company, which will be subject to certain resale limitations of Rule 144. In
addition, the Company is also registering pursuant to the Registration Statement
of which this Prospectus is a part for the account of the Noteholders an
additional 242,424 Investor Shares, 242,424 Investor Warrants and 242,424
Underlying Shares for resale by the Noteholders, which will permit the sale of
such securities in the open market or in privately negotiated transactions. The
Company is also registering pursuant to the Registration Statement of which this
Prospectus is a part 24,242 Placement Agent Warrants and 24,242 Placement Agent
Shares. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices.
The Selling Security Holders have agreed (i) not to, directly or
indirectly, agree or offer to sell or dispose of any beneficial interest in the
Selling Security Holders' Securities for a period of nine months from the date
of this Prospectus, without the prior written consent of the Company and the
Representative and (ii) not to exercise the Investor Warrants or the Placement
Agent's Warrants for a period of two years from the consummation of the Offering
without the prior written consent of the Company and the Representative. The
remaining 1,632,576 outstanding shares of Common Stock, which are owned by
existing stockholders, as well as shares issuable upon exercise of any options
granted to the stockholders pursuant to the 1996 Plan, the Investor Warrants and
the Placement Agent Warrants will be Restricted Shares and may only be sold
pursuant to a registration statement under the Securities Act or an applicable
exemption from registration thereunder, including exemptions provided by Rule
144. The Company's directors and executive officers who hold an aggregate of
1,632,576 shares of Common Stock have agreed with the Underwriters not to,
directly or indirectly, agree or offer to sell or dispose of any shares owned by
them for a period of 15 months from the date of this Prospectus without the
prior written consent of the Company and the Representative.
Upon the expiration of the 15-month period after the date of this
Prospectus specified in lock-up agreements with the Underwriters (or earlier
upon consent of the Representative of the Underwriters), all of the Restricted
Shares (1,632,576 shares) will become eligible for sale subject to the
applicable volume limitations and other resale limitations of Rule 144. In
general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at least
two years, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Common Stock or the average weekly trading volume during the four calendar
weeks preceding such sale, provided that certain public information about the
Company as required by Rule 144 is then available and the seller complies with
certain other requirements. A person who is not an affiliate, has not been an
affiliate within three months prior to sale and
49
<PAGE>
has beneficially owned the Restricted Shares for at least three years, is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
50
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Keane
Securities Co., Inc. is acting as representative (in such capacity, the
"Representative"), have severally and not jointly agreed, subject to the terms
and conditions of the Underwriting Agreement among the Company and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company and
the Company has agreed to sell to the Underwriters on a firm commitment basis,
the respective number of shares of Common Stock set forth opposite their names
below:
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ----------- ------------
Keane Securities Co., Inc..............................
Total:........................................ 1,500,000
=========
The Underwriters are committed to purchase all shares of Common Stock
offered hereby, if any of such shares of Common Stock are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to the approval of certain legal matters by their counsel and
various other conditions specified therein.
The Representative has advised the Company that the Underwriters
propose initially to offer the Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus and
that the Underwriters may allow to certain dealers who are members of the
National Association of Securities Dealers, Inc. ("NASD") a selling concession
of not in excess of $__________ per share of Common Stock. Such dealers may
reallow a concession not in excess of $__________ per share of Common Stock to
certain other dealers who are NASD members. After the commencement of this
Offering, the public offering price, concession and re-allowance may be changed
by the Representative.
The Representative has advised the Company that it does not anticipate
sales to discretionary accounts by the Underwriters to exceed 5% of the total
number of shares of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative a non-accountable expense allowance equal to
2 1/2% of the gross proceeds derived from the sale of the Common Stock
underwritten, of which $32,500 has been paid to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase from the Company up to
51
<PAGE>
an additional 225,000 shares of Common Stock at the initial public offering
price per share of Common Stock offered hereby, less the underwriting discount
and the non-accountable expense allowance. The Underwriters may exercise such
option only for the purpose of covering over-allotments, if any, incurred in the
sale of the Common Stock offered hereby. To the extent the Underwriters exercise
such option in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of the additional shares
of Common Stock proportionate to its initial commitment and the Company will be
obligated to sell such shares of Common Stock to the Underwriters.
The Selling Security Holders have agreed (i) not to, directly or
indirectly, sell or dispose of any beneficial interest in the Selling Security
Holders Securities for a period of nine months from the date of this Prospectus
without the prior written consent of the Company and the Representative, and
(ii) not to exercise the Investor Warrants or the Placement Agent's Warrants, as
the case may be, for a period of two years from the consummation of this
Offering without the prior written consent of the Company and the
Representative. The Company and all of the Company's current stockholders have
agreed not to, directly or indirectly, sell, or dispose of any beneficial
interest in such securities for a period of 15 months from the date of this
Prospectus without the prior written consent of the Company and the
Representative. An appropriate legend shall be marked on the face of the
certificates representing all such securities.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 150,000 shares of Common Stock (the "Representative's Warrants"). The
Representative's Warrants are initially exercisable at a price of $______ per
share of Common Stock, [120% of the initial public offering price per share of
Common Stock], for a period of four years commencing one year from the effective
date of this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of 12 months from the date hereof, except to officers
of the Representative. The Representative's Warrants provide for adjustment in
the number of shares of Common Stock issuable upon exercise thereof and in the
exercise price of the Representative's Warrants as a result of certain events,
including subdivisions and combinations of the Common Stock. The
Representative's Warrants grant to the holders thereof certain rights of
registration with regard to the Common Stock issuable upon exercise thereof.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock has
been determined by negotiation between the Company and the Representative and
does not necessarily bear any relationship to the Company's asset value, net
worth, or other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, include the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital
structure, the market for initial public offerings and certain other factors as
were deemed relevant.
52
<PAGE>
The Representative has the right, for a period of three years from the
effective date of this Registration Statement, to designate a nominee for
election to the Company's Board of Directors, which individual may be a
director, officer, employee or affiliate of the Representative.
The Company has also agreed to grant to the Representative a right of
first refusal, for a period of three years from the effective date of the
Registration Statement, for any public sale of securities to be made by the
Company, its affiliates, or any of its present or future subsidiaries.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which is filed as an exhibit to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Broad and Cassel, a general partnership including
professional associations, Miami, Florida. Orrick, Herrington & Sutcliffe, New
York, New York, has acted as counsel to the Underwriters in connection with this
Offering.
EXPERTS
The consolidated financial statements as of June 30, 1995 and March 29,
1996 and for the years ended June 30, 1994 and 1995 and for the nine months
ended March 29, 1996, included in this Prospectus have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing herein,
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (collectively with any
amendments thereto, the "Registration Statement") under the Securities Act, with
respect to the securities being offered by this Prospectus. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. The statements contained in
this Prospectus as to the contents of any contract or other document identified
as exhibits in this Prospectus are not necessarily complete and, in each
instance, reference is made to a copy of such contract or document filed as an
exhibit to the Registration Statement, each statement being qualified in any and
all respects by such reference. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement and to the exhibits filed as a part hereof.
53
<PAGE>
This Registration Statement and all other information filed by the
Company with the Commission may be inspected without charge at the principal
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any
part thereof may be obtained upon payment of fees prescribed by the Commission
from the Public Reference Section of the Commission at its principal office in
Washington, D.C. set forth above.
54
<PAGE>
ASD GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report F-2
Consolidated Balance Sheets at June 30, 1995 and March 29, 1996 F-3
Consolidated Statements of Income for the Years Ended
June 30, 1994 and 1995 and the Nine Months Ended
March 31, 1995 (Unaudited) and March 29, 1996 F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1994 and 1995 and the Nine Months Ended
March 29, 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1994 and 1995 and the Nine Months Ended
March 31, 1995 (Unaudited) and March 29, 1996 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
ASD Group, Inc.
Poughkeepsie, New York
We have audited the accompanying consolidated balance sheets of ASD Group, Inc.
and subsidiaries as of June 30, 1995 and March 29, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years ended June 30, 1994 and 1995 and for the nine months ended March 29, 1996.
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 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of ASD Group, Inc. and subsidiaries as
of June 30, 1995 and March 29, 1996, and the results of their operations and
their cash flows for the years ended June 30, 1994 and 1995 and for the nine
months ended March 29, 1996 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Stamford Connecticut
May 28, 1996
(June 25, 1996 as to Note 11)
F-2
<PAGE>
<TABLE>
<CAPTION>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, MARCH 29,
1995 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 356,922 $ 458,646
Accounts receivable, less allowance for
doubtful accounts of $428,000 and $383,000 3,224,427 2,965,471
Inventory 4,583,768 6,090,733
Prepaid expenses and other current assets 181,681 372,462
Deferred tax asset 461,803 302,689
-------------- -----------
Total current assets 8,808,601 10,190,001
Property, plant and equipment, net 5,422,408 4,916,311
Deferred tax asset 563,253 546,367
Other assets 73,499 414,176
-------------- -----------
Total assets $14,867,761 $16,066,855
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,384,465 $1,033,165
Accounts payable 3,179,966 2,891,822
Accrued expenses 1,525,420 1,039,013
Deferred revenues 795,565 69,666
-------------- -----------
Total current liabilities 6,885,416 5,033,666
Long-term debt 6,896,734 9,295,103
Deferred compensation 295,129 299,209
-------------- -----------
Total liabilities 14,077,279 14,627,978
-------------- -----------
Contingencies (Note 10)
Stockholders' equity:
Common stock, $.01 par value, 25,000,000
shares authorized, 1,632,576 shares
issued and outstanding 16,326 16,326
Retained earnings 774,156 1,422,551
-------------- -----------
Total stockholders' equity 790,482 1,438,877
-------------- -----------
Total liabilities and stockholders' equity $ 14,867,761 $16,066,855
============== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31, MARCH 29,
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $14,866,481 $18,655,383 $12,670,577 $19,850,217
Cost of goods sold 12,512,817 14,378,094 9,739,927 15,236,328
----------- ----------- ----------- -----------
Gross profit 2,353,664 4,277,289 2,930,650 4,613,889
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 195,167 240,398 176,530 178,299
General and
administrative 3,121,130 2,516,413 1,879,852 3,111,961
----------- ----------- ----------- -----------
Total operating
expenses 3,316,297 2,756,811 2,056,382 3,290,260
----------- ----------- ----------- -----------
Income (loss) from
operations (962,633) 1,520,478 874,268 1,323,629
Other income (expense) 221,543 (675) (14,338) 205,175
Interest expense (459,690) (762,891) (331,459) (680,673)
----------- ----------- ----------- -----------
Income (loss) before
income taxes (1,200,780) 756,912 528,471 848,131
Provision (benefit) for
income taxes (1,203,653) 330,298 211,388 199,736
----------- ----------- ----------- -----------
NET INCOME $ 2,873 $ 426,614 $ 317,083 648,395
=========== =========== =========== ===========
Net income per common share $ .00 $ .26 $ .19 $ .40
=========== =========== =========== ===========
Weighted average common
shares outstanding 1,632,576 1,632,576 1,632,576 1,632,576
=========== ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
-------------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, July 1, 1993 1,632,576 $16,326 $ 344,669 $ 360,995
Net income - - 2,873 2,873
---------- ------- ----------- ------------
Balance, June 30, 1994 1,632,576 16,326 347,542 363,868
Net income
- - 426,614 426,614
---------- ------- ----------- ------------
Balance, June 30, 1995 1,632,576 16,326 774,156 790,482
Net income - - 648,395 648,395
---------- ------- ----------- ------------
Balance, March 29, 1996 1,632,576 $16,326 $ 1,422,551 $ 1,438,877
========== ======= =========== ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
--------------------------------
YEAR ENDED JUNE 30, MARCH 31, MARCH 29,
1994 1995 1995 1996
---------- ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net income $ 2,873 $ 426,614 $ 317,083 $ 648,395
Adjustments to reconcile net
income to net cash used
in operating activities:
Depreciation and amortization 325,270 315,321 283,116 239,912
Provision (benefit) for
doubtful accounts 632,919 (204,945) (195,000) (45,000)
Deferred compensation 25,540 27,582 20,677 22,342
Interest accrued on advances
from stockholder 34,998 35,998 26,999 32,338
Deferred income taxes (1,201,218) 319,940 179,306 176,000
Gain on sale of plant - - - (166,734)
Changes in assets and
liabilities:
Accounts receivable (1,582,931) (639,883) (361,072) 303,956
Inventory (386,254) (3,675,755) (2,070,943) (1,506,965)
Prepaid expenses and other
current assets 10,593 (19,903) (104,353) (190,781)
Other assets 2,503 (20,090) - (76,127)
Accounts payable (42,232) 2,264,592 1,442,645 (197,224)
Accrued expenses (126,157) 729,276 283,438 (486,408)
Deferred revenues 991,242 (195,677) (841,242) (725,899)
---------- ------------ ------------- -----------
Net cash used in
operating activities (1,312,854) (636,930) (1,019,346) (1,972,195)
---------- ------------ ------------- -----------
Investing activities:
Net proceeds from sale of plant - - - 591,781
Capital expenditures - - - (130,911)
---------- ------------ ------------- -----------
Net cash provided by
investing activities - - - 460,870
---------- ------------ ------------- -----------
Financing activities:
Borrowings 1,550,000 750,000 697,855 3,131,230
Payments of long-term debt (458,967) (216,591) (130,291) (1,207,419)
Debt financing costs - - - (292,500)
Payments of deferred compensation (20,812) (22,662) (16,997) (18,262)
Advances from stockholder 149,985 - - -
---------- ------------ ------------- -----------
Net cash provided by
financing activities 1,220,206 510,747 550,567 1,613,049
---------- ------------ ------------- -----------
Net increase (decrease) in cash (92,648) (126,183) (468,779) 101,724
Cash, beginning of period 575,753 483,105 483,105 356,922
---------- ------------ ------------- -----------
Cash, end of period $ 483,105 $ 356,922 $ 14,326 $ 458,646
========== ============ ============= ===========
Supplemental disclosure:
Cash paid during the period for:
Income taxes $ 1,716 $ 2,521 $ - $ 31,238
========== ============ ============= ===========
Interest $ 445,059 $ 392,352 $ 331,459 $ 786,782
========== ============ ============= ===========
Notes exchanged for amounts owed
to vendors $ - $ 553,389 $ 150,231 $ 90,920
========== ============ ============= ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION
ASD Group, Inc. ("ASD") and its wholly-owned subsidiaries (the "Company")
operate in one business segment and is a provider of contract manufacturing
and engineering services to domestic original equipment manufacturers. The
Company provides a wide range of services including product engineering and
design, procurement, precision fabrication of sheet metal and machined
parts, printed circuit board assembly, electro-mechanical assembly and
functional testing.
Subsequent to March 29, 1996 (see Note 11 Subsequent Events), ASD acquired
all of the outstanding capital stock of High Technology Computers, Inc.
("HTC") for 504,614 shares of the Company's common stock. ASD and HTC were
under common ownership. HTC conducts certain manufacturing operations for
ASD. The transaction has been accounted for similar to a pooling of
interests and the accompanying consolidated financial statements include the
historical accounts of HTC.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the consolidated accounts of ASD Group, Inc. and its
subsidiaries. All significant intercompany balances and transactions have
been eliminated.
REVENUE RECOGNITION - Sales are recorded as products are shipped or when
services are rendered.
DEBT FINANCING COSTS - Debt financing costs of $292,500 incurred in
connection with obtaining the senior secured notes and bank amendments
during the nine months ended March 29, 1996 (see Note 4) have been
capitalized and are being amortized over the terms of the financings. Such
costs are included in other assets. During the nine months ended March 29,
1996, the Company wrote-off $27,950 relating to previous financings.
PROPERTY, PLANT, AND EQUIPMENT -.Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which range from 5 to 40 years.
Temporarily idle property is not being depreciated (see Note 3). The net
realizable value of the idle property approximates its carrying value.
INVENTORY - Inventory, consisting primarily of work-in-process, is
determined under the lower of cost (first-in, first-out method) or market.
INCOME TAXES - Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the income tax basis
of the Company's assets and liabilities, using presently enacted tax rates.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
trade receivables. The Company performs ongoing credit evaluations of its
customers' financial conditions and generally does not require collateral.
Additionally, in November 1994 the Company acquired insurance for bad debts
for certain rated
F-7
<PAGE>
customers. The insurance policy assures a minimum recovery of 80% of the
maximum established by the insurer per customer insured. During the year
ended June 30, 1994, the Company had sales to four customers that accounted
for 66% (21%, 20%, 14% and 11%) of consolidated sales. During the year ended
June 30, 1995, the Company had sales to four customers that accounted for
71% (20%, 19%, 19% and 13%) of consolidated sales. During the nine months
ended March 31, 1995, the Company had sales to four customers that accounted
for 57% (19%,16%, 12% and 10%) of consolidated sales. During the nine months
ended March 29, 1996, the Company had sales to five customers that accounted
for 72% (16%, 15%, 14%, 14% and 13%) of consolidated sales.
NET INCOME PER COMMON SHARE - Net income per common share is computed using
the weighted average number of common shares outstanding during each period.
INTERIM FINANCIAL STATEMENTS - The accompanying consolidated statements of
income and cash flows for the nine months ended March 31, 1995 are unaudited
but, in the opinion of management, include all adjustments (consisting of
normal, recurring adjustments) necessary for a fair presentation of results
for this interim period.
STOCK SPLIT - Subsequent to March 29, 1996 (see Note 11 Subsequent Events)
the Company effected a 14,841.6 for 1 split of its common stock resulting in
1,632,576 shares outstanding. All references in the accompanying
consolidated financial statements to the number of common shares and per
share amounts have been retroactively restated to reflect the stock split.
MANAGEMENT ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
JUNE 30, MARCH 29,
1995 1996
----------- -----------
Land $ 563,937 $ 563,937
Buildings 2,290,752 1,633,327
Leasehold improvements 853,443 853,443
Machinery and equipment 2,534,800 2,642,280
Automobiles 24,525 47,956
----------- -----------
6,267,4570 5,740,943
Less: accumulated
depreciation (2,487,188) (2,466,771)
----------- -----------
3,780,2690 3,274,172
----------- -----------
Idle property:
Land and building 1,923,8650 1,923,865
Less: accumulated
depreciation (281,726) (281,726)
----------- -----------
1,642,139 1,642,139
----------- -----------
$ 5,422,408 $ 4,916,311
=========== ===========
F-8
<PAGE>
Idle property represents facilities that are temporarily not being used in
the Company's operations. The Company intends to use these facilities
commencing in fiscal 1997.
On August 1, 1995, the Company sold its North Carolina facility for net cash
proceeds of $591,781, which was used to repay outstanding borrowings. The
sale resulted in a net gain of $166,734 which is included in other income in
the accompanying March 29, 1996 consolidated statement of income.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
JUNE 30, MARCH 29,
1995 1996
------------- -------------
<S> <C> <C>
Senior secured notes - interest rate at 10%
interest only through December 31, 1997,
due June 30, 1999, secured by inventory $ - $ 2,000,000
Notes Payable - Bank of New York, interest
at 60% of prime, due May 1, 1997, secured
by real property 114,400 66,733
Notes Payable - Key Bank, interest at prime
plus 1%, due December 1998, secured
by equipment. 200,277 169,762
Notes Payable - Poughkeepsie Savings Bank,
interest at prime plus 1.5% at March 29,
1996 and 8.5% at June 30, 1995, due
December 31, 1996, secured by equipment. 565,027 540,627
Revolving Line of Credit - Poughkeepsie
Savings Bank. Interest at prime plus 1.5%
at March 29, 1996. Collateralized by
accounts receivable, equipment and
inventory. 2,229,290 3,309,360
Mortgage Payable - Poughkeepsie Savings Bank,
interest at prime plus 1.5% at March 29,
1996 and 8.5% at June 30, 1995, due
September 1, 1998, secured by real property. 1,988,119 1,971,419
Mortgage Payable - Poughkeepsie Savings Bank,
interest at at prime plus 1.5% at March 29,
1996 and 8.5% at June 30, 1995, due
September 1, 1998, secured by real property. 1,896,353 1,489,713
Mortgage Payable - N.C. Mutual Life Insurance
Co., interest at 10%, due December 1, 1998,
secured by real property. (See Note 3). 195,380 -
Advances from stockholder, plus accrued interest
of $88,995 and $121,333 - interest at 8%,
repayable no earlier than the year ending
June 30, 1998 538,964 571,302
Notes payable to vendors - interest at various
rates, secured by certain assets. 553,389 189,852
Other - 19,500
------------ -------------
8,281,199 10,328,268
Less: current portion (1,384,465) (1,033,165)
------------ -------------
$ 6,896,734 $ 9,295,103
============ =============
</TABLE>
F-9
<PAGE>
Subsequent to June 30, 1994, the Company was in default on debt owed to
Poughkeepsie Savings Bank (the "Bank"). On December 30, 1994, the Bank
extended the maturity date of all debt to December 30, 1995 and increased
the revolving line of credit (the "Line") by $750,000. Interest on all debt
owed to the Bank was adjusted to 8.5%, payable monthly.
On August 17, 1995, the Company received a $400,000 increase to the Line
with the Bank and the maturity date and interest rates were adjusted on all
debt owed to the Bank. The Company was required to make interest only
payments to the Bank until February 1, 1996, at which time principal
payments commenced. The interest rate on all debt was increased to 9%
through December 31, 1995.
On December 28, 1995, the Company reached an agreement with the Bank
increasing the Line by $1,000,000 to $3,730,000 and extending the maturity
date to December 31, 1997. The interest rate is prime plus 1.5%.
Additionally, the interest rate on all other outstanding debt owed to the
Bank is prime plus 1.5%. The Line contains certain financial operating
covenants.
The Company is required to pay the Bank as additional interest ("Additional
Interest") the lesser of a) the sum of $500,000 or b) ten percent (10%) of
the net cash proceeds received by the Company described in (i), (ii), (iii)
or (iv) below: The happening of any one or more of the following events will
trigger the immediate obligation of the Company, but in no event more than
$500,000 from (i) the sale of all or any of its shares of capital stock,
(ii) venture capital funds raised, (iii) bridge loan financing obtained, or
(iv) the successful completion of an initial public offering. The obligation
of the Company to make such payments will continue until the full amount of
Additional Interest is paid in full.
On December 29, 1995, the Company issued $1,000,000 of senior secured notes
(the "Notes") to a group of investors. Interest at 10% is payable quarterly
commencing March 31, 1996. Monthly principal payments will commence in
January 1998 until paid in full in June 1999. As a result of this financing,
the Company is required to pay 10% of the proceeds, or $100,000, in
Additional Interest to the Bank. This amount is included in accrued expenses
in the accompanying June 30, 1995 and March 29, 1996 consolidated balance
sheets. On February 16, 1996, the Company obtained an additional $1,000,000
from the same group of investors. The $100,000 Additional Interest due to
the Bank as a result of this financing is being charged to expense during
the term of the extended Line.
The Notes are due and payable upon consummation of an initial public
offering of not less than $5 million. In addition, the investors will
receive upon consummation of an initial public offering, $2 million in
shares of common stock (242,424 shares at an anticipated offering price of
$8.25 per share) and warrants to purchase $2 million in shares of common
stock (242,424 shares at an anticipated offering price of $8.25 per share)
exercisable over a five year period.
In connection with the issuance of the Notes, the investment banking firm
which assisted in the placement of the Notes received warrants to purchase
$200,000 in shares of common stock (24,242 shares at an anticipated offering
price of $8.25 per share) exercisable over a five year period.
In April 1996, the Bank notified the Company that it had sold the Company's
outstanding loan portfolio ($7,311,119 at March 29, 1996) to Bankers Trust
Company ("BTCo."). On May 31, 1996 (see Note 11 Subsequent Events), the
Company purchased an option for $76,748 from BTCo. that will allow the
Company to buy-out the outstanding loans at a discount of up to $460,487, as
well as the exclusion of any Additional Interest payable at the date of the
exercise of the option. The option expires December 31, 1996 and can be
exercised after the completion of an initial public offering or bank
refinancing. If the option is exercised before December 31, 1996, the cost
of the option will reduce the
F-10
<PAGE>
total indebtedness. During May 1996, the Company received refinancing
proposals (term sheets) from several banks. These proposals are currently
under evaluation by the Company.
Annual principal payments are as follows:
12 MONTHS
ENDING MARCH 31,
1997 $ 1,033,165
1998 4,377,378
1999 4,464,535
2000 448,642
2001 4,548
-----------
$10,328,268
===========
The Bank's prime rate at March 29, 1996 was 8.25%.
5. DEFERRED COMPENSATION
The Company has a deferred compensation agreement with two former employees.
The agreement requires the payment of $450,000 to each employee over a 15
year period. The obligations have been recorded at their net present value
using a discount rate of 8%.
6. OTHER INCOME
<TABLE>
<CAPTION>
Other income (expense) consists of the following:
YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31, MARCH 29,
1994 1995 1995 1996
------------ ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Gain on sale of
North Carolina
plant $ - $ - $ - $ 166,734
Insurance
recovery 120,819 - - -
Scrap sales 36,410 5,413 4,961 11,100
Other 64,314 (6,088) (19,299) 27,341
--------- --------- --------- -----------
$ 221,543 $ (675) $ (14,338) $ 205,175
========= ========= ========= ===========
</TABLE>
F-11
<PAGE>
7. INCOME TAXES
Net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------- MARCH 29,
1994 1995 1996
------------- -------------- ------------
<S> <C> <C> <C>
Deferred tax liabilities $ (1,030,260) $ (1,035,310) $ (925,615)
Deferred tax assets 1,355,663 1,114,155 818,024
Net operating loss
carryforwards 1,419,902 1,346,520 1,184,980
------------ ------------- -----------
1,745,305 1,425,365 1,077,389
Valuation allowance (400,309) (400,309) (228,333)
------------ ------------- -----------
Net deferred tax asset $ 1,344,996 $ 1,025,056 $ 849,056
============ ============= ===========
</TABLE>
Deferred taxes result from temporary differences in the recognition of
revenues and expenses for income tax and financial statement purposes. The
significant components of temporary differences are depreciation, accounts
receivable and inventory reserves, deferred compensation, and deferred
revenues. Deferred tax assets are reduced by a valuation allowance relating
to the utilization of a capital loss carryforward. During the year ended
June 30, 1994, the Company believed that due to expected future taxable
income, it was more likely than not that a significant portion of these
deferred tax benefits would be realized, and therefore, the valuation
allowance was reduced at June 30, 1994 by approximately $531,000. During the
nine months ended March 29, 1996, the Company sold its North Carolina
facility (see Note 3) thereby generating a capital gain on the sale.
Therefore, the Company reduced the valuation allowance by approximately
$172,000 relating to the tax benefits from this sale.
Other than the effects of the reductions in the valuation allowance noted
above, the effective tax rate is higher than the federal statutory tax rate
of 34% principally due to the effects of state income taxes.
As of March 29, 1996, the Company has a Federal net operating loss
carryforward of approximately $2.7 million which expires in 2009.
8. RELATED PARTY TRANSACTIONS
The Company purchases computers, computer supplies and services from
Netcomp, Inc., a company under common ownership. Purchases during the years
ended June 30, 1994 and 1995 and the nine months ended March 31, 1995 and
March 29, 1996 were $27,745, $48,191, $30,040 and, $52,330, respectively.
9. PENSION PLAN
The Company has a defined contribution plan covering all full time employees
who have worked at least 1,000 hours during the plan year, who have one year
of service, and are age twenty-one or older. The Plan is subject to
provisions of the Employee Retirement Income Security Act of 1974. The
Company may contribute an amount up to 15% of compensation of all plan
participants. There was no pension expense attributed to this plan for the
years ended June 30, 1994 and 1995 and the nine months ended March 31, 1995
and March 29, 1996.
F-12
<PAGE>
10. CONTINGENCIES
The Company is a defendant in various lawsuits which arose in the normal
course of business. In the opinion of management, none of the cases are
expected to have a material effect on the consolidated financial statements
of the Company.
11. SUBSEQUENT EVENTS
Bankers Trust Company Option:
On May 31, 1996, the Company purchased the option from Bankers Trust Company
referred to in Note 4 Long-Term Debt.
High Technology Computers, Inc. Acquisition:
On June 4, 1996 ASD acquired all of the outstanding capital stock of High
Technology Computers, Inc. referred to in Note 1 Business Description.
Preferred Stock:
On June 10, 1996, the Company's Board of Directors authorized 1,000,000
shares of preferred stock, $.01 per value. Designations, rights and
preference of the preferred stock will be determined by the Board of
Directors. No shares of preferred stock have been issued.
Common Stock:
On June 10, 1996, the Company's Board of Directors increased the authorized
common stock to 25,000,000 shares and effected a 14,841.6 for 1 split of its
common stock resulting in 1,632,576 shares outstanding.
1996 Stock Option Plan:
On June 25, 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"). The 1996 Plan provides for the issuance of a maximum of 350,000
shares of common stock pursuant to the future grant to employees and others
of incentive stock options and nonstatutory stock options.
******
F-13
<PAGE>
===============================================================================
No underwriter, dealer, salesperson, or other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
offered hereby by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to the date
hereof.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY....................................................... 2
RISK FACTORS............................................................. 6
THE COMPANY.............................................................. 13
USE OF PROCEEDS.......................................................... 14
CAPITALIZATION........................................................... 15
DILUTION................................................................. 16
DIVIDEND POLICY.......................................................... 17
SELECTED FINANCIAL DATA.................................................. 18
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION............................................... 19
BUSINESS................................................................. 24
MANAGEMENT............................................................... 34
CERTAIN TRANSACTIONS..................................................... 39
PRINCIPAL STOCKHOLDERS................................................... 41
SELLING SECURITY HOLDERS................................................. 42
DESCRIPTION OF SECURITIES................................................ 45
SHARES ELIGIBLE FOR FUTURE SALE.......................................... 47
UNDERWRITING............................................................. 48
LEGAL MATTERS............................................................ 50
EXPERTS.................................................................. 50
ADDITIONAL INFORMATION................................................... 50
INDEX TO FINANCIAL STATEMENTS............................................
Until _________, 1996 (25 days after commencement of this Offering), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
===============================================================================
1,500,000 SHARES
ASD GROUP, INC.
COMMON STOCK
----------
PROSPECTUS
----------
KEANE SECURITIES CO., INC.
, 1996
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 145 of the General Corporation Law of
the State of Delaware, Article VII of the Registrant's Certificate of
Incorporation and Article Seven of the Registrant's By-Laws. Moreover, the
Registrant intends to enter into indemnification agreements with each of the
Company's directors and officers.
As a result of such provisions and the agreements, Registrant's
security holders may be unable to recover monetary damages against directors and
officers for actions taken by them which constitute negligence or gross
negligence or which are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with respect to such
actions. If equitable remedies are found not to be available for any particular
case, security holders may not have any effective remedy against the challenged
conduct.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or controlling persons of
Registrant, pursuant to the foregoing provisions or otherwise, Registrant has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred
in connection with the issuance and distribution of the securities offered
hereby (other than underwriting discounts and commissions). The Registrant is
responsible for the payment of all expenses in connection with the Offering.
Securities and Exchange Commission registration fee..... $ 7,076
NASD filing fee......................................... 2,552
Nasdaq listing fee...................................... *
Printing and engraving expenses......................... *
Legal fees and expenses................................. *
Accounting fees and expenses............................ *
Blue Sky Fees........................................... *
Transfer Agent's fees and expenses...................... *
Miscellaneous........................................... *
Total.............................................. $514,000
- ----------------------
*To be filed by amendment
All amounts except the Securities and Exchange Commission registration
fee, the NASD filing fee and the Nasdaq listing fee are estimated.
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
The following sets forth the Registrant's sale of its
securities within the last three years, which securities were not registered
under the Securities Act:
(a) In December 1995 and February 1996, the Company sold an
aggregate of $2,000,000 in principal amount of the Notes to the Noteholders. In
addition, holders of the Notes will receive, upon consummation of this Offering,
an aggregate of 242,424 Investor Shares and 242,424 Investor Warrants. In
addition, the investment banking firm which assisted in the placement of the
Notes received 24,242 Placement Agent Warrants to purchase 24,242 Placement
Agent Shares upon consummation of this Offering. The Investor Shares, the
Investor
II-2
<PAGE>
Warrants, the Underlying Shares, the Placement Agent Warrants and the Placement
Agent Shares have been registered for resale in the Registration Statement.
(b) In June 1996, the Company issued to Gary D. Horne and
Stanley F. Zuk 400,723 and 103,891 shares of the Company's Common Stock in
consideration for all of the issued and outstanding shares of High Technology
Computers, Inc., a New York corporation.
The securities were issued without registration under the Securities by
reason of an exemption from registration afforded by the provisions of Section
4(2) thereof, as transactions by an issuer not involving a public offering, each
recipient of securities having delivered appropriate investment representations
to Registrant with respect thereto and having consented to the imposition of
restrictive legends upon the certificates evidencing such securities.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
1.1 Form of Underwriting Agreement.(1)
3.1 Certificate of Incorporation.
3.2 Bylaws.
4.1 Specimen Certificate of Common Stock.(1)
4.2 Representative's Warrant Agreement including Form of Representative's
Warrants.(1)
4.3 Purchase Agreement dated as of December 29, 1995 regarding 10% Senior
Secured Notes due June 30, 1999 by and between the Registrant, Automatic
Systems Developers, Inc., High Technology Computers, Inc. and the Purchasers.
4.4 Form of Special Warrant to Purchase Common Stock of Registrant.
5.1 Opinion of Broad and Cassel.(1)
10.1 1996 Stock Option Plan.(1)
10.2 Restated Line of Credit Loan and Security Agreement dated as of December 28,
1995 between Automatic Systems Developers, Inc.; High Technology Computers,
Inc. and Poughkeepsie Savings Bank, FSB.
II-3
<PAGE>
10.3 Second Amended Modification, Extension, Spreader and Assumption Agreement
dated as of December 28, 1995 between Automatic Systems Developers, Inc.
and Poughkeepsie Savings Bank, FSB.
10.4 Second Amended Modification, Extension, Spreader and Assumption Agreement
dated as of December 28, 1995 between the Registrant; Automatic Systems
Developers, Inc. and Poughkeepsie Savings Bank, FSB.
10.5 Option Agreement dated as of May 31, 1996 by and among Banker's Trust
Company and the Registrant.
21.1 List of Subsidiaries of the Registrant.(1)
23.1 Consent of Broad and Cassel (included as part of Exhibit 5.1).(1)
23.2 Consent of Deloitte & Touche LLP, independent auditors.
24.1 Power of Attorney (included in the signature page hereof).
</TABLE>
(1) To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include
any prospectus required by Section 10(a)(3) of the Securities Act; (ii)
reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth
in the registration statement; and (iii) include any additional or
changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-4
<PAGE>
(4) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense or any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(6) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Company certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Poughkeepsie, State of New York on this 5th day of July, 1996.
ASD GROUP, INC.
By: /S/GARY D. HORNE
----------------
Gary D. Horne, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Gary
D. Horne and Stanley F. Zuk, or any one of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for him and in his name, place and stead in any and all capacities to execute in
the name of each such person who is then an officer or director of the
Registrant any and all amendments (including post-effective amendments) to this
Registration Statement, and any registration statement relating to the offering
hereunder pursuant to Rule 462 under the Securities Act of 1933, as amended, and
to file the same with all exhibits thereto and other attorneys-in-fact and
agents and each of them full power and authority to do and perform each and
every act and thing required or necessary to be done in and about the premises
as fully as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities and on the date stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/GARY D. HORNE Chairman of the Board July 5, 1996
- ------------------------------------
Gary D. Horne and Chief Executive Officer
(Principal Executive Officer)
/S/ROBERT LETTIERI Chief Financial Officer July 5, 1996
Robert Lettieri (Principal Financial Officer)
/S/STANLEY F. ZUK President, July 5, 1996
- ------------------------------------
Stanley F. Zuk Chief Operating Officer and Director
/S/KENNETH KREUSER Senior Vice President - Operations, July 5, 1996
- ------------------------------------
Kenneth Kreuser and Director
/S/STEPHEN LYNN Vice President - Finance, Secretary July 5, 1996
- ------------------------------------
Stephen Lynn and Treasurer
/S/GREGORY D. HORNE Vice President - Information Systems July 5, 1996
- ------------------------------------
Gregory D. Horne and Director
</TABLE>
II-6
CERTIFICATE OF INCORPORATION
OF
ASD GROUP, INC.
ARTICLE I
The name of the corporation is AS GROUP, INC. (hereinafter called the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle and the
name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose for which the corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
(a) The total number of shares of all classes of stock which the
corporation shall have authority to issue is 11,000,000 shares, of wit:
(1) 10,000,000 shares shall be designated as Common Stock,
having a par value of $.01 per share; and
(2) 1,000,000 shares shall be designated as Preferred Stock,
having a par value of $.01 per share.
(b) A statement of the designations and powers, preferences and rights,
and the qualifications, limitations or restrictions thereof, of the shares of
stock of each class, is as follows:
(i) Except as otherwise provided by law or by paragraph
(b) (ii) of this ARTICLE IV, the entire voting right shall be vested in the
holders of the Common Stock.
<PAGE>
(ii) (A) The Board of Directors is expressly
authorized at any time and from time to time, to provide for the issuance of
shares of Preferred Stock in one or more series, with such voting powers, full
or limited but not to exceed one vote per share, or without voting powers, and
with such designations, preferences and relations, participating, optional or
other special rights, qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions providing for the
issue thereof adopted by the Board of Directors, and as are not stated and
expressed in this Certificate of Incorporation, or any amendment thereto,
including, but without limiting the generality of the foregoing the following:
(i) the designation of such series;
(ii) the dividend rate of such series,
the conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear is the dividends payable
on any other class or classes or of any other series at capital stock, and
whether such dividends shall be cumulative or noncumulative;
(iii) whether the shares of such series
shall be subject to redemption by the corporation, and if made subject to such
redemption, the times, prices and other terms and conditions of such redemption;
(iv) the terms and amount of any sinking
fund provided for the purchase or redemption of the shares of such series;
(v) whether or not the shares of such
series shall be convertible into or exchangeable for shares of any other class
or classes of capital stock of the corporation, and, if provision be made for
conversion or exchange, the times, prices, rates, adjustments and other terms
and conditions of such conversion or exchange;
(vi) the extent, if any, to which the
holders of such series shall be entitled to vote as a class or otherwise with
respect to the election of the directors or otherwise; provided, however, that
in no event shall any holder of any series of Preferred Stock be entitled to
more than one vote for each share of such Preferred Stock held by him;
(vii) the restrictions, if any, on the
issue or reissue of any additional shares or series of Preferred Stock;
<PAGE>
(viii) the rights of the holders of the
shares of such series upon the dissolution of, or upon the distributions of
assets of, the corporation.
(B) Except as otherwise required by law and
except for such voting powers with respect to the election of directors or other
matters as may be stated in the resolutions of the Board of Directors creating
any series of Preferred Stock, the holders of any such series shall not have any
voting power whatsoever.
(iii) No holder of any stock of the corporation of any
class now or hereafter authorized shall, as such holder, be entitled as of right
to purchase or subscribe for any shares of stock of the corporation of any class
or any series now or hereafter authorized, or any securities convertible into
or exchangeable for any such shares, or any warrants, options, rights or other
instruments evidencing rights to subscribe for, or purchase, any such shares,
whether such shares, securities, warrants, options, rights or other instruments
be unissued or issued and thereafter acquired by the corporation.
(iv) Without action by the stockholders, the shares of
any class of capital stock may be issued by the corporation from time to time
for such consideration as may be fixed by the Board of Directors, provided that
such consideration shall be not less than par value in the case of any class of
stock having par value. Any and all shares so issued, the full consideration for
which has been paid or delivered shall be deemed fully paid stock and shall not
be liable to any further call or assessment thereon, and the holders of such
shares shall not be liable for any further payment thereon.
ARTICLE V
The name of the Incorporator, is Dale S. Bergman and the address of the
Incorporator is Miami Center, Suite 3000, 201 South Biscayne Boulevard, Miami,
Florida 33131.
ARTICLE VI
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and shareholders:
(1) The number of directors of the Corporation shall be such as from
time to time shall be fixed by, or in the manner provided
<PAGE>
in the bylaws. Election of the directors need not be by ballot unless the bylaws
so provide.
(2) The Board of Directors shall have the power without the assent or
vote of the stockholders:
(a) To make, alter, amend, change, add to or repeal the bylaws
of the Corporation, to fix and vary the amount to be reserved for any proper
purpose; to authorize and cause to be executed mortgages and liens upon all or
any part of the property of the Corporation; to determine the use and
disposition of any surplus or net profits; and to fix the times for the
declaration and payment dividends.
(b) To determine from time to time whether, and to what times
and places, and under what conditions the accounts and books of the Corporation
(other than the stockledger) or any of them, shall be open to the inspection of
the stockholders.
(3) The directors in their discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders or any meting
of the stockholders called for the purpose of considering any such act or
contract, and any contract or act that shall be approved or be ratified by the
vote of the holders of the majority of the stock of the Corporation which is
represented in person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in person or
by proxy) shall be as valid and as binding upon the Corporation and upon all the
stockholders as though it had been approved or ratified by every stockholder of
the Corporation, whether or not the contract or act would otherwise be open to
legal attack because of the directors' interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation; subject, nevertheless, to the provisions of the statutes of
Delaware, of this certificate, and to any bylaws from time to time made by the
stockholders; provided, however, that no bylaws so made shall invalidate any
prior act of the directors which would have been valid if such bylaw had not
been made.
ARTICLE VII
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any
<PAGE>
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. It is the intent that this
provision be interpreted to provide the maximum protection against liability
afforded to directors under the Delaware General Corporation Law in existence
either now or hereafter.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in any
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement of the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
IN WITNESS WHEREOF, the undersigned, being the Incorporator named above,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, has signed this Certificate of Incorporation this ____
day of June, 1996.
------------------------------
Dale S. Bergman
Incorporator
BYLAWS
OF
ASD GROUP, INC.
(A DELAWARE CORPORATION)
<PAGE>
INDEX
PAGE
NUMBER
------
ARTICLE ONE OFFICES.......................................... 1
1. Registered Office.......................... 1
2. Other Offices.............................. 1
ARTICLE TWO MEETINGS OF STOCKHOLDERS......................... 1
1. Place...................................... 1
2. Time of Annual Meeting..................... 1
3. Call of Special Meetings................... 1
4. Conduct of Meetings........................ 1
5. Notice and Waiver of Notice................ 2
6. Business of Special Meeting................ 2
7. Quorum..................................... 2
8. Required Vote.............................. 3
9. Voting of Shares........................... 3
10. Proxies.................................... 3
11. Stockholder List........................... 3
12. Action Without Meeting..................... 3
13. Fixing Record Date......................... 4
14. Inspectors and Judges...................... 4
ARTICLE THREE DIRECTORS........................................ 5
1. Number, Election and Term.................. 5
2. Vacancies.................................. 5
3. Powers..................................... 5
4. Place of Meetings.......................... 6
5. Annual Meeting............................. 6
6. Regular Meetings........................... 6
7. Special Meetings and Notice................ 6
8. Quorum and Required Vote................... 6
9. Action Without Meeting..................... 7
10. Telephone Meetings......................... 7
11. Committees................................. 7
12. Compensation of Directors.................. 7
13. Chairman of the Board...................... 7
ARTICLE FOUR OFFICERS......................................... 8
1. Positions.................................. 8
2. Election of Specified
Officers by Board.......................... 8
3. Election or Appointment of
Other Officers............................. 8
4. Salaries................................... 8
5. Term....................................... 8
6. President.................................. 9
(i)
<PAGE>
PAGE
NUMBER
------
7. Vice Presidents............................ 9
8. Secretary.................................. 9
9. Treasurer.................................. 9
ARTICLE FIVE CERTIFICATES FOR SHARES.......................... 10
1. Issue of Certificates...................... 10
2. Legends for Preferences and
Restrictions on Transfer................... 10
3. Facsimile Signatures....................... 11
4. Lost Certificates.......................... 11
5. Transfer of Shares......................... 11
6. Registered Stockholders.................... 11
ARTICLE SIX GENERAL PROVISIONS............................... 12
1. Dividends.................................. 12
2. Reserves................................... 12
3. Checks..................................... 12
4. Fiscal Year................................ 12
5. Seal....................................... 12
ARTICLE SEVEN INDEMNIFICATION.................................. 12
ARTICLE EIGHT AMENDMENT OF BYLAWS.............................. 13
(ii)
<PAGE>
ASD GROUP, INC.
BYLAWS
ARTICLE ONE
OFFICES
Section 1. REGISTERED OFFICE. The registered office of ASD GROUP,
INC., a Delaware corporation (the "Corporation"), shall be located in the City
of Wilmington, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places, either within or without the State of Delaware, as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.
ARTICLE TWO
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All annual meetings of stockholders shall be held at
such place, within or without the State of Delaware, 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 stockholders may be held at such
place, within or without the State of Delaware, 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 stockholders
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 stockholders 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
stockholders may be called by the President, the Board of Directors or by the
Secretary on the written request of the holders of not less than a majority of
all shares entitled to vote at the meeting.
Section 4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and special
<PAGE>
meetings of stockholders 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.
Section 5. NOTICE AND WAIVER OF NOTICE. Written or printed notice
stating the place, day and hour 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 day of
the meeting, either personally or by first-class mail, by or at the direction of
the President, the Secretary, or the officer or person calling the meeting, to
each stockholder of record entitled to vote at such meeting. If the notice is
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the stockholder at his address as it appears 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 or if the
adjournment is for more than thirty (30) days. Notice need not be given to any
stockholder who submits a written waiver of notice by him before or after the
time stated therein. Attendance of a person at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when a stockholder attends
a meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.
Section 6. BUSINESS OF SPECIAL MEETING. Business transacted at any
special meeting shall be confined to the purposes stated in the notice thereof.
Section 7. QUORUM. The holders of a majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at meetings
of stockholders except as otherwise provided in the Corporation's certificate of
incorporation (the "Certificate of Incorporation"). If, however, a quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders present in person or represented by proxy shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally notified
and called. The stockholders present at a duly
2
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organized meeting may continue to transact business notwithstanding the
withdrawal of some stockholders prior to adjournment, but in no event shall a
quorum consist of the holders of less than one-third (1/3) of the shares
entitled to vote and thus represented at such meeting.
Section 8. REQUIRED VOTE. The vote of the holders of a majority of the
shares entitled to vote and represented at a meeting at which a quorum is
present shall be the act of the Corporation's stockholders, unless the vote of a
greater number is required by law, the Certificate of Incorporation, or these
Bylaws.
Section 9. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to vote on each matter submitted to a vote at a meeting
of stockholders, except to the extent that the voting rights of the shares of
any class are limited or denied by the Certificate of Incorporation or the
General Corporation Law of Delaware.
Section 10. PROXIES. A stockholder may vote in person or by proxy
executed in writing by the stockholder or by his duly authorized
attorney-in-fact. No proxy shall be voted or acted upon after three (3) years
from the date of its execution unless otherwise provided in the proxy. Each
proxy shall be revocable unless expressly provided therein to be irrevocable,
and unless otherwise made irrevocable by law.
Section 11. STOCKHOLDER LIST. The officer or agent having charge of the
Corporation's stock transfer books shall make, at least ten (10) days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical order,
with the address of, and the number and class and series, if any, of shares held
by each. Such list, for a period of ten (10) days prior to such meeting, shall
be subject to inspection by any stockholder at any time during the usual
business hours at the place where the meeting is to be held. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any stockholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the stockholders entitled to examine such list or transfer book or to
vote at any such meeting of stockholders.
Section 12. ACTION WITHOUT MEETING. Any action required by the statutes
to be taken at a meeting of stockholders, or any action that may be taken at a
meeting of the stockholders, may be taken without a meeting or notice if a
consent, or consents, in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
3
<PAGE>
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted with
respect to the subject matter thereof, and such consent shall be delivered to
the Corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the Corporation, having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or certified mail, return
receipt requested. Such consent shall have the same force and effect as a vote
of stockholders taken at such a meeting.
Section 13. FIXING RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of stockholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than sixty
(60) days, and, in case of a meeting of stockholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If no record date is fixed for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the
date on which the 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 stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof, except where the Board of Directors fixes a
new record date for the adjourned meeting.
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 or 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
4
<PAGE>
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 stockholders. 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.
ARTICLE THREE
DIRECTORS
Section 1. NUMBER, ELECTION AND TERM. The number of directors of the
Corporation shall be fixed from time to time, within the limits specified by the
Certificate of Incorporation, by resolution of the Board of Directors; provided,
however, no director's term shall be shortened by reason of a resolution
reducing the number of directors. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office for the term for which he is elected
and until his successor is elected and qualified. Directors need not be
residents of the State of Delaware, stockholders of the Corporation or citizens
of the United States. Unless provided otherwise by law, any director may be
removed at any time, with or without cause, at a special meeting of the
stockholders called for that purpose.
Section 2. VACANCIES. 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.
Any vacancy occurring in the Board of Directors and any directorship to be
filled by reason of an increase in the size of the Board of Directors shall be
filled by the affirmative vote of a majority of the current directors though
less than a quorum of the Board of Directors, or may be filled by an election
at an annual or special meeting of the stockholders called for that purpose. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, or until the next election of one or more directors
by stockholders if the vacancy is caused by an increase in the number of
directors.
Section 3. POWERS. The business and affairs of the Corporation shall be
managed by its 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 Certificate of Incorporation
5
<PAGE>
or by these Bylaws directed or required to be exercised and done by the
stockholders.
Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Delaware.
Section 5. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held, without call or notice, immediately following
each annual meeting of stockholders.
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 and shall be called by the Secretary
on the written request of any two directors. Written notice of special meetings
of the Board of Directors shall be given to each director at least twenty-four
(24) hours before the meeting. Except as required by statute, 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 personally
or mailed to the directors at their addresses appearing on the books of the
Corporation. Notice by mail shall be deemed to be given at the time when the
same shall be received. Notice to directors may also be given by telegram, and
shall be deemed delivered when the same shall be deposited at a telegraph office
for transmission and all appropriate fees therefor have been paid. 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 or after
the time stated therein, shall be equivalent to the giving of such notice.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Section 8. QUORUM AND REQUIRED VOTE. A majority of the directors 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
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present. At such adjourned meeting at which a quorum shall be
present, any
6
<PAGE>
business may be transacted that might have been transacted at the meeting as
originally notified and called.
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.
Section 10. TELEPHONE MEETINGS. Directors and committee members may
participate in and hold a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meetings 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 statute. Vacancies in the membership of a committee shall be filled by the
Board of Directors at a regular or special meeting of the Board of Directors.
The 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
him 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. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 13. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, choose a chairman of the board who shall preside at meetings of the
stockholders and of the directors and shall be an ex officio member of all
standing committees. The
7
<PAGE>
Chairman of the Board shall have such other powers and shall perform such other
duties as shall be designated by the Board of Directors. The Chairman of the
Board shall be a member of the Board of Directors but no other officers of the
Corporation need be a director. The Chairman of the Board shall serve until his
successor is chosen and qualified, but he may be removed at any time by the
affirmative vote of a majority of the Board of Directors.
ARTICLE FOUR
OFFICERS
Section 1. POSITIONS. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary and a Treasurer, and, if
elected by the Board of Directors by resolution, a Chairman of the Board. Any
two or more offices may be held by the same person.
Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of stockholders shall
elect a President, one or more Vice Presidents, a Secretary 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 President of the Corporation. The Board of Directors
shall be advised of appointments by the President at or before the next
scheduled Board of Directors meeting.
Section 4. SALARIES. The salaries of all officers of the Corporation
to be elected by the Board of Directors pursuant to Article Four, Section 2
hereof shall be fixed from time to time by the Board of Directors or pursuant to
its discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the Corporation
or pursuant to his direction.
Section 5. TERM. 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 or the President of the Corporation may be
removed, with or without cause, by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Any officers or agents appointed by the President of the Corporation
pursuant to Section 3 of this Article
8
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Four may also be removed from such officer positions by the President, 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 President of the Corporation, by the
President or the Board of Directors.
Section 6. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. 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 President shall preside at meetings of the
stockholders and the Board of Directors.
Section 7. 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, 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 shall prescribe or as the President may
from time to time delegate.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the stockholders 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. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He 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.
Section 9. 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. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President 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.
9
<PAGE>
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1. ISSUE 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 represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption 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 or vice-chairman of the Board of Directors, or the 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.
Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided by law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
A written restriction on the transfer or registration of transfer of a
security of the Corporation, if permitted by law and noted conspicuously on the
certificate representing the security, may be enforced against the holder of the
restricted security or any successor or transferee of the holder including an
executor, administrator, trustee, guardian or other fiduciary entrusted with
like responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing the security, a restriction, even
though permitted by law, is ineffective except against a person with actual
knowledge of the restriction. If the
10
<PAGE>
Corporation issues any shares that are not registered under the Securities Act
of 1933, as amended, and 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, AS AMENDED, 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, AS AMENDED, AND ANY APPLICABLE STATE
LAWS, 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 the issue.
Section 4. LOST CERTIFICATES. The Corporation may issue a new
certificate of stock in place of any certificate therefore issued by it, alleged
to have been lost, stolen or destroyed, and the Corporation may require the
owner of the lost, stolen, or destroyed certificate, or his legal representative
to give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
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 STOCKHOLDERS. 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
11
<PAGE>
or other notice thereof, except as otherwise provided by the laws of the State
of Delaware.
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, or its own shares pursuant to law and subject to the provisions
of the Certificate 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 June 30th 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.
ARTICLE SEVEN
INDEMNIFICATION
No director shall be liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a breach of the director's duty of loyalty to the
Corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law, or (4) a
transaction from which the director derived an improper personal benefit, it
being the intention of the foregoing provision to eliminate the liability of the
Corporation's directors to the Corporation or its stockholders to the fullest
extent permitted by Section 102(b)(7) of the Delaware General Corporation Law,
as amended from time to time.
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The Corporation shall indemnify to the fullest extent permitted by Sections
102(b)(7) and 145 of the Delaware General Corporation Law, as amended from time
to time, each person that such Sections grant the Corporation the power to
indemnify.
ARTICLE EIGHT
AMENDMENT OF BYLAWS
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.
13
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PURCHASE AGREEMENT
DATED AS OF DECEMBER 29, 1995
REGARDING
10% SENIOR SECURED NOTES
DUE JUNE 30, 1999
OF
ASD GROUP, INC.
AUTOMATIC SYSTEMS DEVELOPERS, INC.
HIGH TECHNOLOGY COMPUTERS, INC.
-----------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
SECTION 1. SALE AND PURCHASE OF NOTES, SHARES AND
WARRANTS...................................................1
SECTION 2 CLOSINGS...................................................3
SECTION 3 DEFINITIONS................................................4
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE
BORROWER..................................................11
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS...............................................17
SECTION 6 PREPAYMENTS..............................................19
SECTION 7. AFFIRMATIVE COVENANTS................................... 20
SECTION 8. NEGATIVE COVENANTS .................. ...................23
SECTION 9. CONDITIONS TO PURCHASERS' OBLIGATIONS....................26
SECTION 10. AMENDMENT; WAIVER; CONSENT ..............................28
SECTION 11. EXCHANGE OF NOTES; ACCRUED INTEREST;
CANCELLATION OF SURRENDERED NOTES; REPLACEMENT.......... 29
SECTION 12. DEFAULTS ................................................30
SECTION 13. REMEDIES ................................................32
SECTION 14. RESTRICTIONS ON TRANSFER ................................33
SECTION 15. REGISTRATION RIGHTS .....................................34
SECTION 16. EXPENSES ................................................37
SECTION 17. HOME OFFICE PAYMENTS.....................................37
SECTION 18. NOTICES .................................................37
SECTION 19. MISCELLANEOUS ...........................................38
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Exhibit A - Purchasers
Exhibit B - Form of Note
Exhibit C - Form of Security Agreement
Exhibit D - Disclosure Schedule
Exhibit E - Form of Warrant
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<PAGE>
PURCHASE AGREEMENT dated as of December 29, 1995 by and between ASD
Group, Inc., formerly Dutchess Design and Development, Inc., a New York
corporation ("ASDG"), Automated Systems Developers, Inc., a New York
corporation, ("ASD") and High Technology Computers, Inc. ("HTC"), a New York
corporation (ASDG, ASD and HTC being individually, a "BORROWER" and
collectively, the "BORROWERS") and the Purchasers listed on the signature page
of this Agreement (collectively, the "PURCHASERS"). Terms used herein and not
otherwise defined shall have the meanings set forth in Section 3 hereof.
WITNESETH:
In consideration of the mutual covenants and agreements set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
SECTION 1. SALE AND PURCHASE OF NOTES, SHARES AND WARRANTS
(a) The Borrowers jointly and severally agree to sell to the
Purchasers and, subject to the terms and conditions hereof and in reliance upon
the representations and warranties of the Borrowers contained herein or made
pursuant hereto, the Purchasers severally agree to purchase from the Borrowers
at the Initial Closing and the Second Closing Date a Note or Notes in the
aggregate principal amounts set forth opposite each Purchaser's name on Exhibit
A hereto. The aggregate purchase price to be paid to the Borrowers by the
Purchasers for such Notes is 100% of the principal amount of the Notes to be
purchased by the Purchasers.
(b) As used herein, "NOTES" means an aggregate of up to $2,000,000
principal amount of the Borrowers' 10% Senior Secured Notes Due June 30, 1999,
together with all Notes issued in exchange therefor or replacement thereof. Each
Note shall be substantially in the form of the Note attached as Exhibit B
hereto. Interest on the Notes shall accrue from the Initial Closing Date or the
Second Closing Date, and case may be, and shall be payable quarterly on the last
day of March, June, September and December of each year at the interest rates
and in the manner specified in the form of Note attached as Exhibit B hereto.
The principal amount of the Notes, together with interest on the unpaid
principal balance thereof, shall be repaid in 18 equal installments of principal
and interest on the last day of each calendar month commencing January 31, 1998,
unless earlier prepayment is required pursuant to the terms of this Agreement,
all as set forth herein and in the form of Note attached as Exhibit B hereto.
(c) As used herein "SHARES" means shares of ASDG's Common Stock.
(d) If any of the following three events occurs at any time during
the five year period from the First Closing, the Purchasers shall be entitled,
without payment of any further consideration, to receive the issuance of Shares,
Warrants (as defined below) or other securities exercisable for or convertible
into Shares (all such securities exercisable for or convertible into
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<PAGE>
Shares including but not limited to the Warrants or any other warrants are
herein referred to as "CONVERTIBLE SECURITIES") as described below, provided,
however, that upon the occurrence of the first such event, ASDG shall have no
further obligation to issue Shares, Warrants or Convertible Securities to the
Purchasers in the event any of the other events occur;
(i) In the event that ASDG consummates an underwritten initial
public offering of Shares or Shares and Convertible Securities which generates
gross proceeds to ASDG of not less than $5,000,000 (an "IPO"), then upon
consummation of the IPO:
(A) ASDG shall issue to each Purchaser a number of
Shares and Convertible Securities (if any) determined by dividing the principal
amount of Notes purchased by each Purchaser hereunder by the purchase price per
Share and per Convertible Security (if any) of Shares and Convertible Securities
(if any) sold in the IPO; and
(B) provided that the Purchasers shall have purchased at
least $2,000,000 in aggregate of principal amount of Notes hereunder, ASDG
shall issue to each Purchaser, Warrants (the "Warrants") to purchase such number
of Shares as determined by dividing the principal amount of Notes purchased by
each Purchaser hereunder by the purchase price per Share of Shares sold in the
IPO. The Warrants will be exercisable at a price per Share equal to the price
per Share of Shares sold in the IPO for a five year period from the closing of
the IPO; PROVIDED, HOWEVER, that the Warrants shall not be exercisable for a
period of two years from the closing of the IPO without the prior written
consent of the managing underwriter of the IPO and ASDG. The Warrants shall be
in the form of Exhibit E hereto.
(ii) In the event ASDG consummates a private offering of Shares
or Shares and Convertible Securities pursuant to an exemption from registration
under the Securities Act which generates gross proceeds to ASDG of not less than
$5,000,000 (a "Private Offering"), then, upon consummation of the Private
Offering, ASDG shall issue to the Purchasers such number of Shares as will
entitle the Purchasers to hold two percent for each $1,000,000 in principal
amount of Notes purchased hereunder (up to a maximum of four percent) of ASDG's
issued and outstanding Common Stock on a fully diluted basis after giving effect
to the issuance of Shares and Convertible Securities (if any) in the Private
Offering and Shares to the Purchasers. Each Purchaser shall be entitled to such
number of Shares as equal the total number of Shares issuable to all Purchasers
pursuant to this Section l(d)(ii) divided by a fraction, the numerator of which
shall be the principal amount of Notes purchased by the Purchaser hereunder and
the denominator of which shall be the principal amount of Notes purchased by all
Purchasers hereunder.
(iii) In the event that ASDG sells all or any substantial
portion of its consolidated assets, whether by merger, stock sale, asset sale or
similar transaction (a "SALE"), then, upon consummation of the Sale or repayment
of the Notes in full, as the case may be, ASDG shall issue to the Purchasers
such number of Shares as will entitle the Purchasers to hold
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<PAGE>
four percent for each $1,000,000 in principal amount of Notes hereunder (up to a
maximum of eight percent) of ASDG's issued and outstanding Common Stock on a
fully diluted basis after giving effect to the issuance of Shares to the
Purchasers. Each Purchaser shall be entitled to such number of Shares as equal
the total number of Shares issuable to all Purchasers pursuant to this Section
l(d)(iii) divided by a fraction, the numerator of which shall be the principal
amount of Notes purchased by the Purchaser hereunder and the denominator of
which shall be the principal amount of Notes purchased by all Purchasers
hereunder.
(iv) In the event that the Borrowers refuse to borrow the
second $1,000,000 at the Second Closing as contemplated by Section 2(d) hereof,
then for purposes of the rights granted to the Purchasers under this Section
l(d), the Borrowers shall be deemed to have borrowed the entire $2,000,000
principal amount of Notes.
(v) No fractional Shares, Warrants or Convertible Securities
will be issued to the Purchasers pursuant to Sections l(d)(i) and (ii). In such
event, any fractional Share, Warrant or Convertible Security so issuable shall
be rounded to the nearest whole Share.
SECTION 2. CLOSINGS
(a) Subject to the terms and conditions hereof, the closings of the
purchase and sale of the Notes will take place at the offices of Greenberg
Traurig, 153 East 53rd Street, New York, New York 10022 at the times and on the
dates designated in paragraphs (c) and (d) hereof. As used herein "INITIAL
CLOSING" and "SECOND CLOSING" shall have the meanings set forth in Sections 2(c)
and (d) respectively and are referred to herein individually as a "CLOSING" and
collectively as the "CLOSINGS." The date of the Initial Closing shall be the
"INITIAL CLOSING DATE", the date of the Second Closing shall be the "SECOND
CLOSING DATE" and the Initial Closing Date and Second Closing Date are referred
to herein individually as a "CLOSING DATE" and collectively as the "CLOSING
DATES."
(b) Subject to the terms and conditions hereof, the Borrowers shall
deliver to the Purchasers (i) on the Closing Dates, Notes substantially in the
form of Exhibit B hereto, payable to the Purchasers and dated the Closing Dates,
in the aggregate principal amounts set forth opposite each Purchaser's name on
Exhibit A, and (ii) on the Initial Closing Date the Security Agreement or
amendments thereto, substantially in the form of Exhibit C hereto in favor of
the Purchasers and upon the Purchasers' receipt thereof, the Purchasers shall
deliver to the Borrowers certified or bank checks or wire transfers in an amount
equal to the Purchase Price of the Notes payable to the Borrowers in immediately
available funds.
(c) The Initial Closing shall be held simultaneously with the
execution of this Agreement at which time the Purchasers shall purchase
$1,000,000 in Notes.
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<PAGE>
(d) The Second Closing shall be held 60 days after the Initial
Closing or such other time and date as shall be mutually agreed to by the
parties at which time the Purchasers shall purchase an additional $1,000,000 in
principal amount of Notes.
SECTION 3. DEFINITIONS
(a) For purposes of this Agreement, the Security Agreement and the
Notes, the following definitions shall apply (such definitions to be equally
applicable to both the singular and plural forms of the terms defined):
"AFFILIATE", when used with respect to any Person, means (i) if
such Person is a corporation, any officer or director thereof and any
Person (other than the Purchaser) which is, directly or indirectly, the
beneficial owner (by itself or as part of any group) of more than five
percent of any class of any equity security (within the meaning of the
Securities Exchange Act) thereof, and, if such beneficial owner is a
partnership, any partner thereof, or if such beneficial owner is a
corporation, any Person controlling, controlled by or under common
control with such beneficial owner, or any officer or director of such
beneficial owner or of any corporation occupying any such control
relationship, (ii) if such Person is a partnership, any partner thereof,
and (iii) any other Person (other than the Purchasers) which, directly
or indirectly, controls or is controlled by or is under common control
with such Person. For purposes of this definition, "control" (including
the correlative terms "controlling", "controlled by" and "under common
control with"), with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"AGREEMENT" means this Agreement (together with exhibits) as from
time to time supplemented or amended or as the terms hereof may be
waived.
"BANK" has the meaning set forth in Section 7.5 hereof.
"BUSINESS DAY" means any day, other than a Saturday, Sunday or
legal holiday, on which banks in New York, New York are open for
business.
"CAPITALIZED LEASES" means any lease to which Borrower is party
as lessee, or by which it is bound, under which it leases any property
(real, personal or mixed) from any lessor other than a Borrower, and
which is required to be capitalized in accordance with GAAP consistently
applied.
"CLOSING" or "CLOSINGS" has the meaning set forth in Section 2
hereof.
"CLOSING DATE" or "CLOSING DATES" has the meaning set forth in
Section 2 hereof.
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<PAGE>
"COMMISSION" means the Securities and Exchange Commission and any
other similar or successor agency of the federal government
administering the Securities Act or the Securities Exchange Act.
"COMMON STOCK" means that class of stock or other equivalent
evidences of ownership of any Borrower, the holders of which are
entitled to vote generally to elect the Board of Directors of the
Borrower.
"CONSOLIDATED" or "CONSOLIDATED", when used with reference to any
financial term in this Agreement, means the aggregate for the Borrowers
and any Subsidiaries of the amounts signified by such term for all such
Persons, with intercompany items eliminated, and, with respect to
earnings or net worth, after eliminating the portion of earnings (or net
worth, as the case may be) properly attributable to minority interests,
if any, in the capital of any such Person (other than in the capital of
the Borrowers) as determined in accordance with GAAP.
"CONVERTIBLE SECURITIES" has the meaning set forth in Section 1
hereof.
"ERISA" has the meaning set forth in Section 4.9(a) hereof.
"EVENT OF DEFAULT" has the meaning set forth in Section 12 hereof.
"GAAP" has the meaning set forth in Section 3(b) hereof.
"GUARANTY" means (i) any guaranty or endorsement of the payment
or performance of, or any contingent obligation in respect of, any
Indebtedness or other obligation of any other Person, (ii) any other
arrangement whereby credit is extended to one obligor on the basis of
any promise or undertaking of another Person (a) to pay the Indebtedness
of such obligor, (b) to purchase an obligation owed by such obligor, (c)
to purchase or lease assets under circumstances that would enable such
obligor to discharge one or more of its obligations or (d) to maintain
the capital, working capital, solvency or general financial condition of
such obligor, in each case whether or not such arrangement is disclosed
in the balance sheet of such other Person or is referred to in a
footnote thereto and (iii) any liability as a general partner of a
partnership in respect of Indebtedness or other obligations of such
partnership; PROVIDED, HOWEVER, that the term "Guaranty" shall not
include (1) endorsements for collection or deposit in the ordinary
course of business or (2) obligations of the Borrowers and their
Subsidiaries which would constitute Guaranties solely by virtue of the
continuing liability of a Person which has sold assets subject to
liabilities for the liabilities which were assumed by the Person
acquiring the assets, unless such liability is required to be carried on
the consolidated balance sheet of the Borrowers. The amount of any
Guaranty and the amount of Indebtedness or of Investment resulting from
such Guaranty shall be the greater of (i) the amount which would have to
be carried on the balance sheet of the guarantor in respect of such
Guaranty or (ii)
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<PAGE>
the amount which would have to be carried on the balance sheet of the
Person whose obligations were guaranteed, in respect of such
obligations.
"INDEBTEDNESS" of any Person means and includes, without
duplication, as of any date as of which the amount thereof is to be
determined, (i) all obligations of such Person to repay money borrowed
(including, without limitation, all notes payable and drafts accepted
representing extensions of credit, all obligations under letters of
credit, all obligations evidenced by bonds, debentures, notes or other
similar instruments, all interest rate swap or similar obligations and
all obligations upon which interest charges are customarily paid), (ii)
all capitalized leases in respect of which such Person is liable as
lessee or as the guarantor of the lessee, (iii) all monetary obligations
which are secured by any Lien existing on property owned by such Person
whether or not the obligations secured thereby have been incurred or
assumed by such Person, (iv) all conditional sales contracts and similar
title retention debt instruments under which such Person is obligated to
make payments, (v) all Guaranties by such Person and (vii) all
contractual obligations (whether absolute or contingent) of such Person
to repurchase goods sold or distributed, and the value of such
repurchase obligations at any time shall be the maximum amount which
would be payable if all then outstanding potential repurchase
obligations became due. "Indebtedness" shall not include, however, (1)
Indebtedness of any Borrower to any other Borrower or to a Subsidiary or
Indebtedness of any Subsidiary to a Borrower, (2) any unfunded
obligations in any employee pension benefit plan (as defined in ERISA)
of any Borrower or of any Subsidiary and (3) trade debt incurred in the
ordinary course of business.
"INITIAL CLOSING" has the meaning set forth in Section 2 hereof.
"INITIAL CLOSING DATE" has the meaning set forth in Section 2
hereof.
"INVENTORY" or "inventory" has the meaning set forth in the
Uniform Commercial Code of the State of New York; provided however,
inventory shall not include inventory subject to perfected vendor Liens.
"IPO" has the meaning set forth in Section 1 hereof.
"LIEN" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security interest of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same
effect as any of the foregoing, any assignment or other conveyance of
any right to receive income and any assignment of receivables with
recourse against the assignor), any filing of a financing statement as
debtor under the Uniform Commercial Code or any similar statute and any
agreement to give or make any of the foregoing.
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<PAGE>
"MAJORITY NOTEHOLDERS" means the holder or holders, at the time,
of at least a majority in aggregate principal amount of the Notes then
outstanding.
"MAJORITY SHAREHOLDERS" means the holder or holders, at the time,
of Shares representing at least a majority of the Shares issued pursuant
to Section l(d) hereof and Shares issued or issuable upon the exercise
or conversion of Convertible Securities issued pursuant to Section l(d)
hereof.
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section
4.1(a) hereof.
"NOTE" or "NOTES" has the meaning set forth in Section 1(b)
hereof.
"PERMITTED LIENS" means (i) Liens for taxes not yet due or Liens
for taxes being contested in good faith and by appropriate proceedings,
for which adequate reserves have been established, and provided that any
proceedings commenced for the enforcement of such Liens have been duly
suspended, (ii) Liens in respect of property or assets of any Borrower
or any Subsidiary imposed by law (such as carriers', warehousemen's,
landlords' and mechanics' liens), which were incurred in the ordinary
course of business and, in each case, were not incurred in connection
with the borrowing of money, and (x) which do not in the aggregate
materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of
the Borrowers or any Subsidiary and (y) which either relate to sums not
yet delinquent or are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or assets subject to such Lien,
provided that adequate reserves have been established for any such
Liens being contested, (iii) pledges or deposits (other than any Lien
imposed by ERISA) in the ordinary course of business in connection with
worker's compensation, unemployment insurance and other social security
legislation, (iv) easements, rights-of-way and minor defects or
irregularities in title not interfering in any material respect with the
ordinary conduct of the business of the Borrowers or any Subsidiary and
(v) Liens securing the performance of bids, tenders, leases, contracts,
statutory obligations, surety, customs and appeal bonds and other
obligations of like nature, incurred as an incident to and in the
ordinary course of business and not to secure the repayment of borrowed
money.
"PERSON" or "person" means an individual, corporation,
partnership, firm, association, joint venture, trust, unincorporated
organization, government, governmental body, agency, political
subdivision or other entity.
"POTENTIAL DEFAULT" means a condition or event which, with notice
or lapse of time or both, would constitute an Event of Default.
"PRIVATE OFFERING" has the meaning set forth in Section 1 hereof.
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"PURCHASER" means each person who accepts and agrees to the terms
hereof as indicated by such person's signature on the execution page of
this Agreement, together with successors and assigns.
"REGISTERABLE SECURITIES" shall mean Shares and Convertible
Securities (if any) issued to the Purchasers pursuant to Section l(d)
hereof and Shares issued or issuable upon the exercise or conversion of
Convertible Securities (if any) issued pursuant to Section l(d) hereof.
"RESTRICTED PAYMENT" means (i) every dividend or other
distribution paid, made or declared by a Borrower on or in respect of
any class of its capital stock, (ii) every payment to or on behalf of
any Affiliate of a Borrower (other than another Borrower or a
Subsidiary) on account of or with respect to any lease arrangements and
(iii) every payment by or on behalf of any Borrower (whether as
repayment or prepayment of principal or as interest or otherwise) on or
with respect to (A) any obligation to repay money borrowed owing to any
Affiliate of a (other than another Borrower or a Subsidiary) Borrower or
to any other holder of shares of the capital stock of a Borrower (other
than another Borrower or a Subsidiary), (B) any management, consulting
or similar arrangement between a Borrower and any Affiliate (other than
another Borrower or a Subsidiary) (other than employment agreements) or
(C) any obligation, to any Person, of any Affiliate of a Borrower (other
than another Borrower or a Subsidiary) or of any other holder of shares
of the capital stock of a Borrower (other than another Borrower or a
Subsidiary), which obligation is assumed or guaranteed by a Borrower or
any Subsidiary; PROVIDED, HOWEVER, (a) that-the restrictions of the
foregoing clause (i) shall not apply to any dividend, distribution or
other payment on or in respect of capital stock of ASDG to the extent
payable in shares of the capital stock of the ASDG, (b) that none of the
foregoing clauses shall apply to any payments from a Subsidiary to a
Borrower (including, without limitation, dividends and other
distributions), (c) that none of the foregoing clauses shall apply to
any purchases by a Borrower from a wholly-owned Subsidiary of additional
capital stock of such Subsidiary and (d) that none of the foregoing
clauses shall apply to any payments, distributions or other transfers or
actions on or with respect to the Notes or Securities or involving the
holders of Notes or Securities under this Agreement.
"RULE 144" means (i) Rule 144 under the Securities Act as such
Rule is in effect from time to time, (ii) Rule 144A under the Securities
Act as such Rule may be adopted by the Commission and as in effect from
time to time and (iii) any successor rule, regulation or law, as in
effect from time to time.
"SALE" has the meaning set forth in Section 2 hereof.
"SECOND CLOSING" has the meaning set forth in Section 2 hereof.
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"SECOND CLOSING DATE" has the meaning set forth in Section 2
hereof.
"SECURITIES" means the Shares, Warrants and Convertible Securities
(if any) issued or issuable to the Purchasers pursuant to Section l(d)
hereof and Shares issued or issuable upon the exercise or conversion of
Warrants or Convertible Securities issued pursuant to Section l(d)
hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder.
"SHARES" has the meaning set forth in Section 1 hereof.
"SUBSIDIARY" means any corporation, association or other entity of
which more than 50% of the total voting power of shares of stock or
other equity interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is, at the time as of which any determination is being made,
owned or controlled, directly or indirectly, by a Borrower or one or
more of its Subsidiaries, or both.
"WARRANTS" has the meaning set forth in Section 1 hereof.
(b) For all purposes of this Agreement and the Notes except as
otherwise expressly provided or unless the context otherwise requires:
(i) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Agreement (or if used therein, to the
Note) as a whole and not to any particular section or other subdivision;
(ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles consistently applied ("GAAP") (except as otherwise
provided herein);
(iii) all computations provided for herein, if any, shall be made
in accordance with GAAP (except as otherwise expressly provided herein);
(iv) any uses of the masculine, feminine or neuter gender shall
also be deemed to include any other gender, as appropriate;
(v) all references herein to actions by the Borrower or any
Subsidiary, such as "create," "sell," "transfer," "dispose of," etc.,
means such action whether voluntary or involuntary, by operation of law
or otherwise; and
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(vi) the exhibits to this Agreement shall be deemed a part of this
Agreement and any exhibit, to the Note shall be deemed a part of such
Note, as the case may be.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower represents and warrants as follows as of the date hereof
and as of the Closing Date:
4.1. CORPORATE EXISTENCE, POWER AND AUTHORITY.
(a) Each of the Borrowers is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation. Each of the Borrowers is duly qualified, licensed and authorized
to do business and is in good standing in each jurisdiction in which it owns or
leases any material property or in which the conduct of its business requires it
to so qualify or be licensed, except for such jurisdictions where the failure to
so qualify or be licensed would not have a material adverse effect on the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Borrowers on a
consolidated basis (a "MATERIAL ADVERSE EFFECT").
(b) No proceeding looking toward the dissolution or merger of a
Borrower or the amendment of its respective certificate of incorporation has
been commenced. No Borrower is in violation in any respect of certificate of
incorporation or by-laws.
(c) Each of the Borrowers has all requisite power, authority and
legal right to own or to hold under lease and to operate the properties it owns
or holds and to conduct its business as now being conducted.
(d) Each of the Borrowers has all requisite power, authority and
legal right to execute, deliver, enter into, consummate and perform this
Agreement, the Security Agreement and the Notes, including, without limitation,
the issuance by the Borrowers of the Notes and by ASDG of the Securities as
contemplated herein. The execution, delivery and performance of this Agreement,
the Security Agreement and the Notes by the Borrowers (including, without
limitation, the issuance by the Borrowers of the Note and by ASDG of the
Securities as contemplated herein) have been duly authorized by all required
corporate and other actions. Each Borrower has duly executed and delivered this
Agreement and this Agreement constitutes, and the Security Agreement, when
executed and the Notes, when issued will constitute, the legal, valid and
binding obligations of each Borrower enforceable in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to the rights of creditors generally, the
application by a court of general principles of equity and the limitation for
reasons of public policy on the enforceability of the indemnification provision
set forth herein under Federal securities law.
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4.2. STOCK OWNERSHIP.
(a) The authorized capital stock of ASDG consists of 200 shares
of Common Stock, no par value per share, of which 76 shares are outstanding and
shares will be outstanding at the Initial Closing Date, and all such shares
outstanding at the Initial Closing Date will be (i) duly authorized, validly
issued and outstanding and fully paid and non-assessable and (ii) owned of
record and beneficially as set forth on Exhibit D hereto free and, except as set
forth on Exhibit D hereto, clear of all Liens, options or claims of any kind.
(b) The authorized capital stock of HTC consists of 200 shares of
Common Stock, no par value per share, of which 74 shares are outstanding and
shares will be outstanding at the Initial Closing Date, and all such shares
outstanding at the Initial Closing Date will be (i) duly authorized, validly
issued and outstanding and fully paid and non-assessable and (ii) owned of
record and beneficially as set forth on Exhibit D hereto free and clear of all
Liens, options or claims of any kind.
(c) Except as set forth on Exhibit D hereto, there are no
outstanding options, warrants, rights, convertible securities or other
agreements or plans under which any Borrower may become obligated to issue,
sell or transfer shares of its capital stock or other securities.
(d) There are no outstanding registration rights with respect to
any capital stock of the Borrowers.
4.3. SUBSIDIARIES.
(a) ASD is, and prior to the Initial Closing Date will be, a
wholly-owned Subsidiary of ASDG. Except for Cabletronics, Inc., a wholly-owned
subsidiary of ADSG which, subsequent to the Initial Closing Date is expected to
be merged with and into HTC, no Borrower has any Subsidiaries or any equity or
similar ownership interest in any other Person.
(b) Except as set forth on Exhibit D hereto, there are no
restrictions (whether by agreement, statute other than the New York Business
Corporation Law), rule, regulation, order or otherwise) that may affect or limit
the ability of any Subsidiary to pay dividends to ASDG of such Subsidiary's
earnings (as reported in financial statements prepared under GAAP).
4.4. BUSINESS. The Borrowers are engaged in contract manufacturing and
related businesses. The Borrowers do not engage in, or have no intention of
engaging in, any other business.
4.5. NO DEFAULTS OR CONFLICTS.
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(a) No Event of Default or Potential Default has occurred and is
continuing.
(b) Other than as set forth on Exhibit D, no Borrower is in
violation or default in any material respect (and is not in default in any
respect regarding any Indebtedness) under any indenture, agreement or instrument
to which it is a party or by which it or its properties may be bound, which
default would have a Material Adverse Effect.
(c) The execution, delivery and performance by the Borrowers of
this Agreement, the Security Agreement and the Notes, and any of the
transactions contemplated hereby (including, without limitation, the issuance of
the Notes and the Securities as contemplated herein) does not and will not (i)
violate or conflict with, with or without the giving of notice or the passage of
time or both, any provision of (A) the respective certificates of incorporation
or by-laws of the Borrowers or (B) any law, rule, regulation, order, judgment,
writ, injunction, decree, agreement, indenture or other instrument applicable to
the Borrowers or any of their respective properties, which violation or conflict
would have a Material Adverse Effect (ii) except as contemplated by the Security
Agreement, result in the creation of any security interest or lien upon any of
the Borrowers' material, properties, assets or revenues, (iii) require the
consent, waiver, approval, order or authorization of, or declaration,
registration, qualification or filing with, any Person (whether or not a
governmental authority and including, without limitation, any shareholder
approval) or (iv) cause anti-dilution clauses of any outstanding securities to
become operative or give rise to any preemptive rights.
4.6. FINANCIAL STATEMENTS.
(a) ASDG has previously furnished to the Purchasers (i) the
audited combined financial statements of the Borrowers consisting of balance
sheets as of June 30, 1995 and 1994 and the related statements of operations and
cash flows for the years then ended and the related notes thereto, all of which
statements have been audited by Deloitte & Touche, LLP, independent certified
public accountants and (ii) the unaudited combined balance sheet of the
Borrowers at October 31, 1995 and the related statement of operations for the
four months ended October 31, 1995. The audited and unaudited combined financial
statements fairly present the combined financial condition of the Borrowers in
all material respects as of the respective dates thereof and the consolidated
results of the operations of the Borrowers for such periods (subject to normal
year end adjustments in the case of the unaudited financial statements) and the
audited financial statements have been prepared in accordance with GAAP except
as otherwise noted herein.
(b) There has been no Material Adverse Change since June 30, 1995.
(c) Except as set forth on Exhibit D hereto, the Borrowers are
not aware of any material liabilities, contingent or otherwise, of the Borrowers
that have not been disclosed in the financial statements referred to in Section
4.6(a) above.
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4.7. LITIGATION. Except as set forth on Exhibit D hereto, there is no
action, suit, proceeding, investigation or claim pending or, to the best of the
knowledge of each Borrower, threatened in law, equity or otherwise before any
court, administrative agency or arbitrator which either (i) questions the
validity of this Agreement, the Security Agreement, the Notes or the Securities
or any action taken or tO be taken pursuant hereto, (ii) might materially
adversely affect the right, title or interest of the Purchaser to the Notes or
the Securities or (iii) might result in a Material Adverse Effect.
4.8. TAXES. Each of the Borrowers has filed all federal, state, local
and other tax returns and reports, and any other material returns and reports
with any governmental authorities, required to be filed by it. Except as set
forth on Exhibit D hereto, each of the Borrowers has paid or caused to be paid
all taxes (including interest and penalties) that are due and payable, except
those which are being contested by it in good faith by appropriate proceedings
and in respect of which adequate reserves are being maintained on its books in
accordance with GAAP. None of the Borrowers has any material liabilities for
taxes other than those incurred in the ordinary course of business and in
respect of which adequate reserves are being maintained by it in accordance with
GAAP.
4.9. ERISA. Each of the Borrowers is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and interpretations
thereunder (collectively, "ERISA"). Except as set forth on Exhibit D hereto,
none of the Borrowers has in force any written or oral bonus plan, stock option
plan, employee welfare, pension or profit sharing plan. In addition, except as
set forth on Exhibit D hereto, none of the Borrowers nor any predecessor of any
Borrower is now or was formerly during the five year period immediately
preceding the effective date of this Agreement a participating employer in any
multi-employer or "multiple-employer" plans within the meaning of Sections
4001(1)(a)(3), 4063 and 4064 of ERISA. Each employee benefit plan subject to the
requirements of ERISA complies with all of the requirements of ERISA and those
plans which are subject to being "qualified" under Sections 401(a) and 501(a) of
the Internal Revenue Code of 1986, as amended from time to time, have since
their adoption been "qualified" and have received favorable determination
letters from the Internal Revenue Service so holding. There is no matter which
would adversely affect the qualified tax exempt status of any such trust or
plan, and there are no deficiencies or liabilities for any such plan or trust.
No employee benefit plan sponsored by any of the Borrowers has engaged in a
non-exempt prohibited transaction" as defined in ERISA.
4.10. LEGAL COMPLIANCE.
(a) Except as set forth on Exhibit D hereto, each of the
Borrowers has complied with all applicable laws, rules, regulations, orders,
licenses, judgments, writs, injunctions, decrees or demands, except to the
extent that failure to comply would not have a Material Adverse Effect.
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(b) There are no adverse orders, judgments, writs, injunctions,
decrees or demands of any court or administrative body, domestic or foreign, or
of any other governmental agency or instrumentality, domestic or foreign,
outstanding against any Borrower, which would have a Material Adverse Effect.
4.11. PERMITS, LICENSES AND APPROVALS. Each of the Borrowers possesses
such franchises, licenses, permits, consents, approvals and other authority
(governmental or otherwise) from any Person as are materially necessary for the
conduct of its business as now being conducted and as proposed to be conducted
and none is in default in any material respects under any franchises, licenses,
permits, consents, approvals or other authority, which default would have a
Material Adverse Effect.
4.12. REAL PROPERTY. Each of the Borrowers has good and marketable title
to its real property, all of which is set forth on Exhibit D hereto. No real
property is held under lease by the Borrowers. Except as set forth on Exhibit D
hereto, none of the real properties owned by the Borrowers is subject to any
Liens or other restrictions which would have a Material Adverse Effect.
4.13. SUPPLIERS AND CUSTOMERS. Each of the Borrowers has adequate
sources of supply for its business as currently conducted and as proposed to be
conducted. Each has good relationships with all of its material sources of
supply of goods and services and each does not anticipate any material problem
with any such material sources of supply.
4.14. ENVIRONMENTAL COMPLIANCE. There is no substance or material
defined or designated as a hazardous or toxic waste, material or substance, or
other similar term, by any federal, state or local environmental statute,
regulation or ordinance on, about or in, in material violation of law, any
property, real or personal, in which any Borrower has any interest. There is no
(and has not been any) offsite disposal or on-site disposal at any locations
currently or formerly owned or occupied by any Borrower as a result of which
disposal there would exist a risk that a Borrower would incur a liability or
obligation under federal, state or local environmental or other laws,
regulations or ordinances. Neither the Borrowers, nor to the best knowledge of
the Borrowers, any prior or present owner, operator, tenant, subtenant or
invitee of any of the real property which any Borrower, owns, operates or
performs remediation services upon, have (a) used, installed, stored, spilled,
released, transported, disposed of or discharged any hazardous substances upon,
into, beneath, from or affecting such property in violation of any material law,
statute or registration or (b) received any verbal or written notice, citation,
subpoena, summons, complaint or other correspondence or communication from any
person with respect to the presence of hazardous substances upon, in, beneath,
or emanating from or affecting such real property. The Borrowers do not have any
knowledge or reason to know of any intentional or unintentional, gradual or
sudden, release, disposal or discharge upon, into or beneath the real property
(including improvements) or real property underlying a facility currently or
formerly owned, occupied or operated by Borrower, that has caused or is causing
soil or groundwater contamination which under applicable environmental laws,
regulations or
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ordinances could require investigation or remediation or could otherwise create
a material liability or obligation on the part of any Borrower.
4.15. INDEBTEDNESS. Exhibit D hereto sets forth (i) the amount of all
Indebtedness of each of the Borrowers outstanding as of a current date, (ii)
any Lien with respect to such Indebtedness and (iii) a description of each
instrument or agreement governing such Indebtedness. The Borrowers have made
available to the Purchasers a complete and correct copy of each such instrument
or agreement (including all amendments, supplements or modifications thereto).
Except as set forth on Exhibit D hereto, no material default exists with respect
to or under any such Indebtedness or any material instrument or agreement
relating thereto.
4.16. INTELLECTUAL PROPERTY. Each Borrower has the right to use each
patent, patent application, copyright, trade name, service mark, service name or
other intellectual property rights (the "Intangibles") used in its business,
including without limitation, the PALM software, the rights to which are held by
ASD, free and clear of all Liens. There are no claims pending or to the best of
the knowledge of each Borrower, threatened, against the Borrowers that their use
of the intangibles infringes the rights of any third party.
4.17. OFFERING OF NOTES AND SECURITIES. Neither ASDG nor any agent nor
other Person acting on its behalf, directly or indirectly, (i) offered any of
the Notes and Securities or any similar security of ASDG (A) by any form of
general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) or (B) for sale to or solicited offers to buy any
thereof from, or otherwise approached or negotiated with respect thereto with,
any Person other than the Purchaser or not more than ten other investors each of
which ASDG reasonably believed was an "accredited investor" within the meaning
of Regulation D under the Securities Act or (ii) has done or caused to be done
(or has omitted to do or to cause to be done) any act which act (or which
omission) would result in bringing the issuance or sale of the Notes or
Securities within the provisions of Section 5 of the Securities Act.
4.18. DISCLOSURE. Neither this Agreement, the Security Agreement, the
Notes nor any of the Exhibits hereto or thereto, contains any untrue statement
of a material fact or omits a material fact necessary to make each statement
contained herein or therein not misleading in light of the circumstances under
which made.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, represents and warrants, to
the Borrowers as follows as of the Closing Date:
(a) The Purchaser has all requisite power, authority and legal right to
execute, deliver, enter into, consummate and perform this Agreement. The
execution, delivery and performance of this Agreement by the Purchaser have been
duly authorized by all required corporate, partnership or other actions. The
Purchaser has duly executed and delivered this
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Agreement, and this Agreement constitutes the legal, valid and binding
obligations of the Purchaser enforceable against the Purchaser in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to the rights of creditors generally, the
application by a court of general principles of equity and the limitation for
reasons of public policy on the enforceability of the indemnification provisions
set forth herein under Federal securities laws.
(b) The Purchaser is capable of evaluating the risk of its investment in
the Notes and Securities being purchased by it and is able to bear the economic
risk of such investment, that it is purchasing the Notes and Securities to be
purchased by it for its own account, and that the Notes and Securities are being
purchased by it for investment and not with a present view to any distribution
thereof. It is understood that the disposition of the Purchaser's property shall
at all times be within the Purchaser's control. If the Purchaser should in the
future decide to dispose of any of its Notes or Securities, it is understood
that it may do so only in compliance with the Securities Act, applicable state
securities laws and this Agreement. The Purchaser represents that it is an
"accredited investor" as defined in Rule 501(a) under the Securities Act.
(c) The Purchaser recognizes that the acquisition of the Notes and
Securities involves a high degree of risk, including, without limitation, that
transferability is extremely limited, that the investment have to be held for an
indefinite period and that the Purchaser may not be able to liquidate the
investment in the event of an emergency. The Purchaser recognizes that there is
no market for the Notes or Securities, no market is ever likely to develop for
the Notes and there can be no assurance that a market for the Securities will
ever develop, or if developed, be sustained. The Purchaser recognizes the highly
speculative nature of the acquisition of the Notes and Securities and is able to
bear the economic risk thereof.
(d) The Purchaser hereby acknowledges that he has been furnished with
all information regarding the Borrowers which the Purchaser had requested or
desired to know; all documents which could be reasonably provided have been made
available for the Purchaser's inspection and review and the Purchaser has been
afforded the opportunity to ask questions of and receive answers from duly
authorized officers of ASDG concerning the Borrowers and the Notes and the
Securities. The Purchaser is not aware of any general solicitation in the
offering of the Notes and Securities by any of the Borrowers and will
immediately notify ASDG if he becomes aware of any such general solicitation.
(e) The Purchaser has reviewed the following legends:
(i) THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION, ANY
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STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR
HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THE TRANSACTION OR THE ACCURACY OR ADEQUACY OF THIS
AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
(ii) THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMlTTED UNDER THE SECURITIES ACT, AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. SUBSCRIBERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED
TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE
PERIOD OF TIME.
SECTION 6. PREPAYMENTS
6.1. MANDATORY PREPAYMENTS. The principal amount of Notes together with
accrued but unpaid interest on the principal amount thereof shall be repaid
within five days of the consummation by ASDG of an IPO, a Private Offering or a
Sale.
6.2. OPTIONAL PREPAYMENTS.
(a) At any time or after June 30, 1996 (and not before), the
Borrowers may at their option (subject to the other provisions of this Section
6(a) prepay all or part of the principal amount of outstanding Notes at a price
equal to the sum of all accrued interest on the principal amount of the Notes to
be prepaid and the principal amount thereof. Notwithstanding the foregoing, in
the event of a prepayment of the Notes in full, ASDG will still remain obligated
to the Purchasers for the issuance of Shares, Warrants and other Convertible
Securities in accordance with Section l(d) hereof.
(b) The right of the Borrowers to prepay Notes pursuant to this
Section 6 shall be conditioned upon its giving notice of prepayment, signed by
its President, to the holders of Notes not less than ten days and not more than
30 days prior to the date upon which the prepayment is to be made specifying (i)
the registered holder of each Note to be prepaid, (ii) the aggregate principal
amount being prepaid, (iii) the date of such prepayment; and (iv) the accrued
and unpaid interest (to but not including the date upon which the prepayment is
to be made). Notice of prepayment having been so given, the aggregate principal
amount of the Notes so specified in such notice, all accrued and unpaid interest
thereon and the premium thereon, shall become due and payable on the specified
prepayment date.
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(c) If any prepayment (or repayment) under Section 6 does not repay
in full the aggregate principal amount of all Notes then outstanding, then the
aggregate amount of such prepayment (or repayment) of the principal amount of
Notes shall be allocated among all Notes at the time outstanding, in proportion,
as nearly as practicable, to the respective unpaid principal amounts of such
Notes.
(d) If any prepayment (or repayment) date under this Section 6 is
not a Business Day, such prepayment (or repayment) shall be made on the next
preceding day which is a Business Day.
SECTION 7. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees as follows:
7.1. USE OF PROCEEDS. The Borrowers will use the net proceeds realized
from the sale of the Notes for working capital purposes only and not for the
repayment of Indebtedness, payment of bonuses or any other nonoperating
expenses.
7.2. MAINTENANCE OF EXISTENCE PROPERTIES AND FRANCHISES; COMPLIANCE WITH
LAW; TAXES; INSURANCE; PAYMENTS OF SENIOR INDEBTEDNESS. The Borrowers will, and
will cause each Subsidiary to:
(a) maintain their respective corporate existence, rights and other
franchises in full force and effect; PROVIDED, that a Borrower may terminate the
corporate existence of any Subsidiary, or permit the termination or abandonment
of rights or other franchises, if in the opinion of the Borrower it is no longer
in the Borrower's best interests to maintain such existence, rights or other
franchises and such termination or abandonment will not be prejudicial in any
material respect to the holders of the Notes;
(b) maintain their respective tangible properties and assets in
good repair, working order and condition so far as necessary or advantageous to
the proper carrying on of their respective businesses;
(c) comply in all material respects with all applicable laws and
with all applicable orders, rules, rulings, certificates, licenses, regulations,
demands, judgments, writs, injunctions and decrees; PROVIDED, that such
compliance shall not be necessary so long as (i) the applicability or validity
of any such law, order, rule, ruling, certificate, license, regulation, demand,
judgment, writ, injunction or decree shall be contested in good faith by
appropriate proceedings and (ii) fai1ure to comply will not have a Material
Adverse Effect;
(d) promptly pay when due or otherwise provide for all taxes, fees,
assessments and other governmental charges imposed upon their respective
properties, assets or income and all claims or indebtedness (including, without
limitation, materialmen's, vendor's,
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workmen's and like claims) which might become a lien upon such properties or
assets; PROVIDED, that payment of any such tax, fee, assessment, charge, claim
or indebtedness shall not be necessary so long as (i) the applicability or
validity thereof shall be contested in good faith by appropriate proceedings and
a reserve, if appropriate, shall have been established with respect thereto and
(ii) failure to make payment will not have a Material Adverse Effect;
(e) keep insured, by financially sound and reputable insurers, all
their respective properties of a character customarily insured by entities
similarly situated, against loss or damage of the kinds and in amounts
customarily insured against by such entities and with such deductibles or
coinsurance as is customary and name the Purchasers as additional insureds on
all such policies; and
(f) pay or cause to be paid when due all payments of principal,
interest or premium on Indebtedness and will not permit or suffer any event of
default with respect to any Indebtedness (as defined therein or in the
instrument under which the same is outstanding), except where such default will
not have a Material Adverse Effect.
7.3. NOTICES. The Borrowers will give notice to all holders of Notes
promptly after it learns (other than by notice from all of such holders) of the
existence of any of the following:
(a) any Event of Default or any Potential Default;
(b) any default under any other Indebtedness (or under any
indenture, mortgage or other agreement relating to any Indebtedness) which
Indebtedness is in an aggregate principal amount exceeding $250,000 in respect
of which a Borrower or any Subsidiary is liable;
(c) any action or proceeding which has been commenced or threatened
against the Borrower or any Subsidiary and which, if adversely determined, would
have, individually or in the aggregate, a Material Adverse Effect;
(d) any dispute which may exist between a Borrower or any
Subsidiary and any governmental regulatory body which, if adversely determined,
would have, individually or in the aggregate, a Material Adverse Effect; and
(e) any (i) "reportable event" (as such term is defined in Section
4043(b) of ERISA), (ii) "complete withdrawal" or "partial withdrawal" (within
the meaning of Sections 4203 and 4205 of ERISA) from a Multiemployer Plan (as
defined in Section 3(37) of ERISA) or (iii) "prohibited transaction" (as such
term is defined in Section 406 of ERISA and Section 4975 of the Internal Revenue
Code of 1986, as amended) in connection with any employee benefit pension plan
(as defined in Section 3(2) of ERISA), maintained or contributed to (or required
to be maintained or contributed to) by a Borrower, any Subsidiary or any
Affiliate of a Borrower (including, without limitation, any multi-employer
plan), or any trust
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created thereunder, which in the case of clause (i), (ii) or (iii) may, either
individually or in the aggregate, result in a liability which would have a
Material Adverse Effect.
Such notice (i) with respect to (a) or (b), shall specify the nature and period
of existence of any such Potential Default, Event of Default or other default
and what the Borrowers propose to do with respect thereto and (ii) with respect
to (c), (d) or (e), shall specify the nature of any such matter referred to in
such clause, what action the Borrowers or propose to take with respect thereto
and what action any other relevant Person is taking or proposes to take with
respect thereto.
7.4. MONTHLY REPORTS. Not later than 20th day of the each calendar
month, the Borrowers shall furnish to the Majority Noteholders a statement
signed by an officer of ASDG, setting forth the amount of Borrowers' inventory
(including inventory subject to vendor Liens) and the Borrowers' trade debt as
at the last Business Day of the immediately preceding calendar month, calculated
in accordance with GAAP and consistent with past practice.
7.5. FINANCIAL STATEMENTS. The Borrowers shall furnish to the Majority
Noteholders copies of all financial statements furnished by the Borrowers to
Poughkeepsie Savings Bank (the "BANK") pursuant to the Restated Line of Credit
Loan and Security Agreement between ASD and the Bank. Such reports shall be
furnished to the Majority Noteholders at the same time as they are furnished to
the Bank.
7.6. FURTHER ASSURANCES. At its cost and expense, upon request of the
Majority Noteholders, the Borrower shall duly execute and deliver or cause to be
duly executed and delivered to the Majority Noteholders such further instruments
or documents and do and cause to be done such further acts as may be reasonably
necessary or proper in the opinion of the Majority Noteholders to carry out more
effectively the provisions and purposes of this Agreement.
SECTION 8. NEGATIVE COVENANTS
The Borrowers further covenant and agree as follows:
8.1. RESTRICTED PAYMENTS. Neither the Borrowers nor any Subsidiary will
declare or make or permit any Restricted Payment to be declared or made.
8.2. MERGER, SALE OF ASSETS, DISSOLUTION, Etc. None of the Borrowers
shall, directly or indirectly, (a) enter into any transaction or merger or
consolidation (other than for purposes of reincorporating ASDG in the State of
Delaware or the merger of any Subsidiary or Borrower into another Borrower), (b)
transfer, sell, assign, lease, or otherwise dispose of all or a substantial part
of its properties or assets (other than inventory in the ordinary course of
business), (c) transfer, sell, assign, discount, lease, or otherwise dispose of
any of its notes or other instruments, accounts receivable, or contract rights
with or without recourse, except for
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collection in the ordinary course of business, or any assets or properties
necessary or desirable for the proper conduct of its business, (d) materially
change the nature of its business, (e) enter into any arrangement, directly or
indirectly, with any Person whereby such Borrower shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property which such
Borrower intends to use for substantially the same purpose or purposes as the
property being sold or transferred, (f) wind up, liquidate, or dissolve itself
or its business or (g) agree to effect any of the foregoing.
8.3. LIMITATIONS ON LOANS, INVESTMENTS, AND ADVANCES. None of the
Borrowers shall, directly or indirectly, make or have outstanding a loan,
Guarantee or advance to or an investment in, or acquire all or a substantial
part of the assets or properties of, or own or acquire stock or other securities
of any Person other than another Borrower or a Subsidiary, (a) stock or other
securities received in settlement of a debt that was created in the ordinary
course of business, (b) travel advances in the ordinary course of business to
its officers and employees, (c) readily marketable securities issued by the
United States of America, (d) certificates of deposit or repurchase agreements
of Poughkeepsie Savings Bank or of any other financial institution of comparable
standing, (e) up to $250,000 of personal loans or advances to officers,
directors and employees, (f) existing payment obligations with respect to
capital stock redeemed from former employees and (g) accounts receivables and
other credit arrangements with non-affiliated customers of the Company entered
into in the ordinary course of business.
8.4. REGULATION U. None of the Borrowers shall permit any part of the
proceeds of the loan or loans made pursuant to this Agreement to be used to
purchase or carry or to reduce or retire any loan incurred to purchase or carry
any margin stock (within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System) or to extend credit to others for the purpose of
purchasing or carrying any such margin stock, or to be used for any other
purpose which violates, or which would be inconsistent with, the provisions of
Regulation U or other applicable regulation. Each of the Borrowers covenants
that it is not engaged and will not become engaged as one of its principal or
important activities in extending credit for the purpose of purchasing or
carrying such margin stock.
8.5. PERMITTED INDEBTEDNESS.
Neither the Borrowers nor any Subsidiary shall create, incur,
assume or be or remain liable on any Indebtedness other than:
(a) Indebtedness represented by or incurred under the Notes and this
Agreement;
(b) Indebtedness existing on the Closing Date and set forth in
Exhibit D hereto; PROVIDED, HOWEVER, the Borrowers may amend the terms and
conditions of such Indebtedness provided that such amendments shall not increase
the principal amount thereof or shorten the maturity date thereof prior to the
maturity date of the Notes;
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(c) Capitalized Leases entered into subsequent to the Closing Date;
(d) Other Indebtedness in an amount not to exceed $5,000,000
outstanding at one time, provided that such Indebtedness shall be subordinate to
and not senior to or pari passu with the Indebtedness represented by or incurred
under the Notes this Agreement and the maturity date thereof shall be no earlier
than the maturity date of the Notes; and
(e) Indebtedness incurred to prepay or repay in full the remaining
outstanding principal amount of Notes and all other amounts due thereon or
hereunder.
8.6. NO CHANGE IN BUSINESS. Neither the Borrower nor any Subsidiary shall
change substantially the character of their respective business as conducted on
the Closing Date as represented in Section 4.3 hereof.
8.7. AFFILIATE LOANS AND GUARANTEES. None of the Borrowers nor any
Subsidiary may incur or permit to exist any of the following:
(a) any obligation of a Borrower or of any Subsidiary to repay money
borrowed owing to (i) any Affiliate of the Borrower, (ii) any Affiliate of any
Subsidiary or (iii) any other holder of shares of the capital stock of the
Borrower or of a Subsidiary, other than short term loans for working capital
purposes made by Borrower to another Borrower or a Borrower to a Subsidiary; or
(b) any obligation, to any Person, which obligation is assumed or
guaranteed by a Borrower or a Subsidiary and which is an obligation of (i) any
Affiliate of the Borrower, (ii) any Affiliate of any Subsidiary or (iii) any
other holder of shares of the capital stock of the Borrower or of a Subsidiary.
This Section 8.7 shall not apply to any obligations under the Indebtedness
identified on Exhibit D.
8.8. TRANSACTIONS WITH AFFILIATES. Except as set forth on Exhibit D, the
Borrowers will not, and will not permit any Subsidiary to, directly or
indirectly, enter into any transaction or agreement (including, without
limitation, the purchase, sale, distribution, lease or exchange of any property
or the rendering of any service) with any Affiliate of a Borrower or of any
Subsidiary, other than a wholly-owned Subsidiary of a Borrower, on terms that
are less favorable to such Borrower or a Subsidiary, as the case may be, than
those which might be obtained at the time of such transaction from a Person who
is not such an Affiliate.
8.9. LIENS, ETC. No Borrower will create or suffer to exist, or permit
any of its Subsidiaries to create or suffer to exist, any Lien upon or with
respect to any of its assets, properties or income, other than the following:
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(a) purchase money liens or purchase money security interests upon
or in any property acquired or held by a Borrower or any Subsidiary in the
ordinary course of business to secure the purchase price of such property or to
secure Indebtedness incurred and used solely for the purpose of financing the
acquisition of such property; PROVIDED that the principal amount of Indebtedness
secured by each such Lien or interest in each item of property shall not exceed
the cost of the item subject thereto and that any such Lien or interest shall
not apply to any other property, assets or income of such Borrower or any
Subsidiary;
(b) Liens existing on such property at the time of its acquisition
by a Borrower or a Subsidiary (other than any such Lien created in contemplation
of such acquisition), PROVIDED that the aggregate principal amount of
Indebtedness secured by the Liens referred to in this clause shall not exceed
$100,000 at any time outstanding;
(c) Liens existing on the date hereof and set forth on Exhibit D
hereto;
(d) Permitted Liens; and
(e) Liens securing the Indebtedness represented by or incurred under
the Notes and this Agreement.
8.10. PRIVATE PLACEMENT STATUS. Neither the Borrowers nor any agent nor
other Person acting on the Borrowers' behalf will do or cause to be done (or
will omit to do or to cause to be done) any act which act (or which omission)
would result in bringing the issuance or sale of the Notes or Securities within
the provisions of Section 5 of the Securities Act (other than in accordance with
a registration and qualification of Registerable Securities under Section 15
hereof).
SECTION 9. CONDITIONS TO PURCHASERS' OBLIGATIONS
The Purchasers' obligation to purchase the Notes hereunder is subject to
satisfaction of the following conditions (any of which may be waived by the
Majority Noteholders acting for the benefit of the Purchasers):
9.1. CERTAIN OTHER AGREEMENTS.
(a) At the Initial Closing, the Majority Noteholders shall have
received (i) the Security Agreement, dated as of the Initial Closing Date and
duly executed by the Borrowers and (ii) Uniform Commercial Code Financing
Statements on Form UCC-1 duly executed by the Borrowers as debtor in form and
substance satisfactory to the Majority Noteholders and such other documentation
as in the Majority Noteholders' reasonable opinion is necessary to perfect the
first Lien on the Borrowers' Collateral being granted by the Borrowers to the
Purchasers pursuant to the Security Agreement;
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(b) At each Closing, the Majority Noteholders shall have received
the Notes being purchased at that Closing, dated as of the Closing Date and duly
executed by the Borrower; and
(c) Prior to the Initial Closing, (i) the Bank and the Purchasers
shall have entered into an Intercreditor Agreement in form and substance
reasonably satisfactory to the Purchasers and (ii) the Borrowers shall have
entered into an agreement with the Bank in form and substance reasonably
satisfactory to the Majority Noteholders acting for the benefit of the
Purchasers, amending the existing loan agreement between the Borrowers and the
Bank to (A) increase the maximum amount of the Indebtedness thereunder by up to
$1,000,000, (B) provide for an extension of the maturity of the Indebtedness
thereunder to December 31, 1997, (C) permit repayment of the Notes in accordance
with their terms and the terms of this Agreement and (D) allow the granting by
the Company of a first Lien on inventory of the Borrowers as contemplated by the
Security Agreement.
9.2. SALES. The obligation of the Purchasers to consummate the purchase
of Notes on the Second Closing Date shall be conditioned upon the sales of the
Borrowers on a consolidated basis, determined consistently with past practices,
being at least $11,500,000 for the period from July 1, l995 through January 31,
1996. Not less than ten days prior to the Second Closing Date, the Borrower
shall furnish the Majority Noteholders with a certificate signed by an officer
of ASDG certifying as to the satisfaction of the condition contained in this
Section 9.2. The Purchasers may waive non-compliance with this condition by
written notice given by the Majority Noteholders acting for the benefit of the
Purchasers to the Borrowers within ten days of certified receipt of the
Borrowers' certificate. In the event the Purchasers shall fail to so waive such
non-compliance, neither the Borrowers nor the Purchaser shall be obligated to
consummate the Second Closing.
9.3. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Borrowers herein or in any certificate or document delivered
pursuant hereto shall be correct and complete on and as of each Closing Date
with the same effect as though made on and as of each Closing Date (after giving
effect to the transactions contemplated by this Agreement).
9.4. COMPLIANCE WITH AGREEMENTS; NO DEFAULTS. The Borrowers shall have
performed and complied in all material respects with all agreements, covenants
and conditions contained in this Agreement, the Security Agreement and the Notes
and any other document contemplated hereby or thereby which are required to be
performed or complied with by the Borrowers on or before the Initial Closing
Date or the Second Closing Date, as the case may be. On each Closing Date (after
giving effect to the transactions contemplated hereby), there shall be no Event
of Default or Potential Default.
9.5. NO MATERIAL ADVERSE CHANGE. At each Closing Date, there shall have
been no change in the business operations, prospects or financial condition of
the Borrowers from that represented herein that had or might have a Material
Adverse Effect.
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9.6. OFFICERS' CERTIFICATE. On each Closing Date, the Purchasers shall
have received a certificate dated such Closing Date and signed by the President
and by the Secretary or the Treasurer of ASDG, to the effect that the applicable
conditions of Sections 9.1, 9.3, 9.4 and 9.5 have been satisfied.
9.7. PROCEEDINGS. All corporate and other proceedings in connection with
the transactions contemplated by this Agreement, the Security Agreement and the
Notes, and all documents incident thereto, shall be in form and substance
satisfactory to the Purchasers, and the Majority Noteholders on behalf of the
Purchasers shall have received all such originals or certified or other copies
of such documents as the Majority Noteholders may reasonably request.
9.8. LEGALITY; GOVERNMENTAL AND OTHER AUTHORIZATION. The purchase of and
payment for the Notes and Shares shall not be prohibited by any law or
governmental order, rule, ruling, regulation, release, interpretation or opinion
applicable to the Purchasers and shall not subject the Purchasers to any
penalty, tax, liability or other materially onerous condition. Any necessary
consents, approvals, licenses, permits, orders and authorizations of, and any
filings, registrations or qualifications with, any governmental or
administrative agency or other person, with respect to the transactions
contemplated by this Agreement, the Security Agreement and the Notes shall have
been obtained or made and shall be in full force and effect.
9.9. NO CHANGE IN LAW, ETC. No legislation, order, rule, ruling or
regulation shall have been proposed, enacted or made by or on behalf of any
governmental body, department or agency, and no legislation shall have been
introduced in either House of Congress, and no investigation by any governmental
authority shall have been commenced or threatened, and no action, suit or
proceeding shall have been commenced before, and no decision shall have been
rendered by, any court, other governmental authority or arbitrator, which, in
any such case, in the Purchasers' reasonable judgment could materially adversely
affect, restrain, prevent or change the transactions contemplated by this
Agreement, the Security Agreement and the Notes (including without limitation
the issuance of the Notes and the Shares) or have a Material Adverse Effect.
9.10. OTHER DOCUMENTS AND OPINIONS. The Majority Noteholders, on behalf
of the Purchasers, shall have received such other documents, in form and
substance reasonably satisfactory to the Majority Noteholders, relating to
matters incident to the transactions contemplated hereby as the Majority
Noteholders may reasonably request.
SECTION 10. AMENDMENT; WAIVER; CONSENT
(a) This Agreement, the Security Agreement and the Notes may be
amended (or any provision hereof or thereof waived) only with the written
consent of the Majority Noteholders, if any, and the Majority Shareholders, if
any; PROVIDED, HOWEVER, that no such amendment or waiver shall (i) change the
fixed maturity of any Note, the rate or the time of payment of interest thereon,
the principal amount thereof, the currency in which
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payments are to be made, or the registration rights under Section 15 hereof,
without the consent of the holder of the Note or Securities so affected or (ii)
reduce the aforesaid percentage of Notes or reduce the aforesaid percentage of
Securities, the holders of which are required to consent to any such amendment
or waiver, without the consent of the holders of all the Notes, or, as the case
may be, the holders of all Securities then outstanding.
(b) The Borrowers agree that all holders of Notes shall be notified
by the Borrowers in advance of any proposed amendment or waiver, but failure to
give such notice shall not in any way affect the validity of any such amendment
or waiver. In addition, promptly after obtaining the written consent of the
holders herein provided, the Borrowers shall transmit a copy of any amendment or
waiver which has been adopted to all holders of Notes then outstanding, but
failure to transmit copies shall not in any way affect the validity of any such
amendment or waiver.
(c) The Borrowers and each holder of a Note then or thereafter
outstanding shall be bound by any amendment or waiver effected in accordance
with the provisions of this Section 10, whether or not such Note shall have been
marked to indicate such modification, but any Note issued thereafter shall bear
a notation as to any such modification (but the failure to bear any such
notation shall not affect the validity of any such subsequently issued Note,
which shall be enforceable in accordance with its terms subject to any such
modification
SECTION 11. EXCHANGE OF NOTES; ACCRUED INTEREST; CANCELLATION OF
SURRENDERED NOTES; REPLACEMENT
(a) Subject to Section 14 hereof, at any time at the request of any
holder of one or more of the Notes to ASDG at its principal executive office,
the Borrower at its expense (except for any transfer tax or any other tax
arising out of the exchange) will issue and deliver to or upon the order of the
holder in exchange therefor new Notes, in such denomination or denominations as
such holder may request (which must be in denominations of $50,000 or any larger
multiple of $50,000, plus one Note in a lesser denomination, if required), in
aggregate principal amount equal to the unpaid principal amount of the Note or
Notes surrendered and substantially in the form thereof, dated as of the date to
which interest has been paid on the Note or Notes surrendered (or, if no
interest has yet been so paid thereon, then dated the date of the Note or Notes
so surrendered) and payable to such person or persons or order as may be
designated by such holder. Any such new Note shall bear any notation required by
Section 10 hereof.
(b) In the event that any Note is surrendered to the Borrowers upon
a prepayment under Section 6 hereof, the Borrowers shall pay all accrued and
unpaid interest on such Note or such portion thereof and interest shall cease to
accrue upon that portion of the principal amount of such Note which was prepaid,
and the right to receive, and any right or obligation to make, any prepayment on
such portion of the principal amount pursuant to Section
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<PAGE>
6 hereof shall terminate all upon the date of such prepayment and upon
presentation and surrender of such Note to the Borrowers.
(c) Upon any prepayment under Section 6 hereof, if only a portion
of the principal amount of a Note is prepaid in such prepayment, then such Note
shall be surrendered to the Borrowers and the Borrowers shall simultaneously
execute and deliver to or on the order of the holder thereof, at the expense of
the Borrowers, a new Note or Notes in principal amount equal to the unpaid
portion of such Note.
(d) All Notes or portions thereof which have been prepaid under
Section 6 hereof, shall be cancelled by the Borrowers and no Notes shall be
issued in lieu of the principal amount so prepaid.
(e) Upon receipt of evidence satisfactory to the Borrowers of the
loss, theft, destruction or mutilation of any Note and, in the case of any such
loss, theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Borrowers (if requested by the Borrowers and unsecured in
the case of the Purchaser or an institutional holder), or in the case of any
such mutilation, upon surrender of such Note (which surrendered Note shall be
cancelled by the Borrowers), the Borrowers will issue a new Note, as the case
may be, of like tenor in lieu of such lost, stolen, destroyed or mutilated Note
as if the lost, stolen, destroyed or mutilated Note were then surrendered for
exchange.
SECTION 12. DEFAULTS
(a) Any of the following shall constitute an "Event of Default":
(i) any Borrower defaults in the payment of (A) any part of the
principal of any Note when the same shall become due and payable, whether
at maturity or at a date fixed for prepayment or by acceleration or
otherwise, and such default in the payment of principal shall have
continued for ten days or (B) the interest on any Note, when the same
shall become due and payable, and such default in the payment of interest
shall have continued for ten days;
(ii) (A) the Borrowers fail to deliver the monthly report required
by Section 7.4 hereof within five days of its due date or (B) such
reports show that the value of Borrowers' inventory on the last day of
each calendar month, calculated in accordance with GAAP and consistent
with past practice, is less than 200% of the principal amount of Notes
then outstanding for two consecutive calendar months;
(iii) any Borrower defaults in the performance of any other
agreement or covenant contained in this Agreement, the Security Agreement
or the Notes and such default shall not have been remedied within 30 days
after written notice thereof shall have been given to the Borrowers by
the Majority Noteholders on behalf of the
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holders of the Notes (the Borrowers to give forthwith to all other
holders of the Notes at the time outstanding written notice of the
receipt of such notice, specifying the default referred to therein);
(iv) any material representation or warranty by any Borrower herein
or in any certificate delivered by any Borrower pursuant hereto or
thereto proves to have been incorrect in any material respect when made;
(v) an event of default occurs under any indenture(s) or
instrument(s) evidencing or under which there is at the time outstanding
any Indebtedness of any Borrower or any Subsidiary in an aggregate
principal amount of at least $250,000, which Indebtedness shall have been
accelerated;
(vi) a final judgment or order which, either alone or together with
other final judgments or orders against any Borrower or any Subsidiary,
exceeds an aggregate of $250,000 is rendered by a court of competent
jurisdiction against such Borrower or Subsidiary and such judgment or
order shall have continued undischarged or unstayed for 30 days after
entry thereof; or
(vii) any Borrower or any Subsidiary shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay
its debts; or a receiver or trustee is appointed for any Borrower or any
Subsidiary or for substantially all of its assets and, if appointed
without its consent, such appointment is not discharged or stayed within
30 days; or proceedings under any law relating to bankruptcy, insolvency
or the reorganization or relief of debtors are instituted by or against
any Borrower or any Subsidiary, and, if contested by it, are not
dismissed or stayed within 30 days; or any writ of attachment or
execution or any similar process is issued or levied against any Borrower
or any Subsidiary or any significant part of itS property and is not
released, stayed, bonded or vacated within 30 days after its issue levy;
or any Borrower or any Subsidiary takes corporate action in furtherance
of any of the foregoing.
(b) If an Event of Default occurs pursuant to any of clauses (i)
through (vi) of Section 12(a) hereof, then and in each such event the Majority
Noteholders may at any time (unless all Events of Default shall theretofore have
been waived or remedied) at all option, by written notice or notices to the
Borrowers, declare all the Notes to be due and payable. Upon any such
declaration or upon the occurrence of an Event of Default pursuant to clause
(vii) of Section 12(a) hereof (in which case no declaration is required), all
Notes shall forthwith immediately mature and become due and payable, together
with interest accrued thereon. However, if, at any time after the principal of
the Notes shall so become due and payable and prior to the date of maturity
stated in the Notes, all arrears of principal and interest on the Notes (with
interest at the rate specified in the Notes on any overdue principal and, to the
extent legally enforceable, on any overdue interest) shall be paid by or for the
account of the Borrower, then the Majority Noteholders, by written notice or
notices to the Borrower, may
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waive such Event of Default and its consequences and rescind or annul such
declaration, but no such waiver shall extend to or affect any subsequent Event
of Default or impair any right or remedy resulting therefrom.
SECTION 13. REMEDIES
(a) In case any one or more Events of Default shall occur and be
continuing, the Majority Noteholders on behalf of the holders of the Notes then
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in such Note or in the
Security Agreement, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or for any other remedy (including, without limitation,
damages).
(b) In case of a default in the payment of any principal of, or
interest on any Note, or default in the observance of any other agreement or
covenant of the Borrowers in this Agreement, the Notes or the Security
Agreement, the Borrower will pay to the holder thereof or party thereto, in
addition to any interest required, such further amount as shall be sufficient to
cover any and all costs and expenses of enforcement and collection, including,
without limitation, reasonable attorneys' fees and expenses.
(c) No course of dealing and no delay on the part of any holder of
any Note or any party to this Agreement or the Security Agreement in exercising
any rights or remedies shall operate as a waiver thereof or otherwise prejudice
such holder's or party's rights. No right or remedy conferred hereby, by the
Security Agreement or by any Note shall be exclusive of any other right or
remedy referred to herein or therein or available at law, in equity, by statute
or otherwise.
(d) The Majority Noteholders on behalf of the Purchasers shall, in
addition to other remedies provided by law, have the right and remedy to have
the provisions of this Agreement specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any breach or
threatened breach of the provisions of this Agreement will cause irreparable
injury to the Purchasers and that money damages will not provide an adequate
remedy. Nothing contained herein shall be construed as prohibiting the Majority
Noteholders, on behalf of the Purchaser from pursuing any other remedies
available to the Purchasers for such breach or threatened breach, including,
without limitation, the recovery of damages from the Borrowers.
SECTION 14. RESTRICTIONS ON TRANSFER
(a) Each holder of a Note by acceptance thereof agrees that it will
not sell or otherwise dispose of any Notes or Securities unless (i) such Notes
or Securities have been
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registered under the Securities Act and, to the extent required, under any
applicable state securities laws, or (ii) such Notes or Securities are sold in
accordance with the applicable requirements and limitations of Rule 144 and any
applicable state securities laws, or (iii) ASDG has been furnished with an
opinion or opinions from counsel to such holder (which counsel and opinion(s)
shall be reasonably satisfactory to ASDG) to the effect that registration under
the Securities Act and any applicable state securities laws is not required for
the transfer as proposed (which opinion may be conditioned upon the transferee's
assuming the obligations of a holder of Notes or Shares under this Section 14).
The Borrower agrees that within five Business Days after receipt of any opinion
referred to in (iii) above, it will notify holder supplying such opinion whether
such opinion satisfactory to the Borrower's counsel.
(b) The Borrowers may endorse on all Notes and ASDG may endorse on
all certificates evidencing Securities a legend stating or referring to the
transfer restrictions contained in paragraph (a) above; PROVIDED, that no such
legend shall be endorsed on any Notes or certificates evidencing Securities
which, when issued, are no longer subject to the restrictions of this Section
14; PROVIDED, FURTHER, that if a transfer is made pursuant to clause (i) or (ii)
of Section 14(a) or if an opinion of counsel provided pursuant to clause (iii)
of Section 14(a) concludes that the legend is no longer necessary, the Borrower
or ASDG will deliver upon transfer Notes or certificates evidencing Securities,
as the case may be, without such legends.
SECTION 15. REGISTRATION RIGHTS
15.1. PIGGYBACK REGISTRATION RIGHTS. If ASDG shall, at any time during
the five year period from the First Closing, propose to file a registration
statement under the Securities Act for the sale of Shares of the ASDG's Common
Stock or Shares of Common Stock and Convertible Securities in an IPO, then ASDG
shall give written notice of such registration no later than 20 days before its
filing with the Commission to all holders of Notes who will be entitled to
receive Securities upon consummation of the IPO pursuant to Section 1 hereof. If
holders of Notes so request within 20 days, ASDG shall include in any such
registration the Registerable Securities to be held after consummation of the
IPO by such holders and requested to be included in such registration. The
filing of a registration statement pursuant to this Section 15.1 shall in no way
obligate ASDG to consummate the IPO contemplated thereby. However, in the event
a registration statement is filed pursuant to this Section 15.1 and subsequently
withdrawn, the registration rights granted hereunder shall be reinstated.
15.2. REGISTRATION AT THE REQUEST OF HOLDERS.
(a) ASD agrees that upon receipt of a Registration Demand
satisfying the conditions under Section 15.2(b) hereof, ASD shall (A) promptly
(at least 20 days prior to the filing date) give written notice of the proposed
registration to each holder of a Warrant or Warrant Share and (B) with
reasonable promptness, after receipt by ASD of the Registration Demand, file a
registration statement with the Commission covering the Registerable Securities
as to which registration is requested in the Registration Demand. ASD shall be
obligated to
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effect registration and qualification pursuant to this Section 15.2 up to two
times (but only one per year) during the five year period from the consummation
of an IPO, subject to the terms and conditions hereof.
(b) A "REGISTRATION DEMAND" shall be a written notice from the
Majority Noteholders/Shareholders stating that the Majority
Noteholders/Shareholders desire to sell Registerable Securities under
circumstances requiring registration under the Securities Act and requesting
that ASD effect registration with respect to the Registerable Securities of such
holder or holders.
15.3. CONDITIONS TO REGISTRATION. The obligation of ASDG to include a
holder's Registerable Securities in a registration statement pursuant to
Sections 15.1 or 15.2 hereof is subject to satisfaction of the following
conditions:
(i) Each holder whose Registerable Securities are included
in a registration statement under Section 15.1 hereof shall, if requested by
Keane Securities Co., Inc. ("KEANE") the managing underwriter of the IPO, an
agreement with Keane pursuant to which the holder will agree not to sell,
transfer or otherwise dispose of his or her Registerable Securities for such
period after consummation of the IPO as may be requested by Keane, up to a
maximum of nine months, without the consent of Keane.
(ii) each holder whose Registerable Securities are included
in the registration statement under Sections 15.1 or 15.2 hereof shall furnish
to ASDG such information regarding the holder, the holder's Registerable
Securities and the intended method of disposition of the Registerable Securities
as shall be reasonably required to effect the registration of the Registerable
Securities and shall execute such documents in connection with such registration
as ASDG may reasonably request.
15.4. EXPENSES. The entire costs and expenses of registration and
qualification pursuant to Sections 15.1 or 15.2 hereof shall be borne by ASDG,
other than brokerage commissions of the holders. Costs and expenses to be borne
by the Company shall include, without limitation, or the fees and expenses of
counsel for ASDG and of its accountants, all other costs, fees and expenses of
ASDG incident to the preparation, printing and filing under the Securities Act
of the registration statement and all amendments and supplements thereto, the
cost of furnishing copies of each preliminary prospectus, each final prospectus
and each amendment or supplement thereto to underwriters, dealers and other
purchasers of the Registerable Securities and the costs and expenses (including
fees and disbursements of counsel) incurred in connection with the qualification
of the Registerable Securities under the Blue Sky laws of various jurisdictions.
15.5. PROCEDURES.
(a) In the case of each registration or qualification pursuant to
this Section 15, ASDG will keep all holders of Registerable Securities advised
in writing as to the
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initiation of proceedings for such registration and qualification and as to the
completion thereof, and will advise any such holder, upon request, of the
progress of such proceedings.
(b) At ASDG's expense, ASDG will keep the registration and
qualification under this Section 15 effective (and in compliance with the
Securities Act) by such action as may be necessary or appropriate for a period
of 12 months after the effective date of such registration statement, including,
without limitation, the filing of post-effective amendments and supplements to
any registration statement or prospectus necessary to keep the registration
statement current and the further qualification under any applicable "blue sky"
or other state securities laws to permit such sale or distribution, all as
requested by such holder or holders. ASDG will immediately notify each holder on
whose behalf Registerable Securities have been registered pursuant to this
Section 15, at any time when a prospectus relating thereto is required to be
delivered under the Securities 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 any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
(c) Without limiting any other provision hereof, in connection with
any registration of Registerable Securities under this Section 15, ASDG will use
its best efforts to comply with the Securities Act, the Securities Exchange Act
and all applicable rules and regulations of the Commission, and will make
generally available to its securities holders, as soon as reasonably
practicable, an earnings statement covering a period of at least 12 months,
beginning with the first month of the first fiscal quarter after the effective
date of such registration statement, which earnings statement shall satisfy the
provisions of Section 1l(a) of the Securities Act.
(d) In connection with any registration of Registerable Securities
under this Section 15, ASDG will provide a transfer agent and registrar for the
Registerable Securities not later than the effective date of such registration
statement.
15.6. INDEMNIFICATION. ASDG will indemnify and hold harmless each holder
of Registerable Securities (as defined in the Securities Act) for each person,
if any, who controls the holder within the meaning of the Securities Act against
any losses, claims, damages or liabilities, joint or several, and expenses
(including reasonable attorneys' fees and expenses and reasonable costs of
investigation) to which the holder or such controlling person may be subject,
under the Securities Act or otherwise, insofar as any thereof arise out of or
are based upon (a) any untrue statement or alleged untrue statement of a
material fact contained in (i) any registration statement under which such
Registerable Securities were registered under the Securities Act pursuant to
this Section 15 hereof, any prospectus or preliminary prospectus contained
therein, or any amendment or supplement thereto, or (b) the omission or alleged
omission to state in any item referred to in the preceding clause (a) a material
fact required to be stated therein or necessary to make the statements therein
not misleading or except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or alleged untrue
statement or omission or alleged omission based upon information
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<PAGE>
furnished to ASDG in writing by such holder for such holder expressly for use
therein (with respect to which information such holder shall so indemnify and
hold harmless ASDG, any underwriter for ASDG and each person, if any, who
controls ASDG or the underwriter within the meaning of the Securities Act).
SECTION 16. EXPENSES
(a) The Borrowers agree to pay, or to cause to be paid, all documentary,
stamp and other similar taxes levied under the laws of the United States of
America or any state or local taxing authority thereof or therein in connection
with the issuance and sale of the Notes and the Registerable Securities and the
execution and delivery of this Agreement, the Security Agreement and any other
documents or instruments contemplated hereby or thereby and any modification of
any of the Notes, this Agreement, the Security Agreement or any such other
documents or instruments and will hold the Purchasers harmless without
limitation as to time against any and all liabilities with respect to all such
taxes.
(b) The obligations of the Borrowers under this Section 16 shall survive
the Final Closing, the payment or cancellation of the Notes, and any termination
of this Agreement.
SECTION 17. HOME OFFICE PAYMENTS
As long as the Purchasers or any payee named in the Notes delivered to
the Purchasers on the Closing Dates, or any institutional holder which is a
direct or indirect transferee from the Purchaser or such payee, shall be the
holder of any Note, the Borrowers will make payments (whether at maturity, upon
mandatory or optional prepayment, upon repurchase or otherwise) of principal,
interest and premium, if any, (i) by check payable to the order of the holder of
any such Note duly mailed or delivered to the Purchaser at its address specified
in Exhibit A, or at such other address as the Purchaser or such other holder may
designate in writing, or (ii) if requested by the Purchaser or such other
holder, by wire transfer to the Purchaser's or such other holder's (or its
nominee's) account at any bank or trust company in the United States of America,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. If the Purchaser has provided an address on Exhibit A hereto
for payments by wire transfer, then the Purchaser shall be deemed to have
requested wire transfer payments under the preceding clause (ii). All such
payments shall be made in federal or other immediately available funds.
SECTION 18. NOTICES
Unless otherwise expressly specified or permitted by the terms hereof,
all notices, requests, demands, consents and other communications hereunder or
under the Security Agreement or with respect to any Note shall be in writing and
shall be delivered by hand or
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<PAGE>
shall be sent by telex or telecopy (confirmed by registered, certified or
overnight mail or courier, postage and delivery charges prepaid), to the
following addresses:
(a) if to the Purchasers, at their respective addresses as set forth in
Exhibit A hereto, or at such other address as may have been furnished to the
Borrower by a Purchaser in writing; or
(b) if to any other holder of a Note, at such address as the payee or
registered holder thereof shall have designated to the Borrower writing; or
(c) if to the Borrowers, at One Industry Street, P.O. Box 3210,
Poughkeepsie, New York 12603, attention: President, or at such other address as
may have been furnished in writing by a Borrower to the Majority Noteholders,
the Purchasers and other holders of Notes.
Whenever any notice is required to be given hereunder, such notice shall be
deemed given and such requirement satisfied only when such notice is delivered
or, if sent by telex or telecopier, when received, unless otherwise expressly
specified or permitted by the terms hereof.
SECTION 19. MISCELLANEOUS
19.1. ENTIRE AGREEMENT. This Agreement and, upon consummation of the
Closings hereunder, the Notes issued hereunder and the Security Agreement,
together with any further agreements entered into by the Purchasers and the
Borrowers at the Closing, contain the entire agreement among the Borrowers and
the Purchasers, and supersede any prior oral or written agreements, commitments,
terms or understandings, regarding the subject matter hereof.
19.2. SURVIVAL. All agreements, representations and warranties contained
in this Agreement, the Notes, the Security Agreement or any document or
certificate delivered pursuant hereto or thereto shall survive, and shall
continue in effect following, the execution and delivery of this Agreement, the
Security Agreement, the Closings hereunder except that Sections 4, 6, 7 and 8
shall terminate upon the payment in full of all outstanding Notes and the
remaining portions of this Agreement shall terminate upon the public sale of all
the Registerable Securities. All statements contained in any certificate or
other document delivered by or on behalf of the Borrowers pursuant hereto shall
constitute representations and warranties by the Borrowers hereunder.
19.3. TERMINATION FEE. In the event that the Initial Closing shall not
have occurred on or prior to the date set forth in Section 2(c) hereof and this
Agreement terminates as a result thereof, neither party shall be liable to the
other for any costs or expenses related to this Agreement or the transactions
contemplated hereby; PROVIDED, HOWEVER, that if the Initial Closing does not
occur as a result of the Borrowers' election not to proceed with the
transactions contemplated hereby (other than by reason of the Purchasers' breach
of their obligations hereunder) and within one year of such termination, the
Borrowers raise capital from any
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<PAGE>
alternative source, the Borrowers shall pay to the Purchasers, pro rata as to
the principal amount of Notes they have committed to purchase hereunder, a
termination fee of $100,000 from the proceeds of the subsequent financing.
19.4. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument, and all signatures need not appear on any one counterpart.
19.5. HEADINGS. The headings and captions in this Agreement and the
table of contents are for convenience of reference only and shall not define,
limit or otherwise affect any of the terms or provisions hereof.
19.6. BINDING EFFECT, BENEFIT AND ASSIGNMENT.
(a) The terms of this Agreement shall be binding upon, and inure
to the benefit of, the parties and their respective successors and permitted
assigns whether so expressed or not.
(b) None of the Borrowers may assign any of its obligations,
duties or rights under this Agreement, or under the Notes issued hereunder, or
under the Security Agreement, without the Majority Noteholders's consent.
(c) In addition to any assignment by operation of law, the
Purchasers may, subject to compliance with Section 14 of this Agreement, assign,
in whole or in part, any or all of their rights (and/or obligations) under this
Agreement, under the Notes or under the Security Agreement to any permitted
transferee of any or all of its Notes or Securities, and (unless such assignment
expressly provides otherwise) any such assignment shall not diminish the rights
a Purchaser would otherwise have under this Agreement, under the Security
Agreement or with respect to any remaining Notes or Securities held by a
Purchaser.
(d) It is agreed that nothing in this Agreement, the Notes, or
the Security Agreement shall give any of the Borrowers or any Subsidiary any
rights against the other; their respective agreements, representations,
obligations and liabilities herein or therein shall be for the sole benefit of,
and solely enforceable by, the Purchasers (and their permitted successors and
assigns).
(e) In the event that any Securities are sold either pursuant to
a registration statement under Section 6 of the Securities Act or pursuant to
Rule 144, then the holders of such Securities shall no longer be entitled to any
benefits under this Agreement with respect to such Securities and such
Securities shall no longer be considered to be "Securities" for purposes of any
consent or waiver provision of this Agreement.
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<PAGE>
19.7. SEVERABILITY. Any provision hereof or of the Security
Agreement or of the Notes which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or thereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by applicable law, the parties
hereby waive any provision of law which may render any provision hereof
prohibited or unenforceable in any respect.
19.8. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York (other than any
conflict of laws rule which might result in the application of the laws of any
other jurisdiction). EACH BORROWER AND PURCHASER AGREES TO WAIVE HIS OR ITS
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
19.9. ATTORNEYS' FEES. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement including without limitation, the enforcement of remedies under
Section 13 hereof, the parties hereto agree that the prevailing party or parties
shall be entitled to recover from the other party or parties upon final judgment
on the merits reasonable attorneys' fees. including attorneys' fees for any
appeal, and costs incurred in bringing such suit or proceeding.
19.10. CURRENCY. All payments under this Agreement, the Notes or
the Security Agreement shall be made in lawful money of the United States of
America.
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<PAGE>
19.11. LATE PAYMENTS. If the Borrowers fail to pay any amount due
hereunder or provided for in this Agreement, the Security Agreement or the Notes
within 20 days after notice from the Majority Noteholders on behalf of the
Purchasers demanding such payment, the Borrowers agree to pay interest on any
such overdue amount at the Default Rate (as deemed in the Notes) from the date
of such notice from the Majority Noteholders until such overdue amount is paid
in full; PROVIDED, that this Section 20.11 shall not apply to overdue payments
of principal or interest, which overdue payments are otherwise provided for in
this Agreement and the Notes.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
THE BORROWERS:
ASD GROUP, INC.
By: /s/ GARY D. HORNE
---------------------------------
Name: Gary D. Horne
Title: Chief Executive Officer
AUTOMATIC SYSTEMS DEVELOPERS, INC.
By: /s/ GARY D. HORNE
---------------------------------
Name: Gary D. Horne
Title: Chief Executive Officer
HIGH TECHNOLOGY COMPUTERS, INC.
By: /s/ GARY D. HORNE
---------------------------------
Name: Gary D. Horne
Title: Chief Executive Officer
THE PURCHASERS:
ARGYLE INC. TRUST
By:/s/ WILLIAM BECKER - TRUSTEE
--------------------------
William Becker, Trustee
/s/ SANFORD FELD
--------------------------
Sanford Feld
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<PAGE>
/s/ FRED BECKER
--------------------------
Fred Becker
/s/ RICHARD BECKER
--------------------------
Richard Becker
/s/ ALAN JACOBS
--------------------------
Alan Jacobs
/s/ ARNOLD RIFKIN
--------------------------
Arnold Rifkin
/s/ JULES L. MARX
--------------------------
Jules L. Marx
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED
OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH
DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
NO.
WARRANT TO
PURCHASE
SHARES
OF COMMON STOCK
SPECIAL WARRANT TO PURCHASE
COMMON STOCK
OF
ASD GROUP, INC.
This certifies that, for value received, (the "Holder"), or its
registered assigns, is entitled to purchase from ASD Group, Inc. a New York
corporation (the "Company"), subject to the terms and conditions set forth
below, at any time on or after 9:00 A.M., New York City time, on, _____________
199 , subject to the restrictions of Section 2.1 of this Warrant, and before the
Expiration Date (as defined below), the number of fully paid and nonassessable
shares of Common Stock, $.001 par value, of the Company ("Common Stock") stated
above at the Purchase Price (as defined below). The Purchase Price and the
number of shares purchasable hereunder are subject to adjustment as provided
below. The Holder is receiving this warrant pursuant to the Purchase Agreement
(as defined below).
ARTICLE I
DEFINITIONS
SECTION 1.1. (1) The term "Business Day" as used in this Warrant means a
day other than a Saturday, Sunday or other day on which national banking
associations whose principal offices are located in the State of New York are
authorized by law to remain closed.
<PAGE>
(2) The term "Expiration Date" as used in this Warrant means 5:00 P.M,
New York City time, on, ________________ 200 , or if that day is not a Business
Day, as defined above, at or before 5:00 P.M., New York City time, on the next
following Business Day).
(3) The term "Purchase Price" as used in this Warrant means $_ per
share, subject to adjustment pursuant to Article III hereof.
(4) The term "Restricted Shares" as used in this Warrant means Warrant
Shares the certificates for which bear or are required to bear the legend
required by Section 7.3 of this Warrant.
(5) The term "Warrant Holder" as used in this Warrant means the Holder
or any other person or entity in whose name this Warrant is duly registered on
the books maintained by the Company for that purpose.
(6) The term "Warrant Shares" as used in this Warrant means the shares
of Common Stock or other securities issuable upon exercise of the Warrants.
(7) The term Warrants as used in this Warrant means the Warrants
(including this Warrant) evidencing the right of the holders to purchase an
aggregate total of shares of Common Stock, which Warrants were originally issued
pursuant to a Purchase Agreement dated December 29, 1995, among the Company,
Automated Systems Developers, Inc., High Technology Computers, Inc., and the
several Purchasers named therein (the "Purchase Agreement").
ARTICLE II
DURATION AND EXERCISE OF WARRANT
SECTION 2.1. This Warrant may be exercised at any time after 9:00 A.M.,
New York City time, on,_________________ 199_ (the "Exercise Date"), and before
the Expiration Date; provided however, that the Warrants shall not be
exercisable for the period of two years from the Exercise Date without the prior
written consent of _________________________(the managing underwriter of the
Company's initial public offering) and the Company.
SECTION 2.2. (1) The Warrant Holder may exercise this Warrant in whole
or in part by surrender of this Warrant, with the Subscription Form duly
executed, to the Company at its corporate office in Poughkeepsie, New York,
together with the Purchase Price of each share of Common Stock being purchased
in lawful money of the United States, or by certified check or official bank
check payable in United States dollars to the order of the Company, subject to
compliance with all the other conditions set forth in this Warrant.
2
<PAGE>
(2) Upon receipt of this Warrant with the Subscription Form duly
executed and accompanied by payment of the aggregate Purchase Price for the
shares of Common Stock for which this Warrant is being exercised, the Company
shall cause to be issued certificates for the total number of whole shares (as
provided in Section 3.2) of Common Stock for which this Warrant is being
exercised in such denominations as are required for delivery to the Warrant
Holder, and the Company will promptly deliver those certificates to the Warrant
Holder.
(3) If the Warrant Holder exercises this Warrant with respect to fewer
than all the shares of Common Stock that may be purchased by exercise of this
Warrant, the Company will execute a new Warrant for the balance of the shares of
Common Stock that may be purchased by exercise of this Warrant and deliver that
new Warrant to the Warrant Holder.
(4) The Company covenants and agrees that it will pay when due any and
all taxes which may be payable in respect of the issue of this Warrant, or the
issue of any Warrant Shares upon the exercise of this Warrant other than income
or similar taxes of any kind imposed upon the holder of this Warrant. The
Company will not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance or delivery of this Warrant or
of Warrant Shares in a name other than that of the Warrant Holder at the time of
surrender, and until the payment of any such tax, the Company will not be
required to transfer this Warrant or issue the Warrant Shares which are subject
to the tax.
ARTICLE III
ADJUSTMENT OF PURCHASE PRICE, NUMBER
OF SHARES OR NUMBER OF WARRANTS
SECTION 3.1. The Purchase Price, the number and type of securities
issuable on exercise of this Warrant and the number of Warrants outstanding are
subject to adjustment from time to time as follows:
(1) If the Company issues any shares of its Common Stock as a dividend
on its Common Stock, the Purchase Price then in effect will be proportionately
reduced at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive the dividend or other
distribution. For example, if the Company distributes one share of Common Stock
as a dividend on each outstanding share of Common Stock, the Purchase Price
would be reduced by 50%. If the Company issues as a dividend on its Common Stock
any securities which are convertible into, or exchangeable for, shares of its
Common Stock, such dividend will be treated as a dividend of the Common Stock
into which the securities may be converted, or for which they may be exchanged,
and the Purchase Price shall be proportionately reduced.
(2) If the outstanding shares of Common Stock are subdivided into a
greater number of shares of Common Stock, then the Purchase Price will be
proportionately reduced
3
<PAGE>
at the opening of business on the day following the day when the subdivision
becomes effective, and if the outstanding shares of the Common Stock are
combined into a smaller number of shares of Common Stock, the Purchase Price
will be proportionately increased at the opening of business on the day
following the day when the combination becomes effective.
(3) If by reason of a merger, consolidation, reclassification or similar
corporate event, the holders of the Common Stock receive securities or assets
other than Common Stock, upon exercise of this Warrant after that corporate
event, the holder of this Warrant will be entitled to receive the securities or
assets the holder would have received if the holder had exercised this Warrant
immediately before the first such corporate event and not disposed of the
securities or assets received as a result of that or any subsequent corporate
event.
(4) In any case where the Company shall issue or sell shares of Common
Stock without consideration or for a consideration per share less than the Fair
Market Value (as hereinafter defined) at the time of issuance or sale of such
additional shares, then the Purchase Price in effect hereunder shall
simultaneously with such issuance or sale be reduced to a new Purchase Price
determined by dividing (A) an amount equal to (1) the total number of shares of
Common Stock outstanding immediately prior to such issuance or sale multiplied
by the Purchase Price in effect hereunder at the time of such issuance or sale,
plus (2) the consideration, if any, received by the Company upon such issuance
or sale, by (B) the total number of shares of Common Stock outstanding
immediately after issuance or sale of such additional shares.
(5) In case the Company shall issue or sell any rights, options or
securities exercisable or convertible into shares of Common Stock (collectively,
"Convertible Securities") after the date hereof, there shall be determined the
price for which shares of Common Stock are issuable upon the exercise or
exercise conversion thereof, such determination to be made by dividing (a) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the exercise or
conversion thereof, by (b) the maximum number of shares of Common Stock of the
Company issuable upon the exercise or conversion of all of such Convertible
Securities.
If the price per share so determined shall be less than the applicable
Purchase Price, then such issue or sale shall be deemed to be an issue or sale
for cash (as of the date of issue or sale of such Convertible Securities) of
such maximum number of shares of Common Stock at the price per share so
determined, provided that, if such Convertible Securities shall by their terms
provide for an increase or increases, with the passage of time, in the amount of
additional consideration, if any, to the Company, upon the exercise or
conversion thereof, the adjusted Purchase Price shall forthwith upon any such
increase becoming effective, be readjusted to reflect the same, and provided
further, that upon the expiration of such rights of conversion or exchange of
such Convertible Securities, if any thereof shall not have been exercised, the
adjusted Purchase Price shall forthwith be readjusted and thereafter be the
price which it would have been had an adjustment been made on the basis that the
only shares of Common Stock so
4
<PAGE>
issued or sold were issued or sold upon the exercise or conversion of such
Convertible Securities, and that they were issued or sold for the consideration
actually received by the Company upon such exercise or conversion, plus the
consideration, if any, actually received by the Company for the issue or sale of
all of such Convertible Securities which shall have been exercised or converted.
SECTION 3.2. Upon each adjustment of the Purchase Price pursuant to
Section 3.1 hereof, this Warrant will after the adjustment evidence the right to
purchase, at the adjusted Purchase Price, the number of shares (calculated to
the nearest hundredth) obtained by (i) multiplying the number of shares
issuable on exercise of this Warrant immediately prior to the adjustment by the
Purchase Price in effect immediately prior to the adjustment and (ii) dividing
the resulting product by the Purchase Price in effect immediately after the
adjustment. However, the Company will not be required to issue a fractional
share or to make any payment in lieu of issuing a fractional share.
SECTION 3.3. Whenever the Purchase Price or the number of shares or type
of securities issuable on exercise of this Warrant is adjusted as provided in
this Article III, the Company will compute the adjusted Purchase Price and the
adjusted number of Warrant Shares and will prepare a certificate signed by its
President or any Vice President, and by its Treasurer or Secretary setting forth
the adjusted Purchase Price and the adjusted number of Warrant Shares and
showing in reasonable detail the facts upon which the adjustments were based and
mail a copy of that certificate to the Warrant Holder.
SECTION 3.4. No adjustment shall be made in the number of Warrant Shares
issuable hereunder for the issuance of shares of Common Stock upon (A) the
exercise of options granted or which may subsequently be granted under any
existing or subsequently adopted employee benefit plan; and (B) the exercise of
all other options, warrants, or similar convertible securities outstanding on
the Exercise Date.
SECTION 3.5. If at any time when this Warrant is outstanding the Company:
(a) declares a dividend (or authorizes any other distribution) on its
Common Stock payable otherwise than in cash out of its undistributed net income;
(b) authorizes the granting to the holders of its Common Stock of
rights to subscribe for or purchase any shares of its capital stock or assets;
(c) authorizes a reclassification, split or combination of the Common
Stock, or a consolidation or merger to which the Company is a party or a sale or
transfer of all or substantially all the assets of the Company; or
(d) authorizes a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
5
<PAGE>
the Company will mail written notice of such action to the Warrant Holder at
least 20 days prior to the record date, or other date, for determining the
stockholders entitled to receive the dividend, distribution or rights, or the
securities or other property deliverable as a result of such action.
SECTION 3.6. The form of this Warrant need not be changed because of any
change in the Purchase Price or in the number of Warrant Shares, and Warrants
issued after that change may continue to describe the Purchase Price and the
number of Warrant Shares which were described in this Warrant as initially
issued.
SECTION 3.7. Before taking any action which would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the Common
Stock, the Company will take all corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock at the adjusted
Purchase Price.
SECTION 3.8 For purposes of this Article III, the Fair Market Value of a
share of Common Stock shall be determined as follows:
(1) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the NASDAQ system, the current market value shall be the last reported sale
price of the Common Stock on such exchange or system on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the average of the closing bid and asked prices for such day on such
exchange or system; or
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market
value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the date of the exercise
of the Warrant, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
If shares of Common Stock are issued in a private placement without registration
under the Securities Act, then Fair Market Value of a share shall be equal to
80% of the value, if calculated pursuant to subsections (1) or (2) above.
6
<PAGE>
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF WARRANT HOLDER
SECTION 4.1. If this Warrant is duly exercised, the Warrant Holder will
for all purposes be deemed to become the holder of record of the Warrant Shares
as to which this Warrant is exercised on, and the certificate for such shares
will be dated, the date this Warrant is surrendered for exercise and the
Purchase Price paid in accordance with section 2.2, except that if that date is
not a Business Day, the Warrant Holder will be deemed to become the record
holder of the Warrant Shares on, and the certificate will be dated, the next
succeeding Business Day. The Warrant Holder will not be entitled to any rights
as a holder of the Warrant Shares, including the right to vote and to receive
dividends, until the Warrant Holder becomes or is deemed to become the holder of
such shares pursuant to the terms hereof.
SECTION 4.2. (1) The Company covenants and agrees that it will at all
times reserve and keep available for the exercise of this Warrant a sufficient
number of authorized but unissued shares of Common Stock to permit the exercise
in full of this Warrant.
(2) Prior to the issuance of any shares of Common Stock upon exercise of
this Warrant, the Company shall use its reasonable best efforts to cause those
shares to be authorized for listing, to the extent not previously authorized for
listing, on any securities exchange or trading system upon which the Common
Stock is then listed.
(3) The Company covenants that all shares of Common Stock issued upon
exercise of this Warrant and against payment of the Purchase Price will be
validly issued, fully paid and nonassessable.
SECTION 4.3. Notices to the Warrant Holder relating to this Warrant will
be effective on the earlier of actual receipt or the third business day after
mailing by first class mail (which shall be certified or registered, return
receipt requested), postage prepaid, addressed to the Warrant Holder at the
address shown on the books of the Company.
ARTICLE V
TREATMENT OF WARRANT HOLDER
SECTION 5.1. Prior to presentation of this Warrant for registration of
transfer, the Company may treat the Warrant Holder for all purposes as the owner
of this Warrant and the Company will not be affected by any notice to the
contrary.
7
<PAGE>
ARTICLE VI
COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS
SECTION 6.1. Any transfer permitted under this Warrant will be made by
surrender of this Warrant to the Company at its principal office with the Form
of Assignment duly executed and funds sufficient to pay any transfer tax. In
such event the Company will, without charge, execute and deliver a new warrant
to and in the name of the assignee named in the instrument of assignment and
this Warrant will promptly be cancelled, and if the assignor does not transfer
all of its Warrants hereunder, the Company will execute and deliver a new
Warrant to and in the name of the assignor representing the remaining Warrants
held by the assignor.
SECTION 6.2. This Warrant may divided or combined with other Warrants
which carry the same rights upon presentation of them at the principal office
of the Company together with a written notice signed by the Warrant Holder,
specifying the names and denominations in which new Warrants are to be issued.
SECTION 6.3. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in th case of loss, theft or destruction, of reasonably
satisfactory indemnification, or, in the case of mutilation, upon surrender of
the mutilated Warrant, the Company will execute and deliver a new Warrant
bearing the same terms and date as the lost, stolen or destroyed Warrant, which
will thereupon become void.
ARTICLE VII
REGISTRATION UNDER THE SECURITIES ACT OF 1933
SECTION 7.1. The Warrant Holder will be accorded the registration
rights under the Securities act with respect to this warrant and the Warrant
Shares as set forth in the Purchase Agreement.
SECTION 7.2. This Warrant and the Warrant Shares may not be sold or
otherwise disposed of except as follows:
(a) to a person, who, in the opinion of counsel reasonably
satisfactory to the Company, is a person to whom this Warrant or
the Warrant Shares may legally be transferred without registration
and without the delivery of a current prospectus under the
Securities Act;
8
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(b) to any person in a transaction that, in the opinion of counsel
reasonably satisfactory to the Company, complies with the provisions of Rule 144
under the Securities Act; or
(c) to any person upon delivery of a prospectus included in a then
effective registration statement under the Act relating to the sale or
disposition of the securities.
SECTION 7.3. Certificates for Warrant Shares issued upon exercise of any
Warrants or transferred pursuant to Section 7.2(a) shall bear an appropriate
legend, if applicable, to the effect that the Warrant Shares represented thereby
have not been registered under the Act and may not be transferred except
pursuant to an effective registration statement under the Act or an exemption
from the registration requirements of the Securities Act.
ARTICLE VIII
OTHER MATTERS
SECTION 8.1. The Company will from time to time promptly pay, subject to
the provisions of paragraph (4) of Section 2.2, all taxes and charges that may
be imposed upon the Company in respect of the issuance or delivery of Warrant
Shares upon the exercise of this Warrant by the Warrant Holder.
SECTION 8.2. All the covenants and provisions of this Warrant by or for
the benefit of the Company will bind and inure to the benefit of its successors
and assigns.
SECTION 8.3. All notices and other communications under this Warrant
must be in writing. Any notice or communication to the Company will be effective
upon the earlier of actual receipt or the third business day after mailing by
first-class mail (which shall be certified or registered, return receipt
requested), postage prepaid, addressed (until another address is designated by
the Company) as follows:
ASD Group, Inc.
One Industry Street
Poughkeepsie, New York 12603
Attention: Chairman of the Board
Any notice or demand authorized by this Warrant to be given or made by
the Company to the Warrant Holder must be given in accordance with Section 4.3.
SECTION 8.4. The validity, interpretation and performance of this
Warrant will be governed by the laws of the State of New York.
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<PAGE>
SECTION 8.5. Nothing in this Warrant will give any person, corporation
or other entity other than the Company and the Warrant Holder(s) any right or
claim under this Warrant, and all agreements in this Warrant will be for the
sole benefit of the Company, the Warrant Holder(s) and their respective
successors.
SECTION 8.6. The Article headings in this Warrant are for convenience
only, are not part of this Warrant and will not affect the interpretation of its
terms.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as of
the _________________ day of _______________ , 199__ .
ASD GROUP, INC.
By:
Name:
Title:
10
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SUBSCRIPTION FORM
To be Executed By The Warrant Holder If He Desires
To Exercise The Warrant In Whole Or In Part:
To: ASD Group, Inc.
The undersigned (____________________________________________________________)
Please insert Social Security or other identifying number of Holder
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder, shares of Common Stock of ASD
Group, Inc. and tenders payment to the order of ASD Group, Inc. in the amount of
$_________________. The undersigned requests that certificates for those shares
of Common Stock be issued as follows:
Name:
-------------------------------------
Address:
-------------------------------------
Deliver to:
-------------------------------------
Address:
-------------------------------------
and that, if the number of shares of Common Stock is not all the shares of
Common Stock purchasable by exercise of the Warrant, that a new Warrant for the
balance of the shares of Common Stock purchasable under the within Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated below:
Address:
--------------------------------------
Date:
--------------------------------------
Signature
--------------------------------------
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FORM OF ASSIGNMENT
(To be Executed Only Upon An Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the
right to purchase shares of Common Stock of ASD Group, Inc. evidenced by the
within Warrant.
Signature
---------------------------------------------
Signature Guaranteed:
-----------------------------------
12
RESTATED LINE OF CREDIT LOAN AND SECURITY AGREEMENT
This Restated Line of Credit Loan and Security Agreement (the
"Agreement,") entered into as of the 28th day of December, 1995 between
AUTOMATIC SYSTEM~ DEVELOPERS, INC., a New York corporation with its principa1
place of business at Industry Street, Poughkeepsie, New York 12603 ("Borrower"
or "ASD"), HIGH TECHNOLOGY COMPUTERS, INC. a New York corporation with its
principal place of business at Industry Street, Poughkeepsie, New York 12603 and
POUGHKEEPSIE SAVINGS BANK, FSB, a federal savings bank (the "Bank"), with its
principal office at 249 Main Mall, Poughkeepsie, New York 12601.
Recitals:
A. The Bank extended a revolving credit facility in the maximum
principal amount of $2,280,000.00 (the "Credit Line") to Borrower pursuant to an
Amended and Restated Line of Credit, Loan Extension, and Security Agreement
dated as of December 30, 1994 (the "1994 Loan Agreement"). The Credit Line was
evidenced by a Coordinated Replacement Line of Credit Note of even date
therewith in the principal amount of $2,330,000.00.
B. The parties entered into a First Amendment to the Loan Agreement
which permitted the Borrower to obtain secondary financing from Arrow
Electronics, Inc.; reduced the amount the Borrower must pay to the Bank in
exchange for a release of the Bank's mortgage against certain property located
in North Carolina; modified the definition of the Borrowing Base by including
therein the accounts receivable of High Technology Computers, Inc.; modified the
security agreement to confirm, modify, and extend High Technology Computers,
Inc.'s grant to the Bank of a security interest in certain of its assets; and
made certain other modifications to the Loan Agreement and the documents or
instruments defined or described therein.
C. The parties entered into a Second Amendment to the Loan Agreement
pursuant to which the Bank extended an additional revolving line of credit loan
in the principal amount of $400,000.00 (the "New Money Loan"); extended the
maturity dates of the $2,330,000.00 Coordinated Replacement Line of Credit Note
dated December 30, 1994, the $1,988,119.49 Replacement Note dated December 30,
1994, made by the Dutchess Design and Development, Inc., the $565,025.67
Replacement Promissory Note dated December 30, 1994, made by the Borrower, and
the $1,896,352.84 Replacement Note dated December 30, 1994 made by the Borrower
(on which there is now due and owing the principal sum of $1,505,513.24, plus
interest); modified the security agreement to secure the New Money Loan; and
made certain other modifications to the Loan
<PAGE>
Agreement and the documents or instruments defined or described therein.
D. The parties wish to amend the 1994 Loan Agreement, as previously
amended, in order to set forth the terms under which the Bank will provide an
additional revolving line of credit loan in the the principal amount of
$1,000,000.00; extend the maturity of the Amended Coordinated Replacement Line
of Credit Note dated August 17, 1995 (which amended and extended the term of the
$2,330,000.00 Coordinated Replacement Line of Credit Note) and the $400,000.00
Line of Credit Note; consolidate and coordinate all outstanding line of credit
loans into a single Credit Line of $3,680,000~00 to be evidenced by a
$3,730,000.00 Replacement Line of Credit Note; confirm the pledge of all the
shares of the Borrower's parent company, ASD Group, Inc., formerly Dutchess
Design and Development, Inc. owned by Gary D. Horne (the "Shares") as additional
collateral for the Borrower's obligations to the Bank pursuant to that certain
Security Agreement/Pledge Agreement dated even date herewith (the "Pledge
Agreement"); modify the security agreement to secure the $l,000,000.00 increase
in the Credit Line in addition to all other Indebtedness; make certain other
modifications to the 1994 Loan Agreement and the documents or instruments
defined or described therein, and generally, to restate the terms and conditions
of the Loan Agreement, as previously amended.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS.
1.1. CERTAIN SPECIFIC TERMS. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Account Debtor" means the person, firm or entity obligated to
pay a Receivable.
(b) "Advance" means a loan made to the Borrower by the Bank pursuant
to this Agreement or any amount paid under the Letter of Credit.
(c) "Letter of Credit" means the Letter of Credit dated April 11,
1994 issued by the Bank in favor of ITT Commercial Finance Corp., and all
amendments thereto and extensions thereof.
(d) "Credit" means any discount, allowance, credit, rebate or
adjustment granted by the Borrower with respect
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<PAGE>
to a Receivable.
(e) "Extension" means the granting of an Account Debtor of
additional time within which such Account Debtor is required to pay a
Receivable.
(f) "Invoice" means any document or documents used or to be used to
evidence a Receivable.
(g) "Payment Account" means the special bank account to which
Proceeds of Collateral, including, without limitation, payments on Receivables,
and other payments from sales or leases of Inventory, are credited.
(h) "Prime Rate" means the prime rate of interest as published from
time to time by the Wall Street Journal, New York, New York (Eastern Edition)
and is a base rate for calculating interest on certain loans described herein.
(i) "Receivable" means the right to payment for Goods sold or leased
or services rendered by the Borrower, whether or not earned by performance, and
may, without limitation, in whole or in part, be in the form of an Account,
Chattel Paper, Document or Instrument.
(j) "Responsible Party" means an Account Debtor, a general partner
of an Account Debtor or any party in any way directly or indirectly liable for
payment of a Receivable.
(k) "Affiliate" of any person shall mean any other Person directly
or indirectly controlling, controlled by or under common control with such
Person.
(1) "Control" (including the terms "controlled by" and "under common
control with") as used with respect to any Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of the
voting shares of any such Person or by contract or otherwise.
(m) "Person" shall include an individual, a corporation, a joint
venture, a general or limited partnership, a trust, an unincorporated
organization or a government or any agency or political subdivision thereof.
(n) "Subsidiary" shall mean any corporation fifty (50%) percent or
more of the voting shares of which is owned, directly or indirectly, by the DDD.
(o) "Guarantors" means ASD Group, Inc., formerly Dutchess Design and
Development, Inc. ("DDD"), Cabletronics,
3
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Inc., High Technology Computers, Inc., High Technology Solutions, Inc., and
Netcomp, Inc.
(p) "Guaranties" means the unconditional guaranties of payment of
all of the obligations of Borrower and DDD to the Bank which Guaranties have
been made by the Guarantors and which the Guarantors re-confirm herein.
(q) "Maximum Amount" means $3,680,OOO.OO or the maximum amount of
all Advances to the Borrower which can be outstanding at any one time.
(r) "Security Agreement" means the Security Agreement dated October
22, 1993 and any amendments thereto and all other security agreements between
the Borrower and the Bank, as consolidated, modified, extended, and restated
herein.
(s) "Purchase Agreement" shall mean the Purchase Agreement dated as
of December , 1995 regarding Senior Notes due June 30, 1999 between ASD Group,
Inc., as Borrower, and the Purchasers described therein.
(t) "Mezzanine Financing" shall mean the gross proceeds of the
Senior Notes due June 30, 1999 described in the Purchase Agreement.
(u) "Inventory" shall mean the inventory and work-in-process (as
such terms are defined in Article 9 of the New York Uniform Commercial Code)
of the Borrower and High Technology Computers, Inc.
(v) "DDD" shall mean ASD Group, Inc., formerly Dutchess Design and
Development, Inc.
(w) "DDD Note" shall mean the promissory note dated September 17,
1991 in the principal amount of $2,300,000.00 from DDD to the Bank, which was
modified and extended by agreement between DDD and the Bank dated October 22,
1993, replaced by a Replacement Note dated December 30, 1994 in the principal
amount of $1,988,119.49 from DDD to the Bank, and amended and restated by
Amended and Restated Replacement Note dated August 17, 1995 in the principal
amount of $1,988,199.49 from DDD to the Bank, on which there is due and owing
the principal amount of $1,988,199.49 plus interest.
(x) "Dutchess Design Mortgage" or "DDD Mortgage" shall mean the
mortgage on certain commercially improved real estate situate in the Town of
LaGrange, County of Dutchess, State of New York (the "DDD Property") which
secures the DDD Note. The DDD Mortgage was dated September 17, 1991 and recorded
in the Dutchess County Clerk's Office on September 18, 1991 in Liber
4
<PAGE>
2072 of Mortgages at page 271; was modified by Agreement dated October 22, 1993
and recorded in the Dutchess County Clerk's Office on October 22, 1993 in Liber
2174 of Mortgages at Page 83; was modified, extended, spread and assumed by
Modification, Extension, Spreader and Assumption Agreement dated December 30,
1994 and recorded in the Dutchess County Clerk's Office on January 4, 1995 in
Liber 2226 of Mortgages at Page 87; and was further modified and extended by
First Amended Modification, Extension, Spreader and Assumption Agreement dated
August 17, 1995 and recorded in the Dutchess County Clerks Office on August 18,
1995 in Liber 2244 of Mortgages at Page 205.
(y) "ASD Note" shall mean the promissory note dated July 24, 1987 in
the principal amount of $1,900,000.00 from the Borrower to the Bank and the
promissory note dated July 24, 1987 in the principal amount of $500,000~00 from
the Borrower to the Bank, which notes were consolidated by agreement dated
October 23, 1993 into a single obligation in the principal amount Of
$1,955,752.84 from the Borrower to the Bank; modified and replaced by a
Replacement Note dated December 30, 1994 in the principal amount of
$1,896,352.84 from the Borrower to the Bank; and amended and restated by Amended
and Restated Replacement Note dated August 17, 1995 in the principal amount of
$1,505,513.24 from the Borrower to the Bank, on which there is now due and owing
the principal amount of $1,505,513.24 plus interest.
(z) "ASD Mortgage" shall mean the mortgage on certain commercially
improved real estate situate in the Town of Poughkeepsie, County of Dutchess and
State New York (the "ASD Property") which secures the ASD Note. The ASD Mortgage
consists of the mortgage in the principal amount of $1,900,000.00 from ASD to
the Bank dated July 24, 1987 and recorded in the Dutchess County Clerk's Office
on July 29, 1987 in Liber 1715 of Mortgages at page 692 and the mortgage in the
principal amount of $500,000.00 from ASD to the Bank dated July 24, 1987 and
recorded in the Dutchess County Clerk's Office in Liber 1715 at Page 683, which
mortgages were consolidated by Agreement between ASD and the Bank dated October
22, 1993 and recorded in the Dutchess County Clerk's Office on October 22, 1993
in Liber 2174 of Mortgages at page 87; modified, extended, spread and assumed by
Modification, Extension, Spreader and Assumption Agreement dated December 30,
1994 between Borrower and the Bank and recorded in the Dutchess County Clerk's
Office on January 4, 1995 in Liber 2226 of Mortgages at Page 90, and further
modified and extended by First Amended Modification, Extension, Spreader and
Assumption Agreement dated August 17, 1995 and recorded in the Dutchess County
Clerk's Office on August 18, 1995 in Liber 2244 of Mortgages at Page 203.
(aa) "Replacement Promissory Note" shall mean the Adjustable Rate
Promissory Note dated October 22, 1993 in the
5
<PAGE>
principal amount of $674,825.67 from the Borrower to the Bank, which was
replaced and restated by Replacement Promissory Note dated December 30, 1994 in
the principal amount of $565,025.67 from the Borrower to the Bank, and amended
and restated by Amended and Restated Replacement Promissory Note dated August
17, 1995 in the principal amount of $565,025.67 from the Borrower to the Bank,
on which there is due and owing the principal amount of $565,025.67 plus
interest.
(bb) "Equity Infusion" shall mean the gross proceeds of (i) the sale
of all or any of shares of capital stock of Borrower or any Guarantor, (ii)
venture capital raised, (iii) bridge or mezzanine loan financing (iv) the
successful completion of an initial public offering, or (v) other subordinated
debt or equity from any source other than the Bank. Equity Infusion shall
include the proceeds of the Mezzanine Financing. Gross proceeds shall mean the
total amount of the Equity Infusion before fees, closing costs and other like
expenses.
1.2. SINGULAR AND PLURALS. Unless the context otherwise requires, words
in the singular include the plural, and in the plural include the singular.
1.3. U.C.C. DEFINITIONS. Unless otherwise defined in Section 1.1 or
elsewhere in this Agreement, capitalized words shall have the meanings set forth
in the New York Uniform Commercial Code as in effect as of the date of this
Agreement.
2. THE LOAN. On the written request of Borrower for an Advance, and if
the Borrower is in full compliance with all of the terms and conditions of this
Agreement and no Event of Default has occurred, the Bank shall make Advances to
the Borrower hereunder provided that the maximum aggregate outstanding principal
amount of Advances hereunder shall not exceed at any time the Maximum Amount.
The Borrower acknowledges that Advances of $2,680,000.00 are now outstanding.
The minimum advance amount which Borrower must take shall be the lesser of (a)
$100,000.00 per Advance or (b) the total amount available under the line of
credit. The aggregate amount of all outstanding Advances made by the Bank shall
constitute a single obligation of Borrower, even though Advances are made from
time to time. The Bank may make an Advance to the Borrower even though the
Maximum Amount would be exceeded by the making of such Advance, and any such
Advance shall be a secured indebtedness as defined herein. If the Bank makes
such an Advance, the over-advance shall not constitute an Event of Default.
3. MATURITY. The Loan shall mature on December 31, 1997 (the "Maturity
Date"), when the entire unpaid principal balance of the Loan, together with
interest and other charges provided for herein, shall become immediately due and
payable
6
<PAGE>
without notice or demand. Notwithstanding the foregoing, the Bank may demand
payment in full of the Loan before the Maturity Date upon the occurrence of an
Event of Default as hereinafter defined.
4. THE NOTE. The obligation to repay the Loan shall be evidenced by the
Borrower's promissory note (the "$3,730,000.00 Coordinated Replacement Line of
Credit Note" or "Note") in the form of Exhibit "A" hereto attached, dated the
date hereof and payable to the order of the Bank. The Note shall be payable on
the Maturity Date. The Note shall bear interest (on the basis of a three hundred
sixty (360) day year for the actual number of days involved) from its date upon
the unpaid principal balance thereof payable monthly at the fixed rate of nine
(9%) percent per annum until December 31, 1995 and at a fluctuating rate,
subject to adjustment on a daily basis equal to the Prime Rate plus one and
one-half (1.5%) percent from January 1, 1996 until the Maturity Date. The
interest rate shall be adjusted daily as and when the Prime Rate changes. In no
event, however, shall the rate of interest exceed the maximum legal rate
permissible for the Loan. Principal outstanding, if any, shall be repaid on the
Maturity Date. The Note consolidates and coordinates, but does not satisfy, the
$2,330,000.00 Coordinated Replacement Line of Credit Note dated December 30,
1994, the Amended Coordinated Replacement Line of Credit Note dated August 17,
1995, the $400,000.00 Line of Credit Note dated August 17, 1995, the
Replacement $400,000.00 Line of Credit Note dated hereof, and the $1,000,000.00
Line of Credit Note dated the date hereof.
5. ADVANCES AND LOAN ADMINISTRATION.
5.1. MANNER OF BORROWING. Until further notice, and upon the condition
that the Borrower shall not be in default with respect to any of the terms of
this Agreement, or the Note, or with respect to any other indebtedness of the
Borrower to the Bank (whether direct or indirect by way of Guaranty) the Bank
shall from time to time lend to the Borrower such sums as Borrower may request,
in writing, to be advanced to it, provided, however, that (a) the total
aggregate amount of all Advances made hereunder at any one time outstanding
shall not exceed the Maximum Amount and (b) the Borrower may not request more
than one (1) Advance per day.
5.2. REQUISITION FORM. The form and intent of the Note are to provide
for periodic advances in accordance with the provisions of subparagraph 5.1
hereof. To facilitate those advances, the Bank and Borrower agree that Advances
may be requested by Borrower in form substantially similar to that set forth in
Exhibit "B" attached hereto (the "Requisition"). The Bank is specifically
authorized to endorse such Advances on the schedule made a part of the Note for
that purpose and Borrower
7
<PAGE>
agrees to be bound thereby, absent manifest error. Each funded Requisition
remaining unrepaid shall be deemed a part of this Agreement. The Bank shall not
be required to verify the authority of the officer of Borrower who executes the
Requisition, and Borrower specifically acknowledges that the Bank may assume the
authenticity thereof. If the Requisition meets the terms and conditions of this
Agreement for the making of an Advance, the Bank shall make its best effort to
make the Advance within one (1) business day of receipt of a valid Requisition.
5.3. DETERMINATION OF BORROWING BASE. Advances will be available based
upon a percentage of the Borrower's Receivables rated by the Bank in terms of
the age of each Receivable and the credit quality of each Account Debtor. The
rating of Receivables shall be proposed by the Borrower, subject to final
determination by the Bank on a quarterly basis in a reasonable manner based on
each Account Debtor's historical payment history with Borrower and on industry
standard credit reports such as Dunn & Bradstreet and TRW.
AMOUNT OF AVAILABLE DRAW
(PERCENTAGE OF
CUSTOMER RATING AGING ACCOUNT RECEIVABLE)
--------------- ----- ------------------------
A 0 - 45 days 90%
46 - 60 days 80%
61 - 90 days 50%
Over 90 days 0%
B 0 - 45 days 75%
46 - 60 days 60%
61 - 90 days 25%
Over 90 days 0%
C 0 - 45 days 50%
46 - 90 days 30%
61 - 90 days 10%
Over 90 days 0%
"A" rated Account Debtors are deemed by the Bank to be low credit risks
such as IBM, GE, U.S. Surgical, Pitney Bowes, ENI, Loral, Gerber Scientific,
Motorola, United States Postal Service, UPS, Zoom Technology, ATT, Compas, DEC,
NCR, Unisys, Westinghouse and Materials Research Corporation. "B.' rated
Account Debbors are all other customers considered by the Bank to have an
excellent credit history with the Borrower (such as consistently paying their
accounts payable within forty-five (45) days of receipt of Borrower's invoice.
"C" rated Account Debtors are all other Account Debtors including those that
generally pay accounts payable outside said forty-five (45) day period.
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<PAGE>
If the foregoing rating system for Advances ("Receivables Formula") does
not support the full amount of the Loan, the Bank will make Advances hereunder
up to a maximum of fifty percent (50%) of the value of Work-In-Process ("WIP")
in excess of two times the amount of the Mezzanine Financing demonstrated by the
Borrower to the reasonable satisfaction of the Bank. To determine the value of
WIP, the Bank shall allow the value of labor at the Borrower's calculated
billing rate for work performed against a valid purchase order or contract, but
not yet invoiced ("Labor Value"); and added to this value, the value of
purchased items ("Items") purchased for a valid purchase order or contract
calculated at Borrower's selling price for items purchased and received by
Borrower but not yet invoiced ("Items Value"); so that the value of WIP shall
equal the Labor Value and Items Value per each non-invoiced valid purchase order
or contract ("WIP Formula"). The value determined by the Receivables Formula
plus the value calculated by the WIP Formula shall be Borrower's borrowing base
under this agreement ("Borrowing Base"). Borrower's selling price shall mean
Borrower's cost plus three percent (3%).
5.4. ACCOUNT AT BANK. Borrower and Bank agree that the Advances shall be
credited to an account opened and maintained at the Bank by the Borrower~and
owned by the Borrower ("Advance Account").
5.5. RETURNED MERCHANDISE. Borrower shall notify the Bank immediately of
the return, rejection, repossession, stoppage in transit, loss, damage or
destruction of any shipment valued at more than SS,OOO.OO in any single
instance.
5.6. CREDITS AND EXTENSIONS; ADJUSTMENTS TO BORROWING BASE.
(a) Granting of Credits and Extensions. Borrower may grant such Credits
and such Extensions as are ordinary in the usual course of Debtor's business,
without the prior consent of the Bank. Borrower must notify the Bank in writing
of any such Credits or Extensions within two (2) business days of their being
granted.
(b) Accounting for Credits and Extensions. At the Bank's request,
Borrower shall make full accounting of the granting of such Credits and
Extensions, including a brief description of the reasons therefor and a copy of
all credit memoranda.
(c) Adjustment to Maximum Amount. Upon the Borrower's granting of a
Credit, the Borrowing Base may, in the Bank's discretion, be reduced by the
amount of the relevant.
9
<PAGE>
percentage of the invoice included in the Borrowing Base as determined in
conformity with paragraph 5.3.
5.7. RETURNED INSTRUMENTS. In the event that any check or other
instrument received in payment of a Receivable shall be returned uncollected for
any reason, the Bank may, in its sole discretion, notify the Borrower and again
forward the same for collection or return the same to Borrower. Upon receipt of
a returned check or instrument by Borrower, Borrower shall immediately make the
necessary entries on its books and records to reinstate the Receivable as
outstanding and unpaid, and immediately notify the Bank of such entries. The
Bank, in its discretion, may reduce the Borrowing Base by the amount of the
relevant percentage of the invoice included in the Borrowing Base as determined
in conformity with paragraph 5.3.
5.8 MEMORANDA.
(a) Unless the Bank otherwise notifies Borrower in writing, Borrower
shall deliver daily to the Bank, copies of all debit memoranda issued by
Borrower.
(b) All debit memoranda issued by Borrower shall be numbered
consecutively, and copies of the same, when delivered to the Bank, shall be in
numerical order and accounted for in the same manner as provided for herein with
respect to Invoices.
5.9. NOTES RECEIVABLE. Borrower shall not accept any note or other
instrument (except a check or other instrument for the immediate payment of
money) with respect to any Receivable, without the prior written consent of the
Bank.
5.10. RECEIVABLES SCHEDULE. The Borrower shall deliver to the Bank, with
each Requisition for an Advance, a schedule describing Invoices (a "Receivables
Schedule"). Receivables Schedules and WIP valuation are solely for the
convenience of the Bank in administering this Agreement and maintaining records
of the Collateral. The Borrower's failure to provide the Bank with any such
schedule shall not affect, diminish or impair the Security Interest defined
herein.
The Borrower shall deliver to the Bank, with each Requisition for an
Advance, and, at minimum, at least once per calendar month, by the 7th day of
each month, Borrower's Accounts Receivable data which shall have an entry for
each unpaid invoice provided to Borrower's customers, as of the end of the
preceding month ("Receivables Schedule"). Each Receivables Schedule shall be
in the form established by Borrower's computer systems generated age accounts
receivable report which shall show all the Borrower's accounts receivable sorted
by customer rating established by Section 5.3 above and further sorted by aging
10
<PAGE>
period established in accordance with Section 5.3 above and a value
established by the Receivables Formula.
The Borrower shall make available for the Bank's inspection during
normal business hours evidence of the invoices set forth in the Receivables
Schedule, and shall, upon the Bank's written request therefore, deliver copies
of said invoices into the possession of the Bank.
Additionally, Borrower shall deliver to the Bank with each Receivables
Schedule Borrower's WIP Value as calculated by the WIP Formula. The Bank shall
have the right to audit WIP at any reasonable time on a reasonable notice to the
Borrower and shall have the right, from time to time, to request that the
Account Debtors verify the accuracy of Accounts Receivable. Each Receivables
Schedule, together with any supporting documentation, shall be certified by an
officer of the Borrower to be accurate.
5.11. INVOICES. The Borrower shall:
(a) Cause all of its Invoices issued during the term of this Agreement
and their copies to be printed and to bear consecutive numbers and shall prepare
and issue its Invoices in such consecutive numerical order.
(b) Modify its Invoices so that the only "remit to" address on the
Invoice is ASD, P.O. Box 31, Poughkeepsie, New York 12602 ("Lock Box"). Said
Invoice will, also instruct all payments be made to that address, which is the
address of the Lock Box, into which all payments on Invoices must be deposited
during the term of this Agreement. The Borrower must notify all current
customers not already notified by letter on its letterhead similar to Exhibit
"C" annexed hereto. The Borrower shall use its best efforts to see to it that
all Account Debtors mail their checks for payment of Invoices issued after the
date of this Agreement to Debtor at the Lock Box address.
(c) In the event of a request for copies of Invoices as set forth in
paragraph 5.10 above, the Borrower shall:
(i) Cause all copies of Invoices not previously delivered to the Bank to
be delivered to the Bank with each Receivables Schedule.
(ii) Cause copies of all Invoices which are voided or cancelled or which for
any other reason do not evidence a Receivable to be included in such delivery.
(iii) If any Invoice or copy thereof is lost, destroyed, or otherwise
unavailable, the Borrower shall
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explain the unavailability in writing, in form satisfactory to the Bank, and
account for such missing Invoice.
5.12. AGING REPORT. Within fifteen (15) calendar days after the end of
each month, Borrower shall submit to the Bank an aging report included as part
of the Receivables Schedule showing the amounts due and owing on all Receivables
according to Borrower's records as of the close of such month, together with
such other information as the Bank may reasonably require. If the Bank requests
"other information" than specified herein, the failure to provide the same shall
be governed by the Event of Default provisions of paragraph 14(c).
5.13. NOTES OR OTHER INSTRUMENTS. Each note, draft, trade acceptance or
other instrument for the payment of money, evidencing a Receivable, shall be
delivered to the Bank with the schedule listing the Receivable which it
evidences and shall be indorsed by Borrower to the order of the Bank.
5.14. CHATTEL PAPER. The original of each item of Chattel Paper,
evidencing a Receivable, shall be delivered to the Bank with the schedule
listing the Receivable which is evidences, together with an assignment of such
Chattel Paper by Borrower to the Bank, such assignment to be in form
satisfactory to the Bank.
5.15. OTHER DOCUMENTS. The Borrower shall deliver to the Bank all
documents set forth below, as frequently as indicated, or at such other times as
the Bank may reasonably request, and all other documents and information
reasonably requested by the Bank:
Required Documents Frequency Due Copies of shipping documents Upon request
related to Receivables List of names and addresses Monthly of Account Debtors
Reconciliation report, in form Monthly of Borrower's existing daily cash
receipts journal, showing all Receivables, Collections, Payments and Credits and
Extensions since the preceding report
6. COLLECTIONS.
6.1. DELIVERY OF PROCEEDS TO SECURED PARTY. Any
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Proceeds of Collateral received by Borrower during the term of this Agreement,
including, without limitation, payments on Receivables and other payments from
sales or leases of Inventory, shall be held by Borrower in trust for the Bank in
the same medium in which received, shall not be commingled with any assets of
Borrower and shall be delivered immediately to the Bank.
6.2. PAYMENT ACCOUNT. Upon receipt of Proceeds of Collateral, the Bank,
in its sole discretion, may apply such Proceeds directly to the Indebtedness or
may deposit such Proceeds in the Payment Account. The balance of the Payment
Account shall be applied daily to the Indebtedness. The Borrower shall be
credited with interest on such Proceeds at the rate provided in the Note as long
as they remain unapplied to the Indebtedness.
6.3. BORROWER TO FORWARD SCHEDULES TO THE BANK; OTHER DOCUMENTS TO BE
PROVIDED BY THE BANK. Whenever Borrower delivers payments on Receivables and
other payments from sales or leases of Inventory to the Bank, whether directly
or indirectly by deposit to the Payment Account, such payments shall be
accompanied by a schedule, consisting of a list of the checks, amounts, drawers
and invoice number each check pays, certified to be correct by an authorized
officer of the Borrower. The Bank shall provide Borrower with a listing of all
checks deposited into the Payment Account.
The Bank shall make available to the Borrower all documents set forth
below, as frequently as indicated, or at such other times as the Borrower may
reasonably request:
REQUIRED DOCUMENTS FREQUENCY DUE
------------------ -------------
Copies of deposit slips By 10:00 am of the day
listing all checks received following receipt
Photocopies of all checks By 10:00 am of the day
following receipt
Originals of invoices and By 10:00 am of the day
other documents received by following receipt
the Bank other than checks
Statement of changes in By 10:00 am of the day
credit line balance following a change in the credit line
balance
7. PAYMENT AND APPLICATION.
7.1. PREPAYMENT. The Borrower shall have the right
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at any time on written notice to the Bank to make voluntary prepayment of the
credit line in whole or, if in part, at any time and from time to time, in
multiples of ONE THOUSAND AND 00/100 ($1,000.00) DOLLARS, each without premium
or penalty, but with accrued interest on the principal amount being prepaid to
the date of prepayment, and Additional Interest on the Indebtedness to the date
of prepayment in full.
7.2. APPLICATIONS. Each partial voluntary prepayment under this
paragraph shall be applied on the Note to the earliest unpaid Advance.
7.3. METHOD OF PAYMENT. Without limiting the Borrower's obligation to
pay as set forth in the Note, the principal of Advances, interest, and costs and
expenses, the following provisions shall apoly to the payment thereof:
(a) Payment of Principal. The Borrower authorizes the Bank to apply any
Proceeds of Collateral, including, without limitation, payments on Receivables
and other payments from sales or leases of Inventory, or any funds in the
Payment Account to the unpaid principal of Advances.
(b) Payment of Interest, Costs and Expenses .
(i) The Borrower shall pay interest and costs and expenses on or before
the tenth business day of each month.
(ii) If accrued interest and costs and expenses have not been paid when
due, the Borrower authorizes the Bank to: (a) charge such items to any
deposit account of the Borrower maintained with the Bank; (b) make an
Advance to pay for such items, which Advance, the Bank, in its sole
discretion, may make to Borrower or (c) apply Proceeds of Collateral,
including, without limitation, payments on Receivables and other
payments from sales or leases of Inventory, or any funds in the Payment
Account, to the payment of such items.
(c) Notwithstanding any other provision of this Agreement followinq the
occurrence of an Event of Default and the expiration of any applicable cure
period, the Bank, in its sole discretion, shall determine the manner and amount
of application of payments and credits, if any, to be made on all or any part
of any component or components of the Indebtedness, whether principal, interest,
costs and expenses, or otherwise.
7.4 COMPUTATION OF DAILY OUTSTANDING BALANCES. For
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the purpose of calculating the aggregate principal balance of outstanding
Advances under Section 2, Advances shall be deemed to be paid on the date that
funds from the Payment Account are credited to Advances. Notwithstanding any
other provision of this Agreement, if any Instrument presented for collection by
the Bank is not honored, the Bank may reverse any provisional credit which has
been given for the Instrument and make appropriate adjustments to the amount of
interest due.
8. COLLATERAL AND INDEBTEDNESS SECURED.
8.1. SECURITY INTEREST. The Borrower hereby confirms its grant and
extends its grant to the Bank of a security interest (Security Interest) in the
following property, wherever located and whether now owned or hereafter acquired
by the Borrower (collectively Collateral):
(a) All Accounts, Inventory, including, without limitation, work in
process and raw materials, General Intangibles, Chattel Paper, Documents and
Instruments, whether or not specifically assigned to the Bank, including,
without limitation, all Receivables.
(b) All guaranties, collateral, liens on or security interests in real
or personal property, leases, letters of credit and other rights, agreements, or
property securing or relating to payment of Receivables.
(c) All books, records, ledger cards, data processing records, computer
records and data and other property at any time evidencing or relating to
Collateral.
(d) All monies, securities and other property, now or hereafter held or
received by, or in transit to, the Bank from or for the Borrower, and all of
Borrower's deposit accounts, credits and balances with the Bank existing at any
time.
(e) All personal property of the Borrower, including without limitation,
all equipment, furniture, fixtures, machinery, accessories, attachments, special
tools, additions, replacements, substitutions and accessions thereto or therefor
and all inventory, including without limitation, IBM CAD/CAM system and related
equipment and goods held for sale or for lease or to be furnished under
contracts of service, raw materials, work in progress and materials to be used
or consumed in the Borrower's business, subject only to those security
interests described in exhibit D and excluding goods held in consignment, but
not the Borrower's interest in such consigned goods.
(f) All Proceeds of all policies of insurance covering the Collateral up
to the amount of the Indebtedness.
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(g) All Proceeds and Products of all of the foregoing in any form.
8.2. INDEBTEDNESS SECURED. The Security Interest secures payment of any
and all indebtedness (Indebtedness) of Borrower to the Bank, whether now
existing or hereafter incurred, of every kind and character, direct or indirect,
and whether such Indebtedness is from time to time reduced and thereafter
increased, or entirely extinguished and thereafter reincurred, including,
without limitation: (a) all Advances; (b) all interest which accrues on any
Indebtedness, until payment of such Indebtedness in full, including, without
limitation, all interest provided for under this Agreement; (c) all other monies
payable by Borrower to the Bank pursuant to this Agreement; (d) the indebtedness
evidenced by the Replacement Promissory Note; (e) the indebtedness secured by
the Dutchess Design Mortgage; (f) the indebtedness secured by the ASD Mortgage;
(g) the indebtedness of the Borrower to the Bank related to and arising out of
the Letter of Credit; and (h) any and all other obligations of the Borrower to
the Bank.
8.3. RIGHTS AND REMEDIES. The Bank's rights and remedies with respect to
the Collateral shall be those of a secured party under the New York Uniform
Commercial Code and under any other applicable law, as the same may from time to
time be in effect, in addition to those rights granted herein and in any other
agreement between the Borrower and the Bank now or hereafter in effect.
8.4. NOTIFICATION OF ACCOUNT DEBTORS. The Bank may, upon the occurrence
of an Event of Default and expiration of any related cure period, notify any or
all Account Debtors of the Security Interest and may direct such Account Debtors
to make all payments on Receivables directly to the Bank.
8.5. POSSESSION OF DELIVERY OF COLLATERAL. Whenever the Bank may take
possession of the Collateral pursuant to Section 8.4, the Bank may take
possession of the Collateral on the Borrower's premises or may remove the
Collateral or any part thereof to such other places as the Bank may in its sole
discretion determine. If requested by the Bank, the Borrower shall assemble the
Collateral and deliver it to the Bank at such place as may be designated by the
Bank.
8.6. RECEIVABLES. Upon the occurrence of an Event of Default, the Bank
may demand, collect, and sue for all monies and proceeds due or to become due on
the Receivables (in either the Borrower's or the Bank's name at the latter's
option) with the right to enforce, compromise, settle, or discharge any or all
Receivables.
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8.7. SUBORDINATION. The Bank's security interest in Inventory shall be
subordinated only to a validly perfected security interest in the Inventory in
favor of the Purchasers in an amount not to exceed twice the amount of the
Mezzanine Financing received by DDD (the "Permitted Encumbrance").
8.8. PLEDGE OF SHARES. As additional security, pursuant to the terms of
the Pledge Agreement dated even date herewith, Gary D. Horne shall pledge to the
Bank all his shares of capital stock of DDD (the "Shares"). The Shares shall be
released to Gary D. Horne upon the earlier of the (a) repayment of the
Indebtedness or (b) Borrower's and/or DDD's receipt of Equity Infusions
totalling $2,000,000.00.
9. GUARANTIES. The Guarantors unconditionally guaranty the Indebtedness.
The Guarantors shall endorse this Agreement to signify their agreement to the
terms hereof.
10. COST AND EXPENSES. Borrower also promises to pay any reasonable
cost, expenses and attorneys' fees incurred by the Bank for the collection or
attempted collection of any monies due hereunder, or under the notes or any
guaranty of such amounts or realizing on any mortgage or other security interest
or lien given to secure amounts due hereunder or under any guaranty of such
amounts including, without limitation, those incurred as a result of Bank's
participation in any proceeding involving Borrower or any guarantor under the
federal Bankruptcy Code or incurred in any "work-out" efforts with the Borrower
or any Guarantor.
ll. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into
this Agreement and make Advances to Borrower from time to time as herein
provided, Borrower represents and warrants and, so long as any Indebtedness
remains unpaid or this Agreement remains in effect, shall be deemed continuously
to represent and warrant as follows:
11.1. VALIDITY OF RECEIVABLES. To the Borrower's knowledge, after due
inquiry, (a) each Receivable is to the Borrower's knowledge genuine and
enforceable in accordance with its terms and represents an undisputed and bona
fide indebtedness owing to the Borrower by the Account Debtor; (b) there are no
defenses, setoffs or counterclaims against any Receivable; (c) no payment has
been received on any Receivable and no Receivable is subject to any Credit or
any Extension or agreements therefor unless written notice specifying such
payment, credit, extension or agreement has been delivered to the Bank; (d) each
copy of each Invoice is a true and genuine copy of the original Invoice sent to
the Account Debtor named therein and evidences the transaction from which such
receivable arose; and the date
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payment is due as stated on each such Invoice is correct; (e) all Chattel Paper,
promissory notes, drafts, trade acceptances or other instruments for the payment
of money, and each indorsement thereon, are true and genuine and in all respects
what they purport to be, and are the valid and binding obligation of all parties
thereto, and the date or dates stated on all such items as the date on which
payment in whole or in part is due is correct; (f) all Inventory described in
the Invoice has been delivered to Account Debtor or placed for such delivery in
the possession of a carrier not owned or controlled directly or indirectly by
the Borrower; (g) all evidence of the delivery or shipment of Inventory is true
and genuine; (h) all services to be performed by the Borrower in connection with
each Receivable have been performed by the Borrower or its approved
subcontractors; and (i) all evidence of the performance of such services by the
Borrower is true and genuine.
11.2. TITLE TO COLLATERAL. (a) The Borrower is the owner of the
Collateral free of all security interest, liens or other encumbrances, except
the Security Interest and those security interests described in Exhibit D; (b)
the Borrower has the unconditional authority to grant the Security Interest to
the Bank; (c) assuming that all necessary Uniform Commercial Code filings have
been made, the Bank has an enforceable first lien on all Collateral except the
Collateral described in Exhibit D; (d) the Borrower will not sell, assign or
otherwise transfer or encumber the Collateral or grant a security interest
therein, except to the Bank or except for sales or leases of Inventory in the
ordinary course of business and except to the Purchasers to the extent provided
for in the Security Agreement described in the Purchase Agreement; and (e) the
Borrower will defend the Collateral against the claims and demands of all other
parties, including, without limitation, defenses, setoffs and counterclaims
asserted by any Account Debcor against the Borrower or the Bank.
11.3. NOTES RECEIVABLE. No Receivable is evidenced by any note, draft,
trade acceptance, or other instrument for the payment of money, except such
note, draft, trade acceptance or other instrument as has been indorsed and
delivered by the Borrower to the Bank.
11.4. PLACE OF BUSINESS. (a) The Borrower is engaged in business
operations which are in whole or in part carried on at the address or addresses
specified at the beginning of this Agreement; (b) if the Borrower has more than
one place of business, its chief executive office is at the address specified as
such at the beginning of this Agreement; and (c) the Borrower's records
concerning the Collateral are kept at the address specified at the beginning of
this Agreement.
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11.5. FINANCIAL STATEMENTS. All financial statements of Borrower and
all Guarantors which have been furnished to the Bank to date are appropriately
certified to the Bank by the Borrower's auditors and to the Borrower's knowledge
are correct in every material respect, there has not been prior to the date
hereof any material adverse change in the financial condition of Borrower or any
Guarantor since the date(s) thereof that is not accurately described in such
financial statements, and Borrower and each Guarantor have no liabilities, fixed
or contingent, which are not fully shown or provided for in said financial
statements as of the dates thereof.
11.6. CORPORATE EXISTENCE. Borrower is duly organized, validly
existing and in good standing under the laws of the State of its incorporation
as set forth above with all the requisite corporate power and authority and all
necessary permits and licenses to own and operate Borrower's properties and to
carry on Borrower's business as now being conducted and is duly qualified and in
good standing in every jurisdiction in which the property owned, leased or
operated by Borrower or the nature of the business conducted by Borrower makes
such qualification necessary.
11.7. ABSENCE OF LITIGATION. To the Borrower's knowledge, due inquiry
having been made, there is no judgment, decree or order outstanding or
litigation or government proceeding or investigation pending or threatened
against Borrower, which might have a material adverse affect upon Borrower's
position, financial, operating or otherwise; the Borrower has filed all tax
returns and reports required to be filed by Borrower with the United States
Government and all state and local governments and has paid in full or made
adequate provision for the payment of all taxes, interest, penalties,
assessments or deficiencies shown to be due or claimed to be due on or in
respect of such tax returns and reports.
11.8. CORPORATE AUTHORITY. The execution and delivery of this
Agreement and each and every other agreement, instrument or document required to
be executed and delivered to Bank by Borrower pursuant to the terms hereof or in
connection with this Agreement, have been duly authorized, are each valid, legal
and binding upon Borrower and enforceable in accordance with their respective
terms. The execution and delivery of this Agreement and each and every other
agreement, instrument or document required to be executed and delivered to the
Bank by Borrower pursuant to the terms hereof, the consummation of the
transactions herein contemplated, the fulfillment of or compliance with the
terms and provision hereof and of each and every other instrument, agreement or
document required to be executed and delivered to the Bank by Borrower pursuant
to the terms hereof or in connection herewith, are within Borrower's,
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powers, are not in contravention of any provision of Borrower's Certificate of
Incorporation or any amendments thereto, or of Borrower's By-laws, and will not
conflict with or result in a breach of any of the terms, conditions or
provisions of any agreement, instrument or other undertaking to which Borrower
is a party or by which Borrower is bound, do not constitute a default thereunder
or under any of them, and will not result in the creation or imposition of any
lien, charge or encumbrance, other than the Permitted Encumbrance, of any nature
whatsoever upon any of Borrower's property or assets pursuant to the terms of
any such agreement, instrument or other undertaking, do not require the consent
or approval of any governmental body, agency or authority and will not violate
the provisions of any laws or regulations of any governmental instrumentality
applicable to Borrower. Borrower is not in default under any agreement,
indenture, mortgage, deed of trust or any other agreement or order issued by any
court or governmental regulatory authority, to which Borrower is a party or by
which Borrower may be bound.
12. Affirmative Covenants of Borrower and Guarantors. The Borrower and
Guarantors covenant and agree that from the date hereof until payment in full of
all their obligations hereunder, the Borrower and Guarantors will:
(a) Deliver or cause to be delivered to Bank (i) within ninety (90)
days after the close of each fiscal year of the Borrower that ends during the
term hereof, a balance sheet of the Borrower as of the close of such fiscal year
and statements of income and retained earnings and source and application of
funds for the year then ended, prepared in conformity with generally accepted
accounting principles, consistently applied from year to year, by an independent
certified public accountant acceptable to Bank to such quality and certified in
such manner as Bank may require, including the fiscal year preceding that for
which such statement is being furnished; (ii) promptly upon the Bank's written
request, such other information about the financial condition and operations of
the Borrower or any guarantor of amounts due hereunder, as the Bank may, from
time to time, reasonably request; and (iii) within ninety (90) days after the
close of each fiscal year of each Guarantor hereof, a balance sheet and
statement of income of each Guarantor signed and certified to be accurate by
each Guarantor. The Borrower and Guarantors agree to notify the Bank promptly of
any material change in their financial condition or business organization or of
any information relating thereto previously furnished to the Bank. From the date
of this agreement the Borrower authorizes the Bank to conduct all credit checks
with respect to Borrower as Bank, in its sole discretion, deems necessary.
(b) Keep their properties insured against fire and other hazards
(so-called "All Risk" coverage); maintain public
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liability coverage against claims for personal injuries or death; and maintain
all worker's compensation, employment or similar insurance as may be required by
applicable law (all such insurance to be maintained with companies satisfactory
to the Bank and to the same extent as is customary in the same or a similar
business). The Borrower shall deliver to the Bank the policies of insurance
required by the Bank, with appropriate indorsements designating the Bank as an
additional insured or loss payee as requested by the Bank. Each policy shall
provide that if such insurance is cancelled for any reasan whatsoever, or if any
substantial change is made in the coverage which affects the Bank, or if such
insurance is allowed to lapse for nonpayment of premium, such cancellation,
change or lapse shall not be effective as to the Bank until thirty (30) days
after receipt by the Bank of written notice from the insurer thereof.
(c) Maintain their properties in good repair, working order and
condition and make all needed and proper repairs, renewals, replacements or
improvements thereto and immediately notify the Bank of any event causing
material loss or depreciation in the value of such properties and the amount of
such loss or depreciation.
(d) Comply with all statutes and government regulations and pay all
taxes, assessments, governmental charges or levies or claims for labor,
supplies, rent and other obligations made against it or its property which, if
unpaid, might become a lien or charge against the property, except liabilities
being contested in good faith and against which, if requested by the Bank, the
Borrower will set up reserves satisfactory to the Bank.
(e) Maintain its existence and comply with all valid and applicable
statutes, rules and regulations, and continue to conduct its business as
presently conducted.
(f) Permit the Bank or its duly authorized agent or employee to
enter the offices and/or plants of the Borrower to examine or inspect any of the
properties, books and financial records of Borrower, and to make copies of such
books and records or extracts therefrom, all at such reasonable times as the
Bank may reasonably request, provided that the Bank shall keep all such
information confidential and use such information for the sole purpose of
administering the loans described herein. The Bank may also verify all or any
Collateral in any manner and through any medium the Bank may consider
appropriate and the Borrower agrees to furnish its assistance and information
and perform such acts which the Bank may reasonably require in connection
therewith.
13. NEGATIVE COVENANTS OF BORROWER AND GUARANTORS. The
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Borrower and Guarantors covenant and agree that until payment is made in full of
all of their obligations hereunder, unless the Bank otherwise consents in
writing, the Borrower and Guarantors will not:
(a) Incur or permit to exist any lien, mortgage, charge or other
encumbrance, against any of their properties or assets, whether now owned or
hereafter acquired, except: (i) liens, if any, to secure amounts owed to Bank or
such as may now exist and have been disclosed to and accepted by Bank in
writing; (ii) pledges or deposits in connection with or to secure worker's
compensation, unemployment insurance, pensions or other employee benefits; (iii)
tax liens which are being contested in good faith; (iv) purchase money security
interests in new equipment purchased by Borrower costing in any single instance
not more than $l50,000.00 or (v) the Permitted Encumbrance.
(b) Enter into any other loan transactions of any kind or assume,
guarantee, endorse or otherwise become liable upon the obligation of any person,
firm, entity or corporation except by the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, except as contemplated by the Purchase Agreement.
(c) Enter into any merger or consolidation unless the Indebtedness
to the Bank is (i) paid in full or (ii) reduced as described in Section 18 below
as a direct and immediate outcome of the transaction or sell all or
substantially all of Borrower's assets, or liquidate, dissolve or otherwise
terminate or alter Borrower's existence, form or method of conducting business,
except that the Borrower, DDD, and the Guarantors, excluding Netcomp, may merge
into a corporation which shall assume all obligations and Indebtedness described
in this Agreement
(d) Move the inventory or the records concerning the Collateral from
the location where they are kept as specified in this Agreement, except Borrower
may keep or move inventory, WIP, and associated records at the Borrower's North
Grand Avenue, Poughkeepsie, New York facility.
(e) Create, incur, assume or suffer to exist any liability for
borrowed money or lease obligation, except to the Bank, or except in the
ordinary course of Borrower's business, if the sum of such borrowed money does
not exceed $150,000.00 in any one transaction, without the prior written consent
of the Bank, which shall not be unreasonably withheld or delayed, other than
liability created in exchange for the Mezzanine Financing.
(f) Become a guarantor, surety, or otherwise liable for the debts or
other obligations of any other person, firm or corporation.
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(g) Use the Collateral in violation of any provision of this
Agreement, of any applicable statute, regulation or ordinance, or of any policy
insurance the Collateral.
(h) Merge or consolidate with or into any corporation except as
provided in subsection (c) above, or enter into any joint venture or partnership
with any person, firm or corporation, or convey, lease or sell all or any
material portion of its property or assets or business to any other person, firm
or corporation, except in the ordinary course of its business; or convey, lease
or sell any of its assets to any person, firm or corporation for less than the
fair market value thereof, unless the Indebtedness to the Bank is (i) paid in
full or (ii) reduced as described in Section 18 below as a direct and immediate
outcome of any such transaction.
(i) Enter into, or permit any of the Subsidiaries to enter into, any
transaction with, or pay any management fees to, an Affiliate; provided,
however, that Borrower and the Subsidiaries may enter into transactions with
Affiliates upon terms not less favorable to Borrower and the Subsidiaries then
would be obtainable at the time in comparable transactions of Borrower and the
Subsidiaries in arm's length dealings with Persons other than Affiliates.
(j) Make or have, or permit any of the Subsidiaries to make or have,
outstanding any investments in any Person, except for Borrower's and the
Subsidiaries' ownership of stock of Subsidiaries.
(k) Directly or indirectly declare or make, or incur any liability
to make, any dividend (other than dividends payable solely in the capital stock
of the Borrower) or any shares of stock of any class of the Borrower, now or
hereafter outstanding or purchase, redeem or otherwise retire any such shares,
or apply or set apart any of its assets therefore or make any other distribution
in respect of any such shares, except that Borrower may make the Share purchases
described in Exhibit E.
(l) Permit any of the Subsidiaries to directly or indirectly declare
or make, or incur any liability to make, any dividend, except dividends to
Borrower, on any shares of stock of any class of any Subsidiary, now or
hereafter outstanding, or purchase, redeem or otherwise retire any such shares,
or apply or set apart any of its assets therefore or make any other distribution
in respect of any such shares.
(m) Until an Equity Infusion of at least
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$1,000,000.00 is received, increase, or permit any of the Subsidiaries to
increase, the salaries, expense accounts, bonuses or other compensation
presently being paid to it or its Subsidiaries' officers or directors without
the Bank's consent, which consent will not be unreasonably withheld or delayed.
Notwithstanding the foregoing, Borrower may increase the present salaries of the
following officers and directors by twenty (20%) percent during the term hereof
without the Bank's consent:
Gary Horne - Chairman of the Board
Stanley Zuk - President
William McElrath - Executive Vice-President
Kenneth Kreuser - Vice-President
Stephen Lynn - Secretary-Treasurer
14. DEFAULT. At Bank's option, all amounts due to Bank hereunder and
under the promissory notes evidencing Advances hereunder, and, notwithstanding
any provision to the contrary contained in any other agreement, instrument or
document given by Borrower to Bank, all amounts owing to Bank under any other
such agreement, instrument or document or otherwise, including, without
limitation, the Dutchess Design Mortgage, the ASD Mortgage, or the Replacement
Promissory Note (all of the foregoing collectively, the "Loan Documents") shall
become due and payable forthwith, without presentment, protest, or demand of any
kind in any of the following "Events of Default":
(a) If any payment of principal or interest required by the terms
hereof or by any other instrument, agreement or document executed and delivered
to the Bank or any other indebtedness owing by the Borrower to the Bank shall
not be fully paid when demand (to the extent the same is payable on demand) is
made for the payment of the same or on the date the same shall fall due if
payable other than on demand and such payment is not made within ten (10) days
of the giving of notice by the Bank; or
(b) If any warranty or representation by Borrower contained herein or
in any related agreement, instrument or document, or in any statement furnished
by Borrower to the Bank proves to be or have been incorrect in any material
respect and Borrower has failed to cure the same within twenty-one (21) days of
the giving of notice by the Bank; or
(c) If default exists in the due observance of any of the covenants
or agreements of Borrower or any Guarantor set forth in this agreement and
Borrower has failed to cure the same within twenty-one (21) days of the giving
of notice by the Bank; or
(d) If the Borrower, or any Guarantor, endorser or
24
<PAGE>
surety of obligations of the Borrower to the Bank, shall dissolve or liquidate,
or be dissolved or liquidated, or die or cease to legally exist, or merge or
consolidate, or be merged or consolidated with or into any other corporation or
person, other than the merger described in Section 13(c) above, without the
written consent of the Bank which will not be unreasonably withheld or delayed;
or
(e) If Borrower or any guarantor of the Borrower's obligations
hereunder shall make an assignment for the benefit of creditors or file a
voluntary petition seeking an order for relief under the federal bankruptcy laws
or other laws relating to bankruptcy, insolvency or relief of debtors or
preliminary action in furtherance thereof is taken, or if Borrower or any such
guarantor is generally not paying its debts as such debts become due, or if the
custodian of Borrower or any such guarantor, within the meaning of Section
101(10) of the Bankruptcy Code (Title 11 U.S.C.), is appointed or takes
possession, or if a petition is filed seeking an order for relief against
Borrower or any such guarantor under the federal bankruptcy laws or similar
relief under other laws relating to bankruptcy, insolvency or relief of debtors
and such petition is not dismissed within sixty (60) days from the date on which
it was filed; or
(f) If the Borrower or any Guarantor is in default of any material
term of any agreement, obligation, mortgage, security agreement, note or
guaranty, whether in connection with this loan or any other loan with the Bank,
including, without limitation, the Replacement Promissory Note, the ASD Mortgage
or the Dutchess Design Mortgage and Borrower has failed to cure the same within
twenty-one (21) days of the giving of notice by the Bank; or
(g) If the Borrower's plant or plants are materially changed or
destroyed and the losses are not substantially covered by insurance or the
Borrower ceases its business operations for a consecutive period of fifteen (15)
business days or longer; or
(h) If the Borrower shall fail to receive an Equity Infusion of at
least $1,000,000.00 by December 31, 1995; or
(i) If the Borrower and DDD shall fail to pay all deferred interest
accrued under the DDD Mortgage, ASD Mortgage, Adjustable Rate Promissory Note,
Line of Credit Note and Supplemental Line of Credit Note through December 30,
1994 as defined in the 1994 Loan Agreement in accordance with the payment
schedule set forth in section 16 below; or
(j) If an event of default should occur under the
25
<PAGE>
Purchase Agreement, the Security Agreement, or any note, document or instrument
described therein, and remain uncured after any applicable cure period.
Notwithstanding anything to the contrary set forth herein, in the event that the
Borrower has received notice of a default under sub-sections (b), (c), or (f)
above, and the curing of said default cannot be reasonably completed in
twenty-one (21) days, and the Borrower has commenced and continued diligent good
faith efforts to cure said default, the Bank shall give reasonable extensions of
the period in which the cure must be effected, provided the Bank concludes, in
its sole discretion, that its position is not detrimentally altered by such
further extension. The Bank may revoke, terminate, or refuse to continue or
review any requests for extension or renewal when it reasonably concludes
Borrower's financial status or Lender's collateral is impaired by the existence
of said default.
15. ADDITIONAL INTEREST. (a) On or before December 31, 1997 the
Borrower will pay to the Bank as Additional Interest on the principal amount of
the Indebtedness the lesser of (a) the sum of $500,000.00 or (b) ten percent
(10%) of the net cash proceeds received by Borrower or any Guarantor described
in (i), (ii), (iii), or (iv) below. The happening of any one or more of the
following events will trigger the immediate obligation of the Borrower to pay to
the Bank a payment or payments equal to ten percent (10%) of the net cash
proceeds received by the Borrower or any Guarantor, but in no event more than
$500,000.00, from (i) the sale of all or any shares of capital stock, (ii)
venture capital raised, (iii) bridge or mezzanine loan financing, or (iv) the
successful completion of an initial public offering. Except as provided in
subsection (b) below, the Additional Interest payable on the occurence of any
of the events described in (i), (ii), (iii) or (iv) above shall be payable in
monthly installments of $10,000.00 for each $1,000,000.00 of Equity Infusion
until ten percent of such cash proceeds has been paid to the Bank. The
obligation of the Borrower to make such payment or payments shall continue until
the full amount of Additional Interest is paid in full or until the expiration
of this Agreement when any unpaid Additional Interest shall be immediately due
and payable. (b) The Borrower shall pay to the Bank ten (10%) percent of the
amount of Mezzanine Financing received by DDD, payable as follows. Following
receipt of the first $1,000,000.00 of the Mezzanine Fianancing, Borrower shall
pay $10,000.00 to the Bank on the first day of each month until DDD receives the
balance of the Mezzanine Financing. Thereafter, the Borrower shall pay
$20,000.00 to the Bank on the first day of each month until ten percent of all
Mezzanine Financing has been paid to the Bank. The amount of such payments shall
be credited against Additional Interest.
26
<PAGE>
16. ACCRUED INTEREST. The Bank has deferred payment of certain accrued
interest on the Indebtedness in the sum of $292,635.64. Such interest shall be
paid as follows: $100,000.00 shall be paid within 5 days of the date hereof;
three quarterly installments of $50,000.000 shall be paid on April 1, 1996,
July, 1, 1996 and October 1, 1996; and a final payment of $42,636.64 will be due
and payable on January 1, 1997.
17. PAYMENT SCHEDULE. Borrower will deliver to the Bank on the first
day of each month a payment schedule, subject to the Bank's approval, listing
past due payables to be paid during that month. If Borrower fails to make the
scheduled payments, the Bank may apply cash in the Lock Box directly to the
unpaid payables.
18. RELEASE OF COLLATERAL. The Bank shall release all Collateral held
by the Bank other than the mortgaged property encumbered by the DDD Mortgage and
the ASD Mortgage upon the Bank's receipt of an amount sufficient to (a) pay in
full the balances due under the Replacement Promissory Note and the
$3,730,000.00 Coordinated Replacement Line of Credit Note and (b) pay (i) all
accrued interest and (ii) reduce to seventy-five (75%) percent the ratio of (I)
the sum of the unpaid principal amounts due under the ASD Mortgage and the DDD
Mortgage to (II) the then sum of the appraised values of the mortgaged
properties. The Shares shall be released subject to the provisions of the
Pledge Agreement.
19. GENERAL PROVISIONS.
19.1. Borrower will execute and deliver to the Bank such financing
statements, assignments and other documents and will do such other things in
connection with this Agreement as the Bank may reasonably request. Borrower
hereby authorizes the Bank to file such financing statement or statements
relating to the Collateral without Borrower's signature thereon as the Bank may
deem appropriate.
19.2. Upon Borrower's failure to perform any of its duties under this
Agreement, the Bank may, but shall not be obligated to, perform any or all such
duties.
19.3. Without in any way requiring notice to be given in the following
manner, Borrower agrees that any notice by the Bank of sale, disposition or
other intended action hereunder or in connection herewith, whether required by
the New York Uniform Commercial Code or otherwise, shall constitute reasonable
notice to Borrower if such notice is mailed by regular or certified mail,
postage prepaid, at least ten (10) days prior to such action, to Borrower's
address or addresses specified above, with a copy to Jonathan D. Deily, Esq.,
State Street Centre, Tenth Floor, 80 State Street, Albany, New York 12207-2009,
or to
27
<PAGE>
any other address which Borrower has specified in writing to the Bank as the
address to which notices hereunder shall be given to Borrower.
19.4. No course of dealing between Borrower and the Bank and no delay
or omission by the Bank in exercising any right or remedy hereunder or with
respect to any indebtedness shall operate as a waiver thereof or of any other
right of remedy, and no single or partial exercise thereof shall preclude any
other or further exercise thereof or the exercise of any other right or remedy.
Al1 rights and remedies of the Bank are cumulative.
19.5. The Bank shall have no obligation to take, and Borrower shall
have the sole responsibility for taking, any and all steps to preserve rights
against any and all Account Debtors and against any and all prior parties to any
note, Chattel Paper, draft, trade acceptance or other instrument for the payment
of money covered by the Security Interest whether or not in the Bank's
possession. The Bank shall not be responsible to Borrower for loss or damage
resulting from the Bank's failure to enforce any Receivables or to collect any
monies due or to become due thereunder or other Proceeds constituting Collateral
hereunder. Borrower waives protest of any note, check, draft, trade acceptance
or other instrument for the payment of money constituting Collateral at any time
held by the Bank on which Borrower is in any way liable.
19.6. Without limiting any other right of the Bank, whenever the Bank
has the right to declare any Indebtedness to be immediately due and payable
(whether or not it has so declared), the Bank at its sole election may setoff
against the Indebtedness any and all monies then or thereafter owed to Borrower
by the Bank in any capacity, whether or not the Indebtedness or the obligation
to pay such monies owed by the Bank is then due, and the Bank shall be deemed to
have exercised such right of setoff immediately at the time of such election
even though any charge therefor is made or entered on the Bank's records
subsequent thereto.
19.7. This Agreement may be executed in any number of counterparts, and
by the Bank and Borrower on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one in the same Agreement.
19.8. Any financial calculation to be made, and all books and records to
be kept in connection with the provisions of this Agreement, shall be in
accordance with generally accepted accounting principles consistently applied
during each interval and from interval to interval.
28
<PAGE>
19.9. No delay or failure of the Bank in exercising any right, power or
privilege, nor shall any single or partial exercise preclude any further
exercise thereof or the exercise of any other rights, powers or privileges, all
being cumulative and not alternative.
19.10. Except with respect to requests for Advances, all notices,
requests or demands to or upon a party to this agreement shall be given or made
by the other party hereto by writing and depositing in the mails postage
prepaid, return receipt requested, addressed to the addressee at the address set
forth above. No other method of giving notice, request or demand is hereby
precluded provided such shall not be deemed given until such notice is actually
received at the address of the addressee.
19.11. This agreement and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of New
York. The parties agree that this Agreement and performance hereunder constitute
the transaction of business in Dutchess County, New York, and that all disputes
between the parties relating directly or indirectly to this Agreement shall be
resolved only by non-jury trial in the Supreme Court, the State of New York at
Dutchess County.
19.12. If any provision of this agreement is invalid or unenforceable]
under applicable law, such provision is and will be totally ineffective to that
extent, but the remaining provisions shall be unaffected.
19.13. All representations, warranties, covenants and agreements herein
contained or made in writing in connection with this Agreement shall continue in
full force and effect until all amounts payable on account of this Agreement
shall have been paid in full.
19.14. This Agreement shall be binding upon and shall inure to the
benefit of the Borrower, the Bank and their respective successors and assigns.
19.15. This Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereby and shall not be changed
except by written amendment signed by the parties.
19.16. If there is more than one Guarantor, each shall be jointly and
severally liable for all obligations of the Guarantor hereunder.
20. RESTATEMENT OF TERMS. This Agreement amends, restates and replaces,
but does not satisfy, terminate or
29
<PAGE>
extinguish the 1994 Loan Agreement as amended by the first and second amendments
thereto. In the event of any conflicts or inconsistencies, the terms of this
Agreement shall be controlling.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
as of the day and year first above written.
AUTOMATIC SYSTEMS DEVELOPERS, INC.
By: /s/ KENNETH R. KREUSER
---------------------------------
Name: Kenneth R. Kreuser
Title: Vice President
POUGHKEEPSIE SAVINGS BANK, FSB
By: /s/ AUGUSTUS COSTLADO
---------------------------------
Name: Augustus Costlado
Title: Senior Vice President
CABLETRONICS, INC.
By: /s/ KENNETH R. KREUSER
--------------------------
Name: Kenneth R. Kreuser
Title: Vice President
ASD GROUP, INC., formerly
DUTCHESS DESIGN AND DEVELOPMENT, INC.
By: /s/ KENNETH R. KREUSER
---------------------------------
Name: Kenneth R. Kreuser
Title: Vice President
HIGH TECHNOLOGY COMPUTERS, INC.
By: /s/ KENNETH R. KREUSER
---------------------------------
Name: Kenneth R. Kreuser
Title: Vice President
HIGH TECHNOLOGY SOLUTIONS, INC.
By: /s/ KENNETH R. KREUSER
---------------------------------
Name: Kenneth R. Kreuser
Title: Vice President
NETCOMP, INC.
By: /s/ KENNETH R. KREUSER
---------------------------------
Name: Kenneth R. Kreuser
Title: Vice President
30
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came KENNETH R.
KREUSER, to me known, who, being by me duly sworn, did depose and say that
he resides in the Town of Poughkeepsie, that he is the Vice President of
AUTOMATIC SYSTEMS DEVELOPERS, INC. the corporation described in and which
executed the foregoing instrument and that he signed his name thereto by
like order of the board of directors.
/s/ GERALD J. COMATOS
---------------------------------
GERALD J. COMATOS
Notary Public, State of New York
Qualified in Dutchess County
Commission Expires June 15, 1996
STATE OF NEW YORK )
) ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came AUGUSTUS J.
COSTALDO, to me known, who, being by me duly sworn, did depose and say that
he resides in Westport, Connecticut, that he is the Senior Vice President of
POUGHKEEPSIE SAVINGS BANK, FSB, the corporation described in and which
executed the foregoing instrument and that he signed his name thereto by
like order of the board of directors.
/s/ GERALD J. COMATOS
---------------------------------
GERALD J. COMATOS
Notary Public, State of New York
Qualified in Dutchess County
Commission Expires June 15, 1996
STATE OF NEW YORK )
) ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came KENNETH R.
KREUSER, to me known, who, being by me duly sworn, did depose and say that
he resides in the Town of Poughkeepsie, that he is the Vice President of
CABLETRONICS, INC., the corporation described in and which executed the
foregoing instrument and that he sign his name thereto by like
order of the board of directors.
/s/ GERALD J. COMATOS
---------------------------------
GERALD J. COMATOS
Notary Public, State of New York
Qualified in Dutchess County
Commission Expires June 15, 1996
31
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came KENNETH R.
KREUSER, to me known, who, being by me duly sworn, did depose and say that
he resides in the Town of Poughkeepsie, that he is the Vice President of ASD
GROUP, INC., formerly DUTCHESS DESIGN AND DEVELOPMENT, INC., the corporation
described in and which executed the foregoing instrument and that he signed
his name thereto by like order of the board of directors.
/s/ GERALD J. COMATOS
---------------------------------
GERALD J. COMATOS
Notary Public, State of New York
Qualified in Dutchess County
Commission Expires June 15, 1996
STATE OF NEW YORK )
) ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came KENNETH R.
KREUSER, to me known, who, being by me duly sworn, did depose and say that
he resides in the Town of Poughkeepsie, that he is the Vice Presi-dent of
HIGH TECHNOLOGY COMPUTERS, INC., the corporation described in and which
executed the foregoing instrument and that he signed his name thereto by
like order of the board of directors.
/s/ GERALD J. COMATOS
---------------------------------
GERALD J. COMATOS
Notary Public, State of New York
Qualified in Dutchess County
Commission Expires June 15, 1996
STATE OF NEW YORK )
) ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came KENNETH R.
KREUSER, to me known, who, being by me duly sworn, did depose and say that
he resides in the Town of Poughkeepsie, that he is the Vice President of
HIGH TECHNOLOGY SOLUTIONS, INC., the corporation described in and which
executed the foregoing instrument and that he sign his name thereto by
like order of the board of directors.
/s/ GERALD J. COMATOS
---------------------------------
GERALD J. COMATOS
Notary Public, State of New York
Qualified in Dutchess County
Commission Expires June 15, 1996
32
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came KENNETH R.
KREUSER, to me known, who, being by me duly sworn, did depose and say that
he resides in the Town of Poughkeepsie, that he is the Vice President of
NETCOMP INC., the corporation described in and which executed the foregoing
instrument and that he signed his name thereto by like order of the board
of directors
/s/ GERALD J. COMATOS
---------------------------------
GERALD J. COMATOS
Notary Public, State of New York
Qualified in Dutchess County
Commission Expires June 15, 1996
33
SECOND AMENDED MODIFICATION, EXTENSION,
SPREADER AND ASSUMPTION AGREEMENT
AGREEMENT dated this 28th day of December, 1995, between AUTOMATIC
SYSTEMS DEVELOPERS, INC., a New York corporation with its principal office at
Industry Street, Poughkeepsie, New York 12603 ("ASD") and POUGHKEEPSIE SAVINGS
BANK, FSB, with its principal office at 249 Main Mall, P.O. BOX 31,
Poughkeepsie, New York 12602 (the "Bank").
WHEREAS, on July 24, 1987, ASD executed a Promissory Note in favor of
the Bank, in the principal amount of ONE MILLION NINE HUNDRED THOUSAND AND
00/lOOTHS ($1,900,000.00) DOLLARS (the "First 1987 Note"); and
WHEREAS, the First 1987 Note was secured by a mortgage dated July 24,
1987 (the "First 1987 Mortgage") on certain commercially improved real estate
situate in the Town of Poughkeepsie, County of Dutchess, State of New York, and
more particularly described on Schedule A attached hereto (the "DDD Property").
The First 1987 Mortgage was recorded in the Office of the Dutchess County Clerk
on July 29, 1987, in Liber 1715 of Mortgages at Page 692; and
WHEREAS, on July 24, 1987, ASD executed a Promissory Note in favor of
the Bank, in the principal amount of FIVE HUNDRED THOUSAND AND OO/100THS
($500,OOO.OO) DOLLARS (the "Second 1987 Note"); and
WHEREAS, the Second 1987 Note was secured by a mortgage dated July 24,
1987 (the "Second 1987 Mortgage") on the ASD Property. The Second 1987 Mortgage
was recorded in the Office of the Dutchess County Clerk on July 29, 1987, in
Liber 1715 of Mortgages at Page 683; and
WHEREAS, on October 22, 1993, ASD and the Bank executed an agreement
(the "1993 Agreement") to consolidate the First 1987 Note with the Second 1987
Note (the "1993 Coordinated Note") and consolidate the First 1987 Mortgage with
the Second 1987 Mortgage to form a new consolidated obligation of ONE MILLION
NINE HUNDRED FIFTY-FIVE THOUSAND SEVEN HUNDRED FIFTY-TWO AND 84/100THS
($1,955,752.84) DOLLARS and to extend the term of the First 1987 Note and the
Second 1987 Note so that the new consolidated obligation became due and payable
on December 1, 1998. The 1993 Agreement was recorded in the Office of the
Dutchess County Clerk on October 22, 1993 in Liber 2174 of Mortgages at Page 87;
and
<PAGE>
WHEREAS, ASD is the fee owner of certain real estate situate in the Town
of LaGrange, County of Dutchess, State of New York, and more particularly
described in Schedule 8 attached hereto (the "Additional Property"); and
WHEREAS, ASD and the Bank entered into a Modification, Extension,
Spreader and Assumption Agreement dated December 30, 1994 and recorded on
January 4, 1995 in the Dutchess County Clerk's Office in Liber 2226 of Mortgages
at Page 90 (the "Modification Agreement") which achieved the following:
1. Modification and extension of the 1993 Coordinated Note so that it is
payable as provided in the Modification Agreement and evidenced by the
"Replacement Note" attached thereto as Schedule C. The Replacement Note is not a
separate and distinct obligation and was executed to simplify the modification,
extension and assumption of the 1993 Coordinated Note and not with the intention
of satisfying the 1993 Coordinated Note, the First 1987 Note or the Second 1987
Note.
2. The spreading of the consolidated lien of the First 1987 Mortgage and
the Second 1987 Mortgage to encumber the Additional Property as well as the ASD
Property as security for the payment of the 1993 Coordinated Note as modified
and extended therein (and evidenced by the Replacement Note); and
WHEREAS, ASD and the Bank entered into a First Amended Modification,
Extension, Spreader and Assumption Agreement dated August 17, 1995 and recorded
in the Dutchess County Clerk's Office in Liber 2244 of Mortgages at page 203
which achieved the following:
1. Modification and Extension of the Replacement Note so that it became
payable as provided therein and evidenced by an Amended and Restated Replacement
Note dated even date therewith; and
2. Modification of the liens of the mortgages, as previously modified,
extended, and spread, to secure a $400,000.00 Line of Credit Note dated even
date therewith made by ASD to the Bank; and
WHEREAS, the current principal balance of the Amended and Restated
Replacement Note is ONE MILLION FIVE HUNDRED FIVE THOUSAND FIVE HUNDRED THIRTEEN
AND 24/lOOTHS ($1,505,513.24) DOLLARS; and
WHEREAS, ASD and the Bank now wish to modify the liens
2
<PAGE>
of the mortgages, as previously consolidated, modified, extended and spread,
to secure a $1,000,000.00 Line of Credit Note dated the date hereof, a
consolidated Credit Line in the amount of $3,680,000.00, and the Indebtedness
defined in that certain Restated Line of Credit Loan and Security Agreement
dated the date hereof (the "Loan Agreement").
NOW THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt of which is hereby acknowledged, ASD and the
Bank agree as follows:
1. Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Loan Agreement. References in the Modification
Agreement to the "Agreement" shall henceforth mean the Loan Agreement.
2. ASD hereby reaffirms its obligation to pay the Amended and Restated
Replacement Note.
3. Upon the satisfaction of the Amended and Restated Replacement Note,
ASD shall be entitled to a cancellation and return of the First 1987 Note, the
Second 1987 Note, the 1993 Coordinated Note, the Replacement Note, and the
Amended and Restated Replacement Note as well as a Satisfaction of Mortgage
expressly incorporating the First 1987 Mortgage, the Second 1987 Mortgage, the
Modification Agreement, the First Amendment thereto, and this Agreement.
4. An Event of Default under the Loan Agreement, or under any obligation
of ASD described therein, shall constitute an event of default under the First
1987 Mortgage and the Second 1987 Mortgage, as consolidated and "extended by the
1993 Agreement, as modified, extended and spread by the Modification Agreement,
as modified and extended by the First Amendment thereto, and as modified and
extended herein. On December 30, 1994, also, a related refinancing of a TWO
MILLION THREE HUNDRED THOUSAND AND 00/100TH5 ($2,300,OOO.OO) DOLLARS mortgage
loan of September 17, 1991, between Dutchess Design and Development, Inc. and
the Bank took place resulting in a Modification, Extension, Spreader and
Assumption Agreement between said parties and ASD. ASD guaranteed and assumed
that mortage loan. An event of default under that September 17, 1991 mortgage
or the Modification, Extensicn, Spreader and Assumption Agreement bearing dated
December 30, 1994, as modified by a First Amendment thereto dated August 1,
1995, as modified by Second Amended Modification, Extension, Spreader and
Assumption Agreement dated even date herewith, shall also constitute an event of
default under the First 1987 mortgage and the Second 1987 Mortgage, as
3
<PAGE>
consolidated and extended by the 1993 Agreement, as modified, extended and
spread by the Modification Agreement and the First Amendment thereto, and as
modified and extended herein.
5. It is agreed that the consolidated lien of the First 1987 Mortgage
and the Second 1987 Mortgage, as modified and extended by the 1993 Agreement, as
modified, extended, and spread by the Modification Agreement and the First
Amendment thereto, and as further modified and extended herein shall remain a
lien on the ASD Property and the Additional Property until the Amended and
Restated Replacement Note, is paid in full and the Loan Agreement is satisfied
in full, it being the intention of the parties to have the Mortgages, as
consolidated, modified, extended, and spread, stand as additional collateral
security for the Indebtedness described in the Loan Agreement but not to
increase the lien of the Mortgages, as consolidated, modified, extended, and
spread, beyond ONE MILLION FIVE HUNDRED FIVE THOUSAND FIVE HUNDRED THIRTEEN AND
24/10OTHS ($1,505,513.24) DOLLARS.
6. ASD and the 8ank agree that any and all Uniform Commercial Code
Security Agreements, financing statements or assignments of leases and rents
filed or recorded in connection with the above-referenced Mortgages, as
consolidated, spread, modified, and extended, shall remain in full force and
effect and shall be deemed to incorporate and include the additional terms and
conditions of this Agreement and shall remain as collateral for the subject
debt, as modified and extended herein.
7. Except as otherwise specifically modified hereunder, all of the terms
and conditions of the First 1987 Note, the First 1987 Mortgage, the Second 1987
Note, the Second 1987 Mortgage, the 1993 Agreement, the 1993 Coordinated Note,
the Replacement Note , the Modification Agreement, the First Amendment thereto,
and the Amended and Restated Replacement Note remain in full force and effect.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto the day and year first above written.
AUTOMATIC SYSTEMS DEVELOPERS,
INC.
By: /s/ KENNETH R. KREUSER
----------------------------
Kenneth R. Kreuser,
Vice President
4
<PAGE>
1
POUGHKEEPSIE SAVINGS BANK, FSB
By:/s/ AUGUSTUS J. COSTALDO
------------------------------
Augustus J. Costaldo,
Vice President
STATE OF NEW YORK )
) ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came KENNETH R.
KREUSER, to me known, who, being by me duly sworn, did depose and say that he
resides in the Town of Poughkeepsie, New York; that he is the Vice President of
AUTOMATIC SYSTEMS DEVELOPERS, INC. the corporation described in and which
executed the foregoing instrument and that he signed his name thereto by like
order of the board of directors.
/s/ GERALD J. COMATOS
----------------------------
Notary Public
GERARD J. COMATOS
NOTARY PUBLIC, State OF New York
Qualified in Dutchess County
Commission Expires June 15, 1996
STATE OF NEW YORK )
)ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came AUGUSTUS J.
COSTALDO, to me known, who, being by me duly sworn, did depose and say that he
resides in Westport, Connecticut; that he is the Senior Vice President of
POUGHKEEPSIE SAVINGS BANK, FSB, the corporation described in and which executed
the foregoing instrument and that he signed his name thereto by like order of
the board of directors.
/s/ GERALD J. COMATOS
----------------------------
Notary Public
GERARD J. COMATOS
NOTARY PUBLIC, State OF New York
Qualified in Dutchess County
Commission Expires June 15, 1996
5
<PAGE>
SCHEDULE A
ALL that certain piece or parcel of land situate in the Town of
Poughkeepsie, County of Dutchess and State of New York bounded and described as
follows:
BEGINNING at a point in the northwesterly line of North Grand Avenue
the said point being the southeasterly corner of the herein described parcel and
being the point of intersection of the northeasterly line of the Penn Central
Railroad right-of-way with the northwesterly line of North Grand Avenue;
THENCE along the southwesterly line of the herein described parcel along
the northeasterly line of lands of the Penn Central Railroad N 39 degrees
12' 20" W 470.00 feet to the southwesterly corner of the herein described
parcel;
THENCE along the northwesterly line of the herein described parcel along
lands of Kipsy Associates N 48 degrees 14' 20" E 400.00 feet to the
northwesterly corner of the herein described parcel;
THENCE along the northeasterly line of the herein described parcel S
41 degrees 45' 40" E 456.74 feet to the northeasterly corner of the herein
described parcel being the northwesterly corner of lands leased by
Chazen-Eberhard to the Red Oaks Mill Machine Shop;
THENCE along the southeasterly line of the herein described parcel
through lands of Chazen-Eberhard along lands leased to the Red Oaks Mill Machine
Shop S 48 degrees 14' 20" W 140.00 feet and S 41 degrees 45' 40" E 75.82 feet;
THENCE still through lands of Chazen and Eberhard along the
southeasterly line of the herein described parcel S 48 degrees 14' 20" W 55.00
feet and S 41 degrees 45' 40" E 97.85 feet to a point in the northwesterly line
of North Grand Avenue;
THENCE still} along the southeasterly line of the herein described
parcel along the northwesterly line of North Grand Avenue N 85 degrees 50' 00" W
11.91 feet and S 83 13' 20" W 265.67 feet to the point or place of beginning,.
6
<PAGE>
SCHEDULE B
ALL that certain tract or parcel of land, situate, lying and being in
the Town of LaGrange, County of Dutchess and State of New York, bounded and
described as follows:
BEGINNING at a point on the Southerly line of Titusville Road, said
point being the intersection of the Southerly line of said Titusville Road with
the Easterly line of lands of Central New England Railroad Co.,
AND RUNNING THENCE along the Southerly line of said Titusville Road, the
following: North 78 degrees 53' 20" East 56.54 feet to a point;
THENCE North 67 degrees 10' 40" East 46.10 feet to a point;
THENCE leaving said line and running along the Westerly line of lands of
Skip Realty Corp., Liber 1285 Page 108, the following: South 13 degrees 36' 40"
East 490.00 feet to a point;
THENCE South 75 degrees 27' 40" West 98.70 feet to a point;
THENCE South 14 degrees 30' 00" East-367.83 feet to a point;
THENCE South 40 degrees 44' 00" East 476.67 feet to a point;
THENCE leaving said line and running along the southwesterly, westerly,
southwesterly and westerly lines of lands of Natale L. Bosaz, Liber 1554, Page
476, the following: South 40 degrees 00' 10" East 126.84 feet to a point;
THENCE South 53 degrees 29' 30" East 366.02 feet to a point;
THENCE along the remains of a wire fence and stone walls, still along
lands of said Natale L. Bosaz, the following: South 4 degrees 27' 20" West
544.78 feet to a point;
THENCE South 56 degrees 51' 00" East 324.60 feet to a point;
THENCE South 58 degrees 04' 10" East 262.90 feet to a point;
THENCE South 20 degrees 40' 10" West 506.00 feet to a point on the
Northerly line of lands of David F. Pertovits, Liber 1548 Page 704;
THENCE leaving said line and running along lands of said David F.
Pertovits, along the remains of a stone wall, the following: North 81 degrees
11' 00" West 392.58 feet to a point;
7
<PAGE>
THENCE North 11 degrees 01' 55" West 193.26 feet to a point;
THENCE North 13 degrees 46' 10" West 128.53 feet to a point;
THENCE North 10 degrees 16' 10" West 48.10 feet to a point;
THENCE South 84 degrees 10' 30" West 359.62 feet to a point;
THENCE North 81 degrees 38' 15" West 134.01 feet to a point;
THENCE North 82 degrees 21' 25" West 98.99 feet to a point;
THENCE North 84 degrees 59' 25" West 150.22 feet to a point;
THENCE North 84 degrees 06' 20" West 368.17 feet to a point;
THENCE North 83 degrees 29' 00" West 294.86 feet to a point on the
Easterly line of aforesaid Central New England Railroad Co.;
THENCE leaving said line and running along lands of said Central New
England Railroad Co., the following: North 15 degrees 00' 20" East 2022.85
feet to a point;
THENCE South 75 degrees 40' 30" East 20.21 feet to a point;
THENCE North 16 degrees 00' 20" East 350.00 feet to a point;
THENCE South 73 degrees 59' 40" East 50.00 feet to a point;
THENCE North 23 degrees 06' 10" West 79.26 feet to he point of
beginning.
8
SECOND AMENDED MODIFICATION, EXTENSION,
SPREADER AND ASSUMPTION AGREEMENT
AGREEMENT dated this 28th day of December, 1995, between ASD GROUP,
INC., formerly known as DUTCHESS DESIGN AND DEVELOPMENT, INC., a New York
corporation with its principal office at Industry Street, Poughkeepsie, New York
12603 ("DDD"), AUTOMATIC SYSTEMS DEVELOPERS, INC., a New York corporation with
its principal office at Industry Street, Poughkeepsie, New York 12603 ("ASD")
and POUGHKEEPSIE SAVINGS BANK, FSB, with its principal office at 249 Main Mall,
P.O. Box 31, Poughkeepsie, New York 12602 (the "Bank").
WHEREAS, on September 17, 1991, DDD executed a Promissory Note in favor
of the Bank, in the principal amount of TWO MILLION THREE HUNDRED THOUSAND AND
00/lOOTHS ($2,300,000.00) DOLLARS (the "Note"); and
WHEREAS, the Note was secured by a mortgage dated September 17, 1991
(the "Mortgage") on certain commercially improved real estate situate in the
Town of LaGrange, County of Dutchess, State of New York, and more particularly
described on Schedule A attached hereto (the "DDD Property"). The Mortgage was
recorded in the Office of the Dutchess County Clerk on September 8, 1991, in
Liber 2072 of Mortgages at Page 271; and
WHEREAS, on October 22, 1993, DDD and the Bank executed an agreement
(the "1993 Agreement") to modify and extend the term of the Note to September 1,
1998. The 1993 Agreement was recorded in the Office of the Dutchess County Clerk
on October 22, 1993 in Liber 2174 of Mortgages at Page 83; and
WHEREAS, ASD is the fee owner of certain real estate situate in the Town
of LaGrange, County of Dutchess, State of New York, and more particularly
described in Schedule B attached hereto (the "ASD Property"); and
WHEREAS, DDD, ASD and the Bank entered into a Modification, Extension,
Spreader and Assumption Agreement dated December 30, 1994 and recorded on
January 4, 1995 in the Dutchess County Clerk's Office in Liber 2226 of Mortgages
at Page 87 (the "Modification Agreement"), which achieved the following:
1. Modification and extension of the Note so that it is payable as
provided in the Modification Agreement and evidenced by the "Replacement Note"
attached thereto as Schedule C. The Replacement Note is not a separate and
distinct obligation
<PAGE>
and was executed to simplify the modification, extension and assumption of
the Note and not with the intention of satisfying the Note.
2. The spreading of the lien of the Mortgage to encumber the ASD
Property as well as the DDD Property as security for the payment of the Note as
modified and extended therein (and evidenced by the Replacement Note).
3. The assumption by ASD of the obligation to pay the Note as modified
and executed therein (and evidenced by the Replacement Note); and
WHEREAS, the parties entered into a First Amended Modification,
Extension, Spreader and Assumption Agreement dated August 17, 1995 and recorded
on August 18, 1995 in the Dutchess County Clerk's Office in Liber 2244 of
Mortgages at Page 205 which achieved the following:
1. Modification and extension of the Replacement Note so that it became
payable as provided therein and evidenced by an Amended and Restated Replacement
Note; and
2. Modification of the liens of the Mortgage, as previously modified,
extended, and spread, to secure a $400,000.00 Line of Credit Note dated even
date therewith made by ASD to the Bank, and DDD's guaranty thereof.
WHEREAS, the current principal balance of the Replacement Note is ONE
MILLION NINE HUNDRED EIGHTY-EIGHT THOUSAND ONE HUNDRED NINETEEN and 49/100
($1,988,119.49) DOLLARS; and
WHEREAS, the parties now wish to modify the liens of the mortgages, as
previously consolidated, modified, extended and spread, to secure a
$1,000,000.00 Line of Credit Note dated the date hereof, a consolidated Credit
Line in the amount of $3,680,000.00, and the Indebtedness defined in that
certain Restated Line of Credit Loan and security Agreement dated the date
hereof ( the "Loan Agreement").
NOW THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Loan Agreement. References in the Modification
Agreement to the "Agreement" shall
2
<PAGE>
henceforth mean the Loan Agreement.
2. ASD and DDD hereby reaffirm their joint and several obligations to
pay the Amended and Restated Replacement Note.
3. Upon the satisfaction of the Replacement Note , as modified and
extended herein, DDD and ASD shall be entitled to a cancellation and return of
the Note, the Replacement Note, and the Amended and Restated Replacement Note,
as well as a Satisfaction of Mortgage expressly incorporating the Mortgage, the
Modification Agreement, the First Amendment thereto and this Agreement.
4. An Event of Default under the Loan Agreement, or under any obligation
of ASD described therein, shall constitute an event of default under the
Mortgage, as modified and extended by the 1993 Agreement, and modified,
extended, spread and assumed by the Modification Agreement, as modified and
extended by the First Amendment thereto, and as modified and extended herein. On
December 30, 1994, also, a related refinancing of two mortgage loans totaling
TWO MILLION FOUR HUNDRED THOUSAND and 00/100 ($2,400,000.00) DOLLARS, between
ASD and the Bank took place resulting in a Modification, Extension and Spreader
Agreement between said parties date December 30, 1994. DDD is a guarantor of
that mortgage loan. An event of default existing under said July 24, 1987
mortgages or the Modification, Extension and Spreader Agreement dated December
30, 1994, as modified by First Amendment thereto dated August 17, 1995, and as
modified by Second Amended Modification, Extension, Spreader and Assumption
Agreement dated even date herewith, shall also constitute an event of default
under the Mortgage, as modified and extended by the 1993 Agreement, as modified,
extended, spread and assumed by the Modification Agreement and the First
Amendment thereto, and as modified and extended herein.
5. It is agreed that the lien of the Mortgage, as modified and extended
by the Agreement, as modified, extended, spread, and assumed by the Modification
Agreement, and the First Amendment thereto, and as further modified and extended
herein, shall remain on the DDD Property and the ASD Property until the Amended
and Restated Replacement Note is paid in full and the Loan Agreement is
satisfied in full, it being the intention of the parties to have the Mortgage,
as previously modified, extended, spread and assumed, stand as additional
collateral security for the indebtedness described therein but not to increase
the lien of the Mortgage beyond ONE MILLION NINE HUNDRED EIGHTY-EIGHT THOUSAND
ONE HUNDRED NINETEEN AND 49/lOOTHS ($1,988,119.49) DOLLARS.
3
<PAGE>
6. DDD and ASD and the Bank agree that any and all Uniform Commercial
Code Security Agreements, financing statements or assignments of leases and
rents filed or recorded in connection with the above-referenced Mortgages, as
modified, extended, spread, and assumed, shall remain in full force and effect
and shall be deemed to incorporate and include the additional terms and
conditions of this Agreement and shall remain as collateral for the subject
debt, as modified and extended herein.
7. Except as otherwise specifically modified hereunder, all of the terms
and conditions of the Note, the Mortgage, the 1993 Agreement, the Replacement
Note, and the Modification Agreement, the First Amendment thereto and the
Amended and Restated Replacement Note remain in full force and effect.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto the day and year first above written.
ASD GROUP, INC., formerly
known as DUTCHESS DESIGN
AND DEVELOPMENT, INC.
By: /s/ KENNETH R. KREUSER
----------------------------
Kenneth R. Kreuser,
Vice President
AUTOMATIC SYSTEMS DEVELOPERS,
INC.
By: /s/ KENNETH R. KREUSER
---------------------------
KENNETH R. KREUSER,
Vice President
POUGHKEEPSIE SAVINGS BANK, FSB
By: /s/AUGUSTUS J. COSTALDO
----------------------------
Augustus J. Costaldo
Senior Vice President
4
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came KENNETH R.
KREUSER, to me known, who, being by me duly sworn, did depose and say that he
resides in the Town of Poughkeepsie, New York; that he is the Vice President of
AUTOMATIC SYSTEMS DEVELOPERS, INC. the corporation described in and which
executed the foregoing instrument and that he signed his name thereto by like
order of the board of dorectors.
/s/ GERALD J. COMATOS
----------------------------
Notary Public
GERARD J. COMATOS
NOTARY PUBLIC, State OF New York
Qualified in Dutchess County
Commission Expires June 15, 1996
STATE OF NEW YORK )
)ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came KENNETH R.
KREUSER, to me known, who, being by me duly sworn, did depose and say that he
resides in the Town of Poughkeepsie, that he is the Vice President of ASD
GROUP, INC., formerly known as DUTCHESS DESIGN AND DEVELOPMENT, INC., the
corporation described in and which executed the foregoing instrument and that he
signed his name thereto by like order of
/s/ GERALD J. COMATOS
----------------------------
Notary Public
GERARD J. COMATOS
NOTARY PUBLIC, State OF New York
Qualified in Dutchess County
Commission Expires June 15, 1996
STATE OF NEW YORK )
)ss:
COUNTY OF DUTCHESS )
On this 28th day of December, 1995, before me personally came AUGUSTUS J.
COSTALDO, to me known, who, being by me duly sworn, did depose and say that he
resides in Westport, Connecticut; that he is the Senior Vice President of
POUGHKEEPSIE SAVINGS BANK, FSB, the corporation described in and which executed
the foregoing instrument and that he signed his name thereto by like order of
the board of directors.
/s/ GERALD J. COMATOS
----------------------------
Notary Public
GERARD J. COMATOS
NOTARY PUBLIC, State OF New York
Qualified in Dutchess County
Commission Expires June 15, 1996
5
<PAGE>
SCHEDULE A
ALL that certain piece or parcel of land situate in the Town of
LaGrange, County of Dutchess and State of New York bounded and described as
follows:
BEGINNING at a point on the northerly line of Industry Street at its
intersection with the easterly line of Commerce Street; and
RUNNING THENCE along said easterly line of Commerce Street and along
said easterly line of now or formerly Regan (Liber 1422 cp 251) North
58 degrees 30' 00" East 507.11 feet to land now or formerly Page (Liber 1717 cp
289); and
RUNNING THENCE same South 25 degrees 23' 40" East 142.95 feet, South
25 degrees 13' 00" East 355.10 feet and South 24 degrees 50' 20" East 51.26
feet to a point the northerly line of now or formerly Fusco (Liber 1257 cp 67)
and
RUNNING along same South 58 degrees 39' 10" West 373.28 feet to a
point, the northerly line of said Industry Street;
THENCE along same North 39 degrees 12' 50" West 550.00 feet to the
point or place of beginning.
6
<PAGE>
SCHEDULE B
ALL that certain tract or parcel of land, situate, lying and being in
the Town of LaGrange, County of Dutchess and State of New York, bounded and
described as follows:
BEGINNING at a point on the Southerly line of Titusville Road, said
point being the intersection of the Southerly line of said Titusville Road with
the Easterly line of lands of Central New England Railroad Co.,
AND RUNNING THENCE along the Southerly line of said Titusville Road, the
following: North 78 degrees 53' 20" East 56.54 feet to a point;
THENCE North 67 degrees 10' 40" East 46.10 feet to a point;
THENCE leaving said line and running along the Westerly line of lands of
Skip Realty Corp., Liber 1285 Page 108, the following: South 13 degrees 36' 40"
East 490.00 feet to a point;
THENCE South 75 degrees 27' 40" West 98.70 feet to a point;
THENCE South 14 degrees 30' 00" East 367.83 feet to a point;
THENCE South 40 degrees 44' 00" East 476.67 feet to a point;
THENCE leaving said line and running along the southwesterly, westerly,
southwesterly and westerly lines of lands of Natale L. Bosaz, Liber 1554, Page
476, the following: South 40 degrees 00' 10" East 126.84 feet to a point;
THENCE South 53 degrees 29' 30" East 366.02 feet to a point;
THENCE along the remains of a wire fence and stone walls, still along
lands of said Natale L. Bosez, the following: South 4 degrees 27' 20" West
544.78 feet to a point;
THENCE South 56 degrees 51' 00" East 324.60 feet to a point;
THENCE South 58 degrees 04' 10" East 262.90 feet to a point;
THENCE South 20 degrees 40' 10" West 506.00 feet to a point on the
Northerly line of lands of David F. Petrovits, Liber 1548 Page 704;
THENCE leaving said line and running along lands of said
7
<PAGE>
David F. Pertovits, along the remains of a stone wall, the wing: North
81 degrees 11' 00" West 392.58 feet to a point;
THENCE North 11 degrees 01' 55" West 193.26 feet to a point;
THENCE North 13 degrees 46' 10" West 128.53 feet to a point;
THENCE North 10 degrees 16' 10" West 48.10 feet to a point;
THENCE South 84 degrees 10' 30" West 359.62 feet to a point;
THENCE North 81 degrees 38' 15" West 134.01 feet to a point;
THENCE North 82 degrees 21' 25" West 98.99 feet to a point;
THENCE North 84 degrees 59' 25" West 150.22 feet to a point;
THENCE North 84 degrees 06' 20" West 368.17 feet to a point;
THENCE North 83 29' 00" West 294.86 feet to a point on the Easterly line
of aforesaid Central New England Railroad Co.;
THENCE leaving said line and running along lands of said Central New
England Railroad Co., the following: North 16 00' 20" East 2022.85 feet to a
point;
THENCE South 75 degrees 40' 30" East 20.21 feet to a point;
THENCE North 16 degrees 00' 20" East 350.00 feet to a point;
THENCE South 73 degrees 59' 40" East 50.00 feet to a point;
THENCE North 23 degrees 06' 10" West 79.26 feet to the point of
beginning.
8
EXECUTION COPY
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement") is made and entered into as of
the 31st day of May, 1996, by and among Bankers Trust Company (BTCo"),
Automatic Systems Developers, Inc. (the "Company") and ASD Group, Inc., formerly
known as Dutchess Design and Development, Inc. ("DDD").
RECITALS
A. The Company and Poughkeepsie Savings Bank, FSB ("FSB") are parties
to a Loan Consolidation and Security Agreement, dated as of October 22, 1993
(as amended, supplemented or otherwise modified from time to time, the "Loan
Agreement "), pursuant to which PSB agreed to consolidate three existing credit
facilities into a single facility. In connection with the Loan Agreement, the
Company executed an Amended and Restated Replacement Promissory Note, dated
August 17, 1995 (as amended, supplemented or otherwise modified from time to
time, the "August 1995 Note"), in favor of PSB in the original principal amount
or $565.025.67.
B. The Company and PSB are also parties to an Amended and Restated Line
of Credit, Loan Extension and Security Agreement, dated as of December 30, 1994
(as amended, supplemented or otherwise modified from time to time, the "1994
Credit Agreement"), pursuant to which PSB agreed to consolidate two existing
lines of credit into a single line of credit. In connection with the 1994 Credit
Agreement, the Company executed an Amended and Restated Replacement Note, dated
August 17, 1995 (as amended, supplemented or otherwise modified from time to
time, the $1,505,513,24 Note"), in favor of PSB in the original principal
amount of $1,505,513.24 and the Company and DDD executed an Amended and Restated
Replacement Note, dated August 17, 1995 as amended, supplemented or otherwise
modified from time to time, the "$1,968,119.49 Note"), in favor of PSB in the
original principa1 amount of $1,988,119.49.
C. The Company, High Technology Computers, Inc. ("Computers") and PSB
are parties to a Restated Line of Credit Loan and Security Agreement, dated as
of December 28, 1995 (an amended, supplemented or otherwise modified from time
to time, the "1995 Credit Agreement"), pursuant to which PSB agreed to
consolidate three existing lines of credit into a single line of credit. In
connection with the l995 Credit Agreement, the Company executed a $3,730,000
Coordinated Replacement Line of Credit Note, dated December 28, 1995 (as
amended, supplemented or otherwise modified from time to time, the "December
1995 Note" and, together with the August 1995 Note, the $1,505,513.24 Note and
the $1,988,119,49 Note, the "Notes"), in favor of PS8 in the original principal
amount of $3,730,000.
<PAGE>
D. The $1,505,513.24 Note is secured by a Mortgage, dated July 24,
1987 (as amended, supplemented or otherwise modified from time to time, the
"Poughkeepsie Mortgage"), by the Company in favor of PSB covering the real
property and the improvements located in the Town of Poughkeepsie, County
of Dutchess, State of New York and more particularly described therein (the
"Poughkeepsie Property"), which mortgage was recorded in the office of the Clerk
of Dutchess County, New York on July 29, 1987, in Liber 715 of Mortgages at
Page 692 and on July 29, l987, in Liber 1715 of Mortgages at Page 683.
E. The $l,988,119.49 Note is secured by a Mortgage, dated September 17,
1991 (as amended, supplemented or otherwise modified from time to time, the
"Dutchess Mortgage" and, together with the Poughkeepsie Mortgage, the
"Mortgages"), by DDD and the Company in favor of PSB covering the real property
and the improvements located in (a) the Town of LaGrange, County of
Dutchess, state of New York and more particularly described therein (the "ASD
Dutchess Property"), which mortgage was recorded in the office of the Clerk of
Dutchess County, New York on September 18, 199l, in Liber 2072 of Mortgages at
Page 271 and (b) the Town of LaGrange, County of Dutchess, State of New York and
more particularly described therein the "ASD Dutchess Property" and, together
with the DDD Dutchess Property, the "Dutchess Property"), which mortgage was
recorded in the office of the Clerk of Dutchess County, New York on January 4,
l995, in Liber 2226 of Mortgages at Page 87.
F. The indebtedness of the Company to PSB is guarantied by DDD,
Computers, Cabletronics, Inc. ("Cabletronics) and Netcomp, Inc., formerly
known as ASD Office Systems, Inc. ("Netcomp" and, together with Computers and
Cabletronics, the "Guarantors") pursuant to separate guaranties, each dated
October 22, 1993 (all of the foregoing guaranties, collectively, the Company
Guaranties").
G. The Indebtednees of DDD to PSB is guarantied by the Company,
Computers, Cabletronics and Netcomp pursuant to separate guaranties, each dated
October 22, 1993 (all or the foregoing guaranties, collectively, the "DDD
Guaranties" and, together with the Company Guaranties, the "Guaranties"). All of
the foregoing documents described in paragraphs A through G hereof and all
documents executed and delivered in connection therewith are referred to as the
"Loan Documents."
H. PSB has assigned all of its rights under the Loan Documents to BTCo.
I. There is due and owing to BTCo as of the date hereof $7,674,779 under
the Notes, plus accrued interest and Additional Interest (as defined in the
1994 Credit Agreement), without defense, offset, claim or counterclaim of any
kind. The total amount owed from time to time to BTCo under the Loan
-2-
<PAGE>
Documents, including all principal, interest, fees and expenses is referred to
to as the "Obligations."
J. The Obligations are secured by (1) valid, enforceable, first
priority liens on and security interests in the Company's equipment, accounts
receivable, general intangibles, chattel papers, documents and instruments, the
Poughkeepsie Property and the Dutchess Property and (2) valid, enforceable,
second priorioy liens on and Security interest in the Company's inventory and
the Poughkeepsie Property.
AGREEMENT
In consideration of the Recitals and of the mutual promisee and covenant
a contained herein, BTCo, the Company and DDD agree as follows:
SECTION 1. OPTION. BTCo, in consideration of the payment of the Option
on Price (as defined in subsection (a) below), hereby gives the Company and DDD
an option (the "Option") during the Option Period (As defined in subsection (b)
below) to obtain a full release and discharge of all of the Obligations upon
payment of the Discounted Payoff Amount (as defined in subsection (c) below) on
the following terms and conditions and on the other terms and conditions set
forth in this Agreement:
(a) Option Price. The Option Price shal1 be $76,748, $35,000 of which is
payable to BTCo upon the execution of this Agreement and $41.748 of which is
payable to BTCo on or before October 1, 1996,
(b) Option Period . The Option Period shall commence on the date all
of the conditions in section 2 have been fulfilled and shall terminate on the
earlier of (x) the occurrence of a Termination Event (as defined in section (4)
and (y) December 31. 1996.
(c) Exercise of option, The Option may be exercised on any business day
during the Option Period by written notice to BTCo delivered in accordance with
section 8(h) with payment in immediately available funds of an amount equa1 to
the sum of (1) the aggregate principal amount outstanding under the Loan
Documents on the date the Option is exercised the ("Option Date") less a
discount of $460.487 and 1ess. the amount of thc Option Price paid by the
Company and DOD prior to the Option Date; (2) all accrued interest due under the
Loan Documents (other than unpaid Additional interest (as defined in the 1994
Credit Agreement) due and payable after the Option Date) and (3) all fees and
expenses payable under the terms of the loan documents and the Agreement as of
the Option Date.
(d) Application of Option Price. If the Company and DDD exercise the
Option during the Option Period, the Option Price paid to BTCo shall be applied
by BTCo to reduce the
-3-
<PAGE>
principal amount of the Poughkeepsie Property Mortgage. If the Company and DDD
do not exercise the Option during the Option Period, the Option Price shall be
retained by BTCo, and neither the Company nor DDD shall have further rights or
claims with respect to the option or the Option Price.
(e) Delivery of Documents upon Exercise of Option. If the Company and
DDD properly exercise the Option in accordance with the terms of this Agreement.
BTCo shall return to the Company and DDD the Notes and execute and deliver to
the Company and DDD UCO termination statements and satisfactions of the
Mortgages.
SECTION 2. Conditions Precedent to Effectiveness of Aqreement. This
Agreement shall not be effective until it has been executed and delivered by
each of the undersigned and the consent at the end of this Agreement; has
been executed by each of the Guarantors.
SECTION 3. Representations and Warranties. Each of the Company and DDD
hereby represent and warrant to BTCo as follows;
(a) Recitals. The Recitals in this Agreement are true and correct
in all respects.
(b) Due Execution of Agreement. This Agreement has been duly
executed and delivered by the Company and DDD.
(c) Enforceability. This Agreement is the legal, valid and binding
obligation of the Company and DDD, enforceable against the company and DDD in
accordance with its terms.
(d) No Violation. The execution, delivery and performance of this
Agreement by the Company and DDD does not and will not (1) violate any law,
rule, regulation or court order to which the Company or DOD is subject; or (ii)
result in the creation or imposition of any lien, security interest or
encumbrance on any property of the Company or DDD, whether now owned or
hereafter acquired.
(e) Obligation Absolute. The obligation of the Company and DDD to
repay the Obligations, together with all interest accrued thereon, is absolute
and unconditional, and there exists no right of set off or recoupment,
counterclaim or defense of any nature whatsoever to payment of the Obligations.
(f) Loan Documents. Except as specifically modified hereby, all of
the terms and conditions of the Loan Documents shall remain in full force and
effect.
(g) Dissolution. High Technology Solutions, Inc, has been
dissolved in accordanoe with the laws of the state of its incorporation.
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<PAGE>
(h) NAME CHANGE . The name of ASD Office Systems, Inc. has been
changed to Netcomp, Inc, in accordance with the laws of the state of its
Incorporation.
SECTION 4. Termination Event. Each of the following shall constitute a
"Termination Event" hereunder:
(a) the Company and DDD shall fail to pay (i) the Option Price in
accordance with Section 1(a) or (ii) any other amounts due under the terms of
this Agreement; or
(b) the existence of any default as a result of the failure to make
any payment of principal, interest or other amounts due under the Loan
Documents within any applicable grace or cure periods; or
(c) the existence of any default as a result of the occurrence of
any of the following: (i) any of the Company, DDD or any of the Guarantore
shall be adjudicated insolvent or bankrupt, or shall generally fail to pay or
remit in writing their respetive or ability to pay their respective debts as
they become due, (ii) any of the Company, DDD or any of the Guarantors shall
seek diisolution or reorganization or the appointment of a receiver, trustee,
custodian or liquidator or a "substantial portion of their respective property,
assets or business or to effect a plan or other arrangement with their
respective creditors, (iii) any of the Company, DDD or any of the Guarantors
shall make a general assignment for the benefit of their respective creditors,
or consent to or acquiesce in the appointment of a receiver, trustee, custodian
or liquidator for a substantial portion or their respective property, assets or
business, (iv) any of the Company, DDD or any of the Guarantors shall file a
voluntary petition under any bankruptcy, insolvency or similar law, or (o) any
of the Company, DDD or any of the Guarantors or a substantial portion of their
respective property, assets or business shall become the subject of an
involuntary proceeding or petition for dissolution. reorganization, or the
appointment of a receiver, trustee, custodian or liquidator or shall become
subject to any writ, judgment, warrant of attachment, execution or similar
process which is not dismissed within 60 days or
(d) Except as otherwise set forth in subsection (a) and (b) above,
the Company or PPO shall fail to keep or perform any of the covenants or
agreements contained herein within thirty days after having been served by
registered mail with notice of such failure; or
(e) any material representation or warranty of the Company or DDD
shall be false, misleading or incorrect in any material respect.
-5-
<PAGE>
SECTION 5. Effect and Construction of Agreement. Except as expressly
provided herein, the Loan Documents shal1 remain in full force and effect in
accordance with their respective terms, and this Agreement shal1 not be
construed to impair the validity, perfection or priority of any lien or.
security interest securing the Obligations or waive or impair any rights, powers
or remedies of BTCo under the Loan Documents. In the event of any inconsistency
between the terms of this Agreement and any of the Loan Documents, this
Agreement shall govern. Each of the Company and DDD acknowledges that it has
consulted with counsel and with such other experts and advisors as it has deemed
necessary in connection with the negotiation, execution and delivery of this
Agreement. This Agreement shall be construed without regard to any presumption
or rule requiring that it be construed against the party causing this Agreement
or any part hereof to be drafted.
SECTION 6. Expenses. Each of the Company and DDD agrees to pay all
reasonable costs, fees and expenses of BTCo (including the fees of BTCo's
counsel) incurred by BTCo in connection with the negotiation, preparation and
enforcement of this Agreement and the Loan Documents. Such fees and expenses
shall constitute part of the Obligations.
SECTION 7. Release. In consideration of the foregoing, each of the
Company and ODD hereby releases, remises, acquits and forever discharges BTCo
and BICo's employees, agents, representatives, consultants, attorneys,
fiduciaries, servants, officers, directors, partners, predecessors (including
without limitation, PSB), successors and assigns, subsidiary corporations,
parent corporations and related corporate divisions {all of the foregoing
hereinafter called the "Released Parties"), from any and all action" and causes
of action, judgments, executions, suits, debts, claims, demands, liabilities,
obligations, damages and expenses of any and every character, known or unknown.
direct and/or indirect, at law or in equity, of whatsoever kind or nature,
whether heretofore or hereafter arising, for or because of any matter or things
done, omitted or suffered to be done by any of the Released Parties prior to and
including the date of execution hereof, and in any way directly or indirectly
arising out of or in any way connected to this Agreement or the Loan Documents,
(a11 of the foregoing hereinafter called the "Released Matters") Each of the
Company and PDD acknowledges that the agreements in this paragraph are intended
to be in full satisfaction of all or any alleged injuries or damages arising in
connection with the Released Matters. Each of the Company and DDD represents and
warrants to BTCo that it has not purported to transfer, assign, pledge or
otherwise convey any of its right, title or interest in any Released Matter to
any other person or entity and the the foregoing constitutes a full and
complete release of all Released MAtters.
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<PAGE>
SECTION 8. MISCELLANEOUS
(a) FURTHER ASSURANCE. Each of the Company and DDD agrees to
execute such other and further documents and instruments as BTCo may reasonably
request to implement the provisions of thin Agreement and to perfect and protect
the liens and security interests created by the Loan Documents.
(b) Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto, their
respective successors and assigns. No other person or entity shall be entitled
to claim any right or benefit hereunder, including, without limitation, the
status of a third-party beneficiary of this Agreement.
(c) Integration. This Agreement, together with the Loan Documents,
constitutes the entire agreement and understanding among the parties relating
to the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings related to such subject matter.
In entering into this Agreement, each of the Company and DDD acknowledges that
it is relying on no statement, representation, warranty, covenant or agreement
of any kind made by BTCo or any employee or agent of either of BTCo, except for
the agreements of BTCo set forth herein.
(d) Severability, The provisions of this Agreement are intended to
be severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
enforceability without in any manner affecting the validity or enforceability of
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
(e) Governing Law: Service of Process. This Agreement shall be
governed by and construed in accordance with the internal substantive laws of
the State of New York, without regard to its choice of law principles (other
than Section 5-1401 of the New York General Obligations Law). Any legal action
or proceeding with respect to this Agreement and any document delivered in
connection herewith may be brought in the courts of the State of New York or of
the United States of America. For the Southern District of New York, and, by
execution and delivery of this Agreement, the parties hereby accept the
jurisdiction of the aforesaid court. The parties hereto each irrevocably waive
any objection, including, without limitation, any objection to the laying of
venue or based on the grounds of forum non conveniens, which they may now or
hereafter have to the bringing of any such action or proceeding in such
jurisdiction. Each of the Company and DDD agree to submit to personal
jurisdiction in the State of New York in any action or proceeding arising out of
this Agreement and any documents delivered in connection herewith and,
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<PAGE>
in furtherance of such agreement, each of the Company and DDD hereby agrees and
consents that without limiting other methods of obtaining jurisdiction, personal
jurisdiction over the Company or PDD in any such action or proceeding may be.
obtained within or without the jurisdiction of any court located in New York and
that any process or notice of motion or other application to any such court in
connection with any euch action or proceeding may be served upon the Company or
DDD by registered mail to or by personal service, unless otherwise designated
in writing in accordance with the notice requirements set forth below.
(f) JURY TRIAL WAIVER, THE COMPANY, DDD AND BTCO EACH HEREBY
WAIVE THEIR RIGHT T0 TRIAL BY JURY IN ANY CONTROVERSY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE FINANCING DOCUMENTS.
(g) COUNTERPARTS: TELECOPIED SIGNATURES. This Agreement may be
executed in any number of counterparts and by different parties to this
Agreement on separate counterpart, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute one and the same
agreement. Any signature delivered by a party by facsimile transmission shall be
deemed to be an original signature hereto.
(h) NOTICES. Any notices with respect to this Agreement shall be
given by first class mail, return receipt requested, overnight mail or
telecopier as follows :
If to the Company or DDD:
Automatic Systems Developers, Inc.
1 Industry Street
Poughkeepsie, New York 12603
Attn: Stanley F, Zuk
Telecopier No.: 9l4-452-3071
If to BTCo:
Bankers Trust Company
280 Park Avenue
New York, New York 10017
Attn' Mr. Thomas J. O,Brien
Telecopier No.: 212-454-3821
(i) SURIVAL. All representations, warranties, waivers and releases of
the Company and DDD contained herein shall survive the termination of the
Agreement and the indefeasible payment in full in cash of the Obligations under
the Loan Documents.
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<PAGE>
(j) AMENDMENT. No amendment, modification, rescission, waiver or
release of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BANKERS TRUST COMPANY
By: /s/ THOMAS J. O'BRIEN
-------------------------------
Name: Thomas J. O'Brien
-------------------------------
Title: Vice President
-------------------------------
AUTOMATIC SYSTEMS DEVELOPERS
By: /s/ STANLEY F. ZUK
-------------------------------
Name: Stanley F. Zuk
-------------------------------
Title: President
-------------------------------
ASD GROUP, INC., formerly known as Dutchess Design and Development, Inc.
By: /s/ STANLEY F. ZUK
-------------------------------
Name: Stanley F. Zuk
-------------------------------
Title: President
-------------------------------
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<PAGE>
CONSENT OF GUARANTORS
The undersigned are the guarantors under the guaranties referred to in
the preceding Agreement. Each of the undersigned hereby consents to the terms of
the Agreement and hereby ratifies and confirms its respective guaranty in all
respects. Each of the undersigned further acknowledges, represents, warrants
and confirms that there are no defenses, offsets or claims of any nature
whatsoever to the undersigned's obligations and liabilities under its respective
guaranty.
Dated: As of May 31. 1996
HIGH TECHNOLOGY COMPUTER, INC.
By: /s/ STANLEY F. ZUK
------------------------
Name: Stanley F. Zuk
-------------------------------
Title: President
-------------------------------
Dated: A" of May 31, 1996
CABLETRONICS, INC.
By: /s/ STANLEY F. ZUK
------------------------
Name: Stanley F. Zuk
-------------------------------
Title: President
-------------------------------
Dated: As of May 31, 1996
NETCOMP, INC,
By: /s/ STANLEY F. ZUK
------------------------
Name: Stanley F. Zuk
-------------------------------
Title: President
-------------------------------
INDEPENDENT AUDITORS' CONSENT
Board of Directors
ASD Group, Inc.
Poughkeepsie, New York
We consent to the use in this Registration Statement of ASD Group, Inc. on Form
SB-2 of our report dated May 28, 1996 (June 25, 1996 as to Note 11), appearing
in the Prospectus, which is part of this Registration Statement, and to the
references to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Stamford, Connecticut
July 5, 1996
