As filed with the U.S. Securities and Exchange Commission on February 11, 1999
Registration No. 333 - ______________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SYTRON, INC.
(Name of Small Business Issuer in Its Charter)
Pennsylvania 3600 22-3200841
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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2770 Industrial Lane
Broomfield, Colorado 80020
(303) 469-6100
(Address and telephone number of principal executive offices)
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2770 Industrial Lane
Broomfield, Colorado 80020
(303) 469-6100
(Address of principal place of business
or intended principal place of business)
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Mitchel Feinglas, Chief Executive Officer
2770 Industrial Lane
Broomfield Colorado 80020
(303) 469-6100
(Name, address and telephone number of agent for service)
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Copies to:
Andrew J. Goodman, Esq.
Jay J. Jacobson, Esq.
Bresler Goodman & Unterman, LLP
521 Fifth Avenue
New York, New York 10175
(212) 661-2150
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Approximate date of proposed sale to the public: From time to time 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, 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [ ] ___________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Share Price (1) Registration Fee (2)
- ---------- ---------- ----- --------- --------------------
<S> <C> <C> <C> <C>
Common Stock, 2,249,045 shs. $0.21875 $491,979 $625.50
$0.01 par value
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 (a).
(2) Pursuant to Rule 457(g), the registration fee has been calculated at the
average of the bid and asked price as reported on the Over-the-Counter
Bulletin Board as of February 9, 1999, which was $0.2656.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS
Some of the information in this Prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "continue" or other
similar words. These statements discuss future expectations, contain projections
of results of operations or of financial condition or state other
"forward-looking" information. When considering such forward-looking statements,
you should keep in mind the risk factors and other cautionary statements
included in this Prospectus. The risk factors noted in the "Risk Factors"
section and other factors noted throughout this Prospectus, including certain
risks and uncertainties, could cause our actual results to differ materially
from those contained in any forward-looking statement.
CERTAIN MARKET AND INDUSTRY DATA
The market data and industry forecasts that we refer to in this Prospectus
were obtained from publicly available information and industry publications.
While we believe this data and information is materially correct, we have not
verified and cannot guarantee it.
USE OF CERTAIN TERMS AND FINANCIAL INFORMATION
Unless the context otherwise requires, as used in this Prospectus, the
terms "we," "Sytron," "Company" or "Issuer" refer to Sytron, Inc. and its
subsidiaries.
<PAGE>
Subject to Completion, Dated February 10, 1999
The information in this prospectus is not complete and may be changed. We may
complete or amend this prospectus without notice. These securities may not be
sold until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Prospectus
SYTRON, INC.
2,249,045 shares of Common Stock
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* 339,712 Shares held by Crescent International Limited.
* 826,000 Shares issuable upon exercise of certain warrants held by
Crescent International Limited. at exercise prices ranging
generally from $0.010 to $3.375 per share
* 933,333 Shares issuable to Crescent International Limited pursuant
to a Convertible Promissory Note
* 150,000 Shares issuable to Crescent International Limited as a
commitment fee
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Trading Symbol:
NASD OTC Bulletin Board - SITR
----------------------------------------
You Should Consider Carefully The Risk Factors Beginning on Page 6 Of This
Prospectus.
Neither The SEC Nor Any State Securities Commission Has Approved These
Securities Or Determined That This Prospectus Is Accurate Or Complete. Any
Representation To The Contrary Is A Criminal Offense.
February 10, 1999.
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PROSPECTUS SUMMARY
This brief summary highlights selected information from the Prospectus. It
does not contain all of the information that is important to you. We urge you to
read the entire Prospectus before considering investing in any common stock of
our Company.
The Company
Sytron, Inc. ("We" or the "Company") provides security and access control
devices, systems and services intended for commercial, industrial and
governmental end-users. We derive our revenues from the sale of products and
services to customers who use such access control and secure operations for a
variety of facilities, including commercial and industrial buildings, campuses,
prisons, airports, and garages and parking areas. Our main product categories
include magnetic and radio frequency card readers and encoders; security system
communication devices, and local stations; high security portals; integrated
facilities management software; and parking facilities control equipment.
A February, 1996 report by Lehman Brothers identified the access control
segment of the nonresidential security market, and estimated 1995 sales at $1.1
billion. The majority of that sum ($600 million) was estimated as spent on
traditional cards, readers, locks, intercoms, and other "door peripherals".
Growth rate for this segment was estimated at 10% per year. A second major
segment of the market ($400 million) is comprised of new access control
technologies, such as biometric photo ID, radio frequency ID, and a computer
access system. This segment is seen as growing at an estimated 20% annually. The
third and smallest segment ($100 million) is comprised of software driven
security access systems which form the common database integrating subsystems.
The growth rate for this segment was called very rapid.
We think there are several factors behind the growth in the markets we
serve. First, we believe that commercial and industrial companies are investing
in security products and services to confront their security concerns. Second,
insurance against certain risks (or other limits on coverage) is becoming more
difficult to obtain. Third, there is a growing concern about harm to employees
through workplace violence. Fourth, companies are concerned about potential
liability resulting from criminal or terrorist actions.
We formed the Company in 1992 as a Pennsylvania corporation under the name
of MHB Technology, Inc. We adopted our present name in August, 1995. Beginning
at about that date, we began to grow through a series of acquisitions of
smaller, independent producers or developers of security devices. These smaller
companies make up the Company's operating subsidiaries. The material
subsidiaries are Dorado Systems Corporation ("Dorado"), and Sytron Security
Group, Inc.("SSG").
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Our business strategy has been:
* to market our products and services through independent sales
representatives and a variety of other distribution channels;
* to develop product and system upgrades and peripheral devices;
and
* to continue acquiring smaller independent producers of commercial
security products.
The Company's principal offices and its manufacturing and assembly facilities
are at 2770 Industrial Lane, Broomfield, Colorado, 80020. Our telephone number
is (303) 469-6100.
The Offering
The Offering is made only by Crescent International Limited. (We sometimes
refer to that company as "Crescent" or the "Selling Stockholder".) It consists
of an aggregate of 2,249,045 shares of $0.01 par value common stock of Sytron,
Inc. The shares of Common Stock being registered for resale hereunder are
sometimes referred to as the "Shares. All of the Shares have been issued to or
are issuable under certain circumstances to Crescent as follows:
* 339,712 shares
166,667 of these shares have been purchased for cash by Crescent in
connection with its financing efforts on behalf of the Company. The balance of
these shares have been issued to Crescent as payment of fees for its financing
services. (See "Crescent Financing").
* 826,000 shares
These shares are issuable upon the exercise of certain outstanding warrants
to purchase shares of Common Stock held by Crescent. The exercise prices for
such warrants range from $0.01 per share (for 726,000 shares) to $3.375 per
share (for 100,000 shares). See "Crescent Financing," "Selling Stockholder,"
"Principal Stockholders" and "Certain Transactions". If all such warrants were
exercised, the aggregate proceeds from such exercise would be approximately $
344,760 and, if realized, will be added to the Company's working capital. See
"Use of Proceeds".
* 933,333 shares
These shares are issuable upon the conversion of a $350,000 convertible
promissory note. The conversion formula in the note is the lower of $0.8125 per
share and eighty five (85%) percent of Market Price (a defined term), but
subject to a minimum conversion price until July 15, 1999 of $0.375 per share.
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If the entire note is converted before July 15, 1999 at the minimum conversion
price, the Company will be obligated to issue 933,333 shares of its common
stock. See "Crescent Financing," "Selling Stockholder," "Principal Stockholders"
and "Certain Transactions".
* 150,000 shares
The Company is required to issue shares to Crescent at six month intervals
as a commitment fee for continuing to make financing available. (See "Crescent
Financing"). The precise number of shares issuable by the Company will depend on
a formula. The principal variables of the formula are the Market Price (as
defined) of the Common Stock, and the unpaid outstanding balance on the
convertible promissory notes.
We will not receive any proceeds from the sale of Shares by the Selling
Stockholder, other than proceeds from any exercise of Warrants. If we do receive
any proceeds, we intend to use them for general working capital.
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Summary Financial Data
The summary financial data presented below should be read in conjunction
with the Consolidated Financial Statements and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations", both of which are
included in this Prospectus. Note 15 to the Consolidated Financial Statements
discusses Sytron's ability to continue as a going concern.
Statement of Operations Data
Year Ended September 30,
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1997 1998
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Sales $ 4,264,800 $ 5,087,100
Cost of Sales 2,375,100 2,898,900
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Gross Profit 1,989,700 2,188,200
Sales and Marketing 893,400 1,044,400
General and Administrative 1,593,900 1,669,100
Research and Development 652,500 769,200
Loss from Operations (1,150,100) (1,294,500)
Interest Expense (859,900) (304,800)
Other income (expense) 1,400 (155,300)
Loss on asset disposal (1,322,000)
Obsolete inventory loss (827,700)
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Loss before extraordinary item (2,006,500) (3,904,300)
Income from debt release 217,500
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Net Loss $(2,006,500) $(3,686,900)
Basic Income (Loss) per share
Before extraordinary item $ (0.61) $ (0.84)
Extraordinary item 0.05
Net (Loss) (0.61) (0.79)
Shares on which computed 3,273,194 4,647,259
Fully Diluted Income (Loss) per share
Before extraordinary item $ (0.39) $ (0.47)
Extraordinary item 0.03
Net (Loss) (0.39) (0.44)
Shares on which computed 5,164,657 8,391,684
Balance Sheet Data
As at September 30,
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1997 1998
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Cash and equivalents $ 99,200 $ 22,800
Working capital (deficit) (1,371,000) (1,977,400)
Total Assets 4,723,700 3,537,300
Total Liabilities 3,800,400 4,345,000
Stockholders' Equity 923,300 (807,700)
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RISK FACTORS
Before you consider purchasing any Common Stock offered in this Prospectus,
you should carefully consider all of the following risk factors with the rest of
the Prospectus. We do not consider this list of risk factors as an exhaustive
list. This Prospectus also contains forward- looking statements that are based
on current expectations and information available to the Company on the date of
the Prospectus. We assume no obligation to update any such forward- looking
statements. These forward-looking statements involve risks and uncertainties,
including those below and others not listed. Our actual results could differ
materially from those anticipated in such forward-looking statements.
Continuing Net Losses from Operations to Date
Since Sytron's founding in November 1992, it has generated aggregate losses
through September 30, 1998 of ($11,900,110). Our audited financial statements
for the fiscal year ended September 30, 1998, show a loss before extraordinary
items of ($3,904,335) based on sales of $5,087,136 for the period. After giving
effect to $217,483 of income from the release of certain debt, our net loss was
($3,686,852). Our net loss per share was ($0.84) before giving effect to the
income from the release of debt, and ($0.79) after giving effect to that
extraordinary item. We expect to continue to incur losses during the first half
of the fiscal year ending September 30, 1999. Our ability to achieve a
profitable level of operations will depend in large part on increasing our
revenues by expanding the acceptance of our products and services in the market,
by increasing our capital to support expanded inventories and receivables, and
by reducing costs and expenses of our operations. We can give no assurance that
Sytron will ever achieve profitable operations.
Sytron as a Going Concern
Note 15 of our Consolidated Financial Statements discusses our ability to
continue as a going concern. Our audited financial statements have been prepared
on the assumption that we will continue as a going concern. The Company's
recurring operating losses and a working capital deficiency raise substantial
doubt about the Company's ability to continue as a going concern. We have
undertaken a plan to restructure our operations, to reduce our overhead, to
obtain additional financing and to achieve sufficient cash flow to meet our
current obligations. While management believes that such a plan is attainable,
there can be no assurance that such plan will be realized as contemplated or
that the Company will achieve profitable operations.
Management feels that Sytron would achieve operating profits and positive
cash flow if operated for maximum return in its current form. Prior to the
current fiscal year, however, that had not been our strategy. In the long term,
we are committed to being a provider both of security and of parking services
and products. We plan to do this by developing products ourselves, and by
acquiring companies with complementary products and/or distribution networks.
Many of these acquisitions are young companies with limited cash flow and a need
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for capital to realize their potential. Before the 1999 fiscal year, as Sytron
was acquiring young businesses, we have incurred greater spending, and
sacrificed current profit opportunities for future growth opportunities. For
1999, however, we plan to avoid new acquisitions, and to focus on achieving a
profit and a positive cash flow.
There can be no assurance that we will be successful in raising sufficient
cash to meet our current obligations, or that we will achieve profitable
operations. We urge prospective investors to review Sytron's discussion of its
plans both at Note 15 to the Consolidated Financial Statements and at
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Prospectus.
Need for Additional Financing; Working Capital Deficit
From May, 1998 through January 31, 1999, the Company sold Common Stock and
the first of two Convertible Promissory Notes to Crescent International Limited
("Crescent") in private placements, receiving net proceeds of $478,501 from the
two financings. (See "Crescent Financing"). In addition, from April 30, 1998
through June 15, 1998, Sytron sold 700,000 shares of Common Stock to an
institutional investor for $580,375, of which $310,000 was paid in cash and
$269,625 is represented by a note. As a result of the Company's continuing
losses from continuing operations in 1998, the Company had a working capital
deficit of ($1,977,435) as of September 30, 1998 and before taking into account
the issuance of the first of the Convertible Promissory Notes in January of
1999. The Company will need additional equity or debt financing to sustain its
present operating levels, but even with the opportunity to sell an additional
Convertible Promissory Note to Crescent, there is no assurance that adequate
financing will be available on terms acceptable to the Company, or on any terms.
The Company's business and operations will be materially and adversely affected
if it is unable to obtain a level of financing and working capital commensurate
with the level of its revenues.
No Funding From This Offering; Uncertainty of Additional Funding.
The securities we are offering through this Prospectus will provide no
equity capital to us, unless Crescent exercises its rights under its warrants,
or we issue shares to Crescent pursuant to the Convertible Promissory Notes.
There can be no assurance that any of these circumstances will occur.
Sytron needs to continue to invest significant amounts of capital in its
operations and to refinance maturing debt. Based on our current operating plan,
we anticipate that we will require additional financing in the very near future.
Historically, we have been dependent on private debt and equity financing.
Additional financing may be either debt, equity or a combination of both debt
and equity. There can be no assurance that we will be able to secure additional
debt or equity financing or that any such financing will be available on
favorable terms, or on any terms. If we are unable to obtain such additional
financing, our ability to repay our debts and our ability to maintain our
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current level of operations will be materially and adversely affected. In such
event, we will be required to reduce our overall expenditures, including our
research and development activities, and may default on our obligations. (For a
more extensive discussion of this topic, please see "Management's Discussion and
Analysis of Financial Condition and Results of Operation".)
Limited Ability for Secured Borrowing
We will be limited in our ability to obtain future secured loans from
potential lenders because we have already granted security interests in almost
all of our assets, including our inventory to Crescent and our accounts
receivable to other lenders. It is unlikely that we will be able to use our
proprietary technology to secure any loans. (See "Certain Transactions")
Limited Sales Force and Channels of Distribution
Our security system products and services are not aimed at consumers, but
are targeted to owners, operators and developers of commercial and institutional
facilities. We must offer and sell our services and products both to owners and
managers of existing structures and facilities, and to the owners, designers and
financial institutions involved in the development of structures and facilities
now being planned or built. We have only a limited number of sales and marketing
employees. In order to cover additional market areas and to increase our
revenues, we will need to expand our marketing and sales resources. We cannot
assure that we will be able to do this, particularly in light of our present
financial resources. The failure to expand our sales would have a material
adverse effect on our business. (See "Business -- Marketing").
Competition in Security Systems and Services Market
The market both for security and for parking systems services and products
is intensely competitive. Since there are no substantial barriers to enter the
market, we believe competition in this market will intensify. We think the
principal competitive factors in these markets are name recognition,
performance, ease of use and functionality of products. Right now, the market
for our services and products is changing rapidly. The market is characterized
by an increasing number of entrants who have introduced or developed services
and products for use in the industry. As a result, our products and our services
may undergo substantial changes as we react to competition. We currently compete
against other regional firms and nationally represented companies which develop,
design and manufacture security electronics and related products. Many of our
competitors have much greater financial, technical, human, and marketing
resources than we do. There is no assurance that we can compete successfully
against these competitors. (See "Business -- Competition").
Technological Change and Risk of Obsolescence
The high technology products Sytron offers, such as computer-based security
access systems containing microelectronics, and computer hardware and software,
are subject to rapid and significant technological change. Competitors who
develop more effective and efficient technology may render our technology and
products obsolete. Thus, our future success will depend in part on our ability
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to adapt to rapidly changing technologies, to adjust our services and products
to evolving industry standards, and to continue to improve the performance,
qualities and reliability of our services and products. We must do so not only
to meet the demands of the marketplace, but also to keep pace with competitive
service and product offerings. There can be no assurance that we will
successfully meet these requirements. Our failure to adapt to such changes would
have a material adverse effect on our business.
Technology Protection and Proprietary Rights
Sytron regards its technology as its property and attempts to protect it
through trade secret laws, restrictions on disclosure and other methods. We
enter confidentiality agreements with our employees and contractors, and we try
to control access to and distribution of our documents and proprietary
technology. However, the steps we have taken may not prevent misappropriation or
infringement of our proprietary technology. Thus, we are exposed to the risk
that others may use our technology and processes without redress. We can also
offer no assurance that our technology or processes will not be found to
infringe upon the patents and proprietary technology of others.
Management of Growth and Integration of Acquisitions
For Sytron to expand rapidly, to offer its services and products
successfully, and to implement our business plan, we need effective planning and
management. Our future performance and profitability will depend on many
factors. We must successfully maintain existing customer relationships;
effectively market expanded service capabilities; keep up a consistent high
quality of service; recruit, train, motivate and retain qualified personnel; and
integrate our existing business operations with those of our recent and future
acquisitions. We can not be certain that we will either maintain or accelerate
Sytron's growth or that we will anticipate all of the changing demands that
expanding operations will impose on our management, financial systems and
management information systems. Any failure by us to do so could have a material
adverse effect on Sytron's business.
No Dividends
Sytron has not paid cash dividends on its Common Stock. We do not
anticipate the payment of cash dividends in the future. We currently intend to
retain all of our earnings, if any, to finance the development and expansion of
our business. (See "Dividend Policy").
Dependence on Key Personnel
We are substantially dependent for the success of our operations on the
expertise and personal efforts of Mitchel Feinglas, Chief Executive Officer, and
Robert Howard, President. The loss of the services of either Mr. Feinglas or Mr.
Howard would have a material adverse effect on Sytron. Each is engaged pursuant
to a contract that will expire in 2000. Our success is also dependent upon our
ability to hire and retain qualified personnel. We can make no assurances that
we can hire or retain such necessary personnel.
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Relation with Private Capital Group, Ltd.; Potential Conflicts of Interest.
Mr. Feinglas is President of Private Capital Group, Ltd. That company is
both a shareholder and a creditor of Sytron. It is also the company that makes
Mr. Feinglas' services available to us through a consulting contract. Mr.
Feinglas' responsibilities to Private Capital Group, Ltd. may have a material
adverse effect on Sytron. In addition, Mr. Feinglas may have a conflict of
interest with respect to business opportunities presented to him. Mr. Feinglas
makes no assurance that such business opportunities will first be offered to
Sytron rather than to Private Capital Group, Ltd. See "Management" and "Certain
Transactions".
Limited Trading Market for Common Stock.
As of the date of this Prospectus, Sytron Common Stock is traded on the
"Electronic Bulletin Board" operated by the National Association of Securities
Dealers, Inc. (the "NASD") under the symbol "SITR." The Electronic Bulletin
Board is a more limited trading market than the NASDAQ SmallCap Market and
timely, accurate quotations as to the price of the Common Stock may not always
be available. You may expect that trading volume will continue to be low in such
market. Consequently, the activity of only a few shares may affect the market
and may result in wide swings in price and in volume. Sytron intends to file an
application to cause its securities to be listed on the NASDAQ SmallCap Market
when it is able to qualify for such a listing. Among the primary standards we
must meet to qualify for the NASDAQ SmallCap Market is a bid price of $4.00 per
share, with 1,000,000 publicly held shares, which shares shall have a market
value of $5,000,000. The Company must also have a net tangible assets of
$4,000,000, market capitalization of $50,000,000 or net income of $750,000 in
the most recent completed fiscal year or in two of the last three most recently
completed fiscal years. We are not currently able to meet such standards, and
there is no assurance that the we will meet or be able to maintain such
standards in the future.
Penny Stock Regulations.
The Securities and Exchange Commission has adopted rules that define a
"penny stock," as any equity security that has a market price of less than $5.00
per share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require: (i) that a broker or dealer approves a person's account for
transactions in penny stocks; and (ii) the broker or dealer receives from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. To approve a person's account for
transactions in penny stocks, the broker or dealer must (a) obtain financial
information, investment experience and objectives of the person; (b) make a
reasonable determination that the transactions in penny stocks are suitable for
that person; and (c) make a further reasonable determination that the person has
sufficient knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
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Before any transaction in a penny stock, the broker or dealer must also
deliver a disclosure schedule prepared by the SEC relating to the penny stock
market. In highlight form, the schedule (y) sets forth the basis on which the
broker or dealer made the suitability determination; and (z) requires that the
broker or dealer received a signed, written agreement from the investor before
the transaction. The broker or dealer must also disclose the risks of investing
in penny stocks in both public offering and in secondary trading, commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities, and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent to the investor both to disclose recent price
information for the penny stock held in the account and to supply information on
the limited market in penny stocks.
These penny stock restrictions apply to the Company's common stock. The
additional burdens imposed on broker/dealers by such requirements may discourage
broker/dealers from effecting transactions in the Common Stock. That, in turn,
could materially adversely affect the market price severely limit liquidity of
the Common Stock and the ability of purchasers in this offering to sell Common
Stock in the secondary market.
Continued Influence of Present Management.
Sytron's officers and directors hold 26.68% of the Common shares issued.
Upon issuance of all of the shares herein registered for warrants, for
conversion of the Converitble Promissory Notes, and for commitment fees, and
upon the exercise by the officers and directors (or by affiliates of one or more
of them) of all of the options and warrants held by them, the officers and
directors would hold 37.87% of all of the then-outstanding Common shares.
Consequently, management can continue to exercise influence in the election of
all of the Company's Board of Directors and in all matters requiring approval of
the shareholders of the Company, including approval of significant corporate
transactions. (See "Principal Shareholders").
Potential Adverse Effect of Exercise of Additional Warrants and Options
Future sales of a substantial number of shares of Common Stock of Sytron in
the public market could adversely affect the market price of the Common Stock.
It could also impair our ability to raise capital through subsequent offerings
of securities. The existence of options and warrants may make it more difficult
for us to raise capital when necessary and may depress the market price of
Sytron's Common Stock in any market that may develop for such securities.
Potential Adverse Effect of Common Stock Issuances
During the fiscal year ending September 30, 1998, Sytron issued 2,296,873
shares of common stock. These shares were issued (i) on the conversion of some
of the Company's outstanding debt, (ii) for cash, (iii) to acquire the net
assets of Nautica Security Group, Inc., (iv) for services rendered by employees
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and by consultants, and (v) to creditors for certain forbearances by creditors.
We intend to continue to issue unregistered, legended common stock for such
purposes to conserve our cash resources. Issuing common stock for these purposes
may make it more difficult for us to raise capital when necessary. Such
issuances may also depress the market price of Sytron's Common Stock in any
market that may develop for such securities.
Effect of Additional Shares Traded
The shares included in the registration statement of which this Prospectus
forms a part have not previously been registered and available for public sale.
Assuming, at the date of this Prospectus, (i) that the $350,000 Convertible
Promissory Note is converted by Crescent into common stock at the lowest
possible conversion price, (ii) that Crescent exercises all of its warrants,
regardless of the fact that the exercise price for 100,000 of the warrants is
significantly higher than the closing bid of $0.21875 per share of the stock on
February 1, 1999, and (iii) that all shares being registered for commitment fees
are issued to Crescent, there would be a total of 8,669,262 shares of Common
Stock outstanding. The 2,249,045 shares owned by Crescent and being registered
hereunder will represent 26.1% of the total number of shares of Common Stock to
be then issued and outstanding. Future sales of significant numbers of shares of
Common Stock in the public market, especially if such shares are sold while the
shares being registered under this Prospectus remain unsold, could have a
depressing effect on the prevailing market price of the Common Stock. That might
also adversely affect the Company's ability to raise capital through subsequent
offerings of securities. (Assuming that all Crescent warrants are exercised at
their stated exercise prices, the Company would realize aggregate proceeds of
approximately $344,760 from such exercise.)
Potential Adverse Effects of Preferred Stock
Sytron's Board of Directors is authorized to issue 10,000,000 shares of
Preferred Stock. They determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. For example, the holders of
Preferred Stock may have the right to convert their shares to Common Stock. The
issuance of Preferred Stock could also have the effect of delaying, deferring or
preventing a change in control of Sytron. At present, Sytron could consummate
any merger, reorganization, sale of substantially all of its assets, liquidation
or other extraordinary corporate transaction without the approval of the holders
of the outstanding shares of the Preferred Stock. We have no present plan to
issue shares of Preferred Stock. The existence of Preferred Stock may make it
more difficult for the Company to raise capital when necessary and may depress
the market price of Sytron's Common Stock in any market that may develop for
such securities. See "Description of Securities."
Dependence on Third-Party Suppliers
-12-
<PAGE>
Sytron is dependent on third-party suppliers for the various component
parts of its products. Although we believe there are alternative sources for
these component parts, the failure of our current suppliers to supply such
component parts or the absence of readily available alternative sources could
have a material adverse effect on us, including delaying the implementation of
our business plan to achieve profitability. Sytron does not have supply
contracts with any third-party suppliers and purchases components pursuant to
purchase orders placed from time to time. See "Business."
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year in
the date field. Programmers designed and developed these programs without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by, at or
after the year 2000. "Year 2000" issues affect virtually all companies and
organizations, including Sytron.
Sytron's critical internal information systems and programs have been
provided by third party vendors. We have inquired of these vendors and received
specific assurances that systems we use from them are Year 2000 compliant.
All of the systems we have developed for our customers currently use four
digits for identifying the year in dates rather than two digits. Recent
follow-up testing that we have conducted in 1998 and earlier in 1999 has
confirmed that for us. However, our products and services have not always been
Y2K compliant. Even where our products are Y2K compliant, other aspects of a
customer's system (such as the customer's computer and operating system) must
also be Y2K compliant in order to function without damage or interruption. While
we expect that our precautionary measures will reduce or eliminate any
significant impact within Sytron of "Year 2000" issues, there is no assurance
this will be the case. In addition, there is no assurance that "Year 2000"
problems that may be experienced by our customers or suppliers will not have a
negative impact on Sytron.
-13-
<PAGE>
CRESCENT FINANCING
Since May of 1998, Crescent International Limited ("Crescent") has been the
primary source of financing for the Company. Two transactions have taken place.
In May of 1998 (the "May transaction"), the Company sold to Crescent for
$250,000 in cash, 166,667 shares of Common Stock, and a Warrant to acquire an
additional 100,000 shares of Common Stock at a price of $3.375 per share. Rights
under the May transaction Warrant expire in May of 2003. Under the May
transaction, the Company had the conditional right to sell additional shares to
Crescent. Sytron also had an obligation to file a registration statement for all
of the shares issued and issuable to Crescent under the various aspects of the
May transaction. The Company was not able to meet its obligations. As a result
both of that failure, and of the fall in the price of the Company's common stock
on the market on which that stock is traded, the Company was unable to comply
with the conditions underlying its right to sell to Crescent certain additional
shares of stock. In the autumn of 1998, the Company and Crescent agreed to
terminate the May transaction, and to replace it with a revised financing
arrangement (the "January transaction").
The January transaction closed on January 15, 1999. It involves (i) the
sale to Crescent by the Company of a Convertible Promissory Note with a face
amount of $350,000 (the "First Note"), and the conditional right to sell to
Crescent a second Convertible Promissory Note in the face amount of $400,000
(the "Second Note"); (ii) the issuance of 73,045 shares to Crescent as a
commitment fee for entering into the January transaction, and the Company's
agreement to issue an additional number of shares every six months to Crescent
so long as any portion of the First Note or the Second Note remains unpaid;
(iii) the sale to Crescent of 100,000 shares for an aggregate of $1.00; (iv) the
issuance to Crescent of a Warrant (the "Additional Warrant") to purchase up to
726,000 shares from the Company for $0.01 per share; and (v) the payment by
Sytron to Crescent of a Note Issuance Fee of $10,500 in cash. The Convertible
Promissory Notes are secured by a first lien on the Company's inventory. Each
Note is convertible in $50,000 minimum segments at any time into the Company's
common stock.
In the January transaction, share price formulas are part of the First
Note, the Additional Warrant, and the commitment fee. These formulas determine
the precise number of Sytron common shares that are required to be issued to
Crescent. Each formula is based on "Market Price". "Market Price" is defined,
for purposes of the January transaction, as the lowest three consecutive trading
day average of bid prices for the Company's common stock during the thirty
trading days before the date on which Market Price is determined.
The conversion formula in the First Note is the lower of $0.8125 per share
and eighty five (85%) percent of Market Price, but subject to a minimum
conversion price until July 15, 1999 of $0.375 per share. If the entire First
Note is converted before July 15, 1999 at the minimum conversion price, the
Company would be obligated to issue 933,333 shares of its common stock. If the
entire First Note is converted at any time the Market Price has risen to more
than $0.96 a share, the Company would be obligated to issue 430,769 shares of
its common stock. The fewest number of shares of common stock that the Company
is obligated to issue on conversion of the First Note is 430,769.
-14-
<PAGE>
The precise number of shares Crescent may acquire under the Additional
Warrant is also determined by a formula. This formula is designed to reduce the
number of shares Crescent may acquire as the Market Price of the Company's
common stock on the effective date of this registration statement increases. If
the Market Price on that effective date is $0.28 per share or lower, then
Crescent may acquire all 726,000 shares for $0.01 per share. But if, for
example, the Market Price on that effective date is $0.38 per share, then
Crescent's right to acquire shares under the Additional Warrant is reduced to
491,228 shares, at a price of $0.01 per share.
The number of shares issuable each six months as a continuing commitment
fee is also based on Market Price on the date before the commitment fee is
payable. Shares are issuable if there is an unpaid balance under either of the
Convertible Promissory Notes. Five (5%) percent of the unpaid balance of the
Convertible Promissory Notes is divided by the Market Price, and the quotient is
the number of additional shares that the Company is required to issue.
The First Note may not be converted into Sytron common stock, and the
Additional Warrant may not be exercised to acquire Sytron common stock if, by
reason of the conversion (of the First Note) or the exercise (of the Additional
Warrant), Crescent would own (beneficially and through Crescent affiliates) more
than 9.9% of the outstanding shares of Sytron common stock.
As part of the January transaction, the Company agreed to file an initial
registration statement with the SEC. This registration statement is being filed
to carry out that obligation. This registration statement covers, from the May
transaction, both the 166,667 shares of common stock, and 100,000 shares of
common stock that are issuable if Crescent exercises the May transaction
Warrant. This registration statement also covers, from the January transaction,
73,045 shares issued to Crescent as a commitment fee and an estimated 150,000
additional shares that may be issued as a commitment fee over the next twelve
months; 100,000 shares sold to Crescent for $1.00 in the aggregate; 933,333
shares which may be issued to Crescent on its conversion of the First Note at
the stated minimum price before July 15, 1999; and 726,000 shares which may be
issuable to Crescent on its exercise of its rights to acquire shares at the
lowest agreed price pursuant to the Additional Warrant. Thus, this registration
statement seeks to register 2,249,045 shares of Sytron common stock.
DETERMINATION OF OFFERING PRICE
No offering price has been established by Sytron since it is not offering
any shares for sale. Crescent is not an underwriter for or on behalf of the
Company.
DILUTION
All shares being offered in this registration statement are being offered
by Crescent, and no shares are being offered by the Company.
-15-
<PAGE>
USE OF PROCEEDS
The Shares of Common Stock being offered hereby are for the account of
Crescent. Accordingly, the Company will not receive any of the proceeds from the
sale of the Shares by Crescent. See "Selling Stockholder."
The Company will receive, as payment for the purchase of certain of the
Shares offered hereby, the exercise price of any Warrants exercised by Crescent.
If received, such payments will be added by the Company to its working capital.
The Company anticipates the exercise of a warrant to acquire 726,000 shares at a
price of $0.01 per share for a net payment of $7,260. Since the exercise price
of the remaining warrant is substantially above the current market price of the
Common Stock (which averaged $0.21875 per share on the NASDAQ Bulletin Board on
February 1, 1999), the Company does not anticipate the present exercise of that
warrant. In the unlikely event that all of the warrants are exercised, the
aggregate payments to the Company from such exercise would be approximately
$344,760.
SELLING STOCKHOLDER
The following table sets forth certain information with respect to shares
offered by the Selling Stockholder. The number of shares that may actually be
sold by the Selling Stockholder will be determined by such Selling Stockholder,
and may depend upon a number of factors, including, among other things, the
market price of the Common Stock from time to time. The table below sets forth
information as of February 5, 1999 concerning the beneficial ownership of shares
held by the Selling Stockholder, including separately tabulated information
concerning shares of Common Stock issuable upon (i) exercise of certain
Warrants; (ii) conversion of the First Note; and payment of a commitment fee in
connection with the January transaction. (See "Crescent Financing")
<TABLE>
<CAPTION>
Shares of common stock Shares of common stock Shares of common stock
owned before offering (1) offered in the offering (2) owned after offering (2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Issued Common Stock 339,712 339,712 0
- ----------------------------------------------------------------------------------------------------------
Common Stock Issuable
upon:
- ----------------------------------------------------------------------------------------------------------
Exercise of Additional
Warrant at $0.01 per 726,000 726,000 0
share
- ----------------------------------------------------------------------------------------------------------
Exercise of May
Transaction Warrant at 100,000 100,000 0
$3.375 per share
- ----------------------------------------------------------------------------------------------------------
Conversion of First Note 933,333 933,333 0
(3)
- ----------------------------------------------------------------------------------------------------------
Payment of Commitment
Fee (4) 150,000 150,000 0
======== =========
- ----------------------------------------------------------------------------------------------------------
TOTALS 2,249,045 2,249,045 0
-16-
</TABLE>
<PAGE>
(1) The shares enumerated in this column assume that the Selling
Stockholder will exercise all of its rights to purchase warrant shares and
to convert the First Note into shares. It is further assumed that the
Selling Stockholder will receive the commitment fee estimated below.
(2) Because the Selling Stockholders may sell all, some or none of the
shares held, and because the offering contemplated by this Prospectus is
not being underwritten, no estimate can be given as to the number of shares
that will be held by the Selling Stockholder upon or prior to termination
of this offering. However, for purposes of the above table, it is assumed
that all shares offered hereby will be sold. See "Plan of Distribution."
(3) The conversion formula in the First Note is the lower of $0.8125 per
share and eighty five (85%) percent of Market Price, but subject to a
minimum conversion price until July 15, 1999 of $0.375 per share. If the
entire First Note is converted before July 15, 1999 at the minimum
conversion price, the Company would be obligated to issue a maximum of
933,333 shares upon such conversion. If the entire First Note is converted
at any time the Market Price has risen to more than $0.96 a share, the
Company would be obligated to issue 430,769 shares of its common stock. The
fewest number of shares of common stock that the Company is obligated to
issue on conversion of the First Note is 430,769.
(4) Estimated
Sytron will not receive any of the proceeds from the sales of the Common Stock
by the Selling Stockholder except to the extent that Crescent exercises a
warrant prior to selling any Common Stock. There is no assurance that any of the
Warrants will be exercised by Crescent. The Company will incur costs of
approximately $20,000 in connection with the registration of the Common Stock
underlying the Warrants, and of approximately $65,000 in connection with the
preparation, printing and filing of the registration statement of which this
prospectus is a part.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate that it will pay dividends in the foreseeable future.
The Company currently intends to retain any future earnings for the operation
and expansion of the Company's business. Any determination to pay dividends in
the future will be at the discretion of the Company's Board of Directors and
will be dependent upon the Company's results of operations, restrictions imposed
by any applicable law and other factors deemed relevant by the Board of
Directors. Furthermore, the Company and its subsidiaries are restricted from
paying dividends under certain of the Company's credit and capital lease
agreements. See "Risk Factors-No Dividends" and "Management's Discussion and
Analysis of Financial Condition and Results of Operation- Liquidity and Capital
Resources."
CAPITALIZATION
The following table sets forth the Company's capitalization as of September
30, 1998. This table should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto beginning at page F-1 of
this Prospectus.
-17-
<PAGE>
Audited
September 30, 1998
------------------
Current Liabilities $ 3,650,778
Long-Term Debt 694,220
Total Liabilities 4,344,998
Preferred Stock, no par value: -0-
10,000,000 shares authorized, no
shares issued and outstanding
Common Stock, $0.01 par value: 59,035
20,000,000 shares authorized,
5,903,537 issued and outstanding
at September 30, 1998 (1)
Additional Paid-in Capital 11,303,006
Stock Subscriptions Receivable (269,625)
Accumulated Deficit (11,900,110)
------------
Total Stockholders' Equity (807,694)
------------
Liabilities and Stockholders' Equity $ 3,537,304
============
(1) Does not include shares of Common Stock issuable (i) upon exercise of
Warrants held by Crescent, (ii) upon conversion of the First Note, and (iii) as
commitment fees issuable to Crescent in connection with the January transaction.
See "Crescent Financing" and "Selling Stockholder".
-18-
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below are excerpted from the
Consolidated Financial Statements for the years ended September 31, 1998 and
1997. These Consolidated Financial Statements, together with the Independent
Auditors' Report of Jones, Jensen & Company, are included in this Prospectus.
This selected information should be read in conjunction with the Consolidated
Financial Statements and with "Management's Discussion and Analysis of Financial
Condition". Note 15 to the Consolidated Financial Statements discusses the
Company's plans to continue as a going concern.
Statement of Operations Data
Year Ended September 30,
------------------------
1997 1998
---- ----
Sales $ 4,264,800 $ 5,087,100
Cost of Sales 2,375,100 2,898,900
----------- -----------
Gross Profit 1,989,700 2,188,200
Sales and Marketing 893,400 1,044,400
General and Administrative 1,593,900 1,669,100
Research and Development 652,500 769,200
Loss from Operations (1,150,100) (1,294,500)
Interest Expense (859,900) (304,800)
Other income (expense) 1,400 (155,300)
Loss on asset disposal (1,322,000)
Obsolete inventory loss (827,700)
----------- -----------
Loss before extraordinary item (2,006,500) (3,904,300)
Income from debt release 217,500
----------- -----------
Net Loss $(2,006,500) $(3,686,900)
Basic Income (Loss) per share
Before extraordinary item $ (0.61) $ (0.84)
Extraordinary item 0.05
Net (Loss) (0.61) (0.79)
Shares on which computed 3,273,194 4,647,259
Fully Diluted Income (Loss) per share
Before extraordinary item $ (0.39) $ (0.47)
Extraordinary item 0.03
Net (Loss) (0.39) (0.44)
Shares on which computed 5,164,657 8,391,684
Balance Sheet Data
As at September 30,
-------------------
1997 1998
---- ----
Cash and equivalents $ 99,200 $ 22,800
Working capital (deficit) (1,371,000) (1,977,400)
Total Assets 4,723,700 3,537,300
Total Liabilities 3,800,400 4,345,000
Stockholders' Equity 923,300 (807,700)
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors."
General
Sytron, Inc. was incorporated under the laws of the Commonwealth of
Pennsylvania on November 9, 1992. The Company participates in the security and
the parking industries. It designs, develops, assembles, sells and installs
security and parking products, systems, and services. The Company operates
through eight subsidiaries, two of which are in the developmental stage. From
its corporate headquarters in Broomfield, Colorado, Sytron provides central
financial management, administrative, and marketing services and carries out
light manufacturing and product assembly for the various operating subsidiaries.
The Company is an integrated supplier of electronic products and services,
both to the security industry as a whole, and to owners and operators of
commercial facilities. The Company derives its revenues from the sale of its
products and services to customers including end users, security dealers,
distributors, integrators, and original equipment manufacturers (OEMs). Since
order lead-time and delivery expectations range significantly, from quick
delivery for OEMs and distributors to long-term projects of up to 18 months with
dealers and end users, it can be very difficult for the Company to predict more
than a few months in advance the size and profitability of orders in a given
period. Consequently, the timing of projects in any quarter could have negative
impact on financial results in that quarter.
In the fall of 1995, the Company undertook a program to acquire innovative
technology from other small companies in the security business. To implement
this program, the Company acquired Dorado Systems Corporation in September 1995,
Mundix Control Systems, Inc. in September 1996, the assets of Campbell
Engineering Company in March 1997, the assets of Point Automation, Inc. in
September 1997, and the assets of Nautica Technology Group International, Inc.
in June 1998. In the parking industry, the Company acquired certain assets from
Stanley Parking Systems in November 1996. In October 1998, the Company acquired
Law Enforcement Technologic Resources, Inc. and ECSI Construction Services, Inc.
See "BUSINESS"
The Company has suffered losses from operations during every year since
1993; however, for the 1999 fiscal year, the Company has budgeted a small
operating profit. Through the first quarter of this fiscal year, the Company's
results are ahead of its budget.
Note 15 to Sytron's Consolidated Financial Statement discusses the
Company's ability to continue as a going concern; these statements have been
prepared on the assumption that we would continue as a going concern. Management
believes Sytron would achieve operating profits and positive cash flow if
operated for maximum return in its current form. Prior to the present fiscal
year, however, the Company had deliberately determined to forego profits in the
short term in favor of engaging in research, development, marketing and
acquisition activities to support its long-range plans. Recently, however, the
Company, while not abandoning its long-term growth strategy, refocused existing
operations towards achieving profitability and cash flow generation.
For 1999, the Company plans to defer new acquisitions and to focus on
achieving a profit and positive cash flow. In October 1998, management
reorganized Sales and Marketing to use Company resources more effectively. For
fiscal 1999, the marketing focus will be on large companies, on systems
integrators, and on the correctional market. At the same time, management is
taking steps to reduce operating costs. These changes include personnel
reductions, a renegotiated lease for less space, rationalization of the
Company's product offerings, and the deferral of some product development and
marketing introduction activities. See "Risk Factors"
-20-
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Results of Operations
Overall 1998 sales grew by $722,400 or 16.6% over 1997 sales. Security
product sales through Sytron Systems Group (SSG) increased by $865,600 (99%) due
to two main projects, the Galileo corporate security project and the Sterling,
Colorado detention facility. Parking systems sales increased in 1998 over 1997
by $191,800 (24%). Dorado's reader business, impacted by the trend from magnetic
card to proximity readers, declined $168,800 (8.5%). Sytron Security Systems
(SSS) declined $398,500 (50%) due, in part, to the timing of the recognition in
1997 of the very large sale to one customer, Pantex, and in part in 1998 to an
inadequate dealer organization and to marketing issues in 1998. Those marketing
issues have been aggressively addressed, including the addition of three new
dealers in the first quarter of fiscal 1999. Nautica Security Group, acquired in
May 1998, contributed sales of $40,900 in 1998.
Gross profit in 1998 increased by $198,500 (10%) over 1997 as a result of
increased sales volume. The 1998 gross profit percentage declined to 43% from
45.5% with the sales mix change. SSG, focusing on penetrating the correctional
facility and large corporate market, accepted large contracts which generated
cash to fund focused product enhancements and provided entry into those
segments. These contracts, however, had lower gross profit percentages than were
obtained on the sale of readers and other standard products.
Operating expenses increased by $343,000 (11%) in fiscal 1998, due to
growth of $116,700 (18%) in R&D, $151,100 (17%) in sales and marketing and
$75,100 (5%) in administration.
Development costs were heavy in 1998 as the commercial and correctional
versions of the Maxx-Net (TM) NT based security system was introduced and
Dorado's innovative universal proximity reader completed its final development
stages.
Sales and marketing expense increased with expansion of the sales force to
cover the broader product line and to increase sales volume in the existing
lines. Administration was affected by the integration costs and additional staff
required to deal with newly acquired subsidiaries (2 in 1997 and 3 in 1998);
however, the Company continued its historical pattern of holding overhead cost
increases to a significantly slower pace than revenue growth.
Interest expense in 1998 decreased $555,000 (65%) from the unusually high
1997 level. Certain debt, incurred to acquire Dorado in 1995, requires annual
payment of a fixed number of Sytron common shares, in lieu of additional cash
interest, as long as the debt remains outstanding. The expense recognized by the
Company for the issuance of those shares varies with the quoted market value of
Sytron's common stock.
58% of the 1998 net loss was due to write downs and write offs of recorded
assets. With the release of new hardware and software products, and as part of
the integration of a series of acquisitions, the Company carefully reviewed the
anticipated future business contribution anticipated from recorded assets and
adjusted them down by $1,321,000 to estimated realizable value. The most
significant asset write off was of capitalized security software, particularly
versions running under OS/2, which were superseded by the newly rewritten
software running under Microsoft NT (R). Similarly, inventory valuation was
written down by $827,000. These values were affected by the introduction of the
386 hardware platform, as well as by a more precise measurement (facilitated by
improved operating systems and personnel) of requirements for inventory held,
particularly inventory obtained in past business acquisitions.
In 1998, $217,500 of gain from extinguishing debt was recorded. As funds
are available, the Company negotiates settlements of delinquent obligations,
sometimes at a discount to the recorded amount payable.
The Company had Net Operating Loss Carryforwards at September 30, 1998, of
approximately $11,900,000, expiring in 2007 through 2013. However, until there
is net income available to offset, this asset cannot be used, and may expire
before the Company is able to take advantage of it.
-21-
<PAGE>
Liquidity and Capital Resources
The Company's capital requirements have been primarily for working capital
and for acquisitions. Working capital consists primarily of accounts receivable
and inventories, the need for which increases proportionately as the Company
expands. Capital equipment expenditures were only $98,900 in FY98 and $157,800
in FY97, including the value of fixed assets contributed by acquisitions. New
equipment consists primarily of computer equipment. The Company's policy is to
lease rather than purchase wherever possible.
Since 1995 the Company's policy has been to acquire companies or product
lines in exchange for stock. These acquisitions may require significant capital
expenses to integrate them into existing related operations, or capital to fund
planned growth opportunities. The Company acquired three subsidiaries in FY98,
two subsidiaries in FY97, one in FY96, and one in FY95.
The acquired companies have needed cash infusions of $100,000 to $250,000.
Mundix needed cash to fund the debt incurred in standardizing its Maxx-Net(TM)
system; Sytron Security Systems needed cash to replace outdated equipment and
pay off debt; Point Automation will need cash to fund the research and
development costs of upgrading its technology; and Nautica now needs cash to pay
off debt incurred in the development of its product and to market its product
worldwide. The Company will also need additional capital to market its existing
products appropriately and maintain the technological competitiveness of these
products.
Since the Company has consistently sustained operating losses, funding for
these losses, for working capital, and for acquisitions has been provided by
borrowing and by sale of the Company's common stock.
During fiscal year 1998, the Company made significant strides in improving
its capital position. $567,300 of cash was raised from the sale of unregistered
shares of common stock in FY98 to two main offshore investors, Werren Holdings
Limited and Crescent. The Company's receivables-secured, short-term debt was
refinanced as $608,000 of two year notes maturing on January 31, 2000. Net new
borrowings totaled $370,300. The Company also issued common shares in exchange
for consulting and other services and for debt totaling $1,029,300.
At September 30, 1998, the Company was obligated to pay outstanding loans
of $1,303,500 (short term and long term), including $344,250 to related parties.
The related party loans are now due to various shareholders and accrue interest
at rates varying from 10% to 12% per annum. These loans are collateralized by
certain assets of the Company. Although there are no present demands from any
note holder for repayment of the obligation owed by the Company, if such a
demand is made, the Company will be in default unless it is able to effect the
required payment. Outstanding notes aggregating $917,000 are also owed to
various unaffiliated parties. See Note 9 to the Financial Statements herein for
a detailed description of these liabilities.
While the Company expects existing operations to reach profitability during
fiscal 1999, significant additional financing will be required for the working
capital needs of projected growth, for the acquisition and integration of new
companies and for the retirement of maturing debt. Financing for working capital
is expected to be largely debt, secured by the accounts receivable and inventory
financed. Financing for future acquisitions will be obtained largely from the
sale of common stock, except to the extent the acquired company's assets can
collateralize debt. The Company will pursue additional financing to continue its
growth strategy, but there is no assurance that additional investment can be
obtained. The Company's actions taken and planned in FY 1999 to deal with
profitability and liquidity are more fully described below.
1999 PROFITABILITY AND LIQUIDITY IMPROVEMENT PROGRAM
Since October 1998 the Company has taken a number of steps to reduce costs
and improve its return on assets, with an objective of generating a profit
fiscal year 1999.
Acquisitions made through FY 1998 have largely been integrated, and
operations acquired have been rationalized to remove overlapping costs and
duplicate facilities or assets. Each existing business is being evaluated for
its profit-generating potential both in the short term (six months to one year)
and over a longer timeframe. As part of this evaluation, the Company will
consider divesting or deferring development of some of its existing technology
where the investment required to develop the technology to profitability is
unavailable or disproportionate to the profit potential, or where the technology
can be used to raise capital to fund more promising business opportunities. In
1999, the Company is focusing on profitability to improve internal cash flow.
Additional growth in existing products is expected, and will require outside
capital infusions. Further acquisitions remain part of the Company's long term
strategy, but will be deferred until profitability of existing products is
addressed and until adequate additional long term capital is secured.
-22-
<PAGE>
Cost Reductions
Since the start, in October 1998, of the 1999 fiscal year, labor and
overhead costs in all functions and businesses have been examined for and have
generated cost level reductions.
Labor cost for the Company has been reduced by $18,600 (22%) per month from
the September 1998 level. This savings comes from all functions, and includes
efficiencies as a result of the reorganization of sales and marketing discussed
below, from closing the company-owned distribution operation in the United
Kingdom, and from manufacturing efficiencies. Additionally, the completion of
the major development projects of 1998 has allowed reductions in contract
engineering approximating $26,700 per month from average fiscal 1998 levels.
Rent was reduced by $9,000 per month (53%) beginning February 1, 1999, as a
result of consolidating manufacturing operations, contracting the manufacture of
the higher volume products with Pacific Rim sources, and closure of the United
Kingdom offices.
Other activities, such as the combination of Sytron Parking Systems, Inc.
and Sytron Security Products Inc. into Sytron Systems Group, Inc.(SSG), are more
difficult to quantify, but will reduce overhead by reducing the effort to
account for, manage, and market similar product lines.
Sales and Marketing
With the completion of the major development efforts of 1998, the Company
is now focusing its efforts on aggressively marketing these new products.
Dorado Systems completed development of the Universal Reader Series(TM) of
proximity card readers. A proximity card reader captures information from a
user's card when the card is placed near the reader. It contrasts with a
magnetic stripe reader which requires the card to be "swiped" through the
reader. Dorado has developed technology for its proximity card readers which
permit the reader to capture information from cards designed for use with
readers manufactured by various other enterprises. Sytron is seeking a patent on
this technology. This product is scheduled for initial delivery in February,
1999.
Sytron Systems Group released its new, Windows NT(R) compliant, security
management software (Maxx-Net NT(TM)) which is tailored for large commercial
projects such as airports and corporate security programs. New projects being
installed include the Albany (NY) International Airport, Lincoln (Nebraska)
International Airport, and Papa John's corporate headquarters. Now that the
Maxx-Net NT(TM) software is fully released and customer tested, a stronger sales
focus will be placed on the large jobs, such as airports and corporate
headquarters, for which the system is designed.
Sytron Systems Group also completed the development of a correctional
facility-specific product (Maxx-Net 5000(TM)). This product both monitors and
controls all security aspects of a detention or correctional facility, including
cells, doors, elevators, etc. Maxx-Net 5000(TM) may use either modern
touch-sensitive screens with graphic door controls on them, or standard control
panels with switches and lights connected to the system. This product is
expected to account for a major portion of sales in 1999. The Company has
recently received an order for $500,000 for additional equipment to the $850,000
system the Company has provided for installation in the Sterling, Colorado
prison.
Proximity card readers, Maxx-Net NT(TM) and Maxx-Net 5000(TM), as well as
our parking products, are products which are currently deliverable. The
Company's 1999 focus is on these products.
ECSI Construction Services, Inc., acquired in October 1998, has been
organized to be the Company's contracting division. ECSI will feature products
manufactured by other Sytron subsidiaries and will offer these products or
systems as part of a turn-key contract to an end user. ECSI, as an integrator
and general contractor, is capable of bidding directly to an end user in major
projects where previously Sytron served as an equipment vendor. SSG and Dorado
will only bid to resellers. At December 31, 1998, ECSI had a backlog of
$1,600,000 in orders to be completed in 1999.
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1999 Financial Performance
Sytron has budgeted its existing operations to be profitable in 1999.
Operations are expected to generate positive cash flow in the quarter ending
March 31, 1999 (as the full benefits of efficiencies initiated recently are
realized) and to be profitable beginning in the quarter ending June 30, 1999
For the quarter ended December 31, 1998, Sytron's consolidated sales were
$1,680,000, 14% over budget. and 48% over the comparable prior year period. An
increase of $180,000 (16%, over the prior year) was achieved largely in systems
and construction projects, and reflected improved performance by existing
operations. $368,000 of the increase from the prior year was contributed by ECSI
Constructions Services, Inc., acquired in October 1998.
The net loss for this quarter was $200,900, a 45% improvement over the budgeted
net loss of $369,000. Earning before interest, taxes, depreciation and
amortization (EBITDA) was ($66,200), 63% better than budgeted EBITDA of
($179,600).
Additional Financing
While the Company is focusing on the profitability of existing operations
to improve internal cash flow in 1999, additional financing will be required.
Additional growth in existing products is expected and will require working
capital. Working capital financing is expected to be largely debt, secured by
the accounts receivable and inventory financed. Existing debt, which is now due,
will be retired as part of any substantial financing.
Further acquisitions remain part of the Company's long term strategy, but
will be deferred until the profitability of existing products is addressed and
until adequate additional long term capital is secured. Long term capital will
be obtained largely from the sale of common stock or from debt convertible into
common stock.
The Company negotiated an agreement in December 1998 with Crescent
International Limited for up to an additional $750,000 of financing in the form
of convertible notes, based upon reaching certain benchmarks, as described
elsewhere in this Prospectus. In January 1999, the Company received proceeds of
a $350,000 note it issued under this agreement. See "Crescent Financing".
INFLATION
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation had a material affect on
the results of operations during the fiscal year ended September 30, 1998; no
material impact is anticipated in 1999.
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<PAGE>
BUSINESS
Industry Overview
The U.S. market for nonresidential security products and services has
experienced impressive growth. In a report issued three years ago, Lehman
Brothers estimated a total electronic equipment market of $12 billion in 1995.
The access control segment of that market in 1995 was estimated at $1.1
billions. The majority of that sum ($600 million) was estimated as spent on
traditional cards, readers, locks, intercoms, and other "door peripherals". The
growth rate for this segment was estimated at 10% per year. A second major
segment of the market ($400 million) is comprised of new access control
technologies, such as biometric photo ID, radio frequency ID, and computer
system access. This segment is seen as growing at an estimated 20% annually. The
third and smallest segment ($100 million) is comprised of software driven
security access systems which form the common database integrating subsystems.
The growth rate for this segment was called very rapid.
We think there are several factors behind the growth in the markets we
serve. First, we believe that commercial and industrial companies are investing
in security products and services to confront their security concerns. Second,
insurance against certain risks (or other limits on coverage) is becoming more
difficult to obtain. Third, there is a growing concern about harm to employees
through workplace violence. Fourth, companies are concerned about potential
liability resulting from criminal or terrorist actions.
The Department of Justice Hallcrest Report II forecasts that product sales
from the security products and service industry's estimated 4,800 manufacturers
and distributors will grow to $23.7 billion by the year 2000. The Report further
notes that electronic security products are expected to continue to offer the
highest product growth to the year 2000 including those products based upon
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intelligent chip technologies, including access control, video surveillance and
alarm processing. As a group, electronic security products are expected to have
annual growth rates from 11% to 40% depending on the product category.
A new development in the industry is that with technology advancements,
security systems are now able to become integrated. Historically, a facility
would install separate systems to solve single security problems. When
additional needs were identified, additional systems were installed. This
produced a multiple system environment which was expensive, unwieldy and
sometimes ineffective. In the past, these separate systems needed to be
coordinated to provide interaction between them. Now, with integration, the
functions of these several systems can be combined into one system using one
database and possibly one main machine. Such integration can lead to reduced
initial cost, and lower maintenance costs. Integration also allows many
functions to be dependent or controlled because of changes in other
corresponding functions; for example, turning off utilities after all personnel
have left an area.
Company Overview
Sytron provides electronic security devices, systems and services intended
for commercial, industrial and governmental end-users. The Company derives its
revenues from the sale of products and services to customers who need access
control and secure operations for a variety of facilities, including commercial
and industrial buildings, campuses, airports and garages and parking areas. The
main product categories include security access control systems, complete
security parking systems, high security automated passage control systems, and
fire alarm detection and annunciation systems. The Company also distributes a
complete line of peripheral products, which include card readers, keypads,
badging systems, reader interfaces, alarm multiplexers and communication
devices.
With the acquisition of ECSI Construction Services, Inc. as a wholly-owned
subsidiary in November, 1998, Sytron obtained the capacity to bid for certain
projects as either a general contractor or as a sub-contractor. In carrying out
those projects, ECSI will be offering Sytron products to the developer or user.
Sytron will have moved from being merely a hardware and systems vendor to being
an integral part of the development and contracting process.
Starting in the first quarter of the Company's 1999 fiscal year, management
has undertaken a program to improve the Company's profitability and to
accelerate the generation of cash. That program involves the streamlining of our
marketing into three separate Company segments. One segment, under the
leadership of our Dorado subsidiary, will focus its efforts on the sale of our
"off-the-shelf" products. A second segment, our "Systems Group", will be a major
integrator of our products and services, seeking to offer those products and
services to the largest customers we serve. This group will be responsible to
support contractors with which we work on major projects. Two current efforts
are the airports at Lincoln, Nebraska and at Anchorage, Alaska. Our third
business segment will be conducted through ECSI Construction Services, Inc., an
acquisition made in November, 1998. ECSI will itself be a direct contractor
seeking to bid for projects where it can use, as part of its comprehensive
service to an owner or developer, the products and services of the other parts
of Sytron.
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<PAGE>
The Company was formed in 1992 as a Pennsylvania corporation under the name
of MHB Technology, Inc. The Company adopted its present name in August, 1995.
Since the fall of 1995, Sytron has grown through a series of acquisitions of
smaller, independent producers or developers of security devices, which have
become the Company's operating subsidiaries. These include:
* Dorado Systems Corporation ("Dorado")
* Sytron Systems Group, Inc. ("SSG")
* Sytron Security Systems, Inc. ("SSS")
* Mundix Control Systems, Inc. ("Mundix")
* Point Automation, Inc. ("Point Automation")
* Nautica Systems Group (Nautica)
* ECSI Construction Services, Inc. ("ECSI")
At the end of the calendar year 1995, the Company adopted a plan to dispose
of MHB Manufacturing, Inc. This wholly owned subsidiary filed a bankruptcy
petition in 1996. At the time of the subsidiary's bankruptcy filing, Sytron did
not consider it to be an important contributing subsidiary.
In September 1996, the Company completed a private offering raising gross
proceeds of approximately $859,032. Approximately 50% of the proceeds of the
offering were used for the organization of Sytron Parking Systems, Inc. (a
predecessor of SSG) and the integration of Dorado into the Company.
Sytron operates an assembly manufacturing plant in Broomfield, Colorado
where it assembles and markets access control systems, and security products,
and where it develops and markets a standard software product for the
integration of disparate electronic security products (systems integration). By
establishing multiple security-related core businesses, the Company believes it
has reduced its exposure to any single business downturn or any single
technological risk or competitive pricing pressure.
The Company's business strategy has been:
* to market our products and services through a variety of
distribution channels including through ECSI as a general or
sub-contractor on various projects, and through independent sales
representatives;
* to develop product and system upgrades and peripheral devices;
and
* to acquire smaller independent producers of commercial security
products.
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Dorado Security Products, Inc. (Dorado)
Dorado was founded in 1971 and has been a subsidiary of the Company since
1995. Although the market for magnetic stripe cards has been decreasing in
recent years, we believe Dorado is one of the leading manufacturers both of
magnetic stripe card readers and of accessories for use in card access security
systems in North America. For more than 25 years, Dorado has marketed these
products to Original Equipment Manufacturers (OEMs), such as Honeywell and
Westinghouse, who combine Dorado's products with their own products for a
complete system sale to an end user or dealer network. We believe that the
products offered by Dorado provide a competitive advantage because of Dorado's
technique for card encoding format called EMPI(R).
To read a magnetic stripe card, it has to be "swiped" through a reader. The
magnetic stripe card format is a secure encoding and decoding format. It allows
any one of Dorado, the system supplier, the affiliated installing security
dealer, or even the end user's organization to encode cards on that user's
proprietary system. Additionally, Dorado's products support multiple "open"
magnetic stripe card formats for card encoding. This allows any entity chosen by
the customer to encode cards. We believe this encryption format leads to a more
secure magnetic stripe card than those of Dorado's competitors.
Dorado's cards and readers have been selected for use by many high security
facilities such as the Port Authority of New York, and by many International
Airports such as Denver, LaGuardia (New York), San Francisco, Detroit, and
Philadelphia. Dorado readers are also in use in several nuclear power stations
such as Boston Edison, Duke Power, New Central Nuclear (Spain) and Zorita
Nuclear Power Plant (Spain). One of Dorado's OEMs was also awarded a contract to
provide EMPI(R) readers for San Onofre Nuclear Power in California.
Historically, the majority of Dorado products have been designed for
interior use. They were not suitable for outdoor use because they were not
designed to withstand the weather. In June 1997, Dorado introduced a
weatherproof version of one of its largest selling reader models. Some existing
users converted all of their standard readers to the weatherproof version. To
date, the weatherproof readers account for approximately 20% of Dorado sales,
some of which are new sales and some of which are replacement sales.
As the market for magnetic stripe card readers has been steadily
decreasing, Dorado has responded by developing proximity-type readers. A
proximity reader is a step-saving device that makes it possible for information
to be read from a card near the reader rather than by "swiping" the card through
the reader. In 1996, Dorado introduced its EmpiProx TM Reader, a proximity-type
reader utilizing radio frequency (RF) identification. This product is flexible
in that the choices of reading format do not have to be made at the factory.
Dorado's proximity readers use the same outer casing as is used for
Dorado's Series 500 magnetic stripe readers. This makes it easy for existing
customers to convert to the convenience of a proximity reader without modifying
wall mounts, or dealing with other aesthetic considerations. Thus, the customer
has a virtual "plug and play" upgrade from magnetic stripe to proximity reader.
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Dorado also manufactures fire alarm and security point transmitters and
receivers for sending alarm signals over standard telephone lines to a central
station. We believe this product provides a competitive advantage because it can
work with the equipment of any fire alarm system manufacturer. In January, 1999,
Dorado introduced a new product which permits these units to be connected via
fiber optic cable.
Sytron System Group, Inc. (SSG)
Sytron System Group markets the products of Mundix Control Systems, Inc.
Mundix was acquired by our company in September, 1996. The major product that
Mundix creates is the "Maxx-Net (TM)" system. Although Maxx-Net (TM) is over 15
years old, it has had continuous development to maintain its technical
advantage.
The Maxx-Net (TM) system is a PC based facility management system. Maxx-Net
(TM) integrates card access, security and alarm-monitoring, electronic photo
badge identification, closed circuit television, temperature control and other
functions. The system uses a single software system at a central location. This
design allows devices (such as card or biometric readers, fire alarms or motion
detectors) to be connected to a control panel located near each device. The
control panel makes the decisions (such as to open a door when the proper access
code is used or to sound an alarm when the door is forced open). Since the
decision can be made where the problem is occurring, the system can respond more
rapidly to critical situations.
Until 1996, Maxx-Net (TM) was marketed through two of the largest and
oldest security OEMs, Thorn Automated Systems and Cardkey Systems. Maxx-Net (TM)
has been used by these and other companies as it can be tailored to the specific
requirements of the customer. One project where it is in use is the Denver
International Airport (DIA) where 1,600 Dorado Readers are connected to the
Maxx-Net (TM) System. The DIA project has approximately 800 control panels
located throughout the airport. A Local Area Network (LAN) with more than 15
workstations (PC's) manages the system and displays alarms within the airport's
operations control center.
Maxx-Net (TM) projects include prisons (Sterling Colorado), airline
facilities (United Air Lines at Denver International Airport, and
Lockheed-Martin in Colorado Springs), government facilities (New Chelsea Trial
Court, and Taoele Army Depot in Utah), and office buildings in major cities such
as Papa John's Corporate Headquarters in Louisville, Ky. Since January, 1997,
SSG has completed installation of access control systems for Galileo
International in ten locations in five countries, including the U.S., and has
begun installation of similar access control systems for the same customer in
four other locations in two other countries.
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Optional features that the Maxx-Net (TM) system may include are:
Access Control
--------------
Access cards grant or exclude access to a certain location. In using
one of these access cards, Maxx-Net (TM) controls the ability of an
individual to enter an area by day of the week and time of day. Maxx-Net
(TM) can also accommodate disabled people by allowing them extra time to
pass through a door.
Electronic Badging
------------------
This feature stores a cardholder's photograph digitally. These
pictures can create high quality badges and replacement badges. This
reduces the cost of badging for employers. In high security facilities,
this feature can identify cardholders positively by comparing an individual
with that person's stored picture before allowing the individual to enter a
secure area.
Multi-Tenant Management
-----------------------
Property managers with multiple tenants within the same complex may
use the Multi-Tenant Management system to permit each tenant to install
workstations (PCs) for adding and deleting access cards and other functions
for that tenant's location, and that location only. A property manager may
let large tenants manage their own systems and cardholders and access
points, thereby reducing the property manager's overhead, system costs and
liabilities.
Guard Touring
-------------
Guard Touring tracks and documents patrolling guards at a facility.
Input devices installed at different sites in a facility can be used by
patrolling guards to log their position. The system can require the guard
to patrol in a specific sequence and the system will automatically monitor
his movement. This type of tracking helps ensure that all areas are
checked. In the event of an incident, the system has a record of the time
and locations checked by each guard.
Intelligent Device Controller ("IDC")
-------------------------------------
An IDC panel is the connection point for the readers, motion
detectors, door locks, and door contacts. With Maxx-Net (TM) Software, the
user can operate the system from the field, as opposed to one central
location. IDC permits a dealer or end user to customize such functions as
counting people passing through a doorway, turning lights on when
illumination level is too low, activating heating and cooling systems in
response to changes in temperature, and carrying out similar functions.
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<PAGE>
Ordinarily, this would require several separate systems running different
software. Maxx-Net (TM) reduces costs for system, training, personnel,
maintenance, and upgrades for the customer.
IDC-50 Single Door Controller
-----------------------------
In 1998, SSG released a single door version of the Intelligent Device
Control panel. It controls a single door from a location near the door. The
IDC-50 has been designed to be used either within the Maxx-Net (TM) system
or as stand-alone door controller program.
The IDC-50 was designed in part to replace and upgrade existing door
security systems, such as Cardkey(R) systems.
IDC-LAN Connection
------------------
As we see inter, intra and local area networks in many facilities, we
think it essential that SSG develop the means to connect IDC panels
directly to a network so a facility owner may install the panels and use
the existing network to communicate with workstations which are already on
the network. We think this development is useful to universities and other
large campus environments which may have a number of networks in place, and
which would recognize the value in the cost and control arising from an
integration of all aspects of facilities management.
Maxx-Net (TM) - Windows NT(R)
-----------------------------
Before the middle of 1998, the Maxx-Net (TM) system used the IBM OS/2
operating system. But, this past year, Sytron adapted Maxx-Net (TM) to the
Microsoft Windows NT(R) operating system.
Smart Cards
-----------
Smart Cards are cards that are programmable. They allow one both to
read information from and to write information to a card. These cards can
be used as both security and debit cards. As debit cards, values are added
and subtracted automatically. In a university, a student can use a single
"Smart" card at the dining hall, at the library both for access and to
check out books, at the book store to buy books, at vending and copy
machines all over the campus, and at the student's dormitory for secure
access. The parking control market can use "Smart" cards at several parking
lots where the driver's account can be automatically debited according to
the time she was parked. We think this feature would reduce the cost of
parking lot personnel. It would also cut the time needed for the customer
to exit the facility.
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SSG also serves the parking industry. Its product line includes both those
items acquired from Stanley and new products, some of which have been designed
internally and others of which are being procured externally, with an exclusive
marketing arrangement held by SSG.
Our Company acquired Stanley Parking Systems from The Stanley Works in
November 1996. This gave SSG an existing and established line of products to
market under the "Stanley" name as well as access to Stanley's existing
distribution network of more than 50 companies. Sytron's right to use the
"Stanley" name for sales to Stanley's distribution channels expired in November,
1998.
SSG is presently offering parking products such as gates and ticket
dispensers which have been produced and marketed by Stanley for several years.
Although SSG believes these products are of the highest quality, it is SSG's
plan to upgrade the Stanley-based products to state of the art technology and
integrate the product line with other Sytron products.
SSG offers a line of parking and access control products including revenue
collection and control, barrier gates, ticket dispensers, and vehicle
identification systems. These products can be fully integrated into a
comprehensive facility security system.
Access Control and Security
---------------------------
Integrating the parking system into Maxx-Net (TM), the same equipment
provides card access and security monitoring for both parking lots and for
buildings within the facility. This means people working within the facility
carry only one card for all functions. It also means that management can control
all the facility's functions on one system.
Electronic Ticket Dispensing
----------------------------
The present mechanical ticket dispenser has been modified for integration
with Maxx-Net (TM). The Company plans to offer a new generation electronic
ticket dispenser in the near future, and is presently evaluating several
options. Additional features will include the ability to encode a magnetic
stripe on the cards or to program a smart card.
CountMaster Lot Capacity Indicator
----------------------------------
In 1998, SSG began offering its new CountMaster system, available as an
optional feature. This system tracks the number of cars entering and exiting a
parking facility, and the residual number of spaces available. When capacity has
been reached, it displays a "Lot Full" indicator at the entrance. The
CountMaster has been designed to display by area of a parking lot the number of
spaces available. With variable message signs at the entrance, this feature can
direct customers to the areas with open spots more efficiently, improve customer
service by helping to avoid frustration and wasted time, and reduce pollution
created by fruitless searches for an available space.
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Sytron Security Systems, Inc. (SSS)
SSS manufactures high security entry ways, which are sometimes popularly
called "mantraps." They incorporate a bulletproof enclosure with optional metal
detection and biometric access control. Biometric technology identifies a person
by automatically scanning distinguishing traits, such as finger, hand, voice or
eye patterns. A person seeking to enter a secured facility first enters a
security vestibule where that person's identity is confirmed. Once the
individual is verified, a second door opens and permits the person to enter the
facility. If approval is not given, the doors remain locked, and the system
automatically notifies appropriate security personnel. The technology also has
the ability to scan for weapons or drugs. These entry ways can be controlled
through the Maxx-Net (TM) system, another example of the Company's planned
product line integration.
Mundix Control Systems, Inc.
Since it was acquired in September, 1996, Mundix has been the research and
development center for all projects taken on by the other Sytron subsidiaries.
Developments include waterproof and proximity readers for Dorado, and additional
Maxx-Net (TM) software features for Sytron Systems Group.
Marketing/Sales Strategy
Channels of Distribution:
The Company's primary channels of distribution include:
Sale of 75% of the dollar volume of Dorado products to Original
Equipment Manufacturers (OEMs) such as Honeywell and Westinghouse which
resell the product to end users through the OEM's direct sales offices or
authorized dealers.
Sale of Dorado communications modules to security and fire alarm
dealers which use these products on projects the dealers have sold to end
users. These products are marketed by the dealers under Dorado's name.
Sale by SSG of its products and systems primarily to security and
access control dealers which actively resell the products and systems
directly to end users. SSG also contracts directly with end users in some
instances.
Sale by ECSI of products and services directly to end users as "turn
key" projects.
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Marketing
Most marketing efforts by the Company are directed to a relatively small
number of potential purchasers to which the Company's products or services are
or could be sold. None of the Company's products or services qualify as
"consumer" products or services.
Dorado markets products to end users and dealers through industry trade
magazines as well as directly to OEMs via mailing campaigns and direct contact.
With a customer base of approximately 25 companies who account for more than 80%
of Dorado sales, the target marketing is very focused for those accounts.
SSG markets its products to a select group of high level integrated systems
contractors. These contractors typically focus on larger projects where Maxx-Net
(TM) is not only capable of meeting the stringent specifications of the owner or
developer, but also is cost effective.
Mundix does no marketing.
ECSI is a contractor, able to bid on large projects which may require many
of the products and systems produced or marketed by one or more of the Company's
other subsidiaries. ECSI is encouraged to offer, in its bids, one or more of the
Company's range of products, and to take advantage of being a part of the Sytron
"family" of companies. As part of the family, ECSI can offer enterprises to
which a bid is made both a "turn key" solution and a high level of confidence
that quality and timely delivery deadlines will be met.
In 1999, as part of the Sytron profit improvement program, products
produced or marketed by each of the subsidiaries are sold by that subsidiary to
a target market. Moreover, each subsidiary is being managed to cross-sell other
products within the corporate family to enhance the Company's role as an
integrated vendor in the industries in which it operates.
As part of the Company's web site, Internet users are able to obtain
general or detailed information on specific products and to leave a request for
a sales call or for more in depth information. In addition, the site supports
dealers, OEMs and manufacturer representatives in processing orders, verifying
shipping dates and logging field problems.
Manufacturing and Assembly
The manufacturing assembly capacity for the entire Company has been
consolidated into the Broomfield, Colorado facility. We have become more
efficient by centralizing activities such as purchasing, assembly, quality
control and shipping/receiving . Where components used by the subsidiaries are
common, we purchase in combined quantity, lower the unit cost for each item, and
reduce the space required to store the item.
As part of the effort to consolidate similar functions, order entry and
customer service are also performed for all of the subsidiaries by a single
department where possible.
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Acquisitions
In 1999, we will focus on generating profit and cash flow from existing
operations. We will defer further acquisitions. At such later date as Sytron is
able to consider acquisitions, we think that the fragmented make-up of the
security industry, characterized by a large number of participating companies
with a wide variance in annual revenues, will continue to provide Sytron with
opportunities for growth.
Terms of Recent Acquisitions
In September 1995, the Company began acquiring small businesses with
technological advantages in the field of electronic security products and
services.
On September 29, 1995, the Company acquired all of the common stock of
Dorado Systems Corporation, a California corporation, from the 1995 Ragsdale
Family Charitable Remainder Trust for $1,083,850. The Company borrowed the funds
for the acquisition from three sources which subsequently became affiliates of
the Company: Katonah West Pension Plan, Springhill Holdings, Ltd. and Werren
Holdings, Ltd. A total of $250,000 remains outstanding from the indebtedness
incurred to effect the transaction. See "Principal Shareholders".
In September 1996, the Company acquired all of the issued and outstanding
securities of Mundix Control Systems, Inc. for 300,000 unregistered shares of
the Company's common stock. The value of the Company's stock attributed to this
purchase was $1,500,000 ($5.00 per share). The shares were placed in escrow,
with the purchase price subject to adjustment based upon both the Company's
receipt and acceptance of orders of $4,000,000 derived from the sales of the
Maxx-Net (TM) Systems during the 30-month period following the closing of the
transaction. As of September 30, 1998, management expects that all 300,000
shares of the Company's common stock will be released from escrow. As a result
of the September, 1996 transaction, Richard Munz also was employed by the
Company as an officer. See "Management" and "Principal Shareholders."
Effective November 22, 1996, the Company acquired parking equipment assets
from The Stanley Works, a Connecticut corporation, for $25,000 in cash and
royalties payable to Stanley during a two-year period. Through the period ended
September 30, 1998, the Company has accrued royalties payable in cash to
Stanley, of $62,220.
In March 1997, the Company acquired certain assets from Camenco, Inc., a
California corporation which had been founded in 1969. The Company also assumed
an aggregate of $418,018 in Camenco liabilities. The purchase price for these
assets was established at $816,000, for which the Company issued 200,000
restricted, unregistered shares of its Common Stock and paid $10,000.
In October, 1997, the Company purchased from Point Automation, Inc.
substantially all of the "Pro Series" product line assets, both tangible and
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intangible, including the right to use the "Point Automation" name, in exchange
for 25,000 shares of restricted, unregistered Common Stock, and a commitment to
issue up to an additional 50,000 shares of restricted, unregistered common stock
to Gary Handelin if, over the two year period following the closing of the
transaction, the Company would enjoy sales of more than $1,000,000 in Sytron
Fire products directly related to the products acquired within the agreement. At
January 31, 1999, Sytron agreed in principle to pay the former owner of Point
Automation $25,000 plus interest at 8% from October 1998. Monthly payments of
$2,100 begin in May, 1999.
In May of 1998, a newly formed subsidiary of the Company agreed to acquire
the net assets of Nautica Technology Group International, for 50,000 restricted,
unregistered shares of Sytron Common Stock valued at $190,000, and up to 550,000
additional restricted, unregistered shares of Sytron Common Stock in annual
amounts (not exceeding 200,000 shares per year) to be precisely determined over
a period of three years, depending on annual increases in Net Sales (a term
defined in the acquisition agreement) and on annual increases in related
earnings before income taxes. Among the assets acquired in this transaction are
all of the issued and outstanding shares of two wholly-owned Brazilian
subsidiaries, which specifically includes the rights of each of those Brazilian
subsidiary companies to all of its tangible and intangible technology and
intellectual property.
In October, 1998, the Company acquired the outstanding shares of Law
Enforcement Technologic Resources, Inc. ("LETR"). LETR is in the business of
biometric recognition systems, and the Company plans to integrate LETR's
products into the Company's access control and security systems businesses. The
Company issued 440,000 restricted, unregistered shares of Common Stock for LETR
at the closing.
In November, 1998, the Company acquired all of the issued and outstanding
stock of ECSI Construction Services, Inc. ECSI is headquartered in California,
operates primarily along the Pacific Coast and in Nevada, and is in the business
of the commercial installation of security systems. The Company issued 100,000
restricted, unregistered shares of Common Stock for ECSI at the closing of the
transaction.. ECSI will operate as a subsidiary of the Company, and, with its
capability to carry out construction projects, presents the opportunity for the
horizontal integration of the Company's products and services.
Employees
The Company presently has 40 full-time employees functioning in the
capacities of management (4), manufacturing, purchasing and production (23),
administration (5), engineering (3) and sales, marketing and customer service
(5). The number of people employed by the Company will vary from time to time
depending upon the Company's production levels. From time to time and on an "as
needed" basis, the Company will also employ additional persons on a part or full
time basis. None of the Company's employees are covered by a collective
bargaining agreement. Management believes that its relationship with its
employees is excellent.
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<PAGE>
Insurance
The Company maintains casualty and liability insurance policies on its
property, including business interruption, property in transit and other
coverages. The Company also has an errors and omissions policy for its products
and the Company has been approved for bonding on specific jobs.
Competition
Management believes that the security industry is fragmented and that there
is no one or group of companies with major market share having control of the
future of the industry.
Property
The Company's principal place of business is located at 2770 Industrial
Lane, Broomfield, Colorado. It consists of approximately 17,000 square feet of
executive offices and manufacturing and warehouse space. The applicable lease
agreement requires monthly lease payments of $8,094 and is effective until
December 31, 2002, at which time the Company intends to exercise an option to
renew for an additional five year term. Management believes that this space will
be sufficient to meet the Company's needs in the immediate future.
ECSI leases approximately 1,460 square feet of space at 20610 Manhattan
Place, Torrance, California for under $1100 per month.
LEGAL PROCEEDINGS
Except as described below, the Company is not a party to any legal
proceedings which it considers material, and is not aware of any threatened
litigation that could have a material adverse effect on the Company's business,
financial condition or results of operations.
HID Corporation ("HID") filed suit in January, 1998 in the United States
District Court for the District of Colorado claiming that Dorado's Universal
Reader (TM) infringes two HID patents because the reader is capable of reading
HID access control cards, as well as reading the cards of other manufacturers of
access control equipment. HID's complaint does not seek injunctive relief. No
significant damages have accrued since sales of the Universal Reader (TM) have
recently begun. No trial date has been set, but discovery is being conducted by
both HID and by the Company. Management believes that the Dorado product does
not infringe either of the HID patents, and is vigorously defending the action.
Camenco, Inc. is seeking to enforce an arbitrator's award against Sytron
Security Systems, Inc. arising from the transaction by which the Sytron
subsidiary purchased substantially all of Camenco's business assets. The
arbitrator's award may be converted into a judgment against the Sytron
subsidiary. The maximum estimated exposure would involve a payment by the Sytron
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<PAGE>
subsidiary of $160,000, in exchange for which Camenco would be required to
return 160,000 shares of Sytron common stock which Camenco received in the 1997
purchase transaction.
MANAGEMENT
Directors, Executive Officers and Senior Management
Biographical Information of Directors and Executive Officers
The following table sets forth certain information with respect to each of
the directors and executive officers, and a member of management, of the
Company.
<TABLE>
<CAPTION>
Company
Nominee Age Position Experience
- ------- --- -------- ----------
<S> <C> <C> <C>
Mitchel Feinglas 50 Chief Mr. Feinglas has served as President of
Executive Private Capital Group, Ltd. ("PCG") since
Officer, 1993. PCG is a financial consulting
Director, organization which represents the Company on
January 1994 an ongoing basis. Mr. Feinglas has reduced
his association with PCG to focus his efforts
on the Company. Mr. Feinglas served as Chief
Executive Officer and Director of Great Earth
Vitamins, Ltd. from 1991 to 1993. Mr.
Feinglas organized and served as President,
Director, Principal, and Registered Broker of
Jonathan Alan & Co., Inc., a Registered
Broker- Dealer from 1983 to 1990. Mr.
Feinglas serves on the Board of Directors of
Create-a-Check Software, Inc. Mr. Feinglas
received his Bachelor of Arts in Accounting
from New York University in 1971.
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<PAGE>
Company
Nominee Age Position Experience
- ------- --- -------- ----------
Robert Howard 35 President, Mr. Howard has, since February 1996, been
Treasurer, Vice President of Marketing and Sales of
Director Sytron Security Products, Inc., a subsidiary
May 1996 of the Company. Mr. Howard assisted in the
establishment of the Company's relationship
with Mundix beginning in October 1995. Mr.
Howard served as Sales Manager for the
Integrated Systems Group of Cardkey Systems,
Inc. (later acquired by AMTECH, Inc.) from
1992 to 1995, and, in that capacity, was
responsible for sales, including both the
Denver International Airport project and
security systems for several correctional
facilities. Mr. Howard served as Project
Engineer, Project Manager, Sales and District
Sales Manager for Kidde Automated Systems
(acquired by Thorn EMI during his
employment). Mr. Howard received his Bachelor
of Science from Ohio State University in
1985.
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<PAGE>
Company
Nominee Age Position Experience
- ------- --- -------- ----------
Richard E. Munz 66 Secretary, Mr. Munz served as Vice President of Marketing for
December Mundix Control Systems, Inc., from 1992 to 1996.
1996 Mr. Munz received Bachelor of Science degree in
engineering from Purdue University in 1954 and a
Master's degree in business administration from
the University of Colorado in 1959.
Michael 54 Chief Michael Fitzsimons was Chief Financial Officer for
Fitzsimons Financial several high-tech companies, including FullDeck
Officer and Technologies (software) from 1995 to 1998,
VP, Finance, Sandhill Scientific (medical software and
March 1998 instruments) from 1990 to 1995, Rocky Mountain
Instrument (electro-optical manufacturer) from
1988 to 1990, and Sigma Design (computer hardware
and software) from 1984 to 1988. Additional
operating responsibilities included manufacturing
at Sandhill Scientific, and manufacturing and
sales/marketing at Rocky Mountain Instrument. Mr.
Fitzsimons held a series of financial management
positions with Corning Glass Works from 1972 to
1983. He began his career with Price Waterhouse in
New York, holds a Bachelor of Science degree in
Business Administration from LeMoyne College, and
is a CPA in New York and Colorado.
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<PAGE>
Company
Nominee Age Position Experience
- ------- --- -------- ----------
James W. Power 70 Director, Mr. Power is also President and CEO of ECSI
September Construction Services, Inc., a subsidiary of the
1998 Company operating as a general contractor for
commercial construction. He was also the Chairman
of the Board from 1996 to 1998 of Infographics,
Inc. a manufacturer of access control software and
hardware. Mr. Power founded Martec Systems, Inc.
and was a principal there from 1991 to 1995, when
it was sold to SAIC of San Diego. He also acted as
Vice President and General Manager of Cardkey
Systems, Inc. Mr. Power also served on the Board
of Directors and as Treasurer of Citicorp Credit
Services and on the Board of National
Semiconductor Corporation. He has also served as
Vice President and General Manager of TRW Data
Systems, a unit of TRW Inc. Mr. Power served in
the U.S. Air Force where he was trained in
electronics, languages and intelligence gathering.
</TABLE>
All directors of the Company hold office until the next annual meeting of
shareholders and until their successors have been elected and qualified.
Officers of the Company are elected by the Board of Directors and hold office
for one year terms, or until their death, resignation or removal from office.
There are no family relationships between the persons identified as
executive officers and directors of the Company.
At the end of the calendar year 1995, the Company adopted a plan to dispose
of MHB Manufacturing, Inc. Margins in the business in which it was involved had
become too thin to sustain the enterprise, and Sytron was about to embark on a
new business direction. Accordingly, this wholly owned subsidiary filed a
bankruptcy petition in 1996. At the time this subsidiary filed its bankruptcy
petition, Messrs. Feinglas and Howard were officers and directors of the
Company.
Director Compensation and Stock Options
Members of the Board of Directors do not currently receive any cash
compensation for serving on the Board of Directors. Members do receive an option
to acquire 20,000 shares of common stock through the Company's Non Statutory
Option Plan, which vest at the rate of 5,000 shares per year.
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<PAGE>
Options under the Company's 1996 Non-Statutory Stock Option Plan have been
granted from time to time to members of the Board of Directors and to Executive
and other officers and employees of our Company.
Executive Employment Agreements
Robert Howard and PCG have entered into employment agreements with the
Company, both of which became effective on May 1, 1997. Under the PCG agreement,
it agrees to provide to the Company the services of Mitchel Feinglas. Each
agreement continues to January 1, 2000. Each agreement provides that the Company
may not terminate the services of the employee or consultant unless the
individual has committed an act of malfeasance. If the Company considers an act
of the employee or consultant to be malfeasance, the Company must give the
individual 15 days notice of its intent to terminate the individual's employment
and provide the individual with an opportunity to explain the act that the
Company considers to be malfeasance.
Mr. Howard's employment agreement provides that he shall serve as President
of the Company for an annual base salary of $96,000 plus an automobile to be
provided by the Company.
The PCG agreement requires that it shall cause Mitchel Feinglas to serve as
a consultant to the Company for an annual base salary of $104,546, plus an
automobile to be provided by the Company.
1996 Non-Statutory Stock Option Plan
On June 28, 1996, the Board of Directors of the Company adopted a
nonstatutory stock option plan (the "Plan") for employees, officers, directors,
consultants and other persons who, or enterprises which, have assisted the
Company. The Plan became effective on June 28, 1996. No more options will be
granted under the Plan after June 28, 2000, but options granted prior to that
date may extend beyond that date. At a Special Meeting of Shareholders on
January 8, 1999, the shareholders restated, ratified and re-approved the Plan,
and authorized an aggregate of three million five hundred thousand (3,500,000)
shares of Common Stock for the use of that Plan.
The Plan was adopted to attract and to retain people of ability and
initiative, and to offer an incentive for such persons to continue to render
outstanding service to the Company. The Board of Directors considered it in the
best interests of the Company and its shareholders to provide such able and
industrious people or the enterprises with which they are affiliated the
opportunity to participate in any appreciation in value of the Company's common
stock which may result from their efforts. The Plan, through the granting of
stock options, is designed to meet that goal.
The Plan is administered by the Board of Directors or by an Option
Committee. Shares subject to options have been, and will continue to be, made
available from either authorized and unissued shares or previously issued
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<PAGE>
treasury shares. The Option Committee is authorized to establish rules and
regulations for administration of the Plan; to interpret, correct or amend the
Plan or any option granted thereunder; and to terminate the Plan.
The Plan provides for the grant of Nonstatutory Stock Options. The options
may be granted to employees, including employee directors, non-employee
directors of the Company, and others.
The exercise price per share will vary with the market price of the Common
Stock on the date the option is granted and on subsequent April 1 and October 1
dates over a period of forty-eight (48) months. However, the Option Committee
may determine to grant an option at not less than 85% of the then-current market
price. Any lower price for an option must be specifically approved by the Board
of Directors, but, in any event, no option may be granted at less than 75% of
the then-market price. The Option Committee determines the time of exercise and
the term of each option when granted. Each option will expire not more than five
(5) years from the date of its grant unless the optionholder dies while the
option is exercisable. In that case, the option will not expire until one year
from the date of death. The Plan permits the payment of the exercise price only
in cash.
Options are not transferable, except by the laws of descent and
distribution. Options which for any reason cease to be exercisable shall be
considered terminated. Common Stock subject to an expired or terminated option
is again available for grant.
With very limited exceptions, if any change is made in the shares subject
to the Plan or to any option granted thereunder (through merger, reorganization,
stock dividend, issuance of subscription rights or similar events), such
adjustments or substitutions will be made in the number of shares and in the
exercise price as the Option Committee, with the approval of the Board of
Directors, deems equitable to prevent dilution or enlargement of option rights.
The Board of Directors may amend or terminate the Plan in all respects,
except that without the approval of the Company's shareholders, no such
amendment or modification may either increase the number of shares reserved for
options (except as described in the immediately preceding paragraph) or reduce
the exercise price below 75% of the fair market value at the applicable date.
Since the Plan was adopted, options have been granted to 79 persons and
enterprises. Those options authorize the purchase of 1,839,361 shares of common
stock. As of October 31, 1998, 158,876 shares of common stock have been issued
on exercise of options, and options to acquire 1,680,485 shares are outstanding.
Under the outstanding options, common stock may be acquired at prices ranging
from $0.469 to $5.000 per share.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual
and long term compensation, paid or accrued, for the Company's chief executive
officer and for each of the four highest paid other executives of the Company
(the "Named Executive Officers") for services in all capacities during the last
three fiscal years:
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term Compensation
-----------------------------
Annual Compensation Awards
----------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Other
Name and Annual Restricted Securities All Other
Principal Comp- Stock Underlying Compen-
Position Year Salary($) Bonus($) ensation Awards($) Options sation ($)
- -------- ---- --------- -------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mitchel 1998 0 0 106,574 - 497,416 (2) $6,484
Feinglas (1), 1997 0 0 106,574 - 5,505
Chief 1996 0 0 58,757 - 5,807
Executive
Officer and
Director
Robert 1998 96,000 0 - 500,549 5,486
Howard, 1997 78,200 0 - 4,875
President and 1996 67,385 0 - 3,656
Director
Richard 1998 21,000 0 0 26,259 0
Munz, 1997 51,500 0 0 0
Secretary 1996 19,462 0 0 0
Michael 1998 35,000 0 14,501 75,000 0
Fitzsimons, 1997 0 0 0 0
Chief 1996 0 0 0 0
Financial
Officer
(1) No direct salary is paid to Mitchel Feinglas. He is an employee of Private
Capital Group, Ltd. The Company's contract with PCG, Ltd. requires that the
services of Mitchel Feinglas be made available to the Company as director and
CEO, and requires the Company to pay PCG, Ltd. the sums listed in Column (e).
(2) Private Capital Group, Ltd., in its own right, is a lender to the Company
and the holder of certain options and certain stock. In addition, PCG, Ltd.
holds options to acquire 601,355 shares of the Company's Common Stock at a price
of $0.750 per share, on account of Mitchel Feinglas' services.
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</TABLE>
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's Articles of Incorporation provide that a director of the
Company shall not be personally liable to the Company or any of its shareholders
for monetary damages for breach of fiduciary duty as a director, except
liability for the following:
(a) any breach of the director's duty of loyalty to the Company or its
shareholders;
(b) acts or omissions not in good faith or which involve gross negligence
intentional misconduct or a knowing violation of law;
(c) any transaction from which the director derived an improper personal
benefit, or
(d) any unlawful distribution as set forth in the Pennsylvania Business
Corporation Act.
These provisions may have the effect in certain circumstances of reducing the
likelihood of derivative litigation against directors. While these provisions
may eliminate the right to recover monetary damages from directors in various
circumstances, rights to seek injunctive or other non-monetary relief are not
eliminated.
The Company's By-laws provide for indemnification of the Company's
directors to the fullest extent permitted by law. The Company's Bylaws also
permit the Company, through action of the Board of Directors, to indemnify the
Company's officers or employees to the fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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<PAGE>
PRINCIPAL SHAREHOLDERS
Security Ownership of Directors, Management and Certain Beneficial Owners
The following table sets forth certain information, as of February 1, 1999
as to the beneficial ownership of the Company's Common Stock as of that date by
(i) each person known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each director, (iii) each executive officer of the
Company named in the Summary Compensation Table contained herein and (iv) all
directors and executive officers of the Company as a group.
Name and Address (1) of Amount and Nature Percentage of
Beneficial Stockholder of Beneficial Ownership (2) Shares Outstanding (2)
- -------------------------- --------------------------- ----------------------
Mitchel Feinglas 1,347,273 (3) 19.93%
Robert Howard 53,806 (4) 0.80
James Power 36,000 (5) 0.53
Michael Fitzsimons 33,586 0.50
Richard Munz 332,764 (6) 4.94
Werren Holdings, Ltd. 1,391,384 (7) 20.58
8 Queensway House Queen Street
St. Helier, Jersey
Channel Islands JE2 4WD FC
Katonah West Pension Plan 695,167 (8) 10.28
Springhill Holdings, Ltd. 554,841 (9) 8.21
8 Queensway House Queen Street
St. Helier, Jersey
Channel Islands JE2 4WD FC
Crescent International Limited 339,712 (10) 5.03
Greenlight (Switzerland) SA
84, av. Louis-Casai, P.O. Box 161
1216 Geneva, Cointrin
Switzerland
Attention: Melvyn Craw/ Maxi Brezzi
All executive officers and
directors as a group 1,803,429 26.68
(five persons)
- ---------------------------------
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<PAGE>
(1) The address for each person named is c/o Sytron, Inc., 2770 Industrial
Lane, Broomfield, Colorado 80020, except as otherwise stated.
(2) For purposes hereof, a person or group of persons is deemed to have
"beneficial" ownership of any shares which such person or group of persons
has the right to acquire by option, warrant or otherwise (and without
regard to the exercise price of any option or warrant) within 60 days of
the date of this Prospectus. Except as otherwise noted, the Company
believes that the persons in the table have sole voting and investment
power with respect to the shares of Common Stock indicated as being
beneficially owned by them.
(3) Includes 396,650 shares of Common Stock owned by Private Capital Group,
Ltd. ("PCG"), 695,167 shares of Common Stock owned by Katonah West Pension
Plan, a pension plan of which Mr. Feinglas and his sister-in-law Susan
Maisch are trustees, 205,957 shares of Common Stock owned by Peggy
Feinglas, Mitchel Feinglas' spouse, in her individual capacity, 40,602
shares of Common Stock owned by Stuart Feinglas, Mitchel Feinglas' brother,
3,138 shares of Common Stock owned by Lori Feinglas, Mitchel Feinglas'
daughter, 1,892 shares of Common Stock owned jointly by Lori Feinglas and
her husband Kevin Welty, and 3,867 shares of Common Stock owned by Allison
Feinglas, Mitchel Feinglas' daughter. All of the issued and outstanding
shares of PCG are held by Peggy Feinglas. Mitchel Feinglas is a primary
beneficiary of the Katonah West Pension Plan, but there do exist other
beneficiaries of the plan. Mr. Feinglas disclaims any beneficial interest
in the shares of Common Stock owned by PCG, by his spouse, by his brother,
jointly by his daughter and son-in-law, or by either of his daughters.
(4) Includes 2,000 shares of Common Stock held by Robert Howard as custodian
for his minor son Garrett, and 6,806 shares of Common Stock owned by Libby
T. Howard, Mr. Howard's mother. Mr. Howard disclaims any beneficial
interest in the shares owned by his son and his mother.
(5) Includes the 36,000 shares of Common Stock which were issued to James Power
in connection with the Company's acquisition of ECSI Construction Services,
Inc., of which Mr. Power is President and CEO.
(6) Includes 300,000 shares of Common Stock held in escrow by Mr. Munz, his
wife, Irma Munz, and Mert Larsen as nominee stockholders for Mundix
shareholders. The shares in escrow represent partial payment for the assets
of Mundix, Inc. Mr. Munz has sole voting control of the stock during its
escrow. The total figure also includes 32,764 shares of Common Stock owned
jointly by Mr. Munz and his wife.
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<PAGE>
(7) Werren Holdings, Ltd., is a trust which is both lender to, and stockholder
of, the Company.
(8) Includes 695,167 shares of Common Stock owned by Katonah West Pension Plan,
a retirement plan for the primary benefit of Mitchel Feinglas, of which Mr.
Feinglas and Susan Maisch, his sister-in-law, are trustees.
(9) Springhill Holdings, Ltd. is a trust which is both lender to, and
stockholder of, the Company.
(10) Crescent International Limited is also the holder of warrants to acquire up
to 826,000 shares of Common Stock, and of a Convertible Promissory Note
pursuant to which it may become the holder of up to 933,333 shares of
Common Stock. Crescent is party to a Note Purchase Agreement pursuant to
which it may earn commitment fees estimated at 150,000 shares of Common
Stock over the next 18 months.
The Company knows of no arrangements which may result in a change in
control of the Company.
CERTAIN TRANSACTIONS
Mitchel Feinglas has been a director of the Company since August 6, 1993,
and its Chief Executive Officer since February 28, 1994. As of February 1, 1999,
Mr. Feinglas controlled, directly or indirectly, 1,361,260 shares of the
Company's common stock. This represents 20.83% of the Company's issued and
outstanding common stock as of February 1, 1999.
On May 1, 1997, the Company entered into an agreement with Private Capital
Group, Ltd. ("PCG"), an enterprise owned by Peggy Feinglas, to provide the
services of her spouse, Mitchel Feinglas, as CEO of the Company with duties
including general, stock transaction and financing management. The agreement
provides for $104,546 to be paid to PCG per year through January 1, 2000, for
Mitchel Feinglas' services.
Katonah West Pension Plan ("Katonah West") is a pension plan for the
benefit of Mitchel Feinglas, among others. Beginning in 1995, it has loaned
money to the Company on terms that were more favorable to the Company than were
otherwise available. The loans were used by the Company for the acquisition of
Dorado and for working capital. The trustees of Katonah West are Mr. Feinglas
and his sister-in-law, Susan Maisch. At September 30, 1998, the Company owed
Katonah West $249,750; the sum is payable on demand, carries interest at the
rate of 10% per year, and is secured by certain of the Company's assets.
Katonah West owns 695,167 shares of the Company's common stock. Of this
total, 87,927 were issued in payment of the Company's debt to Katonah West
arising from loans by Katonah West to the Company. In addition, 607,240 shares
were issued in lieu of interest on loans provided to the Company by Katonah West
for use by the Company in making the down payment on the purchase of Dorado
Systems Corporation in September 1995.
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<PAGE>
PCG now owns 396,650 shares of the Company's common stock. Of this total,
32,528 shares were issued on August 20, 1996, upon the conversion of debentures
originally issued for cash in 1994. PCG also exercised warrants and, in December
1994, acquired 18,731 shares. In addition, unpaid consultant fees for the
services of Mitch Feinglas and related expenses were converted into 246,751
shares between June 1995 and October 1997. On April 1, 1996, the Company entered
into an agreement with PCG pursuant to which PCG was permitted to convert
certain notes it held evidencing monies owed to it by the Company into the
Company's common stock at the rate of $1.31 of debt for each share of stock. At
the time of the agreement, the conversion rate was not lower than the price at
which certain shares of the Company's common stock were trading on the NASDAQ
Bulletin Board. The notes evidenced the Company's obligation to PCG for $92,500
borrowed and for reimbursement of unpaid expenses due to Mr. Feinglas totaling
$36,748.97. The agreement permitted the conversion to occur through September
30, 1996; pursuant to it, PCG converted $129,248 into 98,663 shares of Common
Stock on September 4, 1996.
Springhill Holdings Limited ("Springhill") is both a creditor and a
shareholder of the Company. Springhill first loaned the Company $45,000 in
October 1995 to assist in the acquisition of Dorado Systems Corporation. At
various times thereafter, Springhill was issued common stock of the Company, and
Springhill loaned the Company additional funds or deferred the collection of
sums due it. In May 1998, Springhill was issued 10,000 shares of the Company's
common stock on assignment of certain rights of Mitchel Feinglas. In September
1998, Springhill was issued 48,452 shares of common stock in exchange for
waiving its right to $18,203.27, accumulated unpaid interest. At September 30,
1998, the Company was obligated to Springhill for $73,000, evidenced by a note
bearing interest at 10%, payable on demand, and collateralized by certain of the
Company's assets.
Werren Holdings Limited ("Werren") is also both a creditor and a
shareholder of the Company. Werren first loaned the Company $10,000 in October
1995 to assist in the acquisition of Dorado Systems Corporation. At various
times thereafter, Werren was issued common stock of the Company, and Werren
loaned the Company additional funds or deferred the collection of sums due it.
In April 1998, Werren was issued 154,706 shares of the Company's common stock in
exchange for releasing the Company from an obligation for borrowed money and
interest on borrowed money of $205,758.82. In that same month, Werren also
exchanged $12,704 due it for 12,704 shares of the Company common stock. In
September 1998, Werren was issued 2,754 shares of common stock in exchange for
waiving its right to $1032.82 accumulated unpaid interest. At September 30,
1998, the Company was obligated to Werren for $10,000, evidenced by a note
bearing interest at 10%, payable on demand, and collateralized by certain of the
Company's assets.
Robert Howard was hired by the Company in February 1996 and became its
President in May 1996. He is also a director of the Company. In connection with
his engagement, and in return for equipment transferred to the Company, on
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<PAGE>
December 31, 1995, Mr. Howard was awarded 45,000 shares of common stock. As of
November 27, 1998, Mr. Howard owns or controls 53,806 shares of the Company's
common stock. He disclaims any ownership interest in 6,806 shares of common
stock owned by his mother, Libby T. Howard. Mr. Howard also disclaims any
ownership interest in the 2,000 shares which he holds as custodian for his
infant son Garrett.
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<PAGE>
DESCRIPTION OF SECURITIES
The Articles of Incorporation of the Company authorized the issuance of
20,000,000 shares of Common Stock, par value $0.01 per share and 10,000,000
shares of Preferred Stock. As of the date of this Prospectus , there are
6,759,929 shares of Common Stock issued and outstanding and no Preferred Shares
issued or outstanding. See "Capitalization."
Common Shares
Holders of the Company's Common Shares, par value $0.01 per share, are
entitled to one vote for each share held on each matter submitted to a vote of
the shareholders. There are no preemptive rights to purchase any additional
Common Shares. The Articles of Incorporation of the Company prohibit cumulative
voting in the election of directors. Since cumulative voting is not available to
the holders of Common Stock, the holders of more than 50% of the outstanding
Common Stock can elect all of the directors of the Company if they so choose. In
the event of liquidation, dissolution or winding up of the Company, holders of
the Common Shares would be entitled to receive, on a pro rata basis, all assets
of the Company remaining after satisfaction of all liabilities of the Company.
Preferred Stock
The Articles of Incorporation of the Company authorize issuance of a
maximum of 10,000,000 Preferred Shares. The Articles of Incorporation vest the
Board of Directors of the Company with the authority to divide the class of
Preferred Stock into series and to fix and determine the relative rights and
preferences of the shares of any such series so established to the full extent
permitted by the laws of the Commonwealth of Pennsylvania and the Articles of
Incorporation in respect of, among other things: (a) the number of Preferred
Shares to constitute such series and the distinctive designations thereof; (b)
the rate and preference of dividends (if any), the time of payment of dividends,
whether dividends are cumulative and the date from which any dividend shall
accrue; (c) whether Preferred Shares may be redeemed and, if so, the redemption
price and the terms and conditions of redemption; (d) the liquidation
preferences payable on Preferred Stock in the event of involuntary or voluntary
liquidation; (e) sinking fund or other provisions, if any, for redemption or
purchase of Preferred Stock; (f) the terms and conditions by which Preferred
Stock may be converted, if the Preferred Stock of any series are issued with the
privilege of conversion, and (g) voting rights, if any. Because the Company has
not issued any Preferred Stock, no designation of the rights and preferences of
any such shares has been established as of the date of this Prospectus . The
issuance of Preferred Stock could decrease the amount of money and assets
available for distribution to the holders of Common Stock or adversely affect
the rights and powers, including voting rights, of the holders of Common Stock.
No Preferred Stock is issued or outstanding on the date of this Prospectus
and management has no plans to issue any Preferred Stock in the foreseeable
future. Prospective investors in this Offering should be aware that some or all
-51-
<PAGE>
of the Preferred Stock may be issued to deter or delay a takeover bid that is
opposed by management, or for such other purposes as the Company's Board of
Directors may so determine in the future, in their sole discretion.
Transfer Agent and Registrar
Corporate Stock Transfer Co., Inc., 370 17th Street, Suite 2350, Denver,
Colorado 80202 has been retained to act as the Transfer Agent for the Common
Stock of the Company.
PLAN OF DISTRIBUTION
Sales of all or a portion of the shares registered hereunder may be made
from time to time by the Selling Stockholder, or, subject to applicable law, by
pledgees, donees, distributees, transferees or other successors in interest.
Such sales may be made on the Over the Counter Bulletin Board Market, in another
over-the-counter market, on a national securities exchange (any of which may
involve crosses and block transactions), in privately negotiated transactions or
otherwise, or in a combination of such transactions at prices and at terms then
prevailing or at prices related to the then current market price, or at
privately negotiated prices. In addition, any shares covered by this Prospectus
which qualify for sale pursuant to Section 4(1) of the Securities Act and Rule
144 promulgated thereunder may be sold under such provisions rather than
pursuant to this Prospectus. Without limiting the generality of the foregoing,
the shares may be sold, without limitation, in one or more of the following
types of transactions: (a) a block trade in which the broker-dealer so engaged
will attempt to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) face-to-face
transactions between sellers and purchasers without a broker-dealer; (e) an
exchange distribution in accordance with the rules of such exchange; and (f) a
combination of any such methods of sale. In addition, the Selling Stockholder
may use this Prospectus to distribute the Shares in any other manner permitted
under applicable securities laws. In effecting sales, brokers or dealers engaged
by the Selling Stockholder may arrange for other brokers or dealers to
participate in the resales.
Broker-dealers may agree with the Selling Stockholder to sell a specified
number of such Shares at a stipulated price per share, and, to the extent such
broker-dealer is unable to do so acting as agent for a Selling Stockholder, to
purchase as principal any unsold Shares at the price required to fulfill the
broker-dealer commitment to the Selling Stockholder. Broker-dealers who acquire
Shares as principal may thereafter resell such Shares from time to time in
transactions (which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above) in
the over-the-counter market or otherwise at prices and on terms then prevailing
at the time of sale, at prices then related to the then-current market price or
in negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Shares commissions as described above. The
Selling Stockholder may also sell the Shares in accordance with Rule 144 under
the Securities Act, rather than pursuant to this Prospectus.
-52-
<PAGE>
In connection with distribution of the Shares or otherwise, the Selling
Stockholder may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered hereunder in the course of hedging the positions they
assume with the Selling Stockholder. The Selling Stockholder may also enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the shares registered hereunder, which the broker-dealer
may resell pursuant to this Prospectus. From time to time the Selling
Stockholder may pledge its Shares pursuant to the margin provisions of its
customer agreements with its brokers. Upon a default by the Selling Stockholder,
the broker may offer and sell the pledged Shares from time to time.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Stockholder in amounts to
be negotiated in connection with the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. Any dealer or brokerage firm participating
in any distribution of the shares may be required to deliver a copy of this
Prospectus, including any supplement to this Prospectus (the "Prospectus
Supplement"), to any person who purchases any of the shares from or through such
dealer or broker.
The Company has advised the Selling Stockholder that, during such time as
it may be engaged in a distribution of the shares included herein, it is
required to comply with Regulation M promulgated under the Exchange Act. In
general, Regulation M precludes any Selling Stockholder, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase, any security which is the subject of the distribution
until the entire distribution is complete. A "distribution" is defined in the
rules as an offering of securities that is distinguished from ordinary trading
activities and depends on the "magnitude of the offering and the presence of
special selling efforts and selling methods." Regulation M also prohibits any
bids or purchases made in order to stabilize the price of a security in
connection with the distribution of that security.
It is anticipated that the Selling Stockholder will offer the shares listed
in the table under "Selling Stockholder" from time to time, except that Crescent
may or may not choose to exercise its Warrants in order to purchase the shares
listed in the table, depending on the relationship between the prevailing market
price of the Common Stock from time to time and the exercise prices of the
various Warrants (see the information with regard to exercise prices in the
table under "Selling Stockholder"). See "Risk Factors-Effect of Additional
Shares Traded."
The Company is required to pay all fees and expenses incident to the
registration of the Shares. The Company has agreed to indemnify the Selling
Stockholder against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
-53-
<PAGE>
LEGAL MATTERS
Certain aspects of the validity of the Common Stock has been passed upon
for Sytron by Bresler Goodman & Unterman, LLP.
EXPERTS
The audited financial statements included in this Prospectus have been
examined by Jones, Jensen & Company, independent certified public accountants,
to the extent and for the periods indicated in their report with respect thereof
and has been included in this Prospectus in reliance upon the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (together with all
amendments, exhibits and schedules, the "Registration Statement") under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company, reference is hereby made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each such instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. As a result of the Offering, the Company will become subject to
the information requirements of the Exchange Act, and in accordance therewith
will file reports, proxy statements and other information with the Commission.
The Registration Statement, as well as all periodic reports and other
information to be filed by the Company pursuant to the Exchange Act, may be
inspected without charge and copied upon payment of fees prescribed by the
Commission at the public reference facilities maintained by the Commission in
Room 1024, 450 Fifth Street, NW, Washington, DC 20549, and at the Commission's
regional offices located at Seven World Trade Center, 7th Floor, New York, New
York 10048 and 1801 California Street, Suite 4800, Denver, Colorado 80202-2648.
The Commission maintains a worldwide web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Company intends to furnish its stockholders with annual reports
containing consolidated audited financial statements which have been certified
by its independent public accountant, and quarterly reports containing unaudited
summary consolidated financial information for each of the first three quarters
of each fiscal year.
-54-
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
F-1
<PAGE>
C O N T E N T S
Independent Auditors' Report.................................................F-3
Consolidated Balance Sheets..................................................F-4
Consolidated Statements of Operations........................................F-6
Consolidated Statements of Stockholders' Equity (Deficit)....................F-7
Consolidated Statements of Cash Flows........................................F-8
Notes to the Consolidated Financial Statements...............................F-9
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Sytron, Inc. and Subsidiaries
Broomfield, Colorado
We have audited the accompanying consolidated balance sheets of Sytron, Inc. and
Subsidiaries as of September 30, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years ended September 30, 1998, 1997 and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the financial position of Sytron, Inc. and
Subsidiaries as of September 30, 1998 and 1997 and the results of their
operations and their cash flows for the years ended September 30, 1998, 1997 and
1996 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 15 to
the consolidated financial statements, the Company has suffered losses from
operations since inception, which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 15. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
November 20, 1998
F-3
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
September 30,
--------------------------
1998 1997
----------- -----------
CURRENT ASSETS
Cash $ 22,793 $ 99,222
Accounts receivable, net (Note 2) 755,361 602,137
Inventory (Note 2) 853,106 1,648,761
Prepaid expenses 42,083 6,358
----------- -----------
Total Current Assets 1,673,343 2,356,478
----------- -----------
PROPERTY AND EQUIPMENT (Note 3)
Equipment 1,297,639 1,198,768
Leasehold improvements 24,471 29,615
Software 10,753 29,227
Less - accumulated depreciation and amortization (992,221) (880,633)
----------- -----------
Total Property and Equipment 340,642 376,977
----------- -----------
OTHER ASSETS
Computer software (Notes 2 and 4) 1,270,308 1,583,479
Other assets 52,575 30,630
Organization costs, net (Note 4) -- 80,728
Goodwill (Note 2) 200,436 295,406
----------- -----------
Total Other Assets 1,523,319 1,990,243
----------- -----------
TOTAL ASSETS $ 3,537,304 $ 4,723,698
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SYTRON, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
September 30,
---------------------------
1998 1997
------------ -----------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 2,058,325 $ 1,214,252
Accrued expenses 892,939 857,450
Convertible subordinated debentures (Note 6) 42,263 42,263
Reserve for discontinued operations 27,416 27,416
Capital leases - current portion (Note 8) 11,140 --
Notes payable - related parties (Note 9) 344,250 344,250
Notes payable - current portion (Note 9) 274,445 1,241,879
------------ ------------
Total Current Liabilities 3,650,778 3,727,510
------------ ------------
LONG-TERM DEBT
Capital leases (Note 8) 51,707 --
Long-term debt (Note 9) 642,513 72,884
------------ ------------
Total Long-Term Debt 694,220 72,884
------------ ------------
Total Liabilities 4,344,998 3,800,394
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 20,000,000 shares
authorized, 5,903,537 and 3,606,664 shares issued
and outstanding, respectively 59,035 36,067
Additional paid-in capital 11,303,006 9,100,495
Stock subscriptions receivable (Note 5) (269,625) --
Accumulated deficit (11,900,110) (8,213,258)
------------ ------------
Total Stockholders' Equity (Deficit) (807,694) 923,304
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 3,537,304 $ 4,723,698
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SYTRON, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended September 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
REVENUES
<S> <C> <C> <C>
Sales $ 5,087,136 $ 4,364,751 $ 2,409,310
Cost of sales 2,898,969 2,375,079 1,257,294
----------- ----------- -----------
Gross Profit 2,188,167 1,989,672 1,152,016
----------- ----------- -----------
EXPENSES
Sales and marketing 1,044,446 893,339 316,260
General and administrative 1,669,061 1,593,913 954,196
Research and development 769,156 652,475 284,995
----------- ----------- -----------
Total Expenses 3,482,663 3,139,727 1,555,451
----------- ----------- -----------
Loss from Operations (1,294,496) (1,150,055) (403,435)
----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest expense (304,837) (859,854) (122,325)
Other income (expense) (155,346) 1,396 29,630
Gain (loss) on disposal of assets (1,321,958) 2,044 --
Loss from obsolete inventory (827,698) -- --
----------- ----------- -----------
Total Other Income (Expenses) (2,609,839) (856,414) (92,695)
----------- ----------- -----------
(LOSS) BEFORE EXTRAORDINARY ITEMS (3,904,335) (2,006,469) (496,130)
----------- ----------- -----------
EXTRAORDINARY ITEMS
Gain from discontinued operations -- -- 667,948
Income from debt release 217,483 -- 70,694
----------- ----------- -----------
Total Extraordinary Items 217,483 -- 738,642
----------- ----------- -----------
NET INCOME (LOSS) $(3,686,852) $(2,006,469) $ 242,512
=========== =========== ===========
BASIC INCOME (LOSS) PER SHARE
Before extraordinary items $ (0.84) $ (0.61) $ (0.23)
Extraordinary items 0.05 -- 0.34
----------- ----------- -----------
BASIC INCOME (LOSS) PER SHARE $ (0.79) $ (0.61) $ 0.11
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,647,259 3,273,194 2,190,081
=========== =========== ===========
FULLY DILUTED INCOME (LOSS) PER SHARE
Before extraordinary items $ (0.47) $ (0.39) $ (0.15)
Extraordinary items 0.03 -- 0.23
----------- ----------- -----------
FULLY DILUTED INCOME (LOSS) PER SHARE $ (0.44) $ (0.39) $ 0.08
=========== =========== ===========
FULLY DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING 8,391,684 5,164,657 3,223,261
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SYTRON, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional Stock
------------------------- Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 1,584,363 $ 15,844 $ 5,290,213 $ -- $ (6,449,301)
Issuance of common stock options -- -- 250,000 -- --
Common stock issued for:
Services 477,340 4,773 63,717 -- --
Conversion of debt 155,750 1,557 431,254 -- --
Cash from offering 20,000 200 99,800 -- --
Stock offering costs -- -- (531,572) -- --
Cash from exercising warrants 342,270 3,423 681,187 (352,342) --
Purchase of Mundix Control Systems 300,000 3,000 1,497,000 -- --
Net income for the year ended
September 30, 1996 -- -- -- -- 242,512
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1996 2,879,723 28,797 7,781,599 (352,342) (6,206,789)
Cash received for stock subscriptions
receivable -- -- -- 352,342 --
Common stock issued for:
Conversion of debt 58,772 588 85,246 -- --
Cash from exercising warrants 25,923 259 70,222 -- --
Converted debentures 9,761 98 19,424 -- --
Equipment 45,000 450 4,050 -- --
The purchase of the net assets of
Camenco, Inc. 200,000 2,000 448,000 -- --
The purchase of the net assets of
Point Automation 25,000 250 49,750 -- --
Interest expense 334,789 3,348 666,230 -- --
Services rendered 34,446 344 9,656 -- --
Common stock canceled as a result of
services not being performed (6,750) (67) (33,682) -- --
Net (loss) for the year ended
September 30, 1997 -- -- -- -- (2,006,469)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 3,606,664 36,067 9,100,495 -- (8,213,258)
Common stock issued for:
Services rendered 188,970 1,890 167,337 -- --
The purchase of the net assets
of Nautica Security Group, Inc. 50,000 500 189,500 -- --
Conversion of debt 1,079,619 10,796 1,018,514 -- --
Cash 978,284 9,782 905,578 (269,625) --
Stock offering costs -- -- (78,418) -- --
Net (loss) for the year ended
September 30, 1998 -- -- -- -- (3,686,852)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 5,903,537 $ 59,035 $ 11,303,006 $ (269,625) $(11,900,110)
============ ============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SYTRON, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended September 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $(3,686,852) $(2,006,469) $ 242,512
Adjustments to reconcile net income (loss)
to net cash (used) provided by operating activities:
Depreciation and amortization 705,616 595,918 239,270
Income from debt release (217,483) -- (70,694)
Stock issued (canceled) for services rendered 169,226 (23,749) 68,490
Stock issued for interest 203,246 669,578 --
Loss on disposal of asset 1,321,958 -- 1,465
Bad debt expense 18,030 83,881 13,305
Loss from obsolete inventory 827,698 -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
and related receivables (171,254) (320,542) 205,743
(Increase) decrease in inventory 86,661 (634,544) (124,456)
(Increase) decrease in prepaid expenses (35,725) 25,209 2,067
(Increase) decrease in other assets (21,945) (262,076) (33,361)
Increase (decrease) in accrued expenses 77,188 368,180 (450,395)
Increase (decrease) in accounts payable 896,323 660,155 (779,680)
----------- ----------- -----------
Net Cash (Used) Provided by Operating Activities 172,687 (844,459) (685,734)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (183,462) (157,827) (21,698)
Computer software development (737,312) -- --
----------- ----------- -----------
Net Cash (Used) by Investing Activities (920,774) (157,827) (21,698)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock 567,317 422,823 865,079
Proceeds from note payable 190,659 629,298 211,999
Repayment of notes payable and capital leases (86,318) (136,655) (250,757)
----------- ----------- -----------
Net Cash Provided by Financing Activities 671,658 915,466 826,321
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (76,429) (86,820) 118,889
CASH AT BEGINNING OF YEAR 99,222 186,042 67,153
----------- ----------- -----------
CASH AT END OF YEAR $ 22,793 $ 99,222 $ 186,042
=========== =========== ===========
CASH PAID DURING THE YEAR FOR:
Interest $ 13,556 $ 102,417 $ 61,031
Income taxes $ -- $ -- $ --
NON CASH FINANCING ACTIVITIES:
Issuance (cancellation) of common stock for services
rendered $ 169,227 $ (23,749) $ 68,490
Conversion of debt to common stock $ 1,029,310 $ 774,934 $ 432,811
Purchase of subsidiaries by the issuance of common stock $ 190,000 $ -- $ 1,500,000
Purchase of equipment by the issuance of common stock $ -- $ 4,500 $ --
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
</TABLE>
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Sytron, Inc. (the Company) was organized under the laws of the State of
Pennsylvania on November 9, 1992. Sytron Security Products, Inc. became a
separate division of the Company on August 1, 1995. Sytron Parking Systems,
Inc. was activated August 1, 1996. Sytron Security Systems, Inc. was
activated January 14, 1997. Sytron Security Group, Ltd. was activated in
June 1997. Point Automation, Inc. was activated in August 1997. The Company
is involved in the manufacture and assembly of electronic components for
the security, access control, parking and alarm monitoring industries.
The Company acquired Biometrics, Inc. on March 4, 1997 as a result of its
purchase of the net assets of Camenco, Inc. for 200,000 shares of common
stock valued at $500,000. The acquisition is accounted for as a combination
under the purchase method of accounting with acquired assets and
liabilities recorded at their fair market value.
The Company acquired Mundix Controls Systems, Inc. on September 6, 1996 for
300,000 shares of common stock valued at $1,500,000. The acquisition is
accounted for as a combination under the purchase method of accounting with
acquired assets and liabilities recorded at their fair market values.
Activity from the date of acquisition to September 30, 1996 have been
included in the statement of operations.
On September 29, 1995, the Company purchased Dorado Systems Corporation for
$1,029,137. The acquisition is accounted for as a combination under the
purchase method of accounting with acquired assets and liabilities recorded
at their fair market values.
The Company acquired Nautica Security Group, Inc. on May 10, 1998 for
50,000 shares of common stock valued at $190,000. The acquisition is
accounted for as a combination under the purchase method of accounting with
acquired assets and liabilities recorded at their fair market value.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a September 30 year end.
b. Basic Income (Loss) Per Share
The basic income (loss) per share of common stock is based on the weighted
average number of shares issued and outstanding during the period of the
consolidated financial statements. Stock warrants and options prior to
conversion are not included in the basic calculation because their
inclusion would be antidilutive, thereby reducing the net loss per common
share. Stock warrants and options have been included in the fully diluted
income (loss) per share.
c. Provision for Taxes
At September 30, 1998, the Company has net operating loss carryforwards of
approximately $11,900,000 which will expire in 2007 through 2013. No tax
benefit has been reported in the consolidated financial statements and the
potential tax benefits of the loss carryforwards are offset by a valuation
allowance of the same amount.
F-9
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
e. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts of
$85,676 and $135,589 at September 30, 1998 and 1997, respectively.
f. Principles of Consolidation
The consolidated financial statements include those of Sytron, Inc. and its
wholly-owned subsidiaries: Dorado Systems Corporation (Dorado), Sytron
Security Products, Inc. (SSP), Sytron Parking Systems, Inc. (SPS), Sytron
Security Systems, Inc. (SSS), Sytron Security Group, Ltd. (SSG),
Biometrics, Inc, (Biometrics), Mundix Control Systems, Inc. (Mundix),
Nautica Security Group, Inc. (Nautica) and Point Automation, Inc. (PAI).
All significant intercompany accounts and transactions have been
eliminated.
g. Inventory
The inventory is carried at its lower of cost or market value using the
average cost method. At September 30, 1998 and 1997 inventories were as
follows:
September 30,
--------------------------
1998 1997
----------- -----------
Raw materials and supplies $ 1,197,064 $ 1,366,610
Work-in-process 237,706 175,729
Finished goods 76,704 106,422
Reserve for obsolete items (658,368) --
----------- -----------
Total $ 853,106 $ 1,648,761
=========== ===========
h. Use of 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 period. Actual results could differ from those
estimates.
i. Goodwill
The excess of the purchase price over the fair market value of the assets
and liabilities acquired in the purchase of Dorado and Mundix has been
recorded as goodwill.
Amortization of goodwill is determined using the straight-line method over
5 years. Amortization expense was $94,969, $94,969 and $84,472 for the
years ended September 30, 1998, 1997 and 1996, respectively.
F-10
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Computer Software
Intangibles are stated at cost less accumulated amortization. Amortization
is computed using the straight-line method over the estimated useful lives
of five years. Amortization expense was $418,329, $325,997 and $24,001 for
the years ended September 30, 1998, 1997 and 1996, respectively.
k. Concentrations of Credit Risk
The Company sells its product to various customers throughout the United
States. The Company extends credit to its customers.
Credit losses, if any, have been provided for in the consolidated financial
statements and are based on management's expectations. The Company's
accounts receivable are subject to potential concentrations of credit risk.
The Company does not believe that it is subject to any unusual risks, nor
significant risks in the normal course of its business.
l. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer. For
construction projects, revenue is recognized using the percentage of
completion method.
m. Reclassification
Certain September 30, 1997 and 1996 balances have been reclassified to
conform with the September 30, 1998 consolidated financial statement
presentation.
n. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
o. Change in Accounting Principle
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" during the year ended September 30, 1998. In
accordance with SFAS No. 128, diluted earnings per share must be calculated
when an entity has convertible securities, warrants, options, and other
securities that represent potential common shares. The purpose of
calculating diluted earnings (loss) per share is to show (on a pro forma
basis) per share earnings or losses assuming the exercise or conversion of
all securities that are exercisable or convertible into common stock and
that would either dilute or not affect basis EPS. As permitted by SFAS No.
128, the Company has retroactively applied the provisions of this new
standard by showing the fully diluted income (loss) per common share for
all years presented.
p. Year 2000 Issue
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue. The
Issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system
to fail. Based on the review of the computer systems, management believes
its products and software are Year 2000 compliant.
F-11
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and repairs
that do not increase the useful life of the assets are expensed as
incurred. Depreciation of property and equipment is determined using the
straight-line method over the expected useful lives of the assets as
follows:
Description Useful Lives
----------- ------------
Equipment 5 years
Leasehold Improvements 5 years
Software 5 years
Depreciation expense was $129,734, $146,673 and $114,700 for the years
ended September 30, 1998, 1997 and 1996, respectively.
NOTE 4 - INTANGIBLE ASSETS
During the year ended September 30, 1998, the Company expensed all of its
organizational costs as a result of Statement of Position (SOP) 98-5. SOP
98-5 requires all organizational costs to be expensed.
The Company capitalized the costs incurred for software purchased for
internal use and amortizes the costs over the expected useful life of five
years.
Intangible assets consisted of the following:
September 30,
--------------------------
1998 1997
----------- -----------
Computer software $ 1,409,744 $ 1,933,477
Less accumulated amortization (139,436) (349,998)
----------- -----------
$ 1,270,308 $ 1,583,479
=========== ===========
Organization costs $ -- $ 165,349
Less accumulated amortization -- (84,621)
----------- -----------
$ -- $ 80,728
=========== ===========
Amortization expense for the years ended September 30, 1998, 1997 and 1996
was $499,057, $354,276 and $40,098, respectively.
NOTE 5 - STOCK TRANSACTIONS
The Company completed an offering under Rule 504 to Regulation D of the
Securities Act of 1933 on July 12, 1996. The offering was comprised of
20,000 units, each of which contained one share of common stock, six "A"
warrants, fourteen "B" warrants and one "C" warrant. A total of $100,000
was raised from the sale of these units. The "A" warrants are exercisable
at $0.10; the "B" warrants are exercisable at $3.00; and the "C" warrants
are exercisable at $2.20.
In conjunction with the Company's offering, 120,000 A Warrants, 224,270 B
Warrants and 1,860 C Warrants were converted into 368,193 shares of common
stock with cash proceeds of $402,749.
F-12
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 5 - STOCK TRANSACTIONS (Continued)
The 300,000 shares issued to acquire Mundix are being held in escrow
pursuant to the provisions and terms of the escrow agreement. The terms of
the agreement require that over the next 30 months after closing date that
Mundix through Sytron Security Products, Inc. (SSP) receive and accept
orders in the amount of $4,000,000. If such orders are received or accepted
the full payment of said orders must be received within a 36 month period
following the 30 month selling period. The purchase price shall be reduced
by an amount equal to one share of Sytron common stock valued at $5.00 per
share for each $20.00 of shortfall.
NOTE 6 - CONVERTIBLE SUBORDINATED DEBENTURES
The Company has outstanding convertible, subordinated debentures that
matured on January 31, 1996, but remain unpaid. As of September 30, 1998
and 1997, $42,263 and $42,263 were payable by the Company as a result of
these debentures. During 1997, $14,856 of the debentures were converted to
common stock.
10% interest on the debentures is payable annually, until the unpaid
principal balances are paid. The unpaid principal balances of the
debentures may be converted into fully-paid and non-assessable shares of
the Company's common stock.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a. Lease Agreement
On August 8, 1996, the Company entered into an operating lease obligation
for a period of five years and three months with the ability to exercise
option periods for its new office and manufacturing space, located in
Broomfield, Colorado. On June 13, 1998, the Company amended the operating
lease to be effective February 1, 1999 through December 31, 2002. The lease
requirements are as follows:
Year Ending
September 30, Amount
------------- ---------
1999 $ 127,824
2000 97,128
2001 97,128
2002 97,128
2003 24,282
2004 and thereafter --
---------
$ 443,490
Rent expense for the years ended September 30, 1998, 1997 and 1996 was
$125,978, $75,213 and $14,588, respectively.
b. Litigation
The Company is subject to several actions which management believes are not
material to the consolidated financial statements.
c. Employment Agreements
The Company has entered into employment agreements with two of its key
officers. These agreements expire January 1, 2000. The agreements require a
total of $200,546 to be paid on a yearly basis as compensation to these
individuals through the end of their agreements.
F-13
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
d. Commitments
In February 1998, the Company entered into a written agreement with
Camenco, Inc. (Camenco) settling an outstanding lawsuit. Pursuant to the
terms of the settlement agreement, the Company agreed to pay Camenco
$237,500 in ten monthly installments and Camenco would return 200,000
shares of the Company's common stock. The Company is selling the common
stock in order to pay for the settlement. At September 30, 1998, the
Company still owed $142,500 and the Company will use the proceeds from the
sale of the remaining unreturned shares to pay off the settlement balance,
which management believes will be sufficient to cover the remaining unpaid
balance. The Company will be liable for any shortfall if the proceeds are
not sufficient to cover the debt.
e. Joint Venture Agreement
Through the acquisition of Nautica, the Company became party to a joint
venture agreement with a Brazilian company to market the monitoring device
technology currently being used as an automatic vehicle location system.
The Brazilian company possesses its own radio communication infrastructure
and licenses for the operation of frequencies in Brazil. The two companies
have agreed to work together to develop, market, sell, install and service
the vehicle tracking system.
NOTE 8 - CAPITAL LEASES
The Company leases certain equipment with lease terms ending in 2002 and
2003. Obligations under these capital leases have been recorded in the
accompanying consolidated financial statements at the present value of
future minimum lease payments.
Obligations under capital leases at September 30, 1998 and 1997 consisted
of the following:
September 30,
--------------------
1998 1997
-------- --------
Total $ 62,847 $ --
Less: current portion (11,140) --
-------- --------
Long-term portion $ 51,707 $ --
======== ========
The future minimum lease payments under these capital leases and the net
present value of the future minimum lease payments are as follows:
Year Ending
September 30, Amount
------------- ----------
1999 $ 21,272
2000 21,272
2001 21,272
2002 21,272
2003 5,122
2004 and thereafter --
----------
Total future minimum lease payments 90,210
Less, amount representing interest (27,363)
Present value of future minimum lease payments $ 62,847
==========
F-14
<PAGE>
<TABLE>
<CAPTION>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 9 - NOTES PAYABLE AND NOTES PAYABLE-RELATED PARTIES
September 30,
--------------------------
1998 1997
----------- -------------
<S> <C> <C>
Note payable Springhill Holdings Limited (Shareholder),
at 10% interest rate, is due on demand and is
collateralized by certain assets of the Company. $ 73,000 $ 73,000
Note payable Werren Holdings Limited, (Shareholder)
at 10% interest rate, is due on demand and is
collateralized by certain assets of the Company. 10,000 10,000
Note payable Katonah West Pension Plan, at
(Shareholder) 10% interest rate, is due on demand and
is collateralized by certain assets of the Company. 249,750 249,750
Note payable Ragsdale Family Trust, at 9% interest rate,
the principal and interest is March 29, 1996, secured by
free trading stock of the same value as the note payable. - 200,000
Note payable Ragsdale Family Trust, at 9%, interest rate,
the monthly payments shall equal 20% of the gross
accounts receivable shipped during the preceding
month, and is secured by inventory of the Company. - 107,122
Note payable Ragsdale Family Trust at 9% interest rate,
principal and interest payments of $1,361 due monthly
and is secured by fixed assets. - 14,577
Note payable Forum Trading, due from judgment dated
February 15, 1996, at 8.0% interest rate, requires monthly
payments of $2,000 beginning March 15, 1996
and is unsecured. 57,498 73,088
Note payable Wagner Sharer & Co. due from judgment
dated September 12, 1996, at 7.0% interest rate, requires
monthly principal and interest payments of $750, with lump sum
payments of $9,000 on November 1, 1997 and $7,000 on November
1, 1998. Payments will reduce to $500 per month for the last
twelve months and is unsecured. 30,233 31,750
Notes payable United Credit at 14.0% interest rate,
requires monthly principal and interest payments of
$5,000 beginning October 1, 1996 and is unsecured. 571 28,569
Note payable to an individual, at 12.0% interest rate,
requires monthly principal and interest payments of
$3,000, beginning October 30, 1996 and is unsecured. - 42,753
Note payable shareholder, non-interest bearing and due
by December 31, 1997 and is unsecured, currently in
default. 11,500 11,500
Note payable to various individuals at 10.5% interest
rate, principal and interest due November 1997,
secured by accounts receivable. - 128,000
Note payable to an individual, at 16.0% interest rate,
requires weekly principal and interest payments of
$2,000 beginning July 31, 1998, unsecured. 13,000 -
Notes payable to various individuals at 12.0% interest
rate, principal and interest due April, 1998, unsecured,
currently in default. 50,000 451,298
----------- -------------
Balance forward $ 495,552 $ 1,421,407
----------- -------------
F-15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 9 - NOTES PAYABLE AND NOTES PAYABLE-RELATED PARTIES (Continued)
September 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Balance forward $ 495,552 $ 1,421,407
Note payable to various individuals at 12.0% interest rate,
principal and interest due June 1998, unsecured,
currently in default. 40,000 50,000
Notes payable to various individuals at 9.5% interest
rate, interest payments due quarterly, principal due
January 31, 2000, secured by accounts receivable. 608,656 -
Note payable United Credit at 14.0% interest rate,
balance not to exceed $250,000 or 75% of accounts receivable,
monthly payments based on outstanding accounts receivable
balance, secured by accounts
receivable, inventory and equipment of Dorado. 117,000 187,606
Less related party notes (344,250) (344,250)
------------- ------------
Total notes payable 916,958 1,314,763
Less current portion (274,445) (1,241,879)
------------- ------------
Total Long-Term Debt $ 642,513 $ 72,884
============= ============
Scheduled maturities of notes payable are as follows:
1999 $ 274,445
2000 630,746
2001 11,767
2002 --
2003 --
Thereafter --
------------
$ 916,958
============
F-16
</TABLE>
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 10 - OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS
The following summarizes the exercise price per share and expiration date
of the Company's outstanding options and warrants to purchase common stock
at September 30, 1998. These warrants may be extended at the Company's
discretion.
Type Expiration Date Exercise Price Number
---- --------------- -------------- ------
Options February 2002 $3.625 9,340
Options 2002 to 2003 $2.50 92,620
Options June 2001 $2.26 357,716
Options February 2003 $1.875 9,993
Options March to May 2002 $1.53 464,411
Options June 2002 $1.50 5,678
Options February 2003 $1.375 1,000
Options 2002 to 2003 $1.125 108,573
Options October 2002 $1.00 122,932
Options 2002 to 2003 $0.875 91,809
Options March 2002 $0.75 750,000
Warrants 1999 to 2002 $2.50 80,153
Warrants May 2003 $2.00 100,000
Warrants April 2002 $1.75 2,000
Warrants 1999 to 2003 $1.625 157,200
Warrants 1999 to 2000 $1.50 72,000
Warrants February 2003 $1.375 80,000
Warrants July 2002 $1.125 86,000
Warrants 2002 to 2003 $1.00 38,000
Warrants 2001 to 2003 $0.75 415,000
Warrants October 2002 $0.625 700,000
------------
3,744,425
=========
The Company has established a non statutory stock option plan dated June
28, 1996 that provides options to purchase 2,000,000 shares of common stock
on a 1 for 1 basis. 1,440,738 options are fully vested of which 176,666
options were exercised as of September 30, 1998. The remaining options will
gradually vest between 1998 through 2003. No options shall be granted under
the plan after June 28, 2000. Options issued will have a five year period
to be exercised.
The plan was established to provide a special incentive to selected
individuals who have made significant contributions to the business and its
success. The plan shall be administered by the board of directors of the
Company or an option committee.
NOTE 11 - DISCONTINUED OPERATIONS
MHB Manufacturing, Inc. (MHB), a wholly-owned subsidiary of the Company,
has discontinued its operations as of March 31, 1996 and has filed for
bankruptcy. The investment and intercompany accounts have been written off
resulting in a gain from discontinued operations during 1996.
F-17
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 12 - CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS
The historical information contained herein has been consolidated on a
proforma basis and is presented as unaudited. The purchase of assets and
liabilities from Nautica Technology Group, Intl. (Nautica) on May 10, 1998
is described in Note 1. The purchase has been presented as though it was
effective October 1, 1997. All significant accounting policies for Nautica
are the same as the Company's as defined in Note 2.
For the Year Ended
For the September 30, 1998
Period Ended --------------------------
May 10, 1998 Sytron and Proforma
Nautica Subsidiaries Combined
------- ------------ --------
REVENUES $ -- $ 5,087,136 $ 5,087,136
----------- ----------- -----------
COST AND EXPENSES
Cost of sales -- 2,898,968 2,898,968
General and administrative 97,341 3,483,315 3,580,656
Interest 6,805 303,514 310,319
Other expense (income) -- 2,305,674 2,305,674
Extraordinary items -- (217,483) (217,483)
----------- ----------- -----------
Total Costs and Expenses 104,146 8,773,988 8,878,134
----------- ----------- -----------
NET LOSS $ (104,146) $(3,686,852) $(3,790,998)
=========== =========== ===========
NOTE 13 - SECURITY INTEREST
In consideration for funds loaned to the Company by related parties for the
purchase of Dorado Systems Corporation (Dorado), the Company granted a
security interest in Dorado's common stock. 22,403 shares of Dorado's
common stock were issued and are being held in a nominee's name until loans
have been paid.
NOTE 14 - ROYALTY COMMITMENT
On November 22, 1996, the Company purchased the parking division of The
Stanley Works (Stanley) for $25,000 cash. In addition, the Company has
agreed to pay Stanley a royalty based on the Company's net sales of parking
products with the royalty agreement expiring November 22, 1998. The royalty
commitment is 5% of the Company's net sales to Stanley and its network of
distribution companies and 1% of all other net sales of the parking
products .
NOTE 15 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred operating losses from its inception through
September 30, 1998. It has not established revenues sufficient to cover its
operating costs and to allow it to continue as a going concern.
F-18
<PAGE>
SYTRON, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 15 - GOING CONCERN (Continued)
The Company feels it would achieve operating profits and positive cash flow
if operated for maximum return in its current form. Management believes,
however, that substantial opportunity exists in the highly fragmented
security industry for a broad line, full service provider. Management is
committed to creating such a provider through extensive product development
and through acquisition of companies with complimentary products and/or
distribution networks. Many of these acquisitions are early stage companies
with limited cash flow and heavy capital needs to realize their potential.
Operating according to this philosophy has required greater spending, and
foregoing current profit opportunities for future growth opportunities.
In October 1998, the Company restructured its sales and marketing programs
and made other changes intended to reduce operating costs. These steps
included personnel and overhead reductions and deferral of some product
development and marketing introduction activities.
Without abandoning its long-term growth strategy, the Company has refocused
existing operations to achieve profitability and positive cash flow.
Additional acquisitions will be undertaken as financing to support them is
obtained.
NOTE 16 - SUBSEQUENT EVENTS
On October 2, 1998, the Company acquired Law Enforcement Technologic
Resources, Inc. (LETR), by issuing 440,000 shares of its outstanding common
stock. LETR is a law enforcement software developer. LETR has a subsidiary,
Ventura Identification Systems, Inc., which is a first stage manufacturer
of optical fingerprint readers.
On November 6, 1998, the Company acquired 100% of ECSI Construction
Services, Inc. (ECSI), by issuing 100,000 restricted shares of its
outstanding common stock.
Subsequent to September 30, 1998, the Company renegotiated its equity line
with Crescent for a total of $750,000 cash in the form of two separate
notes, secured by the Company's inventory. The Company agreed to issue
100,000 shares of its outstanding common stock to Crescent as payment for
restructuring the deal. The $750,000 cash had not been received by the
Company as of the date of this audit report. Receipt will be in
installments with initial payments based on the closing of the agreement
and then after effective date of a Registration Statement.
F-19
<PAGE>
TABLE OF CONTENTS
Prospectus Summary.............................................................2
Risk Factors...................................................................6
Crescent Financing............................................................14
Determination of Offering Price...............................................15
Dilution......................................................................15
Use of Proceeds...............................................................16
Selling Stockholder...........................................................16
Dividend Policy...............................................................17
Capitalization................................................................17
Selected Financial Data.......................................................19
Management's Discussion and Analysis of Financial Condition...................20
Business......................................................................25
Legal Proceedings.............................................................37
Management....................................................................38
Executive Compensation........................................................44
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..............................45
Principal Shareholders........................................................46
Certain Transactions..........................................................48
Description of Securities.....................................................51
Plan of Distribution..........................................................52
Legal Matters.................................................................54
Experts.......................................................................54
Available Information.........................................................54
-55-
<PAGE>
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , all dealers that effect transactions in these securities
may be required to deliver a prospectus.
-56-
<PAGE>
PART II
Item 24. Indemnification of Directors and Officers.
The following states the general effect of all statutes, charter
provisions, by-laws, contracts or other arrangement under which any controlling
person, director or officer of the Company is insured or indemnified in any
manner against liability which he may incur in his capacity as such:
Under 15 Pa.C.S.A. ss. 513(a), if a by-law adopted by the shareholders
entitled to vote or members entitled to vote of a domestic corporation so
provides, a director shall not be personally liable, as such, for monetary
damages for any action taken unless the director breached or failed to perform
the duties of his office, and such breach or failure to perform constitutes
self-dealing, willful misconduct, or recklessness. However, subsection (b)
states that subsection (a) shall not apply to the liability of a director
pursuant to any criminal statute or the payment of taxes pursuant to federal,
state, or local law.
Whereas 15 Pa.C.S.A. ss. 513 deals with domestic corporations, 15 Pa.C.S.A.
ss. 1713 implements the very same language as it pertains to by-laws adopted by
the shareholders of a business corporation.
Additionally, 15 Pa.C.S.A. ss. 1721 states that persons upon whom the
liabilities of directors are imposed shall to that extent be entitled to the
rights and immunities conferred by or pursuant to law upon directors of a
corporation.
Article VIII of the Company's amended and restated By-Laws provides, in
pertinent part:
8.1 Limitation of Liability. Directors of this corporation shall
not be personally liable for monetary damages as such for any
action other than as expressly provided in 15 Pa.C.S.A. ss. 513 of
the Associations Code and 15 Pa.C.S.A. Sections 1713 and 1721 of
the Pennsylvania Business Corporation Law of 1988. It is the
intention of this Section 8.1 to limit the liability of directors
of this corporation to the fullest extent permitted by 15 Pa.
C.S.A. ss.ss.513, 1713 and 1721, and any other present or future
provision of Pennsylvania law.
8.2 Indemnification. The corporation shall indemnify every
director and officer, and may indemnify any employee or agent, to
the full extent permitted by the Pennsylvania Business Corporation
Law of 1988, the Pennsylvania Directors' Liability Act and any
other present or future provision of Pennsylvania law. The
corporation shall pay and advance expenses to directors and
officers for matters covered by indemnification to the full extent
permitted by such law, and may similarly pay and advance expenses
for employees and agents. This Section 8.2 shall not exclude any
other indemnification or other rights to which any party may be
entitled in any manner.
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the Company's estimates of the expenses to
be incurred by it in connection with the issuance and distribution of the
securities being registered:
Securities and Exchange Commission registration fee........ $ 700.00
Printing registration statement and other documents........ $ 5,000.00
Fees and expenses of Registrant's counsel.................. $ 45,000.00
Accounting fees and expenses............................... $ 6,800.00
Blue Sky expenses.......................................... $ 5,000.00
Miscellaneous.............................................. $ 2,500.00
------------
Total....................... $ 65,000.00
============
Item 26. Recent Sales of Unregistered Securities.
Described below is information regarding all securities that have been
issued by the Company over the past three years without registering the
securities under the Securities Act of 1933.
During the second quarter of 1996, the Company issued a total of 60,000
shares of restricted common stock, with a fair value of $6,000, to one
individual and two institutions for legal and other services.
During the third quarter of 1996, the Company issued a total of 326,924
shares of restricted common stock, with a fair value of $383,344.98, to seven
individuals and seven institutions for consulting, accounting, contracting, and
other services, and for the sale of certain goods.
During the fourth quarter of 1996, the Company issued a total of 59,246
shares of restricted common stock, with a fair value of $30,245.67, to six
individuals for legal and other services.
During the first quarter of 1997, the Company issued a total of 341,084
shares of restricted common stock, with a fair value of $671,485.39, to one
individual and two institutions for services rendered to the Company.
During the second quarter of 1997, the Company issued a total of 9,761
shares of restricted common stock, with a fair value of $19,522.00, to four
individuals and one institution for services rendered to the Company.
During the third quarter of 1997, the Company issued a total of 24,036
shares of restricted common stock, with a fair value of $27,040.50, to five
individuals and one institution for services rendered to the Company.
-2-
<PAGE>
During the fourth quarter of 1997, the Company issued a total of 135,432
shares of restricted common stock, with a fair value of $130,557.00, to three
individuals and one institution for services rendered to the Company.
During the first quarter of 1998, the Company issued a total of 185,667
shares of restricted common stock, with a fair value of $242,913.58, thirteen
individuals for legal, contracting, consulting, and other services, and for
goods sold to the Company.
During the second quarter of 1998, the Company issued a total of 396,312
shares of restricted common stock, with a fair value of $539,810.49, to eight
individuals and nine institutions. Werren Holdings Limited and one other
institutional creditor were each issued 154,706 shares of the Company's Common
Stock as the institutional investor converted certain notes payable evidencing
Sytron obligations of $411,517.64. Werren also exchanged $12,704 due it for
12,704 shares of the Company's Common Stock.
During the third quarter of 1998, the Company issued a total of 545,003
shares of restricted common stock, with a fair value of $249,020.30, to fifteen
individuals and six institutions for financial services, and for goods sold to
the Company.
During the fourth quarter of 1998, the Company issued a total of 122,689
shares of restricted common stock, with a fair value of $61,035.86, to ten
individuals and one institution for contracting and other services, and for
goods sold to the Company.
The Company issued convertible, subordinated debentures that matured on
January 31, 1996. As of September 30, 1998 and 1997, $42,263 and $42,263 was
payable by the Company on these debentures.
On July 12, 1996, the Company completed an offering under rule 504 to
Regulation D of the Securities Act of 1933. The offering was comprised of 20,000
units, each of which contained one share of common stock, six "A" Warrants,
fourteen "B" Warrants and one "C" Warrant. A total of $100,000 was raised from
the sale of these units. Thereafter, 120,000 A Warrants, 224,270 B Warrants, and
1,860 C Warrants were converted into 368,193 shares of Common Stock for which
the Company received $402,749.
In September 1996, the Company acquired all of the issued and outstanding
securities of Mundix Control Systems, Inc. for 300,000 unregistered shares of
the Company's common stock. The value of the Company's stock attributed to this
purchase was $1,500,000 ($5.00 per share).
In March 1997, the Company acquired certain assets from Camenco, Inc. The
purchase price for these assets was established at $816,000, for which the
Company issued 200,000 restricted, unregistered shares of its Common Stock and
paid $10,000.
In October 1997, the Company purchased from Point Automation, Inc.
substantially all of the "Pro Series" product line assets, both tangible and
intangible, including the right to use the "Point Automation" name, in exchange
for 25,000 shares of restricted, unregistered Common Stock, and a commitment to
issue up to an additional 50,000 shares of restricted, unregistered common stock
to Gary Handelin on certain conditions.
-3-
<PAGE>
In May of 1998, a newly formed subsidiary of the Company agreed to acquire
the net assets of Nautica Technology Group International, a privately held
Georgia corporation for 50,000 restricted, unregistered shares of Sytron Common
Stock valued at $190,000, and up to 550,000 additional restricted, unregistered
shares.
Also in May of 1998, the Company sold to Crescent International Limited
("Crescent") for $250,000 in cash, 166,667 shares of Common Stock, and a Warrant
to acquire an additional 100,000 shares of Common Stock at a price of $3.375 per
share. Rights under the Warrant expire in May of 2003.
In October 1998, the Company acquired the outstanding shares of Law
Enforcement Technologic Resources, Inc. for 440,000 restricted, unregistered
shares of Common Stock.
In November 1998, the Company acquired all of the issued and outstanding
stock of ECSI Construction Services, Inc. for 100,000 restricted, unregistered
shares of Common Stock.
A transaction with Crescent closed on January 15, 1999. It involves (i) the
sale to Crescent by the Company a Convertible Promissory Note with a face amount
of $350,000 (the "First Note"), and the conditional right to sell to Crescent a
second Convertible Promissory Note in the face amount of $400,000 (the "Second
Note"); (ii) the issuance of 73,045 shares to Crescent as a commitment fee for
entering into the January transaction, and the Company's agreement to issue an
additional number of shares every six months to Crescent so long as any portion
of the First Note or the Second Note remains unpaid; (iii) the sale to Crescent
of 100,000 shares for an aggregate of $1.00; (iv) the issuance to Crescent of a
Warrant (the "Additional Warrant") to purchase up to 726,000 shares from the
Company for $0.01 per share; and (v) the payment by Sytron to Crescent of a Note
Issuance Fee of $10,500 in cash. The First Note is convertible according to a
formula, but the greatest number of shares that may be issued on the conversion
of that note before July 15, 1999 is 933,333 shares. The Company has agreed to
pay a commitment fee to Crescent every six months so long as the Convertible
Notes are outstanding. The commitment fee will vary from time to time depending,
among other things, on Market Price (a defined term) and the outstanding
balance.
Except as otherwise indicated above, the above transactions were private
transactions not involving a public offering and were exempt from the
registration provisions of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof. No underwriter was engaged in connection with the
foregoing sales of securities.
-4-
<PAGE>
Item 27. Exhibits and Financial Statement Schedules.
Exhibit
Number Description of Exhibit
------ ----------------------
3(i)(a) -- Articles of Incorporation as filed with Pennsylvania
Department of State on November 9, 1992
3(i)(b) -- Articles of Amendment authorizing change in
aggregate number of shares able to be issued, as filed
with Pennsylvania Department of State on July 3, 1995
3(i)(c) -- Articles of Amendment authorizing change of
corporate name, filed with Pennsylvania Department of
State on August 14, 1995
3(ii) -- By-Laws (including amendments to Articles 3.2, 5.2,
5.5, 7.1, 7.3,and 7.8, as of August 8, 1993)
10(a) -- Executive Employment Agreement dated May 1, 1997,
between Sytron, Inc. and Robert Howard
10(b) -- Executive Employment Agreement dated May 1, 1997,
between Sytron, Inc. and Private Capital Group Ltd.
for the services of Mitchel Feinglas
10(c) -- Lease of 2770, 2780 Industrial Lane, Broomfield, CO,
dated June 30, 1998, between the Robert Law Family
Trust and Sytron, Inc., with Addendum #1, dated
October 29, 1998
10(d) -- Stock Purchase Agreement dated October 7, 1998, between
Sytron, Inc. and ECSI Construction Services, Inc.
10(e) -- Note Purchase Agreement dated January 15, 1999, between
Sytron, Inc. and Crescent International Limited
10(f) -- Convertible Note No. 1 dated January 15, 1999, and due
January 15, 2001, in the principal amount of $350,000.00
10(g) -- Convertible Note No. 2 in the principal amount of
$400,000.00
10(h) -- Amended and Restated Registration Rights Agreement dated
January 15, 1999, between Sytron, Inc. and Crescent
International Limited
-5-
<PAGE>
Exhibit
Number Description of Exhibit
------ ----------------------
10(i) -- Security Agreement dated January 15, 1999, between
Sytron, Inc. and Crescent International Limited
10(j) -- Termination Agreement dated January 15, 1999, between
Sytron, Inc. and Crescent International Limited
10(k) -- Additional Warrant dated January 15, 1999, to
purchase up to 726,000 shares Common Stock of Sytron,
Inc.
10(l) -- Promissory Note dated October 3, 1995, in the amount of
$45,000.00, due to Springhill Holdings, Ltd. from
Sytron, Inc.
10(m) -- Promissory Note dated July 15, 1996, in the amount of
$28,000.00, due to Springhill Holdings, Ltd. from
Sytron, Inc.
10(n) -- Promissory Note dated October 3, 1995, in the amount of
$10,000.00, due to Werren Holdings, Ltd. from Sytron,
Inc.
10(o) -- Promissory Note dated October 3, 1995, in the amount
of $245,000.00, due to Katonah West Pension Plan from
Sytron, Inc.
10(p) -- Promissory Note dated July 15, 1996, in the amount
of $54,750.00, due to Katonah West Pension Plan from
Sytron, Inc.
10(q) -- Unsecured Note Payable to United Credit Corporation
executed September 13, 1996, with monthly principal
and interest payments of $5,000 beginning October 1,
1996
10(r) -- Promissory Note dated June 13, 1997, in the amount of
$10,000.00, due June 13, 1998, to Robert M. Long from
Sytron, Inc.
10(s) -- Secured Promissory Note dated February 1, 1998, in the
amount of $56,000.00, due January 31, 2000, to John E.
Stuart from Sytron, Inc.
10(t) -- Secured Promissory Note dated February 1, 1998, in
the amount of $107,856.00, due January 31, 2000, to
Irwin Associates Pension Scheme from Sytron, Inc.
-6-
<PAGE>
Exhibit
Number Description of Exhibit
------ ----------------------
10(u) -- Secured Promissory Note dated February 1, 1998, in the
amount of $100,000.00, due January 31, 2000, to Basil
and Susan Bicknell from Sytron, Inc.
10(v) -- Secured Promissory Note dated February 1, 1998, in the
amount of $100,000.00, due January 31, 2000, to V.W.
Warren Pearl from Sytron, Inc.
10(w) -- Secured Promissory Note dated February 1, 1998, in
the amount of $100,000.00, due January 31, 2000, to
John and Kay Boor from Sytron, Inc.
10(x) -- Secured Promissory Note dated February 1, 1998, in
the amount of $44,800.00, due January 31, 2000, to
Marion Bloch from Sytron, Inc.
10(y) -- Agreement between United Credit Corporation, Dorado
Systems Corporation, and Sytron, Inc., dated September
13, 1996 detailing Dorado's indebtedness to United
Credit as well as amendment of the security agreement
between Dorado and United Credit
10(z) -- Agreement between Dorado Systems Corporation and United
CreditCorporation, dated December 3, 1995
10(aa) -- Note dated September 15, 1996, and Addendum, payable to
Richard E. Munz and Irma B. Munz
10(bb) -- Secured Promissory Note dated February 1, 1998, in
the amount of $50,000.00, due January 31, 2000, to
Charles and Janet Robinson from Sytron, Inc.
10(cc) -- Warrant to Charles Robinson for purchase of 2,500 shares
of Sytron, Inc. Common Stock, dated February 1, 1998
10(dd) -- Loan and Security Agreement dated February 1, 1998, and
expiring on February 1, 2000, between Sytron, Inc. and
Charles Robinson
-7-
<PAGE>
Exhibit
Number Description of Exhibit
------ ----------------------
10(ee) -- Secured Promissory Note dated February 1, 1998, and
due January 31, 2000 to Janet Robinson, but stating
that Charles Robinson is the holder
10(ff) -- Warrant dated February 1, 1998, to Janet Robinson for
purchase of 2,500 shares of Sytron, Inc. Common Stock
10(gg) -- Loan and Security Agreement dated February 1, 1998, and
expiring on February 1, 2000, between Sytron, Inc. and
Janet Robinson
10(hh) -- Registration Rights Agreement modified July 15,
1996, between Sytron, Inc., Katonah West Pension Plan,
Springhill Holdings, Ltd., Werren Holdings, Ltd., and
Private Capital Group Ltd.
10(ii) -- Registration Rights Agreement dated October 1995,
between Sytron, Inc., Katonah West Pension Plan,
Springhill Holdings, Ltd., Werren Holdings, Ltd., and
Private Capital Group Ltd.
10(jj) -- Security Agreement dated October 1995 between debtor
Sytron, Inc. and secured parties Katonah West Pension
Plan, Springhill Holdings, Ltd., and Werren Holdings,
Ltd.
10(kk) -- Promissory Note dated October 3, 1995, and due one year
from sch date, in the amount of $10,000.00, to Werren
Holdings, Ltd. from Sytron, Inc.
10(ll) -- Promissory Note dated October 3, 1995, and due one year
from sch date, in the amount of $45,000.00, to
Springhill Holdings, Ltd. from Sytron, Inc.
10(mm) -- Promissory Note dated October 3, 1995, and due one
year from sch date, in the amount of $245,000.00, to
Katonah West Pension Plan from Sytron, Inc.
23(a) -- Letter of Consent from Jones, Jensen & Company, LLC,
dated February 3, 1999
Item 28. Undertakings.
The Company hereby undertakes to file, during any period in which offers or
sales are being made, a post-effective amendment to this Registration Statement
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
-8-
<PAGE>
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
The Company hereby undertakes that, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
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.
The Company hereby undertakes to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Company, the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act of 1933,
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.
For the purpose of determining any liability under the Securities Act of
1933, 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.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
hereby certifies that it has reasonable grounds to believe that it meets all of
the requirements of filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Broomfield, State of Colorado, on February 10, 1999.
SYTRON, INC.
By: /s/ Mitchel Feinglas
--------------------------------------------
Mitchel Feinglas, Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mitchel Feinglas his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement and all documents relating thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Mitchel Feinglas Director, Chairman and Chief Executive February 10, 1999
- ------------------------ Officer (Principal executive officer)
Mitchel Feinglas
/s/ Robert Howard Director, President, Chief Operating February 10, 1999
- -----------------------
Robert Howard Officer
/s/ James Power Director February 10, 1999
James Power
/s/ Michael Fitzsimons Vice President and Chief Financial February 10, 1999
- ---------------------- Officer
Michael Fitzsimons
</TABLE>
-10-
Exhibit 3(i)(a)
Microfilm Number ___________ Filed with the Department of
State on NOV 09 1992
Entity Number________________ /s/
-----------------------------
Secretary of the Commonwealth
ARTICLES OF INCORPORATION
DSCB: 15-1306 (Rev 89)
X Business-Stock (15 Pa. C.S. Section 1306)
_____
Business-nonstock (15 Pa. C.S. Section 2102)
_____
Business-statutory close (15 Pa. C.S. Section 2304a)
_____
Professional (15 Pa. C.S. Section 2903)
Management (15 Pa. C.S. Section 2701)
_____
Cooperative (15 Pa. C.S. Section 7701)
_____
1. The name of the Corporation is: MHB Technology, Inc.
This Corporation is incorporated under the provisions of the Business
Corporation Law of 1988.
2. The address of this Corporation's initial registered office in this
Commonwealth is: 1735 Market Street, 38th Floor, Philadelphia, Philadelphia
County, Pennsylvania 19103-7593.
3. The aggregate number of shares the Corporation shall have authority to
issue is:
(a) Ten Million Shares (10,000,000) of Common Stock, $.0l par value per
share; and
(b) (i) Ten Million Shares (10,000,000) of Preferred Stock, without par
value.
(ii) The Preferred Stock may be issued from time to time in one or
more series with such distinctive designations as may be stated
in a resolution or resolutions providing for the issue of such
stock from time to time adopted by the Board of Directors. The
resolution or resolutions providing for the issue of shares of a
particular series shall fix, subject to applicable laws and the
provisions hereof,
<PAGE>
the designation, rights, preferences and limitations of the
shares of each such series. The authority of the Board of
Directors with respect to each series shall include, but not be
limited to, determination of the following:
(A) The number of shares constituting such series, including the
authority to increase or decrease such number, and the
distinctive designation of such series;
(B) The dividend rate of the shares of such series, whether the
dividends shall be cumulative and, if so, the date from
which, they shall be cumulative and the relative rights off
priority, if any, off payment of dividends on shares off
such series;
(C) The right, it any, of the Corporation to redeem shares of
such series and the terms and conditions of such redemption;
(D) The rights of the shares in case of a voluntary or
involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any,
off payment off shares of such series;
(E) The voting power, if any, of such series and the terms and
conditions under which such voting power may be exercised;
(F) The obligation, if any, of the Corporation to retire shares
of such series pursuant to a retirement or sinking fund or
funds of a similar nature or otherwise and the terms and
conditions of such obligations;
(G) The terms and conditions, if any, upon which shares of such
series shall be convertible into or exchangeable for shares
of stock of any other class or classes, including the price
or prices or the rate or rates of conversion or exchange and
the terms off adjustment, if any; and
<PAGE>
(H) Any other rights, preferences or limitations of the shares
of such series.
(iii)The authority to divide the ~authorized and unissued
shares into classes or series, or both, and to
determine for any such class or series its voting
rights, designations, preferences, limitations and
special rights - is vested in the Board of Directors.
4. The name and address, including street and number, if any, of each
incorporator is:
Name Address
---- -------
Lisa Small 735 Market Street
Philadelphia, PA 19103-7598
5. In all elections for Directors, each shareholder entitled to vote shall be
entitled to only one vote for each share held, it being intended hereby to
deny to shareholders of this Corporation the right of cumulative voting in
the election of Directors.
IN TESTIMONY WHEREOF, the incorporator has signed and sealed these Articles
of Incoporation this 6th day of November, 1992.
/s/ LISA SMALL
--------------------------------
LISA SMALL
Sole Incorporator
Exhibit 3(i)(b)
Microfile Number Filed with the Department of State on Jul 03 1995
--------- -----------
Number 2154533 /s/
-------- -----------------------------------------
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSC8:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: MHB Technology, Inc.
----------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the following
information to conform to the records of the Department):
(a) 6 Pheasant Run Newtown PA 18940 Bucks
---------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o Steven Borack
---------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Business-Stock
(15Pa.C.S. Section 1306)
- --------------------------------------------------------------------------------
4. The date of its incorporation is: November 9, 1992
----------------------------------------
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of Amendment
in the Department of State.
The amendment shall be effective on: at
--------------- ------------------
Date Hour
6. (Check one of the following):
X The amendment was adopted by the shareholders (or members) pursuant to
15 Pa.C.S. Section 1914(a) and (b).
The amendment was adopted by the board of directors pursuant to 15 Pa.C.S.
Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in full, which amended
paragraph 3.1 of the original articles is as follows:
The aggregate number of shares of the Corporation shall have the authority
to issue is: (a) Twenty million shares of Common Stock, $0.01 par value
per share.
8. (Check if the amendment restates the Articles):
The restated Articles of Incorporation supersede the original Articles and
all amendments thereto.
<PAGE>
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this _____
day of June, 1995.
MHB TECHNOLOGY, INC.
-------------------------------------
(Name of Corporation)
BY: /s/ Allen N. Solento
--------------------------------
(Signature)
TITLE: Secretary
-----------------------------
Jul 03 1995
06-20-95 01:00 PM P005 #30
Exhibit 3(i)(c)
Microfile Number 9553-1500 Filed with the Department of State on Aug 14 1995
--------- -----------
Number 2154533 /s/
-------- -----------------------------------------
Secretary of the Commonwealth
ARTiCLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSC8:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: MHB Technology, Inc.
----------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the following
information to conform to the records of the Department):
(a) 6 Pheasant Run Newtown PA 18940 Bucks
---------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o Steven Borack
---------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Business-Stock
(15Pa.C.S. Section 1306)
- --------------------------------------------------------------------------------
4. The date of its incorporation is: November 9, 1992
----------------------------------------
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of Amendment
in the Department of State.
The amendment shall be effective on: at
--------------- ------------------
Date Hour
6. (Check one of the following):
The amendment was adopted by the shareholders (or members) pursuant to
15 Pa.C.S. Section 1914(a) and (b).
X The amendment was adopted by the board of directors pursuant to 15 Pa.C.S.
Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in full, which amended
paragraph 1 of the original articles is as follows:
The name of the corporation is Sytron, Inc.
-------------------------------------------
The amendment adopted by the corporation is set forth in full in Exhibit A
attached hereto and made a part hereof.
August 14 1995
09-19-95 01:38 PM P005 #30
Exhibit3(ii)
MHB TECHNOLOGY, INC.
BY-LAWS
-------
KEY TO BY-LAWS
--------------
ARTICLE PAGE
- ------- ----
ARTICLE I - OFFICES 1
ARTICLE II - SEAL 1
ARTICLE III - SHAREHOLDERS' MEETINGS 1
ARTICLE IV - SHARE CERTIFICATES 4
ARTICLE V - BOARD OF DIRECTORS 7
ARTICLE VII - OFFICERS 10
ARTICLE VIII - LIMITATION OF LIABILITY
AND INDEMNIFICATION 12
ARTICLE IX - NOTICES 13
ARTICLE X - MISCELLANEOUS PROVISIONS 14
ARTICLE XI - AMENDMENTS 15
<PAGE>
MHB TECHNOLOGY, INC.
BY-LAWS
-------
ARTICLE I - OFFICES
-------------------
1.1 Registered Office. The registered office of the corporation shall be at
such place within the Commonwealth of Pennsylvania as the Board of Directors may
from time to time determine.
1.2 Other Offices. The corporation may also have offices at such other
places as the Board of Directors may from time to time appoint or the activities
of the corporation may require.
ARTICLE II - SEAL
-----------------
2.1 Seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its incorporation, and the words "Corporate Seal,
Pennsylvania".
ARTICLE III - SHAREHOLDERS' MEETINGS
------------------------------------
3.1 Annual Meeting. There shall be an annual meeting of the shareholders
during November of each year, at such time and place as the Board of Directors
may determine. At the annual meeting, the shareholders shall elect directors, if
appropriate,
<PAGE>
3.2 Special Meetings. Special meetings of the shareholders may be called at
any time for any purpose not prohibited by law or the Articles of Incorporation
by the Chairman of the Board, the President, the Board of Directors, or the
holders of at least 20% of the shares outstanding and entitled to vote at the
meeting, by submitting a written request therefor, stating the object of the
meeting, to the Secretary. The Secretary shall fix the time and place of the
meeting, which shall be not later than 60 days after the receipt of the request.
If the Secretary shall neglect or fail to set the time and place of the meeting,
the persons or entities calling the meeting may do so. Business transacted at
all special meetings shall be confined to the objects stated in the request
therefor, and matters directly related and germane thereto. (Revised per minutes
off August 8, 1993 meeting of the Board of Directors)
<PAGE>
and transact such other business as may properly be brought before the
meeting.
3.2 (Omitted)
3.3 Notice. Written notice of every meeting of the shareholders, stating
the place, time and hour thereof, shall be given to each shareholder not later
than five days prior to the date of the meeting or ten days prior to the day
named for a meeting called to consider a fundamental change. Notice of a special
meeting shall state the nature of the business to be transacted.
3.4 Ouorum. At all meetings of the shareholders, the holders of a majority
of the issued and outstanding shares entitled to vote, present in person or
represented by proxy, shall
(2)
<PAGE>
constitute a quorum. If a meeting of shareholders cannot be organized because of
the absence of a quorum, the shareholders present in person or by proxy may
adjourn the meeting to such time and place as they may determine, and in the
case of a meeting called for the election of Directors, those who attend the
second such adjourned meeting shall constitute a quorum for the purpose of
electing Directors. Except as otherwise provided in these By-Laws, the Articles
of Incorporation, or applicable law, the acts of the holders of a majority of
shares entitled to vote, present in person or by proxy, and voting at a meeting
having a quorum shall be the acts of the shareholders.
3.5 Voting. Each shareholder shall be entitled to one vote in person or by
proxy for each share he or she holds having voting power. An unrevoked proxy
which is not coupled with in shall not be voted on after 11 months after its
execution, unless one proxy expressly provides for a longer time of not more
than three years.
3.6 Voting List. The officer having charge of the transfer books for shares
of the corporation shall prepare, at least five days before each meeting of
shareholders, an alphabetical list of the names and addresses of and shares held
by the shareholders entitled to vote at the meeting. The list shall be kept on
file at the registered office of the corporation, and be produced and kept open
for inscection by shareholders throughout the meeting for purposes of the
meeting.
(3)
<PAGE>
3.7 Judges of Elections. The Board of Directors may, before a meeting of
shareholders, appoint one or three Judges (who need not be shareholders) for
such meeting. If no such Judges of Election are appointed, the chairman of the
meeting may, and on the request of any shareholder or his proxy shall, make such
appointment. If Judges are appointed at the request of one or more shareholders
or proxies, the shareholders present and entitled to vote shall determine
whether there will be one or three Judges. The Judges of Election shall take
such action as may be necessary or proper fairly to conduct the election or vote
and shall report in writing on any matter they determine, executing a
certificate of any fact they find, if requested by the chairman of the meeting
or any shareholder. No person who is a candidate for office shall act as a
Judge.
ARTICLE V - SHARE CERTIFICATES
------------------------------
4.1 Form of Certificate. The certificates of shares of the corporation
shall state that the corporation is incorporated under the laws of this
Commonwealth; the name of the person to whom issued; the number, class, and
designation of series (if any) of the shares represented; and the par value of
each share or the absence of par value, as appropriate. Each certificate shall
be numbered and registered in a share register in the order issued.
(4)
<PAGE>
4.2 Signature. Each share certificate shall be signed, by the President or
a Vice President and the Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer, and sealed with the corporate seal. When a certificate
is signed by a transfer agent or registrar, the signature of an authorized
officer may be facsimile. If an officer who has signed a certificate, personally
or by facsimile, ceases to be an officer before the certificate is delivered,
the certificate may be issued as if the signatory remained in office.
4.3 Lost Certificates. The Board of Directors shall cause the issuance of a
new certificate as a replacement for a certificate claimed to have been lost,
destroyed or wrongfully taken, upon submission of an affidavit of the person
making the claim of the loss, destruction, or wrongful taking. The Board of
Directors may in its discretion, require as a condition to the issuance of a
replacement certificate that the owner of the certificate advertise the loss in
such manner as the Board may determine, and/or give the corporation a bond in
such sum and with such sureties as the Board may direct as indemnity against any
claim that may be made against the corporation with respect to the certificate
claimed to have been lost, destroyed or wrongfully taken.
4.4 Transfer of Shares. Upon surrender to the corporation of its transfer
agent of a share certificate duly endorsed or accompanied proper evidence of
succession, assignment or authority to transfer, the corporation shall issue a
new certificate
(5)
<PAGE>
to the person entitled thereto, cancel the old certificate and record the
transaction in its books.
4.5 Determination of Shareholders of Record. The Board of Directors may fix
a record date for the determination of the shareholders entitled to notice of
and to vote at a meeting, to receive payment of a dividend or distribution, to
receive an allotment of rights, or to exercise rights in respect to a change,
conversion or exchange of shares. In such case, only the shareholders of record
on the record date shall be entitled to notice of or to vote at or participate
in such meeting or activity or event, notwithstanding any transfer of any shares
on the books of the corporation after the record date. If the Board of Directors
closes the transfer books during such period, it shall so notify each
shareholder in writing. The record date may not be more than 50 days prior to
the meeting, activity, or event to which it relates.
4.6 Registered Shareholders. The corporation shall be entitled to treat the
holder of record of any shares as the holder in fact for all purposes and shall
not be bound to recognize any claim to or interest in such share on the part of
any other person The corporation shall not be liable for any improper or
impermissible registration or transfer of shares which are or to be registered
in the name of a fiduciary or its nominee unless the corporation had actual
knowledge that the fiduciary or nominee are committing a breach of trust in
requesting such registration or
(6)
<PAGE>
transfer, or the corporation had knowledge of such facts that its participation
in the registration or transfer amounts to bad faith.
4.7 Partial Written Consent. Any action required or permitted to be taken
at a meeting of shareholders or of a class of shareholders may be taken without
a meeting upon the consent of the shareholders who would have been entitled to
cast the minimum number of votes that would be necessary to authorize the action
at a meeting at which all shareholders entitled to vote thereon were present and
voting. The consents shall be filed with the secretary of the Corporation. The
action shall not become effective until after at least ten days' written notice
of the action has been given to each shareholder entitled to vote thereon who
has not consented thereto. This Section shall not be construed to restrict the
right of the shareholders or any class of shareholders to act without a meeting
by unanimous written consent.
ARTICLE V - BOARD OF DIRECTORS
------------------------------
5.1 General Powers. The business and affairs of the corporation shall be
managed by the Board of Directors, and all powers of the corporation are hereby
granted to and vested in the Board of Directors, except as otherwise expressly
provided in these By-Laws, the Articles of Incorporation, or by law.
(7)
<PAGE>
5.2 (OMITTED)
5.3 Term. Directors shall serve for a term of at least one year, or until
their successors are duly qualified and seated, except that the initial
Directors shall serve until the first annual meeting of the Shareholders
following their election.
5.4 Regular Meetings. The Board may hold regular meetings at such times
and places as it may determine.
5.5 (OMITTED)
5.6 Annual Meeting. There shall be an annual meeting of the Board of
Directors following each annual meeting of the shareholders. At the annual
meeting, the Board of Directors shall
(8)
<PAGE>
5.2 Composition and Selection. There shall be not more than seven and no
less than one member of the Board of Directors, as the Board may determine from
the annual meeting of shareholders, or at any special meeting called for that
purpose. (Revised per minutes of August 8, 1993 meeting of the Board of
Directors)
<PAGE>
5.5 Special Meetings. Special meetings of the Board of Directors may be
called, at any time, by the Chairman of the Board, the President, or a majority
of the members of the Board, by submitting a written request therefor, stating
the object of the meeting, to the Secretary. The Secretary shall set the time
and place of the meeting, which shall be held not later than 30 days after the
receipt of the request. If the Secretary shall neglect or refuse to set the time
and place of the meeting, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the subjects
stated in the request therefor and matters directly related and germane thereto.
(Revised per minutes of August 8, 1993 meeting of the Board of Directors)
<PAGE>
elect officers and transact such other business as may be properly brought
before the meeting.
5.7 Notices. Written notice of regular and annual meetings of the Board of
Directors, stating the time and place shall be given to all directors at least
five days prior to the date of the meeting. Written notice of special meetings
of the bard of Directors shall be given to each director at least 48 hours to
the time of the meeting and shall state the business to be transacted at the
meeting.
5.8 Ouorum. A majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business, and the acts of a majority
of directors present and voting at a meeting at which a quorum is present shall
be the acts of the card of Directors. In the event that a quorum is not present
at any meeting of the Board of Directors, the directors present may adjourn the
meeting without any notice of the time and place of the adjourned meeting except
for announcement at the meeting at which adjournment is taken.
5.9 Vacancies. If the office of a director shall become vacant for any
reason, including an increase in the number of directors, the remaining
directors shall elect a successor, who shall hold office for the unexpired term
for which the vacancy or until his or her successor is duly qualified and
seated. A majority of the remaining directors shall constitute a
(9)
<PAGE>
quorum for purposes of filling the vacancy on the Board of Directors.
5.10 Alternate Directors. A shareholder or group of shareholders entitled
to elect, appoint, designate or otherwise select one or more directors may
select an alternate for each such director. In the absence of a director from a
meeting of the Board, his or her alternate may, in the manner and upon the
notice provided in these By-laws, attend the meeting or execute a written
consent and exercise at the meeting or in such consent all of the powers of the
absent director.
ARTICLE VI - COMMITTEES
-----------------------
6.1 Establishment. The Board of Directors may establish one or more standing
or special committees, including without an executive committee. Except as
otherwise provided in these By-Laws, the Articles of Incorporation, or
applicable law, any committee may exercise such powers and functions as the
Board of Directors may from time to time determine.
6.2 Committee Members. The President shall appoint all committee members
and committee chairpersons and may appoint alternates for any member or
chairperson of any committee. Members of a committee need not be directors.
(10)
<PAGE>
7.1 Officers. The officers of the corporation shall be chosen by the Board
of Directors and shall be a Chairman of the Board, a President, a Treasurer, a
Secretary, and such Vice Presidents and assistant officers as the Board of
Directors may determine that the needs of the corporation require. All officers
shall be natural persons of full age, and any two or more offices may be held by
the same person. (Revised per minutes of August 8, 1993 meeting of the Board of
Directors)
<PAGE>
ARTICLE VII - OFFICERS
----------------------
7.1 (OMITTED)
7.2 Election and Term.
A. The President, each Vice President, Treasurer and Secretary shall be
elected by the Board of Directors at its annual meeting or at an appropriate
special meeting and shall serve for a term of one year, or until their
successors are duly elected and qualified. All assistant officers shall be
elected or at such times and for such terms as the Board of Directors may
determine.
B. Any vacancy in any office shall be filled by the Board.
7.3 (OMITTED)
(11)
<PAGE>
7.3 President. The President shall be the chief operating officer of the
corporation, and shall manage the day-to-day affairs of the corporation, and
administer the general direction of the affairs of the corporation except as
otherwise determined by the Board. He or she shall perform the duties and powers
of the Chairman of the Board during the absence or disability of the Chairman,
and such other duties and powers as the Board of Directors shall designate. He
or she may execute on behalf of the corporation all bonds, mortgages, contracts,
and other documents, except where such documents are required by law to be
otherwise executed or when the execution thereof shall be delegated by the Board
of Directors to another officer. (Revised per minutes of August 8, 1993 meeting
of the Board of Directors)
<PAGE>
7.4 Vice Presidents. The Vice Presidents, if any,in such order as the Board
may determine, shall act in all cases for and as the President in the
President's absence, disability, or incapacity, and shall perform such other
duties as may be delegate to any of them by the Board of Directors or the
President.
7.5 Treasurer. The Treasurer shall have custody of the 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 monies
and other valuable effects of the corporation in separate accounts or
depositaries in the name of and to the credit of the corporation as shall be
designated by the Board of Directors. He or she shall disburse the funds of the
corporation as may be ordered by the Board of Directors for such disbursements
and shall render to the Board of Directors, whenever it may so require it, an
account of all his or her transactions as Treasurer and of the financial
condition of the corporation. The Treasurer may be a corporation.
7.6 Secretary. The Secretary shall attend all meetings of the Board of
Directors and record all votes of the corporation and the minutes of all
transactions in a book to be kept for that purpose and perform like duties for
committees of the Board of
(12)
<PAGE>
7.8 Chairman of the Board. The Chairman of the Board shall be the chief
executive officer of the corporation, and shall preside at all meetings of the
Board of Directors and at all meetings of the shareholders. He or she shall act
as liaison from and as spokesperson for the Board of Directors. He or she shall
participate in long range planning of the corporation and shall see that all
resolutions and orders of the Board of Directors are carried into effect. He or
she shall be authorized to execute on behalf of the corporation all bonds,
mortgages, contracts, and other documents, except where such documents are
required by law to be otherwise executed or when the execution thereof shall be
delegated by the Board of Directors to another officer.
(Added per minutes of August 8, 1993 meeting of the Board of Directors)
(13)
<PAGE>
Directors, if and when required. He or she shall give, or cause to be given,
notice of all meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or the President. He or
she shall keep, or cause to be kept, in safe custody, the corporate seal and,
when authorized to do so by the Board of Directors, affix the same to any
instrument requiring it and attest to it by his or her signature.
7.7 Assistant Officers. Assistant officers shall perform such functions
and have such responsibilities as the Board of Directors may determine.
ARTICLE VIII - LIMITATION OF LIABILITITY AND INDEMNIFICATION
------------------------------------------------------------
8.1 Limitation of Liability. Directors of this corporation shall not be
personally liable for monetary damages as such for any action other than as
expressly provided in 15 Pa. C.S.A. Section 513, 1713 and 1721, and any other
present or future provision of Pennsylvania law.
8.2 Indemnification. The corporation shall indemnify every director and
officer, and may indemnify any employee or agent, to the full extent permitted
by the Pennsylvania Business
(13)
<PAGE>
Corporation Law of 1988, the Pennsylvania Directors' Liability Act and any other
present or future provision of Pennsylvania law. The corporation shall pay and
advance expenses to directors and officers for matters covered by
indemnification to the full extent permitted by such law, and may similarly pay
and advance expenses for employees and agents.This Section 3.2 shall not exclude
any other indemnification or other rights to which any party may be entitled in
any manner.
ARTICLE IX - NOTICES
--------------------
9.1 Manner of Giving Notice. Whenever written notice is or permitted, by
these By-Laws or otherwise, to be given to any person or entity, it may be given
either personally or by sending a copy thereof by first class mail, postage
prepaid, or by telegram, (with messenger service specified), telex or TWX (with
answerback received) or courier service, charges prepaid, or by telecopies, to
the address to the address of the appropriate person or entity (or to the telex,
TWX, telecopier or telephone number) as it appears on the books of the
corporation. If notice is sent by telecopier, notice shall be deemed to have
been given upon receipt. If the notice is sent by mail or telegraph, it shall be
deemed to have been given when deposited in the United States Mail or with a
telegraph office for transmission.
(14)
<PAGE>
9.2 Waiver of Notice. Whenever a written notice is required, by these
By-Laws or otherwise, a waiver of such notice in writing, signed by the person
or persons or on behalf of the entity or entities entitled to receive the notice
shall be deemed equivalent to the giving of such notice, whether the waiver is
signed before or after the time required for such notice. Except as otherwise
required by law, the waiver of notice need not state the business to be
transacted at nor the purpose of the meeting, except that the waiver of notice
of a special meeting of the shareholders or the Board of Directors shall specify
the general nature of the business to be transacted at the meeting.
9.3 Waiver by Attendance/Execution of Consent. Attendance at any meeting or
execution of any consent shall constitute waiver of notice of such meeting,
except where a person attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of business because the meeting
was not called or convened upon proper notice.
ARTICLE X - MISCELLANEOUS PROVISIONS
------------------------------------
10.1 Fiscal Year. The fiscal year of the corporation shall be as the Board
of Directors may determine.
10.2 Participation by Telecommunications. One or more persons may
participate in a meeting of the Board of Directors or of any committee by means
of a conference telephone or similar
(15)
<PAGE>
communications equipment by which all persons participating in the meeting can
hear one another. Participation in a meeting pursuant to this section shall
constitute the presence in person at such meeting.
10.3 Dividends. The Board of Directors may, at any meeting, declare
dividends upon the shares of the corporation to be paid in cash, property or
shares, subject to any limitations in the Articles of Incorporation or
applicable law. Before payment of any dividend, the Board may set aside out of
any funds of the corporation available for dividends such sum as the Board, in
its absolute discretion, thinks proper to meet contingencies, equalize
dividends, repair or maintain corporate property, or serve such other purposes
as the Board thinks the best interest of the corporation, and the Board may
modify or abolish any such reserve in the manner in which it was created.
10.4 Financial Reports to Shareholders. Unless otherwise agreed by a
shareholder, the Board shall send to each shareholder financial statements of
the corporation which include a balance sheet as of the end of each fiscal year
and a statement of income and expenses for the fiscal year, which may be
consolidated statements of the corporation and one or more of its subsidiaries
(if any). The financial statements shall be mailed to each shareholder thereto
within 120 days after close of each fiscal year and, after the mailing and upon
written request, to any shareholder or beneficial owner entitled thereto to whom
a copy of
(16)
<PAGE>
the most recent annual financial statements has not previously been mailed.
ARTICLE XI - AMENDMENTS
-----------------------
11.1 Amendments. These By-laws may be adopted, amended or repealed, in
whole or in part, by the shareholders or by the Board of Directors, subject to
the power of the shareholders to change such action.
(17)
Exhibit 10(a)
Employment Agreement
This Employment Agreement (this "Agreement") is made effective as of May 1,
1997, by and between Sytron, Inc. ("the Employer") of Broomfield, Colorado, and
Robert Howard ("the Employee"), of Longmont, Colorado.
WHEREAS:
(1) Employer desires to have the services of Employee.
(2) Employee is willing to be employed by Employer.
Therefore, the parties agree as follows:
1. Employment. Employee shall serve as President of Sytron, Inc. Employee's
duties shall include, but not be limited to general, manufacturing, and sales
and marketing management. Employee shall also perform reasonable additional
duties for Employer and subsidiary companies as reasonably required by Employer.
2. Compensation. Employee's base salary will be $96,000 per year plus an
automobile to be provided by the company. The salary shall continue as a minimum
through the term of this agreement unless increased by Employer.
3. Term/Termination. Employee's employment under this Agreement shall
continue through January 1, 2000. Employee may not be terminated by Employer
during this term except in the event of malfeasance by Employee. If Employer
determines that Employee has committed an act of malfeasance in the performance
of his employment, Employer shall provide Employee with 15 days notice of its
intent to terminate Employee's employment and shall provide Employee with an
opportunity to explain the action which the Employer has determined is
malfeasance. Employer shall in good faith consider Employee's explanation in
determining whether to terminate Employee's employment for malfeasance.
4. Applicable Law. This Agreement shall be governed by the laws of the
State of Colorado.
Agreed and accepted:
Employer: Employee:
Sytron, Inc.
by: Mitchel Feinglas /s/ Robert Howard
------------------------ -----------------------------------
Mitchel Feinglas, C.E.O. Robert Howard
Dated: 5/1/1997 Dated: 5/1/1997
---------------------- -----------------------------
Exhibit 10(b)
Employment Agreement
This Employment Agreement (this "Agreement") is made effective as of May 1,
1997, by and between Sytron., Inc. ("the Company") of Broomfield, Colorado, and
Private Capital Group Ltd. ("the Consultant"), of Boulder, Colorado for the
services of Mitchel Feinglas.
WHEREAS:
(1) Company desires to have the services of Consultant.
(2) Consultant is willing to be employed by Company.
Therefore, the parties agree as follows:
1. Employment. Consultant shall serve as C.E.O. of Sytron, Inc.
Consultant's duties shall include, but not be limited to general, stock
transaction and financing management. Consultant shall also perform reasonable
additional duties for Company and subsidiary companies as reasonably required by
Company.
2. Compensation. Consultant's base wages will be $104,546 per year plus an
automobile to be provided by the company. The wages shall continue as a minimum
through the term of this agreement unless increased by Company.
3. Term/Termination. Consultant's employment under this Agreement shall
continue through January 1, 2000. Consultant may not be terminated by Company
during this term except in the event of malfeasance by Consultant. If Company
determines that Consultant has committed an act of malfeasance in the
performance of his employment, Company shall provide Consultant with 15 days
notice of its intent to terminate Consultant's employment and shall provide
Consultant with an opportunity to explain the action which the Company has
determined is malfeasance. Company shall in good faith consider Consultant's
explanation in determining whether to terminate Consultant's employment for
malfeasance.
4. Applicable Law. This Agreement shall be governed by the laws of the
State of Colorado.
Agreed and accepted:
Company: Consultant:
Sytron, Inc. Private Capital Group, Ltd.
by: /s/ Robert Howard by: /s/ Peggy Feinglas
- -------------------------------- -------------------------------
Robert Howard, President Peggy Feinglas
Dated: 5/1/1997 Dated: 5/1/1997
------------------------ ------------------------
Exhibit 10(c)
LEASE of 2770, 2780 to SYTRON
LEASE OF 35040 sf approx. of 2770 & 2880 INDUSTRIAL LN.,
BROOMFIELD, CO. to SYTRON INC.
This lease made and entered into this thirtieth day of June 1998, by and between
the Robert Law Family Trust, hereinafter referred to as "Landlord" and SYTRON
INC. of 2770 Industrial Lane, Broomfield, CO. hereinafter referred to as
"Tenant."
1. PREMISES: Landlord for and in consideration of all rents, covenants,
agreements and conditions hereinafter set forth to be kept and performed by
Tenant has this day and by these presents rents, leases, and lets unto Tenant
the premises identified by FLOOR PLAN in Exhibit A attached hereto and
incorporated herein by this reference consisting of approximately 35,040 square
feet (the "Demised Premises") which are located in the building located at 2770
& 2780 Industrial Lane, Broomfield, Colorado ("the Building") . The Area
occupied is 43% of the total building.
2. TERMS OF LEASE: The term of this lease (the "Term") shall commence upon
signing & ending 12/31/2002. The Tenant will be leasing both spaces at the rent
schedule listed in item 3 below, 'RENT' . As a special consideration Sytron will
pay 1/2 rent on 2780 [18,000sf] for the first three months of this lease. The
Temporary tenant 'Fusion Specialties' will be allowed to stay in the space until
31 days after Sytron requests in writing to landlord that they be removed. All
rent paid by Fusion Specialties will be collected and retained by landlord.
3. RENT: Tenant agrees to pay as rent to Landlord at its address specified
in this Lease, or at such other place Landlord may from time to time designate
to Tenant in Writing, the following amounts for the periods indicated:
Period Rental Rate/sf/yr.
------ ------ -----------
7/1/98 to 12/31/2002 $15,768/mo. 5.40
In advance on the 1st day of each and every calendar month during the Term
hereof, starting the first day Tenant moves into new space. The 1st months rent
will be prorated if tenant moves in mid-month.
Rent is due on the first (1st) day of each calendar month. In the event
that rent is received by Landlord after the fifth day of the month for any
reason this will be a material breach of the lease and a 10% late fee(l0% of
monthly rent) will be assessed to be paid with the rent. Failure to pay this
late fee will also be a material breach of the lease. Further 1.5% per month
will be charged on all
1
/s/ RL RH
<PAGE>
LEASE of 2770, 2780 to SYTRON
uncollected back charges. The Rent for any partial month to be paid hereunder
shall be prorated for the portion of the month the Demised Premises are occupied
by Tenant. The last month's Rent shall be due and Payable on or before
11/31/2003
3.5 TAXES:
Tenant shall pay, as additional rent hereunder, all prorated increases in
general property taxes and increases in insurance premiums of Landlord paid for
general liability, hazard, fire and extended coverage insurance under Paragraph
5 hereof, over the base year of 1998 for general property taxes ("Base Tax
Rate") and base year of 1998 for insurance, for therDemised Premises. Such
increases in general property taxes and insurance premiums shall be paid by
Tenant to Landlord each year within 30 days following receipt of Landlord's
notice to Tenant of such increases, prorated for Tenant's use of above stated
percentage of the total building.
4. LIMITATION of USE of PREMISES: During the term of this Lease, the
Demised Premises shall be used and operated only for the purposes of
engineering, development, marketing, sales, & manufacture of security devices
together with such other activities as tenant shall reasonably engage. Provided,
however, no change in the use of the Demised Premises from that set forth above
shall be made without the prior written approval and consent o4 the Landlord.
Tenant will not use or permit any person to use said Demised Premises or any
buildings situated upon the Demised Premises at any time, for any purpose in
violation of the laws of the United States, the State of Colorado, or the
Ordinances of the City of Broomfield, Colorado. Tenant shall keep said Demised
Premises and improvements at any time situated thereon, and every part thereof
in a clean condition and in a good state of repair, and shall comply fully with
all laws and regulations relating to health and safety, applicable to the real
property upon which the Demised Premise is located.
Tenant to have the right to park two storage trailers in a area designated
by the Landlord, provided that they put blocks under the front dollies of the
trailers to prevent damage to the asphalt. This trailer parking may have to come
out of the parking that is designated for Sytron.
5. INSURANCE: Landlord shall maintain general liability insurance and
hazard, fire and extended coverage insurance on the Building throughout the Term
based on
2
/s/ RL RH
<PAGE>
LEASE of 2770, 2780 to SYTRON
replacement value from a licensed casualty insurance company authorized to do
business in the State of Colorado and approved by Landlord in Landlord's sole
discretion. The general liability hazard, fire and extended coverage insurance
shall be at Landlord's expense except that Tenant shall pay for all prorated
increases in premiums for such coverage attributable to the Demised Premises as
occupied by Tenant as set forth in Paragraph 3. At the beginning of this lease
term, the insurance premium on the Demised Premises is 43% of $3014. Landlord
shall notify Tenant in writing of any increases in its insurance costs for the
Demised Premises by delivering to Tenant a copy of any notice of increase that
Landlord receives from its insurance carrier with the notice of Increases
provided for in paragraph 3 of this Lease. Such insurance to be obtained by
Landlord shall not cover the contents of the Demised Premises, and Tenant shall
be responsible for insuring such contents. The parties hereby waive all rights
of subrogation against one another, and agree to execute whatever other
documents are reasonably required to carry out this mutual waiver of
subrogation. Tenant shall at all times during the Term keep in effect public
liability insurance and property damage insurance with bodily injury coverage in
the names of and for the benefit of Tenant and Landlord (as an additional named
[insured] with limits as follows:
Bodily Injury: $1,000,000 each person
$3,000,000 each accident
Property Damage: $1,000,000 aggregate or each
occurrence
Such insurance may, at Tenant's election, be carried under any general blanket
coverage of Tenant. A certificate of insurance acceptable to Landlord shall be
tendered by Tenant and provided to Landlord not less than fifteen (15) days
after the execution of this lease. Each original policy or a certified copy
thereof, or a certificate of the insurer evidencing insurance carried with proof
of payment of the premium by Tenant will be deposited with Landlord within ten
(10) days after execution of the lease. Tenant shall have the right to settle
and adjust all liability claims and all claims against the insuring companies,
but without subjecting Landlord to any liability or obligation.
6. INDEMNIFICATION of LANDLORD: Tenant hereby agrees to indemnify and hold
harmless Landlord from any and all claims of any kind or nature arising from the
Tenant's use of the Demised Premises during the Term hereof. Tenant
3
/s/ RL RH
<PAGE>
LEASE of 2770, 2780 to SYTRON
hereby waives all claims against Landlord for damage to goods, wares or
merchandise or for injury to persons in and upon the Demised Premises from any
cause whatsoever, except such as might result from the negligence of Landlord to
perform its obligations hereunder within a reasonable time after notice provided
to Landlord in writing by the Tenant requiring such performance by the Landlord.
Notice will be delivered to 1045 Emerald, Broomfield, CO, 80020 by certified
mail.
7. MAINTENANCE: Landlord agrees to maintain in good repair (i) the roof of
the Building. (ii) the asphalt paved parking lot, and (iii) the existing
landscaping adjacent to the parking lot. Tenant agrees to keep the exterior of
the Demised Premise (including but not limited to the overhead doors, lighting,
wall panels, windows, doors and dock assemblage) and all the interior(including
without limitation all lights, windows, doors, plumbing, electrical, and carpet)
of the Demised Premises, clean and in good repair at all times. Tenant shall
maintain all EVAC that is for the benefit of the demised premises whether
installed in the demised premises, on the roof, or outside the building. This
shall not be limited to ordinary maintenance, all repairs of above outlined
items are the responsibility of the tenant. Landlord shall not be obligated to
make any repairs until reasonable written notice of the need of repair shall
have been given to the Landlord by Tenant and after such notice is so given,
Landlord shall have fifteen [153 business days to commence such repairs. Tenant
agrees to replace all glass broken or damaged due to negligence of Tenant during
the term of this Lease with glass of the same quality as that broken or damaged.
Inspection of the demised premises may be made at any time deemed necessary
by the Landlord; inspection to be performed by the Landlord or his designee with
the tenant or his designee to make a list of all repairs required of the Tenant
to maintain the space in as near as original condition as possible normal wear
and tear accepted. The Tenant shall have thirty [30] days to complete these
repairs to the reasonable satisfaction of the Landlord in a mutually agreed upon
workmanlike manner. If the required repairs are not completed in the above time,
and in a workmanlike manner, the Landlord has the right to contract with an
outside contractor to effect the required repairs at the sole expense of the
Tenant.
a) All welding or noxious/toxic fume generation, if any, is to be done in
City of Broomfield approved ventilated hoods or rooms.
4
/s/ RL RH
<PAGE>
LEASE of 2770, 2780 to SYTRON
b) All spray painting to be done in City of Broomfield approved ventilated
hoods or rooms.
c) The building shall be returned to the Landlord in as like ORIGINAL
CONDITION, excepting normal wear and tear, REGARDLESS of use to which the
building is put during occupation by the tenant. The Landlord shall furnish a
completed checklist of the specific condition of the demised premises to the
Tenant at the beginning of the lease. At the end of the lease it shall be the
sole responsibility of the tenant to return the demised premises to the landlord
in the original condition, as noted above, excepting normal wear and tear.
8. ERECTION and REMOVAL of SIGNS: Since Tenant already has signs for 2770
Industrial Lane no additional signs will be allowed on building.
9. FIXTURES and EQUIPMENT: It is specifically understood and agreed that
Tenant shall own any and all equipment and machinery, or any other property
installed by Tenant, at its own expense, in or on said Demised Premises during
the Term of this Lease, whether or not attached to the Building, and that said
equipment or machinery may be removed from the Demised Premises by Tenant
provided that all sums due hereunder to the landlord shall have been paid in
full, and provided further that repairs necessary as the result of the removal
of said machinery and equipment are made to return the Building to substantially
the same condition it was in prior to the installation of said fixtures,
equipment and machinery. Tenant shall not exercise the rights and privileges
granted by this paragraph in such a manner as to damage or affect the structure
or structural integrity or qualities of the Building. At the end of the lease
period Tenant and landlord will go over building and agree as to what
improvements made by tenant are to be removed, provided the tenant shall be
solely responsible to return the premises to the Landlord in the same condition
as when entered upon.
10. ALTERATIONS TO THE PREMISES: Tenant shall have the right, at its sole
expense, to make changes or alterations to the Demised Premises; subject to the
Landlord's prior written consent and provided, however, that in all cases any
such changes or alterations shall be made subject to the following conditions,
which the Tenant agrees to observe and perform:
a. No Structural Changes: No change or alteration shall at any time be made
which shall impair
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the structural integrity or soundness or diminish the value of the Building
or the Demised Premises or disturb or interfere with the quiet enjoyment of any
other tenants or lessees of the Building.
b. Notice to Landlord: Tenant shall give the Landlord at least seven (7]
days prior written notice of any proposed alteration and shall fully cooperate
with Landlord in either (i) notifying proposed contractors of the landlord's
non-liability therefor and, or (ii) posting notice of non-liability in a
conspicuous place on the Demised Premises in accordance with Colorado law.
c. Consent of Landlord: No changes or alteration shall be made inwolving an
expenditure in excess of $500.00 without the prior written consent of the
Landlord.
d. Permits: No change or alteration shall be undertaken on the Demised
Premises until Tenant shall have procured and paid for all required municipal
and other governmental permits and authorizations of the various municipal
departments and governmental subdivisions having jurisdiction. All plans and
specifications relating to any changes or alterations shall be submitted to the
Landlord for it's approval.
e. Compliance With The Law: All work done in connection with any changes or
alterations shall be done in a good and workmanlike manner and in compliance
with all applicable building and zoning laws, and with other laws, ordinances,
orders, rules, regulations, and requirements of all federal, state, and
municipal governments and the appropriate departments, boards and officers
thereof.
f. Insurance: At all times when any change or alterations are in progress,
there shall be maintained at tenants sole expense, adequate workers Compensation
Insurance in accordance with the law or laws now or hereafter enacted governing
all persons employed in connection with the contemplated change or alteration
and general liability insurance for the mutual benefit of Landlord and Tenant,
expressly covering the additional hazards due to the change or alterations in
amounts reasonably prudent by industry standards for similar construction
projects in the vicinity.
g. Security Against Liens: Prior to the construction of any improvements,
the repair or restoration of any improvements, or any work to be done upon the
Demised
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Premises, Tenant shall furnish to the Landlord a bond of insurance protecting
Landlord against mechanics' and materialmen's liens in an amount equal to the
work which is to be performed at the Demised Premises, together with a
performance and completion bond in an amount equal to the proposed cost of any
improvements and labor. Landlord retains the right at any time and from time to
time to enter upon the Demised Premises in order to inspect the progress of any
alterations being made thereto by Tenant and to post any signs or notices
disclaiming the Landlord's responsibility or liability for the payment of any
mechanics' or materialmen's fees, or the furnishing of any labor or services to
the Demised Premises. Tenant shall not permit any party to file any lien or
claim against Landlord or its interest in the Demieed Premises on account of any
such improvements or alteration for work done or supplies furnished to the
Demised Premises at the insistence of the Tenant. In the event a lien or claim
is filed against the Demised Premises, Tenant shall immediately cure and pay the
amount of such lien or claim (including any costs) or in good faith diligently
pursue the defense of any such lien or claim provided that Tenant shall first
post with the Landlord adequate security (in the landlord's sole judgment)
covering 125 percent of the amount of such lien or claim or, in the alternative,
post a bond with the appropriate court in compliance with the Colorado law then
in existence to cause the removal of the lien from such property.
h. Failure on the part of the tenant to comply with any or all of the above
mentioned conditions shall be deemed to be a material breech of this lease.
i. A penalty of $500 will be assessed 7 days after notification if not
cured for every violation of the above section 10 or any other infraction of
this lease by the Tenant that the Landlord deems minor enough to not cancel the
lease over.
11. RIGHT of ENTRY of LANDLORD: The Tenant, at any time during the Term,
shall permit inspection of the Demised Premises during reasonable business hours
and upon reasonable notice by Landlord or by the Landlord's agents or
representatives of the purpose of ascertaining the condition of the Demised
Premises and in order that Landlord may make such repairs as may be required to
be made by the Landlord under the terms of this Lease. Ninety (90) days prior to
the expiration of this Lease, Landlord may post suitable notice on the Demised
Premises that the same are "For Rent" and may show the Demised Premises to
prospective tenants at reasonable times and upon reasonable notice to Tenant.
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Landlord shall not, however, thereby unnecessarily interfere with the use
of the Demised Premises by the Tenant.
12. PAYMENT of UTILITIES: Tenant shall pay all charges for heat, gas,
electricity, snow removal, and other public utilities used on the Demised
Premises. Water and sewer used in processing manufacturing will be charged to
Tenant. Landlord is to pay domestic water and sewer usage.
13. PAYMENT of TAXES and OTHER ASSESSMENTS: Landlord shall pay, when they
are due, the general real estate property taxes on the Demised Premises except
that Tenant shall be responsible for increases over the Base Tax Rate as set
forth in Paragraph 3. Tenant shall pay when due all general ad valorem personal
property taxes upon Tenant's personal property or fixtures located upon the
Demised Premises. Tenant shall further pay all other taxes, assessments, license
fees or other charges during the Term of this Lease which may be imposed by any
governmental authority by reason of Tenant's business within the Demised
Premises during the Term. In the event that Tenant shall fail to pay any of said
taxes when due, Landlord may pay the same pursuant to the provisions of
Paragraph 14 hereinafter set forth. Tenant shall have the right, at Tenant's
expense, in its or landlord's name, to contest the validity of any tax
assessment which Tenant is required to bear, pay and discharge hereunder by
appropriate legal proceedings instituted at least ten (10) days before the tax
or assessment complained of shall become delinquent, if and provided Tenant,
before instituting any such contest, gives Landlord written notice of its
intention so to do, and if and provided further Tenant shall prosecute any such
contest, tenant shall at all times effectually stay or prevent any official or
judicial sale thereof, under execution or otherwise, and shall pay any final
judgment enforcing the tax or assessment so contested and thereafter promptly
procure and record satisfaction thereof.
14. ASSIGNMENT and SUBLETTING: Neither this Lease nor any interest herein
may be assigned by the Tenant voluntarily or involuntarily, or by operation of
law, and neither all nor any part of the Demised Premises shall be sublet by the
Tenant without the written consent of the Landlord. If Tenant is a corporation,
the merger, consolidation, sale of substantially all of the assets, and sale of
all or substantially all of the stock of Tenant shall constitute an assignment
of this Lease foOthe purposes of this paragraph. If the Tenant is a partnership,
sale or other transfer of 50 percent or more of partnership assets shall
constitute an assignment of this lease for
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purposes of this paragraph. Any consent to assignment or subletting given by
Landlord shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting. If the Demised Premises is assigned or
sublet by the Tenant, Tenant shall remain fully liable for this Lease and shall
not be released from performing the terms, covenants and conditions set forth
herein.
15. NON-MONETARY DEFAULT: If Tenant shall default in the fulfillment of any
of the covenants and conditions hereof, except default in payment of Rent or
other monetary amounts due to Landlord hereunder, Landlord may, at its option,
after five (5) days prior written notice to Tenant, make performance for Tenant
and for that purpose advance such amounts as may be necessary to preserve or
protect the Demised Premises. Any amounts so advanced or any expense incurred or
sum of money paid by Landlord by reason of the failure of Tenant to comply with
any covenant, agreement, obligation or provision of this Lease or in defending
any action to which Landlord may be subject by reason of any such failure or for
any reason, shall be deemed to be additional rent for the Demised Premises and
shall be due and payable to Landlord on demand. The receipt and acceptance by
Landlord of any installment of Rent or of any additional rent hereunder shall
not be a waiver of any other rent then due to Landlord. If Tenant shall default
in fulfillment of any of the covenants or conditions of this Lease (other that
the covenants for the payment of Rent additional rent or other amounts) and any
such default shall continue for a period of five (5) days after written notice
provided to Tenant by Landlord, then Landlord may, at its option, terminate this
Lease by giving Tenant notice of such termination and, thereupon, this Lease
shall expire as fully and completely as if that day were the day definitely
fixed for the expiration of the Term and the Tenant shall then quit and
surrender the Demised Premises.
16. INSOLVENCY of LEASE:
a) Default in Rent: If tenant shall default in the payment of the Rent
or additional rent as set forth in Paragraph 3 of this Lease or any provision
thereof, or in making any other payment herein provided for, and any such
default shall continue for 5 days, or if the Demised Premises or any part
thereof shall be abandoned or vacated (except as a result of a casualty
contemplated inParagraph 17), or if Tenant shall be dispossessed therefrom by or
under any authority other than the Landlord the Tenant shall quit and surrender
the Demised premises and a late charge of additional 10% of the payment will be
paid by the tenant.
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If the payment is late beyond 30 days from the due date (1st of the month) the
total balance, including late charges will be charged a 1.5% a month until the
balance is paid in full.
b) If the Tenant shall file a voluntary petition in bankruptcy, or if
the Tenant shall file any petition or institute any bankruptcy act (or any
amendment thereto hereafter made) seeking to affect its reorganization or a
composition with its creditors, or if (in any bankruptcy proceedings) a receiver
or trustee shall be appointed for Tenant or for the Demised Premises and not be
discharged within thirty (30) days of such date of appointment, or if any
proceeding shall be commenced for the reorganization of Tenant and be not
dismissed within thirty (30) days from such date of such commencement, or if the
lease hold estate created hereby shall be taken on execution or by any process
of law, or if Tenant shall admit in writing its inability to pay its obligations
generally as they become due, then Landlord may, at its option, terminate this
Lease. Landlord or Landlord's agents and servants may immediately, or at any
time thereafter, reenter the Demised Premises and remove all persons and
property therefrom, pursuant to the Colorado Forcible Entry and Detainer Statue,
without being, liable to indictment, prosecution or damage, therefor, Landlord
may, in addition to any other remedy provided by law or permitted herein, at its
option re-lease said Demised Premised on behalf of the Tenant, applying any
moneys collected first to the payment of expenses of resuming or obtaining
possession, and second to the payment of costs of placing the Demised Premises
in rentable condition, and third to the payment of Rent or additional rent due
hereunder, and any other charges due the Landlord as set forth in this lease.
Any surplus remaining thereafter shall be paid to Tenant. Tenant shall remain
liable for any deficiency in Rent or additional rent which shall be paid to
Tenant upon demand therefor to Landlord. In the event that the Tenant breaches
this lease by default for nonpayment or failure to comply with any other terms
or conditions of this lease, then Landlord shall be entitled to recover costs
including costs and reasonable attorney's fees, damages, injunctive or
declaratory relief in addition to all other remedies otherwise provided by this
agreement or Colorado law. In the event of termination of this Lease, Tenant
shall be liable to the Landlord for the balance of the Rent due hereunder for
the remaining term; however, Landlord shall make reasonable efforts to re-lease
the Demised Premises and to mitigate its damages.
17. FIRE or OTHER CASUALTY: Tf the Demised Premises or any part thereof
shall be damaged or destroyed by fire or other casualty, Landlord shall promptly
repair such damage
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and restore the Demised Premises without expense to Tenant, subject to delays
due to adjustment of insurance claims, strikes, and other causes beyond
Landlord's control. If such damage or destruction shall render the Demised
Premises untenantable in whole or in part, the Rent shall be abated wholly or
proportionately, as the case may be, until the damage shall be repaired and the
Demised Premises restored and made tenantable. If the damage, destruction or
taking shall be so extensive as to require the substantial rebuilding (i.e.,
cannot be made tenantable within 75 days from the damage or casualty) of the
Demised Premises, Landlord or Tenant may elect to terminate this Lease by
written notice given to the other party within ninety (90) days after the
occurrence of such damage or destruction.
18. SURRENDER of PREMISES: Tenant agrees to surrender the Demised Premises
at the expiration or sooner termination of this Lease, or any extension thereof,
in the same condition as at the commencement of this Lease, or as altered,
pursuant to the provisions of this Lease. Nothing contained in this paragraph
shall be deemed to alter or abridge Tenant's obligations under Paragraph 7
hereof.
19. HOLDOVER: Should Tenant hold over the Demised Premises or any part
thereof after the expiration of the Term of this Lease, unless otherwise agreed
in writing such holding over shall constitute a tenancy from month to month
only, and Tenant shall pay as monthly rental the then reasonable value of the
use and occupation of the Demised Premises which shall not be less, however,
than the Rent to be paid for the last month under this Lease plus 50%.
20. QUIET ENJOYMENT: If and so long as the Tenant pays the Rent reserved by
this Lease and performs and observes all covenants and provisions hereof, Tenant
shall quietly enjoy the Demised Premises, subject however, to the terms of this
Lease, and Landlord will warrant and defend the Tenant in the quite enjoyment
and peaceful possession of the Demised Premises throughout the Term of this
Lease.
21. WAIVER of COVENANTS: It is agreed that the waiving of any of the
covenants of this Lease Agreement by either party shall be limited to each
particular instance and shall not be deemed to waive any, other or fwther breach
of such covenant or any other provision herein contained in the lease.
22. RIGHTS of SUCCESSORS and ASSIGNS: The covenants and agreements
contained in this Lease shall apply to, inure to the benefit of, and be binding
upon the parties hereto
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and upon their respective successors in interest, legal representatives and
permitted assigns, except as expressly otherwise herein before provided.
23. TIME: Time is of the essence of this Lease, and every term, covenant
and condition herein contained.
24. RECORDING: Either party to this Lease may record this Lease or a
summary thereof, in the records of the office of The Clerk and Recorder of the
County of Boulder, State of Colorado with the prior written consent of the other
party. It is the Tenants responsibility to obtain and execute a release of any
recorded documents as a prerequisite to the return by Landlord of Tenants
security and/or damage deposit/s.
25. NOTICES: All notices required to be given or desired to be given
hereunder shall be in writing and shall be deemed duly served for all purposes
by being mailed by registered or certified mail, return receipt requested,
postage prepaid, and addressed as follows:
Landlord:
Robert Law, Trustee
Robert Law Family Trust
1045 Emerald
Broomfield, Colorado 80020
Tenant:
Sytron, Inc.
2770 Industrial Lane
Broomfield, Co.
80020
26. CONDITION of the PREMISES: Tenant accepts the Demised Premises in its
condition as of the date of occupancy in accordance with the terms hereof.
Tenant agrees that if during said Term the Tenant shall change the usual method
of conducting Tenants business on the Demised Premises, or should Tenant install
thereon or th4rein any new facilities, Tenant shall at the cost and expense of
the Tenant, make any and all alterations or improvements in or to the Demised
Premises which may be required by reason of any federal or state law or by any
municipal ordinance or regulation applicable thereto.
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27. EMINENT DOMAIN: In the event the Demised Premises or any part thereof,
shall be taken under the power of eminent domain by any public or quasi-public
authority, the rights and duties of the parties hereto with respect to this
Lease in and to the aggregate award for such taking shall be as follows:
a. If the entire Demised Premises is taken, this Lease shall terminate
and expire as of the date of such taking, and Tenant thereupon shall be released
from any liability thereafter accruing hereunder, and all awards shall be sought
and received by the tenant and landlord separately according to their respective
interests.
b. If only parts of the Demised Premises is taken, and, if in the
reasonable judgment of the Tenant, the part remaining is of such shape or size
as to prevent its being reasonably used by Tenant for the purposes for which the
Demised Premises were being used at the time of such taking, this Lease shall
terminate with the same effect as the total taking, and all awards shall be
sought and received by the tenant and landlord separately according to their
respective interests.
c. If only part of the Demised Premises is taken, and, if in the
reasonable judgment of the Tenant and Landlord, the part remaining is of such
size and shape as to permit its being reasonably used by Tenant for the purpose
for which the Demised Premises were being used at the time of such taking, this
Lease shall continue in full force and effect as to the said remaining portion,
but the rent shall be reduced equitably in proportion to the amount of the
Demised Premised lost by the taking and all awards shall be sought and received
by the tenant and landlord separately according to their respective interests.
28. SUBORDINATION of LEASE to MORTGAGE: This Lease is made with the
understanding that the Landlord may, from time to time, desire to encumber
Landlord's interest in the Property of which the Demised Premises is a part with
a mortgage, deed of trust, or similar security interest ("the Mortgage"), and
may desire, in connection with the execution of such Mortgage to cause this
Lease to be made subordinate in lien, dignity, priority and claim to the lien or
liens of the Mortgage. Tenant therefore, covenants and agrees with Landlord that
Tenant will, from time to time, at the request of Landlord execute an instrument
or instruments in such form as may be reasonably required by Landlord or by the
mortgagee of any such Mortgage, which instrument or instruments will be executed
in such fashion as to entitle
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it to recording, and will subordinate this Lease and the rights of the Tenant
hereunder to the lien, priority and dignity of such Mortgage.
29. ESTOPPEL CERTIFICATE: Tenant shall, after twenty(20) days prior written
notice by Landlord execute, acknowledge, and deliver to Landlord a written
statement certifying that this Lease continues unmodified and in full force and
effect (or if there have been modifications, that this Lease continues in full
force and effect as modified and stating the modifications); the dates to which
the Rent and the additional rent have been paid and stating whether Landlord
and/or Tenant is in default in performing any covenant of this Lease, and should
Landlord or Tenant be in default, specifying each and every such default. It
being intended that any such statement delivered pursuant to this paragraph may
be relied on by Landlord or any prospective purchaser or mortgagee of the fee
interest or any assignee of any mortgagee. Tenant's failure to execute and
deliver to Landlord the above described certification within the time specified
shall be deemed the equivalent of the delivery of the certification by Tenant to
Landlord to the effect that the Lease is in effect and continues unmodified.
30. INTEGRATION: This agreement contains the entire agreement of the
parties. This agreement supersedes any prior written or oral agreements or
representations of the parties and all such prior written agreements or
representations are merged into this agreement. This agreement shall be
controlled by Colorado law.
31. STORAGE of HAZARDOUS MATERIAL: Tenant shall indemnify and hold Landlord
harmless from and against all claims, liabilities, damages or losses that
Landlord may incur, directly, or indirectly, arising from Tenant's (or its
agents, employees or business associates) transportation, storage, use or other
handling of any harmful or hazardous or potentially harmful or hazardous
materials on the Demised Premises or in the surrounding area. Such indemnity
shall include without limitation, liability of any nature to Landlord whether
arising from damage to the Demised Premises the Building othe4 tenants or
persons, or property located in the Building or in the surrounding area.
Further, upon demand tenant shall give Landlord a complete list of all
hazardous material stored or used on the Demised Premises within 10 working days
of written demand.
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32. MOVING TENANT OPTION: In the event that the lessor has the opportunity
to rent the premises to a long term tenant, he has the option of moving this
tenant to an equivalent space with a dock high door and a equal number of doors.
33. DAMAGE DEPOSIT: Tenant shall pay a damage deposit, as outlined
below, in the amount equal to one month's rent.
2770 Industrial Lane $7,750 has been paid
2780 Industrial Lane $1,000 on 6/30/98
$1,000 on 811/98
$1,000 on 9/1/98
$2,000 on 10/1/98
$2,000 on 11/1/98
$1,100 on 12/1/98
Total $8,100
This damage deposit will be refunded if the premises is returned to the Landlord
in good condition according to the terms of this lease. The damage deposit will
not be used as the last month's rent.
34. OPTION of TENANT to RENEW LEASE: Tenant is hereby given one 5 year
option to renew the Term of this Lease upon expiration of the initial Term
hereof (said renewal period being hereinafter sometimes referred to as the
"Renewal Period") provided that this Lease shall be in full force and effect,
that tenant has been on time and current with rent payments for eighteen months
prior to the renewing of the lease, and that no other violations of lease have
occurred for eighteen months prior to the renewing of the lease. If Tenant
desires to exercise the option herein granted to renew the Lease for the Renewal
Period, Tenant shall give Landlord written notice of its intention to do so on
or before ninety (90) days prior to the expiration of this Lease. The Renewal
Period shall be on the same terms, covenants and conditions as in this Lease
provided, except that: (a) there shall be no provision for the renewal of the
Term of this Lease beyond the renewal period set forth herein, and the monthly
rental shall be mutually agreed to by the parties hereto on or before 180 days
prior to the then existing lease expiration date.
35. EXPIRATION OF OFFER: This offer to lease 2770, 2780 Industrial Lane is
expressly subject to and conditioned upon tenant being current and in full
compliance with previous lease dated August 8th 1996 and said offer expires on
and is void on June 30th 1998 at 12:00 Noon. Time is of the essence.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above written.
LANDLORD: TENANT:
Robert Law Family Trust Sytron Inc.
By By
------------------------- ----------------------------
Trustee an Authorized agent of
Sytron Inc.
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10/29/98
ADDENDUM #1 TO THE LEASE BETWEEN ROBERT LAW FAMILY TRUST
AND SYTRON INC. SIGNED JUNE 13, 1998
STATEMENT: The purpose of this addendum is to change the amount of space
rented by Sytron Inc. (Tenant) from 35,040sf back to the original 17,040sf. This
Addendum was requested by Sytron Inc. (x 5.40 divided by 12 = 7668/mo till
2-1-99.
This addendum to the current lease dated June 13th 1996 between Sytron (the
Tenant) and Robert Law Family Trust (the Landlord) for the space whose address
is 2770 and 2780 Industrial Lane. This addendum takes precedence over any
conflicting language in the lease.
1. Sytron will pay the commission incurred with the COLORADO GROUP when the
Landlord and Tenant signed the current lease on 2780 Industrial Lane space. The
Landlord is in the process of paying this to THE COLORADO GROUP & have paid them
$5000.00 so far. This $5000.00 will be reimbursed to the landlord. This
$5,000.00 will not come out of the damage deposit. The Landlord also requires a
letter from THE COLORADO GROUP stating that all obligations to them have been
satisfied. This will be done by 12/1/98.
2. The Landlord lowered the rent to the Tenant to $4050/mo for the first three
months in consideration of Tenants signing a five year lease. This $12,150 will
be paid to the landlord at the rate of $1,012.50 a month for 12 months starting
on 2/1/99. This money will not come out of the damage deposit.
3. In 2780 Industrial Lane, Sytron is to frame in the hole between the two
offices.
Sytron is to frame, sheetrock(with 5/8x sheetrock), and tape the doorway
above the offices between 2780 Industrial Lane and 2770 Industrial Lane. The man
door between 2770 Industrial Lane & 2780 Industrial Lane on the ground floor
needs a 1 hour fire rated door that is lockable from both sides.
The double doors between the two spaces Sytron will either repair to
original condition or drywall up. This decision will be the Landlords.
Sytron is to install a high quality 36" steel door frame, & 36" steel door
with panic bar hardware in the
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hole cut into the back exterior wall of 2770 Industrial Lane.
All of section 3 will be done by 12/1/98 except the double dotra which will
be done by 12/31/98. If section 3 is not completed in a quality manor by 12/1/98
Landlord will have it done and take the cost out of the damage deposit of 2780.
4. Sytron's lease of 2780 Industrial Lane will expire on 1/31/99, but Sytron
will have the space vacated and ready to rent by 12/31/98. The Landlord has the
option to rent the space at any time after 12/31/98. Re-renting and showings
will begin immediately. The damage deposit will not be used for any rent.
5. 2780 Industrial Lane will be vacated on 12/31/98 in as clean & as rentable
condition as it was when Sytron moved in, otherwise the landlord will fix it up
and take the cost out of the damage deposit.
6. If returned in good condition as stated in item 5, Landlord will credit any
damage deposit Sytron paid in. The damage deposit payments for 2780 Industrial
Lane will continue to be paid until December 31, 1998.
7. Section 10 of the lease will read as follows:
10. ALTERATIONS TO THE PREMISES: Tenant shall have the right, at its
sole expense, to make changes or alterations to the Demised Premises;
subject to the Landlord's prior witten consent and provided, however, that
in all cases any such changes or alterations shall be made subject to the
following conditions, which the Tenant agrees to observe and perform:
a. No Structural Changes: No change or alteration shall at any time be
made which shall impair the structural integrity or soundness or diminish
the value of the Building or the Demised Premises or disturb or interfere
with the quiet enjoyment of any other tenants or lessees of the Building.
b. Notice to Landlord: Tenant shall give the Landlord at least seven
fl days prior written notice of any proposed alteration end shall fully
cooperate with Landlord in either (i) notifying proposed contractors of the
landlord's non-liability therefor and, or (ii) posting
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notice of non-liability in a conspicuous place on the Demised Premises in
accordance with Colorado law.
c. Consent of Landlord: No changes or alteration shall be made
involving an expenditure in excess of $500.00 without the prior written
consent of the Landlord.
d. Permits: No change or alteration 9hall be undertaken on the Demised
Premises until Tenant shall have procured and paid for all required
municipal and other governmental permits and authorizations of the various
municipal departments end governmental subdivisions having jurisdiction.
All plans and specifications relating to any changes or alterations shall
be submitted to the Landlord for its approval.
e. Complianbe With The Law: All work done in connection with any
changes or alterations shall be done in a good and workmanlike manner and
in compliance with all applicable building and zoning laws, and with other
laws, ordinances, orders, wigs, regulations, end requirements of all
federal, state, and municipal governments and the appropriate departments,
boards and officers thereof.
f. Insurance: At all times when any change or alterations are in
progress, there shall be maintained at tenants sole expense, adequate
Workers Compensation Insurance in accordance with the law or laws now or
hereafter enacted governing all persons employed in connection with the
contemplated change or alteration and general liability insurance for the
mutual benefit of Landlord and Tenant, expressly covering the additional
hazards due to the change or alterations in amounts reasonably prudent by
industry standards for similar construction projects in the vicinity.
g. Security Against Liens: Prior to the construction of any
improvements, the repair or restoration of any improvements, or any work to
be done upon the Demised Premises, Tenant shall furnish to the Landlord a
bond of insurance protecting Landlord against mechanics' and materialmen's
liens in an amount equal to the work which is to be performed at the
Demised Premises, together with a performance and completion bond in an
amount equal to the proposed cost of any improvements and labor. Landlord
retains the right at any time and from time to time to enter upon the
Demised Premises in order to inspect the progress of any alterations being
made thereto by tenant and to post any signs or notices disclsiming the
Landlord's responsibility or liability for the payment of any mechanics' or
materialmen's fees, or the furnishing of any labor or
/s/ RL RL
<PAGE>
services to the Demised Premises. Tenant shall not permit any party to file
any lien or claim against Landlord or its interest in the Demised Premises
on account of any such improvements or alteratIon for work done or supplies
furnished to the Demised Premises at the Insistence of the Tenant. In the
event a lien or claim is filed against the Demised Premises, Tenant shall
immediately cure and pay the amount of such lien or claim (including any
costs) or in good faith diligently pursue the defense of any such lien or
claim provided that Tenant shall first post with the Landlord adequate
security (in the landlord's sole judgment) covering 125 percent of the
amount of such lien or claim or, in the alternative, post a bond with the
appropriate court in compliance with the Colorado law then in existence to
cause the removal of the lien from such property.
h. Failure on the part of the tenant to comply with any or all of the
above mentioned conditions shall be deemed to be a material breech of this
lease.
i. A penalty of $500 will be assessed for every violation of the above
section 10 or any other infraction of this lease by the Tenant that the
Landlord deems minor enough to not cancel the lease over.
8. The price per square foot will change to $5.70/sf/yr on 2/1/99. Therefore the
monthly rent on 17,040 SF (2770 Industrial Lane) will be $8,094.00.
9. Tenant and Landlord mutually agree that failure to comply with any of the
terms or conditions of this addendum will be deemed to be a breach of the entire
lease on the part of the tenant.
Signing this document will signify Sytron's acceptance of these additions and
changes to the lease.
LANDLORD: TENANT:
Robert Law Family Trust Sytron Inc.
By /s/ /s/
---------------------------- --------------------------------
Trustee an Authorized Agent of
Sytron Inc.
Exhibit 10(d)
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT ("Agreement"), is entered effective as of
October 7, 1998, between Sytron, Inc., a Pennsylvania corporation doing business
at 2770 Industrial Lane, Broomfield, CO 80020 ("Purchaser") and ECS1
Construction Services, Inc., a California corporation doing business at 2016
Manhattan Place, Suite 116, Torrance, CA 90501 ("ECSI"), and the shareholders of
ECSI listed on Schedule "I" attached to this Agreement (hereinafter individually
and collectively referred to as "Seller").
WHEREAS, Seller collectively owns a total of 100,000 shares of ECSI, which
shares constitute all of the issued and outstanding shares of capital stock of
ECSI (the "ECSI Shares"'); and,
WHEREAS, Purchaser desires to acquire the ECSI Shares in a tax free
reorganization; and,
WHEREAS, Purchaser and Seller have reached an agreement concerning the
purchase price of the Shares, the manner in which Purchaser will pay the
purchase price and the conditions upon which Purchaser and Seller shall close
the stock purchase transaction; and,
WHEREAS, it is the intention of Purchaser, upon the close of the stock
purchase agreement to merge ECSI with a wholly owned Delaware subsidiary of
Purchaser (the "Delaware Subsidiary") pursuant to the merger agreement annexed
hereto as Exhibit "A";
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Purchaser, ECSI and Seller agree as
follows:
1) Purchase and Sale of Shares. At the "Closing" (as such term is defined in
Section 4 below), and upon the terms and subject to the conditions set
forth in this Agreement, Seller shall sell, transfer and convey to
Purchaser, and Purchaser shall purchase from Seller all right, tide and
interest in and to the ECSI Shares free and clear of all security
interests, pledges, mortgages, hypothecations, liens, charges and
encumbrances.
2) Tax-Free Reorganization. Seller and Purchaser adopt this Agreement as a
plan of reorganization under Internal Revenue Code Section 368(a)(l)(B).
Notwithstanding anything contained in the proceeding sentence to the
contrary, in the event that, for any reason, the transaction as set forth
herein is deemed not to qualify as a plan of reorganization under
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Internal Revenue Code Section 368(a)(1)(B), Seller shall be solely
responsible for any and all taxes and/or penalties resulting here from.
3) Purchase Price. Provided that Seller satisfies all of the terms and
conditions of this agreement including, but not limited to, the conditions
of Section 5 below and subject to Sections 7 and 10 below, Purchaser shall
pay Seller the following consideration:
a) Fixed Compensation. Purchaser shall deliver to the individuals
constituting Seller as set forth on Schedule "1" hereto at closing One
Hundred Thousand (100,000) flatly paid and non-assessable, restricted
shares of Sytron, Inc. common stock.
b) Contingent Compensation. Purchaser shall deliver to the individuals
listed on Schedule "2" annexed hereto, such additional fully paid and
non-assessable shares of Sytron, Inc. common stock and/or warrants to
purchase additional shares of Sytron, Inc. common Stock (the
"Contingent Compensation") to be determined as follows:
i) One Hundred Thousand fully paid and non-assessable shares of
Sytron, Inc. common stock in the event that the gross sales of
the Delaware Subsidiary for fiscal year 1999 equal or exceed Two
Million Dollars ($2,000,000) and such sales result in a net
profit of no less than Two Hunted Thousand Dollars ($200,000);
ii) 5 Year warrants to purchase up to One Hundred Thousand (100,000)
shares of Sytron, Inc. common stock at a price of $2.00 per share
in the event that the gross sales of the Delaware Subsidiary for
fiscal year 2000 equal or exceed Four Million Dollars
($4,000,000) and such sales result in a net profit of no less
than Four Hundred Thousand Dollars ($400,000);
iii)5 Year warrants to purchase up to One Hundred Thousand (100,000)
shares of Sytron, Inc. common stock at a price of $2.50 per share
in the event that the gross sales of the Delaware Subsidiary for
fiscal year 2001 equal or exceed Six Million Dollars ($6,000,000)
and such sales result in a net profit of no less than Six Hundred
Thousand Dollars ($600,000);
iv) 5 Year warrants to purchase up to One Hundred Thousand (100,000)
shares of Sytron, Inc. common stock at a price of $100 per share
in the event that the gross sales of the Delaware Subsidiary for
fiscal year 2002 equal or exceed Nine Million Dollars
($9,000,000) and such sales result in a net profit of no less
than Nine Hundred Thousand Dollars ($900,000).
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c) Vesting of Contingent Compensation. Sellers right to receive the
Contingent Compensation shall vest based upon the proportional
relationship tat the Delaware Subsidiary's actual sales and net profit
performance in an applicable fiscal year bears to the sales and net
profit goals set forth in sub-paragraphs 2(b)(i)-(iv) above; provided,
however, that in no event shall Seller be entitled to receive more
than number of shares and/or warrants for any fiscal year than that
set forth in sub-paragraphs 2(b)(i)-(iv). In determining said
proportional relationship the following formula shall be applied: 4)
# of shares or warrants x (.50 x (% of sales goal achieved
+ % of profit goal achieved))
By way of example, if in 1999 the Delaware Subsidiary achieved 50% of
its sales goal and 80% of its profit goal, the total number of shares
to be paid to Seller would be determined as follows:
100,000 x (.50a (.5 + .8)) 65,000 shares
d) Contingent Compensation Escrow. At Closing, Purchaser shall deliver
the shares and warrants comprising the Contingent Compensation to an
escrow agent (the "Escrow Agent") to be mutually agreed upon by the
parties. Within 120 days following the close of the applicable fiscal
year of the Delaware Subsidiary, Purchaser shall deliver to the Escrow
Agent either: (i) audited financial statements for the Delaware
Subsidiary; or (ii) unaudited financial statements for the Delaware
Subsidiary which have been approved in writing by an authorized
representative of Seller. Promptly upon receipt of said financial
statements, the Escrow Agent shall perform the vesting calculation
referred to in sub- paragraph 2(c) above and issue to Seller the
appropriate number of shares or warrants. All Contingent Compensation
that does not vest in Seller shall be returned to Purchaser.
4) Closing. Subject to the terms and conditions hereof, the closing of the
purchase and sale of the ECSI Shares (the "Closing") shall be held at a
place or in a manner determined by the reasonable, mutual agreement of
Seller and Purchaser on or about October 23, 1998. The date of the Closing
sometimes is referred to herein as the "Closing Date." At the Closing, the
following shall take place:
a) Delivery by Seller. Seller shall fully execute or obtain the execution
of, and deliver to Purchaser the following documents:
i) Properly endorsed Stock Certificates and Irrevocable Stock Powers
in the form annexed hereto as Exhibit "B" representing one
hundred percent (100%) of the issued and outstanding shares of
the capital stock of ECSI;
ii) Duly approved resolutions of the Board of Directors and
Shareholders of ECSI, respectively, authorizing the transactions
contemplated by this Agreement;
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<PAGE>
iii) A complete and accurate listing of all fixed and contingent
liabilities of ECSI as of the date of the Closing.
iv) A complete and accurate listing of all of the assets of ECSI as
of the date of Closing;
v) A letter from ECSI's counsel which states: (i) ESCI has been duly
formed and is in good standing under the laws of the jurisdiction
in which it was incorporated; (ii) except as specifically
disclosed, no litigation, arbitration or adverse claims are
pending or threatened against ECSI; (iii) the ESCI Shares to be
delivered are free and clear of all liens, security interests
and/or encumbrances; and (iv) that the transaction contemplated
by this Agreement has been properly authorized by the Directors
and Shareholders of ECSI;
vi) A certificate executed by an authorized officer of ECSI stating
that each and every representation and warranty made by Seller in
this Agreement together with all information provided to
Purchaser with respect to ECSI as part of Purchaser's due
diligence were and continue to be true and accurate at the time
of closing;
vii) The duly executed resignation of all of the members of the Board
of Directors and all officers of ECSI;
viii)All of the books and records of ECSI including but not limited to
all corporate minute books and records, stock ledgers, financial
records;
ix) Any and all additional documents reasonably necessary for the
effective conveyance, assignment and transfer of the Shares to
Purchaser.
b) Delivery by Purchaser.
i) Purchaser shall filly execute or obtain the execution of, and
deliver to Seller in the manner set forth in paragraph 3 of this
Agreement, Stock certificate(s) representing One Hundred Thousand
(100,000) filly paid, non-assessable, restricted (Rule 144)
shares of Sytron. Inc. common stock.
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<PAGE>
ii) Purchaser shall deliver to the Escrow Agent the Contingent
Compensation
iii) Purchaser shall deliver to Seller duly approved resolutions of
the Board of Directors of Purchaser authorizing the transaction
contemplated by this Agreement:
iv) Purchaser shall deliver to Seller any and all additional
documents reasonably necessary for the effective conveyance,
assignment and transfer of the Sytron common stock to Seller.
5) Due Diligence. The obligations of each of the parties to this Agreement are
expressly conditioned on each party's completion, to its satisfaction, of
its respective due diligence activities. To that end and to facilitate the
completion of each party's due diligence activities, each party shall
reasonably cooperate with the other party to provide and make available to
the other party in a reasonable manner all information, documents and data
reasonably required and requested by the other party to evaluate each facet
of the transaction contemplated in this Agreement.
a) Seller acknowledges that in addition to any information, documents and
data Purchaser reasonably requests Seller to produce for Purchaser's
review pursuant to this Section 5, Seller shall, immediately upon the
execution of this Agreement, provide Purchaser with:
i) Statements of ECSI's operations and ECSI's complete financial
statement and tax returns for each of calendar years 1995, 1996
and 1997;
ii) A comprehensive list of all liabilities of ECSI, whether fixed
and contingent;
iii) A comprehensive list of all assets of ECSI; and
iv) A comprehensive list of all material agreements entered into by
or on behalf of ECSI including, but not limited to all real
property and/or equipment leases.
v) A comprehensive list of all intellectual property owned by ESCI
including copies of any and all patent and/or trademark
registrations or applications.
b) Prior to the Closing, Purchaser shall deliver to Seller a copy of
Purchaser's most recent internal financial statements.
c) Each party shall complete its due diligence activities on or before
October 15, 1998, at
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<PAGE>
5:00 p.m., MST. Thereafter, either party may terminate this Agreement
for any reason in either party's sole discretion by delivering written
notice of termination to the other party on or before 5:00 p.m., MST,
October 19th, 1998. In the event either party terminates this
Agreement pursuant to the provisions contained in this Section 5, this
Agreement shall be void and of no further effect, except that the
provisions contained in Section 13 of this Agreement shall survive
such termination. In the event neither party delivers written notice
of termination to the other party in the manner described in this
Section 5, the parties shall be deemed conclusively to have waived
their rights to terminate this Agreement pursuant to this Section 5.
6) Representations and Warranties of Seller. Seller(s) jointly and severally
represents and warrants to, and agrees with Purchaser that:
a) Binding Agreement. This Agreement and all of the obligations of Seller
hereunder are legal and binding obligations of Seller, enforceable in
accordance with the terms of this Agreement.
b) Litigation. Except as set forth in Schedule 4 attached to this
Agreement, neither Seller, nor ECSI is involved in any suits, actions,
proceedings or investigations of any nature, pending or threatened.
c) Compliance with Laws. Seller and ECSI, to the extent of their
knowledge, have complied in all respects with all applicable federal,
state, municipal, and other political subdivision or governmental
agency statutes, ordinances, regulations, and other laws, whether
foreign or domestic, which if violated would affect the business of
ECSI. The transaction contemplated herein does not violate any law,
regulation or ordinance of any jurisdiction where Seller resides or
ECSI is doing business.
d) Absence of Claims. No customer or supplier of ECS1 has made a claim
against ECSI and no basis exists for any such claim, which would
affect the business of ECSI.
e) Consents. No consent of any foreign or domestic federal, state,
municipal or other governmental authority, or any third party is
required for the execution, delivery or performance of this Agreement
by Seller except as Seller already has obtained, which if not obtained
would affect the ability of Seller to carry out the transactions
contemplated by this Agreement.
f) Reports and Returns. Any and all reports of governmental agencies and
returns of any nature required by applicable laws relating to ECSI
required to be filed on behalf of ECSI
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<PAGE>
have been duly filed on behalf of ECSI not later than the time
prescribed by law for the filing thereof (and including extensions
thereof).
g) Finders. Seller has not engaged the services of any broker, agent or
finder in connection with the sale of its shares or assets. To the
extent that any person or entity should claim that they earned a fee
or commission as a result of this Agreement and/or the consummation of
this Agreement, Seller shall be solely responsible for the defense of
such a claim and any assessed payment of any such fee or commission.
h) Environmental Issues. ECSI has complied in all material respects with,
and has not been cited for any violation of federal, state, and local
environmental protection laws and regulations; and no material capital
expenditures will be required for compliance with any federal, state,
or local laws or regulations now in force relating to the protection
of the environment.
i) Representations True and Correct. No representation, warranty, or
covenant by Seller contained in this Agreement, or any document
delivered in accordance with Purchaser's due diligence or to be
delivered hereunder, in connection with the transactions contemplated
by this Agreement, contain or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact
necessary in order to make the statements and information contained
herein or therein not misleading or necessary in order to provide
Purchaser with fill and proper information as to the Shares.
j) Restricted Stock. Seller acknowledges that the Sytron Common Stock it
will receive as part of the Purchase Price is restricted common stock
subject to the provisions of Rule 144 adopted by the Securities and
Exchange Commission of the United States of America and may also be
restricted under other applicable laws and rules adopted by the
various states and their respective securities and/or corporate
departments and commissions.
k) Validity of Accounts. Each account, chattel paper, document,
instrument, general intangible and/or contract which is or maybe owned
by ECSI at the time of Closing is outstanding obligation, genuine and
enforceable in accordance with its terms against the party obligated
to pay it ("Account Debtor"). Any amounts represented by Seller and/or
ECSI to Purchaser as owing by each or any Account Debtor is the
correct amount owing, not subject to any defense, offset claims or
counterclaim against ECSI. Seller shall cooperate fully, at Sellers
sole cost and expense, in any action or suit that Purchaser deems
necessary to enforce the obligations of an Account Debtor.
l) Corporate Status. ESCI is a corporation duly organized, validly
existing, and in good
7
<PAGE>
standing under the laws of the State of California, is duly authorized
to conduct business in the State of California and any other
jurisdiction where it presently conducts business, and has all
requisite corporate power and authority to enter into and perform this
Agreement.
m) Authority of Seller. The execution, delivery and performance by Seller
of this Agreement and the various other instruments and documents
identified in this Agreement have been duly authorized by ECSI's Board
of Directors and no further corporate action is necessary on the part
of ESCI to make this Agreement valid and binding upon Seller in
accordance with its terms. Neither the execution, delivery, nor
performance by Seller of this Agreement will conflict with, or result
in, a violation or breach of any terms or provisions of, nor
constitute a default under, the Articles of Incorporation or Bylaws of
ESCI, or under any indenture, mortgage, deed of trust, or other
contract or agreement to which Seller or ESCI is a party, by which
they or their property is bound, or violate any order, writ,
injunction, or decree of any court, administrative agency, or
governmental body, which would materially and adversely affect the
ability of Seller to carry out the transaction contemplated by this
Agreement.
7) Representations and Warranties of Purchaser. Purchaser represents and
warrants to, and agrees with, Seller that:
a) Corporate Status. Purchaser is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Pennsylvania, and has all requisite corporate power and authority to
enter into and perform this Agreement.
b) Authority of Purchaser. The execution, delivery and performance by
Purchaser of this Agreement and the various other instruments and
documents identified in this Agreement have been duly authorized by
its Board of Directors and no further corporate action is necessary on
the part of Purchaser to make this Agreement valid and binding upon
Purchaser in accordance with its terms. Neither the execution,
delivery, nor performance by Purchaser of this Agreement will conflict
with, or result in, a violation or breach of any terms or provisions
of, nor constitute a default under, the Articles of Incorporation or
Bylaws of Purchaser, or under any indenture, mortgage, deed of trust,
or other contract or agreement to which Purchaser is a party, by which
it or its property is bound, or violate any order, writ, injunction,
or decree of any court, administrative agency, or governmental body,
which would materially and adversely affect the ability of Purchaser
to carry out the transaction contemplated by this Agreement.
c) Binding Agreement. This Agreement and all of the obligations of
Purchaser hereunder
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<PAGE>
and thereunder are the legal, valid and binding obligations of
Purchaser enforceable in accordance with the terms of this Agreement.
d) Representations True and Correct. No representation, warranty, or
covenant by Purchaser contained in this Agreement, or any document to
be delivered hereunder, in connection with the transactions
contemplated by this Agreement, contain or will contain any untrue
statement of a material fact, or omits or will omit to state a
material fact necessary in order to make the statements and
information contained herein or therein not misleading.
e) Shares duly Authorized: The shares of Sytron, Inc. common stock
representing the Purchase Price and Contingent Compensation will be,
at the time of the Closing, duly authorized, fully paid, validly
issued and non-assessable shares of the Common Stock of Sytron, Inc.
8) Conditions to Obligations of Purchaser. The obligations of Purchaser under
this Agreement, shall, at the option of Purchaser, be subject to the
following conditions:
a) Seller's Representations and Warranties True at Closing, Performance.
Purchaser shall not have discovered any material error, misstatement,
or omission in the representations and warranties made by Seller in
Section 6 hereof; the representations and warranties made by Seller
herein shall be deemed to have been made again at, and as of the time
of Closing, and shall then be true in all material respects. Seller
shall have performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by it at
or prior to the Closing.
b) Delivery by Seller. Seller shall have delivered all documents and
things required by this Agreement.
c) No Damage or Destruction. Prior to Closing, there shall not have
occurred any impairment, damage or destruction (excluding ordinary
wear and tear) to or loss of any of the assets of ECSI other than
damage or destruction caused by Purchaser or its officers, agents and
employees.
9) Conditions to Obligations of Seller. The obligations of Seller under this
Agreement shall, at the option of Seller, be subject to the following
conditions:
a) Purchaser's Representations and Warranties True at Closing and
Performance. Seller shall not have discovered any material error,
misstatement, or omission in the
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<PAGE>
representations and warranties made by Purchaser in Section 7 hereof;
the representations and warranties made by Purchaser herein shall be
deemed to have been made again at and as of the time of Closing and
shall then be true in all materials respects; Purchaser shall have
performed and complied with all agreements and conditions required by
this Agreement to be performed or complied with it at or prior to the
Closing.
b) Delivery by Purchaser. Purchaser shall have delivered all documents
and things required by this Agreement.
c) Conditions of the Business. There shall have been no material adverse
change in the manner of operation of Purchaser's business prior to the
Closing Date.
10) Nature and Survival of Representations and Warranties.
a) Nature of Statements. All statements contained in this Agreement, in
any Exhibit or Schedule hereto, or in any certificate or other written
instrument delivered by or on behalf of Seller or Purchaser pursuant
to this Agreement, or in connection with the transactions contemplated
hereby, shall be deemed representations and warranties by Seller or
Purchaser, as the case may be.
b) Survival of Representations and Warranties. All representations and
warranties made hereunder or pursuant hereto, or in connection with
the transactions contemplated hereby or obligations, conditions or
agreements still executory at the time of dosing, shall survive the
Closing for the duration of the applicable statute of limitations
relating to any such claim.
11) Termination.
a) Best Efforts to Satisfy Conditions. Seller and Purchaser each agrees
to use its best efforts to bring about the satisfaction of the
conditions required of it in this Agreement.
b) Termination. In addition to the method described in Section 5 of this
Agreement, prior to the Closing this Agreement may be terminated by:
i) The mutual consent of Seller and Purchaser;
ii) The Board of Directors of Purchaser if a material default shall
be made by Seller in the observance or in the due and timely
performance by Seller of any of the covenants of Seller herein
contained, or if there shall have been a material breach or
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<PAGE>
misrepresentation by Seller of any of the warranties and
representations of Seller herein contained, or if the conditions
of this Agreement to be complied with, or performed by, Seller at
(or before) the Closing shall not have been complied with, or
performed at, the time required for such compliance or
performance, and such noncompliance or nonperformance shall not
have been waived by Purchaser.
iii) The affirmative vote of the majority of shares of the issued and
outstanding capital stock of ECSI, if a material default shall be
made by Purchaser in observance or in the due and timely
performance by Purchaser of any of the covenants of Purchaser
herein contained, or if there shall been a material breach or
misrepresentations by Purchaser of any of the warranties and
representations of Purchaser herein contained, or if the
conditions of this Agreement to be complied with, or performed
by, Purchaser at (or before) the Closing shall not have been
complied with, or performed at, the time required for such
compliance or performance, and such noncompliance or
nonperformance shall not have been waived by Seller.
c) Effect of Termination. In the event of the termination hereof pursuant
to the provisions of Sections 11(b) above, this Agreement shall become
void and have no force or effect
12) Professional Fees. Each party shall be responsible for, and shall pay the
fees and costs incurred by it in connection with its attorneys, accountants
and any other professional persons and advisors.
13) Confidentiality. Each party shall keep confidential any and all information
obtained by either party concerning the other party's operations, assets,
debts and business data (the "Information"), except to the extent the
Information is ascertainable from public filing or is considered part of
the public domain. Without the express prior written consent of the other
party, neither party shall disclose to any third party other than its
employees, attorneys, accountants or financial advisors, the Information.
The parties acknowledge and agree that the Information concerning each of
them is unique and that each party shall be entitled to injunctive relief
as well as to all other remedies otherwise available to prevent the
dissemination of any Information except in the manner and for the purpose
described in this Agreement. Neither party shall use any Information
relating to the other party for its own or another's benefit except for the
sole purpose of completing the transaction contemplated in this Agreement.
This covenant shall survive the termination or consummation of this
Agreement. If the parties do not consummate the transaction contemplated in
this Agreement, any and all documents, copies of documents, memoranda,
records, and all other material relating to, or constituting information
shall be destroyed or returned to the party disclosing the Information.
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14) Non-Compete.
a) The individuals listed on Schedule 3 (individually and collectively
the "Restricted Parties") covenants and agrees that for a period of
five (5) years following the Closing that neither he, nor any entity
owned in whole or in part by him or his spouse will, directly or
indirectly, as an employee, employer, advisor, consultant, agent,
principal, partner, shareholder, corporate officer, director, or in
any other individual or representative capacity, operate, engage or
participate in any business without the prior written consent of
Purchase, which consent shall not be unreasonably withheld or delayed,
that is or shall be then be in competition in any manner whatsoever
with the business of ECSI, or ECSI's successor's and assigns.
b) The Restricted Parties agree that neither the time span, the scope,
nor the areas covered by this non-competition covenant are
unreasonable. It however, it shall be judicially determined that any
provisions hereof are unreasonably broad in one or more respects, each
provision shall not be declared invalid, but rather shall be modified
solely to the extent that it shall be determined to be reasonable.
c) The Restricted Parties covenant and agree that they will not, at any
time, whether for its own account or for the account of any other
person or entity, interfere with the relationship of Purchaser or
endeavor to entice away from Purchaser any employee, client, candidate
or customer of Purchaser and/or Purchaser's parent, subsidiaries,
affiliates, successors and assigns.
d) The Restricted Parties acknowledge that their respective agreement to
the terms of this Section 14 is a material inducement for Purchaser's
purchase of the Company and that Purchaser will suffer irreparable,
substantial and material harm as a result of Restricted Parties', and
that such harm can not be adequately compensated for by monetary
damages. The Restricted Parties further acknowledge and agree that in
addition to any other remedy which Purchaser may be entitled to as a
result of the violation of this Paragraph 14, Purchaser shall be
entitled to obtain injunctive relief
15) Purchaser's Default.
a) Remedies. Following the Closing, if Purchaser fails to perform any of
the terms, covenants, conditions, or obligations of this Agreement,
time of payment and performance being of the essence, then Seller,
subject to the requirements of the notice provided in sub-section (b)
below, shall have the right to exercise any remedy available
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to it at Law or Equity, including, but not limited to, the right of
offset.
b) Notice of Default. Purchaser shall not be deemed in default for
failure to perform the terms, covenants, and conditions of this
Agreement, unless and until written notice of such default has been
given to Purchaser and Purchaser has failed to remedy the default
within fifteen (15) days after Purchaser's receipt of such notice.
16) Seller's Default.
a) If Seller fails to perform any of the terms, covenants, conditions, or
obligations of this Agreement, then Purchaser, subject to the
requirements of the notice provided in subsection (b) below, shall
have the right to exercise any remedy available to it at Law or
Equity, including, but not limited to, she right of offset.
b) Seller shall not be deemed in default for failure to perform the
terms, covenants, and conditions of this Agreement unless and until
written notice of the default has been given to Seller and Seller has
failed to remedy the default within fifteen (15) days after said
notice.
17) Taxes. Any and all income taxes, property taxes assessments, transfer
taxes, payroll taxes and similar or dissimilar taxes and assessments which
accrue to ACSI prior to the Closing Date or as a result of this transaction
shall be the sole responsibility of Seller.
18) Arbitration. Any Claim or dispute arising out of or relating to this
Agreement or the breach thereof, shall be settled by final, binding
arbitration before a single arbitrator in the City and County of Boulder,
in the State of Colorado in accordance with the Commercial Arbitration
Rules then obtaining of the American Arbitration Association. The parties
agree to be bound by the award of any arbitration and judgment upon the
award may be entered in any court of competent jurisdiction.
19) Additional Documents. Each party agrees to execute and deliver to the other
party such additional instruments, applications, and other documents
before, during and after Closing as are reasonably necessary to consummate
and effectuate the transaction described in this Agreement.
20) Indemnification.
a) Seller shall indemnify, defend and hold Purchaser harmless from and
against any and all demands, claims, damages. judgments, costs,
(including reasonable attorneys' fees),
13
<PAGE>
penalties and liabilities based upon, relating to, or arising out of a
breach or failure of any of Seller's agreements, representations or
warranties hereunder. All of Purchaser's rights and remedies hereunder
shall be cumulative and shall not interfere with or prevent the
exercise of any other right or remedy which may be available to
Purchaser. Upon notice from Purchaser of any such claim, demand or
action being advanced or commenced, Seller agrees to adjust, settle or
defend the same at Seller's sole cost and expense. Purchaser shall
have the right, but not the obligation, to participate, at Purchaser's
own expense and by Purchaser's own counsel, in the defense of any such
claim and, in such event the parties hereto shall cooperate with each
other in the defense of any such action, suit or proceeding hereunder.
The indemnification set forth in this paragraph 20(a) shall survive
the termination or expiration of this Agreement.
b) Purchaser shall indemnify, defend and hold Seller harmless from and
against any and all demands, claims, damages, judgments, costs,
(including reasonable attorneys' fees), penalties and liabilities
based upon, relating to, or arising out of a breach or failure of any
of Purchaser's agreements, representations or warranties hereunder.
All of Seller's rights and remedies hereunder shall be cumulative and
shall not interfere with or prevent the exercise of any other right or
remedy which may be available to Seller. Upon notice from Seller of
any such claim, demand or action being advanced or commenced,
Purchaser agrees to adjust, scale or defend the same at Purchaser's
sole cost and expense. Seller shall have the right, but not the
obligation, to participate, at Seller's own expense and by Seller's
own counsel, in the defense of any such claim and, in such event, the
parties hereto shall cooperate with each other in the defense of any
such action, suit or proceeding hereunder. The indemnification set
forth in this paragraph 20(b) shall survive the termination or
expiration of this Agreement.
21) Miscellaneous.
a) Expenses. Seller and Purchaser shall each pay their own expenses
(including, without limitation, legal counsel and accounting fees and
expenses) incident to the preparation and carrying out of this
Agreement and the consummation of the transactions contemplated herein
and in the Exhibits hereto.
b) Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been given
if personally delivered or mailed, first class, registered or
certified mail, postage prepaid to the address first written above or
such other address as either party may, from time to time, designate
in writing.
c) Assignment. This Agreement may not be assigned by any party hereto
without the prior
14
<PAGE>
written consent of the other party; provided, however, that Seller
understands and acknowledges that Purchaser may assign its rights and
benefits under this Agreement to a subsidiary wholly owned by Sytron,
Inc.
d) Successors Bound. Subject to the provisions of paragraph (c) of this
Section 18, this Agreement shall be binding upon, and inure to the
benefit of the parties hereto and their respective successors and
assigns and, in the case of Seller, its respective heirs.
e) Section and Paragraph Headings. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
f) Amendment. This agreement may only be amended by a writing executed by
all the parties hereto.
g) Entire Agreement. This Agreement and the Exhibits, Schedules,
certificates, and documents referred to herein constitute the entire
agreement of the parties hereto, and supersede all prior
understandings with solely respect to the subject matter hereof All
prior agreements among the parties hereto, including but not limited
to the Letter of Intent are superseded by this Agreement.
h) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute
the same instrument.
i) Governing Law. This Agreement shall be construed and enforced under,
in accordance with, and governed by, the laws of the State of Colorado
applicable to agreements entered into and fully performed therein.
j) Attorney Fees. In the event a party breaches this Agreement, the
breaching party shall pay all reasonable costs and attorney's fees
incurred by the other party in connection with such breach, whether or
not any litigation is commenced.
k) Computation of Time. In computing any period of time pursuant to this
Agreement, the day of the act, event or default from which the
designated period of time begins to run shall be included, unless it
is a Saturday, Sunday or a legal holiday, in which event the period
shall begin to run on the next day which is not a Saturday, Sunday or
legal holiday.
15
<PAGE>
l) Severability. If for any reason, any provision of this Agreement shall
be determined to be invalid or inoperative, the validity and effect of
the other provisions hereof shall not be affected thereby, provided
that no such severability shall be effective if it causes a material
detriment to any party.
TN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first written above.
PURCHASER SELLER
SYTRON, INC., ESCI Construction Services, Inc.
By: /s/ Rob Howard, President By: /s/ James W. Power, President
---------------------------- ----------------------------------
16
<PAGE>
SCHEDULE 1
SHAREHOLDERS LIST
NAME SHARES TO BE ISSUED
---- -------------------
Thomas E. Gibbs 36,000
James W. Power 36,000
Robert A. Schorr 24,000
Lee A. Jolly 4,000
<PAGE>
SCHEDULE 2
CONTINGENT COMPENSATION
Thomas E. Gibbs 20%
James W. Power 35%
Robert A. Schorr 35%
David E.Unger 10%
<PAGE>
SCHEDULE 3
RESTRICTED PARTIES
James W. Power
Robed A. Schorr
David E. Unger
<PAGE>
ECSI Arbitration
Arbitration with CMG
1. Approximately $40,000 due ECSI
2. Hearing 12/98
3. If settled, majority of funds would go to payable due attorney Kaufman in
the amount of $8,000-$10,Q00
This is the only legal metter known as of this date.
/s/ Jim Power
- -----------------------------------------
Jim Power
President, ECSI Construction Services Inc.
<PAGE>
SYTRON
Consent Regarding Non-Compete for James W. Power
It is understood that James Power is affiliated and active in the business of
Infographics, Inc. as well as J.W. Power and Associates.
/s/ 11/6/98
- --------------------------------
Sytron, Inc.
Rob Howard, President
- --------------------------------------------------------------------------------
Styron, Inc. 2770 Industrial Lane, Broomfield, CO 80020-1620
303/469-6100 fax 303/469-7100
<PAGE>
ACTION
TAKEN BY UNANIMOUS WRITTEN CONSENT
OF THE
BOARD OF DIRECTORS
OF
ECSI CONSTRUCTION SERVICES, INC.
The following action is hereby taken by the unanimous written consent of
the Board of Directors of ECSI CONSTRUCTION SERVICES, INC., a California
corporation ("Corporation") pursuant to Article Ill, Section 13 of the Bylaws of
the Corporation:
BE IT RESOLVED, that the Board of Directors
of the Corporation hereby authorizes James W.
Power, President, to execute and deliver that
certain Stock Purchase Agreement dated as of
November 2, 1998 between the Corporation and
Sytron, Inc., a Pennsylvania corporation.
The undersigned, constituting all members of the Board of Directors of the
Corporation, hereby consent to and hereby adopt the foregoing resolution as this
2nd day of November, 1998.
DIRECTORS
/s/ James W. Power
----------------------------
James W. Power
/s/ Thomas E. Gibbs, Jr.
----------------------------
Thomas E. Gibbs, Jr.
/s/ Robert A. Schorr
----------------------------
Robert A. Schorr
<PAGE>
RESIGNATION
-----------
The following persons hereby resign as Directors of ECSI Construction
Services, Inc. effective immediately.
Dated: November 2, 1998
/s/ James W. Power
----------------------------
James W. Power
/s/ Thomas E. Gibbs, Jr.
----------------------------
Thomas E. Gibbs, Jr.
/s/ Robert A. Schorr
----------------------------
Robert A. Schorr
<PAGE>
RESIGNATION
-----------
The following persons hereby resign as officers of ECSI Construction
Services, Inc. effective immediately.
Dated: November 2, 1998.
/s/ James W. Power
----------------------------
James W. Power
/s/ Thomas E. Gibbs, Jr.
----------------------------
Thomas E. Gibbs, Jr.
/s/ Lee A. Jolley
----------------------------
Lee A. Jolley
/s/ Robert A. Schorr
----------------------------
Robert A. Schorr
/s/ Enrique Faris
----------------------------
Enrique Faris
<PAGE>
CERTIFICATE
-----------
I, James W. Power, President of ECSI Construction Services, Inc., a
California corporation, ("ECSI") hereby certify to Sytron, Inc., a Pennsylvania
corporation, ("Sytron") that all representations and warranties made by ECSI to
Sytron and all information delivered by ECSI to Sytron pursuant to that certain
Stock Purchase Agreement dated November 2, 1998, between ECSI and Sytron are
true and correct.
Dated: November 2, 1998
/s/ James W. Power
--------------------------------
James W. Power
President of ECSI
Construction
Services, Inc.
Exhibit 10(e)
TABLE OF CONTENTS
Page
----
ARTICLE I CERTAIN DEFINITIONS 2
Section 1.1 "Additional Warrant" 2
Section 1.2 "Additional Warrant Shares" 2
Section 1.3 "Average Daily Trading Volume" 2
Section 1.4 "Bid Price" 2
Section 1.5 "Capital Shares" 2
Section 1.6 "Closing" 2
Section 1.7 "Closing Date" 2
Section 1.8 "Collateral" 2
Section 1.9 "Commitment Fees" 2
Section 1.10 "Commitment Period" 2
Section 1.11 "Common Stock" 2
Section 1.12 "Common Stock Equivalents" 2
Section 1.13 "Condition Satisfaction Date" 2
Section 1.14 "Contract" 3
Section 1.15 "Damages" 3
Section 1.16 "Disclosure Schedule" 3
Section 1.17 "Effective Date" 3
Section 1.18 "Equity Line Agreement" 3
Section 1.19 "Exchange Act" 3
Section 1.20 "Incentive Warrant" 3
Section 1.21 "Incentive Warrant Shares" 3
Section 1.22 "Intellectual Property" 3
Section 1.23 "Legend" 3
Section 1.24 "Lien" 3
Section 1.25 "Market Price" 3
<PAGE>
TABLE OF CONTENTS
(continued)
Section 1.26 "Material Adverse Effect" 3
Section 1.27 "Minimum Time Interval" 4
Section 1.28 "NASD" 4
Section 1.29 "Note Issuance Notice Date" 4
Section 1.30 "Note Issuance Notice" 4
Section 1.31 "Note Shares" 4
Section 1.32 "Original Registration Rights Agreement" 4
Section 1.33 "Outstanding" 4
Section 1.34 "Option" 4
Section 1.35 "Permitted Lien" 4
Section 1.36 "Person" 4
Section 1.37 "Preferred Stock" 4
Section 1.38 "Principal Market" 4
Section 1.39 "Put Shares" 4
Section 1.40 "Registrable Securities" 5
Section 1.41 "Registration Rights Agreement" 5
Section 1.42 "Registration Statement" 5
Section 1.43 "Regulation D" 5
Section 1.44 "SEC" 5
Section 1.45 "Section 4(2)" 5
Section 1.46 "Securities Act" 5
Section 1.47 "SEC Documents" 5
Section 1.48 "Security Agreement" 5
Section 1.49 "Subscription Date" 5
Section 1.50 "Trading Day" 5
Section 1.51 "Underwriter" 6
<PAGE>
TABLE OF CONTENTS
(continued)
Section 1.52 "Valuation Period" 6
Section 1.53 "Warrants" 6
Section 1.54 "Warrant Shares" 6
ARTICLE II PURCHASE AND SALE OF COMMON STOCK;
TERMINATION OF OBLIGATIONS; WARRANT 6
Section 2.1 Investments 6
Section 2.2 Mechanics 6
Section 2.3 Closings 7
Section 2.4 Commitment Fees 7
Section 2.5 Note Issuance Fees 7
Section 2.6 Right of First Refusal 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR 8
Section 3.1 Intent 8
Section 3.2 Sophisticated Investor 8
Section 3.3 Authority 9
Section 3.4 Not an Affiliate 9
Section 3.5 Organization and Standing 9
Section 3.6 Absence of Conflicts 9
Section 3.7 Disclosure; Access to Information 9
Section 3.8 Manner of Sale 9
Section 3.9 Resale Restrictions 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY 10
Section 4.1 Organization of the Company 10
Section 4.2 Authority 10
Section 4.3 Corporate Documents 10
Section 4.4 Books and Records 10
Section 4.5 Capitalization 11
<PAGE>
TABLE OF CONTENTS
(continued)
Section 4.6 Common Stock 11
Section 4.7 Financial Statements 11
Section 4.8 Exemption from Registration; Valid Issuances 11
Section 4.9 No General Solicitation or Advertising
in Regard to this Transaction 12
Section 4.10 No Conflicts 12
Section 4.11 No Material Adverse Change 12
Section 4.12 No Undisclosed Liabilities 14
Section 4.13 No Undisclosed Events or Circumstances 14
Section 4.14 No Integrated Offering 14
Section 4.15 Litigation and Other Proceedings 15
Section 4.16 No Misleading or Untrue Communication 15
Section 4.17 Material Non-Public Information 15
Section 4.18 Real Property 15
Section 4.19 Tangible Personal Property 16
Section 4.20 Intellectual Property Rights 16
Section 4.21 Contracts 17
Section 4.22 Licenses 18
Section 4.23 Environmental Matters 18
Section 4.24 Substantial Customers and Suppliers 19
Section 4.25 Accounts Receivable 20
Section 4.26 Disclosure 20
ARTICLE V COVENANTS OF THE INVESTOR 20
ARTICLE VI COVENANTS OF THE COMPANY 20
Section 6.1 Registration Rights 20
Section 6.2 Reservation of Common Stock 20
Section 6.3 Listing of Common Stock 21
<PAGE>
TABLE OF CONTENTS
(continued)
Section 6.4 Exchange Act Registration 21
Section 6.5 Legends 21
Section 6.6 Corporate Existence 21
Section 6.7 SEC Documents 21
Section 6.8 Notice of Certain Events Affecting Registration;
Suspension of Right to Issue Convertible Note No. 2 21
Section 6.9 Consolidation; Merger 22
Section 6.10 Issuance of Put Shares, Warrant Shares,
Convertible Notes and Note Shares 22
Section 6.11 Legal Opinion on Closing Date 22
Section 6.12 No Other Similar Arrangements 22
ARTICLE VII CONDITIONS TO DELIVERY OF NOTE ISSUANCE
NOTICES AND CONDITIONS TO CLOSING 24
Section 7.1 Conditions Precedent to the Obligation of the
Company to Issue and Sell Convertible Notes 24
Section 7.2 Conditions Precedent to the Right of the Company
to Deliver a Note Issuance Notice and the Obligation
of the Investor to Purchase Convertible Note No. 2 24
Section 7.3 Due Diligence Review; Non-Disclosure
of Non-Public Information 26
ARTICLE VIII LEGENDS 27
Section 8.1 Legends 27
Section 8.2 No Other Legend or Stock Transfer Restrictions 28
Section 8.3 Investor's Compliance 28
ARTICLE IX INDEMNIFICATION 28
Section 9.1 Indemnification 28
Section 9.2 Method of Asserting Indemnification Claims 29
ARTICLE X MISCELLANEOUS 32
Section 10.1 Fees and Expenses 32
Section 10.2 Reporting Entity for the Common Stock 32
Section 10.3 Brokerage 32
Section 10.4 Notices 32
Section 10.5 Assignment 33
<PAGE>
TABLE OF CONTENTS
(continued)
Section 10.6 Amendment; No Waiver 33
Section 10.7 Annexes and Exhibits; Entire Agreement 33
Section 10.8 Survival 34
Section 10.9 Severability 34
Section 10.10 Title and Subtitles 34
Section 10.11 Counterparts 34
Section 10.12 Choice of Law 34
<PAGE>
NOTE PURCHASE AGREEMENT
by and between
CRESCENT INTERNATIONAL LIMITED
and
SYTRON, INC.
dated as of JANUARY 15, 1999
This NOTE PURCHASE AGREEMENT is entered into as of the 15th day of January, 1999
(this "Agreement"), by and between CRESCENT INTERNATIONAL LIMITED (the
"Investor"), an entity organized and existing under the laws of Bermuda, and
SYTRON, INC., a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Company").
WHEREAS, the Company and the Investor have entered into a private equity line
agreement, dated as of May 14, 1998 (the "Equity Line Agreement");
WHEREAS, pursuant to the Equity Line Agreement the Company has issued and sold
to the Investor, $250,000 of the Common Stock (as defined below) represented by
166,667 shares of the Common Stock (the "Put Shares");
WHEREAS, pursuant to the Equity Line Agreement the Company has issued to the
Investor a warrant dated as of May 14, 1998, exercisable from time to time
within five (5) years following the date of issuance (the "Incentive Warrant")
for the purchase of an aggregate of up to 100,000 shares of Common Stock at a
price specified in such Incentive Warrant;
WHEREAS, the parties agree to terminate the Equity Line Agreement
contemporaneously with the execution of this Agreement;
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Investor and the
Investor shall purchase, up to two convertible notes worth, in the aggregate,
$750,000 of the Common Stock; and
WHEREAS, such investments have been and will be made in reliance upon the
provisions of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of
the United States Securities Act of 1933, as amended and the rules and
regulations promulgated thereunder (the "Securities Act"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in securities of the
Company to be made hereunder.
1
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Additional Warrant" shall mean the Additional Warrant in the form
of Exhibit E hereto issued pursuant to Section 2.1(e) of this Agreement.
Section 1.2 "Additional Warrant Shares" shall mean all shares of Common Stock
issued or issuable pursuant to exercise of the Additional Warrants.
Section 1.3 "Average Daily Trading Volume" shall mean, with respect to any
Closing Date, the average of the daily trading volumes for the Common Stock on
the Principal Market during the applicable Valuation Period, and with respect to
any other date, such average during the portion of the applicable Valuation
Period that has expired as of such date.
Section 1.4 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.5 "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of dividends (as and when declared) and
assets (upon liquidation of the Company).
Section 1.6 "Closing" shall mean one of the closings of a purchase and sale of
the Convertible Notes pursuant to Section 2.1.
Section 1.7 "Closing Date" shall mean, with respect to a Closing, the seventh
Trading Day following the Note Issuance Notice Date related to such Closing,
provided all conditions to such Closing have been satisfied on or before such
Trading Day.
Section 1.8 "Collateral" shall have the meaning specified in the Security
Agreement.
Section 1.9 "Commitment Fees" shall have the meaning specified in Section 2.4
hereof.
Section 1.10 "Commitment Period" shall mean the period commencing on the date
hereof and expiring on (1) the date on which the Investor shall have purchased
Convertible Note No. 2 or (ii) November 14, 1999.
2
<PAGE>
Section 1.11 "Common Stock" shall mean the Company's common stock, $0.01 par
value per share.
Section 1.12 "Common Stock Equivalents" shall mean any securities that are
convertible into or exchangeable for Common Stock or any warrants, options or
other rights to subscribe for or purchase Common Stock or any such convertible
or exchangeable securities.
Section 1.13 "Condition Satisfaction Date" shall have the meaning set forth in
Section 7.2 of this Agreement.
Section 1.14 "Contract" shall mean any agreement, lease, evidence of
indebtedness, mortgage, indenture, security agreement or other contract (whether
written or oral).
Section 1.15 "Damages" shall mean any loss, claim, damage, liability, costs and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs and expenses of expert witnesses and investigation).
Section 1.16 "Disclosure Schedule" shall mean the record delivered to the
Investor by the Company herewith and dated as of the date hereof, containing all
lists, descriptions, exceptions and other information and materials as are
required to be included therein by the Company pursuant to this Agreement.
Section 1.17 "Effective Date" shall mean the date on which the SEC first
declares effective the Initial Registration Statement as set forth in Section
7.2(a).
Section 1.18 "Equity Line Agreement" shall have the meaning specified in the
recitals of this Agreement.
Section 1.19 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and the rules and regulations promulgated thereunder.
Section 1.20 "Incentive Warrant" shall have the meaning specified in the
recitals of this Agreement.
Section 1.21 "Incentive Warrant Shares" shall mean all shares of Common Stock
issued or issuable pursuant to exercise of the Incentive Warrant.
Section 1.22 "Intellectual Property" shall mean all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
3
<PAGE>
Section 1.23 "Legend" shall have the meaning specified in Section 8.1.
Section 1.24 "Lien" shall mean any mortgage, pledge, assessment, security
interest, lease, lien, adverse claim, levy, charge or other encumbrance of any
kind, or any conditional sale Contract, title retention Contract or other
Contract to give any of the foregoing.
Section 1.25 "Market Price" shall mean the lowest three-consecutive-Trading-Day-
average of Bid Prices during the Valuation Period.
Section 1.26 "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, or financial condition of the Company that is
material and adverse to the Company or to the Company and such other entities
controlling or controlled by the Company, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to enter into and perform
its obligations under any of (i) this Agreement, (ii) the Registration Rights
Agreement, (iii) the Warrants, (iv) Convertible Notes, and (v) the Security
Agreement.
Section 1.27 "Minimum Time Interval" shall mean 90 days after the date the
Initial Registration Statement is declared effective by the SEC.
Section 1.28 "NASD" shall mean the National Association of Securities Dealers,
Inc.
Section 1.29 "Note Issuance Notice Date" shall mean the date on which a Note
Issuance Notice is delivered to the Investor by the Company in accordance with
Section 2.2.
Section 1.30 "Note Issuance Notice" shall mean a written notice to the Investor
setting forth the Investment Amount that the Company intends to require the
Investor to purchase pursuant to the terms of this Agreement.
Section 1.31 "Note Shares" shall have the meaning specified in Section 2.1
hereof.
Section 1.32 "Original Registration Rights Agreement" shall mean the
registration rights agreement, dated as of May 14, 1998, by and between the
Company and the Investor.
Section 1.33 "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively the "Shares"), shall mean, at any date as of which the
number of such Shares is to be determined, all issued and outstanding Shares,
and shall include all such Shares issuable in respect of outstanding scrip or
any certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not refer to any such Shares then directly or
indirectly owned or held by or for the account of the Company.
4
<PAGE>
Section 1.34 "Option" with respect to any Person shall mean any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive any benefits or rights similar to any rights enjoyed by or accruing
to the holder of shares of capital stock of such Person, including any rights to
participate in the equity, income or election of directors or officers of such
Person.
Section 1.35 "Permitted Lien" shall mean (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with Generally Accepted
Accounting Principles, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a Liability that is not yet due or
delinquent and (iii) any minor imperfection of title or similar Lien which
individually or in the aggregate with other such Liens does not materially
impair the value of the property subject to such Lien or the use of such
property in the conduct of the business of the Company or any of its
subsidiaries.
Section 1.36 "Person" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
Section 1.37 "Preferred Stock" shall have the meaning specified in Section 4.5
hereof.
Section 1.38 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange, the Bulletin Board or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
Section 1.39 "Put Shares" shall have the meaning specified in the recitals of
this Agreement.
Section 1.40 "Registrable Securities" shall mean (i) the Put Shares, (ii) the
Warrant Shares, (iii) the Note Shares, (iv) the Indemnity Shares, (v) the
Commitment Shares and (vi) any securities issued or issuable with respect to any
of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (w) the Registration Statement has been declared effective by the SEC and
all Registrable Securities have been disposed of pursuant to the Registration
Statement, (x) all Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 (or any similar
provision then in force) under the Securities Act ("Rule 144") are met, (y) such
time as all Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
5
<PAGE>
securities not bearing a restrictive legend or (z) in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to the Investor, all
Registrable Securities may be sold without registration or the need for an
exemption from any registration requirements and without any time, volume or
manner limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act.
Section 1.41 "Registration Rights Agreement" shall mean the amended and restated
registration rights agreement in the form of Exhibit C hereto.
Section 1.42 "Registration Statement" shall mean a registration statement on
Form SB-2 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement, and the Warrants), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.43 "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.44 "SEC" shall mean the Securities and Exchange Commission.
Section 1.45 "Section 4(2)" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.46 "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.47 "SEC Documents" shall mean the Company's latest Form 10-K as of the
time in question, all Forms 10-Q and 8-K filed thereafter, and the Proxy
Statement for its latest fiscal year as of the time in question until such time
the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.48 "Security Agreement" shall mean the Security Agreement in the form
of Exhibit D hereto.
Section 1.49 "Subscription Date" shall mean May 14, 1998.
Section 1.50 "Trading Day" shall mean any day during which the Principal Market
shall be open for business.
Section 1.51 "Underwriter" shall mean any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement.
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Section 1.52 "Valuation Period" shall mean the thirty (30) Trading Day period
ending on the earlier of (i) the date on which a Convertible Note first becomes
due and payable or (ii) the Conversion Date for such Convertible Note.
Section 1.53 "Warrants" shall mean the Additional Warrants and Incentive
Warrant.
Section 1.54 "Warrant Shares" shall mean the Additional Warrant Shares and the
Incentive Warrant Shares.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK;
TERMINATION OF OBLIGATIONS; WARRANT
Section 2.1 Investments.
(a) Issuance of Convertible Notes. Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article VII hereof),
the Company may issue and sell and the Investor shall purchase no more than two
notes, which notes may be converted, at the Investor's option, into Common Stock
(the "Convertible Notes") (such shares issued upon conversion of the Convertible
Notes are referred to herein as "Notes Shares").
(b) Convertible Note No. 1. The Company shall issue and sell and the Investor
shall purchase, on the date hereof, a Convertible Note in principal amount of
$350,000 ("Convertible Note No. 1") in the form attached hereto as Exhibit A.
For the purpose only of the issuance and purchase of Convertible Note No. 1 ,
the Investor waives the requirements of Section 2.2, and the conditions set
forth in paragraphs (a), (b), (g) and (p) of Section 7.2, hereof.
(c) Convertible Note No. 2. Subject to the conditions set forth herein, the
Company may issue and sell and the Investor shall purchase, a Convertible Note
in principal amount of $400,000 ("Convertible Note No. 2") ("Convertible Note
No. 2 Principal Amount") in the form attached hereto as Exhibit B.
(d) Indemnity Shares. On the date hereof, the Company shall issue and sell to
the Investor 100,000 shares of Common Stock (the "Indemnity Shares"). As
consideration for such Indemnity Shares, the Investor agrees (i) to refrain from
enforcing its rights, and waives any obligations of the Company, under the
Original Registration Rights Agreement and (ii) to pay one dollar ($1.00).
(e) Additional Warrant. On the date hereof, the Company shall issue to the
Investor an additional warrant (the "Additional Warrant") with an exercise price
of $0.01 for each Share of Common Stock.
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Section 2.2 Mechanics.
(a) Note Issuance Notice. At any time during the Commitment Period, the Company
may deliver a Note Issuance Notice to the Investor, subject to the conditions
set forth in Section 7.2.
(b) Date of Delivery of Note Issuance Notice. A Note Issuance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon New York time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon New York time on a Trading Day or at any time on a
day which is not a Trading Day. No Put Notice may be deemed delivered, on a day
that is not a Trading Day.
Section 2.3 Closings.
(a) Convertible Note No. 1 Closing. On the date hereof, (i) the Company
shall deliver to the Investor, at the address specified in Section 10.4 hereof,
such note in the form attached hereto as Exhibit A and (ii) within twenty-four
(24) hours after receiving such Convertible Note No. 1, the Investor shall
deliver $350,000 less the applicable Note Issuance Fee in accordance with
Section 2.5, by wire transfer of immediately available funds to the Company.
Notwithstanding anything to the contrary set forth above, to the extent the
Company has not paid the fees, expenses and disbursements of the Investor's
counsel in accordance with Section 10.1, the amount of such fees, expenses and
disbursements shall be deducted from the amount the Investor is required to wire
to the Company pursuant to clause (ii) of the first sentence of this section.
(b) Convertible Note No. 2 Closing. On the Closing Date for the issuance of
Convertible Note No. 2, (i) the Company shall deliver to the Investor, at the
address specified in Section 10.4 hereof, such note in the form attached hereto
as Exhibit B and (ii) within twenty-four (24) hours after receiving such
Convertible Note No. 2, the Investor shall deliver $400,000 less the applicable
Note Issuance Fee in accordance with Section 2.5, by wire transfer of
immediately available funds to the Company. In addition, on or prior to such
Closing Date, each of the Company and the Investor shall deliver to the other
all documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein. Notwithstanding anything to the
contrary set forth above, to the extent the Company has not paid the fees,
expenses and disbursements of the Investor's counsel in accordance with Section
10.1, the amount of such fees, expenses and disbursements shall be deducted from
the amount the Investor is required to wire to the Company pursuant to clause
(ii) of the first sentence of this section.
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Section 2.4 Commitment Fees. The Company shall pay the Investor the following
fees (the "Commitment Fees") at the beginning of each six-month period,
including on the date hereof: (i) from the date of issuance of Convertible Note
No. 1 until payment in full of the outstanding principal sum has been made, an
amount equivalent to five percent (5%) of the outstanding value of such note at
the beginning of the applicable six-month period, and (ii) from the date of
issuance of Convertible Note No. 2 until payment in full of the outstanding
principal sum has been made, an amount equivalent to five percent (5%) of the
outstanding value of such note. Such Commitment Fees shall be paid by the
Company in a number of shares of Common Stock (the "Commitment Shares")
represented by (a) the Commitment Fee due divided by (b) the Market Price on the
date immediately preceding the date such Commitment Fee is due in accordance
with this Section 2.4. Upon an Event of Default under either of the Convertible
Notes, the Commitment Fee with respect to such Convertible Note shall be
increased to six and one quarter percent (6.25%) for such period as the Event of
Default shall continue uncured.
Section 2.5 Note Issuance Fees The Company shall pay the Investor the following
fees (the "Note Issuance Fees"): (i) $10,500 or the date hereof and (ii) $12,000
on the Closing Date for the issuance of Convertible Note No. 2.
Section 2.6 Right of First Refusal. If the Company, for the purpose of obtaining
any additional financing in connection with an acquisition of 50% or more of the
outstanding common stock of a corporation, a partnership, an association, a
trust or other entity or organization (the "Acquisition"), wishes to sell its
Common Stock for cash (the "Sale"), in a transaction exempt from registration
under the Securities Act, to a party (the "Third Party") other than the
Investor, the Company shall first offer (the "Offer") to the Investor, in
writing, the right to purchase such Common Stock (the "Offered Shares") at (a)
the bona fide price offered by the Third Party (the "Third Party Offer Price"),
or (b) the Market Price less the product of the Discount and the Market Price,
whichever is less (the "Investor Offer Price"), within a ten (10) calendar day
period (the "Offer Period"). The Offer shall grant the Investor the right during
the ten (10) calendar days next following the date of the Offer to elect to
purchase all of the Offered Shares. The Company, in connection with such an
Acquisition, shall refrain from circumventing or attempting to circumvent the
Investor's right of first refusal by way of making such a Sale to any of its
affiliates without first making an Offer to the Investor. If, however, the
Company, prior to such a Sale to an affiliate, makes an Offer to the Investor,
and the Investor declines such Offer, the Company shall have a right to make
such a Sale pursuant to the terms and conditions of this Section 2.6. If the
Investor so exercises it right to purchase all of the Offered Shares, the
purchase price for the Offered Shares shall be the Investor Offer Price, and the
closing and method of payment shall be as provided for in the immediately
succeeding paragraph hereof and the closing date therefor shall be five (5)
Trading Days after the Investor exercises such right. If the Investor fails to
exercise its right to purchase all of the Offered Shares, then during the sixty
(60) calendar days next following the expiration of such right, the Company
shall be free to sell any or all of the Offered Shares to a purchaser for a
purchase price not lower than the Third Party Offer Price payable on terms and
conditions that are not more favorable to such purchaser than those contained in
the Offer.
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On the closing date for a purchase of Offered Shares, (i) the Company shall
deliver to the Investor, at the address specified in Section 10.4 hereof, one or
more certificates, at the Investor's option, representing the Offered Shares to
be purchased by the Investor, registered in the name of the Investor (the "Share
Certificate") and (ii) within twenty-four (24) hours after receiving the Share
Certificate, the Investor shall deliver an amount representing the lower of (a)
the Third Party Offer Price and (b) the Investor Offer Price, by wire transfer
of immediately available funds to the Company. In addition, on or prior to such
closing date, each of the Company and the Investor shall deliver to the other
all documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein. Notwithstanding anything to the
contrary set forth above, to the extent the Company has not paid the fees,
expenses and disbursements of the Investor"s counsel in accordance with Section
10.1, the amount of such fees, expenses and disbursements shall be deducted from
the amount the Investor is required to wire to the Company with no reduction in
the number of Offered Shares issuable to the Investor on the applicable closing
date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that as of the date hereof:
Section 3.1 Intent. The Investor is entering into this Agreement in its own name
and has no view to the distribution of the Registrable Securities, Convertible
Notes or Warrants and has no present arrangement (whether or not legally
binding) at any time to sell the Registrable Securities, Convertible Notes or
Warrants to or through any person or entity and has not been solicited by any
person or entity to act as a link in a chain of transactions through which
securities of the Company move from the Company to the public; provided,
however, that by making the representations herein, the Investor does not agree
to hold the Registrable Securities, Convertible Notes or Warrants for any
minimum or other specific term and reserves the right to dispose of the
Registrable Securities, Convertible Notes or Warrants at any time pursuant to a
Registration Statement and in accordance with federal and state securities laws
applicable to such disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as
defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Convertible Notes and the Common Stock. The
Investor acknowledges that an investment in the Common Stock is speculative and
involves a high degree of risk.
Section 3.3 Authority. Each of this Agreement and the Registration Rights
Agreement has been duly authorized by all necessary corporate action and no
further consent or authorization of the Investor, or its Board of Directors or
stockholders is required. Each of this Agreement and the Registration Rights
Agreement was validly executed and delivered by the Investor and each is a valid
and binding agreement of the Investor enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
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Section 3.4 Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 Organization and Standing. Investor is duly organized, validly
existing, and in good standing under the laws of Bermuda.
Section 3.6 Absence of Conflicts. The execution and delivery of this Agreement
and any other document or instrument contemplated hereby, and the consummation
of the transactions contemplated thereby, and compliance with the requirements
thereof, will not (a) violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on Investor, or, to the Investor's
knowledge, (b) violate any provision of any indenture, instrument or agreement
to which Investor is a party or is subject, or by which Investor or any of its
assets is bound, (c) conflict with or constitute a material default thereunder,
(d) result in the creation or imposition of any lien pursuant to the terms of
any such indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by Investor to any third party, or (e) require the approval
of any third-party (that has not been obtained) pursuant to any material
Contract to which Investor is subject or to which any of its assets, operations
or management may be subject.
Section 3.7 Disclosure; Access to Information. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. Investor has had
effective access to all documents, records and other information that Investor
may need or wish to review in connection with making an informed decision with
respect to the Company and the purchase of the Registrable Securities,
Convertible Notes and Warrants.
Section 3.8 Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
Section 3.9 Resale Restrictions. It is acknowledged by Investor that any
Registrable Securities, Convertible Notes and Warrants to be acquired by
Investor have not been registered under the federal securities laws or any
applicable state securities laws in reliance upon exemptions available for
non-public or limited offerings. Investor understands that Investor must bear
the economic risk of the investment in the Registrable Securities, Convertible
Notes and Warrants because the Registrable Securities, Convertible Notes and
Warrants have not been so registered and therefore are subject to restrictions
upon transfer such that they may not be sold or otherwise transferred unless
registered under the applicable securities laws or an exemption from such
registration is available. Investor will not reoffer, sell, assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of any Registrable
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Securities, Convertible Notes or the Warrants in the absence of an effective
registration statement, qualification or authorization relating thereto under
federal and applicable state securities laws or an opinion of qualified counsel
satisfactory to the Company to the effect that the proposed transaction in the
Registrable Securities, Convertible Notes or the Warrants will neither
constitute nor result in any violation of the federal or state securities laws.
Subject to Section 8.1 of this Agreement, any certificate or other document that
may be issued representing any shares of Registrable Securities, Convertible
Notes or the Warrants may be endorsed with a legend to this effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that as of the date hereof:
Section 4.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Except as set forth in Section IV of the Disclosure Schedule, the
Company does not own more than fifty percent (50%) of the outstanding capital
stock of or control any other business entity. The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, other than those in which the failure so
to qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement, the
Convertible Notes, the Registration Rights Agreement and the Warrants and the
Warrants, and the Warrant Shares; (ii) the execution and delivery of this
Agreement and the Registration Rights Agreement, and the execution, issuance and
delivery of the Warrants and the Convertible Notes, by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (iii) each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered, and the Warrants and the Convertible Notes
have been duly executed, issued and delivered, by the Company and constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.3 Corporate Documents. The Company has furnished or made available to
the Investor true and correct copies of the Company's Articles of Incorporation,
as amended and in effect on the date hereof (the "Certificate"), and the
Company's By-Laws, as amended and in effect on the date hereof (the "By-Laws").
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Section 4.4 Books and Records. The minute books and other similar records of the
Company and its subsidiaries as made available to Investor prior to the
execution of this Agreement contain a true and complete record, in all material
respects, of all action taken at all meetings and by all written consents in
lieu of meetings of the stockholders, the boards of directors and committees of
the boards of directors of the Company and the subsidiaries. The stock transfer
ledgers and other similar records of the Company and the subsidiaries as made
available to Investor prior to the execution of this Agreement accurately
reflect all record transfers prior to the execution of this Agreement in the
capital stock of the Company and the subsidiaries. Neither the Company nor any
subsidiary has any of its Books and Records recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of the Company or a
subsidiary.
Section 4.5 Capitalization. Except as set forth in Section 4.5 of the Disclosure
Schedule, as of November 30, 1998, the authorized capital stock of the Company
consisted of 20,000,000 shares of Common Stock, of which 6,534,227 shares were
issued and outstanding, and 10,000,000 shares of preferred stock (the "Preferred
Stock"), none of which were issued and outstanding. Except for (i) options to
purchase not more than 2,585,510 shares of Common Stock with purchase prices
between $0.469 and $3.625 per share; and (ii) warrants to purchase not more than
1,730,353 shares of Common Stock with purchase prices between $0.750 and $2.500
per share, there are no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable for or giving
any right to subscribe for any shares of capital stock of the Company. Except as
set forth in Section 4.5 of the Disclosure Schedule, all of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable. As of January 8, 1999, all of the
outstanding shares of Common Stock of the Company shall have been duly and
validly authorized and issued and fully paid and nonassessable.
Section 4.6 Common Stock. The Company has maintained all requirements for the
continued listing or quotation of its Common Stock, and such Common Stock is
currently listed or quoted on the Principal Market. As of the date hereof, the
Principal Market is the Nasdaq Bulletin Board.
Section 4.7 Financial Statements. Prior to the execution of this Agreement, the
Company has delivered to the Investor a true and complete copy of the audited
balance sheets of the Company and its consolidated subsidiaries as of September
30, 1998, and the related audited consolidated statements of operations,
stockholders' equity and cash flows for the fiscal year then ended, together
with a true and correct copy of the report on such audited information by Jones,
Jensen & Company, and all letters from such accountants with respect to the
results of such audit. The financial statement of the Company delivered to the
Investor has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis with other financial statements of the
Company and fairly presents in all material respects the financial position of
the Company as of the date thereof and the results of operations and cash flows
for the period then ended.
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Section 4.8 Exemption from Registration; Valid Issuances. The sale and issuance
of the Warrants, the Warrant Shares, the Put Shares, the Convertible Notes, the
Commitment Shares, the Indemnity Shares and any Note Shares in accordance with
the terms and on the bases of the representations and warranties set forth in
this Agreement, may and shall be properly issued pursuant to Rule 4(2),
Regulation D and/or any applicable state law. When issued and paid for as herein
provided, the Put Shares, the Warrant Shares, the Convertible Notes, the
Commitment Shares, the Indemnity Shares and any Note Shares shall be duly and
validly issued, fully paid, and nonassessable. None of the sales of the Put
Shares, the Warrants, the Warrant Shares, the Convertible Notes, the Commitment
Shares, the Indemnity Shares or any Note Shares pursuant to, nor the Company's
performance of its obligations under, this Agreement, the Registration Rights
Agreement, the Warrants or the Convertible Notes shall (i) result in the
creation or imposition of any liens, charges, claims or other encumbrances upon
the Put Shares, the Warrant Shares, the Convertible Notes, the Commitment
Shares, the Indemnity Shares or any of the assets of the Company, or (ii)
entitle the holders of Outstanding Capital Shares to preemptive or other rights
to subscribe to or acquire the Capital Shares or other securities of the
Company. The Put Shares, the Warrant Shares, the Convertible Notes, the
Commitment Shares, the Indemnity Shares and any Note Shares shall not subject
the Investor to personal liability by reason of the ownership thereof.
Section 4.9 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares, the Warrants, the
Warrant Shares, the Convertible Notes, the Commitment Shares, the Indemnity
Shares or any Note Shares, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Common Stock under the Securities Act.
Section 4.10 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Put
Shares, the Warrants, the Warrant Shares, the Convertible Notes, the Commitment
Shares, the Indemnity Shares and any Note Shares do not and will not (i) result
in a violation of the Certificate or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
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violation of, conflict with or in default under any of the foregoing; provided,
however, that for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (iii), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or
in the aggregate do not and will not have a Material Adverse Effect. The Company
is not required under federal, state or local law, rule or regulation to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Common Stock,
the Convertible Notes or the Warrant in accordance with the terms hereof (other
than any SEC, NASD or state securities filings that may be required to be made
by the Company subsequent to any Closing, any registration statement that may be
filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq SmallCap
Market); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 4.11 No Material Adverse Change. Since September 30, 1998, no event has
occurred that would have a Material Adverse Effect on the Company, except as
disclosed in Section 4.11 of the Disclosure Schedule. Without limiting the
foregoing, except as disclosed in Section 4.11 of the Disclosure Schedule there
has not occurred between September 30, 1998 and the date hereof:
(i) any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company or any of its
subsidiaries not wholly owned by the Company, or any direct or indirect
redemption, purchase or other acquisition by the Company or any of its
subsidiary of any such capital stock of or any Option with respect to the
Company or any of its subsidiary not wholly owned by the Company;
(ii) any authorization, issuance, sale or other disposition by the Company or
any of its subsidiaries of any shares of capital stock of or Option with respect
to the Company or any of its subsidiaries, or any modification or amendment of
any right of any holder of any outstanding shares of capital stock of or Option
with respect to the Company or any of its subsidiaries;
(iii) (x) any increase in the salary, wages or other compensation of any
officer, employee or consultant of the Company or any of its subsidiaries whose
annual salary is, or after giving effect to such change would be, $150,000 or
more; (y) any establishment or modification of (A) targets, goals, pools or
similar provisions in respect of any fiscal year under any benefit plan,
employment Contract or other employee compensation arrangement or (B) salary
ranges, increase guidelines or similar provisions in respect of any benefit
plan, employment Contract or other employee compensation arrangement; or (z) any
adoption, entering into, amendment, modification or termination (partial or
complete) of any benefit plan except to the extent required by applicable law
and, in the event compliance with legal requirements presented options, only to
the extent the option which the Company or any of its subsidiaries reasonably
believed to be the least costly was chosen;
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(iv) (A) incurrences by the Company or any of its subsidiaries of indebtedness
in an aggregate principal amount exceeding $100,000 (net of any amounts
discharged during such period), or (B) any voluntary purchase, cancellation,
prepayment or complete or partial discharge in advance of a scheduled payment
date with respect to, or waiver of any right of the Company or any of its
subsidiaries under, any indebtedness of or owing to the Company or any of its
subsidiaries (in either case other than any indebtedness of the Company or a
subsidiary owing to the Company or a wholly-owned subsidiary);
(v) any physical damage, destruction or other casualty loss (whether or not
covered by insurance) affecting any of the plant, real or personal property or
equipment of the Company or any of its subsidiaries in an aggregate amount
exceeding $10,000;
(vi) any material change in (x) any pricing, investment, accounting, financial
reporting, inventory, credit, allowance or tax practice or policy of the Company
or any of its subsidiaries, (y) any method of calculating any bad debt,
contingency or other reserve of the Company or any of its subsidiaries for
accounting, financial reporting or tax purposes or (z) the fiscal year of the
Company or any of its subsidiaries;
(vii) any write-off or write-down of or any determination to write off or down
any of the assets and properties of the Company or any of its subsidiaries in an
aggregate amount exceeding $100,000;
(viii) any acquisition or disposition of, or incurrence of a Lien (other than a
Permitted Lien) on, any assets and properties of the Company or any of its
subsidiaries, other than in the ordinary course of business consistent with past
practice;
(ix) any (x) amendment of the certificate or articles of incorporation or
by-laws (or other comparable corporate charter documents) of the Company or any
of its subsidiaries, (y) reorganization, liquidation or dissolution of the
Company or any of its subsidiaries or (z) business combination involving the
Company or any of its subsidiaries and any other Person;
(x) any entering into, amendment, modification, termination (partial or
complete) or granting of a waiver under or giving any consent with respect to
(A) any Contract which is required (or had it been in effect on the date hereof
would have been required) to be disclosed pursuant to Section 4.26 hereof or (B)
any material license held by the Company or any of its subsidiaries;
(xi) capital expenditures or commitments for additions to property, plant or
equipment of the Company and its subsidiaries constituting capital assets in an
aggregate amount exceeding $50,000;
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(xii) any commencement or termination by the Company or any of its subsidiaries
of any line of business;
(xiii) any transaction by the Company or any of its subsidiaries with the
Company, any officer, director, affiliate or associate of the Company or any
associate of any such officer, director or affiliate (other than the Company or
any of its subsidiaries) (A) outside the ordinary course of business consistent
with past practice or (B) other than on an arm's-length basis, other than
pursuant to any Contract in effect on September 30, 1998 and disclosed to by
Company to the Investor pursuant to Section 4.21 hereof.
(xiv) any entering into of an agreement to do or engage in any of the foregoing
after the date hereof; or
(xv) any other transaction involving or development affecting the Company or any
of its subsidiaries outside the ordinary course of business consistent with past
practice.
Section 4.12 No Undisclosed Liabilities. Except as reflected or reserved against
in the balance sheet included in the last audited financial statements or in the
notes thereto or as disclosed in Section 4.12 or any other section(s) of the
Disclosure Schedule, there are no liabilities against, relating to or affecting
the Company or any of its subsidiaries or any of their respective assets and
properties, other than liabilities incurred in the ordinary course of business
consistent with past practice which in the aggregate are not material to the
business or condition of the Company.
Section 4.13 No Undisclosed Events or Circumstances. Since September 30, 1998,
no event or circumstance has occurred or exists with respect to the or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in Section 4.13 of the Disclosure Schedule.
Section 4.14 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.15 Litigation and Other Proceedings. Except as may be set forth in
Section 4.15 of the Disclosure Schedule, there are no lawsuits or proceedings
pending or to the best knowledge of the Company threatened, against the Company,
nor has the Company received any written or oral notice of any such action,
suit, proceeding or investigation, which might have a Material Adverse Effect.
Except as set forth in the Disclosure Schedule, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which might
result in a Material Adverse Effect.
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Section 4.16 No Misleading or Untrue Communication. The Company, any Person
representing the Company, and, to the knowledge of the Company, any other Person
selling or offering to sell the Put Shares, the Warrants, the Warrant Shares,
the Convertible Notes or the Note Shares in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which contained
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
Section 4.17 Material Non-Public Information. The Company is not in possession
of, nor has the Company or its agents disclosed to the Investor, any material
non-public information that (i) if disclosed, would, or could reasonably be
expected to have, an effect on the price of the Common Stock or (ii) according
to applicable law, rule or regulation, should have been disclosed publicly by
the Company prior to the date hereof but which has not been so disclosed.
Section 4.18 Real Property. Section 4.18(a) of the Disclosure Schedule contains
a true and correct list of (i) each parcel of real property owned by the Company
or any of its subsidiaries, (ii) each parcel of real property leased by the
Company or any of its subsidiaries (as lessor or lessee) and (iii) all Liens
(other than Permitted Liens) relating to or affecting any parcel of real
property referred to in clause (a).
(a) The Company or a subsidiary has good and marketable fee simple title to and,
except for the real property leased to others referred to in clause (ii) of
paragraph (a) above, the Company or a subsidiary is in possession of each parcel
of real property, together with all buildings, structures, facilities, fixtures
and other improvements thereon, listed in Section 4.18(a) of the Disclosure
Schedule, and in each case such parcel is, except as listed in Section 4.18(a)
of the Disclosure Schedule, free and clear of all Liens other than Permitted
Liens. The Company and the subsidiaries have adequate rights of ingress and
egress with respect to such real property, buildings, structures, facilities,
fixtures and other improvements. None of such real property, buildings,
structures, facilities, fixtures or other improvements, or the use thereof,
contravenes or violates any building, zoning, administrative, occupational
safety and health or other applicable law in any material respect (whether or
not permitted on the basis of prior nonconforming use, waiver or variance).
(b) The Company or a subsidiary has a valid and subsisting leasehold estate in
and the right to quiet enjoyment of the real properties leased by it for the
full term of the lease thereof. Each lease referred to in clause (ii) of
paragraph (a) above is a legal, valid and binding agreement, enforceable in
accordance with its terms, of the Company or a subsidiary and of each other
Person that is a party thereto, and except as set forth in Section 4.18(c) of
the Disclosure Schedule, there is no, and neither the Company nor any of its
subsidiaries has received notice of any, default (or any condition or event
which, after notice or lapse of time or both, would constitute a default)
thereunder. Neither the Company nor any of its subsidiaries owes any brokerage
commissions with respect to any such leased space.
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(c) the Company has delivered to Investor prior to the execution of this
Agreement true and complete copies of (i) all deeds, leases, mortgages, deeds of
trust, certificates of occupancy, title insurance policies, title reports,
surveys and similar documents, and all amendments thereof, with respect to the
real property listed in Section 4.18(a) of the Disclosure Schedule pursuant to
clause (i) of paragraph (a) above and (ii) all leases (including any amendments
and renewal letters) and, to the extent reasonably available, all other
documents referred to in clause (i) of this paragraph (d) with respect to the
real property listed in Section 4.18(a) of the Disclosure Schedule pursuant to
clause (ii) of paragraph (a) above.
(d) Except as set forth in Section 4.18(e) of the Disclosure Schedule, no tenant
or other party in possession of any of the real properties identified in Section
4.18(a) of the Disclosure Schedule has any right to purchase, or holds any right
of first refusal to purchase, such properties.
(e) Except as disclosed in Section 4.18(f) of the Disclosure Schedule, the
improvements on the real property identified in Section 4.18(a) of the
Disclosure Schedule are in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, are adequate and
suitable for the purposes for which they are presently being used and, to the
knowledge of the Company, the Company and the subsidiaries, there are no
condemnation or appropriation proceedings pending or threatened against any of
such real property or the improvements thereon.
Section 4.19 Tangible Personal Property. The Company or a subsidiary is in
possession of and has good title to, or has valid leasehold interests in or
valid rights under Contract to use, all tangible personal property used in the
conduct of their business, including all tangible personal property reflected on
the balance sheet included in the unaudited financial statements and tangible
personal property acquired since the unaudited financial statement Date other
than property disposed of since such date in the ordinary course of business
consistent with past practice. All such tangible personal property is free and
clear of all Liens, other than Permitted Liens and Liens disclosed in Section
4.19 of the Disclosure Schedule, and is in good working order and condition,
ordinary wear and tear excepted, and its use complies in all material respects
with all applicable laws.
Section 4.20 Intellectual Property Rights. The Company and its subsidiaries have
interests in or use only the Intellectual Property disclosed in Section 4.20 of
the Disclosure Schedule, each of which the Company or a subsidiary either has
all right, title and interest in or a valid and binding license to use. No other
Intellectual Property is used or necessary in the conduct of the business of the
Company or any of its subsidiaries. Except as disclosed in Section 4.20 of the
Disclosure Schedule, (i) the Company or a subsidiary has the exclusive right to
use the Intellectual Property disclosed in Section 4.20 of the Disclosure
Schedule, (ii) all registrations with and applications to governmental or
regulatory authorities in respect of such Intellectual Property are valid and in
full force and effect and are not subject to the payment of any taxes or
maintenance fees or the taking of any other actions by the Company or a
subsidiary to maintain their validity or effectiveness, (iii) there are no
restrictions on the direct or indirect transfer of any license, or any interest
therein, held by the Company or any of its subsidiaries in respect of such
Intellectual Property, (iv) the Company has delivered to Investor prior to the
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execution of this Agreement documentation with respect to any invention,
process, design, computer program or other know-how or trade secret included in
such Intellectual Property, which documentation is accurate in all material
respects and reasonably sufficient in detail and content to identify and explain
such invention, process, design, computer program or other know-how or trade
secret and to facilitate its full and proper use without reliance on the special
knowledge or memory of any Person, (v) the Company and the subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of their trade secrets, (vi) neither the Company nor any subsidiary is, or
has received any notice that it is, in default (or with the giving of notice or
lapse of time or both, would be in default) under any license to use such
Intellectual Property and (vii) neither the Company, the Company nor any
subsidiary has any knowledge that such Intellectual Property is being infringed
by any other Person. Neither the Company, the Company nor any subsidiary has
received notice that the Company or any subsidiary is infringing any
Intellectual Property of any other Person, no claim is pending or, to the
knowledge of the Company, the Company and the its subsidiaries, has been made to
such effect that has not been resolved and, to the knowledge of the Company, the
Company and the subsidiaries, neither the Company nor any subsidiary is
infringing any Intellectual Property rights of any other Person.
Section 4.21 Contracts. Section 4.21(a) of the Disclosure Schedule (with
paragraph references corresponding to those set forth below) contains a true and
complete list of each of the following Contracts or other arrangements (true and
complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been delivered to Investor prior to the
execution of this Agreement), to which the Company or any subsidiary is a party
or by which any of their respective assets and properties is bound:
(i) (A) all Contracts (excluding Benefit Plans) providing for a commitment of
employment or consultation services for a specified or unspecified term, the
name, position and rate of compensation of each Person party to such a Contract
and the expiration date of each such Contract; and (B) any written or unwritten
representations, commitments, promises, communications or courses of conduct
(excluding Benefit Plans and not embodied in a Contract) involving an obligation
of the Company or any of its subsidiaries to make payments in any year, other
than with respect to salary or incentive compensation payments in the ordinary
course of business, to any employee exceeding $50,000 or any group of employees
exceeding $150,000 in the aggregate;
(ii) all Contracts with any Person containing any provision or covenant
prohibiting or limiting the ability of the Company or any of its subsidiaries to
engage in any business activity or compete with any Person or prohibiting or
limiting the ability of any Person to compete with the Company or any of its
subsidiaries;
(iii) all partnership, joint venture, shareholders' or other similar Contracts
with any Person;
(iv) all Contracts relating to Indebtedness of the Company or any of its
subsidiary in excess of $100,000 or to preferred stock issued by the Company or
any of its subsidiary (other than Indebtedness owing to or preferred stock owned
by the Company or any wholly-owned subsidiary);
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(v) all Contracts with distributors, dealers, manufacturer's representatives,
sales agencies or franchisees;
(vi) all Contracts relating to (A) the future disposition or acquisition of any
assets and properties, other than dispositions or acquisitions in the ordinary
course of business consistent with past practice, and (B) any business
combination;
(vii) all Contracts between or among the Company or any of its subsidiaries, on
the one hand, and the Company, any officer, director, affiliate or associate of
the Company or any associate of any such officer, director or affiliate (other
than the Company or any of its subsidiaries), on the other hand;
(viii) all collective bargaining or similar labor Contracts;
(ix) all Contracts that (A) limit or contain restrictions on the ability of the
Company or any of its subsidiaries to declare or pay dividends on, to make any
other distribution in respect of or to issue or purchase, redeem or otherwise
acquire its capital stock, to incur Indebtedness, to incur or suffer to exist
any Lien, to purchase or sell any assets and properties, to change the lines of
business in which it participates or engages or to engage in any business
combination or (B) require the Company or any of its subsidiaries to maintain
specified financial ratios or levels of net worth or other indicia of financial
condition; and
(x) all other Contracts that (A) involve the payment or potential payment,
pursuant to the terms of any such Contract, by or to the Company or any of its
subsidiaries of more than $100,000 and (B) cannot be terminated within ninety
(90) calendar days after giving notice of termination without resulting in any
material cost or penalty to the Company or any of its subsidiaries.
(b) Each Contract required to be disclosed in Section 4.21(a) of the Disclosure
Schedule is in full force and effect and constitutes a legal, valid and binding
agreement, enforceable in accordance with its terms, of each party thereto; and
except as disclosed in Section 4.21(b) of the Disclosure Schedule neither the
Company, any subsidiary nor, to the knowledge of the Company, the Company and
the subsidiaries, any other party to such Contract is, or has received notice
that it is, in violation or breach of or default under any such Contract (or
with notice or lapse of time or both, would be in violation or breach of or
default under any such Contract).
(c) Except as disclosed in Section 4.21(c) of the Disclosure Schedule, neither
the Company nor any subsidiary is a party to or bound by any Contract that has
been or could reasonably be expected to be, individually or in the aggregate
with any other such Contracts, materially adverse to the business or condition
of the Company.
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Section 4.22 Licenses. Section 4.22 of the Disclosure Schedule contains a true
and complete list of all licenses used in and material to the business or
operations of the Company or any of its subsidiary, setting forth the owner, the
function and the expiration and renewal date of each. Prior to the execution of
this Agreement, the Company has delivered to Investor true and complete copies
of all such licenses. Except as disclosed in Section 4.22 of the Disclosure
Schedule:
(i) The Company and each subsidiary owns or validly holds all licenses that are
material to its business or operations;
(ii) each license listed in Section 4.22 of the Disclosure Schedule is valid,
binding and in full force and effect; and
(iii) neither the Company nor any subsidiary is, or has received any notice that
it is, in default (or with the giving of notice or lapse of time or both, would
be in default) under any such license.
Section 4.23 Environmental Matters. Each of the Company and the subsidiaries has
obtained all licenses which are required in respect of its business, operations
or assets and properties under applicable environmental laws. Each of the
Company and the subsidiaries is in compliance in all material respects with the
terms and conditions of all such licenses and with any applicable environmental
law. Except as set forth in Section 4.23 of the Disclosure Schedule (with
paragraph references corresponding to those set forth below):
(a) No order has been issued, no complaint has been filed, no penalty has been
assessed and no investigation or review is pending or, to the knowledge of the
Company, the Company and the subsidiaries, threatened by any governmental or
regulatory authority with respect to any alleged failure by the Company or any
subsidiary to have any license required in connection with the conduct of the
business or operations of the Company or any of the subsidiaries or with respect
to any treatment, storage, recycling, transportation, disposal or "release" as
defined in 42 U.S.C. " 9601(22) ("Release"), of any hazardous material, and
neither the Company, the Company nor any subsidiary is aware of any facts or
circumstances which could reasonably be expected to form the basis for any such
order, complaint, penalty or investigation.
(b) Neither the Company, any subsidiary nor, to the knowledge of the Company,
the Company and the subsidiaries, any prior owner or lessee of any property now
or previously owned or leased by the Company or any subsidiary has handled any
hazardous material on any property now or previously owned or leased by the
Company or any of its subsidiaries; and, without limiting the foregoing, (i) no
polychlorinated biphenyl is or has been present, (ii) no asbestos is or has been
present, (iii) there are no underground storage tanks, active or abandoned, and
(iv) no hazardous material has been Released in a quantity reportable under, or
in violation of, any environmental law, at, on or under any property now or
previously owned or leased by the Company or any of its subsidiaries, during any
period that the Company or a subsidiary owned or leased such property or, to the
knowledge of the Company, the Company and the subsidiaries, prior thereto.
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(c) Neither the Company nor any subsidiary has transported or arranged for the
transportation of any hazardous material to any location which is the subject of
any Action or Proceeding that could lead to claims against Investor, the Company
or any of its subsidiaries for clean-up costs, remedial work, damages to natural
resources or personal injury claims, including, but not limited to, claims under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and the rules and regulations promulgated thereunder
("CERCLA").
(d) No oral or written notification of a Release of a hazardous material has
been filed by or on behalf of the Company or any of its subsidiaries and no
property now or previously owned or leased by the Company or any of its
subsidiaries is listed or proposed for listing on the National Priorities List
promulgated pursuant to CERCLA or on any similar state list of sites requiring
investigation or clean-up.
(e) There are no Liens (other than Permitted Liens) arising under or pursuant to
any environmental law or order on any real property owned or leased by the
Company or any of its subsidiary, and no action of any governmental or
regulatory authority has been taken or, to the knowledge of the Company, the
Company and the subsidiaries, is in process which could subject any of such
properties to such Liens, and neither the Company nor any subsidiary would be
required to place any notice or restriction relating to the presence of
hazardous material at any property owned by it in any deed to such property.
(f) There have been no environmental investigations, studies, audits, tests,
reviews or other analyses conducted by, or which are in the possession of, the
Company or any of its subsidiary in relation to any property or facility now or
previously owned or leased by the Company or any of its subsidiary which have
not been delivered to Investor prior to the execution of this Agreement.
Section 4.24 Substantial Customers and Suppliers. Section 4.24 of the Disclosure
Schedule lists the six (6) largest customers of the Company and the
subsidiaries, on the basis of revenues for goods sold or services provided for
the most recent fiscal year. None of the Company's existing suppliers are
non-replaceable. Except as disclosed in Section 4.24 of the Disclosure Schedule,
no such customer or supplier has ceased or materially reduced its purchases from
or sales or provision of services to the Company and the subsidiaries since
September 30, 1998, or to the knowledge of the Company, the Company and the
subsidiaries, has threatened to cease or materially reduce such purchases or
sales or provision of services after the date hereof. Except as disclosed in
Section 4.24 of the Disclosure Schedule, to the knowledge of the Company, the
Company and the subsidiaries, no such customer or supplier is threatened with
bankruptcy or insolvency.
Section 4.25 Accounts Receivable. Except as set forth in Section 4.25 of the
Disclosure Schedule, the accounts and notes receivable of the Company and the
subsidiaries reflected on the balance sheet included in the unaudited financial
statements, and all accounts and notes receivable arising subsequent to the
unaudited financial statement Date, (i) arose from bona fide sales transactions
in the ordinary course of business and are payable on ordinary trade terms, (ii)
are legal, valid and binding obligations of the respective debtors enforceable
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in accordance with their terms, (iii) are not subject to any valid set-off or
counterclaim, (iv) do not represent obligations for goods sold on consignment,
on approval or on a sale-or-return basis or subject to any other repurchase or
return arrangement, (v) are collectible in the ordinary course of business
consistent with past practice in the aggregate recorded amounts thereof, net of
any applicable reserve reflected in the balance sheet included in the unaudited
financial statements, and (vi) are not the subject of any Actions or Proceedings
brought by or on behalf of the Company or any subsidiary. Section 4.25 of the
Disclosure Schedule sets forth a description of any security arrangements and
collateral securing the repayment or other satisfaction of receivables of the
Company and the subsidiaries. All steps necessary to render all such security
arrangements legal, valid, binding and enforceable, and to give and maintain for
the Company or a subsidiary, as the case may be, a perfected security interest
in the related collateral, have been taken.
Section 4.26 Disclosure. All material facts relating to the business or
condition of the Company have been disclosed to Investor in or in connection
with this Agreement. No representation or warranty contained in this Agreement,
and no statement contained in the Disclosure Schedule or in any certificate,
list or other writing furnished to Investor pursuant to any provision of this
Agreement (including without limitation the Financial Statements), contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE V
COVENANTS OF THE INVESTOR
The Investor's trading activities with respect to shares of the Company's Common
Stock will be in compliance with all applicable state and federal securities
laws, rules and regulations and the rules and regulations of the Principal
Market on which the Company's Common Stock is listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the Registration Rights
Agreement to remain in full force and effect and the Company shall comply in all
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the Company has
available and the Company shall reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue the Warrant Shares and the Note
Shares; such amount of shares of Common Stock to be reserved shall be calculated
based upon the Exercise Price of the Warrant and the maximum amount of Note
Shares issuable upon conversion of the Convertible Notes and the maximum number
of shares issuable upon exercise of the Additional Warrant. The number of shares
so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder.
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Section 6.3 Listing of Common Stock. The Company shall maintain the listing of
the Common Stock on a Principal Market, and as soon as practicable will cause
the Put Shares, the Indemnity Shares, the Commitment Shares, the Warrant Shares
and any Note Shares to be listed on the Principal Market. The Company further
shall, if the Company applies to have the Common Stock traded on any other
Principal Market, include in such application the Put Shares, the Indemnity
Shares, the Commitment Shares, the Warrant Shares and any Note Shares, and shall
take such other action as is necessary or desirable in the opinion of the
Investor to cause the Common Stock to be listed on such other Principal Market
as promptly as possible. The Company shall use its best efforts to continue the
listing and trading of its Common Stock on the Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.
Section 6.4 Exchange Act Registration. After the Registration Statement becomes
effective, the Company shall cause its Common Stock to continue to be registered
under Section 12(g) or 12(b) of the Exchange Act, will comply in all respects
with its reporting and filing obligations under said Act, and will not take any
action or file any document (whether or not permitted by said Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act.
Section 6.5 Legends. The certificates evidencing the Put Shares, the Indemnity
Shares, the Warrant Shares and the Note Shares shall be free of legends, except
as provided for in Article VIII.
Section 6.6 Corporate Existence. The Company shall take all steps necessary to
preserve and continue the corporate existence of the Company.
Section 6.7 SEC Documents. The Company shall deliver to the Investor, as and
when the originals thereof are submitted to the SEC for filing, copies of all
SEC Documents so furnished or submitted to the SEC.
Section 6.8 Notice of Certain Events Affecting Registration; Suspension of Right
to Issue Convertible Note No. 2. The Company shall immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the registration statement for amendments or supplements to
the registration statement or related prospectus; (ii) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
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any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the registration statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the registration
statement would be appropriate, and the Company shall promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Note Issuance Notice during the
continuation of any of the foregoing events. While in possession of material
non-public information received from the company, the Investor shall not dispose
of any Registrable Securities until such information is disclosed to the public.
Section 6.9 Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligation to deliver to the Investor such
shares of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement, the Convertible Notes and the Warrant.
Section 6.10 Issuance of Put Shares, Warrant Shares, Convertible Notes and Note
Shares. The issuance of the Warrant Shares pursuant to exercise of the Warrants
and the issuance of any Note Shares shall be made in accordance with the
provisions and requirements of Regulation D and any applicable state law.
Issuance of the Warrant Shares pursuant to exercise of the Warrants through a
cashless exercise shall be made in accordance with the provisions and
requirements of Section 3(a)(9) under the Securities Act and any applicable
state law.
Section 6.11 Legal Opinion on Closing Date. The Company's independent counsel
shall deliver to the Investor on the Closing Date an opinion in the form of
Exhibit G, except for paragraph 6 thereof.
Section 6.12 No Other Similar Arrangements. The Company shall refrain from
entering into any other agreements, arrangements or understandings granting to
the Company the right to issue and sell convertible notes until the Initial
Registration Statement shall have been declared effective by the SEC. If the
Company, for the purpose of obtaining any additional financing, wishes to issue
and sell convertible notes (a "Convertible Note Sale") to a party (the "Third
Party") other than the Investor, the Company shall first offer (the "Convertible
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Note Offer") to the Investor, in writing, the right to purchase such Convertible
Notes (the "Offered Convertible Notes") at (a) the bona fide price offered by
the Third Party (the "Convertible Note Offer Price"), within a ten (10) calendar
day period (the "Convertible Note Offer Period"). The Convertible Note Offer
shall grant the Investor the right during the ten (10) calendar days next
following the date of the Convertible Note Offer to elect to purchase any or all
of the Offered Convertible Notes. The Company, in connection with such a
Convertible Note Sale, shall refrain from circumventing or attempting to
circumvent the Investor's right of first refusal by way of making such a
Convertible Note Sale to any of its affiliates without first making a
Convertible Note Offer to the Investor. If, however, the Company, prior to such
a Convertible Note Sale to an affiliate, makes a Convertible Note Offer to the
Investor, and the Investor declines such Convertible Note Offer, the Company
shall have the right to make such a Convertible Note Sale pursuant to the terms
and conditions of this Section 6.12. If the Investor so exercises it right to
purchase all of the Offered Convertible Notes, (i) the purchase price for the
Offered Convertible Notes shall be the Convertible Note Offer Price, and the
closing and method of payment shall be as provided for in Section 2.6 hereof and
the Closing Date shall be five (5) Trading Days after the Investor exercises
such right. If the Investor fails to exercise its right to purchase all of the
Offered Convertible Notes, then during the sixty (60) calendar days next
following the expiration of such right, the Company shall be free to sell any or
all of the Offered Convertible Notes to a purchaser for a purchase price not
lower than the Convertible Note Offer Price payable on terms and conditions that
are not more favorable to such purchaser than those contained in the Convertible
Note Offer. If the Company issues and sells Offered Convertible Notes to a Third
Party, any and all terms of such Offered Convertible Notes that are more
favorable than those of the Convertible Notes purchased by the Investor pursuant
to this Agreement, shall automatically apply to such Convertible Notes.
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ARTICLE VII
CONDITIONS TO DELIVERY OF
NOTE ISSUANCE NOTICES AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue and
Sell Convertible Notes. The obligation hereunder of the Company to issue and
sell the Convertible Notes to the Investor incident to each Closing is subject
to the satisfaction, at or before each such Closing, of each of the conditions
set forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have performed, satisfied
and complied in all respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver a Note
Issuance Notice and the Obligation of the Investor to Purchase Convertible Note
No. 2. The right of the Company to deliver a Note Issuance Notice relating to
Convertible Note No. 2 and the obligation of the Investor hereunder to acquire
and pay for Convertible Note No. 2 is subject to the satisfaction, on (i) the
applicable Note Issuance Notice Date and (ii) the Closing Date for the issuance
of Convertible Note No. 2 (each a "Condition Satisfaction Date"), of each of the
following conditions:
(a) Registration of the Registrable Securities with the SEC. As set forth in the
Registration Rights Agreement, the Company shall have filed with the SEC a
Registration Statement with respect to the resale of the Registrable Securities
and Note Shares relating to Convertible Note No.1 (the "Initial Registration
Statement") by the Investor that shall have been declared effective by the SEC
prior to delivery of the Note Issuance Notice relating to Convertible Note No.
2, and in no event later than one hundred fifty (150) days after the filing of
the Initial Registration Statement.
(b) Effective Registration Statement. As set forth in the Registration Rights
Agreement, the Initial Registration Statement shall have previously become
effective and shall remain effective on each Condition Satisfaction Date and (i)
neither the Company nor the Investor shall have received notice that the SEC has
issued or intends to issue a stop order with respect to the Initial Registration
Statement or that the SEC otherwise has suspended or withdrawn the effectiveness
of the Initial Registration Statement, either temporarily or permanently, or
intends or has threatened to do so (unless the SEC's concerns have been
addressed and the Investor is reasonably satisfied that the SEC no longer is
considering or intends to take such action), and (ii) no other suspension of the
use or withdrawal of the effectiveness of the Initial Registration Statement or
related prospectus shall exist.
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(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct as of
each Condition Satisfaction Date as though made at each such time (except for
representations and warranties specifically made as of a particular date).
(d) Performance by the Company. The Company shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement, the Registration Rights Agreement, Convertible Note No. 1 and
the Warrants to be performed, satisfied or complied with by the Company at or
prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or adopted by any
court or governmental authority of competent jurisdiction that prohibits the
transactions contemplated by this Agreement or otherwise has a Material Adverse
Effect, and no actions, suits or proceedings shall be in progress, pending or
threatened by any Person, that seek to enjoin or prohibit the transactions
contemplated by this Agreement or otherwise could reasonably be expected to have
a Material Adverse Effect. For purposes of this paragraph (e), no proceeding
shall be deemed pending or threatened unless one of the parties has received
written or oral notification thereof prior to the Second Closing Date.
(f) No Suspension of Trading In or Delisting of Common Stock. The trading of the
Common Stock shall not have been suspended by the SEC, the Principal Market or
the NASD and the Common Stock shall have been approved for listing or quotation
on and shall not have been delisted from the Principal Market. The issuance of
Convertible Note No. 2 or the Note Shares relating thereto, if any, shall not
violate the shareholder approval requirements of the Principal Market.
(g) Legal Opinion. The Company shall have caused to be delivered to the
Investor, within five (5) Trading Days of the effective date of the Initial
Registration Statement, an opinion of the Company's independent counsel in the
form of Exhibit G hereto, addressed to the Investor.
(h) Due Diligence. No dispute between the Company and the Investor shall exist
pursuant to Section 7.3 as to the adequacy of the disclosure contained in the
Initial Registration Statement.
(i) Ten Percent Limitation. The issuance of Convertible Note No. 2 shall not
result in the beneficial ownership by the Investor and its affiliates of more
than 9.9% of the outstanding shares of Common Stock. For the purposes of this
provision, beneficial ownership shall be determined in accordance with Section
16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
(j) Minimum Average Daily Trading Volume. The Average Daily Trading Volume for
the Common Stock with respect to the applicable Note Issuance Notice Date and
Closing Date equals or exceeds 20,000 shares per Trading Day.
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(k) No Knowledge. The Company shall have no knowledge of any event more likely
than not to have the effect of causing the Initial Registration Statement to be
suspended or otherwise ineffective.
(l) Minimum Time Interval. The Minimum Time Interval shall have elapsed.
(m) Shareholder Vote. The issuance of Convertible Note No. 2 shall not violate
the shareholder approval requirements of the Principal Market.
(n) Conversion of Convertible Note No. 1. The Investor shall have converted at
least fifty percent (50%) of the original value of Convertible Note No.1 into
Note Shares.
(o) Value of Collateral. The Collateral shall be worth a dollar amount of at
least one hundred fifty percent (150%) of the combined outstanding indebtedness
evidenced by the Convertible Notes.
(p) Market Price of Common Stock. The Market Price of the Common Stock shall be
no less than one dollar and fifty cents ($1.50) per share.
(q) Other. On each Condition Satisfaction Date, the Investor shall have received
and been reasonably satisfied with such other certificates and documents as
shall have been reasonably requested by the Investor in order for the Investor
to confirm the Company's satisfaction of the conditions set forth in this
Section 7.2., including, without limitation, a certificate in substantially the
form and substance of Exhibit I hereto, executed in either case by an executive
officer of the Company and to the effect that all the conditions to such Closing
shall have been satisfied as at the date of each such certificate.
Section 7.3 Due Diligence Review; Non-Disclosure of Non-Public Information.
(a) The Company shall make available for inspection and review by the Investor,
advisors to and representatives of the Investor (who may or may not be
affiliated with the Investor and who are reasonably acceptable to the Company),
any Underwriter, any Registration Statement or amendment or supplement thereto
or any blue sky, NASD or other filing, all financial and other records, all SEC
Documents and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such information reasonably requested by the Investor or any such
representative, advisor or Underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and other
inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the Investor and such representatives, advisors and
Underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
(b) Each of the Company, its officers, directors, employees and agents shall in
no event disclose non-public information to the Investor, advisors to or
representatives of the Investor unless prior to disclosure of such information
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the Company identifies such information as being non-public information and
provides the Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. The Company
may, as a condition to disclosing any non-public information hereunder, require
the Investor's advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investor.
(c) Nothing herein shall require the Company to disclose non-public information
to the Investor or its advisors or representatives, and the Company represents
that it does not disseminate non-public information to any investors who
purchase stock in the Company in a public offering, to money managers or to
securities analysts; provided, however, that notwithstanding anything herein to
the contrary, the Company shall, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and any Underwriters of any event
or the existence of any circumstance (without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms and conditions of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE VIII
LEGENDS
Section 8.1 Legends. Each of the Additional Warrant, the Convertible Notes and,
unless otherwise provided below, each certificate representing Registrable
Securities will bear the following legend (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
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MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION, IN WHICH EVENT SYTRON SHALL HAVE RECEIVED AN
OPINION OF COUNSEL STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES LAWS. THE
HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE
COMPANY SET FORTH IN A NOTE PURCHASE AGREEMENT BETWEEN SYTRON, INC. AND CRESCENT
INTERNATIONAL LIMITED DATED AS OF JANUARY 15, 1999. A COPY OF THE PORTION OF THE
AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE
COMPANY'S EXECUTIVE OFFICES.
As soon as practicable after the execution and delivery hereof, but in any event
within five (5) Trading Days hereafter, the Company shall issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form of Exhibit H
hereto, with a copy to the Investor. Other than as required as a result of
change in law, such instructions shall be irrevocable by the Company from and
after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) At any time after the Effective Date, upon surrender of one or more
certificates evidencing Common Stock that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered; provided that (i) the Registration
Statement shall then be effective and (ii) if reasonably requested by the
transfer agent the Investor confirms to the transfer agent that the Investor has
transferred the Registrable Securities pursuant to the Registration Statement
and has complied with the prospectus delivery requirement.
(b) At any time upon any surrender of one or more certificates evidencing
Registrable Securities that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to replace
those surrendered and containing representations that (i) the Investor is
permitted to dispose of such Registrable Securities without limitation as to
amount or manner of sale pursuant to Rule 144(k) under the Securities Act.
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Section 8.2 No Other Legend or Stock Transfer Restrictions. No legend other than
the one specified in Section 8.1 has been or shall be placed on the share
certificates representing the securities referred to in such section and no
instructions or "stop transfers orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article VIII.
Section 8.3 Investor's Compliance. Nothing in this Article VIII shall affect in
any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
ARTICLE IX
INDEMNIFICATION
Section 9.1 Indemnification. The Company agrees to indemnify and hold harmless
the Investor, its partners, affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages, joint or several,
and any action in respect thereof to which the Investor, its partners,
affiliates, officers, directors, employees, and duly authorized agents, and any
such Controlling Person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Company contained in
this Agreement, as such Damages are incurred, unless such Damages result
primarily from the Investor's gross negligence, recklessness or bad faith in
performing its obligations under this Agreement.
Section 9.2 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.1
shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person claiming
indemnification under any provision of Section 9.1 (an "Indemnified Party")
might seek indemnity under Section 9.1 is asserted against or sought to be
collected from such Indemnified Party by a person other than the Company, the
Investor or any affiliate of the Company or (a "Third Party Claim"), the
Indemnified Party shall deliver a written notification, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for indemnification that is
being asserted under any provision of Section 12.2 against any person (the
"Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced by such
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failure of the Indemnified Party. The Indemnifying Party shall notify the
Indemnified Party as soon as practicable within the period ending thirty (30)
calendar days following receipt by the Indemnifying Party of either a Claim
Notice or an Indemnity Notice (as defined below) (the "Dispute Period") whether
the Indemnifying Party disputes its liability or the amount of its liability to
the Indemnified Party under Section 9.1 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within the Dispute
Period that the Indemnifying Party desires to defend the Indemnified Party with
respect to the Third Party Claim pursuant to this Section 9.2(a), then the
Indemnifying Party shall have the right to defend, with counsel reasonably
satisfactory to the Indemnified Party, at the sole cost and expense of the
Indemnifying Party, such Third Party Claim by all appropriate proceedings, which
proceedings shall be vigorously and diligently prosecuted by the Indemnifying
Party to a final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified Party in the
case of any settlement that provides for any relief other than the payment of
monetary damages or that provides for the payment of monetary damages as to
which the Indemnified Party shall not be indemnified in full pursuant to Section
9.1). The Indemnifying Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof; provided, however,
that the Indemnified Party may, at the sole cost and expense of the Indemnified
Party, at any time prior to the Indemnifying Party's delivery of the notice
referred to in the first sentence of this clause (i), file any motion, answer or
other pleadings or take any other action that the Indemnified Party reasonably
believes to be necessary or appropriate to protect its interests; and provided
further, that if requested by the Indemnifying Party, the Indemnified Party
will, at the sole cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnifying Party in contesting any Third Party Claim that
the Indemnifying Party elects to contest. The Indemnified Party may participate
in, but not control, any defense or settlement of any Third Party Claim
controlled by the Indemnifying Party pursuant to this clause (i), and except as
provided in the preceding sentence, the Indemnified Party shall bear its own
costs and expenses with respect to such participation. Notwithstanding the
foregoing, the Indemnified Party may take over the control of the defense or
settlement of a Third Party Claim at any time if it irrevocably waives its right
to indemnity under Section 9.1 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the Third Party
Claim pursuant to Section 9.2(a), or if the Indemnifying Party gives such notice
but fails to prosecute vigorously and diligently or settle the Third Party
Claim, or if the Indemnifying Party fails to give any notice whatsoever within
the Dispute Period, then the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying Party, the Third Party Claim by
all appropriate proceedings, which proceedings shall be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or will be settled at
the discretion of the Indemnified Party (with the consent of the Indemnifying
Party, which consent will not be unreasonably withheld). The Indemnified Party
will have full control of such defense and proceedings, including any compromise
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or settlement thereof; provided, however, that if requested by the Indemnified
Party, the Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified Party and
its counsel in contesting any Third Party Claim which the Indemnified Party is
contesting. Notwithstanding the foregoing provisions of this clause (ii), if the
Indemnifying Party has notified the Indemnified Party within the Dispute Period
that the Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third Party
Claim and if such dispute is resolved in favor of the Indemnifying Party in the
manner provided in clause (iii) below, the Indemnifying Party will not be
required to bear the costs and expenses of the Indemnified Party's defense
pursuant to this clause (ii) or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection with such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this clause (ii), and
the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.
(iii) If the Indemnifying Party notifies the Indemnified Party that it does not
dispute its liability or the amount of its liability to the Indemnified Party
with respect to the Third Party Claim under Section 9.1 or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes its liability or the amount of its liability to the Indemnified Party
with respect to such Third Party Claim, the Loss in the amount specified in the
Claim Notice shall be conclusively deemed a liability of the Indemnifying Party
under Section 9.1 and the Indemnifying Party shall pay the amount of such Loss
to the Indemnified Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall proceed in good
faith to negotiate a resolution of such dispute, and if not resolved through
negotiations within the Resolution Period, such dispute shall be resolved by
arbitration in accordance with paragraph (c) of this Section 9.2.
(b) In the event any Indemnified Party should have a claim under Section 9.1
against the Indemnifying Party that does not involve a Third Party Claim, the
Indemnified Party shall deliver a written notification of a claim for indemnity
under Section 9.1 specifying the nature of and basis for such claim, together
with the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the Loss in the
amount specified in the Indemnity Notice will be conclusively deemed a liability
of the Indemnifying Party under Section 9.1 and the Indemnifying Party shall pay
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the amount of such Loss to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability or the amount of its liability with
respect to such claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute, and if not
resolved through negotiations within the Resolution Period, such dispute shall
be resolved by arbitration in accordance with paragraph (c) of this Section 9.2.
(c) Any dispute under this Agreement or the Warrants shall be submitted to
arbitration (including, without limitation, pursuant to this Section 12.3) and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (the "Board of Arbitration")
selected as hereinafter provided. Each of the Indemnified Party and the
Indemnifying Party shall select one (1) member and the third member shall be
selected by mutual agreement of the other members, or if the other members fail
to reach agreement on a third member within twenty (20) days after their
selection, such third member shall thereafter be selected by the American
Arbitration Association upon application made to it for such purpose by the
Indemnified Party. The Board of Arbitration shall meet on consecutive business
days in New York County, New York or such other place as a majority of the
members of the Board of Arbitration determines more appropriate, and shall reach
and render a decision in writing (concurred in by a majority of the members of
the Board of Arbitration) with respect to the amount, if any, which the
Indemnifying Party is required to pay to the Indemnified Party in respect of a
claim filed by the Indemnified Party. In connection with rendering its
decisions, the Board of Arbitration shall adopt and follow such rules and
procedures as a majority of the members of the Board of Arbitration deems
necessary or appropriate. To the extent practical, decisions of the Board of
Arbitration shall be rendered no more than thirty (30) calendar days following
commencement of proceedings with respect thereto. The Board of Arbitration shall
cause its written decision to be delivered to the Indemnified Party and the
Indemnifying Party. Any decision made by the Board of Arbitration (either prior
to or after the expiration of such thirty (30) calendar day period) shall be
final, binding and conclusive on the Indemnified Party and the Indemnifying
Party and entitled to be enforced to the fullest extent permitted by law and
entered in any court of competent jurisdiction. Each party to any arbitration
shall bear its own expense in relation thereto, including but not limited to
such party's attorneys' fees, if any, and the expenses and fees of the Board of
Arbitration shall be divided between the Indemnifying Party and the Indemnified
Party in the same proportion as the portion of the related claim determined by
the Board of Arbitration to be payable to the Indemnified Party bears to the
portion of such claim determined not to be so payable.
ARTICLE X
MISCELLANEOUS
Section 10.1 Fees and Expenses. Each of the Company and the Investor agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of the
Investor's counsel in an amount of $5,000 as provided in the Equity Line
Agreement, it being understood that such amount has not yet been paid by the
Company.
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Section 10.2 Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 10.3 Brokerage. Each of the parties hereto represents that it has had no
dealings in connection with this transaction with any finder or broker who will
demand payment of any fee or commission from the other party. The Company on the
one hand, and the Investor, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 10.4 Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company:
Sytron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Attention: Mitchel Feinglas, CEO
Telephone: (303) 469-6100
Facsimile: (303) 469-7100
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with a copy (which shall not constitute notice) to:
Bresler Goodman & Unterman LLP
521 Fifth Avenue
New York, NY 10175
Attention: Andrew J. Goodman, Esq. or
Jay Jacobson, Esq.
Telephone: (212) 661-2150
Facsimile: (212) 949-6131
if to the Investor:
Crescent International Limited
c/o DMI S.A.
84, av Louis-Casai, P.O. Box 161
1216 Geneva, Cointrin
Switzerland
Attention: Melvyn Craw/Maxi Brezzi
Telephone: +41 22 791 72 56
Facsimile: +41 22 929 53 94
with a copy (which shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Sara P. Hanks, Esq./Earl S. Zimmerman, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile number
for notices under this Section by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.
Section 10.5 Assignment. Neither this Agreement nor any rights of the Investor
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the Common
Stock purchased or acquired by the Investor hereunder with respect to the Common
Stock held by such person, and (b) the Investor's interest in this Agreement may
be assigned at any time, in whole or in part, to any other person or entity
(including any affiliate of the Investor) upon the prior written consent of the
Company, which consent shall not to be unreasonably withheld.
Section 10.6 Amendment; No Waiver. No party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth in this Agreement or therein. Except as expressly
38
<PAGE>
provided in this Agreement, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by both parties hereto. The failure of the either party to insist on
strict compliance with this Agreement, or to exercise any right or remedy under
this Agreement, shall not constitute a waiver of any rights provided under this
Agreement, nor estop the parties from thereafter demanding full and complete
compliance nor prevent the parties from exercising such a right or remedy in the
future.
Section 10.7 Annexes and Exhibits; Entire Agreement. All annexes and exhibits to
this Agreement are incorporated herein by reference and shall constitute part of
this Agreement. This Agreement, the Convertible Notes, the Security Agreement,
the Warrants and the Registration Rights Agreement set forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements, negotiations
and understandings between the parties, both oral and written, relating to the
subject matter hereof.
Section 10.8 Survival. The provisions of Articles VI, VIII, IX and X, and of
Section 7.3, shall survive the termination of this Agreement.
Section 10.9 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 10.10 Title and Subtitles. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 10.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 10.12 Choice of Law. This Agreement shall be construed under the laws of
the State of New York.
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Note Purchase Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date
first set forth above.
CRESCENT INTERNATIONAL LIMITED
By:
--------------------------------
Melvyn Craw
Title:
SYTRON, INC.
By:
--------------------------------
Mitchel Feinglas
Chief Executive Officer
40
<PAGE>
EXHIBIT A
CONVERTIBLE NOTE NO. 1
<PAGE>
EXHIBIT B
CONVERTIBLE NOTE NO. 2
<PAGE>
EXHIBIT C
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
<PAGE>
EXHIBIT E
FORM OF ADDITIONAL WARRANT
<PAGE>
EXHIBIT F
TERMINATION AGREEMENT
<PAGE>
EXHIBIT G
OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[Date]
Crescent International Limited
Re: Note Purchase Agreement Between Crescent International Limited and Sytron,
Inc.
Dear Ladies and Gentlemen:
We have acted as special counsel for the Company in connection with the
execution, delivery and performance of the Note Purchase Agreement by and
between Crescent International Limited, a Bermuda entity (the "Investor") and
Sytron, Inc. (the "Company"), dated January 15, 1999 (the "Agreement"), which
provides for, among other things, the issuance and sale by the Company of
convertible notes (the "Convertible Notes") certain shares in payment of fees as
specified in the Agreement (the "Commitment Shares"), certain additional shares
(the "Indemnity Shares") and a warrant to purchase up to 568,627 shares of
Common Stock (the "Additional Warrant, and the shares of Common Stock issued or
issuable pursuant to exercise of the Warrants, the "Additional Warrant Shares").
This opinion is furnished to you pursuant to Section 7.2(g) of the Note Purchase
Agreement. All terms used herein have the meaning defined for them in the Note
Purchase Agreement unless otherwise defined herein.
For purposes of this opinion, we have examined copies of the following
documents:
(a) an executed copy of the Note Purchase Agreement;
(b) an executed copy of the Registration Rights Agreement;
(c) an executed copy of the Additional Warrant;
(d) an executed copy of Convertible Note No. 1;
(e) an executed copy of the Security Agreement;
(f) an executed copy of the Termination Agreement;
(g) the Articles of Incorporation of the Company, certified by the Department of
State of the Commonwealth of Pennsylvania by a certificate dated April 29, 1998,
and certified to us by an officer of the Seller as being complete and in full
force and effect as of the date of this opinion;
(h) the Bylaws of the Company, as amended to date, and certified to us by an
officer of the Company as being complete and in full force and effect as of the
date of this opinion; and
<PAGE>
(i) records certified to us by an officer of the Company as constituting records
of proceedings and actions by the Board of Directors of the Company relating to
the transactions contemplated by the Note Purchase Agreement.
Items (a) through (f) above collectively are referred to as the "Agreements."
As special counsel, we also examined such other certificates, documents and
records, and have made such examinations of law, as we have deemed necessary to
enable us to render the opinions expressed below. In addition, we have examined
and relied as to matters of fact upon representations contained in the Note
Purchase Agreement and in a certificate of the Chief Executive Officer of the
Company.
Whenever a statement herein is qualified by "to our knowledge," or words of
similar import, it indicates that no information that would give us current
actual knowledge of the inaccuracy of such statement has come to the attention
of attorneys in this firm who had significant responsibility representing the
Company during the course of our representation of the Company with respect to
this matter. We have not made any independent investigation to determine the
accuracy of such statement, except as expressly described herein.
The opinions expressed herein are limited solely to the laws and regulations of
the United States of America and the State of the Colorado.
For purposes of rendering the opinion set forth below, we have assumed, with
your consent and without independent investigation or examination, that:
(i) each of the parties to the Agreements (other than the Company, as to which
our opinion is rendered below) has duly and validly executed and delivered each
Agreement to which such party is a signatory, and such party's obligations set
forth therein are its legal, valid and binding obligations, enforceable against
such party in accordance with their respective terms.
(ii) each person executing any Agreement on behalf of any party is duly
authorized to do so;
(iii) each natural person executing any Agreement is legally competent to do so.
(iv) there are no oral or written modifications of, or amendments to, any
Agreement, and there has been no waiver of any of the provisions of any
Agreement by action or conduct of the parties or otherwise; and
<PAGE>
(v) all documents submitted to us as originals are authentic and complete, all
documents submitted to us as certified or photostatic copies conform to the
original documents, all signatures on all documents submitted to us for
examination are genuine, and all public records reviewed are accurate and
complete.
For purposes of this opinion, we have assumed that the Investor has all
requisite power and authority, and has taken any and all necessary corporate
action, to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by the Investor in the Agreements and
pursuant thereto are true and correct.
Based on the foregoing, and upon such other investigation as we have deemed
necessary, and subject to the qualifications and assumptions set forth below, we
are of the opinion that:
1. The Company is duly qualified as a foreign corporation to do business and is
in good standing in Colorado.
2. Each of the Agreements has been duly executed and delivered, and the
Additional Warrant has been duly executed and delivered, by the Company and, in
reliance on the opinion of Pennsylvania Counsel, each of the Agreements
constitutes valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except to the extent that enforcement
thereof may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar laws of general application
relating to or affecting the enforcement of the rights of creditors and the
application of general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity) and further subject to the
qualifications set forth in the last sentence of this paragraph. We express no
opinion as to (a) the validity and enforceability of any provision of the
Agreements to the extent that such provision purports to waive any rights,
remedies or defense or of any provision for contribution or indemnification, (b)
whether any particular provisions of the Agreements will be specifically
enforced or (c) the enforceability of any provision of the Agreements, after any
adjustment, relating to the sufficiency of the number of authorized shares
available or the valid issuance of any shares for less than par value. [We note
that the Agreements are governed by the laws of the State of New York; if the
laws of the State of Colorado were determined by a court of competent
jurisdiction to govern any Agreement, such Agreement would constitute the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms subject to the exceptions set forth in the two
immediately preceding sentences.]
3. The execution, delivery and performance of the Agreements and the Additional
Warrant by the Company and the consummation by the Company of the transactions
contemplated thereby, including without limitation the issuance of the
<PAGE>
Convertible Notes, the Additional Warrant, and the Warrant Shares, do not and
will not (i) result in a violation of the Company's Articles or By-Laws; (ii) to
our knowledge, conflict with, or constitute a material default (or an event that
with notice or lapse of time or both would become a material default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement listed on Schedule 1 hereto, which the Company
has certified is a complete list of every agreement, indenture or instrument
involving more than $100,000 or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company or any of its
subsidiaries is a party (each a "Material Agreement"); or (iii) result in a
violation of any federal or Colorado law, rule or regulation applicable to the
Company or by which any property or asset of the Company is bound or affected.
4. Based upon, and in reliance upon, the representations of the Investor in the
Note Purchase Agreement, the issuance of the Convertible Notes, the Additional
Warrant and the Note Shares in accordance with the Note Purchase Agreement, and
the issuance of the Warrant Shares in accordance with the Warrants, will be
exempt from securities registration under the Securities Act of 1933 and the
Colorado Securities Act.
5. To our knowledge, there are no outstanding options, warrants, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any right to
subscribe for or acquire any shares of Common Stock or contracts, commitments,
understanding, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock, except as described in the Disclosure
Schedule.
Based and relying solely upon a review of the litigation docket maintained by
the Company, except as disclosed in the Disclosure Schedule, we hereby confirm
to you that to our knowledge there are no claims, actions, suits, proceedings or
investigations that are pending against the Company or its properties, or
against any officer or director of the Company in his or her capacity as such,
nor has the Company received any written threat of any such claims, actions,
suits, proceedings, or investigations which are required to be and have not been
disclosed in the Disclosure Schedule.
With respect to the enforceability of the choice of New York law provisions in
the Agreements, we think it is likely that a Colorado court will honor the
choice made by the parties thereto. There is, however, always the possibility
that a Colorado court would hold that it has a materially greater interest than
the State of New York in the determination of a particular issue arising under
the Agreements, that Colorado law would apply absent the parties' choice of law,
and that the application of New York law would be contrary to a fundamental
policy of Colorado.
<PAGE>
We express no opinion as to any other matter other than as expressly set forth
herein this opinion, and no other opinion is intended to be implied or inferred
herefrom. The opinions expressed herein are given as of the date hereof, and we
undertake no obligation hereby and disclaim any obligation to advise you of any
change in law, facts or circumstances occurring after the date hereof pertaining
to any matter referred to herein.
The opinions expressed in this letter are strictly limited to the matters stated
herein, and no other opinions may be implied. This opinion is provided as a
legal opinion only, effective as of the date of this letter, and not as a
guarantee or warranty of the matters discussed herein. The opinions expressed in
this letter are solely for your information in connection with the execution and
delivery of the Agreements and may not be relied upon in any respect by any
other person or for any other person. This letter may not be published, quoted,
or referenced to, or filed with any person without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT H
Irrevocable Instructions to Transfer Agent
January 15, 1999
[Transfer Agent]
[Address]
[Phone number]
[Facsimile number]
Ladies and Gentlemen:
Reference is made to the certain Note Purchase Agreement (the "Note
Purchase"), dated as of the date herewith, by and between Sytron, Inc. (the
"Company"), and the "Holder" (as defined below) pursuant to which the Company is
issuing to the Holder, and may issue in the future, Convertible Notes (the
"Convertible Notes"). The Convertible Notes are convertible into shares (the
"Note Shares") of Common Stock. This letter shall serve as our irrevocable
authorization and direction to you to issue and deliver Note Shares in the
manner and within the time frames set forth in the Convertible Notes.
Certificates for the Note Shares shall not bear any legend restricting their
transfer and shall not be subject to any stop-transfer restriction other than as
permitted in Section ___ of the Note Purchase; provided, however, if the Note
Shares are not registered for resale under the Securities Act of 1933, as
amended, and legend removal is not otherwise allowed under Section ___ of the
Note Purchase, then the certificates for the Shares shall bear the following
legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION, IN WHICH EVENT SYTRON SHALL HAVE RECEIVED AN
OPINION OF COUNSEL STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES LAWS. THE
HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE
COMPANY SET FORTH IN A NOTE PURCHASE AGREEMENT BETWEEN SYTRON, INC. AND CRESCENT
INTERNATIONAL LIMITED DATED AS OF JANUARY 15, 1999. A COPY OF THE PORTION OF THE
AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE
COMPANY'S EXECUTIVE OFFICES.
<PAGE>
Please be advised that Holder is relying upon this letter as an inducement
to enter into the Note Purchase Agreement and, accordingly, it is agreed that
Holder is a third party beneficiary to these instructions. Moreover, the Company
cannot revoke or modify these instructions without the prior written consent of
Holder.
The Company hereby agrees that it will not unilaterally terminate its
relationship with the Transfer Agent. In the event the Company's agency
relationship with the Transfer Agent should be terminated for any reason prior
to the date which is three (3) years after Closing for the issuance of
Convertible Note No. 2 (as described in the Note Purchase Agreement), the
Company's Transfer Agent shall continue acting as transfer agent pursuant to the
terms of these Irrevocable Instructions to Transfer Agent until such time that a
successor transfer agent (i) is appointed by the Company; and (ii) executes and
agrees to be bound by the terms of these Irrevocable Instructions to Transfer
Agent.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at (___) ___-____.
Very truly yours,
SYTRON, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Agreed and Acknowledged as of January 15, 1999:
[TRANSFER AGENT]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Enclosure
cc: Crescent International Limited ("Holder")
<PAGE>
EXHIBIT I
COMPLIANCE CERTIFICATE
The undersigned, __________, hereby certifies, with respect to shares of common
stock of the _____________ (the "Company") issuable in connection with the Put
Notice, dated _____________ (the "Notice"), delivered pursuant to Article II of
the Note Purchase Agreement, dated January 15, 1999, by and between the Company
and Crescent International Limited (the "Agreement"), as follows:
1. The undersigned is the duly elected Chairman and Chief Executive Officer of
the Company.
2. The representations and warranties of the Company set forth in Article V of
the Agreement are true and correct in all material respects as though made on
and as of the date hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in Article VII of the Agreement.
The undersigned has executed this Certificate this ____ day of ________, 199_.
------------------------------------
Name:
Title:
<PAGE>
DISCLOSURE SCHEDULE TO
NOTE PURCHASE AGREEMENT
<PAGE>
NOTE PURCHASE AGREEMENT
by and between
CRESCENT INTERNATIONAL LIMITED
and
SYTRON, INC.
dated as of JANUARY 15, 1999
Exhibit 10(f)
THE NOTE REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY
STATE; AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION FROM,
THE REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
--------------------
CONVERTIBLE NOTE
Due January 15, 2001
January 15, 1999 $350,000
No. 1
Sytron, Inc., a Pennsylvania corporation (hereinafter called the "Issuer"),
for value received, hereby promises to pay to the Holder (as defined below) on
January 15, 2001 the principal amount of $350,000 payable in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for public and private debts or, subject to the conditions
contained herein, in Common Shares (as defined below) at the principal office of
the Issuer. This Note shall be secured by the Collateral as provided in the
Security Agreement.
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. The terms defined in this Article whenever used
in this Note shall have the respective meanings hereinafter specified.
(a) "Additional Capital Shares" shall have the meaning set forth in
Section 3.5(d).
(b) "Bid Price" shall have the meaning specified in the Purchase
Agreement.
(c) "Business Day" shall mean a day other than Saturday, Sunday or any
day on which banks located in the state of New York are authorized or obligated
to close.
(d) "Capital Shares" shall mean the Common Shares and any other shares
of any other class of common stock, whether now or hereafter authorized, which
have the right to participate in the distribution of earnings and assets of the
Issuer.
(e) "Closing Date" shall mean January 15, 1999.
(f) "Collateral" shall have the meaning specified in the Security
Agreement.
1
<PAGE>
(g) "Common Shares" shall mean shares of the common stock, par value
$.01, of the Issuer.
(h) "Conversion Date" shall mean any day on which all or some part of
the principal amount of this Note is converted into Note Shares in accordance
with the terms of this Note, provided that a Conversion Date must be a Business
Day.
(i) "Conversion Notice" shall have the meaning set forth in Section
3.2.
(j) "Conversion Price" shall have the meaning set forth in Section 3.
1.
(k) "Conversion Ratio" shall have the meaning set forth in Section
3.1.
(l) "Discount" shall mean fifteen percent (15%).
(m) "Event of Default" shall have the meaning set forth in Section
6.1.
(n) "Holder" shall mean Crescent International Limited.
(o) "Issuer" shall mean Sytron, Inc., a Pennsylvania corporation, and
any successor corporation by merger, consolidation, sale or exchange of all or
substantially all of the Issuer's assets, or otherwise.
(p) "Market Disruption Event" shall mean any event that results in a
material suspension or limitation of trading of Common Shares on the Principal
Market (as defined in the Purchase Agreement).
(q) "Market Price" shall mean the lowest three consecutive Trading Day
average of Bid Prices during the Valuation Period.
(r) "Material Adverse Effect" shall mean a material adverse effect on
the business, assets, operations (financial or otherwise) of the Issuer and the
Subsidiaries taken as a whole.
(s) "Note" shall mean this Convertible Note or such other Convertible
Note or Notes exchanged therefor as provided in Section 2.1.
(t) "Notes" shall mean the Convertible Note issued pursuant to the
Purchase Agreement and such other Convertible Note or Notes exchanged therefor
as provided in Section 2.1.
(u) "Note Shares" when used with reference to the securities issuable
upon conversion of this Note, shall mean all Common Shares now or hereafter
Outstanding and securities of any other class into which the Note Shares shall
hereafter have been changed, whether now or hereafter created.
(v) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), shall mean, at any date as of which the number
of such Shares is to be determined, all issued and outstanding Shares, and shall
include all such Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not mean any such Shares then directly or
indirectly owned or held by or for the account of the Issuer or any Subsidiary.
2
<PAGE>
(w) "Person" shall mean an individual, a corporation, a partnership,
an association, a trust or other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
(x) "Purchase Agreement" means the Note Purchase Agreement, dated the
date hereof by and between the Issuer and the Holder.
(aa) "Redemption Price" shall have the meaning set forth in Section
2.4.
(bb) "Registration Rights Agreement" shall mean that certain Amended
and Restated Registration Rights Agreement, dated as of the date hereof, by and
between the Issuer and the Holder. This is the Note referred to as Convertible
Note No. 1 in the Registration Rights Agreement.
(cc) "SEC" shall mean the United States Securities and Exchange
Commission.
(dd) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(ee) "Security Agreement" shall mean that certain Security Agreement,
dated as of the date hereof, by and between the Issuer and the Holder.
(ff) "Subsidiary" shall mean any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Issuer.
(gg) "Trading Day" shall mean any day on which trades of securities
listed thereon are reported by the NASDAQ (or, if the Common Shares are not
listed for trading on the NASDAQ, the principal trading market for the Common
Shares) and on which no Market Disruption Event has occurred.
(hh) "Valuation Period" shall mean the thirty (30) Trading Day period
ending on the earlier of (i) the date on which this Note first becomes due and
payable or (ii) the Conversion Date.
ARTICLE 2
EXCHANGES AND TRANSFER; REDEMPTION
SECTION 2.1. Exchange and Registration of Transfer of Notes. The Holder
may, at its option, surrender this Note at the office of the Issuer and receive
in exchange therefor a Note or Notes, each in the denomination of $50,000 or an
integral multiple of $50,000 in excess thereof, dated as of the date of this
Note, and, subject to Section 4.1, payable to such Person, or order, as may be
designated by such Holder. The aggregate principal amount of such Note or Notes
exchanged in accordance with this Section 2.1 shall equal the aggregate unpaid
principal amount of this Note as of the date of such surrender; provided,
however, that upon such exchange there shall be filed with the Issuer the name
and address for all purposes hereof of the Holder or Holders of the Note or
Notes delivered in such exchange. This Note, when presented for registration of
transfer or for exchange, conversion or payment, shall (if so required by the
Issuer) be duly endorsed by, or be accompanied by a written instrument of
transfer in form reasonably satisfactory to the Issuer duly executed by, the
Holder or its attorney duly authorized in writing.
3
<PAGE>
SECTION 2.2. Loss. Theft. Destruction of Note. Upon receipt of evidence
satisfactory to the Issuer of the loss, theft, destruction or mutilation of this
Note and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security reasonably satisfactory to the Issuer, or, in the case of
any such mutilation, upon surrender and cancellation of this Note, the Issuer
will make and deliver, in lieu of such lost, stolen, destroyed or mutilated
Note, a new Note of like tenor and unpaid principal amount dated as of the date
hereof. This Note shall be held and owned upon the express condition that the
provisions of this Section 2.2 are exclusive with respect to the replacement of
a mutilated, destroyed, lost or stolen Note and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without their surrender.
SECTION 2.3. Who Deemed Absolute Owner. The Issuer may deem the person in
whose name this Note shall be registered upon the registry books of the Issuer
to be, and may treat it as, the absolute owner of this Note (whether or not this
Note shall be overdue) for the purpose of receiving payment of or on account of
the principal of this Note, for the conversion of this Note and for all other
purposes, and the Issuer shall not be affected by any notice to the contrary.
All such payments and such conversion shall be valid and effectual to satisfy
and discharge the liability upon this Note to the extent of the sum or sums so
paid or the conversion so made.
SECTION 2.4. Optional Redemption by the Issuer. The Issuer at its election,
upon notice given as provided in Section 2.5, may redeem this Note in whole or
in part at any time and from time to time, but only with respect to that portion
of this Note for which the Company has not been provided with a Conversion
Notice. The price to redeem the Note (the "Redemption Price") shall be equal to
120% of (x)(i) the portion of the Note being redeemed divided (ii) by the
Conversion Price on the date of such redemption multiplied by (y) the Bid Price
on the date of such redemption. In addition to the foregoing, the Issuer, at its
election, upon notice as provided for in Section 2.5, may, if the bid Price is
equal to or less than $0.375 for a period of five (5) consecutive Trading Days,
redeem the Note for 120% of its then outstanding principal amount.
SECTION 2.5. Notice of Redemptions: Right to Convert in Lieu of Accepting
Redemptions. In the case of redemption of this Note, notice thereof shall be
given in writing to the Holder not fewer than 5 nor more than 15 days prior to
the date fixed for such redemption, which notice shall specify the date fixed
for such redemption and make reference to this Section 2.5 pursuant to which
such redemption is to be made. Such notice of redemption and all other notices
to be given to the Holder shall be given by facsimile and confirmed by
registered mail at its designated address.
Upon notice of any redemption being given as provided in this Section 2.5,
the Holder shall have the right to exercise, either in whole or in part, the
conversion privilege pursuant to Article 3 hereof until 5:00 P.M., New York City
time, on the date fixed for redemption.
SECTION 2.6. Surrender of Notes: Notation Thereon. Upon any redemption of a
portion of the principal amount of this Note pursuant to this Article 2, the
Holder at its option may require the Issuer to make and deliver, at the expense
of the Issuer (other than for transfer taxes, if any), upon surrender of this
Note, a new Note payable to such person or persons, or order, as may be
designated by the Holder for the principal amount of this Note then remaining
unredeemed, dated as of the date of this Note or may present this Note to the
Issuer for notation hereon of the payment of the portion of the principal amount
so redeemed. The Issuer may, as a condition of payment of all or any of the
principal of or interest on this Note, require the Holder to present this Note
for notation of such payment and, if this Note be paid in full, require the
surrender hereof.
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SECTION 2.7. Redemption with Common Shares. Subject to the conditions
contained herein, this Note may be redeemed in Common Shares; provided, however
that this Note shall be redeemed in cash so long as the Market Price of the
Common Shares in less than two dollars ($2.00). If the Issuer elects to redeem
this Note in Common Shares pursuant to this Section 2.7, the Issuer shall issue
to the Holder 120% of the number of Common shares determined by (x) the dollar
amount of the outstanding principal of this Note divided by (y) the Market Price
of the Common Shares.
ARTICLE 3
CONVERSION OF NOTE
SECTION 3.1. Conversion: Conversion Price. At the option of the Holder, at
any time following the date of issuance of this Note until this Note is paid in
full, this Note may be converted, either in whole or in part up to the principal
amount hereof (or in case some portion of this Note shall have been called for
redemption prior to such date, then at the portion that is not so called), at
the conversion price the ("Conversion Price") equal to the lower of (i) $0.8125
and (ii) the Market Price (on the date on which the Holder gives notice to the
Issuer of its intention to convert this Note) less the product of the Discount
and the Market Price; provided, however, that the Conversion Price shall in no
event be less than $0.375 for a period of six months following the Closing Date.
Notwithstanding anything to the contrary contained herein, in no event shall the
Holder be entitled to convert this Note into any Note Shares when the result of
such conversion would entitle the Holder to receive that number of shares of the
Issuer's Common Stock of which the sum of (xx) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of this Note) and (yy) the number of shares of Common Stock
issuable upon conversion of this Note, would result in beneficial ownership by
the Holder and its affiliates of more than 4.9% of the outstanding shares of
Common Stock. For the purposes of this provision, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13 D and G thereunder, except as otherwise
provided in clause (xx) of this provision.
SECTION 3.2. Exercise of Conversion Privilege. In order to convert this
Note into Note Shares, the Holder shall (i) send via facsimile, on or prior to
11:59 p.m., New York City time on the Conversion Date, a copy of the fully
executed conversion notice in the form attached hereto in Annex I (the
"Conversion Notice") to the Issuer at the office of the Issuer stating that the
Holder elects to convert, which Conversion Notice shall specify the Conversion
Date, the portion of this Note to be converted, the applicable Conversion Price,
the name or names (with address) of the persons who are to become holders of the
Note Shares in connection with such conversion, and a calculation of the number
of Note Shares issuable upon such conversion and (ii) surrender to a common
courier for delivery to the office of the Issuer, this Note accompanied by a
proper assignment hereof to the Issuer or in blank; provided, however, that the
Issuer shall not be obligated to issue certificates evidencing the Note Shares
issuable upon such conversion unless either this Note is delivered to the Issuer
as provided above, or the Holder notifies the Issuer that this Note has been
lost, stolen or destroyed (subject to the requirements of Section 2.2). Upon
receipt by the Issuer of a facsimile copy of a Conversion Notice, the Issuer
shall immediately send, via facsimile, a confirmation of receipt of the
Conversion Notice to the Holder, which shall specify that the Conversion Notice
has been received and the name and telephone number of a contact person at the
Issuer whom the Holder should contact regarding information related to the
conversion of this Note. In the event of a dispute as to the calculation of the
Conversion Ratio, the Issuer shall promptly issue to the Holder the number of
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Note Shares that is not disputed and shall submit the disputed calculations to
its outside accountant (the "Accountant") via facsimile within three (3) days of
receipt of the Conversion Notice. The Issuer shall cause the Accountant to
perform the calculations and notify the Issuer and Holder of the results no
later than two (2) Business Days from the time it receives the disputed
calculations. The Accountant's calculations shall be deemed conclusive absent
manifest error.
SECTION 3.3. Delivery of Note Shares Upon Conversion. The Issuer shall, no
later than the close of business on the third Business Day after receipt by the
Issuer of a facsimile copy of a Conversion Notice and receipt by the Issuer of
all necessary documentation duly executed and in proper form required for
conversion, including this Note (or after the provisions required by Section 2.2
in the case of a lost, stolen or destroyed Note), issue and surrender to a
common courier for either overnight or (if delivery is outside the United
States) two (2) day delivery to the Holder at the address or addresses and in
the name or names provided in the Conversion Notice. The person or persons
entitled to receive the Note Shares issuable upon conversion of this Note shall
be treated for all purposes as the record holder or holders of such Note Shares
on the Conversion Date.
SECTION 3.4. Fractional Shares. No fractional Note Shares or scrip
representing fractional Note Shares shall be issued upon conversion of this
Note. If any conversion of this Note would create a fractional Note Share or a
right to acquire a fractional Note Share, such fractional Note Share shall be
disregarded and the number of Note Shares issuable upon conversion, in the
aggregate, shall be the next higher number of shares.
SECTION 3.5. Adjustment of Conversion Price. The Conversion Price and,
accordingly, the number of Note Shares issuable upon the conversion of this Note
shall be subject to adjustment from time to time upon the happening of certain
events as follows:
(a) Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while this Note remains outstanding and unexpired, in case
of any reclassification or change of Outstanding Common Shares issuable upon
conversion of this Note (other than a change in par value, or from par value to
no par value per share, or from no par value per share to par value or as a
result of a subdivision or combination of outstanding securities issuable upon
conversion of this Note) or in case of any consolidation, merger or mandatory
share exchange of the Issuer with or into another corporation (other than a
merger or mandatory share exchange with another corporation in which the Issuer
is a continuing corporation and which does not result in any reclassification or
change, other than a change in par value, or from par value to no par value per
share, or from no par value per share to par value, or as a result of a
subdivision or combination of Outstanding Common Shares upon conversion of this
Note), or in the case of any sale or transfer to another corporation of the
property of the Issuer as an entirety or substantially as an entirety, the
Issuer, or such successor or purchasing corporation, as the case may be, shall,
without payment of any additional consideration therefore, execute a new Note
providing that the Holder shall have the right to convert such new Note (upon
terms not less favorable to the Holder than those then applicable to this Note)
and to receive upon such exercise, in lieu of each Common Share theretofore
issuable upon conversion of this Note, the kind and amount of shares of stock,
other securities, money or property receivable upon such reclassification,
change, consolidation, merger, mandatory share exchange, sale or transfer by the
holder of one Common Share issuable upon conversion of this Note had this Note
been converted immediately prior to such reclassification, change,
consolidation, merger, mandatory share exchange or sale or transfer. Such new
Note shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3.4. The provisions
of this subsection (a) shall similarly apply to successive reclassifications,
changes, consolidations, mergers, mandatory share exchanges and sales and
transfers.
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(b) Subdivision or Combination of Shares. If the Issuer at any time
while this Note remains outstanding and unexpired, shall subdivide or combine
its Common Shares, the Conversion Price shall be proportionately reduced, in
case of subdivision of such shares, as of the effective date of such
subdivision, or, if the Issuer shall take a record of holders of its Common
Shares for the purpose of so subdividing, as of such record date, whichever is
earlier, or shall be proportionately increased, in the case of combination of
such shares, as of the effective date of such combination, or, if the Issuer
shall take a record of holders of its Common Shares for the purpose of so
combining, as of such record date, whichever is earlier.
(c) Stock Dividends. If the Issuer at any time while this Note is
outstanding and unexpired shall pay a dividend in its Capital Shares, or make
any other distribution of its Capital Shares, then the Conversion Price shall be
adjusted, as of the date the Issuer shall take a record of the holders of its
Capital Shares for the purpose of receiving such dividend or other distribution
(or if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Conversion Price in
effect immediately prior to such payment or other distribution by a fraction:
(i) the numerator of which shall be the total number of Outstanding
Capital Shares immediately prior to such dividend or distribution, and
(ii) the denominator of which shall be the total number of Outstanding
Capital Shares immediately after such dividend or distribution.
The provisions of this subsection (c) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a) or
(b).
(d) Issuance of Additional Capital Shares. If the Issuer at any time
while this Note remains outstanding and unexpired shall issue any additional
Capital Shares (the "Additional Capital Shares"), otherwise than as provided in
the foregoing subsections (a) through (c) above, at a price per share less, or
for other consideration lower, than the Conversion Price in effect immediately
prior to such issuance, or without consideration, then upon such issuance the
Conversion Price shall be reduced to that price determined by multiplying the
Conversion Price in effect immediately prior to such event by a fraction:
(i) the numerator of which shall be the number of Outstanding Capital
Shares immediately prior to the issuance of the Additional Capital Shares
plus the number of Capital Shares which the aggregate consideration for the
total number of such Additional Capital Shares so issued would purchase at
the then effective Conversion Price, and;
(ii) the denominator of which shall be the number of Outstanding
Capital Shares immediately after the issuance of the Additional Capital
Shares plus the number of Additional Capital Shares so issued.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b)
or (c). No adjustment of a Conversion Price shall be made under this
subsection (d) upon the issuance of any Additional Capital Shares which are
issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible or exchangeable securities
if any such adjustments shall previously have been made upon the issuance
of any such warrants, options or other rights or upon the issuance of any
convertible or exchangeable securities (or upon the issuance of any
warrants, options or any rights therefor) pursuant to subsection (e) or
(f).
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(e) Issuance of Warrants, Options or Other Rights. If the Issuer at
any time while this Note remains outstanding and unexpired shall issue any
warrants, options (other than options under the Issuer's non-qualified stock
option plan) or other rights to subscribe for or purchase any Additional Capital
Shares and the price per share for which Additional Capital Shares may at any
time thereafter be issuable pursuant to such warrants, options or other rights
shall be less than the Conversion Price in effect immediately prior to such
issuance, then upon such issuance the Conversion Price shall be adjusted as
provided in subsection (d) hereof on the basis that:
(i) the maximum number of Additional Capital Shares issuable pursuant
to all such warrants, options or other rights shall be deemed to have been
issued as of the date of actual issuance of such warrants, options or other
rights, and
(ii) the aggregate consideration for such maximum number of Additional
Capital Shares issuable pursuant to such warrants, options or other rights,
shall be deemed to be the consideration received by the Issuer for the
issuance of such warrants, options, or other rights plus the minimum
consideration to be received by the Issuer for the issuance of Additional
Capital Shares pursuant to such warrants, options, or other rights.
(f) Issuance of Convertible or Exchangeable Securities. If the Issuer
at any time while this Note remains outstanding and unexpired shall issue any
securities convertible into or exchangeable for Capital Shares and the
consideration per share for which Additional Capital Shares may at any time
thereafter be issuable pursuant to the terms of such convertible or exchangeable
securities shall be less than the Conversion Price in effect immediately prior
to such issuance, then upon such issuance the Conversion Price shall be adjusted
as provided in subsection (d) hereof on the basis that:
(i) the maximum number of Additional Capital Shares necessary to
effect the conversion or exchange of all such convertible or exchangeable
securities shall be deemed to have been issued as of the date of issuance
of such convertible or exchangeable securities, and
(ii) the aggregate consideration for such maximum number of Additional
Capital Shares shall be deemed to be the consideration received by the
Issuer for the issuance of such convertible or exchangeable securities plus
the minimum consideration received by the Issuer for the issuance of such
Additional Capital Shares pursuant to the terms of such convertible or
exchangeable securities.
No adjustment of the Conversion Price shall be made under this subsection
(f) upon the issuance of any convertible or exchangeable securities which
are issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants, options or
other rights pursuant to subsection (e) hereof.
(g) Adjustment of Number of Shares. Upon each adjustment of the
Conversion Price pursuant to any provisions of this Section 3.4, the number of
Note Shares issuable hereunder at the option of the Holder shall be calculated,
to the next higher whole share, to be the quotient obtained by dividing (i) the
then outstanding principal amount of this Note by (ii) the Conversion Price
immediately after such adjustment.
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(h) Liquidating Dividends, Etc. If the Issuer at any time while this
Note is outstanding and unexpired makes a distribution of its assets or
evidences of indebtedness to the holders of its Capital Shares as a dividend in
liquidation or by way of return of capital or other than as a dividend payable
out of earnings or surplus legally available for dividends under applicable law
or any distribution to such holders made in respect of the sale of all or
substantially all of the Issuer's assets (other than under the circumstances
provided for in the foregoing subsections (a) through (g)), provided, in each
case, that such distribution described in this subsection (h) does not
constitute an Event of Default hereunder, the Holder shall be entitled to
receive upon the conversion of this Note, in addition to the Note Shares
receivable upon such exercise, and without payment of any consideration other
than the Conversion Price, an amount in cash equal to the value of such
distribution per Capital Share multiplied by the number of Note Shares which, on
the record date for such distribution, are issuable upon Conversion of this Note
(with no further adjustment being made following any event which causes a
subsequent adjustment in the number of Note Shares issuable upon the exercise
hereof), and an appropriate provision therefor shall be made a part of any such
distribution. The value of a distribution which is paid in other than cash shall
be determined in good faith by the Board of Directors.
(i) Other Provisions Applicable to Adjustments Under this Section. The
following provisions will be applicable to the making of adjustments in a
Conversion Price hereinabove provided in this Section 3.4:
(i) Computation of Consideration. To the extent that any Additional
Capital Shares or any convertible or exchangeable securities or any
warrants, options or other rights to subscribe for or purchase any
Additional Capital Shares or any convertible or exchangeable securities
shall be issued for a cash consideration, the consideration received by the
Issuer therefor shall be deemed to be the amount of the cash received by
the Issuer therefor, or, if such Additional Capital Shares or convertible
or exchangeable securities are offered by the Issuer for subscription, the
subscription price, or, if such Additional Capital Shares or convertible or
exchangeable securities are sold to underwriters or dealers for public
offering without a subscription offering, or through underwriters or
dealers for public offering without a subscription offering, the initial
public offering price, in any such case excluding any amounts paid or
incurred by the Issuer for and in the underwriting of, or otherwise in
connection with the issue thereof. To the extent that such issuance shall
be for a consideration other than cash, then, the amount of such
consideration shall be deemed to be the fair value of such consideration at
the time of such issuance as determined in good faith by the Issuer's Board
of Directors. The consideration for any Additional Capital Shares issuable
pursuant to any warrants, options or other rights to subscribe for or
purchase the same shall be the consideration received by the Issuer for
issuing such warrants, options or other rights, plus the additional
consideration payable to the Issuer upon the exercise of such warrants,
options or other rights. The consideration for any Additional Capital
Shares issuable pursuant to the terms of any convertible or exchangeable
securities shall be the consideration paid or payable to the Issuer in
respect of the subscription for or purchase of such convertible or
exchangeable securities, plus the additional consideration, if any, payable
to the Issuer upon the exercise of the right of conversion or exchange in
such convertible or exchangeable securities. In case of the issuance at any
time of any Additional Capital Shares or convertible or exchangeable
securities in payment or satisfaction of any dividend upon any class of
stock preferred as to dividends in a fixed amount, the Issuer shall be
deemed to have received for such Additional Capital Shares or convertible
or exchangeable securities a consideration equal to the amount of such
dividend so paid or satisfied.
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(ii) Readjustment of Conversion Price. Upon the expiration of the
right to convert or exchange any convertible or exchangeable securities, or
upon the expiration of any rights, options or warrants, the issuance of
which convertible or exchangeable securities, rights, options or warrants
effected an adjustment in a Conversion Price, if any such convertible or
exchangeable securities shall not have been converted or exchanged, or if
any such rights, options or warrants shall not have been exercised, the
number of Capital Shares deemed to be issued and Outstanding by reason of
the fact that they were issuable upon conversion or exchange of any such
convertible or exchangeable securities or upon exercise of any such rights,
options, or warrants shall no longer be computed as set forth above, and
such Conversion Price shall forthwith be readjusted and thereafter be the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section 3.4 after
the issuance of such convertible or exchangeable securities, rights,
options or warrants) had the adjustment of the Conversion Price made upon
the issuance or sale of such convertible or exchangeable securities or
issuance of rights, options or warrants been made on the basis of the
issuance only of the number of Additional Capital Shares actually issued
upon conversion or exchange of such convertible or exchangeable securities,
or upon the exercise of such rights, options or warrants, and thereupon
only the number of Additional Capital Shares actually so issued, if any,
shall be deemed to have been issued and only the consideration actually
received by the Issuer (computed as set forth in sub-subsection (i) hereof)
shall be deemed to have been received by the Issuer. If the purchase price
provided for in any rights, options or warrants, or the additional
consideration (if any) payable upon the conversion or exchange of any
convertible or exchangeable securities, or the rate at which any
convertible or exchangeable securities are convertible into or exchangeable
for Capital Shares changes at any time (other than under or by reason of
provisions designed to protect against dilution), the Conversion Price in
effect at the time of the change shall be adjusted to the Conversion Price
that would have been in effect at such time had such rights, options,
warrants or convertible or exchangeable securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued
or sold.
(iii) Other Action Affecting Capital Shares. In case after the date
hereof the Issuer shall take any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing
subsections (a) through (h) hereof, inclusive, which in the opinion of the
Issuer's Board of Directors would have a materially adverse effect upon the
rights of the Holder at the time of a conversion of this Note, the
Conversion Price shall be adjusted in such manner and at such time as the
Board or Directors on the advice of the Issuer's independent public
accountants may in good faith determine to be equitable in the
circumstances.
SECTION 3.6. Notice of Adjustments. Whenever the Conversion Price under the
terms of this Note shall be adjusted pursuant to Section 3.4 hereof, the Issuer
shall promptly make a certificate signed by its President or a Vice President
and by its Treasurer or Assistant Treasurer or its Secretary or Assistant
Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Issuer's Board
of Directors made any determination hereunder), and the Conversion Price and
number of Note Shares purchasable at that Conversion Price after giving effect
to such adjustment, and shall promptly cause copies of such certificate to be
mailed (by first class and postage prepaid) to the Holder.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
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SECTION 4.1. Status of Note. Subject to Section 4.2 below, this Note is a
direct, general and unconditional obligation of the Issuer ranking, and
constitutes a valid and legally binding obligation of the Issuer, enforceable in
accordance with its terms subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other similar laws of general applicability relating to or
affecting creditors' rights and to general principals of equity. To secure the
obligations of the Issuer under this Note, the Issuer grants the Holder a
security interest in the Collateral which Collateral shall, at all times, be
worth a dollar amount of at least one hundred fifty percent (150%) of the
combined outstanding value of this Note and Convertible Note No. 2 (as defined
in the Purchase Agreement). To perfect those security interests, simultaneously
with the execution of this Note, the Issuer is executing and delivering to the
Holder UCC-1 Financing Statements with respect to the Collateral which secures
this Note. The Issuer agrees that he will not, without the prior written consent
of the Holder, take any action, nor fail to take any action which would in any
manner adversely affect the rights of the Holder pursuant to the Note or the
value of the Collateral or subject the Holder to any liability. If the Issuer
fails to pay the entire principal amount evidenced by this Note and all accrued
interest when it becomes due, the Holder will have all the rights with regard to
the Collateral granted by the laws in effect in the State of New York to a
creditor upon default by its debtor. Without limiting what is said in the
preceding sentence, if the Issuer fails to pay the entire principal amount
evidenced by this Note and all accrued interest when it becomes due, the Holder
may, by a notice to the Issuer accompanied by an agreement by the Holder to
return any principal paid with regard to this Note if it determined that that
principal is not subject to offset as provided below, obtain the Collateral in
satisfaction of the obligations created by this Note. The Issuer waives, to the
full extent permitted by law, any right to object to the retention of the
Collateral by the Holder and to require the Holder to dispose of the Collateral.
SECTION 4.2. Restrictions on Transfer. This Note, and any Note Shares
issued according to the terms hereof, have not been and will not be registered
under the United States Securities Act. This Note and any Note Shares may not be
offered or sold, directly or indirectly, except pursuant to registration under
the Act, an available exemption therefrom, or pursuant to Regulation S.
ARTICLE 5
COVENANTS
The Issuer covenants and agrees that so long as this Note shall be
outstanding:
SECTION 5.1. Payment of Note. The Issuer will punctually, according to the
terms hereof, (a) pay or cause to be paid the principal of this Note and (b)
issue Note Shares upon conversion.
SECTION 5.2. Notice of Default. If any one or more events occur which
constitute or which, with the giving of notice or the lapse of time or both,
would constitute an Event of Default or if the Holder shall demand payment or
take any other action permitted upon the occurrence of any such Event of
Default, the Issuer will forthwith give notice to the Holder, specifying the
nature and status of the Event of Default or other event or of such demand or
action, as the case may be.
SECTION 5.3. Sufficient Number of Authorized Common Shares. So long as the
this Note shall be outstanding, the Issuer shall at all times have authorized
and reserved for issuance, free from preemptive rights, a sufficient number of
Common Shares to yield a number of Note Shares sufficient to satisfy the
conversion rights of the Holder pursuant to the terms and conditions hereof.
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SECTION 5.4. Insurance. The Issuer will carry and maintain in full force
and effect at all times with insurers the Issuer reasonably believes to be
financially sound and reputable such insurance in such amounts as is customary
in the respective industries of the Issuer and such subsidiaries.
SECTION 5.5. Payment of Obligations. The Issuer will pay and discharge at
or before maturity, all its respective material obligations and liabilities,
including, without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings, and will maintain in
accordance with generally accepted accounting principles, appropriate reserves
for the accrual of any of the same;
SECTION 5.6. Compliance with Laws. The Issuer will comply in all material
respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.7. Inspection of Property, Books and Records. The Issuer will
keep proper books of record and account in which full, true and correct entries
shall be made of all dealings and transactions in relation to its business and
activities and will permit representatives of the Holder at the Holder's expense
to visit and inspect any of its respective properties, to examine and make
abstracts from any of its respective books and records and to discuss its
respective affairs, finances and accounts with its respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
ARTICLE 6
REMEDIES
SECTION 6.1. Events of Default. "Event of Default" wherever used herein
means any one of the following events:
(a) default in the issuance of Note Shares due upon conversion;
(b) default in the due and punctual payment of the principal of on, or
any other amount owing in respect of, this Note when and as the same shall
become due and payable, and continuance of such default for a period of thirty
(30) calendar days; or
(c) substantial failure in the performance or observance of Section
5.5 of this Note and the continuance of such default for a period of thirty (30)
calendar days; or
(d) default in the performance or observance of any covenant or
agreement of the Issuer in this Note (other than a covenant or agreement a
default in the performance of which is specifically provided for elsewhere in
this Section), and the continuance of such default for a period of thirty (30)
calendar days after there has been given to the Issuer by a Holder a written
notice specifying such default and requiring it to be remedied; or
(e) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Issuer or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Issuer under the Bankruptcy
Code or any other applicable Federal or state law, or appointing a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Issuer or of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 30 calendar days, except in case that
such event does not result in a Material Adverse Effect; or
(f) the institution by the Issuer or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable Federal or state law, or the consent by
it to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Issuer or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Issuer in furtherance of any such action, except in case
that such event does not result in a Material Adverse Effect; or
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(g) the Issuer shall fail to issue and deliver the Note Shares within
three (3) Business Days of its receipt of the original Note and the original
Conversion Notice in accordance with Section 3.2; or
(h) any principal of other indebtedness of the Issuer or any
Subsidiary, exceeding $500,000 is not repaid on its original maturity date or
becomes due and payable by reason of default before its original maturity date;
or
(i) (i) the Issuer or any Subsidiary is unable to pay its debts as
they fall due, stops, suspends, or threatens in writing to stop or suspend
payment of all or any material part of its debts (other than debts contested in
good faith by appropriate proceedings), begins negotiations or takes any
proceeding or other step with a view to readjustment, rescheduling or deferral
of all of its indebtedness (or any material part thereof) that it will or might
otherwise be unable to pay when due or seeks the appointment of a statutory
manager or proposes in writing or makes a general assignment or an arrangement
or composition with or for the benefit of its creditors or any group or class
thereof or files a petition for suspension of payments or other relief of
debtors of for bankruptcy or is declared bankrupt or a moratorium or statutory
management is agreed or declared in respect of or affecting all or any material
part of the indebtedness of the Issuer or any of its wholly owned subsidiaries,
or (ii) the Issuer ceases or threatens in writing to cease to carry on all or
any material part of the business carried on by the Issuer and its Subsidiaries
taken as a whole and as a result of such cessation or threat of cessation, the
Issuer will not be able to perform or comply with its payment obligations under
this Note, except in case that any such event does not result in a Material
Adverse Effect; or
(j) on or after the date hereof, a final judgment or final judgments
for the payment of money shall have been entered by any court or courts of
competent jurisdiction against the Issuer and remains undischarged for a period
(during which execution shall be effectively stayed) of 30 days, provided that
the aggregate amount of all such judgments at any time outstanding (to the
extent not paid or to be paid, as evidenced by a written communication to that
effect from the applicable insurer, by insurance) exceeds $500,000; or
(k) it becomes unlawful for the Issuer to perform or comply with its
obligations under this Note or the Registration Rights Agreement.
SECTION 6.2. Acceleration of Maturity: Rescission and Annulment. If an
Event of Default occurs and is continuing, then and in every such case any
Holder may declare the principal of this Note to be due and payable immediately,
by a notice in writing to the Issuer, and upon any such declaration the
principal of this Note shall become immediately due and payable.
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SECTION 6.3. Remedies Not Waived. No course of dealing between the Issuer
and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. Register. (a) The Issuer shall keep at its principal office a
register in which the Issuer shall provide for the registration of this Note.
Upon any transfer of this Note in accordance with Article 2 and 4 hereof, the
Issuer shall register such transfer on the Note register.
(b) The Issuer may deem the person in whose name this Note shall be
registered upon the registry books of the Issuer to be, and may treat it as, the
absolute owner of this Note (whether or not this Note shall be overdue) for the
purpose of receiving payment of principal of this Note, for the conversion of
this Note and for all other purposes, and the Issuer shall not be affected by
any notice to the contrary. All such payments and such conversions shall be
valid and effective to satisfy and discharge the liability upon this Note to the
extent of the sum or sums so paid or the conversion or conversions so made.
SECTION 7.2. Withholding. To the extent required by applicable law, the
Issuer may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Issuer from any payments made pursuant to this Note.
SECTION 7.3. Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
CONFLICTS OF LAWS PRINCIPLES). WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDINGS
RELATING TO THIS NOTE, THE ISSUER IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK AND
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SUBJECT TO APPLICABLE LAW, THE ISSUER AGREES THAT FINAL JUDGMENT AGAINST IT IN
ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE THE
UNITED STATES BY SUIT ON THE JUDGMENT, A CERTIFIED COPY OF WHICH JUDGMENT SHALL
BE CONCLUSIVE EVIDENCE THEREOF AND THE AMOUNT OF ITS INDEBTEDNESS, OR BY SUCH
OTHER MEANS PROVIDED BY LAW.
SECTION 7.4. Headings. The headings of the Articles and Sections of this
Note are inserted for convenience only and do not constitute a part of this
Note.
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IN WITNESS WHEREOF, the Issuer has caused this Note to be signed by its
duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Note.
Sytron, Inc.
By:_________________________________
Name:
Title:
Attest
By:____________________________
Name:
Title: Secretary
[Corporate Seal]
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ANNEX I TO THE NOTE
FORM OF CONVERSION NOTICE
TO _____________________:
The undersigned owner of the Convertible Note, dated January 15, 1999,
issued by Sytron, Inc. (the "Note") hereby irrevocably exercises the option to
convert $______________ of the principal amount of the Note into Common Shares,
par value $.01, of Sytron,, Inc. (the "Note Shares"), in accordance with the
terms of the Note. The undersigned directs that the Note Shares issuable and
certificates therefor (to the extent that certificates evidencing Common Shares
are then being issued by Sytron, Inc. deliverable upon the conversion, together
with any check in payment for fractional Note Shares, be issued in the name of
and delivered, if appropriate, to the undersigned unless a different name has
been indicated below.
Dated:
_____________________
Signature:_____________________
Fill in for registration of Note Shares:
Please print name and address:
(including zip code number)
16
Exhibit 10(g)
THE NOTE REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY
STATE; AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION FROM,
THE REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
--------------------
CONVERTIBLE NOTE
Due [DATE]
[DATE] $400,000
No. 2
Sytron, Inc., a Pennsylvania corporation (hereinafter called the "Issuer"),
for value received, hereby promises to pay to the Holder (as defined below) on
________ __, 200_ the principal amount of $400,000 payable in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for public and private debts or, subject to the conditions
contained herein, in Common Shares (as defined below) at the principal office of
the Issuer. This Note shall be secured by the Collateral as provided in the
Security Agreement.
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The terms defined in this Article whenever used in
this Note shall have the respective meanings hereinafter specified.
(a) "Additional Capital Shares" shall have the meaning set forth in Section
3. 5(d).
(b) "Bid Price" shall have the meaning specified in the Purchase Agreement.
(c) "Business Day" shall mean a day other than Saturday, Sunday or any day
on which banks located in the state of New York are authorized or obligated to
close.
(d) "Capital Shares" shall mean the Common Shares and any other shares of
any other class of common stock, whether now or hereafter authorized, which have
the right to participate in the distribution of earnings and assets of the
Issuer.
(e) "Closing Date" shall mean January 15, 1999.
(f) "Collateral" shall have the meaning specified in the Security
Agreement.
(g) "Common Shares" shall mean shares of the common stock, par value $.01,
of the Issuer.
<PAGE>
(h) "Conversion Date" shall mean any day on which all or some part of the
principal amount of this Note is converted into Note Shares in accordance with
the terms of this Note, provided that a Conversion Date must be a Business Day.
(i) "Conversion Notice" shall have the meaning set forth in Section 3.2.
(j) "Conversion Price" shall have the meaning set forth in Section 3. 1.
(k) "Conversion Ratio" shall have the meaning set forth in Section 3.1.
(l) "Discount" shall mean fifteen percent (15%).
(m) "Event of Default" shall have the meaning set forth in Section 6.1.
(n) "Holder" shall mean Cresent International Limited.
(o) "Issuer" shall mean Sytron Technologies, Inc., a Pennsylvania
corporation, and any successor corporation by merger, consolidation, sale or
exchange of all or substantially all of the Issuer's assets, or otherwise.
(p) "Market Disruption Event" shall mean any event that results in a
material suspension or limitation of trading of Common Shares on the Principal
Market (as defined in the Purchase Agreement).
(q) "Market Price" shall mean the lowest three consecutive Trading Day
average of Bid Prices during the Valuation Period.
(r) "Material Adverse Effect" shall mean a material adverse effect on the
business, assets, operations (financial or otherwise) of the Issuer and the
Subsidiaries taken as a whole.
(s) "Note" shall mean this Convertible Note or such other Convertible Note
or Notes exchanged therefor as provided in Section 2.1.
(t) "Notes" shall mean the Convertible Note issued pursuant to the Purchase
Agreement and such other Convertible Note or Notes exchanged therefor as
provided in Section 2.1.
(u) "Note Shares" when used with reference to the securities issuable upon
conversion of this Note, shall mean all Common Shares now or hereafter
Outstanding and securities of any other class into which the Note Shares shall
hereafter have been changed, whether now or hereafter created.
(v) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), shall mean, at any date as of which the number
of such Shares is to be determined, all issued and outstanding Shares, and shall
include all such Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not mean any such Shares then directly or
indirectly owned or held by or for the account of the Issuer or any Subsidiary.
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(w) "Person" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
(x) "Purchase Agreement" means the Note Purchase Agreement, dated as of the
date hereof, by and between the Issuer and the Holder.
(y) "Redemption Price" shall have the meaning set forth in Section 2.4.
(z) "Registration Rights Agreement" shall mean that certain Amended and
Restated Registration Rights Agreement, dated as of the date hereof, by and
between the Issuer and the Holder. This is the Note referred to as Convertible
Note No. 2 in the Registration Rights Agreement.
(aa) "SEC" shall mean the United States Securities and Exchange Commission.
(bb) "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as in effect at the
time.
(cc) "Security Agreement" shall mean that certain Security Agreement, dated
as of the date hereof, by and between the Issuer and the Holder.
(dd) "Subsidiary" shall mean any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Issuer.
(ee) "Trading Day" shall mean any day on which trades of securities listed
thereon are reported by the NASDAQ (or, if the Common Shares are not listed for
trading on the NASDAQ, the principal trading market for the Common Shares) and
on which no Market Disruption Event has occurred.
(ff) "Valuation Period" shall mean the thirty (30) Trading Day period
ending on the earlier of (i) the date on which this Note first becomes due and
payable or (ii) the Conversion Date.
ARTICLE II
EXCHANGES AND TRANSFER; REDEMPTION
SECTION 2.1. Exchange and Registration of Transfer of Notes. The Holder may, at
its option, surrender this Note at the office of the Issuer and receive in
exchange therefor a Note or Notes, each in the denomination of $50,000 or an
integral multiple of $50,000 in excess thereof, dated as of the date of this
Note, and, subject to Section 4.1, payable to such Person, or order, as may be
designated by such Holder. The aggregate principal amount of such Note or Notes
exchanged in accordance with this Section 2.1 shall equal the aggregate unpaid
principal amount of this Note as of the date of such surrender; provided,
however, that upon such exchange there shall be filed with the Issuer the name
and address for all purposes hereof of the Holder or Holders of the Note or
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<PAGE>
Notes delivered in such exchange. This Note, when presented for registration of
transfer or for exchange, conversion or payment, shall (if so required by the
Issuer) be duly endorsed by, or be accompanied by a written instrument of
transfer in form reasonably satisfactory to the Issuer duly executed by, the
Holder or its attorney duly authorized in writing.
SECTION 2.2. Loss. Theft. Destruction of Note. Upon receipt of evidence
satisfactory to the Issuer of the loss, theft, destruction or mutilation of this
Note and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security reasonably satisfactory to the Issuer, or, in the case of
any such mutilation, upon surrender and cancellation of this Note, the Issuer
will make and deliver, in lieu of such lost, stolen, destroyed or mutilated
Note, a new Note of like tenor and unpaid principal amount dated as of the date
hereof. This Note shall be held and owned upon the express condition that the
provisions of this Section 2.2 are exclusive with respect to the replacement of
a mutilated, destroyed, lost or stolen Note and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without their surrender.
SECTION 2.3 Who Deemed Absolute Owner. The Issuer may deem the person in
whose name this Note shall be registered upon the registry books of the Issuer
to be, and may treat it as, the absolute owner of this Note (whether or not this
Note shall be overdue) for the purpose of receiving payment of or on account of
the principal of this Note, for the conversion of this Note and for all other
purposes, and the Issuer shall not be affected by any notice to the contrary.
All such payments and such conversion shall be valid and effectual to satisfy
and discharge the liability upon this Note to the extent of the sum or sums so
paid or the conversion so made.
SECTION 2.4 Optional Redemption by the Issuer. The Issuer at its election,
upon notice given as provided in Section 2.5, may redeem this Note in whole or
in part at any time and from time to time, but only with respect to that portion
of this Note for which the Company has not been provided with a Conversion
Notice. The price to redeem the Note (the "Redemption Price") shall be equal to
120% of (x)(i) the portion of the Note being redeemed divided (ii) by the
Conversion Price on the date of such redemption multiplied by (y) the Bid Price
on the date of such redemption. In addition to the foregoing, the Issuer, at its
election, upon notice as provided for in Section 2.5, may, if the Bid Price is
equal to or less than $0.375 for a period of five (5) consecutive Trading Days,
redeem the Note for 120% of its then outstanding principal amount.
SECTION 2.5 Notice of Redemptions: Right to Convert in Lieu of Accepting
Redemptions. In the case of redemption of this Note, notice thereof shall be
given in writing to the Holder not fewer than 5 nor more than 15 days prior to
the date fixed for such redemption, which notice shall specify the date fixed
for such redemption and make reference to this Section 2.5 pursuant to which
such redemption is to be made. Such notice of redemption and all other notices
to be given to the Holder shall be given by facsimile and confirmed by
registered mail at its designated address.
Upon notice of any redemption being given as provided in this Section 2.5,
the Holder shall have the right to exercise, either in whole or in part, the
conversion privilege pursuant to Article 3 hereof until 5:00 P.M., New York City
time, on the date fixed for redemption.
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SECTION 2.6 Surrender of Notes: Notation Thereon. Upon any redemption of a
portion of the principal amount of this Note pursuant to this Article 2, the
Holder at its option may require the Issuer to make and deliver, at the expense
of the Issuer (other than for transfer taxes, if any), upon surrender of this
Note, a new Note payable to such person or persons, or order, as may be
designated by the Holder for the principal amount of this Note then remaining
unredeemed, dated as of the date of this Note or may present this Note to the
Issuer for notation hereon of the payment of the portion of the principal amount
so redeemed. The Issuer may, as a condition of payment of all or any of the
principal of or interest on this Note, require the Holder to present this Note
for notation of such payment and, if this Note be paid in full, require the
surrender hereof.
SECTION 2.7 Redemption with Common Shares. Subject to the conditions
contained herein, this Note may be redeemed in Common Shares; provided, however
that this Note shall be redeemed in cash so long as the Market Price of the
Common Shares in less than two dollars ($2.00). If the Issuer elects to redeem
this Note in Common Shares pursuant to this Section 2.7, the Issuer shall issue
to the Holder 120% of the number of Common shares determined by (x) the dollar
amount of the outstanding principal of this Note divided by (y) the Market Price
of the Common Shares.
ARTICLE 3
CONVERSION OF NOTE
SECTION 3.1 Conversion: Conversion Price. At the option of the Holder, at
any time following the date of issuance of this Note until this Note is paid in
full, this Note may be converted, either in whole or in part up to the principal
amount hereof (or in case some portion of this Note shall have been called for
redemption prior to such date, then at the portion that is not so called), at
the conversion price the ("Conversion Price") equal to the lower of (i) two
dollars ($2.00) and (ii) the Market Price (on the date on which the Holder gives
notice to the Issuer of its intention to convert this Note) less the product of
the Discount and the Market Price; provided, however that the Conversion Price
shall in no event be less than $1.00 for a period of six months following the
Closing Date. Notwithstanding anything to the contrary contained herein, in no
event shall the Holder be entitled to convert this Note into any Note Shares
when the result of such conversion would entitle the Holder to receive that
number of shares of the Issuer's Common Stock of which the sum of (xx) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of this Note) and (yy)
the number of shares of Common Stock issuable upon conversion of this Note,
would result in beneficial ownership by the Holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For the purposes of this
provision, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13 D
and G thereunder, except as otherwise provided in clause (xx) of this provision.
SECTION 3.2 In order to convert this Note into Note Shares, the Holder
shall (i) send via facsimile, on or prior to 11:59 p.m., New York City time (the
"Conversion Notice Deadline") on the Conversion Date, a copy of the fully
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executed conversion notice in the form attached hereto in Annex I (the
"Conversion Notice") to the Issuer at the office of the Issuer stating that the
Holder elects to convert, which conversion Notice shall specify the Conversion
Date, the portion of this Note to be converted, the applicable Conversion Price,
the name or names (with address) of the persons who are to become holders of the
Note Shares in connection with such conversion, and a calculation of the Member
of Note Shares issuable upon such conversion and (ii) surrender to a common
courier for delivery to the office of the Issuer, this Note accompanied by a
proper assignment hereof to the Issuer or in blank; provided, however, that the
Issuer shall not be obligated to issues certificates evidencing the Note Shares
issuable upon such conversion unless either this Note is delivered to the Issuer
as provided above, or the Holder notifies the Issuer that this Note has been
lost, stolen or destroyed 9subject to the requirements of Section 2.2). Upon
receipt by the Issuer of a facsimile copy of a Conversion Notice, the Issuer
shall immediately send, via facsimile, a confirmation of receipt of the
Conversion Notice to the Holder which shall specify that the Conversion Notice
has been received and the name and telephone number of a contact person at the
Issuer whom the Holder should contact regarding information related to the
conversion of this Note. In the event of a dispute as to the calculation of the
Conversion Ratio, the Issuer shall promptly issue to the Holder the number of
Note Shares that is not disputed and shall submit he disputed calculations to
its outside accountant (the "Accountant") via facsimile within three (3) days of
receipt of the Conversion Notice. The Issuer shall cause the Accountant to
perform the calculations and notify the Issuer and Holder of the results no
later than two (2) Business Days from the time it receives that disputed
calculations. The Accountant's calculations shall be deemed conclusive absent
manifest error.
SECTION 3.3 Delivery of Note Shares Upon Conversion. The Issuer shall, no
later than the close of business on the third Business Day after receipt by the
Issuer of a facsimile coy of a Conversion Notice and receipt by the Issuer of
all necessary documentation duly executed and in proper form required for
conversion, including this Note (or after the provisions required by Section 2.2
in the case of a lost, stolen or destroyed Note), issue and surrender to a
common courier for either overnight or (if delivery is outside the United
States) two (2) day delivery to the Holder a the address or addresses and in the
name or names provided in the Conversion Notice. The person or persons entitled
to receive the Note Shares issuable upon conversion of this Note shall be
treated for all purposes as the record holder or holders of such Note Shares on
the Conversion Date.
SECTION 3.4 Fractional Shares. No fractional Note Shares or scrip
representing fractional Note Shares shall be issued upon conversion of this
Note. If any conversion of this Note would create a fractional Note Share or a
right to acquire a fractional Note Share, such fractional Note Share shall be
disregarded and the number of Note Shares issuable upon conversion, in the
aggregate, shall be the next higher number of shares.
SECTION 3.5 Adjustment of Conversion Price. The Conversion Price and,
accordingly, the number of Note Shares issuable upon the conversion of this Note
shall be subject to adjustment from time to time upon the happening of certain
events as follows:
(a) Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while this Note remains outstanding and unexpired, in case
of any reclassification or change of Outstanding Common Shares issuable upon
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conversion of this Note (other than a change in par value, or from par value to
no par value per share, or from no par value per share to par value or as a
result of a subdivision or combination of outstanding securities issuable upon
conversion of this Note) or in case of any consolidation, merger or mandatory
share exchange of the Issuer with or into another corporation (other than a
merger or mandatory share exchange with another corporation in which the Issuer
is a continuing corporation and which does not result in any reclassification or
change, other than a change in par value, or from par value to no par value per
share, or from no par value per share to par value, or as a result of a
subdivision or combination of Outstanding Common Shares upon conversion of this
Note), or in the case of any sale or transfer to another corporation of the
property of the Issuer as an entirety or substantially as an entirety, the
Issuer, or such successor or purchasing corporation, as the case may be, shall,
without payment of any additional consideration therefore, execute a new Note
providing that the Holder shall have the right to convert such new Note (upon
terms not less favorable to the Holder than those then applicable to this Note)
and to receive upon such exercise, in lieu of each Common Share theretofore
issuable upon conversion of this Note, the kind and amount of shares of stock,
other securities, money or property receivable upon such reclassification,
change, consolidation, merger, mandatory share exchange, sale or transfer by the
holder of one Common Share issuable upon conversion of this Note had this Note
been converted immediately prior to such reclassification, change,
consolidation, merger, mandatory share exchange or sale or transfer. Such new
Note shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3.4. The provisions
of this subsection (a) shall similarly apply to successive reclassifications,
changes, consolidations, mergers, mandatory share exchanges and sales and
transfers.
(b) Subdivision or Combination of Shares. If the Issuer at any time
while this Note remains outstanding and unexpired, shall subdivide or combine
its Common Shares, the Conversion Price shall be proportionately reduced, in
case of subdivision of such shares, as of the effective date of such
subdivision, or, if the Issuer shall take a record of holders of its Common
Shares for the purpose of so subdividing, as of such record date, whichever is
earlier, or shall be proportionately increased, in the case of combination of
such shares, as of the effective date of such combination, or, if the Issuer
shall take a record of holders of its Common Shares for the purpose of so
combining, as of such record date, whichever is earlier.
(c) Stock Dividends. If the Issuer at any time while this Note is
outstanding and unexpired shall pay a dividend in its Capital Shares, or make
any other distribution of its Capital Shares, then the Conversion Price shall be
adjusted, as of the date the Issuer shall take a record of the holders of its
Capital Shares for the purpose of receiving such dividend or other distribution
(or if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Conversion Price in
effect immediately prior to such payment or other distribution by a fraction:
(i) the numerator of which shall be the total number of Outstanding
Capital Shares immediately prior to such dividend or distribution, and
(ii) the denominator of which shall be the total number of Outstanding
Capital Shares immediately after such dividend or distribution.
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The provisions of this subsection (c) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a) or
(b).
(d) Issuance of Additional Capital Shares. If the Issuer at any time
while this Note remains outstanding and unexpired shall issue any additional
Capital Shares (the "Additional Capital Shares"), otherwise than as provided in
the foregoing subsections (a) through (c) above, at a price per share less, or
for other consideration lower, than the Conversion Price in effect immediately
prior to such issuance, or without consideration, then upon such issuance the
Conversion Price shall be reduced to that price determined by multiplying the
Conversion Price in effect immediately prior to such event by a fraction:
(i) the numerator of which shall be the number of Outstanding Capital
Shares immediately prior to the issuance of the Additional Capital Shares
plus the number of Capital Shares which the aggregate consideration for the
total number of such Additional Capital Shares so issued would purchase at
the then effective Conversion Price, and;
(ii) the denominator of which shall be the number of Outstanding
Capital Shares immediately after the issuance of the Additional Capital
Shares plus the number of Additional Capital Shares so issued.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b)
or (c). No adjustment of a Conversion Price shall be made under this
subsection (d) upon the issuance of any Additional Capital Shares which are
issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible or exchangeable securities
if any such adjustments shall previously have been made upon the issuance
of any such warrants, options or other rights or upon the issuance of any
convertible or exchangeable securities (or upon the issuance of any
warrants, options or any rights therefor) pursuant to subsection (e) or
(f).
(e) Issuance of Warrants, Options or Other Rights. If the Issuer at
any time while this Note remains outstanding and unexpired shall issue any
warrants, options (other than options under the Issuer's non-qualified stock
option plan) or other rights to subscribe for or purchase any Additional Capital
Shares and the price per share for which Additional Capital Shares may at any
time thereafter be issuable pursuant to such warrants, options or other rights
shall be less than the Conversion Price in effect immediately prior to such
issuance, then upon such issuance the Conversion Price shall be adjusted as
provided in subsection (d) hereof on the basis that:
(i) the maximum number of Additional Capital Shares issuable pursuant
to all such warrants, options or other rights shall be deemed to have been
issued as of the date of actual issuance of such warrants, options or other
rights, and
(ii) the aggregate consideration for such maximum number of Additional
Capital Shares issuable pursuant to such warrants, options or other rights,
shall be deemed to be the consideration received by the Issuer for the
issuance of such warrants, options, or other rights plus the minimum
consideration to be received by the Issuer for the issuance of Additional
Capital Shares pursuant to such warrants, options, or other rights.
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(f) Issuance of Convertible or Exchangeable Securities. If the Issuer
at any time while this Note remains outstanding and unexpired shall issue any
securities convertible into or exchangeable for Capital Shares and the
consideration per share for which Additional Capital Shares may at any time
thereafter be issuable pursuant to the terms of such convertible or exchangeable
securities shall be less than the Conversion Price in effect immediately prior
to such issuance, then upon such issuance the Conversion Price shall be adjusted
as provided in subsection (d) hereof on the basis that:
(i) the maximum number of Additional Capital Shares necessary to
effect the conversion or exchange of all such convertible or exchangeable
securities shall be deemed to have been issued as of the date of issuance
of such convertible or exchangeable securities, and
(ii) the aggregate consideration for such maximum number of Additional
Capital Shares shall be deemed to be the consideration received by the
Issuer for the issuance of such convertible or exchangeable securities plus
the minimum consideration received by the Issuer for the issuance of such
Additional Capital Shares pursuant to the terms of such convertible or
exchangeable securities.
No adjustment of the Conversion Price shall be made under this subsection
(f) upon the issuance of any convertible or exchangeable securities which
are issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants, options or
other rights pursuant to subsection (e) hereof.
(g) Adjustment of Number of Shares. Upon each adjustment of the
Conversion Price pursuant to any provisions of this Section 3.4, the number of
Note Shares issuable hereunder at the option of the Holder shall be calculated,
to the next higher whole share, to be the quotient obtained by dividing (i) the
then outstanding principal amount of this Note by (ii) the Conversion Price
immediately after such adjustment.
(h) Liquidating Dividends, Etc. If the Issuer at any time while this
Note is outstanding and unexpired makes a distribution of its assets or
evidences of indebtedness to the holders of its Capital Shares as a dividend in
liquidation or by way of return of capital or other than as a dividend payable
out of earnings or surplus legally available for dividends under applicable law
or any distribution to such holders made in respect of the sale of all or
substantially all of the Issuer's assets (other than under the circumstances
provided for in the foregoing subsections (a) through (g)), provided, in each
case, that such distribution described in this subsection (h) does not
constitute an Event of Default hereunder, the Holder shall be entitled to
receive upon the conversion of this Note, in addition to the Note Shares
receivable upon such exercise, and without payment of any consideration other
than the Conversion Price, an amount in cash equal to the value of such
distribution per Capital Share multiplied by the number of Note Shares which, on
the record date for such distribution, are issuable upon Conversion of this Note
(with no further adjustment being made following any event which causes a
subsequent adjustment in the number of Note Shares issuable upon the exercise
hereof), and an appropriate provision therefor shall be made a part of any such
distribution. The value of a distribution which is paid in other than cash shall
be determined in good faith by the Board of Directors.
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(i) Other Provisions Applicable to Adjustments Under this Section. The
following provisions will be applicable to the making of adjustments in a
Conversion Price hereinabove provided in this Section 3.4:
(i) Computation of Consideration. To the extent that any Additional
Capital Shares or any convertible or exchangeable securities or any
warrants, options or other rights to subscribe for or purchase any
Additional Capital Shares or any convertible or exchangeable securities
shall be issued for a cash consideration, the consideration received by the
Issuer therefor shall be deemed to be the amount of the cash received by
the Issuer therefor, or, if such Additional Capital Shares or convertible
or exchangeable securities are offered by the Issuer for subscription, the
subscription price, or, of such Additional Capital Shares or convertible or
exchangeable securities are sold to underwriters or dealers for public
offering without a subscription offering, or through underwriters or
dealers for public offering without a subscription offering, the initial
public offering price, in any such case excluding any amounts paid or
incurred by the Issuer for and in the underwriting of, or otherwise in
connection with the issue thereof. To the extent that such issuance shall
be for a consideration other than cash, then, the amount of such
consideration shall be deemed to be the fair value of such consideration at
the time of such issuance as determined in good faith by the Issuer's Board
of Directors. The consideration for any Additional Capital Shares issuable
pursuant to any warrants, options or other rights to subscribe for or
purchase the same shall be the consideration received by the Issuer for
issuing such warrants, options or other rights, plus the additional
consideration payable to the Issuer upon the exercise of such warrants,
options or other rights. The consideration for any Additional Capital
Shares issuable pursuant to the terms of any convertible or exchangeable
securities shall be the consideration paid or payable to the Issuer in
respect of the subscription for or purchase of such convertible or
exchangeable securities, plus the additional consideration, if any, payable
to the Issuer upon the exercise of the right of conversion or exchange in
such convertible or exchangeable securities. In case of the issuance at any
time of any Additional Capital Shares or convertible or exchangeable
securities in payment or satisfaction of any dividend upon any class of
stock preferred as to dividends in a fixed amount, the Issuer shall be
deemed to have received for such Additional Capital Shares or convertible
or exchangeable securities a consideration equal to the amount of such
dividend so paid or satisfied.
(ii) Readjustment of Conversion Price. Upon the expiration of the
right to convert or exchange any convertible or exchangeable securities, or
upon the expiration of any rights, options or warrants, the issuance of
which convertible or exchangeable securities, rights, options or warrants
effected an adjustment in a Conversion Price, if any such convertible or
exchangeable securities shall not have been converted or exchanged, or if
any such rights, options or warrants shall not have been exercised, the
number of Capital Shares deemed to be issued and Outstanding by reason of
the fact that they were issuable upon conversion or exchange of any such
convertible or exchangeable securities or upon exercise of any such rights,
options, or warrants shall no longer be computed as set forth above, and
such Conversion Price shall forthwith be readjusted and thereafter be the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section 3.4 after
the issuance of such convertible or exchangeable securities, rights,
options or warrants) had the adjustment of the Conversion Price made upon
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the issuance or sale of such convertible or exchangeable securities or
issuance of rights, options or warrants been made on the basis of the
issuance only of the number of Additional Capital Shares actually issued
upon conversion or exchange of such convertible or exchangeable securities,
or upon the exercise of such rights, options or warrants, and thereupon
only the number of Additional Capital Shares actually so issued, if any,
shall be deemed to have been issued and only the consideration actually
received by the Issuer (computed as set forth in sub-subsection (i) hereof)
shall be deemed to have been received by the Issuer. If the purchase price
provided for in any rights, options or warrants, or the additional
consideration (if any) payable upon the conversion or exchange of any
convertible or exchangeable securities, or the rate at which any
convertible or exchangeable securities are convertible into or exchangeable
for Capital Shares changes at any time (other than under or by reason of
provisions designed to protect against dilution), the Conversion Price in
effect at the time of the change shall be adjusted to the Conversion Price
that would have been in effect at such time had such rights, options,
warrants or convertible or exchangeable securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued
or sold.
(iii) Other Action Affecting Capital Shares. In case after the date
hereof the Issuer shall take any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing
subsections (a) through (h) hereof, inclusive, which in the opinion of the
Issuer's Board of Directors would have a materially adverse effect upon the
rights of the Holder at the time of a conversion of this Note, the
Conversion Price shall be adjusted in such manner and at such time as the
Board or Directors on the advice of the Issuer's independent public
accountants may in good faith determine to be equitable in the
circumstances.
SECTION 3.6 Notice of Adjustments. Whenever the Conversion Price under the
terms of this Note shall be adjusted pursuant to Section 3.4 hereof, the Issuer
shall promptly make a certificate signed by its President or a Vice President
and by its Treasurer or Assistant Treasurer or its Secretary or Assistant
Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Issuer's Board
of Directors made any determination hereunder), and the Conversion Price and
number of Note Shares purchasable at that Conversion Price after giving effect
to such adjustment, and shall promptly cause copies of such certificate to be
mailed (by first class and postage prepaid) to the Holder.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Note. Subject to Section 4.2 below, this Note is a
direct, general and unconditional obligation of the Issuer ranking, and
constitutes a valid and legally binding obligation of the Issuer, enforceable in
accordance with its terms subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other similar laws of general applicability relating to or
affecting creditors' rights and to general principals of equity. To secure the
obligations of the Issuer under this Note, the Issuer grants the Holder a
security interest in the Collateral which Collateral shall at all times be worth
a dollar amount of at least one hundred fifty percent (150%) of the combined
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outstanding value of this Note and Convertible Note No. 1 (as defined in the
Purchase Agreement). To perfect those security interests, simultaneously with
the execution of this Note, the Issuer is executing and delivering to the Holder
UCC-1 Financing Statements with respect to the Collateral which secures this
Note. The Issuer agrees that he will not, without the prior written consent of
the Holder, take any action, nor fail to take any action which would in any
manner adversely affect the rights of the Holder pursuant to the Note or the
value of the Collateral or subject the Holder to any liability. If the Issuer
fails to pay the entire principal amount evidenced by this Note and all accrued
interest when it becomes due, the Holder will have all the rights with regard to
the Collateral granted by the laws in effect in the State of New York to a
creditor upon default by its debtor. Without limiting what is said in the
preceding sentence, if the Issuer fails to pay the entire principal amount
evidenced by this Note and all accrued interest when it becomes due, the Holder
may, by a notice to the Issuer accompanied by an agreement by the Holder to
return any principal paid with regard to this Note if it determined that that
principal is not subject to offset as provided below, obtain the Collateral in
satisfaction of the obligations created by this Note. The Issuer waives, to the
full extent permitted by law, any right to object to the retention of the
Collateral by the Holder and to require the Holder to dispose of the Collateral.
SECTION 4.2 Restrictions on Transfer. This Note, and any Note Shares issued
according to the terms hereof, have not been and will not be registered under
the United States Securities Act. This Note and any Note Shares may not be
offered or sold, directly or indirectly, except pursuant to registration under
the Act, an available exemption therefrom, or pursuant to Regulation S.
ARTICLE 5
COVENANTS
The Issuer covenants and agrees that so long as this Note shall be
outstanding:
SECTION 5.1 Payment of Note. The Issuer will punctually, according to the
terms hereof, (a) pay or cause to be paid the principal of this Note and (b)
issue Note Shares upon conversion.
SECTION 5.2 Notice of Default. If any one or more events occur which
constitute or which, with the giving of notice or the lapse of time or both,
would constitute an Event of Default or if the Holder shall demand payment or
take any other action permitted upon the occurrence of any such Event of
Default, the Issuer will forthwith give notice to the Holder, specifying the
nature and status of the Event of Default or other event or of such demand or
action, as the case may be.
SECTION 5.3 Sufficient Number of Authorized Common Shares. So long as the
this Note shall be outstanding, the Issuer shall at all times have authorized
and reserved for issuance, free from preemptive rights, a sufficient number of
Common Shares to yield a number of Note Shares sufficient to satisfy the
conversion rights of the Holder pursuant to the terms and conditions hereof.
SECTION 5.4 Insurance. The Issuer will carry and maintain in full force and
effect at all times with insurers the Issuer reasonably believes to be
financially sound and reputable such insurance in such amounts as is customary
in the respective industries of the Issuer and such subsidiaries.
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SECTION 5.5 Payment of Obligations. The Issuer will pay and discharge at or
before maturity, all its respective material obligations and liabilities,
including, without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings, and will maintain in
accordance with generally accepted accounting principles, appropriate reserves
for the accrual of any of the same;
SECTION 5.6 Compliance with Laws. The Issuer will comply in all material
respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.7 Inspection of Property, Books and Records. The Issuer will keep
proper books of record and account in which full, true and correct entries shall
be made of all dealings and transactions in relation to its business and
activities and will permit representatives of the Holder at the Holder's expense
to visit and inspect any of its respective properties, to examine and make
abstracts from any of its respective books and records and to discuss its
respective affairs, finances and accounts with its respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used herein
means any one of the following events:
(a) default in the issuance of Note Shares due upon conversion;
(b) default in the due and punctual payment of the principal of on, or
any other amount owing in respect of, this Note when and as the same shall
become due and payable, and continuance of such default for a period of thirty
(30) calendar days; or
(c) substantial failure in the performance or observance of Section
5.5 of this Note and the continuance of such default for a period of thirty (30)
calendar days; or
(d) default in the performance or observance of any covenant or
agreement of the Issuer in this Note (other than a covenant or agreement a
default in the performance of which is specifically provided for elsewhere in
this Section), and the continuance of such default for a period of thirty (30)
calendar days after there has been given to the Issuer by a Holder a written
notice specifying such default and requiring it to be remedied; or
(e) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Issuer or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Issuer under the Bankruptcy
Code or any other applicable Federal or state law, or appointing a receiver,
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liquidator, assignee, trustee or sequestrator (or other similar official) of the
Issuer or of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 30 calendar days, except in case that
such event does not result in a Material Adverse Effect; or
(f) the institution by the Issuer or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable Federal or state law, or the consent by
it to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Issuer or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Issuer in furtherance of any such action, except in case
that such event does not result in a Material Adverse Effect; or
(g) the Issuer shall fail to issue and deliver the Note Shares within
three (3) Business Days of its receipt of the original Note and the original
Conversion Notice in accordance with Section 3.2; or
(h) any principal of other indebtedness of the Issuer or any
Subsidiary, exceeding $500,000 is not repaid on its original maturity date or
becomes due and payable by reason of default before its original maturity date;
or
(i) (i) the Issuer or any Subsidiary is unable to pay its debts as
they fall due, stops, suspends, or threatens in writing to stop or suspend
payment of all or any material part of its debts (other than debts contested in
good faith by appropriate proceedings), begins negotiations or takes any
proceeding or other step with a view to readjustment, rescheduling or deferral
of all of its indebtedness (or any material part thereof) that it will or might
otherwise be unable to pay when due or seeks the appointment of a statutory
manager or proposes in writing or makes a general assignment or an arrangement
or composition with or for the benefit of its creditors or any group or class
thereof or files a petition for suspension of payments or other relief of
debtors of for bankruptcy or is declared bankrupt or a moratorium or statutory
management is agreed or declared in respect of or affecting all or any material
part of the indebtedness of the Issuer or any of its wholly owned subsidiaries,
or (ii) the Issuer ceases or threatens in writing to cease to carry on all or
any material part of the business carried on by the Issuer and its Subsidiaries
taken as a whole and as a result of such cessation or threat of cessation, the
Issuer will not be able to perform or comply with its payment obligations under
this Note, except in case that any such event does not result in a Material
Adverse Effect; or
(j) on or after the date hereof, a final judgment or final judgments
for the payment of money shall have been entered by any court or courts of
competent jurisdiction against the Issuer and remains undischarged for a period
(during which execution shall be effectively stayed) of 30 days, provided that
the aggregate amount of all such judgments at any time outstanding (to the
extent not paid or to be paid, as evidenced by a written communication to that
effect from the applicable insurer, by insurance) exceeds $500,000; or
(k) it becomes unlawful for the Issuer to perform or comply with its
obligations under this Note or the Registration Rights Agreement.
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SECTION 6.2 Acceleration of Maturity: Rescission and Annulment. If an Event
of Default occurs and is continuing, then and in every such case any Holder may
declare the principal of this Note to be due and payable immediately, by a
notice in writing to the Issuer, and upon any such declaration the principal of
this Note shall become immediately due and payable.
SECTION 6.3 Remedies Not Waived. No course of dealing between the Issuer
and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Register. (a) The Issuer shall keep at its principal office a
register in which the Issuer shall provide for the registration of this Note.
Upon any transfer of this Note in accordance with Article 2 and 4 hereof, the
Issuer shall register such transfer on the Note register.
(b) The Issuer may deem the person in whose name this Note shall be
registered upon the registry books of the Issuer to be, and may treat it as, the
absolute owner of this Note (whether or not this Note shall be overdue) for the
purpose of receiving payment of principal of this Note, for the conversion of
this Note and for all other purposes, and the Issuer shall not be affected by
any notice to the contrary. All such payments and such conversions shall be
valid and effective to satisfy and discharge the liability upon this Note to the
extent of the sum or sums so paid or the conversion or conversions so made.
SECTION 7.2 Withholding. To the extent required by applicable law, the
Issuer may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Issuer from any payments made pursuant to this Note.
SECTION 7.3 Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
CONFLICTS OF LAWS PRINCIPLES). WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDINGS
RELATING TO THIS NOTE, THE ISSUER IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK AND
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SUBJECT TO APPLICABLE LAW, THE ISSUER AGREES THAT FINAL JUDGMENT AGAINST IT IN
ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE THE
UNITED STATES BY SUIT ON THE JUDGMENT, A CERTIFIED COPY OF WHICH JUDGMENT SHALL
BE CONCLUSIVE EVIDENCE THEREOF AND THE AMOUNT OF ITS INDEBTEDNESS, OR BY SUCH
OTHER MEANS PROVIDED BY LAW.
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SECTION 7.4 Headings. The headings of the Articles and Sections of this
Note are inserted for convenience only and do not constitute a part of this
Note.
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed by its
duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Note.
Sytron, Inc.
By:_________________________________
Name:
Title:
Attest
By:____________________________
Name:
Title: Secretary
[Corporate Seal]
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ANNEX I TO THE NOTE
[FORM OF CONVERSION NOTICE]
TO _____________________:
The undersigned owner of the Convertible Note, dated ________________,
issued by Sytron, Inc. (the "Note") hereby irrevocably exercises the option to
convert $______________ of the principal amount of the Note into Common Shares,
par value $.01, of Sytron,, Inc. (the "Note Shares"), in accordance with the
terms of the Note. The undersigned directs that the Note Shares issuable and
certificates therefor (to the extent that certificates evidencing Common Shares
are then being issued by Sytron, Inc. deliverable upon the conversion, together
with any check in payment for fractional Note Shares, be issued in the name of
and delivered, if appropriate, to the undersigned unless a different name has
been indicated below.
Dated:
-----------------------------
Signature:
--------------------------
Fill in for registration of Note Shares:
Please print name and address:
(including zip code number)
17
Exhibit 10(h)
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement"),
dated as of January 15, 1999, is made and entered into by and between SYTRON
INC., a corporation organized and existing under the laws of the Commonwealth of
Pennsylvania (the "Company"), and CRESCENT INTERNATIONAL LIMITED, an entity
organized and existing under the laws of Bermuda (the "Investor").
WHEREAS, the Company and the Investor entered into a Private Equity Line
Agreement, dated as of May 14, 1998 (the "Equity Line Agreement");
WHEREAS, pursuant to the terms of the Equity Line Agreement, the Company
has issued to the Investor 166,667 shares of Common Stock;
WHEREAS, pursuant to the terms of the Equity Line Agreement, the Company
has issued to the Investor a warrant dated as of May 14, 1998, exercisable from
time to time within five (5) years following the date of issuance (the
"Warrant") for the purchase of an aggregate of up to 100,000 shares of Common
Stock at a price specified in such Warrant;
WHEREAS, the parties have agreed to terminate the Equity Line Agreement and
shall terminate the Equity Line Agreement on the date hereof;
WHEREAS, the Company and the Investor have entered into that certain Note
Purchase Agreement, dated as of the date hereof (the "Note Purchase Agreement"),
pursuant to which, upon certain terms and subject to certain conditions, the
Company has the right to issue and sell to the Investor and the Investor has the
obligation to purchase up to $750,000 worth of convertible notes (the
"Convertible Notes");
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's agreement to enter into the Note Purchase Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the securities issued to the Investor and any additional shares of Common Stock
issued or distributed to the Investor by way of a dividend, stock split, or
other distribution with respect of the Shares, or acquired by way of any rights
offering or similar offering made in respect of the shares (collectively, the
"Registrable Securities");
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, in the Warrants, in the
Convertible Notes and in the Note Purchase Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound hereby, the parties hereto agree as
follows (capitalized terms used herein and not defined herein shall have the
respective meanings ascribed to them in the Note Purchase Agreement):
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ARTICLE I
REGISTRATION RIGHTS
SECTION 1.1. REGISTRATION STATEMENTS.
(a) Filing of Registration Statements. Subject to the terms and
conditions of this Agreement the Company shall file with the SEC on or before:
(i) January 31, 1999, a registration statement or statements on
such form promulgated by the SEC for which the Company qualifies, that counsel
for the Company shall deem appropriate and which form shall be available for the
sale of the Put Shares, the maximum number of shares of Common Stock into which
Convertible Note No. 1 could be converted, the Commitment Shares, the Warrant
Shares and the Indemnity Shares (the "Initial Registration Statement"); and
(ii) the end of a thirty (30) calendar day period immediately
following the date of issuance of Convertible Note No. 2, a registration
statement on such form promulgated by the SEC for which the Company qualifies,
that counsel for the Company shall deem appropriate and which form shall be
available for the sale of the maximum number of shares of Common Stock into
which Convertible Note No. 2 could be converted (the "Second Registration
Statement" and together with the Initial Registration Statement, the
"Registration Statements").
(b) Effectiveness of the Registration Statements. The Company shall
use its best efforts: (i) to have the Initial Registration Statement declared
effective by the SEC in no event later than 150 days after such Registration
Statement has been filed, (ii) to have the Second Registration Statement
declared effective by the SEC in no event later than ninety (90) calendar days
after the date of issuance of Convertible Note No. 2 and (iii) to ensure that
each Registration Statement remains in effect for a period ending 180 days
following termination of the Commitment Period; provided that such period shall
be extended one day for each day after the applicable Effective Date, that a
Registration Statement covering is not effective during the period such
Registration Statement is required to be effective pursuant to this Agreement.
(c) Failure to Obtain or Maintain Effectiveness of Registration
Statements. In the event the Company fails for any reason (including, without
limitation, the occurrence or continuation of any Blackout Period (as defined in
Section 2.1 (p)) to obtain the effectiveness of a Registration Statement within
the time periods set forth in Section 1.1(b) or to maintain the effectiveness of
a Registration Statement (or the underlying prospectus) throughout the period
set forth in Section 4.2 and the Investor holds any Registrable Securities at
any time during any period of such ineffectiveness (an "Ineffective Period"),
then in either event the Company shall pay to the Investor in immediately
available funds into an account designated by the Investor (i) with respect to
the Initial Registration Statement, an amount equal to six thousand dollars
($6,000) for each calendar month (or portion thereof) during an Ineffective
Period and (ii) with respect to the Second Registration Statement, an amount
equal to four thousand dollars ($4000) for each calendar month (or portion
thereof) during an Ineffective Period. Such payments shall be made on the first
Trading Day after the earlier to occur of (i) the expiration of the applicable
Ineffective Period and (ii) the last day of each calendar month during an
Ineffective Period. On the date hereof, the Company shall place $50,000 in
escrow, which amount shall be released to the Company on the date the Initial
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Registration Statement is declared effective by the SEC. On the date that the
Company issues and sells, and the Investor purchases Convertible Note No. 2, the
Company shall place $30,000 in escrow, which amount shall be released to the
Company on the date the Second Registration Statement is declared effective by
the SEC. Such amounts shall be applied against the liquidated damages referred
to in clauses (i) and (ii) of this Section 1.1(c) until the applicable
Registration Statement is declared effective by the SEC.
(d) Liquidated Damages. The Company and the Investor hereto
acknowledge and agree that the sums payable under subsection 1(c) above shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (i) the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (ii) the amounts specified in such subsections
bear a reasonable proportion and are not plainly or grossly disproportionate to
the probable loss likely to be incurred in connection with any failure by the
Company to obtain or maintain the effectiveness of a Registration Statement,
(iii) one of the reasons for the Company and the Investor reaching an agreement
as to such amounts was the uncertainty and cost of litigation regarding the
question of actual damages, and (iv) the Company and the Investor are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's length.
ARTICLE II
REGISTRATION PROCEDURES
SECTION 2.1. FILINGS; INFORMATION. The Company will effect the registration
of such Registrable Securities in accordance with the intended methods of
disposition thereof as furnished to the Company by any proposed seller of such
Registrable Securities. Without limiting the foregoing, the Company in each such
case will do the following as expeditiously as possible, but in no event later
than the deadline, if any, prescribed therefor in this Agreement:
(a) The Company shall (i) prepare and file with the SEC Registration
Statements on Form SB-1 or such other form promulgated by the SEC for which the
Company then qualifies, that counsel for the Company shall deem appropriate and
which form shall be available for the sale of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement and in
accordance with the intended method of distribution of such Registrable
Securities); (ii) use its best efforts to cause such filed Registration
Statements to become and remain effective (pursuant to Rule 415 under the
Securities Act or otherwise); (iii) prepare and file with the SEC such
amendments and supplements to such Registration Statements and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statements effective for the time periods prescribed by Section 1.1(b); and (iv)
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the Investor set forth in
such Registration Statement.
(b) The Company shall file all necessary amendments to a Registration
Statement in order to effectuate the purpose of this Agreement, the Note
Purchase Agreement, the Warrant and the Convertible Notes.
(c) If so requested by the managing underwriters (if any), with
respect to, or the holders of, a majority in aggregate amount of the Registrable
Securities to be sold in connection with the filing of a Registration Statement
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under the Securities Act for the offering on a continuous or delayed basis in
the future of all of the Registrable Securities (a "Shelf Registration"), the
Company shall (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters, if any,
and such holders agree should be included therein, and (ii) make all required
filings of such prospectus supplement or post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 2.1(c)(ii) that would, in the opinion of counsel for
the Company, violate applicable law.
(d) In connection with the filing of a Shelf Registration, the Company
shall enter into such agreements and take all such other reasonable actions in
connection therewith (including those reasonably requested by the managing
underwriters (if any), with respect to, or the holders of, a majority in
aggregate amount of the Registrable Securities being sold) in order to expedite
or facilitate the disposition of such Registrable Securities, and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration, the Company shall (i)
make such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, with respect to the business of the
Company (including with respect to businesses or assets acquired or to be
acquired by the Company), and any Registration Statement, prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings, and confirm such
representations and warranties if and when requested; (ii) if an underwriting
agreement is entered into, it shall contain indemnification provision and
procedures no less favorable to the selling holders of such Registrable
Securities and the underwriters, if any, than those set forth herein (or such
other provisions and procedures acceptable to the holders of a majority in
aggregate amount of Registrable Securities covered by such Registration
Statement and such managing underwriters, if any); and (iii) deliver such
documents and certificates as may be reasonably requested by the holders of a
majority in aggregate amount of the Registrable Securities being sold, their
counsel and the managing underwriters, if any, to evidence the continued
validity of their representations and warranties made pursuant to clause (i)
above and to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
(e) Five (5) Trading Days prior to filing a Registration Statement or
prospectus, or any amendment or supplement thereto (excluding amendments deemed
to result from the filing of documents incorporated by reference therein), the
Company shall deliver to the Investor and one firm of counsel representing the
Investor, in accordance with the notice provisions of Section 4.8, copies of
such Registration Statement as proposed to be filed, together with exhibits
thereto, which documents will be subject to review and comment by the Investor
and such counsel, and thereafter deliver to the Investor and such counsel, in
accordance with the notice provisions of Section 4.8, such number of copies of
the Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in the Registration
Statement (including each preliminary prospectus) and such other documents or
information as the Investor or counsel may reasonably request in order to
facilitate the disposition of the Registrable Securities.
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(f) The Company shall deliver, in accordance with the notice
provisions of Section 4.8, to each seller of Registrable Securities covered by a
Registration Statement such number of conformed copies of such Registration
Statement and of each amendment and supplement thereto (in each case including
all exhibits and documents incorporated by reference), such number of copies of
the prospectus contained in the Registration Statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
seller's Registrable Securities, and such other documents, as such seller may
reasonably request to facilitate the disposition of its Registrable Securities.
(g) After the filing of a Registration Statement, the Company shall
promptly notify the Investor of any stop order issued or threatened by the SEC
in connection therewith and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
(h) The Company shall use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as the Investor may reasonably (in light of
its intended plan of distribution) request, and (ii) cause the Registrable
Securities to be registered with or approved by such other governmental agencies
or authorities in the United States as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and things
that may be reasonably necessary or advisable to enable the Investor to
consummate the disposition of the Registrable Securities; provided, however,
that the Company will not be required to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (h), subject itself to taxation in any such jurisdiction, or consent
or subject itself to general service of process in any such jurisdiction.
(i) The Company shall immediately notify the Investor upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of an offering of Registrable Securities: (i)
receipt of any request by the SEC or any other federal or state governmental
authority for additional information, amendments or supplements to a
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) except during a Blackout
Period, the happening of any event that makes any statement made in a
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in a Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; (v) the declaration by the SEC of the effectiveness of a
Registration Statement and (vi) the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate and,
except during a Blackout Period, the Company will promptly make available to the
Investor any such supplement or amendment to the related prospectus.
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(j) The Company shall enter into customary agreements and take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities (whereupon the Investor may, at its
option, require that any or all of the representations, warranties and covenants
of the Company also be made to and for the benefit of the Investor).
(k) The Company shall make available to the Investor (and will deliver
to Investor's counsel), subject to restrictions imposed by the United States
federal government or any agency or instrumentality thereof, copies of all
correspondence between the SEC and the Company, concerning a Registration
Statement, and except during a Blackout Period, will also make available for
inspection by the Investor and any attorney, accountant or other professional
retained by the Investor (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers
and employees to supply all information reasonably requested by any Inspectors
in connection with a Registration Statement. Records that the Company
determines, in good faith, to be confidential and that it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in a Registration Statement or (ii) the disclosure or release of
such Records is requested or required pursuant to oral questions,
interrogatories, requests for information or documents or a subpoena or other
order from a court of competent jurisdiction or other process; provided,
however, that prior to any disclosure or release pursuant to clause (ii), the
Inspectors shall provide the Company with prompt notice of any such request or
requirement so that the Company may seek an appropriate protective order or
waive such Inspectors' obligation not to disclose such Records; and, provided,
further , that if failing the entry of a protective order or the waiver by the
Company permitting the disclosure or release of such Records, the Inspectors,
upon advice of counsel, are compelled to disclose such Records, the Inspectors
may disclose that portion of the Records that counsel has advised the Inspectors
that the Inspectors are compelled to disclose. The Investor agrees that
information obtained by it solely as a result of such inspections (not including
any information obtained from a third party who, insofar as is known to the
Investor after reasonable inquiry, is not prohibited from providing such
information by a contractual, legal or fiduciary obligation to the Company)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or its affiliates unless
and until such information is made generally available to the public. The
Investor further agrees that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of the Records deemed confidential.
(l) To the extent required by law or reasonably necessary to effect a
sale of Registrable Securities in accordance with prevailing business practices
at the time of any sale of Registrable Securities pursuant to a Registration
Statement, the Company shall deliver to the Investor a signed counterpart,
addressed to the Investor, of (1) an opinion or opinions of counsel to the
Company, and (2) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letters, as the case may
be, as the Investor therefor reasonably requests.
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(m) The Company shall otherwise comply with all applicable rules and
regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
(n) The Company shall appoint a transfer agent and registrar for all
of the class that includes the Registrable Securities covered by such
Registration Statement not later than the effective date of such Registration
Statement.
(o) The Company may require the Investor to promptly furnish in
writing to the Company such information as may be legally required in connection
with such registration including, without limitation, information regarding the
intended method of disposition of Registrable Securities, all such information
as may be requested by the SEC or the National Association of Securities
Dealers. The Investor agrees to provide such information requested in connection
with such registration within ten (10) business days after receiving such
written request and the Company shall not be responsible for any delays in
obtaining or maintaining the effectiveness of a Registration Statement caused by
the Investor's failure to timely provide such information. Each seller of
Registrable Securities shall notify the Company as promptly as practicable of
any inaccuracy or change in information previously furnished by such seller to
the Company or of the occurrence of any event, in either case as a result of
which any prospectus relating to the Registrable Securities contains or would
contain an untrue statement of a material fact regarding such seller or its
intended method of disposition of such Registrable Securities or omits to state
any material fact regarding such seller or such seller's intended method of
disposition of such Registrable Securities required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and promptly furnish to the Company
any additional information required to correct and update any previously
furnished information or required so that such prospectus shall not contain,
with respect to such seller or the disposition of such Registrable Securities,
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(p) Notwithstanding anything in this Agreement to the contrary, the
Company shall be entitled to postpone for a period of time in its reasonable
judgment, but not to exceed 120 days (a "Blackout Period"), the filing of a
Registration Statement in accordance with this Agreement, and the preparation
and/or filing of any prospectus or any amendments or supplements to a
Registration Statement or prospectus, if the Company reasonably determines that
any such filing or the offering of any Registrable Securities would (i) impede,
delay or otherwise interfere with any financing, offer or sale of securities,
acquisition, corporate reorganization or other significant transaction involving
the Company or any of its affiliates, or (ii) require disclosure of material
information that, if disclosed at that time, would be harmful to the interests
of the Company and its stockholders; provided, however, that, during the
Blackout Period pursuant to (ii) above, the Blackout Period shall earlier
terminate upon public disclosure by the Company or public admission by the
Company of such material information. Upon notice by the Company to any holder
of Registrable Securities of such determination, the holder covenants that it
shall (i) keep the fact of any such notice strictly confidential, (ii) promptly
halt any offer, sale, trading or transfer by it or any of its affiliates of any
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of the Registrable Securities for the duration of the Blackout Period set forth
in such notice (or until earlier terminated in writing by the Company) and (iii)
promptly halt any use, publication, dissemination or distribution of a
Registration Statement, each prospectus included therein, and any amendment or
supplement thereto by it and any of its affiliates for the duration of the
Blackout Period set forth in such notice (or until earlier terminated in writing
by the Company). During any Blackout Period, liquidated damages shall accrue
pursuant to Section 1(c) hereof, at a rate of six thousand dollars ($6,000) per
calendar month.
SECTION 2.2. REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay all registration expenses incurred in
connection with the registration thereunder (the "Registration Expenses"),
including, without limitation: (i) all registration, filing, securities exchange
listing and fees required by the National Association of Securities Dealers,
(ii) all registration, filing, qualification and other fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) all of the Company's word processing,
duplicating, printing, messenger and delivery expenses, (iv) the Company's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v) the fees
and expenses incurred by the Company in connection with the listing of the
Registrable Securities, (vi) reasonable fees and disbursements of counsel for
the Company and customary fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any special
audits or comfort letters or costs associated with the delivery by independent
certified public accountants of such special audit(s) or comfort letter(s)
requested pursuant to Section 2.1(l) hereof), (vii) the fees and expenses of any
special experts retained by the Company in connection with such registration,
(viii) premiums and other costs of policies of insurance purchased at the
discretion of the Company against liabilities arising out of any public offering
of the Registrable Securities being registered, and (ix) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting fees, discounts, transfer taxes or
commissions, if any, attributable to the sale of Registrable Securities, which
shall be payable by each holder of Registrable Securities pro rata on the basis
of the number of Registrable Securities of each such holder that are included in
a registration under this Agreement.
ARTICLE III
INDEMNIFICATION AND CONTRIBUTION
SECTION 3.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Investor, its partners, affiliates, officers,
directors, employees and duly authorized agents, and each Person or entity, if
any, who controls the Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the partners,
Affiliates, officers, directors, employees and duly authorized agents of such
controlling Person or entity (collectively, the "Controlling Persons"), from and
against any loss, claim, damage, liability, costs and expenses (including,
without limitation, reasonable attorneys' fees and disbursements and costs and
expenses of investigating and defending any such claim) (collectively,
"Damages"), joint or several, and any action or proceeding in respect thereof to
which the Investor, its partners, affiliates, officers, directors, employees and
duly authorized agents, and any Controlling Person, may become subject under the
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Securities Act or otherwise, as incurred, insofar as such Damages (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, or in any preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement relating to the Registrable
Securities or arises out of, or are based upon, any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and shall reimburse the Investor,
its partners, affiliates, officers, directors, employees and duly authorized
agents, and each such Controlling Person, for any legal and other expenses
reasonably incurred by the Investor, its partners, affiliates, officers,
directors, employees and duly authorized agents, or any such Controlling Person,
as incurred, in investigating or defending or preparing to defend against any
such Damages or actions or proceedings; provided, however, that the Company
shall not be liable to the extent that any such Damages arise out of the
Investor's failure to send or give a copy of the final prospectus or supplement
to the persons asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such person if such statement or omission was
corrected in such final prospectus or supplement; provided, further, that the
Company shall not be liable to the extent that any such Damages arise out of or
are based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, or any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by the Investor or any other person who participates as a seller or as
an underwriter in the offering or sale of such securities, in either case,
specifically stating that it is for use in the preparation thereof.
Each seller of any Registrable Securities shall, and the Company may
require (as a condition to entering into any underwriting or similar agreement
with respect to the offer or sale of any Registrable Securities) that the
Company shall have received an undertaking reasonably satisfactory to it from
each agent or underwriter named in any such agreement to, (i) indemnify the
Company, its affiliates, officers, directors, employees and duly authorized
agents and any Controlling Persons from and against any Damages, joint or
several, and any action or proceeding in respect thereof to which the Company,
its affiliates, officers, directors, employees and duly authorized agents and
any Controlling Person may become subject under the Securities Act or otherwise,
as incurred, insofar as such Damages (or actions or proceedings in respect
thereof) arise out of, or are based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Registration Statement, or
any preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by that seller or any other person who participates with that
seller or as an underwriter in the offering or sale of such securities, in
either case, specifically stating that it is for use in preparation of a
Registration Statement; provided, however, such indemnification shall in no
event exceed $150,000.
SECTION 3.2. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt
by any person or entity in respect of which indemnity may be sought pursuant to
Section 3.1 (an "Indemnified Party") of notice of any claim or the commencement
of any action, the Indemnified Party shall, if a claim in respect thereof is to
be made against the person or entity against whom such indemnity may be sought
(the "Indemnifying Party"), notify the Indemnifying Party in writing of the
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claim or the commencement of such action. In the event an Indemnified Party
shall fail to give such notice as provided in this Section 3.2 and the
Indemnifying Party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was materially prejudiced by the
failure to give such notice, the indemnification provided for in Section 3.1
shall be reduced to the extent of any actual prejudice resulting from such
failure to so notify the Indemnifying Party; provided, however, that the failure
to notify the Indemnifying Party shall not relieve the Indemnifying Party from
any liability that it may have to an Indemnified Party otherwise than under
Section 3.1. If any such claim or action shall be brought against an Indemnified
Party, and it shall notify the Indemnifying Party thereof, the Indemnifying
Party shall be entitled to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified Indemnifying Party, to assume
the defense thereof with counsel reasonably satisfactory to the Indemnified
Party. After notice from the Indemnifying Party to the Indemnified Party of its
election to assume the defense of such claim or action, the Indemnifying Party
shall not be liable to the Indemnified Party for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Indemnified Party shall have the right to employ separate counsel to
represent the Indemnified Party and its Controlling Persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the Indemnified Party against the Indemnifying Party, but the fees and
expenses of such counsel shall be for the account of such Indemnified Party,
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) in the reasonable judgment of
the Company and such Indemnified Party, representation of both parties by the
same counsel would be inappropriate due to actual or potential conflicts of
interest between them, it being understood, however, that the Indemnifying Party
shall not, in connection with any one such claim or action or separate but
substantially similar or related claims or actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all Indemnified Parties, or for fees
and expenses that are not reasonable. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
claim or pending or threatened proceeding in respect of which the Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding. Whether or not the defense of any claim or action
is assumed by the Indemnifying Party, such Indemnifying Party will not be
subject to any liability for any settlement made without its consent, which
consent will not be unreasonably withheld.
SECTION 3.3. OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding paragraphs of this Article 3 (with appropriate
modifications) shall be given by the Company with respect to any required
registration or other qualification of securities under any federal or state law
or regulation of any governmental authority other than the Securities Act. The
provisions of this Article III shall be in addition to any other rights to
indemnification, contribution or other remedies which an Indemnified Party may
have pursuant to law, equity, contract or otherwise.
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SECTION 3.4. CONTRIBUTION. If the indemnification and reimbursement
obligations provided for in any section of this Article III is unavailable or
insufficient to hold harmless the Indemnified Parties in respect of any Damages
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages as between the Company on the one
hand and the Investor or seller on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of the Investor or
seller in connection with such statements or omissions, as well as other
equitable considerations. The relative fault of the Company on the one hand and
of the Investor or seller on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Investor agree that it would not be just and equitable
if contribution pursuant to this Section 3.4 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the Damages
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 3.4, the Investor or seller shall in no event be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Securities of the Investor or seller were sold to the public (less
underwriting discounts and commissions) exceeds the amount of any damages which
the Investor or seller has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. NO OUTSTANDING REGISTRATION RIGHTS. Except as set forth on
Schedule 4.1, the Company represents and warrants to the Investor that there is
not in effect on the date hereof any agreement by the Company pursuant to which
any holders of securities of the Company have a right to cause the Company to
register or qualify such securities under the Securities Act or any securities
or blue sky laws of any jurisdiction.
SECTION 4.2. TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate at such time as all Registrable
Securities have been issued and have ceased to be Registrable Securities.
Notwithstanding the foregoing, paragraphs (c) and (d) of Section 1.1, Article
III, Section 4.8, and Section 4.9 shall survive the termination of this
Agreement.
SECTION 4.3. RULE 144. If the Company is required to file reports under the
Exchange Act, the Company will file in a timely manner, information, documents
and reports in compliance with the Securities Act and the Exchange Act and will,
at its expense, promptly take such further action as holders of Registrable
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Securities may reasonably request to enable such holders of Registrable
Securities to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act ("Rule 144"), as such Rule may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the SEC. If at
any time the Company is not required to file such reports, it will, at its
expense, forthwith upon the written request of any holder of Registrable
Securities who intends to make a sale under Rule 144, make available adequate
current public information with respect to the Company within the meaning of
paragraph (c)(2) of Rule 144 or such other information as necessary to permit
sales pursuant to Rule 144. Upon the request of the Investor, the Company will
deliver to the Investor a written statement, signed by the Company's principal
financial officer, as to whether it has complied with such requirements. This
Section 9.3 shall terminate at the same time as the registration rights as
provided in Section 9.2.
SECTION 4.4. CERTIFICATE. The Company will, at its expense, forthwith upon
the request of any holder of Registrable Securities, deliver to such holder a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of shares of each class of Stock
outstanding as shown by the most recent report or statement published by the
Company, and (e) whether the Company has filed the reports required to be filed
under the Exchange Act for a period of at least ninety (90) days prior to the
date of such certificate and in addition has filed the most recent annual report
required to be filed thereunder.
SECTION 4.5. AMENDMENT AND MODIFICATION. Any provision of this Agreement
may be waived, provided that such waiver is set forth in a writing executed by
both parties to this Agreement. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding Registrable Securities. Notwithstanding the foregoing,
the waiver of any provision hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and does not directly or
indirectly affect the rights of other holders of Registrable Securities may be
given by holders of at least a majority of the Registrable Securities being sold
by such holders; provided that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence. No course of dealing between or among any
Person having any interest in this Agreement will be deemed effective to modify,
amend or discharge any part of this Agreement or any rights or obligations of
any person under or by reason of this Agreement.
SECTION 4.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Investor may
assign its rights under this Agreement to any subsequent holder the Registrable
Securities, provided that the Company shall have the right to require any holder
of Registrable Securities to execute a counterpart of this Agreement and agree
to be bound by the provisions of this Agreement as a condition to such holder's
claim to any rights hereunder. This Agreement, together with the Note Purchase
Agreement, the Security Agreement and the Warrant(s) sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
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SECTION 4.7. SEPARABILITY. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
SECTION 4.8. NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing and
shall be (i) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (ii) delivered by reputable air courier service with
charges prepaid, or (iii) transmitted by hand delivery, telegram or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company:
Sytron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Attention: Mitchel Feinglas, CEO
Telephone: (303) 469-6100
Facsimile: (303) 469-7100
with a copy (which shall not constitute notice) to:
Bresler Goodman & Unterman, LLP
521 Fifth Avenue
New York, NY 10175
Attention: Andrew J. Goodman, Esq., or
Jay Jacobson, Esq.
Telephone: (212) 661-2150
Facsimile: (212) 949-6131
if to the Investor:
Crescent International Limited
Greenlight (Switzerland) SA
84, av Louis-Casai, P.O. Box 161
1216 Geneva, Cointrin
Switzerland
Attention: Melvyn Craw/Maxi Brezzi
Telephone: +41 22 791 72 56
Facsimile: +41 22 929 53 94
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with a copy (which communication shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Sara Hanks, Esq./Earl Zimmerman, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 4.8 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
SECTION 4.9. GOVERNING LAW. This Agreement shall be construed under the
laws of the State of New York.
SECTION 4.10. HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not constitute a part of this Agreement, nor shall
they affect their meaning, construction or effect.
SECTION 4.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
SECTION 4.12. FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
SECTION 4.13. ABSENCE OF PRESUMPTION. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting or causing any instrument to be
drafted.
SECTION 4.14. REMEDIES. In the event of a breach or a threatened breach by
any party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Agreement or to injunctive relief, in addition to being
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that the remedy at law, including
monetary damages, for breach of any such provision may be inadequate
compensation for any loss.
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IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Registration Rights Agreement to be executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.
SYTRON INC.
By:
-----------------------------------
Name
Title
CRESCENT INTERNATIONAL LIMITED
By:
-----------------------------------
Name
Title
15
Exhibit 10(i)
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of January 15, 1999 between SYTRON, INC.,
a corporation organized and existing under the laws of the Commonwealth of
Pennsylvania (the "Company"), and CRESCENT INTERNATIONAL LIMITED, an entity
organized and existing under the laws of Bermuda (the " Secured Party").
W I T N E S S E T H :
---------------------
WHEREAS, pursuant to that certain Note Purchase Agreement dated as of
the date hereof (as the same may be amended, supplemented, modified, extended or
restated from time to time, the "Note Purchase Agreement"), between the Company
and the Secured Party, upon certain terms and subject to certain conditions, the
Company has the right to issue and sell and the Secured Party has the obligation
to purchase up to $750,000 worth of notes convertible into shares of common
stock (the "Common Stock"), par value $0.01 per share, of the Company (the
"Convertible Notes"); and
WHEREAS, it is a condition to the obligations of the Secured Party
under the Note Purchase Agreement that the Company shall have executed and
delivered this Security Agreement to the Secured Party;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company hereby
agrees with the Secured Party, as follows:
SECTION 1. Defined Terms.
(a) As used herein, the following terms shall have the following meanings:
"Chattel Paper": shall mean any and all "chattel paper", as defined in
the UCC, now or hereafter owned by the Company or in which the Company has any
rights or interest.
"Collateral": shall have the meaning specified in Section 2 of this
Security Agreement.
"Documents": shall mean any and all "documents" as defined in the UCC
now or hereafter owned by the Company or in which the Company has any rights or
interest.
"Instrument": shall mean any "instrument," as such term is defined in
the UCC, now or hereafter owned by the Company or in which the Company has any
rights or interest.
"Inventory": shall mean any "inventory", as such term is defined in
the UCC, now or hereafter owned by the Company or in which the Company has any
rights or interest and, in any event, shall mean and include, but not be limited
to, all inventory, merchandise, goods and other personal property (including
goods in transit) which are held for sale or lease or are furnished or are to be
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furnished under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in the Company's
business, or the processing, packaging, delivery or shipping of the same, all
finished goods, and all such property the sale or other disposition of which has
given rise to Accounts and which has been returned to or repossessed or stopped
in transit by the Company.
"Proceeds": shall mean "proceeds", as such term is defined in the UCC
and, in any event, shall mean and include, but not be limited to, the following
at any time whatsoever arising or receivable: (i) whatever is received upon any
collection, exchange, sale or other disposition of any of the Collateral, and
any property into which any of the Collateral is converted, whether cash or
non-cash proceeds, (ii) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to the Company from time to time with respect to
any of the Collateral, (iii) any and all payments (in any form whatsoever) made
or due or payable to the Company from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental authority (or any other Person), and
(iv) any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
"Security Agreement": shall mean this Security Agreement, as the same
may be amended, supplemented or otherwise modified from time to time.
"UCC": shall mean the Uniform Commercial Code as in effect on the date
hereof in the State of New York; provided that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or non-perfection
of the security interest in any Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than New York, "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such perfection or effect of perfection or
non-perfection.
(b) Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings given to them in the Note Purchase
Agreement.
SECTION 2. Grant of Security Interest. As security for the prompt and
complete payment and performance when due of all the Company's obligations under
the Note Purchase Agreement, the Registration Rights Agreement, the Warrants and
the Convertible Notes (the "Obligations"), the Company hereby sells, assigns,
conveys, mortgages, pledges, hypothecates and transfers to the Secured Party and
hereby grants to the Secured Party a lien on and continuing security interest
in, all the Company's right, title and interest in, to and under all Inventory
and Proceeds and products of any or all of the foregoing of the Company, whether
now owned or hereafter acquired or arising and wheresoever located (all of which
being hereinafter collectively called the "Collateral").
SECTION 3. Limitation on Secured Party's Obligations. It is expressly
agreed by the Company that, anything herein to the contrary notwithstanding, the
Company shall remain liable under all contracts and agreements included in or
giving rise to the Collateral to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with and pursuant to the terms and provisions thereof, as if this Security
Agreement had not been executed. The Secured Party shall not have any obligation
or liability under any such contract or agreement by reason of or arising out of
this Security Agreement or the granting to the Secured Party of a Lien thereon
or the receipt by the Secured Party of any payment relating thereto pursuant to
the terms hereof, nor shall the Secured Party be required or obligated in any
manner to perform or fulfill any of the obligations of the Company under or
pursuant to any such contract or other agreement, or to make any payment, or to
make any inquiry as to the nature or the sufficiency of any payment received by
it or the sufficiency of any performance by any party thereunder, or to present
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or file any claim, or to take any action to collect or enforce any performance
or the payment of any amounts which may have been assigned to it or to which it
may be entitled at any time or times.
SECTION 4. Representations and Warranties. The Company hereby represents
and warrants to the Secured Party that:
(a) This Security Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms.
(b) The Company is the sole legal and beneficial owner of the
Collateral, free and clear of any and all Liens, except as set forth on
Schedule 4(b) and except for the Liens granted to the Secured Party
pursuant hereto.
(c) There is no security agreement, financing statement, equivalent
security or lien instrument or continuation statement executed by the
Company or, to the best of its knowledge, any other Person covering all or
any part of the Collateral on file or of record in any public office,
except as set forth on Schedule 4(c) and except such as may have been filed
by the Company in favor of the Secured Party pursuant to this Security
Agreement.
(d) This Security Agreement creates a valid lien on the Collateral in
favor of the Secured Party securing the payment of the Obligations. Upon
filing UCC financing statements naming the Company as debtor and the
Secured Party as secured party in the jurisdictions listed on Schedule 4(j)
hereto, all action necessary to perfect the security interest of the
Secured Party will have been taken and such security interest will have
priority over all other Liens.
(e) All Inventory that has been or is hereafter produced by the
Borrower has been and will be produced in compliance with all applicable
requirements of the Fair Labor Standards Act.
(f) The exact name of the Company as that name appears on its
Certificate of Incorporation is "Sytron, Inc." Schedule 4(f) sets forth a
list of all other names (including trade names or similar appellations)
used by the Company, or any other business or organization to which the
Company became the successor by merger, consolidation, acquisition, change
in form, nature or jurisdiction of organization or otherwise, now or at any
time during the past three years
(g) The Company's federal employer identification number is
22-3200841.
(h) The chief executive office of the Company is located at 2770
Industrial Lane, Broomfield, Boulder County, Colorado 80020. Schedule 4(h)
sets forth all other places of business of the Company.
(i) All books or records relating to the Collateral are located at
2770 Industrial Lane, Broomfield, Colorado 80020.
(j) All of the Collateral is located at 2770 Industrial Lane,
Broomfield, Colorado 80020.
(k) Schedule 4(k) sets forth the names and addresses of all persons or
entities other than the Company, such as lessees, consignees or
warehousemen, which have possession or are intended to have possession of
any of the Collateral.
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(l) Schedule 4(l) sets forth each location or place of business
previously maintained by the Company at any time during the past five years
in a state in which the Company has previously maintained a location or
place of business at any time during the past four months.
(m) Schedule 4(m) sets forth each other location at which, or other
person or entity with which, any of the Collateral consisting of Inventory
has been previously held at any time during the past four months.
(n) Attached hereto as Schedule 4(n)(i) is a true copy of a file
search report from the Uniform Commercial Code filing officer (or, if such
officer does not issue such reports, from an experienced Uniform Commercial
Code search organization acceptable to the Secured Party) in each
jurisdiction identified in Schedules 4(h), (i), (j), (k), (l) or (m).
Attached hereto as Schedule 4(n)(ii) is a true copy of each financing
statement or other filing identified in such file search reports.
(o) Attached hereto as Schedule 4(o) is a schedule setting forth the
filing offices in each jurisdiction identified in 4(h), (i), (j) or (k)
where Uniform Commercial Code financing statements are required to be filed
in order to perfect the security interest of the Secured Party, in all
Collateral in which a security interest may be perfected by filing,
including, without limitation, Collateral consisting of fixtures.
SECTION 5. Covenants. The Company covenants and agrees with the Secured
Party, that from and after the date of this Security Agreement and until the
Obligations are fully satisfied:
(a) The Company will not change (i) its name, identity or corporate
structure in any manner, or (ii) the locations of its places of business or
its chief executive office or the locations where it keeps or holds any
Collateral (other than Inventory in transit) or records relating thereto
from the applicable location described herein, unless the Company shall
have given the Secured Party at least 90 days' prior written notice thereof
and shall have delivered to the Secured Party duly executed UCC-1 financing
statements for filing in each jurisdiction in which any such filing is
required in order to perfect the Lien created by this Security Agreement in
the Collateral affected by the change of name, identity or corporate
structure or location and shall have taken all action necessary or
requested by the Secured Party to amend any financing statement or
continuation statement so that it is not seriously misleading.
(b) The Company will keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral, including, without
limitation, a record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the Collateral. The
Company will mark its books and records pertaining to the Collateral to
evidence this Security Agreement and the Liens and security interests
granted hereby. As further security, the Company agrees that the Secured
Party shall have a special property interest in all of the Company's books
and records pertaining to the Collateral and upon the occurrence of an
Event of Default the Company shall deliver and turn over any such books and
records to the Secured Party or to its representatives or agents on demand
of the Secured Party.
(c) The Company will, without unreasonable delay, furnish to the
Secured Party from time to time upon the Secured Party's request therefor,
such statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably require.
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(d) The Company will advise the Secured Party promptly, in reasonable
detail, (i) of any Lien on or asserted against any of the Collateral, and
(ii) of the occurrence of any other material event which would adversely
affect the aggregate value of the Collateral or the security interests
created hereunder.
(e) If any of the Collateral shall be now or hereafter evidenced by an
Instrument, Chattel Paper or Document the Company shall deliver to the
Secured Party the originals of such Instrument, Chattel Paper or Document
duly endorsed or accompanied by an appropriate instrument of transfer or
assignment.
(f) The chief financial officer of the Company (the "Chief Financial
Officer") shall provide to the Secured Party, on a bi-weekly basis, a
statement setting forth the dollar value of the Inventory as of the date
thereof.. Upon request of the Company, the Chief Financial Officer shall
provide to the Company, within two (2) business days of such request, a
more detailed report relating to the Inventory, which report shall be in
form and substance satisfactory to the Secured Party.
SECTION 6. Further Assurances. At any time and from time to time, upon the
written request of the Secured Party, and at the sole expense of the Company,
the Company will promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as the Secured Party may
require to obtain the full benefits of this Security Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the UCC with respect to the Liens
granted hereby, transferring Collateral for which possession is necessary to
perfect a security interest to the Secured Party's possession and obtaining
waivers from landlords and mortgagees. The Company also hereby authorizes the
Secured Party to file any such financing or continuation statement without the
signature of the Company to the extent permitted by applicable law.
SECTION 7. Secured Party's Appointment as Attorney-in-Fact.
(a) The Company hereby irrevocably constitutes and appoints the
Secured Party, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Company and in the name of the Company or in its own name, from
time to time in the Secured Party's discretion, for the purpose of carrying out
the terms of this Security Agreement, to take any and all appropriate action and
to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby gives the Secured Party the
power and right, on behalf of the Company, without prior notice to or assent by
the Company to do the following:
(i) upon the occurrence and continuance of any Event of Default, to
ask, demand, collect, receive and give acquittances and receipts for any
and all moneys due and to become due under any Collateral and, in the name
of the Company or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due under any Collateral and to file
any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Secured Party for the purpose
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<PAGE>
of collecting any and all such moneys due under any Collateral whenever
payable and to file any claim or to take any other action or proceeding in
any court of law or equity or otherwise deemed appropriate by the Secured
Party for the purpose of collecting any and all such moneys due under any
Collateral whenever payable;
(ii) to pay or discharge any taxes or Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of the Credit Agreement and to pay all or any part
of the premiums therefor and the costs thereof; and
(iii) upon the occurrence and continuance of any Event of Default, (A)
to direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due and to become due thereunder
directly to the Secured Party or as the Secured Party shall direct; (B) to
receive payment of and receipt for any and all moneys, claims and other
amounts due and to become due at any time in respect of or arising out of
any Collateral; (C) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts
and other documents relating to the Collateral; (D) to commence and
prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any thereof
and to enforce any other right in respect of any Collateral; (E) to defend
any suit, action or proceeding brought against the Company with respect to
any Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described above and, in connection therewith, to give such
discharges or releases as the Secured Party may deem appropriate; and (G)
generally to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
the Secured Party were the absolute owner thereof for all purposes, and to
do, at the Secured Party's option and the Company's expense, at any time,
or from time to time, all acts and things which the Secured Party deems
necessary to protect, preserve or realize upon the Collateral and the
Secured Party's security interest, therein, in order to effect the intent
of this Security Agreement, all as fully and effectively as the Company
might do.
The Company hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. This power of attorney is a
power coupled with an interest and shall be irrevocable until all Obligations of
the Company to the Secured Party have been fully and completely satisfied.
(b) The powers conferred on the Secured Party hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. The Secured Party shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers and
neither it nor any of its officers, partners, directors, employees or agents
shall be responsible to the Company for any act or failure to act, except for
its own gross negligence or willful misconduct.
(c) The Company also authorizes the Secured Party, at any time and
from time to time, to execute, in connection with the sale provided for in
paragraph (b) of Section 9 of this Security Agreement, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
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SECTION 8. Performance of Company's Obligations. If the Company fails to
perform or comply with any of its agreements contained herein, the Secured
Party, may (but shall not be obligated to) perform or comply, or otherwise cause
performance or compliance, with such agreement, and the Secured Party, may from
time to time take any other action which it deems necessary for the maintenance,
preservation or protection of any of the Collateral or the Secured Party's
Liens, thereon. The cost and expenses of the Secured Party (including, without
limitation, the fees and disbursements of counsel to the Secured Party, incurred
in connection with any of the foregoing) shall be payable by the Company to the
Secured Party, on demand and shall constitute Obligations secured hereby.
SECTION 9. Remedies, Rights Upon Default.
(a) If an Event of Default shall occur and be continuing:
(i) All payments received by the Company under or in connection with
any of the Collateral shall be held by the Company in trust for the Secured
Party, shall be segregated from other funds of the Company and shall
forthwith upon receipt by the Company, be turned over to the Secured Party,
in the same form as received by the Company (duly endorsed by the Company
to the Secured Party, if required); and
(ii) Any and all such payments so received by the Secured Party
(whether from the Company or otherwise) may, in the sole discretion of the
Secured Party, be held by the Secured Party as collateral security for,
and/or then or at any time thereafter applied in whole or in part by the
Secured Party, against all or any part of the Obligations in such order as
the Secured Party may elect. Any balance of such payments held by the
Secured Party and remaining after payment in full of all the Obligations
shall be paid over to the Company or to whomsoever may be lawfully entitled
to receive the same.
(b) If any Event of Default shall occur and be continuing, the Secured
Party may in addition to all other rights and remedies granted to it in this
Security Agreement and in any other instrument or agreement securing, evidencing
or relating to the Obligations, exercise all rights and remedies of a secured
party under the UCC. Without limiting the generality of the foregoing, the
Company expressly agrees that upon the occurrence of an Event of Default, the
Secured Party, without demand of performance or other demand, advertisement or
notice of any kind (except as specified below) to or upon the Company or any
other person (all and each of which demands, advertisements and/or notices are
hereby expressly waived to the extent permitted by law), may forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give an option or options to purchase,
or sell or otherwise dispose of and deliver said Collateral (or contract to do
so), or any part thereof, in one or more parcels at public or private sale or
sales, at any exchange or broker's board or at any of the Secured Party' s
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. If any consent,
approval or authorization of, or filing with, any governmental authority or any
other Person should be necessary to effectuate any sale or other disposition of
the Collateral, or any partial disposition of the Collateral, the Company agrees
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to execute all such applications and other instruments as may be required in
connection with securing any such consent, approval or authorization, and will
otherwise use its best efforts to secure the same. The Secured Party shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
said Collateral so sold, free of any right or equity of redemption which right
or equity of redemption the Company hereby waives and releases. The Company
further agrees, at the Secured Party's request, to assemble the Collateral and
make it available to the Secured Party at such places which the Secured Party
may select, whether at the Company's premises or elsewhere. The Secured Party
may apply the proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care, safe keeping or otherwise of
any or all of the Collateral or in any way relating to the rights of the Secured
Party hereunder, including reasonable attorneys' fees and legal expenses, to the
payment in whole or in part of the Obligations, in such order as the Secured
Party may elect, the Company remaining liable for any deficiency remaining
unpaid after such application, and only after so applying such proceeds, and
after the payment by the Secured Party of any other amount required by any
provision of law, need the Secured Party account for the surplus, if any, to the
Company. To the extent permitted by applicable law, the Company waives all
claims, damages, and demands against the Secured Party arising out of the
repossession, retention or sale of the Collateral. The Company agrees that, to
the extent notice of sale shall be required by law, five (5) Business Days'
notice to the Company (which notification shall be deemed given when mailed,
postage prepaid, addressed to the Company at its address set forth in Section
10.4 of the Note Purchase Agreement) of the time and place of any public sale or
of the time after which a private sale may take place shall constitute
reasonable notification of such matters. No notification need be given to the
Company if the Company, after the occurrence of a Default, has signed a
statement renouncing or modifying any right to notification of sale or other
intended disposition. The Company shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to pay
all amounts to which the Secured Party is entitled, the Company also being
liable for the fees of any attorneys employed by the Secured Party to collect
such deficiency.
(c) The Company also agrees to pay all costs of the Secured
Party, including reasonable attorneys' fees and disbursements, incurred with
respect to the collection of any of the Obligations and the enforcement of any
of its rights hereunder.
(d) The Company hereby waives presentment, demand, protest or any
notice (to the extent permitted by applicable law) of any kind in connection
with this Security Agreement or any Collateral.
SECTION 10. Secured Party's Duties. The Secured Party shall have no duty of
care with respect to the Collateral, except that the Secured Party shall
exercise reasonable care with respect to Collateral or any income thereon in the
custody of the Secured Party or any agent or nominee of the Secured Party. The
Secured Party shall be deemed to have exercised reasonable care if such property
is accorded treatment substantially equal to that which the Secured Party
accords its own property, or if the Secured Party takes such action with respect
to the Collateral as the Company shall request in writing, but no failure to
comply with any such request nor any omission to do any such act requested by
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the Company shall be deemed a failure to exercise reasonable care, nor shall the
Secured Party's failure to take steps to preserve rights against any parties or
property be deemed a failure to have exercised reasonable care with respect to
Collateral in the Secured Party's custody.
SECTION 11. Notices. Notices to the parties hereto shall be given in
accordance with the provisions of Section 10.4 of the Note Purchase Agreement.
SECTION 12. Severability. Any provision of this Security Agreement 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, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 13. No Waiver; Cumulative Remedies. The Secured Party shall not by
any act, delay, omission or otherwise be deemed to have waived any of its rights
or remedies hereunder and no waiver shall be valid unless in writing, signed by
the Secured Party and then only to the extent therein set forth. A waiver by the
Secured Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Secured Party would
otherwise have had on any future occasion. No failure to exercise nor any delay
in exercising on the part of the Secured Party, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law or in any other agreement with respect to the Obligations. None
of the terms or provisions of this Security Agreement may be waived, altered,
modified or amended except by an instrument in writing, duly executed by the
Secured Party.
SECTION 14. Successors and Assigns; Governing Law. This Security Agreement
and all obligations of the Company hereunder shall be binding upon the
successors and assigns of the Company, and shall, together with the rights and
remedies of the Secured Party hereunder, inure to the benefit of the Secured
Party and its successors and assigns. The Company may not assign any of its
rights or obligations hereunder without the consent of the Secured Party.
SECTION 15. GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO ITS CONFLICTS OF LAWS PRINCIPLES.
SECTION 16. WAIVER OF JURY TRIAL. THE COMPANY AND THE SECURED PARTY EACH
HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURITY AGREEMENT.
9
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
SYTRON, INC.
By:
------------------------------------
Name:
Title:
per pro CRESCENT INTERNATIONAL LIMITED
By:
------------------------------------
Name:
Title:
10
Exhibit 10(j)
TERMINATION AGREEMENT
TERMINATION AGREEMENT (the "Agreement"), dated as of January 15, 1999,
by and between Sytron, Inc. (the "Company") and Crescent International Limited
(the "Investor").
WHEREAS, the Company and the Investor entered into a Private Equity
Line Agreement, dated as of May 14, 1998, (the "Equity Line Agreement");
WHEREAS, the parties hereto desire to terminate the Equity Line
Agreement;
NOW, THEREFORE, in consideration of the agreements set forth below,
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
Definitions. Unless otherwise indicated, capitalized terms used herein and
not defined herein shall have the respective meanings given to them in the
Equity Line Agreement.
Termination of the Equity Line Agreement. Each of the parties hereto agrees
that (i) except as otherwise may be expressly provided under the provisions of
the Equity Line Agreement, the Equity Line Agreement is hereby terminated, such
termination to be effective as of the date hereof, except with respect to those
provisions which expressly survive the termination of the Equity Line Agreement,
(ii) any requirement for notice (whether written or oral) with respect to the
termination of the Equity Line Agreement is hereby waived, and (iii) any other
requirement or condition precedent to the termination of the Equity Line
Agreement is hereby waived or shall be deemed to have been satisfied, as the
case may be.
Counterparts. This Agreement may be executed in any number of counterparts
and by different parties hereto on separate counterparts, each of which
counterparts, when executed and delivered, shall be deemed an original and all
of which counterparts, taken together, shall constitute one and the same
Agreement.
GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first above written.
CRESCENT INTERNATIONAL LIMITED
By:
-----------------------------------
Melvyn Craw
Title:
SYTRON, INC.
By:
-----------------------------------
Mitchel Feinglas
Title: Chief Executive Officer
2
Exhibit 10(k)
WARRANT
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN AN AMENDED AND
RESTATED PRIVATE EQUITY LINE AGREEMENT, DATED AS OF JANUARY 15, 1999, BETWEEN
SYTRON, INC. AND CRESCENT INTERNATIONAL LIMITED A COPY OF THE PORTION OF THE
AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM SYTRON
INC.'S EXECUTIVE OFFICES.
JANUARY 15, 1999
Warrant to Purchase up to 726,000 Shares of Common Stock of SYTRON, INC.
(hereinafter, the "Additional Warrant").
Sytron, Inc., a Pennsylvania corporation (the "Company"), hereby agrees that
Crescent International Limited (the "Investor") or any other Warrant Holder is
entitled, on the terms and conditions set forth below, to purchase from the
Company at any time during the Exercise Period up to 726,000 fully paid and
nonassessable shares of Common Stock, par value $0.01 per share, of the Company
(the "Common Stock"), as the same may be adjusted from time to time pursuant to
Section 7 hereof, at the Exercise Price (hereinafter defined), as the same may
be adjusted pursuant to Section 7 hereof. The resale of the shares of Common
Stock or other securities issuable upon exercise or exchange of this Additional
Warrant is subject to the provisions of the Registration Rights Agreement (as
defined below).
Section 1. Definitions.
"Agreement" shall mean the Note Purchase Agreement, dated the date hereof,
between the Company and the Investor.
"Capital Shares" shall mean the Common Stock and any shares of any other
class of common stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.
"Date of Exercise" shall mean the date that the advance copy of the
Exercise Form is sent by facsimile to the Company, provided that the original
Additional Warrant and Exercise Form are received by the Company within
reasonable time thereafter. If the Warrant Holder has not sent advance notice by
facsimile, the Date of Exercise shall be the date the original Exercise Form is
received by the Company.
<PAGE>
"Exercise Period" shall mean the period beginning on the Effective Date of
the Initial Registration Statement and continuing until the expiration of the
one-year period thereafter; provided that such period shall be extended one day
for each day after such Effective Date, that the Initial Registration Statement
is not effective during the period such Registration Statement is required to be
effective pursuant to the Registration Rights Agreement.
"Exercise Price" as of the date hereof shall mean $0.01 per share of Common
Stock, subject to the adjustments provided for in Section 7 of this Additional
Warrant.
"Floor Price" shall mean $0.28.
"Per Share Additional Warrant Value" shall mean the difference resulting
from subtracting the Exercise Price from the Bid Price of one share of Common
Stock on the Trading Day immediately preceding the Date of Exercise.
"Registration Rights Agreement" shall mean the amended and restated
registration rights agreement, dated the date hereof between the Company and the
Investor.
"Subscription Date" shall mean May 14, 1998.
"Warrant Holder" shall mean the Investor or any assignee or transferee of
all or any portion of this Additional Warrant;
and other capitalized terms used but not defined herein shall have their
respective meanings set forth in the Agreement.
Section 2. Exercisability.
(a) Timing. If the Market Price on the Effective Date of the
Initial Registration Statement is lower than $1.50, this Additional Warrant
shall become immediately exercisable, subject to clause (c) below.
(b) Number of Shares. The number of shares of Common Stock for
which this Additional Warrant is exercisable (the "Additional Warrant Shares")
shall be determined by subtracting (x) 166,667 from (y) $250,000 divided by the
greater of (i) the Market Price on the Effective Date of the Initial
Registration Statement and (ii) the Floor Price.
Section 3. Exercise; Cashless Exercise.
(a) Method of Exercise. This Additional Warrant may be exercised
in whole or in part (but not as to a fractional share of Common Stock), at any
time and from time to time during the Exercise Period, by the Warrant Holder by
(i) surrender of this Additional Warrant, with the form of exercise attached
hereto as Exhibit A duly executed by the Warrant Holder (the "Exercise Notice"),
to the Company at the address set forth in Section 14 hereof, accompanied by
payment of the Exercise Price multiplied by the number of shares of Common Stock
for which this Additional Warrant is being exercised (the "Aggregate Exercise
Price") or (ii) telecopying an executed and completed Exercise Notice to the
Company and delivering to the Company within three business days thereafter the
original Exercise Notice, this Additional Warrant and the Aggregate Exercise
2
<PAGE>
Price. Each date on which an Exercise Notice is received by the Company in
accordance with clause (i) and each date on which the Exercise Notice is
telecopied to the Company in accordance with clause (ii) above shall be deemed
an "Exercise Date".
(b) Payment of Aggregate Exercise Price. Subject to paragraph (c)
below, payment of the Aggregate Exercise Price shall be made by check or bank
draft payable to the order of the Company or by wire transfer to an account
designated by the Company. If the amount of the payment received by the Company
is less than the Aggregate Exercise Price, the Warrant Holder will be notified
of the deficiency and shall make payment in that amount within five (5) business
days. In the event the payment exceeds the Aggregate Exercise Price, the Company
will refund the excess to the Warrant Holder within three (3) business days of
receipt.
(c) Cashless Exercise. As an alternative to payment of the
Aggregate Exercise Price in accordance with paragraph (b) above, the Warrant
Holder may elect to effect a cashless exercise by so indicating on the Exercise
Notice and including a calculation of the number of shares of Common Stock to be
issued upon such exercise in accordance with the terms hereof (a "Cashless
Exercise"). In the event of a Cashless Exercise, the Warrant Holder shall
surrender this Additional Warrant for that number of shares of Common Stock
determined by (i) multiplying the number of Additional Warrant Shares for which
this Additional Warrant is being exercised by the Per Share Additional Warrant
Value and (ii) dividing the product by the Bid Price of one share of the Common
Stock on the Trading Day immediately preceding the Date of Exercise.
(d) Replacement of Additional Warrant. In the event that the
Additional Warrant is not exercised in full, the number of Additional Warrant
Shares shall be reduced by the number of such Additional Warrant Shares for
which this Additional Warrant is exercised, and the Company, at its expense,
shall forthwith issue and deliver to or upon the order of the Warrant Holder a
new Additional Warrant of like tenor in the name of the Warrant Holder or as the
Warrant Holder may request, reflecting such adjusted number of Additional
Warrant Shares.
Section 4. Ten Percent Limitation. The Warrant Holder may not exercise this
Additional Warrant such that the number of Additional Warrant Shares to be
received pursuant to such exercise aggregated with all other shares of Common
Stock then owned by the Warrant Holder beneficially or deemed beneficially owned
by the Warrant Holder would result in the Warrant Holder owning more than 9.9%
of all of such Common Stock as would be outstanding on such date, as determined
in accordance with Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder. As of any date prior to the Date of Exercise, the
aggregate number of shares of Common Stock into which this Additional Warrant is
exercisable, together with all other shares of Common Stock then beneficially
owned (as such term is defined in Rule 16 under the Exchange Act) by such
Warrant Holder and its affiliates, shall not exceed 9.9% of the total
outstanding shares of Common Stock as of such date.
Section 5. Delivery of Stock Certificates.
3
<PAGE>
(a) Subject to the terms and conditions of this Additional
Warrant, as soon as practicable after the exercise of this Additional Warrant in
full or in part, and in any event within three (3) Trading Days thereafter, the
Company at its expense (including, without limitation, the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Warrant Holder, or as the Warrant Holder may lawfully direct, a certificate
or certificates for the number of validly issued, fully paid and non-assessable
Additional Warrant Shares to which the Warrant Holder shall be entitled on such
exercise, together with any other stock or other securities or property
(including cash, where applicable) to which the Warrant Holder is entitled upon
such exercise in accordance with the provisions hereof; provided, however, that
any such delivery to a location outside of the United States shall be made
within five (5) Trading Days after the exercise of this Additional Warrant in
full or in part.
(b) This Additional Warrant may not be exercised as to fractional
shares of Common Stock. In the event that the exercise of this Additional
Warrant, in full or in part, would result in the issuance of any fractional
share of Common Stock, then in such event the Warrant Holder shall receive in
cash an amount equal to the Bid Price of such fractional share within three (3)
Trading Days.
Section 6. Representations, Additional Warranties and Covenants of the
Company.
(a) The Company shall take all necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation for the
legal and valid issuance of this Additional Warrant and the Additional Warrant
Shares to the Warrant Holder.
(b) At all times during the Exercise Period, the Company shall
take all steps reasonably necessary and within its control to insure that the
Common Stock remains listed or quoted on the Principal Market.
(c) The Additional Warrant Shares, when issued in accordance with
the terms hereof, will be duly authorized and, when paid for or issued in
accordance with the terms hereof, shall be validly issued, fully paid and
non-assessable.
(d) The Company has authorized and reserved for issuance to the
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Additional Warrant. The Company shall at all times reserve and
keep available, solely for issuance and delivery as Additional Warrant Shares
hereunder, such shares of Common Stock as shall from time to time be issuable as
Additional Warrant Shares.
Section 7. Adjustment of the Exercise Price. The Exercise Price shall be
subject to adjustment from time to time upon the happening of certain events as
follows:
(a) Reclassification, Consolidation, Merger or Mandatory Share
Exchange. If the Company, at any time while this Additional Warrant is
outstanding (i) reclassifies or changes its Outstanding Capital Shares or (ii)
consolidates, merges or effects a mandatory share exchange with or into another
corporation (other than a merger or mandatory share exchange with another
corporation in which the Company is a continuing corporation and that does not
result in any reclassification or change, or as a result of a subdivision or
combination of Outstanding Capital Shares issuable upon exercise of this
Additional Warrant), then in any such event the Company, or such successor or
4
<PAGE>
purchasing corporation, as the case may be, shall, without payment of any
additional consideration therefore, amend this Additional Warrant or issue a new
warrant providing that the Warrant Holder shall have rights not less favorable
to the holder than those then applicable to this Additional Warrant and to
receive upon exercise under such amendment of this Additional Warrant or new
warrant, in lieu of each share of Common Stock theretofore issuable upon
exercise of this Additional Warrant hereunder, the kind and amount of shares of
stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the holder of one share of Common Stock issuable upon exercise of
this Additional Warrant had this Additional Warrant been exercised immediately
prior to such reclassification, change, consolidation, merger, mandatory share
exchange or sale or transfer. Such amended warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 7. The provisions of this subsection (a) shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, mandatory share exchanges and sales and transfers.
(b) Subdivision or Combination of Shares. If the Company, at any
time while this Additional Warrant is outstanding shall subdivide its Common
Stock, the number of shares of Common Stock issuable to the Investor hereunder
shall be proportionately increased as of the effective date of such subdivision,
or, if the Company shall take a record of holders of its Common Stock for the
purpose of so subdividing, as of such record date, whichever is earlier. If the
Company, at any time while this Additional Warrant is outstanding shall combine
its Common Stock, the number of shares of Common Stock issuable to the Investor
hereunder shall be proportionately decreased as of the effective date of such
combination, or, if the Company shall take a record of holders of its Common
Stock for the purpose of so combining, as of such record date, whichever is
earlier.
(c) Stock Dividends. If the Company, at any time while this
Additional Warrant is unexpired and not exercised in full, shall pay a dividend
in its Capital Shares, or make any other distribution of its Capital Shares,
then the Exercise Price shall be adjusted, as of the date the Company shall take
a record of the holders of its Capital Shares for the purpose of receiving such
dividend or other distribution (or if no such record is taken, as at the date of
such payment or other distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or other distribution
by a fraction:
1. the numerator of which shall be the total number of Outstanding
Capital Shares immediately prior to such dividend or distribution, and
2. the denominator of which shall be the total number of Outstanding
Capital Shares immediately after such dividend or distribution. The provisions
of this subsection (c) shall not apply under any of the circumstances for which
an adjustment is provided in subsections (a) or (b).
(d) Adjustment of Number of Shares. Upon each adjustment of the
Exercise Price pursuant to any provisions of this Section 7, the number of
Additional Warrant Shares issuable hereunder at the option of the Warrant Holder
shall be calculated, to the nearest one hundredth of a whole share, multiplying
the number of Additional Warrant Shares issuable prior to an adjustment by a
fraction:
5
<PAGE>
1. the numerator of which shall be the Exercise Price before any
adjustment pursuant to this Section 7; and
2. the denominator of which shall be the Exercise Price after such
adjustment.
(e) Liquidating Dividends, Etc. If the Company, at any time while
this Additional Warrant is unexpired and not exercised in full, makes a
distribution of its assets or evidences of indebtedness to the holders of its
Capital Shares as a dividend in liquidation or by way of return of capital or
other than as a dividend payable out of earnings or surplus legally available
for dividends under applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Company's assets (other
than under the circumstances provided for in the foregoing subsections (a)
through (g)) while an exercise is pending, then the Warrant Holder shall be
entitled to receive upon such exercise of the Additional Warrant in addition to
the Additional Warrant Shares receivable in connection therewith, and without
payment of any consideration other than the Exercise Price, an amount in cash
equal to the value of such distribution per Capital Share multiplied by the
number of Additional Warrant Shares that, on the record date for such
distribution, are issuable upon such exercise of the Additional Warrant (with no
further adjustment being made following any event which causes a subsequent
adjustment in the number of Additional Warrant Shares issuable), and an
appropriate provision therefor shall be made a part of any such distribution.
The value of a distribution that is paid in other than cash shall be determined
in good faith by the Board of Directors of the Company.
(f) Other Provisions Applicable to Adjustments Under this
Section. The following provisions will be applicable to the making of
adjustments in any Exercise Price hereinabove provided in this Section 7:
1. Other Action Affecting Capital Shares. In case after the date
hereof the Company shall take any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing
subsections (a) through (e) hereof, inclusive, which in the opinion of the
Company's Board of Directors would have a materially adverse effect upon the
rights of the Warrant Holder at the time of exercise of the Additional Warrant,
the Exercise Price shall be adjusted in such manner and at such time as the
Board or Directors on the advice of the Company's independent public accountants
may in good faith determine to be equitable in the circumstances.
2. Notice of Certain Actions. In the event the Company shall, at a
time while the Additional Warrant is unexpired and outstanding, take any action
which pursuant to subsections (a) through (e) of this Section 7 may result in an
adjustment of the Exercise Price, the Company shall give to the Warrant Holder
at its last address known to the Company written notice of such action ten (10)
days in advance of its effective date in order to afford to the Warrant Holder
an opportunity to exercise the Additional Warrant prior to such action becoming
effective.
3. Notice of Adjustments. Whenever the Exercise Price or number of
Additional Warrant Shares shall be adjusted pursuant to Section 7 hereof, the
Company shall promptly make a certificate signed by its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail the event requiring the
6
<PAGE>
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Exercise Price and
number of Additional Warrant Shares purchasable at that Exercise Price after
giving effect to such adjustment, and shall promptly cause copies of such
certificate to be mailed (by first class and postage prepaid) to the Holder of
the Additional Warrant.
Section 8. No Impairment. The Company will not, by amendment of its
Articles of Incorporation or By-Laws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Additional Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Warrant Holder against impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any Additional
Warrant Shares above the amount payable therefor on such exercise, and (b) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable
Additional Warrant Shares on the exercise of this Additional Warrant.
Section 9. Rights As Stockholder. Prior to exercise of this Additional
Warrant, the Warrant Holder shall not be entitled to any rights as a stockholder
of the Company with respect to the Additional Warrant Shares, including (without
limitation) the right to vote such shares, receive dividends or other
distributions thereon or be notified of stockholder meetings. However, in the
event of any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
Company shall mail to each Warrant Holder, at least ten (10) days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
Section 10. Replacement of Additional Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Additional Warrant and, in the case of any such loss, theft or
destruction of the Additional Warrant, upon delivery of an indemnity agreement
or security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of such Additional
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Additional Warrant of like tenor.
Section 11. Choice of Law. This Agreement shall be construed under the laws
of the State of New York, without giving effect to conflict of law provisions.
Section 12. Entire Agreement; Amendments. This Additional Warrant, the
Incentive Warrant, the Registration Rights Agreement, and the Agreement contain
the entire understanding of the parties with respect to the matters covered
hereby and thereby. No provision of this Additional Warrant may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
7
<PAGE>
Section 13. Restricted Securities.
(a) Registration or Exemption Required. This Additional Warrant
has been issued in a transaction exempt from the registration requirements of
the Securities Act in reliance upon the provisions of Section 4(2) promulgated
by the SEC under the Securities Act. This Additional Warrant and the Additional
Warrant Shares issuable upon exercise of this Additional Warrant may not be
resold except pursuant to an effective registration statement or an exemption to
the registration requirements of the Securities Act and applicable state laws.
(b) Legend. Any replacement Additional Warrants issued pursuant
to Section 2 hereof and any Additional Warrant Shares issued upon exercise
hereof, shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES
LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH
IN A NOTE PURCHASE AGREEMENT, DATED AS OF JANUARY 15, 1999
BETWEEN SYTRON, INC. AND CRESCENT INTERNATIONAL LIMITED. A
COPY OF THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING
SUCH OBLIGATIONS MAY BE OBTAINED FROM SYTRON'S EXECUTIVE
OFFICES."
Removal of such legend shall be in accordance with the legend removal
provisions in the Agreement.
(c) No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 12(b) has been or shall be placed on the
share certificates representing the Additional Warrant Shares and no
instructions or "stop transfer orders," so called, " stock transfer
restrictions" or other restrictions have been or shall be given to the Company's
transfer agent with respect thereto other than as expressly set forth in this
Section 12.
8
<PAGE>
(d) Assignment. Assuming the conditions of Section 12(a) above
regarding registration or exemption have been satisfied, the Warrant Holder may
sell, transfer, assign, pledge or otherwise dispose of this Additional Warrant,
in whole or in part. The Warrant Holder shall deliver a written notice to
Company, substantially in the form of the Assignment attached hereto as Exhibit
B, indicating the person or persons to whom the Additional Warrant shall be
assigned and the respective number of warrants to be assigned to each assignee.
The Company shall effect the assignment within ten (10) days, and shall deliver
to the assignee(s) designated by the Warrant Holder an Additional Warrant or
Additional Warrants of like tenor and terms for the appropriate number of
shares.
(e) Investor's Compliance. Nothing in this Section 12 shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
Section 14. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing and
shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by
reputable air courier service with charges prepaid, or (iv) transmitted by hand
delivery, telegram or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice. Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective (a) upon hand delivery or delivery by facsimile (with
accurate confirmation generated by the transmitting facsimile machine) at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company:
Sytron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Attention: Mitchel Feinglas, CEO
Telephone: (303) 469-6100
Facsimile: (303) 469-7100
with a copy (which shall not constitute notice) to:
Bresler Goodman & Unterman, LLP
521 Fifth Avenue
New York, NY 10175
Attention: Andrew J. Goodman, Esq.
Jay Jacobson, Esq.
Telephone: (212) 661-2150
Facsimile: (212) 949-6131
9
<PAGE>
if to the Investor:
Crescent International Limited
Greenlight (Switzerland) SA
84, av Louis-Casai, P.O. Box 161
1216 Geneva, Cointrin
Switzerland
Attention: Melvyn Craw/Maxi Brezzi
Telephone: +41 22 791 72 56
Facsimile: +41 22 929 53 94
with a copy (which communication shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Sara Hanks, Esq./Earl Zimmerman, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 13 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the
other party hereto.
Section 15. Miscellaneous. This Additional Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. The headings in this Additional Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, this Additional Warrant was duly executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
SYTRON, INC.
By:
----------------------------
Name:
Title:
Attested:
By:
----------------------------
Name:
Title:
10
<PAGE>
EXHIBIT A TO THE ADDITIONAL WARRANT
EXERCISE FORM
SYTRON, INC.
The undersigned hereby irrevocably exercises the right to purchase
__________________ shares of Common Stock of Sytron, Inc., a Pennsylvania
corporation (the "Company"), evidenced by the attached Additional Warrant, and
herewith makes payment of the Exercise Price with respect to such shares in full
in the form of (check the appropriate box) (i) |_| cash or certified check in
the amount of $________; (ii) |_| wire transfer to the Company's account at
__________________, _________, _________ (Account No.:_________); or (iii) |_|
______ Additional Warrant Shares, which represent the amount of Additional
Warrant Shares as provided in the attached Additional Warrant to be canceled in
connection with such exercise, all in accordance with the conditions and
provisions of said Additional Warrant.
The undersigned requests that stock certificates for such Additional
Warrant Shares be issued, and a Additional Warrant representing any unexercised
portion hereof be issued, pursuant to this Additional Warrant in the name of the
registered Holder and delivered to the undersigned at the address set forth
below.
Dated:_______________________________________
- ---------------------------------------------
Signature of Registered Holder
Name of Registered Holder (Print)
- ---------------------------------------------
Address
11
<PAGE>
EXHIBIT B TO THE ADDITIONAL WARRANT
ASSIGNMENT
(To be executed by the registered Warrant Holder desiring to transfer the
Additional Warrant)
FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached
Additional Warrant hereby sells, assigns and transfers unto the persons below
named the right to purchase ______________ shares of the Common Stock of Sytron,
Inc. evidenced by the attached Additional Warrant and does hereby irrevocably
constitute and appoint ______________________ attorney to transfer the said
Additional Warrant on the books of the Company, with full power of substitution
in the premises.
Dated:
- ------------------------------
Signature
12
<PAGE>
Fill in for new Registration of Additional Warrant:
- -----------------------------------------
Name
- -----------------------------------------
Address
- -----------------------------------------
Please print name and address of assignee
(including zip code number)
13
Exhibit 10(l)
PROMISSORY NOTE
U.S. $45,000.00 Boulder, Colorado
October 3, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Springhill
Holdings , Ltd., a corporation organized pursuant to the 1aws of the British
Vigin Islands, and with its principal place of business located in the Channel
Islands, or order, ("Note Holder") the principal sum of Forty-five Thousand
NO/l00 ($45,000.00) U. S. Dollars, with interest accruing at the rate of Ten
percent (10%) per annum. Payment of principal and interest, as accruing, shall
be payable at the offices of Note Holder, or such other place as the Note Holder
may designate, in one payment due on or before one year from the date of this
Note. As additional consideration to induce Note Holder to undertake the loan
subject hereto, Borrower hereby agrees to issue to Note Holder shares of
Borrower's common stock as included in Exhibit "A" attached hereto and
incorporated herein as if set forth. The various rights and obligations
relevant to such common stock are included in that certain Registration Rights
Agreement, by and between the parties hereto, attached hereto as Exhibit "B" and
incorporated herein as if set forth.
In the event payments due hereunder are not tendered within ten (10) days
from the date the same become due ("event of default"), the entire principal
shall accrue interest at the rate of Eighteen percent (18%) per annum and the
failure to make any payment or principal or interest when due or any default
under any encumbrance or agreement securing this Note shall cause the whole Note
to become due at once (acceleration). In the event of default, Borrower shall be
additionally obligated to tender the full number of its common shares to Note
Holder as indicated in Exhibit "A" hereto.
Payments received for application to this Note shall be applied first to
the payment of late charges and fees, if any, second to the payment of accrued
interest at the increased rate specified herein, if any, and the balance applied
in reduction of the principal amount hereof.
This Note is secured by that certain Security Agreement by and between the
parties hereto, dated even date hereof, attached hereto and incorporated herein
as Exhibit "C".
Borrower may prepay the principal amount outstanding under this Note, in
whole or in part, at any time without penalty. Any partial prepayment shall be
applied against the principal amount outstanding and shall not postpone the due
date of any subsequent payments or change the amount of such payments. Further,
the number of shares of Borrower's common stock shall be reduced as indicated in
Exhibit "A" hereto.
The Borrower agrees to pay to the Note Holder, when incurred,
<PAGE>
all costs and expenses incidental to collection of the amounts due herein,
including but not limited to, reasonable attorneys fees and costs of collection,
regardless of whether Note Holder elects to commence legal action to enforce
this Note.
Presentment, notice of dishonor, and protest are hereby waived by and all
other makers, sureties, guarantors and endorses hereof. This Note shall be the
joint and several obligation of Borrower and all other makers, sureties,
guarantors and endorses, and their successors and assigns.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by certified mail, return receipt requested, addressed to Borrower
at the Borrower's address stated below, or to such other address as Borrower may
designated by notice to the Note Holder.
BORROWER: SYTRON, INC., f/k/a
MHB TECHNOLOGY, INC.
By: /s/ Richard T. Case
----------------------------------------
Richard T. Case, President
Borrower' s Address:
5353 Manhattan Circle
Suite 201
Boulder, Colorado 80303
2
<PAGE>
EXHIBIT "A"
Repayment Period (1) Number of Shares
- -------------------- ----------------
3 months 9,000
4 months 11,700
5 months 14,400
6 months 17,100
7 months 20,400
8 months 22,500
9 months 25,200
10 months 29,700
11 months 32,400
12 months 34,200
- ----------------
(1) In the event the full amount of principal and interest are not paid on the
anniversary date as indicated, the applicable number of common shares shall
be tendered.
Exhibit 10(m)
Promissory Note
U.S. $28,000.00 Longmont, Colorado
July 15, 1996
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Spring
Hill Holdings, Ltd., a corporation organized pursuant to the laws of the Channel
Islands and with its principal U.S. place of business located at 5353 Manhattan
Circle, Suite 201, Boulder, Colorado 80304, or order, ("Note Holder") the
principal sum of 28,000 U.S. Dollars, with interest accruing at the rate of Ten
percent (10%) per annum from the date of loan, see Exhibit "D". Payment of
principal and interest, as accruing, shall be payable at the offices of Note
Holder, or such other place as the Note Holder may designate, in one payment due
on or before one year from the date of this Note. As additional consideration to
induce Note Holder to undertake the loan subject hereto, Borrower hereby agrees
to issue to Note Holder shares of Borrower's common stock as included in Exhibit
"A" attached hereto and incorporated herein as if set forth. The various rights
and obligations relevant to such common stock are included in that certain
Registration Rights Agreement, by and between the parties hereto, attached
hereto as Exhibit "B" and incorporated herein as if set forth.
In the event payments due hereunder are not tendered within ten (10) days
from the date the same become due ("event of default"), the entire principal
shall accrue interest at the rate of Eighteen percent (18%) per annum and the
failure to make any payment of principal or interest when due or any default
under any encumbrance or agreement securing this Note shall cause the whole Note
to become due at once (acceleration). In the event of default, Borrower shall be
additionally obligated to tender the full number of its common shares to Note
Holders indicated in Exhibit "A" hereto.
Payments received for application to this Note shall be applied first to
the payment of late charges and fees, if any, second to the payment of accrued
interest at the increased rate specified herein, if any, and the balance applied
in reduction of the principal amount hereof.
This Note is secured by that certain Security Agreement by and between the
parties hereto, dated even date hereof, attached hereto and incorporated herein
as Exhibit "C".
Borrower may prepay the principal amount outstanding under this Note, in
whole or in part, at any time without penalty. Any partial prepayment shall be
applied against the principal amount outstanding and shall not postpone the due
date of any subsequent payments or change the amount of such payments. Further,
the number of shared of Borrower's common stock shall be reduced as indicated in
Exhibit "A" hereto.
The Borrower agrees to pay to the Note Holder, when incurred, all costs and
expenses incidental to collection of the amounts due herein, including but not
limited to, reasonable attorneys fees and costs of collection, regardless of
whether Note Holder elects to commence legal action to enforce this Note.
<PAGE>
Presentment, notice of dishonor and protest are hereby waived by and all
other makers, guarantors and endorses hereof. This Note shall be the joint and
several obligation of Borrower and all other makers, sureties, guarantors and
endorses, and their successors and assigns.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by certified mail, return receipt requested, addressed to Borrower
and the Borrower's address stated below, or to such other address as Borrower
may designated by notice to the Note Holder.
BORROWER: SYTRON, INC.
By: /s/ Robert Howard
--------------------------------
Rob Howard
Borrower's Address:
320 South Sunset Street
Longmont, Colorado 80501
Exhibit 10(n)
PROMISSORY NOTE
U.S. $10,000.00 Boulder, Colorado
October 3, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Werren
Holdings, Ltd., a corporation organized pursuant to the laws of the British
Virgin Islands and with its principal place of business located at the Channel
Islands, or order, ("Note Holder") the principal sum of Ten Thousand NO/100
($10,000.00) U.S. Dollars, with interest accruing at the rate of Ten percent
(10%) per annum. Payment of principal and interest, as accruing, shall be
payable at the offices of Note Holder, or such other place as the Note Holder
may designate, in one payment due on or before one year from the date of this
Note. As additional consideration to induce Note Holder to undertake the loan
subject hereto, Borrower hereby agrees to issue to Note Holder shares of
Borrower's common stock as included in Exhibit "A" attached hereto and
incorporated herein as if set forth. The various rights and obligations relevant
to such common stock are included in that certain Registration Rights Agreement,
by and between the parties hereto, attached hereto as Exhibit "B" and
incorporated herein as if set forth.
In the event payments due hereunder are not tendered within ten (10) days
from the date the same become due ("event of default"), the entire principal
shall accrue interest at the rate of Eighteen percent (18%) per annum and the
failure to make any payment of principal or interest when due or any default
under any encumbrance or agreement securing this Note shall cause the whole Note
to become due at once (acceleration). In the event of default, Borrower shall
be additionally obligated to tender the full number of its common shares to Note
Holder as indicated in Exhibit "A" hereto.
Payments received for application to this Note shall be applied first to
the payment of late charges and fees, if any, second to the payment of accrued
interest at the increased rate specified herein, if any, and the balance applied
in reduction of the principal amount hereof.
This Note is secured by that certain Security Agreement by and between the
parties hereto, dated even date hereof, attached hereto and incorporated herein
as Exhibit "C".
Borrower may prepay the principal amount outstanding under this Note, in
whole or in part, at any time without penalty. Any partial prepayment shall be
applied against the principal amount outstanding and shall not postpone the due
date of any subsequent payments or change the amount of such payments. Further,
the number of shares of Borrower's common stock shall be reduced as indicated in
Exhibit "A" hereto.
The Borrower agrees to pay to the Note Holder, when incurred,
<PAGE>
all costs and expenses incidental to collection of the amounts due herein,
including but not limited to, reasonable attorneys fees and costs of collection,
regardless of whether Note Holder elects to commence legal action to enforce
this Note.
Presentment, notice of dishonor, and protest are hereby waived by and all
other makers, sureties, guarantors and endorses hereof. This Note shall be the
joint and several obligation of Borrower and all other makers, sureties,
guarantors and endorses, and their successors and assigns.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by certified mail, return receipt requested, addressed to Borrower
at the Borrower's address stated below, or to such other address as Borrower may
designated by notice to the Note Holder.
BORROWER: SYTRON, INC., f/k/a
MHB TECHNOLOGY, INC.
By: /s/ Richard T. Case
-------------------------------
Richard T. Case, President
Borrower' s Address:
5353 Manhattan Circle
Suite 201
Boulder, Colorado 80303
2
<PAGE>
EXHIBIT "A"
Repayment Period (1) Number of Shares
- -------------------- ------------------
3 months 1,998 599
4 months 2,597 600
5 months 3,197 599
6 months 3,796 733
7 months 4,529 466
8 months 4,995 599
9 months 5,594 999
10 months 6,593 600
11 months 7,193 399
12 months 7,593
- ---------
(1) In the event the full amount of principal and interest are not paid on the
anniversary date as indicated, the applicable number of common shares shall
be tendered.
Exhibit 10(o)
PROMISSORY NOTE
U.S. $245,000.00 Boulder, Colorado
October 3, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Katonah
West Pension Plan, 5353 Manhattan Circle, Suite 201, Boulder, Colorado 80304, or
order, ("Note Holder") the principal sum of Two Hundred Forty-five Thousand
NO/l00 ($245,000.00) U. S. Dollars, with interest accruing at the rate of Ten
percent (10%) per annum. Payment of principal and interest, as accruing, shall
be payable at the offices of Note Holder, or such other place as the Note Holder
may designate, in one payment due on or before one year from the date of this
Note. As additional consideration to induce Note Holder to undertake the loan
subject hereto, Borrower hereby agrees to issue to Note Holder shares of
Borrower's common stock as included in Exhibit "A" attached hereto and
incorporated herein as if set forth. The various rights and obligations relevant
to such common stock are included in that certain Registration Rights Agreement,
by and between the parties hereto, attached hereto as Exhibit "B" and
incorporated herein as if set forth.
In the event payments due hereunder are not tendered within ten (10) days
from the date the same become due ("event of default"), the entire principal
shall accrue interest at the rate of Eighteen percent (18%) per annum and the
failure to make any payment of principal or interest when due or any default
under any encumbrance or agreement securing this Note shall cause the whole Note
to become due at once (acceleration). In the event of default, Borrower shall be
additionally obligated to tender the full number of its common shares to Note
Holder as indicated in Exhibit "A" hereto.
Payments received for application to this Note shall be applied first to
the payment of late charges and fees, if any, second to the payment of accrued
interest at the increased rate specified herein, if any, and the balance applied
in reduction of the principal amount hereof.
This Note is secured by that certain Security Agreement by and between the
parties hereto, dated even date hereof, attached hereto and incorporated herein
as Exhibit "C".
Borrower may prepay the principal amount outstanding under this Note, in
whole or in part, at any time without penalty. Any partial prepayment shall be
applied against the principal amount outstanding and shall not postpone the due
date of any subsequent payments or change the amount of such payments. Further,
the number of shares of Borrower' s common stock shall be reduced as indicated
in Exhibit "A" hereto.
The Borrower agrees to pay to the Note Holder, when incurred, all costs and
expenses incidental to collection of the amounts due
<PAGE>
herein, including but not limited to, reasonable attorneys fees and costs of
collection, regardless of whether Note Holder elects to commence legal action to
enforce this Note.
Presentment, notice of dishonor, and protest are hereby waived by and all
other makers, sureties, guarantors and endorses hereof. This Note shall be the
joint and several obligation of Borrower and all other makers, sureties,
guarantors and endorses, and their successors and assigns.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by certified mail, return receipt requested, addressed to Borrower
at the Borrower's address stated below, or to such other address as Borrower may
designated by notice to the Note Holder.
BORROWER: SYTRON, INC., f/k/a
MHB TECHNOLOGY, INC.
By: /s/ Richard T. Case
-------------------------------------
Richard T. Case, President
Borrower' s Address:
5353 Manhattan Circle
Suite 201
Boulder, Colorado 80303
2
<PAGE>
EXHIBIT "A"
Repayment Period (1) Number of Shares
3 months 49,002) 14701
4 months 63,703) 14700
5 months 78,403) 14700
6 months 93,104) 17967
7 months 111,071) 11434
8 months 122,505) 14701
9 months 137,206) 24501
10 months 161,707) 14700
11 months 176,407)
12 months 186,208) 9801
- ----------------
(1) In the event the full amount of principal and interest are not paid on the
anniversary date as indicated, the applicable number of common shares shall
be tendered.
Exhibit 10(p)
Promissory Note
U.S. $54,750.00 Longmont, Colorado
July 15, 1996
FOR VALUE RECEIVBD, the undersigned ("Borrower") promises to pay Katonah
West Pension Plan, a trust, with its address at 1105 North Cedarbrook Rd.
Boulder, CO 80304, or order,("Note Holder") the principal sum of $54,750 U.S.
Dollars, with interest accruing at the rate of Ten percent (10%) per annum from
the date of the loan, see Exhibit "D". Payment of principal and interest, as
accruing, shall be payable at the offices of Note Holder, or such other place as
the Note Holder may designate, in one payment due on or before one year from the
date of this Note. As additional consideration to induce Note Holder to
undertake the loan subject hereto, Borrower hereby agrees to issue to Note
Holder shares of Borrower's common stock as included in Exhibit "A" attached
hereto and incorporated herein as set forth. The various rights and obligations
relevant to such common stock are included in that certain Registration Rights
Agreement, by and between the parties hereto, attached hereto as Exhibit "B" and
incorporated herein as if set forth.
In the event payments due hereunder are nor tendered within ten (10) days
from the date the same become due ("event of default"), the entire principal
shall accrue interest at the rate of (18% per annum and the failure to make any
payment of principal or interest when due or any default under any encumbrance
or agreement securing this Note shall cause the whole Note to become due at once
(acceleration). In the event of default, Borrower shall be additionally
obligated to tender the full number of its common shares to Note Holder as
indicated in Exhibit "A" hereto.
Payments received for application to this Note shall be applied first to
the payment of late charges and fees, if any, second to the payment of accrued
interest at the increased rate specified herein, if any, and the balance applied
in reduction of the principal amount hereof.
This Note is secured by that certain Security Agreement by and between the
parties hereto, dated even date hereof, attached hereto and incorporated herein
as Exhibit "C".
Borrower may prepay the principal amount outstanding under this Note, in
whole or in part, at any time without penalty. Any partial prepayment shall be
applied against the principal amount outstanding and shall not postpone the due
date of any subsequent payments or change the amount of such payments. Further,
the number of shared of Borrower's common stock shall be reduced as indicated in
Exhibit "A" hereto.
The Borrower agrees to pay to the Note Holder, when incurred, all costs and
expenses incidental to collection of the amounts due herein, including but nor
limited to, reasonable attorneys fees and costs of collection, regardless of
whether Note Holder elects to commence legal action to enforce this Note.
<PAGE>
Presentment, notice of dishonor, and protest are hereby waived by and all
other makers, sureties, guarantors and endorses hereof. This Note shall be the
joint and several obligation of Borrower and all other makers, sureties,
guarantors and endorses, and their successors and assigns.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by certified mail, return receipt requested, addressed to Borrower
at the Borrower's address stated below, or to such other address as Borrower may
designated by notice to the Note Holder.
BORROWER: SYTRON,
By: /s/ Rob Howard
------------------------------
Rob Howard
Borrower's Address:
320 South Sunset Street
Longmont, CO 80501
<PAGE>
EXHIBIT "A"
Katonah West 41,794 shares
<PAGE>
Exhibit "D"
Date Katonah West
---- ------------
12-Oct-95 25,000.00
25-Oct-95 11,250.00
20-Nov-95 11,500.00
14-May-96 3,000.00
01-Jul-96 4,000.00
Total 54,750.00
Exhibit 10(q)
United Credit Patriot Funding
Since 1937
15 West 44th Street, New York, NY 10036-6611
Telephone (212) 843-0808 Fax (212) 843-0817
================================================================================
September 13, 1996
Dorado Systems Corporation
320 South Sunset Street
Longmont, Colorado 80501
and
Sytron, Inc.
320n South Sunset Street
Longmont, Colorado 80501
Ladies and Gentlemen:
1. Dorado Systems Corporation ("Dorado") agrees that Dorado's indebtedness
to us as of the close of business August 31, 1996 was $131,196.30.
2. We agree to credit Dorado's indebtedness to us by $13,176.58, being
one-half of the $26,353.15 notification fee we charged Dorado under Paragraph
SIXTH C of the security agreement between Dorado and us through August 31, 1996,
thus reducing Dorado's indebtedness to us as of August 31, 1996 to $118,019.72.
3. The security agreement between Dorado and us is hereby modified in the
following respects:
(a) Effective September 1, 1996, the fee of 1-1/2% of Dorado's sales
referred to in Paragraph SIXTH C of the security agreement is changed to a fee
of 3/4 of 1%.
(b) The next to last sentence of Paragraph TENTH A, relating to a
termination fee payable by Dorado in the event of Dorado's termination of the
security agreement, is deleted.
4. Sytron, Inc. ("Sytrom"), represents to us that it is the owner of all
the issued and outstanding stock of Dorado, agrees that the foregoing credit and
modifications to the security agreement between Dorado and us are of benefit to
it, and in consideration thereof agrees to issue to us 5,000 shares of its
heretofore authorized but unissued common stock (the "Shares"), and deliver
certificates therefore to us promptly after the date hereof. We represent that
we are acquiring the Shares for investment only and without a view to a
distribution of all or any part thereof as the term "distribution" has meaning
under the Securities Act of 1933 as amended (the "Act"). Certificates for
/continued
<PAGE>
Dorado/ Sytron -2- September 13, 1996
the Shares may be endorsed with a legend restricting the transferability of the
underlying Shares to a transfer consistent with the foregoing investment
representation. In the event a holder of certificates for the Shares or part
thereof presents Sytron with an opinion of reputable counsel, familiar with the
Act and transactions thereunder, to the effect that a proposed transfer of the
Shares may be made without registration thereof under the Act, Sytron shall
promptly exchange certificates f or the Shares underlying such opinion for
certificates which do not bear the aforesaid legend and shall do all things
necessary to permit a transfer consistent with such opinion to be consummated.
5. In the event that Sytron shall intend to register any shares of stock
under the Act prior to the time it issues certificates free of the legend
contemplated by the preceeding paragraph, it shall give prompt notice of such
intention to the registered holders of the certificates bearing the legend.
Thereafter, we shall have the right to cause you to register the Shares if or
sale by us and to qualify the Shares for sale in the states of Colorado and New
York by notice to such effect to Sytron; and, in the event we do so notify
Sytron, Sytron shall pursue registration of such Shares with the same diligence
that it devotes to the registration of any other shares then about to be
registered by it and it shall pursue qualification of such shares f or sale in
the States of Colorado and New York with appropriate diligence.
6. In the event of the registration or qualification of the Shares as
provided for in the preceeding paragraph, each of Sytron and United shall
indemnify the other against any loss or liability, including reasonable
attorneys fees arising from the registration statement or qualification
documents containing any material misstatement or failure to state any fact
which, in light of the statements made in such registration statement or
qualification document need be made in order to make the statements made not
misleading. Notwithstanding the foregoing, the indemnification made by us shall
be limited to statements made by us in writing for purpqses of effecting the
foregoing registration or qualification and omissions relating to such
statements.
7. Concurrently herewith Sytron is executing and delivering to us its
guaranty of the present indebtedness of MHB Manufacturing, Inc. to us in the
form of Exhibit A hereto (the "Guaranty").
8. Sytron agrees to pay the guaranteed indebtedness, together with interest
on the unpaid balances thereof at the rate of 14% per annum in constant monthly
installments of $5,000.00 each commencing October 1, 1996 and continuing on the
first day of each
/continued
<PAGE>
Dorado/ Sytron -3- September 13, 1996
month thereafter until the guaranteed indebtedness is paid in full. Each of such
installments shall be applied first to interest as aforesaid and the balance to
the reduction of the principal of the guaranteed indebtedness. In the event
default shall be made in payment of any such installments, and such default
shall continue for a period of three business days after notice of such default
is given to Sytron, then the blaance of the guaranteed indebtedness shall become
immediately due and payable together with interest thereon at the rate of 25%
per annum from the date of such default.
9. In the event Sytron fails to issue certificates for the Shares to United
in accordance with Paragraph 4 hereof within 15 days of the date hereof, then
the provisions of Paragraphs 2 and 3 hereof shall be of no force or effect.
10. Notices hereunder shall be in writing and shall be sent to the party
for whom intended by fax at such party's last known fax number and by a form of
overnight mail such as "Federal Express," "United States Priority Mail" or other
form of overnight delivery.
11. This agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. It cannot be
modified or terminated orally. It shall be governed by the laws of New York.
If the foregoing correctly sets forth our understanding, please sign and return
the enclosed copy of this letter, retaining a copy hereof executed by United
Credit Corporation for your files. This letter agreement shall be of no force
and effect if a fully executed copy, along with a copy of the guaranty
hereinabove referred to is not received by us by September 30, 1996. Above is
subject to underwriters or lead market maker's approval and Sytron shall
endeavor to get such approval. /s/ RH
Very truly yours,
UNITED CREDIT CORPORATION
By: /s/ Donald M. Landis
----------------------------
Donald M. Landis
AGREED TO:
DORADO SYSTEMS CORPORATION
By: /s/
-----------------------------
SYTRON, INC.
By: /s/
-----------------------------
Exhibit 10(r)
SYTRON, INC.
Dated: June 13, 1997 Principal Amount: $ 10,000
PROMISSORY NOTE
DUE JUNE 13, 1998
Sytron, Inc., a Pennsylvania corporation (the "Company"), for value
received, hereby promises to pay to Robert M. Long or his registered assigns
(the "Lender") on the 13th day of June, 1998 (the "Maturity Date") at the
principal offices of the Company, or such other place as the Company may
designate, the principal sum of $ 10,000 in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest on the outstanding
principal balance at the rate of twelve percent (12%) per annum from the care of
the advance of the principal amount hereunder until the Company has paid all
amounts due under this Note. Simple interest hereunder shall accrue and shall be
payable on the Maturity Date to the Lender hereor at the office of the Company.
All capitalized terms used herein without further definition shall have the
respective meanings ascribed thereto in the Loan Agreement.
If an Event of Default occurs and is continuing under the Loan Agreement,
the unpaid principal balance of this Note along with all accrued and unpaid
interest shall become, or may be declared, immediately due and payable as
provided in the Loan Agreement.
This Note may only be prepaid in accordance with the terms and conditions
or the Loan Agreement.
The Company hereby waives protest, demand, notice of nonpayment and all
other notices in connection with the delivery, acceptance, performance or
enforcement of this Note. No failure or delay to exercise any right or power or
any partial exercise, accruing upon any default hereunder shall impair any such
right or power or be construed to be a waiver of any such default or any
acquiescence therein.
This Note shall be governed by the laws of the State of New York, without
regard to the choice of law. The parties agree to submit any dispute arising
under this Note to the exclusive jurisdiction of an appropriate state or federal
court located in the County, City and State of New York. If suit is brought to
collect this Promissory Note, the payee shall be entitled to collect all
reasonable costs and expenses of suit, including, but not limited to, reasonable
attorney's fees.
IN WITNESS WHEREOF, Sytron, Inc. has caused this Note to be signed in its
name by its Chief Executive Officer.
Sytron, Inc.
A Pennsylvania corporation
By: /s/ Mitch Feinglas
-----------------------------------------
Mitch Feinglas, Chief Executive Officer
Exhibit 10(s)
SECURED PROMISSORY NOTE
DUE JANUARY 31, 2000
Dated: February 1, 1998 Principal Amount $ 56,000.00
----------
FOR VALUE RECEIVED, the undersigned, SYTRON, INC., a Pennsylvania corporation
(the "Company"), promises to pay to John E. Stuart or registered assigns (The
"Holder") the amount of Fifty Six Thousand Dollars accrued interest Thereon on
January 31, 1000 (the "Due Date"). Interest on the above-stated sum shall accrue
at Nine and One Half (9.5%) Percent per annum. Interest hereunder shall be
compounded quarterly.
Interest shall be payable quarterly on each April 1, July 1, October 1 and
January 1 during the term hereof with the first such interest payment due and
payable on April 1, 1998. Interest shall be paid in United States funds, by
check or wire transfer to the order of Holder, directed to such address as shall
be specified by notice from the Holder to the Company far such purpose. At the
election of the Holder only, which election shall be expressed in writing to the
Company, interest may be paid in the form of shares of the Company's common
stock, $0.01 par value (the "Common Stock"), with the value of the Common Stock
used to effect the interest payment determined by multiplying by ninety (90%)
the average closing bid price of the Common Stock as repored in the principal
market in the United States on which the Common Stock is traded over he course
of the five (5) business days immediately preceding the date the interest
payment is due.
This Secured Promissorv Note (this "Note") is issued by the Company pursuant and
subject to the terms of that certain Loan and Security Agreement dated the date
hereof (the "Loan Agreement") between the Company and the Holder, and is secured
by a perfected, first priority security interest in certain accounts receivable
of the Company as more panicularly set forth in the Loan Agreement. The Holder
is entitled to the benefits of the Loan Agreement and may enforce the agreements
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof.
<PAGE>
2
Each of the following events shall constitute an Event of Default:
(1) Failure to make payment of the principal or accrued interest on
the Note when and as the same shall become due and payable;
(ii) Failure to maintain the amount and composition of the Collateral
required under Section 3(a) of the Loan Agreement, including, without
limitation, failure to replace any account receivable if such account receivable
is aged longer than Ninety (90) days or any failure to deliver a Collateral
Report within the time required under Section 3(e) of the Loan Agreement;
(iii) Default in the due observance or performance of any covenant,
warranty, representation, condition, or agreement on the part of the Company to
be observed or performed pursuant to the terms hereof;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its debts
as they mature;
(vi) General assignment by the Company for the benefit of credtors;
(vii) Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization, or an arrangement with creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 90 days; or
(ix) Termination of a material portion of the business of the Company
or a change of control of the Company.
If any Event of Default shall have occurred and shall not have been cured
within ten (10) days after notice of such default, the Holder may, by notice to
the Company, declare that all indebtedness, liabilities, and other obligations
of the Company to the Lender shall be forthwith due and payable whereupon all
such indebtedness, liabilities, or other obligations shall become so due and
payable.
-2-
<PAGE>
3
Upon the occurrence of an Event of Default, the Holder shall have all the
rights and remedies of a secured party under the UCC and other applicable laws
with respect to all the Collateral as defined in the Loan Agreement, such rights
and remedies being in addition to all other rights and remedies available in law
or in equity or as provided for in the Loan Agreement, including, but not
limited to:
(i) The right to take possession of, send notices regarding and
collect directly the Collateral with or without judicial process (including
without limitation the right to notify United States postal authorities to
redirect mail addressed to the Company); or
(ii) By its own means or with judicial assistance, enter the Company's
premises and take possession of the Collateral and the related records and
documents; or
(iii) Require the Company at the Company's expense to assemble all or
any part of the Collateral and make it available to Holder.
All rights and remedies granted hereunder or otherwise available shall
be deemed concurrent and cumulative and not alternative remedies and Holder may
proceed with any number of remedies at the same time until all the amounts
hereunder are paid in all. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
The following additional terms shall apply to this Note:
1. Secured Obligation. The obligations of the Company under this Note are
secured by the Collateral pursuant to the terms of the Loan Agreement, and the
Holder shall have the rights with respect to such Collateral as defined in and
under the terms of the Loan Agreement.
2. Transfer. Subject to compliance with applicable federal and state securities
laws, this Note shall be transferable in whole or in part. Any such transfer
shall be effected by the presentation of this Note to the Company for transfer,
accompanied by a duly completed and executed Assignment Form in the form
attached hereto as Schedule A.
3. Governing Law. This Note shall be construed and enforced in accordance with
the laws of the State of New York without regard to choice of law principles.
The parties agree that any claims arising hereunder shall be brought only in a
court of general jurisdiction in the County and State of New York, hereby waive
any objection to the jurisdiction of such court, and waive a trial by jury.
4. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered, unless otherwise specified, either
personally, by facsimile
-3-
<PAGE>
4
transmission (receipt verified), by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service (receipt
verified), to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; provided, that notices of a
change of address shall be effective only upon receipt thereof).
To the Company:
Sytron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Attn: Mitch Feinglas,
Chief Executive Officer
Telephone No.: (303) 469-6100
Facsimile No.: (303) 469-7100
with a copy to:
Andrew Telsey,Esc.
--------------------------------
CO
------------------ -----------
To the Holder:
John E. Stuart, Deputy General Manager
---------------------------------------
Europay Int'l, Chaussee de Tervuren 198A
----------------------------------------
B-1410. Waterloo
----------------------------------------
Belgium
With Copies To:
Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, New York
Attn: Andrew J. Goodman, Esq.
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note and has
delivered it to the Holder, on the day and year first above written.
SYTRON, INC.
By: /s/ Robert Howard
--------------------------------
Name: Robert Howard
Title: President
[Corporate Seal]
ATTEST
- ---------------------------------
Secretary
-5-
<PAGE>
Schedule A to Note
ASSIGNNENT
, 19
------------ -------
Sytron, Inc.
2770 Industrial Lane,
Broomfield, Colorado 80020-1620
Attention: President
Gentlemen:
The undersigned holder (the "Assignor") of the attached note (the Note")
hereby assigns and transfers $___ principal amount of the Note to _______ (the
"Asssignee").
As a condition to the assignment of the Note by Assignor to Assignee,
Assignee hereby represents, warrants and acknowledges to the Company and
Assignor as follows:
1. Assignee acquiring the Note for its own account, for investment and not
with a view to the distribution thereof as allowed under the Securities Act of
1933, as amended, and other applicable state securities laws; and
2. Assignee acknowledges that the Note will bear appropriate legends as
reasonably required for compliance with the Securities Act and applicable state
securities laws.
ASSIGNOR:
-------------------------------
ASSIGNEE:
-------------------------------
-6-
SECURED PROMISSORY NOTE
DUE JANUARY 31, 2000
Dated: February 1, 1998 Principal Amount $ 107,865.00
------------
FOR VALUE RECEIVED, the undersigned, SYTRON, INC., a Pennsylvania corporation
(the "Company"), promises to pay to Irwin Assoc. Pension Scheme registered,
assigns (the "Holder") the amount of One Hundred Seven Thousand Eight Hundred
Fifty Six Dollars all accrued interest thereon on January 31, 2000 (the "Due
Date"). Interest on the above stated sum shall accrue at Nine and One Half
(9.5%) Percent per annum. Interest hereunder shall be compounded quarterly.
Interest shall be payable quarterly on each April 1, July 1, October 1 and
January 1 during the term hereof with the first such interest payment due and
payable on April 1, 1993. Interest shall be paid in United States funds, by
check or wire transfer to the order of Holder, directed to such address as shall
be specified by notice from the Holder to the Company for such purpose. At the
election of the Holder only, which election shall be expressed in writing to the
Company, interest may be paid in the form of shares of the Company's common
stock. $0.01 par value (the "Common Stock"), with the value of the Common Stock
used to effect the interest payment determined by multiplying by ninety (90%)
the average closing bid price of the Common Stock as reported in the principal
market in the United States on which the Common Stock is traded over the course
of the five (5) business days immediately preceding the date the interest
payment is due.
This Secured Promissorv Note (this "Note") is issued by the Company pursuant and
subject to the terms of that certain Loan and Security Agreement dated the date
hereof (the "Loan Agreement") between the Company and the Holder, and is secured
by a perfected. first priority security interest in certain accounts receivable
of the Company as more particularly set forth in the Loan Agreement. The Holder
is entitled to the benefits of the Loan Agreement and may enforce the agreements
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof.
<PAGE>
2
Each of the following events shall constitute an Event of Default:
(i) Failure to make payment of the principal or accrued interest on
the Note when and as the same shall become due and payable;
(ii) Failure to maintain the amount and composition of the Collateral
required under Section 3(a) of the Loan Agreement, including, without
limitation, failure to replace any account receivable if such account receivable
is aged longer than Ninety (90) days or any failure to deliver a Collateral
Report within the time required under Section 3(e) of the Loan Areement;
(iii) Default in the due observance or performance of any covenant,
warrant, representation, condition, or agreement on the part of the Company to
be observed or performed pursuant to the terms hereof;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property';
(v) Admission in writing of the Companys inability to pay its debts as
they mature;
(vi) General assignment by the Company for the benefit of creditors;
(vii) Filing by the Company of a voluntary petition in bankruotcy or a
petition or an answer seeking reorganization, or an arrangement with creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 90 days; or
(ix) Termination of a material portion of the business of the Company
or a change of control of the Company.
If any Event of Default shall have occurred and shall not have been cured
within ten (10) days after notice of such default, the Holder may, by notice to
the Company, declare that all indebtedness, liabilities, and other obligations
of the Company to the Lender shall be forthwith due and payable whereupon all
such indebtedness, liabilities, or other obligations shall become so due and
payable.
-2-
<PAGE>
3
Upon the occurrence of an Event of Default, the Holder shall have all the
rights and remedies of a secured party under the UCC and other applicable laws
with respect to all the Collateral as defined in the Loan Agreement, such rights
and remedies being in addition to all other rights and remedies available in law
or in equity or as provided for in the Loan Agreement, including but not limited
to:
(i) The right to take possession of; send notices regarding and
collect directly the Collateral with or without judicial process (including
without limitation the right to notify United States postal authorities to
redirect mail addressed to the Company); or
(ii) By its own means or with judicial assistance, enter the Company's
premises and take possession of the Collateral and the related records and
documents; or
(iii) Require the Company at the Company's expense to assemble all or
any part of the Collateral and make it available to Holder.
All rights and remedies granted hereunder or otherwise available shall
be deemed concurrent and cumulative and not alternative remedies and Holder may
proceed with any number of remedies at the same time until all the amounts
hereunder are paid in frill. The exercise of any one right or remedy shall not
be deemed a waiver or release of any other right or remedy.
The following additional terms shall apply to this Note:
1. Secured Obligation. The oblications of the Company under this Note are
secured by the Collateral pursuant to the terms of the Loan Agreement, and the
Holder shall have the rights with respect to such Collateral as defined in and
under the terms of the Loan Agreement.
2. Transfer. Subject to compliance with applicable federal and state securities
laws, this Note shall be transferable in whole or in part. Any such transfer
shall be effected by the presentation of this Note to the Company for transfer,
accompanied by a duly completed and executed Assignment Form in the form
attached hereto as Schedule A.
3. Governing Law. This Note shall be construed and enforced in accordance with
the laws of the Stare of New York without regard to choice of law principles.
The parties agree that any claims arising hereunder shall be brought only in a
court of general jurisdiction in the County and State of New York, hereby waive
any objection to the jurisdiction of such court, and waive a trial by jury.
4. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered, unless otherwise specified, either
personally, by facsimile
-3-
<PAGE>
4
transmission (receipt verified), by registered or certified mail (return receipt
requested), postage prepaid, or set by express courier service (receipt
verified), to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; provided, that notices of a
change of address shall be effective only upon receipt thereof).
To the Company:
Syron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Attn: Mitch Feinglas,
Chief Executive Officer
Telephone No.: (303) 469-6100
Facsimile No.: (303) 469-7100
with a copy to:
Andrew Telsey,Esq.
--------------------------------------
CO
-------------------- ---------------
To the Holder:
Irwin Associates Pension Scheme
---------------------------------------
P.O. Box 95, 2A Lord St.
---------------------------------------
Douglas IM 99 1HP
---------------------------------------
Isle of Man
With Copies To:
Phillip D. Irwin Rosner Bresler Goodman & Unterman, LLP
Box 4, Site 26, RR12 521 Fifth Avenue
Calgary, Alberta T3E 6W3 28th Floor
Canada New York, New York
Attn: Andrew J. Goodman, Esq.
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note and has
delivered it to the Holder, on the day and year first above written.
SYTRON, INC.
By: /s/ Robert Howard
----------------------------
Name: Robert Howard
Title: President
[Corporate Seal]
ATTEST
- ----------------------------------
Secretary
-5-
<PAGE>
Schedule A to Note
ASSIGNMENT
________ , 19 ______
Sytron, Inc.
2770 Industrial Lane,
Broomfield, Colorado 80020-1620
Attention: President
Gentlemen:
The undersigned holder (the "Assignor") of the attached note (the "Note")
hereby assigns and transfers $___ principal amount of the Note to ________ (the
"Assignee").
As a condidon to the assignment of the Note by Assignor to Assignee,
Assignee hereby represents, warrants and acknowledges to the Company and
Assignor as rollows:
1. Assignee is acquiring the Note for its own account, for investment and
not with a view to the distribution thereof except as allowed under the
Securities Act of 1933, as amended, and other applicable state securities laws;
and
2. Assignee acknowledges that the Note will bear appropriate legends as
reasonably required for compliance with the Securities Act and applicable state
securities law's.
ASSIGNOR:
----------------------------
ASSIGNEE:
----------------------------
-6-
Exhibit 10(u)
SECURED PROMISSORY NOTE
DUE JANUARY 31, 2000
Dated: February 1, 1998 Principal Amount $100,000.00
-----------
FOR VAlUE RECEIVED, the undersigned, SYTRON, INC., a Pennsylvania corporation
(the "Company"), promises to pay to Basil and Susan Bicknell or registered
assigns (the "Holder") the amount of One Hundred Thousand Dollars and all
accrued interest thereon on January 31, 2000 (the "Due Date"). Interest on the
above-stated sum shall accrue at Nine and One Half (9.5%) Percent per annum.
Interest hereunder shall be compounded quarterly.
Interest shall be payable quarterly on each April 1, July 1, October 1 and
January 1 during the term hereof with the first such interest payment due and
payable on April 1. 1998. Interest shall be paid in United States funds, by
check or wire transfer to the order of Holder, directed to such address as shall
be specified by notice from the Holder to the Company for such purpose. At the
election of the Holder only, which election shall be expressed in writing to the
Company, interest may be paid in the form of shares of the Company's common
stock, $0.01 par value (the "Common Stock"), with the value of the Common Stock
used to effect the interest payment determined by multiplying by ninety (90%)
the average closing bid price of the Common Stock as reported in the principal
market in the United States on which the Common Stock is traded over the course
of the five (5) business days immediately preceding the date the interest
payment is due.
This Secured Promissory Note (this "Note") is issued by the Company pursuant and
subject to the terms of that certain Loan and Security Agreement dated the date
hereof (the "Loan Agreement") between the Company and the Holder, and is secured
by a perfected, first priority security interest in certain accounts receivable
of the Company as more particularly set forth in the Loan Agreement. The Holder
is entitled to the benefits of the Loan Agreement and may enforce the agreements
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof
<PAGE>
2
Each of the following events shall constitute an Event of Default:
(i) Failure to make payment of the principal or accrued interest on
the Note when and as the same shall become due and payable;
(ii) Failure to maintain the amount and composition of the Collateral
required under Section 3(a) of the Loan Agreement, including, without
limitation, failure to replace any account receivable if such account receivable
is aged longer than Ninety (90) days or any failure to deliver a Collateral
Report within the time required under Section 3(e) of the Loan Agreement;
(iii) Default in the due observance or performance of any covenant,
warranty, representation, conoitlon, or agreement on the part of the Company to
be observed or performed pursuant to the terms hereof;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its debts
as they mature;
(vi) General assignment by the Company for the benefit of creditors;
(vii) Filing by the Company of a voluntary petition in barkruptcy or a
petition or an answer seeking reorganization, or an arrangement with creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 90 days; or
(ix) Termination of a material portion of the business of the Company
or a change of control of the Company.
If any Event of Default shall have occurred and shall not have been cured
within ten (10) days after notice of such default, the Holder may, by notice to
the Company, declare that all indebtedness, liabilities, and other obligations
of the Company to the Lender shall be forthwith due and payable whereupon all
such indebtedness, liabilities, or other obligations shall become so due and
payable.
-2-
<PAGE>
3
Upon the occurrence of an Event of Default, the Holder shall have all the
rights and remedies of a secured party under the UCC and other applicable laws
with respect to all the Collateral as defined in the Loan Agreement, such rights
and remedies being in addition to all other rights and remedies available in
law or in equity or as provided for in the Loan Ageement including, but not
limited to:
(i) The right to take possession of, send notices regarding and
collect directly the Collateral with or without judicial process (including
without limitation the right to notify United States postal authorities to
redirect mail addressed to the Company); or
(ii) By its own means or with judicial assistance, enter the Company's
premises and take possession of the Collateral and the related records and
documents; or
(iii) Require the Company at the Company's expense to assemble all or
any part of the Collateral and make it avaliable to Holder.
All rights and remedies granted hereunder or otherwise available shall
be deemed concurrent and cumulative and not alternative remedies and Holder may
proceed with any number of remedies at the same time until all the amounts
hereunder are paid in fill. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
The following additional terms shall apply to this Note:
1. Secured Obligation. The obligations of the Company under this Note are
secured by the Collateral pursuant to the terms of the Loan Agreement, and the
Holder shall have the rights with respect to such Collateral as defined in and
under the terms of the Loan Agreement.
2. Transfer. Subject to compliance with applicable federal and state securities
laws, this Note shall be transferable in whole or in part. Any such transfer
shall be effected by the presentation of this Note to the Company or transfer,
accompamed by a duly completed and executed Assignment Form in the form attached
hereto as Schedule A.
3. Governing Law. This Note shall be construed and enforced in accordance with
the laws of the State of New York without regard to choice of law principles.
The parties agree that any claims arising hereunder shall be brought only in a
court of general jurisdiction in the County and State of New York, hereby waive
any objection to the jurisdiction of such court, and waive a trial by jury.
4. Notices. All notices and other communications hereunder shall be in wnting
and shall be deemed given if delivered, unless otherwise specified, either
personally, by facsimile
-3-
<PAGE>
4
transmission (receipt verified), by registered or certified mail (return receipt
requested), postase prepaid, or sent by express courier service (receipt
verified), to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; provided, that notices of a
change of address shall be effective only upon receipt thereof).
To the Company:
Syrtron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Ar: Mitch Feinglas,
Chief Executive Officer
Telephbne No.: (303) 469-6100
Facsimile No.: (303) 469-7100
with a copy to:
Andrew Telsey,Esq.
----------------------------------------------
CO
------------------------ ----------------
To the Holder:
Basil and Susan Bicknell
----------------------------------------------
55 Kenway Road
----------------------------------------------
London SW5 0RE
----------------------------------------------
England
With Copies To:
Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, New York
Attn: Andrew J. Goodman, Esq.
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note and has delivered it
to the Holder, on the day and year first above written.
SYTRON, INC.
By: /s/ Robert Howard
------------------------------------
Name: Robert Howard
Title: President
[Corporate Seal]
ATTEST
- --------------------------------
Secretary
-6-
<PAGE>
Schedule A to Note
ASSIGNMENT
----------
____________, 19 _____
Sytron, Inc.
2770 Industrial Lane,
Broomfield., Colorado 80020-1620
Attention: President
Gentlemen:
The undersiged holder (the "Assignor") of the attached note (the "Note")
hereby assigns and transfers $___ principal amount of the Note to ________ (the
"Assignee").
As a condition to the assignment of the Note by Assignor to Assignee,
Assignee hereby represents, warrants and acknowledges to the Company and
Assionor as follows:
1. Assignee is acquiring the Note for its own account, for investment and
not with a view to the distribution thereof except as allowed under the
Securities Act of 1933, as amended, and other applicable state securities laws;
and
2. Assignee acknowledges that the Note will bear appropriate legends as
reasonably required for compliance with the Securities Act and applicable state
securities laws.
ASSIGNOR:
------------------------------
ASSIGNEE:
------------------------------
-6-
Exhibit 10(v)
SECURED PROMISSORY NOTE
DUE JANUARY 31, 2000
Dated: February 1, 1998 Principal Amount $100,000.00
-----------
FOR VALUE RECEIVED, the undersigned, SYTRON, INC., a Pennsylvania corporation
(the "Company"), promises to pay to V.W. Warren Pearl, Esq. or registered
assigns (the "Holder") the amount of One Hundred thousand Dollars and all
accrued interest thereon on January 31, 2000 (the "Due Date"). Interest on the
above-stated sum shall accrue at Nine and One Half (9.5%) Percent per annum.
Interest hereunder shall be compounded quarterly.
Interest shall be payable quarterly on each April 1, July 1, October 1 and
January 1 during the term hereof with the first such interest payment due and
payable on April 1, 1998. Interest shall be paid in United States funds, by
check or wire transfer to the order of Holder, directed to such address as shall
be specified by notice from the Holder to the Company for such purpose. At the
election of the Holder only, which election shall be expressed in writing to the
Company, interest may be paid in the form of shares of the Company's common
stock, $0.01 par value (the "Common Stock"), with the value of the Common Stock
used to effect the interest payment determined by multiplying by ninety (90%)
the average closing bid price of the Common Stock as reported in the principal
market in the United States on which the Common Stock is traded over the course
or the five (5) business days immediately preceding the date the interest
payment is due.
This Secured Promissory Note (this "Note") is issued by the Company pursuant and
subject to the terms of that certain Loan and Security Agreement dated the date
hereof (the "Loan Agreement") between the Company and the Holder, and is secured
by a perfected, first priority security interest in certain accounts receivable
of the Company as more particularly set forth in the Loan Agreement. The Holder
is entitled to the benefits of the Loan Agreement and may enforce the agreements
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof.
<PAGE>
2
Each of the following events shall constitute an Event of Default:
(1) Failure to make payment of the principal or accrued interest on
the Note when and as the same shall become due and payable;
(ii) Failure to maintain the amount and composition of the Collateral
required under Section 3(a) of the Loan Agreement, including, without
limitation, failure to replace any account receivable if such account receivable
is aged longer than Ninety (90) days or any failure to deliver a Collateral
Report within the time required under Section 3(e) of the Loan Agreement;
(iii) Default in the due observance or performance of any covenant,
warranty, representation, condition, or agreement on the part of the Company to
be observed or performed pursuant to the terms hereof;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its debts
as they mature;
(vi) General assignment by the Company for the benefit of creditors;
(vii) Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization, or an arrangement with creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 90 days; or
(ix) Termination of a material portion of the business of the Company
or a change of control of the Company.
If any Event of Default shall have occurred and shall not have been cured
within ten (10) days after notice of such default, the Holder may, by notice to
the Company, declare that all indebtedness, liabilities, and other obliaations
of the Company to the Lender shall be forthwith due and payable whereupon all
such indebtedness, liabilities, or other obligations shall become so due and
payable.
-2-
<PAGE>
3
Upon the occurrence of an Event of Default, the Holder shall have all the
rights and remedies of a secured party under the UCC and other applicable laws
with respect to all the Collateral as defined in the Loan Agreement, such rights
and remedies being in addition to all other rights and remedies available in law
or in equity or as provided for in the Loan Agreement, including, but not
limited to:
(i) The right to take possession of; send notices regarding and
collect directly the Collateral with or without judicial process (including
without limitation the right to notify; United States postal authorities to
redirect mail addressed to the Company); or
(ii) By its own means or with judicial assistance, enter the Company's
premises and take possession of the Collateral and the related records and
documents; or
(iii) Require the Company at the Company's expense to assemble all or
any part of the Collateral and make it available to Holder.
All rights and remedies granted hereunder or otherwise available shall
be deemed concurrent and cumulative and not alternative remedies and Holder may
proceed with any number of remedies at the same time until all the amounts
hereunder are paid in full. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
The following additional terms shall apply to this Note:
1. Secured Obligation. The obliaations of the Companvy under this Note are
secured by the Collateral pursuant to the terms of the Loan Agreement, and the
Holder shall have the rights with respect to such Collateral as defined in and
under the terms of the Loan Agreement.
2. Transfer. Subject to compliance with applicable federal and state securities
laws, this Note shall be transferable in whole or in part. Any such transfer
shall be effected by the presentation of this Note to the Company for transfer,
accomoanied by a duly completed and executed Assignment Form in the form
attached hereto as Schedule A.
3. Governing Law. This Note shall be construed and enforced in accordance with
the laws of the State of New York without regard to choice of law principles.
The parties agree that any claims arising hereunder shall be brought only in a
court of general jurisdiction in the County and State of New York, hereby waive
any objection to the jurisdiction or such court, and waive a trial by jury.
4. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered, unless otherwise specified, either
personally, by facsimile
-3-
<PAGE>
4
transmission (receipt verified), by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service (receipt
verified), to the parties at the foilowing addresses (or at such other address
for a party as shall be specified by like notice; provided, that notices of a
change of address shall be effective only upon receipt thereof).
To the Company:
Sytron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Arm: Mitch Feinglas,
Chief Executive Officer
Telephone No.: (303) 469-6100
Facsimile No.: (303) 469-7100
with a copy to:
Andrew Telsey,.Esq.
-------------------------------------------
CO
--------------------- ------------------
To the Holder:
V.W. Warren Pearl, Esq.
--------------------------------------------
Paxhill Park, Ardingly Road
--------------------------------------------
Lindfield Sussex, RH16 2RB
--------------------------------------------
United Kingdom
With Copies To
Rosner Bresler Goodman & Unterman., LLP
521 Fifth Avenue
28th Floor
New York, New York
Attn: Andrew J. Goodman, Esq.
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note and has delivered it
to the Holder, on the day and year first above written.
SYTRON, INC.
By: /s/ Robert Howard
------------------------------
Name: Robert Howard
Title: President
[Corporate Seal]
ATTEST
- -----------------------------------
Secretary
-5-
<PAGE>
Schedule A to Note
ASSIGNMENT
----------
__________, 19 ___
Sytron, Inc.
2770 Industrial Lane,
Broomfield, Colorado 80020-1620
Attention: President
Gentlemen:
The undersianed holder (the "Assignor") of the attached note (the "Note")
hereby assigns and transfers $____ principal amount of the Note to ________ (the
"Assignee").
As a condition to the assignment of the Note by Assignor to Assignee,
Assignee hereby represents, warrants and acknowledges to the Company and
Assianor as follows:
1. Assignee is acquiring the Note for its own account, for investment and
not with a view to the distribution thereof except as allowed under the
Securities Act of 1933, as amended, and other applicable state securities laws;
and
2. Assignee acknowledges that the Note will bear appropriate legends as
reasonably required for compliance with the Securities Act and applicable state
securities laws.
ASSIGNOR:
------------------------
ASSIGNEE:
------------------------
-6-
Exhibit 10(w)
SECURED PROMISSORY NOTE
DUE JANUARY 31, 2000
Dated: February 1, 1998 Principal Amount $ 100,000.00
------------
FOR VALUE RECEIVED, the undersigned, SYTRON. INC., a Pennsylvania corporation
(the "Company"), promises to pay to John and Kay Boor or registered assigns (the
"Holder") the amount of One Hundred Thousand Dollars all accrued interest
thereon on Jauary 31, 2000 (the "Due Date"). Interest on the above-stated sum
shall accrue at Nine and One Half (9.5%) Percent per annum. Interest hereunder
shall be compounded quarterly.
Interest shall be payable quarterly on each April 1, July 1, October 1 and
January 1 during the term hereof with the first such interest payment due and
payable on April 1, 1998. Interest shall be paid in United States funds, by
check or wire transfer to the order of Holder, directed to such address as shall
be specified by notice from the Holder to the Company for such purpose. At the
election of the Holder only, which election shall be expressed in writing to the
Company, interest may be paid in the form of shares of the Company's common
stock, $0.01 par value (the "Common Stock"), with the value of the Common Stock
used to effect the interest payment determined by multiplying by ninety (90%)
the average closing bid price of the Common Stock as reported in the principal
market in the United States on which the Common Stock is traded over the course
of the five (5) business days immediately preceding the date the interest
payment is due.
This Secured Promissory Note (this "Note") is issued by the Company pursuant and
subject to the terms of that certain Loan and Security Agreement dated the date
hereof (the "Loan Agreement") between the Company and the Holder, and is secured
by a perfected, first priority security interest in certain accounts receivable
of the Company as more particularly set forth in the Loan Agreement. The Holder
is entitled to the benefits of the Loan Agreement and may enforce the agreements
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof
<PAGE>
2
Each of the following events shall constitute an Event of Default:
(1) Failure to make payment of the principal or accrued interest on
the Note when and as the same shall become due and payable;
(ii) Failure to maintain the amount and composition of the Collateral
required under Section 3(a) of the Loan Agreement, including, without
limitation, failure to replace any account receivable if such account receivable
is aged longer than Ninety (90) days or any failure to deliver a Collateral
Report within the time required under Section 3(e) of the Loan Agreement;
(iii) Default in the due observance or performance of any covenant,
warranty, representation, condition, or agreement on the part of the Company to
be observed or performed pursuant to the terms hereof;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its debts
as they mature;
(vi) General assignment by the Company for the benefit of credtors;
(vii) Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization, or an arrangement with creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 90 days; or
(ix) Termination of a material portion of the business of the Company
or a change of control of the Company.
If any Event of Default shall have occurred and shall not have been cured
within ten (10) days after notice of such default, the Holder may, by notice to
the Company, declare that all indebtedness, liabilities, and other obligations
of the Company to the Lender shall be forthwith due and payable whereupon all
such indebtedness, liabilities, or other obligations shall become so due and
payable.
-2-
<PAGE>
3
Upon the occurrence of an Event of Default, the Holder shall have all the
rights and remedies of a secured party under the UCC and other applicable laws
with respect to all the Collateral as defined in the Loan Agreement, such rights
and remedies being in addition to all other rights and remedies available in law
or in equity or as provided for in the Loan Agreement, including, but not
limited to:
(i) The right to take possession of, send notices regarding and
collect directly the Collateral with or without judicial process (including
without limitation the right to notify United States postal authorities to
redirect mail addressed to the Company); or
(ii) By its own means or with judicial assistance, enter the Company's
premises and take possession of the Collateral and the related records and
documents; or
(iii) Require the Company at the Company's expense to assemble all or
any part of the Collateral and make it available to Holder.
All rights and remedies granted hereunder or otherwise available shall
be deemed concurrent and cumulative and not alternative remedies and Holder may
proceed with any number of remedies at the same time until all the amounts
hereunder are paid in all. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
The following additional terms shall apply to this Note:
1. Secured Obligation. The obligations of the Company under this Note are
secured by the Collateral pursuant to the terms of the Loan Agreement, and the
Holder shall have the rights with respect to such Collateral as defined in and
under the terms of the Loan Agreement.
2. Transfer. Subject to compliance with applicable federal and state securities
laws, this Note shall be transferable in whole or in part. Any such transfer
shall be effected by the presentation of this Note to the Company for transfer,
accompanied by a duly completed and executed Assignment Form in the form
attached hereto as Schedule A.
3. Governing Law. This Note shall be construed and enforced in accordance with
the laws of the State of New York without regard to choice of law principles.
The parties agree that any claims arising hereunder shall be brought only in a
court of general jurisdiction in the County and State of New York, hereby waive
any objection to the jurisdiction of such court, and waive a trial by jury.
4. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered, unless otherwise specified, either
personally, by facsimile
-3-
<PAGE>
4
transmission (receipt verified), by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service (receipt
verified), to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; provided, that notices of a
change of address shall be effective only upon receipt thereof).
To the Company:
Sytron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Attn: Mitch Feinglas,
Chief Executive Officer
Telephone No.: (303) 469-6100
Facsimile No.: (303) 469-7100
with a copy to:
Andrew Telsey,Esc.
--------------------------------
CO
------------------ -----------
To the Holder:
John and Kay Boor
---------------------------------------
HCR 62, Box 31BB
----------------------------------------
Flippin, AR 72634
----------------------------------------
With Copies To:
Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, New York
Attn: Andrew J. Goodman, Esq.
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note and has
delivered it to the Holder, on the day and year first above written.
SYTRON, INC.
By: /s/ Robert Howard
--------------------------------
Name: Robert Howard
Title: President
[Corporate Seal]
ATTEST
- ---------------------------------
Secretary
-5-
<PAGE>
Schedule A to Note
ASSIGNNENT
, 19
------------ -------
Sytron, Inc.
2770 Industrial Lane,
Broomfield, Colorado 80020-1620
Attention: President
Gentlemen:
The undersigned holder (the "Assignor") of the attached note (the Note")
hereby assigns and transfers $___ principal amount of the Note to _______ (the
"Asssignee").
As a condition to the assignment of the Note by Assignor to Assignee,
Assignee hereby represents, warrants and acknowledges to the Company and
Assignor as follows:
1. Assignee acquiring the Note for its own account, for investment and not
with a view to the distribution thereof as allowed under the Securities Act of
1933, as amended, and other applicable state securities laws; and
2. Assignee acknowledges that the Note will bear appropriate legends as
reasonably required for compliance with the Securities Act and applicable state
securities laws.
ASSIGNOR:
-------------------------------
ASSIGNEE:
-------------------------------
-6-
Exhibit 10(x)
SECURED PROMISSORY NOTE
DUE JANUARY 31, 2000
Dated: February 1, 1998 Principal Amount $ 44,800.00
-----------
FOR VALUE RECEIVED, the undersigned, SYTRON, INC., a Pennsylvania corporation
(the "Company"), promises to pay to Ms. Marion Bloch or registered assigns (the
"Holder") the amount of Fourty Four Thousand Eight Hundred Dollars and all
accrued interest thereon on January 31, 2000 (the "Due Date"). interest on the
above-stated sum shall accrue at Nine and One Half (9.5%) Percent per annum.
Interest hereunder shall be compounded quarterly.
Interest shall be payable quarterly on each April 1, July 1, October 1 and
January 1 during the term hereof with the first such interest payment due and
payable on April 1, 1998. Interest shall be paid in United States funds by check
or wire transfer to the order of Holder, directed to such address as shall be
specified by notice from the Holder to the Company for such purpose. At the
election of the Holder only, which election shall be expressed in writing to the
Company, interest may be paid in the form of shares of the Company's common
stock, $0.01 par value (the "Common Stock"), with the value of the Common Stock
used to effect the interest payment determined by multiplying by ninety (90%)
the average closing bid price of the Common Stock as reported in the principal
market in the United States on which the Common Stock is traded over the course
of the five (5) business days immediately preceding the date the interest
payment is due.
This Secured Promissory Note (this "Note") is issued by the Company pursuant and
subject to the terms of that certain Loan and Security Agreement dated the date
hereof (the "Loan Agreement") between the Companv and the Holder, and is secured
by a perfected. first priority security interest in certain accounts receivable
of the Company as more particularly set forth in the Loan Agreement. The Holder
is entitled to the benefits of the Loan Agreement and may enforce the agreements
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof.
<PAGE>
2
Each of the following events shall constitute an Event of Default:
(1) Failure to make payment of the principal or accrued interest on
the Note when and as the same shall become due and payable;
(ii) Failure to maintain the amount and composition of the Collateral
required under Section 3(a) of the Loan Agreement, including, without
limitation, failure to replace any account receivable if such account receivable
is aged longer than Ninety (90) days or any failure to deliver a Collateral
Report within the time required under Section 3(e) of the Loan Agreement;
(iii) Default in the due observance or performance of any covenant,
warranty, representation, condition, or agreement on the part of the Company to
be observed or performed pursuant to the terms hereof;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its debts
as they mature;
(vi) General assignment by the Company for the benefit of credtors;
(vii) Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization, or an arrangement with creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 90 days; or
(ix) Termination of a material portion of the business of the Company
or a change of control of the Company.
If any Event of Default shall have occurred and shall not have been cured
within ten (10) days after notice of such default, the Holder may, by notice to
the Company, declare that all indebtedness, liabilities, and other obligations
of the Company to the Lender shall be forthwith due and payable whereupon all
such indebtedness, liabilities, or other obligations shall become so due and
payable.
-2-
<PAGE>
3
Upon the occurrence of an Event of Default, the Holder shall have all the
rights and remedies of a secured party under the UCC and other applicable laws
with respect to all the Collateral as defined in the Loan Agreement, such rights
and remedies being in addition to all other rights and remedies available in law
or in equity or as provided for in the Loan Agreement, including, but not
limited to:
(i) The right to take possession of, send notices regarding and
collect directly the Collateral with or without judicial process (including
without limitation the right to notify United States postal authorities to
redirect mail addressed to the Company); or
(ii) By its own means or with judicial assistance, enter the Company's
premises and take possession of the Collateral and the related records and
documents; or
(iii) Require the Company at the Company's expense to assemble all or
any part of the Collateral and make it available to Holder.
All rights and remedies granted hereunder or otherwise available shall
be deemed concurrent and cumulative and not alternative remedies and Holder may
proceed with any number of remedies at the same time until all the amounts
hereunder are paid in all. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
The following additional terms shall apply to this Note:
1. Secured Obligation. The obligations of the Company under this Note are
secured by the Collateral pursuant to the terms of the Loan Agreement, and the
Holder shall have the rights with respect to such Collateral as defined in and
under the terms of the Loan Agreement.
2. Transfer. Subject to compliance with applicable federal and state securities
laws, this Note shall be transferable in whole or in part. Any such transfer
shall be effected by the presentation of this Note to the Company for transfer,
accompanied by a duly completed and executed Assignment Form in the form
attached hereto as Schedule A.
3. Governing Law. This Note shall be construed and enforced in accordance with
the laws of the State of New York without regard to choice of law principles.
The parties agree that any claims arising hereunder shall be brought only in a
court of general jurisdiction in the County and State of New York, hereby waive
any objection to the jurisdiction of such court, and waive a trial by jury.
4. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered, unless otherwise specified, either
personally, by facsimile
-3-
<PAGE>
4
transmission (receipt verified), by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service (receipt
verified), to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; provided, that notices of a
change of address shall be effective only upon receipt thereof).
To the Company:
Sytron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Attn: Mitch Feinglas,
Chief Executive Officer
Telephone No.: (303) 469-6100
Facsimile No.: (303) 469-7100
with a copy to:
Andrew Telsey,Esc.
--------------------------------
CO
------------------ -----------
To the Holder:
Mr. Marion Bloch
---------------------------------------
163 Fernhead Road
----------------------------------------
London, W9 3ED
----------------------------------------
England
With Copies To:
Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, New York
Attn: Andrew J. Goodman, Esq.
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note and has
delivered it to the Holder, on the day and year first above written.
SYTRON, INC.
By: /s/ Robert Howard
--------------------------------
Name: Robert Howard
Title: President
[Corporate Seal]
ATTEST
- ---------------------------------
Secretary
-5-
<PAGE>
Schedule A to Note
ASSIGNNENT
, 19
------------ -------
Sytron, Inc.
2770 Industrial Lane,
Broomfield, Colorado 80020-1620
Attention: President
Gentlemen:
The undersigned holder (the "Assignor") of the attached note (the Note")
hereby assigns and transfers $___ principal amount of the Note to _______ (the
"Asssignee").
As a condition to the assignment of the Note by Assignor to Assignee,
Assignee hereby represents, warrants and acknowledges to the Company and
Assignor as follows:
1. Assignee acquiring the Note for its own account, for investment and not
with a view to the distribution thereof as allowed under the Securities Act of
1933, as amended, and other applicable state securities laws; and
2. Assignee acknowledges that the Note will bear appropriate legends as
reasonably required for compliance with the Securities Act and applicable state
securities laws.
ASSIGNOR:
-------------------------------
ASSIGNEE:
-------------------------------
-6-
Exhibit10(y)
United Credit Patriot Funding
Since 1937
15 West 44th Street, New York, NY 10036-6611
Telephone (212) 843-0808 Fax (212) 843-0817
================================================================================
September 13, 1996
Dorado Systems Corporation
320 South Sunset Street
Longmont, Colorado 80501
and
Sytron, Inc.
320n South Sunset Street
Longmont, Colorado 80501
Ladies and Gentlemen:
1. Dorado Systems Corporation ("Dorado") agrees that Dorado's indebtedness
to us as of the close of business August 31, 1996 was $131,196.30.
2. We agree to credit Dorado's indebtedness to us by $13,176.58, being
one-half of the $26,353.15 notification fee we charged Dorado under Paragraph
SIXTH C of the security agreement between Dorado and us through August 31, 1996,
thus reducing Dorado's indebtedness to us as of August 31, 1996 to $118,019.72.
3. The security agreement between Dorado and us is hereby modified in the
following respects:
(a) Effective September 1, 1996, the fee of 1-1/2% of Dorado's sales
referred to in Paragraph SIXTH C of the security agreement is changed to a fee
of 3/4 of 1%.
(b) The next to last sentence of Paragraph TENTH A, relating to a
termination fee payable by Dorado in the event of Dorado's termination of the
security agreement, is deleted.
4. Sytron, Inc. ("Sytrom"), represents to us that it is the owner of all
the issued and outstanding stock of Dorado, agrees that the foregoing credit and
modifications to the security agreement between Dorado and us are of benefit to
it, and in consideration thereof agrees to issue to us 5,000 shares of its
heretofore authorized but unissued common stock (the "Shares"), and deliver
certificates therefore to us promptly after the date hereof. We represent that
we are acquiring the Shares for investment only and without a view to a
distribution of all or any part thereof as the term "distribution" has meaning
under the Securities Act of 1933 as amended (the "Act"). Certificates for
/continued
<PAGE>
Dorado/ Sytron -2- September 13, 1996
the Shares may be endorsed with a legend restricting the transferability of the
underlying Shares to a transfer consistent with the foregoing investment
representation. In the event a holder of certificates for the Shares or part
thereof presents Sytron with an opinion of reputable counsel, familiar with the
Act and transactions thereunder, to the effect that a proposed transfer of the
Shares may be made without registration thereof under the Act, Sytron shall
promptly exchange certificates f or the Shares underlying such opinion for
certificates which do not bear the aforesaid legend and shall do all things
necessary to permit a transfer consistent with such opinion to be consummated.
5. In the event that Sytron shall intend to register any shares of stock
under the Act prior to the time it issues certificates free of the legend
contemplated by the preceeding paragraph, it shall give prompt notice of such
intention to the registered holders of the certificates bearing the legend.
Thereafter, we shall have the right to cause you to register the Shares if or
sale by us and to qualify the Shares for sale in the states of Colorado and New
York by notice to such effect to Sytron; and, in the event we do so notify
Sytron, Sytron shall pursue registration of such Shares with the same diligence
that it devotes to the registration of any other shares then about to be
registered by it and it shall pursue qualification of such shares f or sale in
the States of Colorado and New York with appropriate diligence.
6. In the event of the registration or qualification of the Shares as
provided for in the preceeding paragraph, each of Sytron and United shall
indemnify the other against any loss or liability, including reasonable
attorneys fees arising from the registration statement or qualification
documents containing any material misstatement or failure to state any fact
which, in light of the statements made in such registration statement or
qualification document need be made in order to make the statements made not
misleading. Notwithstanding the foregoing, the indemnification made by us shall
be limited to statements made by us in writing for purpqses of effecting the
foregoing registration or qualification and omissions relating to such
statements.
7. Concurrently herewith Sytron is executing and delivering to us its
guaranty of the present indebtedness of MHB Manufacturing, Inc. to us in the
form of Exhibit A hereto (the "Guaranty").
8. Sytron agrees to pay the guaranteed indebtedness, together with interest
on the unpaid balances thereof at the rate of 14% per annum in constant monthly
installments of $5,000.00 each commencing October 1, 1996 and continuing on the
first day of each
/continued
<PAGE>
Dorado/ Sytron -3- September 13, 1996
month thereafter until the guaranteed indebtedness is paid in full. Each of such
installments shall be applied first to interest as aforesaid and the balance to
the reduction of the principal of the guaranteed indebtedness. In the event
default shall be made in payment of any such installments, and such default
shall continue for a period of three business days after notice of such default
is given to Sytron, then the blaance of the guaranteed indebtedness shall become
immediately due and payable together with interest thereon at the rate of 25%
per annum from the date of such default.
9. In the event Sytron fails to issue certificates for the Shares to United
in accordance with Paragraph 4 hereof within 15 days of the date hereof, then
the provisions of Paragraphs 2 and 3 hereof shall be of no force or effect.
10. Notices hereunder shall be in writing and shall be sent to the party
for whom intended by fax at such party's last known fax number and by a form of
overnight mail such as "Federal Express," "United States Priority Mail" or other
form of overnight delivery.
11. This agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. It cannot be
modified or terminated orally. It shall be governed by the laws of New York.
If the foregoing correctly sets forth our understanding, please sign and return
the enclosed copy of this letter, retaining a copy hereof executed by United
Credit Corporation for your files. This letter agreement shall be of no force
and effect if a fully executed copy, along with a copy of the guaranty
hereinabove referred to is not received by us by September 30, 1996. Above is
subject to underwriters or lead market maker's approval and Sytron shall
endeavor to get such approval. /s/ RH
Very truly yours,
UNITED CREDIT CORPORATION
By: /s/ Donald M. Landis
----------------------------
Donald M. Landis
AGREED TO:
DORADO SYSTEMS CORPORATION
By: /s/
-----------------------------
SYTRON, INC.
By: /s/
-----------------------------
Exhibit 10(z)
United Credit Patriot Funding
Since 1937
15 West 44th Street, New York, NY 10036-6611
Telephone (212) 843-0808 . Fax (212) 843-0817
================================================================================
January 11, 1996
Mr. Mitchell Feinglass
Dorado Systems Corporation
1105 North Cedarbrook
Boulder, Colorado 80304
Dear Mitch:
Enclosed herewith is an executed copy of the agreement between Dorado and
United. I have dated it January 3rd , the date of our first advance.
I believe things are going well with Arlene and Fred. Please let me know if
you hear of anything that will make the relationship better.
With best wishes for the New Year.
Sincerely,
UNITED CRESIT CORPORATION
By /s/ Donald H. Landis
------------------------------
Donald H. Landis
DML/mfi
End.
<PAGE>
SECURITY AGREEMENT dated December 3, 1995 between Dorado Systems
Corporation, a corporation organized and existing under the laws of the State of
California, having its principal place of business at 721 Sandoval Way, Maywood,
California, (hereinafter called the Borrower"), and UNITED CREDIT cORPORATION, a
corporation organized and existing under the laws of the State of New York,
having its principal place of business at 15 West 44th Street, New York, New
York 10036--6611 (hereinafter called "United").
WITNESSETH
FIRST: Subject to the further terms hereof:
(a) Insofar as the Borrower may request, United shall make loans or extend
credit to or for the Borrower; but United shall not be obligated to make loans
or extend credit beyond the borrowing base or the permissible line, whichever is
less;
(b) The "borrowing base" shall mean an amount equal to 75% of the net
security value of accounts as defined in subparagraph "THIRTEENTH (b)" hereof,
minus any amounts past due in accordance with the terms of this agreement, and
the "permissible line" shall mean $250,000.00;
(c) The Borrower shall pay United basic interest on the daily unpaid cash
balances outstanding during each month at a rate equal to the highest New York
city prime rate in effect during such month as generally reported, plus 5% per
annum, but the basic rate hereunder shall not be less than 14% per annum nor
more than the maximum permitted by applicable law;
(d) In any event, the Borrower shall pay United, as a commitment fee for
United's agreements hereunder, $2,500 as of the date hereof and a like amount as
of the January 1st of each year commencing January 1, 1997, that this agreement
is in effect, plus $2,500 per month (pro rated for periods less than a full
calendar month) each month that this agreement is to remain in effect, as stated
below or as renewed or extended, against which monthly minimum the interest
charge under Paragraph "FIRST shall be applied; but interest or fees charged in
connection with any "over-advance" as referred to in subparagraph "SIXTH A" or
any "installment loan" as defined in subparagraph "THIRTEENTH (c)," or any other
fees payable hereunder, shall not be so applied;
(e) This agreement shall remain in effect until the last day of the month
in which the second anniversary hereof falls.
SECOND: A. As security for the payment and performance of all liabilities
of the Borrower to United, the Borrower hereby grants, and United shall have, a
continuing security interest in such of the following as may be checked, and all
proceeds, products and accessions, if any, and all books and records now
existing and hereafter arising relating to properties checked; and all goods,
instruments, documents of title, policies and certificates of securities,
chattel paper, deposits, instruments, cash or other property now or hereafter
owned by the Borrower or in which it now or hereafter has an interest which may
now or hereafter be in the lawful possession of United or as to which United may
now or hereafter control possession by documents of title or otherwise
(hereinafter called the "collateral"):
X (1) All of the Borrower's accounts, general intangibles, contract rights
and chattel paper, now existing or hereafter arising, the goods, the sale
and delivery of which gave or shall give rise to the creation of an
account, and all security the Borrower at any time obtains for the payment
of any account, general intangible, contract right or chattel paper;
X (2) All inventory (raw, finished and in process) and all supplies of the
Borrower, now owned or hereafter acquired by it or as to which it may now
or hereafter control possession by documents of title or otherwise,
wherever located, and all trade names, trademarks, patents and applications
for letters patent applicable thereto;
X (3) All equipment of the Borrower, now owned or hereafter acquired by it or
as to which it may now or hereafter control possession by documents of
title or otherwise, wherever located.
The Borrower's failure to furnish United with any formal pledge, assignment or
other designation with respect to any property of the type included in the
collateral shall not operate to exclude such property from the collateral.
Note. Inventory and equipment security shall be in second position to
other's primary position.
<PAGE>
United shall pay the Borrower its equity from collections on accounts after
United's receipt of collections in excess of the Borrower's liabilities to it.
The Borrower's equity from collections on accounts means the amount by which the
borrowing base exceeds the Borrower's liabilities to United which are then due.
Pending the full payment and performance of such liabilities, United may hold
any excess collateral, including cash in United's possession and credit
balances, as additional security for the payment and performance of the
Borrower's liabilities or apply the excess to the Borrower's liabilities.
B. If property of the type is not then already included in the collateral,
then from the date United honors such a request, a request by the Borrower for
United to guarantee the purchase price of any inventory for the Borrower or to
purchase any inventory on behalf of the Borrower, or that any loan made to it be
repayable in installments shall have the effect of including within the
collateral all property of the type referred to in subparagraph "SECOND A (2)"
and "(3)" hereof and the proceeds, products and accessions, if any, of, and the
Borrower's books and records then existing and thereafter arising related to,
the properties so included in the collateral.
THIRD: The Borrower represents and covenants as follows:
(a) The Borrower is a corporation duly organized and in good standing under
the laws of the state appearing at the beginning of this agreement as the state
of its organization; it is and shall be duly qualified and in good standing in
every other state in which, if accounts are collateral hereunder, it enters into
contracts giving rise to accounts, and, if goods of any nature are collateral
hereunder, it maintains such goods; it keeps and shall keep its books of account
and goods of any nature which are purported to be collateral at its address
appearing at the beginning of this agreement; the execution, delivery and
performance hereof are within the Borrower's corporate powers, have been duly
authorized and are not in contravention of law or the terms of the Borrower's
charter or by--laws or of any undertaking by which it is bound; except for the
security interest granted hereby, the Borrower is and shall be the owner of all
property located on its premises (except as noted on a separate list signed and
delivered to United on behalf of the Borrower concurrently herewith); it owns
all property purported to be included in the collateral free from any lien,
security interest or encumbrance; it does have and shall have the absolute right
to subject the same to a security in United; after the security interest of
United shall have attached to any such property, the Borrower's properties of
any type shall not be further subject to any security interest, lien or
encumbrance of any other person, except pursuant to United's written consent,
which shall not be unreasonably withheld to permit the Borrower to obtain
further purchase money financing from others on terms which, in United's
discretion, shall not adversely affect the interests of United; subject to any
limitations stated therein or in connection therewith, all balance sheets,
earnings statements and other financial data which have been or may hereafter be
furnished to United, do or shall fairly present the financial condition of the
person reported upon as of the dates and the results of his, her or its
operations for the periods for which the same are furnished; all other
information heretofore furnished to United is, and all information hereafter
furnished to United shall be accurate and correct in all material respects and
not fail to disclose any fact necessary to make the information furnished not
misleading; and the Borrower shall as soon as practicable after the close of
each of its fiscal years and mid-fiscal years furnish United with a copy of a
financial statement, prepared in accordance with generally accepted accounting
principles, showing its financial condition as of, and the results of its
operations, for the period then ended.
(b) The Borrower shall at all reasonable times give United access to all
places where any part of the collateral or records pertaining thereto may be
maintained, and shall from time to time allow United by or through any of its
officers, agbnts, attorneys or accountants, to make extracts frtm each records;
and it shall at all times keep United informed of the name and location of each
of its bank accounts.
(c) Any loan at any time received by the Borrower from United shall not be
used directly or indirectly other dhan in the Borrower's business; it shall not,
directly or indirectly, pay any dividend on its stock other than a dividend
payable in shares of its own stock; it shall not, directly or indirectly, make
any loan to, or pay any claim other than for current remuneration or current
reimbursable expense payable to any person controlling, controlled by or under
common control with the Borrower, and it shall, on demand, obtain and deliver to
United subordinations in form and substance satisfactory to United of all claims
of controlling and controlled persons consistent with the foregoing.
(d) The Borrower shall keep all its properties, whether included in the
collateral or not, in good order and repair, and shall not waste or destroy them
or any part thereof or use them or any part thereof in violation of any
applicable law; it shall not dispose of any of its properties except in the
ordinary course of business and it shall not dispose of any equipment included
in the collateral without the prior written consent of United; it shall pay
promptly, when due, any justly owing account payable of its in which United
holds a security interest, all rents or similar charges payable with respect to
any premises where any part of the collateral say at any time be located and all
taxes payable by it, including withholding taxes; it shall procure and maintain
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theft, burglary and tire insurance containing so--cajiso exrenoeo coverage
insurance, covering all goods included in the collateral, and life insurance on
the liyes of such of the guarantors of its obligations and its officers as
United shall direct, all of which insurance shall be in such reasonable amounts
as United shall direct, and shall be if adjustable, adjustable by United, and
payable to and for the benefit of tije Borrower and United as their interests
may appear; and the Borrower shall, upon United's request, furnish United with
evidence satisfactory to United of its payment of such rent or similar charges
and taxes and with policies or certificates evidencing its compliance with such
insurance requirements.
(e) Upon its receipt or creation of any property of the type in which
United has a security interest, the Borrower shall furnish United with
information adequate to identify such property, which information shall be in
such form as United may request (a "schedule"), accompanying such schedule with
specific pledges, assignments and designations in form and substance
satisfactory to United and copies of relevant invoices and vouchers; and if
accounts are included in the collateral, promptly after the end of each month it
shall furnish United with an ageing of its receivables as of the last day of
such month, showing for each of its account debtors the amount owed by such
debtor with respect to invoices of the Borrower generated within the then past
month, each of the prior three months and at any time prior to the fourth
preceding month; and if so requested by United, it shall furnish United with
statements for each account debtor for mailing to them, reflecting the
indebtedness of such account debtor and the derivation by invoice of such
indebtedness.
(f) At the time the Borrower notifies United of the existence of any
account, such account shall be good and valid, representing an undisputed bona
fide indebtedness incurred by the debtor named therein for merchandise
theretofore delivered pursuant to a contract of sale or lease or for services
theretofore performed by the Borrower for said debtor pursuant to a contract
therefor; no agreement under which any deduction or discount may be acquired
shall have been made with such debtor except as indicated in the written
schedule and invoice furnished to United concurrently with the Borrower's
notifying United of the existence of the account; and the net amount so derived
of each account shall be paid in full at its maturity as expressed in the
invoice evidencing such account and the schedule pertaining thereto; and such
payment shall be delivered to United as provided in subparagraph "THIRD (h)"
hereof.
(g) The Borrower shall immediately notify United, if accounts are included
in the collateral, of all cases involving the return, rejection, repossession,
loss of or damage to merchandise covered by an account and of any dispute
arising or credit or adjustment granted or discount or offset taken with respect
to an account, and if goods are included in the collateral, of any event causing
loss or depreciation in the value of such goods and the amount of such loss or
depreciation; and the Borrower shall forthwith pay United the invoice amount of
the merchandise involved or the amount of the dispute, credit, adjustment,
discount, offset, loss, damage or depreciation, as the case may be.
(h) The Borrower shall do all things necessary and usual in the ordinary
course of business, to sell in the ordinary course of business inventory
included in the collateral to responsible purchasers and to collect on accounts
included in the collateral, and shall receive IN TRUST for United, without
commingling with its other funds and assets, all cash, checks, notes, chattel
paper and other proceeds received by it with respect to any of the collateral,
and shall deliver the same, other than merchandise returns, to United in the
form received, promptly upon the receipt thereof.
(i) If certificates of title are or shall be issued with respect to any
equipment included in the collateral, the Borrower shall, on demand, cause the
interest of United to be properly noted thereon if any equipment included in
the collateral is or shall be deemed a fixture under applicable law, the
Borrower shall, on demand, furnish United with disclaimers signed by all persons
having an interest in the affected real estate, insofar as the security interest
of United is concerned; and United is authorized to destroy from time to time
papers theretofore delivered to it in connection with invoices which have become
paid.
(j) The Borrower shall, at its own expense, do all acts and execute and
deliver all writings United may at any time require to protect or enforce
United's interests, rights and remedies created by, provided in or emanating
from this agreement.
FOURTH: For the purpose of protecting United's interests, and only for such
purpose, the Borrower hereby appoints United, with full power of substitution,
as the Borrower's agent:
(a) to collect the Borrower's receivables and to endorse the name of the
Borrower upon any instruments that may come into United's possession in
accordance with this agreement;
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(b) to sign on behalf of the Borrower such financing statements as United
shall deem necessary, describing the types or items of collateral in which
United has a security interest and any necessary amendments thereof;
(c) to request and receive from the Borrower's agents, employees, attorneys
and accountants all information pertaining to the Borrower which United may
reasonably request, and such persons are hereby authorized and directed by the
Borrower to furnish such information, subject to applicable laws regarding
privileged communications;
(d) if accounts are included in the collateral, to sign the Borrower's name
on any invoice, bill of lading or communication relating to any account or on
drafts, assignments and verifications of accounts;
(e) to change the address for mail addressed to the Borrower or any
affiliated entity to an address designated by United, and to receive, open and
dispose of such mail;
(f) to settle any insurance claims on behalf of the Borrower with respect
to collateral and execute and deliver in the name of the Borrower any and all
releases requested by insurers or their agents.
FIFTH: A. The financing contemplated hereby will initially be conducted, as
checked, on a X notification or ___ non-notification basis, the filing of
financing statements and the sending of verifications not being deemed
notification. Notwithstanding that this financing may initially be on a non--
notification basis, United shall have the right, in its discretion, to place the
financing on a notification basis at any time for any reason. So long as the
financing is on a non-notification basis, the Borrower's account debtors shall
not be instructed to send payments on accounts to United or as United may
direct. If the financing is on a notification basis, such account debtors shall
be instructed to send payments on the Borrower's accounts to United or to such
address as United may direct. If the financing is on a notification basis, then
neither the Borrower nor any of its officers, agents or employees shall have the
right to vary the place to which payments are to be sent. If the Borrower shall
itself receive any proceeds on accounts, either because the financing is on a
non--notification basis or, though on a notification basis, an account debtor
has sent payment to the Borrower, or if the Borrower shall receive any proceeds
on collateral other than accounts for any reason, it shall hold such proceeds IN
TRUST and turn over such proceeds to United as provided in "THIRD (h)" hereof.
If proceeds is any case constitute less than full payment with respect to an
account included in the collateral, the Borrower shall, at United's request,
concurrently pay the difference to United, notwithstanding United's right to
subtract the difference from the net security value of accounts.
B. United may, at its option, pay itself or others, or reserve for payment,
any amount required to be paid by the Borrower to cure or prevent a breach of
any covenant or warranty contained herein or in any note or other agreement made
by the Borrower to United, or any apparent breach by reason of the Borrower's
failure to furnish United with satisfactory evidence of the Borrower's having
made such payment itself. Each amount so paid or reserved for payment by United
shall be deemed a loan to the Borrower and shall be added to the cash balance
owing United. United may at any time apply any unused reserves so established to
the Borrower's liabilities to United, free of the claim of any third person.
United's making one or more such payments or establishing one or more such
reserves shall not constitute its agreement to take any further or similar
action on any other occasion or a waiver of any default by the Borrower.
C. All loans and credits shall be repayable, together with interest and
charges, at United's address set fqrth above or such other address as may be set
fort ii in a note or other written at reement in a particular instance. United
is authorized to complete the place payable on any note made to it by the
Borrower with the branch of a bank designated by the Borrower at least 15 days
before the due date of the note, or, if no such designation is made, then, as
United may notify the Borrower, with United's office or the branch of a bank at
which United reasonably believes the Borrower maintains banking relations.
Payments, other than cash, received by United shall be credited to the Borrower
for purposes of determining interest payable by the Borrower as of the o fifth
business day after receipt to allow time for clearance of items, or if later,
the day United is given irrevocable credit at its own bank for any items
deposited by it "for collection." Such credits shall be conditional upon final
payment to United at its own office or bank in New York, New York, in cash or
solvent credits of the items giving rise to them, and if any item is not so
paid, the amount of any credit given for it shall be charged to the Borrower
whether or not the item is returned. Without limiting United's rights to
withhold the payment of equity, it is specifically understood that United may
treat an account unpaid during the clearance period.
SIXTH: A. In the event the cash balance owing United shall at any time
exceed either the borrowing base or the permissible line, the Borrower shall pay
United, a fee for such excess accommodation (an "over-advance") for each month
or part of a whole month such excess exists, the additional sum of 1% of such
excess. Following an event of default, the entire sum owed United by the
Borrower shall be deemed in excess of the borrowing base and permissible line
until the first
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of the month following the month in which the default is cured, it governing law
shall prohibit the foregoing charge, the Borrower shall pay United the maximum
additional amount permitted by applicable law.
B. United's compensation shall be payable with respect to the daily cash
balance owing United so long as any such balance exists, even after the maturity
of the Borrower's indebtedness to United. United intends to make no charge for
compensation which, under the circumstances existing at the time the charge
therefor might be made shall constitute a violation of the maximum permissible
charge to a corporation for the loan or forbearance of money under applicable
law. Provided any such law would not thereby be violated, the compensation
payable for any prior or subsequent month hereunder may be increased to absorb,
in whole or in part, the difference between the charges computed hereunder
without reference to such law and charges computed with reference to such law;
it being understood that the entire period of United's financing and the total
of interest charges for such entire period shall be utilized in determining
compliance with such law. In the event the rate of interest as determined
hereunder is in excess of the maximum permissible rate, then the amount paid in
excess of such maximum shall be deemed to have been payments toward the
reduction of principal and not to the interest due hereunder and appropriate
calculation shall be made to produce such a result. The bona fide tender of a
refund of any interest erroneously collected in violation of applicable law
shall be a full acquittance of United. Except as otherwise required by law,
interest shall be computed on the basis of a 360 day year applied to the actual
number of days money is deemed outstanding.
C. All loans and advances shall be made by checks drawn on banks of
United's choosing. If at the Borrower's request United issues a check on a bank
at which the Borrower maintains a bank account, the Borrower shall pay United a
service charge for such accommodation of $50.00. The rates of compensation
hereunder are and will be fixed on the basis of the Borrower's borrowing funds
and performing its obligations hereunder in due course. In the event collection
of the Borrower's accounts or the liquidation of the Borrower's equipment or
inventory falls upon United consequent to the occurrence of an event of default,
the Borrower shall pay United 15% of the amount collected by United. For
United's services in wiring, certifying or transferring funds, the Borrower
shall pay United 1/2 of 1% of the amount wired, certified or transferred, or
$50.00, whichever is greater. Service charges of $50.00 each shall be made for
the issuance of checks to third parties, processing bank returned items, each
issuance of a check in excess of two per week, advances or "equity" payments of
less than $5,000.00 and, per page, for lists of "past due" or ineligible
accounts. Services arising from the notification of the Borrower's account
debtors to make payments directly to United or to an address specified by
United, whether at the Borrower's request, United's deeming such notification
advisable or necessary, or because such notification is contemplated by
subparagraph "FIFTH A" hereof, shall be charged for at 1 1/2% of the face amount
of the invoices underlying the notification. For services in connection with
supervision of records related to accounts included in the collateral, the
Borrower shall pay United a collateral management fee equal to 1% of its sales,
provided, however, such charge shall not be made for any month that the
notification charge referred to above is made.
D. The Borrower shall pay United all disbursements United may incur with
respect to loans hereunder or with respect to the collateral or in protecting or
enforcing its rights under this agreement, Such disbursements shall, without
limiting the generality of the foregoing, include expenses of audits, dunning
letters, telephone investigations, appraisals, credit reports, bank charges for
letters of crodit, verifications, filing or recording any documents hereunder
which United determines shall be filed or recorded in any public office,
retaking, holding or preparing for sale any goods purported to be included in
the collateral, finishing otherwise unfinished inventory which may be purported
to be included in the collateral, selling, leasing, settling or otherwise
realizing upon all or any part of the collateral, postage and telephone
expenses, any charges in the nature of use and occupancy or rental United may
incur for any premises where all or any part of the collateral may be, and
attorneys' fees incurred in the preparation of this agreement, in connection
with transactions hereunder and in enforcing or protecting United's rights
hereunder. Such attorneys' fees in any court proceedings looking to the
collection of the Borrower's liabilities shall be 25% of such liabilities as of
the commencement of such proceedings. The foregoing expenses may include
reasonable charges for time expended and disbursements incurred by persons in
United's employ, and may be premised on estimates of the actual expenditure when
determination of the actual expenditure is difficult.
SEVENTH: A. All interest, fees and expense for which United is entitled to
be reimbursed hereunder shall be paid by the Borrower to United as of the last
day of each calendar month pursuant to United's statements therefor, except as
compensation may be otherwise payable with respect to any note or other
agreement. Such amounts shall be deemed paid to the extent sums are subsequently
credited to the Borrower's loan balance from the first sums so credited.
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United's statements shall be considered correct and accepted by the Borrower,
and conclusively binding upon the Borrower, unless the Borrower notifies United
of its exceptions thereto within 20 days of the sending of the relevant
statement to the Borrower.
B. Except as herein otherwise provided or as provided in a note or other
agreement made by the Borrower to United hereunder, all loans made to or for the
Borrower, including for these purposes interest, fees and reimbursable expenses
which have not otherwise been paid, shall be repayable on demand. However,
United agrees, except as to an over-advance, it will not demand repayment, and
will permit the loans (and compensation and reimbursable expense) to be repaid
from the payment of accounts prior to the occurrence of am event of default or
the termination of this agreement. Unless otherwise provided in an agreement
signed by United, an over-advance shall be repayable on demand. All the
liabilities of the Borrower to United shall, at the option of United, and
notwithstanding any time otherwise allowed, be immediately due and payable upon
the first to happen of the termination of this agreement or the occurrence of an
event of default. The following constitute events of default:
(1) The breach by the Borrower of any representation or covenant
made by it, which, provided it shall not constitute any other event of
default, shall remain uncured for more than 10 days after notice thereof
to the Borrower; or
(2) The failure of the Borrower to pay any liability to United
calling for the payment of money pursuant to this or any other agreement,
as and when the same should be paid, including failure to pay such
liabilities on a date set by the Borrower for such payment; the
Borrower's becoming insolvent; its suspending its business; its
petitioning for or a petition against it being filed for a receivership
of its business or property or a bankruptcy or arrangement or any other
legal proceeding or action relating to the relief of debtors or the
readjustment of debts; its making an assignment for the benefit of
creditors, seeking a composition of creditors or suffering a lien against
or the attachment of any of its property; its disposing of any property
included in the collateral otherwise than in accordance with this
agreement; its committing or suffering, by any of its agents or
employees, a fraudulent conversion of any part of the collateral; any
guarantor of its liabilities terminating such guarantee or becoming
insolvent; or, insofar as property of the type included in the collateral
is involved, its breaching a representation or covenant contained in
sub-paragraphs "THIRD (f)," "(g)" or "(h)" hereof.
EIGHTH: A. Until the Borrower furnishes United with satisfactory evidence
to the contrary, United shall be entitled to rely absolutely on any oral or
written advice given to it or its designee by or on behalf of an account debtor
or any agent, attorney or employee of the Borrower in deeming an event of
default to have occurred or in determining the net security value of accounts.
B. Upon the occurrence of any of the above events of default or any such
event being deemed to have occurred, and at any tine thereafter, such default
not having previously been cured or waived by United in writing, United shall
have the right, without notice to the Borrower except as provided below; (1) to
fix the borrowing base for all purposes under this agreement at such percentage
of the borrowing base as set forth abqve, including zero, as it may elect (and
no such action shall be deemed a termination of this agreement by United); (2)
to exercise all the rights and remedies of a secured party under the Uniform
Commercial Code, including, without limitation, the right to notify account
debtors of the Borrower to make payment directly to United; (3) to require the
Borrower to assemble and make any goods included in the collateral ready for
sale at a place designated by United; (4) to transfer any property constituting
collateral into its own name or that of its nominee and to receive the income
and proceeds thereon; (5) to notify post office authorities to Change the
address for delivery of mail addressed to the Borrower, and to receive, open and
dispose of such mail; (6) to draw and present drafts on any bank account for
sums up to the amount of the Borrower's liabilities to United; and (7) to
accelerate the due date of the commitment fee provided for in subparagraph
"FIRST (d)" hereof for each month between the date of such default or deemed
default and the date this agreement would otherwise have expired. Insofar as
collateral shall consist of accounts, insurance policies, instruments, chattel
paper, choses in action or the like, United may in addition to its other rights,
realize upon such collateral by way of adjustment or compromise, whether or not
payment under such collateral is then due. Whenever reasonable notice is
required as a matter of law to the exercise of any right by United with respect
to the collateral, 5 days' prior notice shall suffice. United shall assume no
credit risk in connection with any disposition of the collateral; and only the
net cash proceeds, as and when received, after subtracting expenses incurred by
United in realizing upon any collateral, shall be applied to the Borrower's
indebtedness. In the event such net cash proceeds are insufficient to pay fully
such indebtedness, the Borrower shall remain liable to United for the deficiency
regardless of any notes or other obligations United may receive in connection
with any disposition of the collateral and notwithstanding that it may continue
to hold other collateral. Any surplus shall be rendered to the Borrower.
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C. Any delay on the part of United in exercising any power or right
hereunder shall not operate as a waiver thereof, nor shall any single or partial
exercise of any power or right hereunder preclude any other or further exercise
thereof or the exercise of any other power or right. Nq waiver by United of any
default shall operate as a waiver of any other default dr of the same default on
any future occasion. The rights, remedies and benefits herein expressly
specified are cumulative and not exclusive of any rights, remedies or benefits
which United may otherwise have. In no event shall United be required to
liquidate any collateral before proceeding against the Borrower to collect the
Borrower's indebtedness after the occurrence of an event of default or to
proceed in any order in the liquidation of collateral.
NINTH: The Borrower WAIVES presentment, notice of dishonor and protest of
all instruments included in or evidencing liabilities or the collateral, any and
all other notices and demands, except as herein specifically provided or as may
not be waived by law, and the right to a trial by jury in any matter touching
upon this agreement.
TENTH: A. This agreement shall be deemed renewed from year to year after
the initial period set forth in Paragraph "FIRST" hereof, unless either party
hereto shall give the other notice of its intention to terminate this agreement
as of the end of such initial period or any renewal year, as the case may be, at
least 30 days prior to its expiration. Notwithstanding the foregoing, if at any
time that this agreement is in effect the Borrower shall have any liability to
United under any note or other agreement which, in the normal course of
business, would expire later than the termination of this agreement, then this
agreement shall remain in effect for at least the duration of such other
agreement, and this agreement shall be deemed renewed from year to year after
the maturity of such note or expiration of such other agreement, unless either
party hereto shall give the other at least 30 days' prior notice of its
intention to cancel this agreement as of the maturity date of such note or the
expiration of such other agreement, or such renewal year, as the case may be.
This agreement say be terminated by United at any time because of the occurrence
of an event of default or an event of default being deemed to have occurred. The
Borrower may terminate this agreement at any time upon 30 days' prior notice to
United and paying United, in addition to its liabilities other than the
commitment fee provided for in subparagraph "FIRST (d)" hereof, the greater of
(a) such commitment fee or (b) 75% of the average monthly compensation earned
hereunder by United during the shorter of the period this agreement has then
bean in effect or the then preceding 12 calendar months, multiplied, in each of
the cases covered by the foregoing clauses "(a)" and "(b)," by the number of
months between such termination and the date this agreement would have otherwise
expired by its terms. Any termination shall in no way affect any transactions
entered into or rights created or liabilities incurred prior to such
termination; and as to such transactions, all rights and obligations under this
agreement shall be fully operative until the same are fully liquidated.
B. Upon payment in full of the Borrower's liabilities to United, United
shall deliver to the Borrower appropriate termination statements with respect to
United's security interests for filing under the Uniform Commercial Code, and
United and the Borrower shall exchange general releases.
ELEVENTH: All notices hereunder shall be in writing and shall be delivered
personally or be sent to the parties hereto at their respective addresses set
forth above, marked, "Attention: President," or to such other addresses as of
which notice shall be duly given. Notices under Paragraph "TENTH" hereof shall
be so addressed, but shall be given only by registered or certified mail, return
receipt requested.
TWELFTH: The invalidity of any portion of this agreement shall not affect
the balance of this agreement, nor shall the invalidity of any portion hereof as
applied to any particular circumstance affect the validity of this agreement
when applied to any other circumstances.
THIRTEENTH: As used herein any words or phrases given a meaning by the
Uniform Commercial Code shall have such meaning and the following words and
phrases shall have the respectively indicated meanings:
(a) "Liabilities" shall mean any and all liabilities of the Borrower to
United of every kind and description, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, regardless
of how they arise or by what agreement or instrument they may be evidenced or
whether evidenced by any instrument, alone or with others, and include
obligations to perform acts and refrain from taking action as well as
obligations to pay money;
(b) "Net security value of accounts" shall mean the amount of such of the
Borrower's accounts outstanding at any time net security value of accounts is
determined hereunder as to which the Borrower has furnished United with (i) a
formal pledge or designation on a form supplied by United, (ii) a duplicate
invoice, (iii) the original shipping receipt or bill of lading applicable
thereto and (iv) such other documents as United may request; minus the amount
of: (x) past due accounts under the terms hereof, (y) such accounts as represent
a
7
<PAGE>
greater than prudent concentration of the Borrower's business owing from one
account debtor; (a) all payments, adjustments and credits applicable thereto and
all amounts considered uncollectible by United by reason of merchandise or other
disputes, insolvency of the account debtor, or otherwise, including, without
limitation, United's experience generally with the Borrower's account debtors,
all as determined by United in its sole discretion.
(c) "Installment loan" means any part of the liabilities of the Borrower to
United which United and the Borrower have agreed shall be payable to United in
two or more installments.
FOURTEENTH: This agreement cannot be modified or terminated orally.
FIFTEENTH: This agreement shall be binding on the parties hereto and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their officers thereunto duly authorized.
DORADO SYSTEMS CORPORATION
By: /s/
-------------------------------
UNITED CREDIT CORPORATION
By: /s/
-------------------------------
THIS IS AN IMPORTANT DOCUMENT. THE BORROWER SHOULD CONSULT ITS
LEGAL AND FINANCIAL ADVISORS BEFORE SIGNING.
8
Exhibit 10(aa)
ADDENDUM TO NOTE PAYABLE DATED 9/15/96
This agreement is hereby amended January 20, 1997. Richard E. and Irma B. Munz
agree to extend the the due date on ELEVEN THOUSAND FiVE HUNDRED ($11,500.00)
DOLLARS of the Note Payable from Sytron, Inc. to Richard E. and Irma B. Munz for
a period of one year with interest accruing at the rate of TWELVE (12.00%)
PERCENT per annum.
/s/ Richard E. Munz /s/ Irma B. Munz
- -------------------------------- -----------------------------------
Richard E. Munz Irma B. Munz
Sytron, Inc.
/s/ Robert Howard
- --------------------------------
Robert Howard, President
<PAGE>
MUNDIX CONTROL SYSTEMS, INC.
320 S. Sunset Street . Longmont, Colorado 80501-6107 USA
Voice: (303) 584-9200 FAX: (303)684-9094
In agreement between Richard and Irma Munz and Mundix Control Systems, Inc., it
is understood that the amount due Mr. and Mrs. Munz prior to September 1, 1996
shall be paid as follows:
Notes and accounts payable owed several Mundix creditors which the Munzs
assurnea personally shall be treated as follows:
A. the accrued interest (approx. $ 8,203) to date shall be paid in full
on or about October 15th.
B. $ 11,500 cash to be paid by December 31, 1996.
C. the balance shall be converted into 2 Sytron, Inc. common stock
certificates:
9,125 shares to be included in Sytron, Inc.'s NSOP with no additonal
restrictions once the plan has been registered and the underlying
stock is freely trading.
23,639 shares which will be 144 restricted stock per the rules and
regulations governing its sale and transfer.
Agreed this day: September 15, 1996.
/s/ Merwin L. Larsen /s/ Richard E. Munz
- ----------------------------- --------------------------------
Merwin L. Larsen, President Richard E. Munz
MUNDIX CONTROL SYSTEMS, INC.
/s/ Irma B. Munz
--------------------------------
Irma B. Munz
Specialists in Industrial Control Since 1962
Exhibit 10(bb)
SECURED PROMISSORY NOTE
DUE JANUARY 31, 2000
Dated: February 1, 1998 Principal Amount $ 50,000.00
-----------
FOR VALUE RECEIVED, the undersigned. SYTRON. INC.. a Pennsylvania
corporation (the "Company"). promises to pay to Charles Robinson or registered
assigns (the "Holder") the amount of Fifty Thousand Dollars and all accrued
interest thereon on January 31. too (the "Due Date"). Interest on the
above-stated sum shall accrue at Nine and One Half (9.5%) Percent per annum.
Interest hereunder shall be compounded quarterly.
Interest shall be payable quarterly on each April 1, July 1. October 1 and
January 1 during the term hereof with the first such interest payment due and
payable on April 1, 1998. Interest shall be paid in United States funds, by
check or wire transfer to the order of Holder, directed to such address as shall
be specified by notice from the Holder to the Company for such purpose. At the
election of the Holder only, which election shall be expressed in writing to the
Company, interest may be paid in the form of shares of the Company's common
stock, $0.01 par value (the "Common Stock"). with the value of the Common Stock
used to effect the interest payment determined by multiplying by ninety (90%)
the average closing bid price of the Common Stock as reported in the principal
market in the United States on which the Common Stock is traded over the course
of the five (5) business days immediately preceding the date the interest
payment is due.
This Secured Promissory Note (this "Note") is issued by the Company pursuant and
subject to the terms of that certain Loan and Security Agreement dated the date
hereof (the "Loan Agreement") between the Company and the Holder, and is secured
by a perfected first priority security interest in certain accounts receivable
of the Company as more particularly set forth in the Loan Agreement. The Holder
is entitled to the benefits of the Loan Agreement and may enforce the agreements
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof
<PAGE>
2
Bach of the following events shall constitute an Event of Default:
(i) Failure to make payment of the principal or accrued interest on
the Note when and as the same shall become due and payable;
(ii) Failure to maintain the amount and composition of the Collateral
requfred under Section 3(a) of the Loan Agreement, including, without
limitation, failure to replace any account receivable if such account receivable
is aged longer than Ninety (90) days or any failure to deliver a Collateral
Report within the time required under Section 3(e) of the Loan Areement;
(iii) Default in the due observance or performance of any covenant,
warranty, representation, condition, or agreement an the pan of the Company to
be observed or performed pursuant to the terms hereof;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its debts
as they mature;
(vi) General assignment by the Company for the benefit of creditors;
(vii) Filing by the Company of a voluntary petition in banlcuptcy or a
petition or an answer seeking reorganization, or an arrangement with creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federai bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 90 days; or
(ix) Termination of a material portion of the business of the Company
or a change of control of the Company.
If any Event of Default shall have occurred and shall not have been cured
within ten (10) days after notice of such default, the Holder may, by notice to
the Company, declare that all indebtedness, liabilities, and other obligations
of the Company to the Lender shall be forthwith due and payable whereupon all
such indebtedness, liabilities, or other obligations shall become so due and
payable.
-2-
<PAGE>
3
Upon the occurrence of an Event of Default, the Holder shall have all the
rights and remedies of a secured parry under the UCC and other applicable laws
with respect to all the Collateral as defined in the Loan Agreement, such rights
and remedies being in addition to all other rights and remedies available in law
or in equity or as provided for in the Loan Agreement, including, but not
limited to:
(i) The right to rake possession at send notices regarding and collect
directly the Collateral with or without judicial process (including without
limitation the right to notfy United States postal authorities to redirect mail
addressed to the Company); or
(ii) By its own means or with judicial assistance, enter the Company's
premises and take possession of the Collateral and the related records and
documents; or
(iii) Require the Company at the Company's expense to assemble all or
any part of the Collateral and make it available to Holder.
All rights and remedies granted hereunder or otherwise available shall
be deemed concurrent and cumulative and nor alternative remedies and Holder may
proceed with any number of remedies at the same time until all the amounts
hereunder are paid in full. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
The following additional terms shall apply to this Note:
1. Secured Obligation. The obligations of the Company under this Note are
secured by the Collateral pursuant to the terms of the Loan Agreement, and the
Holder shall have the rights with respect to such Collateral as defined in and
under the terms of the Loan Agreement.
2. Transfer. Subject to compliance with applicable federal and state
securities laws, this Note shall be transferable in whole or in part. Any such
transfer shall be effected by the presentation of this Note to the Company for
transfer, accompanied by a duly completed and executed Assignment Form in the
form attached hereto as Schedule A.
3. Governing Law. This Note shall be construed and enforced in accordance
with the laws of the State of New York without regard to choice of law
principles. The parties agree that any claims arising hereunder shall be brought
only in a court of general jurisdiction in the County and State of New York,
hereby waive any objection to the jurisdiction of such court, and waive a trial
by jury.
4. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered, unless otherwise specified,
either personally, by facsimile
-3-
<PAGE>
4
transmission (receipt verified), by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service (receipt
verified), to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; provided, that notices of a
change of address shall be effective only upon receipt thereof).
To the Company:
Sytron, Inc.
2770 Industrial Lane
Broom.fleld, CO 80020
Attn: Mitch Feinglas,
Chief Executive Officer
Telephone No.: (303) 469-6100
Facsimile No.: (303) 469-7100
with a copy to:
Andrew Telsey,Esq.
CO
--------------------- ----
To the Holder:
/s/ Janet Robinson
------------------------------
10101 Grosvenor Place Apt. 1115
-------------------------------
Rockville, MD 20852
-------------------------------
With Copies To:
Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, New York
Attn: Andrew J. Goodman, Esq.
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note and has delivered it
to the Holder, on the day and year first above written.
SYTRON, INC.
By: /s/ Robert Howard
-------------------------------
Name: Robert Howard
Title: President
[Corporate Seal]
ATTEST
- ---------------------------------
Secretary
-5-
<PAGE>
Schedule A to Note
ASSIGNMENT
, 19
---------- ---
Sytron, Inc.
2770 Industrial Lane,
Broom.field, Colorado 80020-1620
Attention: President
Gentlemen:
The undersigned holder (the "Assignor") of the attached note (the "Note)
hereby assigns and transfers $___ principal amount of the Note to _______ (the
"Assignee"). As a condition to the assignment of the Note by Assignor to
Assignee, Assignee hereby represents, warrants and acknowledges to the Company
and Assignor as follows:
1. Assignee is acquiring the Note for its own account, for investment and
not with a view to the distribution thereof except as allowed under the
Securities Act of 1933, as amended, and other applicable state securities laws;
and
2. Assignee acknowledges that the Note will bear appropriate legends as
reasonably required for compliance with the Securities Act and applicable state
securities laws.
ASSIGNOR:
--------------------------------
ASSIGNEE:
--------------------------------
-6-
Exhibit 10(cc)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE,
ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO
THE PROVISIONS OF THAT ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT
SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION
VOID AFTER 5:00 P.M. MOUNTAIN TIME, ON JANUARY 31, 2002
WARRANT TO PURCHASE SHARES OF COMMON STOCK
SYTRON, INC.
(Incorporated under the laws of the State of Pennsylvania)
Warrant for the Purchase of 2,500 Shares of Common Stock
--------------------------------------------------------
No. 1005
FOR VALUE RECEIVED, SYTRON, INC. (the "Company"), a Pennsylvania
corporation, hereby certifies that Charles Robinson, or permitted assigns
(collectively referred to as the "Holder") is entitled, subject to the
provisions of this Warrant, to purchase from the Company, on or after July 31,
1998, or at any other time as specifically provided for herein, and expiring at
5:00 p.m. Mountain Time on January 31, 2002, (the "Expiration Date") Eighteen
Thousand Five Hundred (18,500) fully paid and non-assessable shares of the
Company's Common Stock (the "Warrant Shares"), at a price per share of $1.625
(the "Exercise Price").
The term "Common Stock" means, unless the context otherwise indicates, the
Common Stock, par value $.01 per share, of the Company as constituted on the
date hereof , together with any other equity securities that may be issued by
the Company in addition thereto or in substitution therefore. The number of
shares of Common Stock to be received upon the exercise of this Warrant may be
adjusted from time to time as hereinafter set forth. Unless the context
otherwise indicates, the term "Company" means, and includes the corporation
named above as well as (i) any immediate or more remote successor corporation
resulting from the merger or consolidation of the Company (or any immediate or
more remote successor corporation of the Company) with another corporation, or
(ii) any corporation to which the Company (or any immediate or more remote
successor corporation of the Company) has transferred its property or assets as
an entirety or substantially as an entirety.
<PAGE>
The Holder agrees with the Company that this Warrant is issued, and all the
rights hereunder shall be held subject to, all of the conditions, limitations
and provisions set forth herein.
1. Expiration of Warrant. The Warrant shall expire at 5:00 p.m. Eastern Time
on the Expiration Date or, if such day is a day on which banking
institutions in New York are authorized by law to close, then on the next
succeeding day that shall not be such a day
2. Exercise of Warrant. This Warrant may be exercised in whole or in part at
any time, on or after November 30, 1997, or at any other time as
specifically provided for herein, by presentation and surrender of this
Warrant to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Warrant Exercise Form attached
hereto duly executed and accompanied by payment (either in cash or by
certified or official bank check, payable to the order of the Company) of
the Exercise Price for the number of shares specified in such form and
instruments of transfer, if appropriate, duly executed by the Holder or his
or her duly authorized attorney. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant, subject to all of the
conditions, limitations, and provisions set forth herein, evidencing the
rights of the Holder thereof to purchase the balance of the shares
purchasable hereunder. Upon receipt by the Company of this Warrant,
together with the Exercise Price, at its office, or by the stock transfer
agent of the Company at its office, in proper form for exercise, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
The Holder shall pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on exercise of this Warrant.
3. Reservation of Shares. The Company will at all times reserve for issuance
and delivery upon exercise of this Warrant all shares of Common Stock or
other shares of capital stock of the Company (and other securities) from
time to time receivable upon exercise of this Warrant. All such shares (and
other securities) shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and non-assessable and free
of all preemptive rights.
4. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant, but the Company
shall pay the Holder an amount equal to the fair market value of such
fractional share of Common Stock, in lieu of each fraction of a share
otherwise called for upon any exercise of this Warrant, as determined by
the Company's Board of Directors.
5. Exchange, Transfer, Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its
stock transfer agent, if any, for other Warrants of different
2
<PAGE>
denominations, entitling the Holder or Holders thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
Upon surrender of this Warrant to the Company or at the office of its stock
transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge (but subject to the restrictions on transfer set forth in
Sections 10 and 11 below) execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be cancelled. This Warrant may be divided or combined with other
Warrants that carry the same rights upon presentation hereof at the office
of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof.
6. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled
to any rights of a stockholder in the company, either at law or in equity,
and the rights of the Holder are limited to those expressed in this
Warrant.
7. Adjustment Provisions.
a. If the Company, at any time after the Base Date and prior to exercise
of this Warrant, shall have subdivided its outstanding shares of
Common Stock (or other securities at the time receivable upon the
exercise of the Warrant) by recapitalization, reclassification or
split-up thereof, or if the Company shall have declared a stock
dividend or distributed shares of Common Stock to its stockholders,
the number of Warrant Shares purchasable under this Warrant
immediately prior to such exercise shall be proportionately increased,
and if the Company prior to such exercise, shall have at any time
combined the outstanding shares of Common Stock by recapitalization,
reclassification or combination thereof, the number of Warrant Shares
subject to this Warrant immediately prior to exercise shall be
proportionately decreased.
b. In case of any reorganization of the Company (or any other
corporation, the securities of which are at the time receivable on the
exercise of this Warrant) after the Base Date, or in case after such
Base Date the Company (or any such other corporation) shall
consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in
each such case, the Holder of this Warrant upon the exercise thereof
as provided in Section 2 above, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be
entitled to receive the securities or property to which such Holder
would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto.
c. In case the Company shall, after the Base Date, issue shares of its
Common Stock to any of its employees, officers, directors, or
consultants at a price less than the then fair market value of such
shares determined by the Company's directors acting in good faith
3
<PAGE>
(except for issuance of shares under a Company incentive stock option
plan approved by the Company's directors and stockholders and not
exceeding in authorization up to Ten (10%) Percent of the Company's
then outstanding shares), or shall issue rights warrants, options, or
convertible securities permitting the holders thereof to acquire
shares of the Common Stock at less than the fair market value thereof,
the number of Warrant Shares and the Exercise Price shall be
proportionately adjusted so that the holder of this Warrant, upon the
exercise thereof, shall not receive any lesser percentage ownership of
the Common Stock of the Company in return for payment of the Exercise
Price than he or she would have received in the absence of the
issuances referred to in this paragraph.
d. Whenever the number of Warrant Shares purchasable upon the exercise of
this Warrant is required to be subject to adjustment, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such adjustment by a fraction (x) the numerator
of which shall be the amount of Warrant Shares which would be
purchasable upon exercise immediately prior to such adjustment and (y)
the denominator of which shall be the number of Warrant Shares so
purchasable immediately after such adjustment.
e. The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution, issue or
sale of securities, sale of assets or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the
terms of the Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the
rights of the Holder of this Warrant. Without limiting the generality
of the foregoing, while any Warrant is outstanding, the Company:
ii. will not permit the par value, if any, of the shares of stock
receivable upon the exercise of this Warrant to be above the
amount payable therefor upon such exercise; and
ii. will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue or sell
fully paid and non-assessable stock upon the exercise of all
Warrants at the time outstanding.
f. In case:
i. the Company shall take a record of the holders of its Common
Stock (or other securities at the time receivable upon the
exercise of the Warrant) for the purpose of entitling them to
receive any dividend (other than a cash dividend at the same rate
as the rate of the last cash dividend theretofore paid) or other
distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or
4
<PAGE>
ii. of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation; or
iii. of any voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
iv. any other event specified in this Section 7 requiring the taking
of such a record,
Then, and in each such case, the Company shall mail or cause to
be mailed to each holder of any Warrant at the time outstanding a notice
specifying, as the case may be, the date on which a record is to be taken for
the purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right; or the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place, and the time, if any,
to be fixed, as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or such other securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up. Such notice shall be mailed at least twenty days prior to the record
date therein specified and this Warrant may be exercised prior to said date
during the term of the Warrant without regard to any prior notice required under
any other provision of the Warrant.
8. Registration Rights.
a. If the Company proposes, at any time to file a registration statement
on a general form for registration under the 1933 Act and relating to
securities issued or to be issued by it, then it shall give written
notice of such proposed filing to the Holder. If, within twenty days
after the giving of such notice, the Holder shall request in writing
that all or any of the Warrant Shares be included in such proposed
registration, the Company will also register such shares as shall have
been requested in writing.
b. In addition, if an Event of Default, as defined in a certain Loan
Agreement between the Company and the Holder of approximately even
date herewith, shall occur, then upon written request by the Holder,
the Company, at its expense, shall prepare and file, one time only, as
promptly as is possible, and shall use its best efforts to make
effective, a registration statement on a general form for registration
under the Securities Act of 1933, as amended (the "1933 Act") covering
the Warrant Shares then issued or still issuable under the Warrant,
determined as of the date of the Holder's written request.
In connection with the filing of a registration statement pursuant to
this section, the Company shall:
5
<PAGE>
a. notify such Holder as to the filing and status thereof and of all
amendments thereto filed prior to the effective date of said
registration statement;
b. notify such Holder promptly after it shall have received notice
of the time when the registration statement becomes effective or
any supplement to any prospectus forming a part of the
registration statement has been filed;
c. prepare and file without expense to such Holder any necessary
amendment or supplement to such registration statement or
prospectus as may be necessary to comply with the 1933 Act or
advisable in connection with the proposed distribution of the
securities by such Holder;
d. take all reasonable steps to qualify the Warrant Shares for sale
under the securities or blue sky laws of such reasonable number
of states as such Holder may designate in writing and to register
or obtain the approval of any federal or state authority which
may be required in connection with the proposed distribution,
except, in each case, in jurisdictions in which the Company must
either qualify to do business or file a general consent to
service of process as a condition of the qualification of such
securities;
e. notify such Holder of any stop order suspending the effectiveness
of the registration statement and use its reasonable best efforts
to remove such stop order;
f. undertake to keep such registration statement and prospectus
effective for a period of nine months after its effective date;
g. furnish to such Holder as soon as available, copies of any such
registration statement and each preliminary or final prospectus
and any supplement or amendment required to be prepared pursuant
to the foregoing provisions of this section, all in such
quantities as such Holder may from time to time reasonably
request.
c. The Holder agrees to pay any underwriting discounts and commissions,
transfer taxes, registration fees and their own counsel fees with
respect to the Warrant Shares being registered. The Company will pay
all other costs and expenses in connection with a registration
statement to be filed pursuant to this section including, without
limitation, the fees and expenses of counsel for the Company, the fees
and expenses of its accountants, and all other costs and expenses
incident to the preparation, printing and filing under the Act of any
such registration statement, each prospectus and all amendments and
supplements thereto, the costs incurred in connection with the
qualification of such securities for sale in such reasonable number of
states as the Holder have designated, including fees and disbursements
6
<PAGE>
of counsel for the Company, and the costs of supplying a reasonable
number of copies of the registration statement, each preliminary
prospectus, final prospectus and any supplements or amendments thereto
to such Holder.
d. The Company agrees to enter into an appropriate cross-indemnity
agreement with any underwriter (as defined in the 1933 Act) for such
Holder in connection with the filing of a registration statement
pursuant to this section.
e. If the Company shall file any registration statement including therein
all or any part of the shares of the Company's Common Stock held by
the Holder, the Company and each Holder shall enter into an
appropriate cross-indemnity agreement whereby the Company shall
indemnify and hold harmless the Holder against any losses, claims,
damages or liabilities (or actions in respect thereof) arising out of
or based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, or any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make statements therein not
misleading unless such statement or omission was made in reliance upon
and in conformity with written information furnished or required to be
furnished by any such Holder, and each such Holder shall indemnify and
hold harmless the Company, each of its directors and officers who have
signed the registration statement and each person, if any, who
controls the Company, within the meaning of the 1933 Act against any
losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration
statement, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
statements therein not misleading, if the statement or omission was
made in reliance upon and in conformity with written information
furnished or required to be furnished by such Holder expressly for use
in such registration statement.
f. Anything to the contrary herein notwithstanding, if the shares of the
Company's Common Stock held by the Holder may be sold by the Holder
thereof in a transaction pursuant to Rule 144 promulgated under the
1933 Act, the Holder shall not be entitled to require the Company to
register such securities pursuant to any registration statement filed
under the 1933 Act.
g. For a period of one year after the effective date of the registration
statement filed pursuant to this Section 8, the Company at its expense
will file such post-effective amendments as may be necessary to make
available for use a prospectus meeting the requirements of the 1933
Act. The Company will cause copies of such prospectus to be delivered
to any person selling the shares of Common Stock as may be required by
the 1933 Act and the rules and regulations of the Securities and
Exchange Commission.
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9. Transfers to Comply with the 1933 Act. This Warrant and any Warrant Shares
have not been registered under the 1933 Act and may not be sold,
transferred, pledged, hypothecated or otherwise disposed of except as
follows: (1) to a person who, in the opinion of counsel 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 1933 Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of
this Section 10 with respect to any resale or other disposition of such
securities; or (2) to any person upon delivery of a prospectus then meeting
the requirements of the 1933 Act relating to such securities and the
offering thereof for such sale or disposition, and thereafter to all
successive assignees.
10. Legend. Unless the Warrant Shares have been registered under the 1933 Act,
upon exercise of any of the Warrants and the issuance of any of the Warrant
Shares, all certificates representing such Shares shall bear on the face
thereof substantially the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, assigned, transferred or
otherwise disposed of, unless registered pursuant to the
provisions of that Act or unless an opinion of counsel to
the Corporation is obtained stating that such disposition is
in compliance with an available exemption from such
registration.
11. Notices. All notices required hereunder shall be in writing and shall be
deemed given when sent by telecopier (with verified receipt), delivered
personally, mailed by certified or registered mail, return receipt
requested, or sent by overnight express delivery service to the Company or
Holder, as the case may be, for whom such notice is intended, to the
address of such party of which the Company or Holder has been advised by
written notice.
12. Applicable Law. The Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the State of
Pennsylvania.
13. Loss of Warrant Certificate: Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation
of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the company shall execute and
deliver a new Warrant of like tenor and date. Any such new Warrant executed
and delivered shall constitute an additional contractual obligation on the
part of the Company, whether or not this Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf, in its corporate name, by its duly authorized officer, all as of the day
and year first above written.
Dated: February 1, 1998 SYTRON, INC.
a Pennsylvania corporation
By: /s/ Robert Howard, President
---------------------------------
Name and Title
Robert Howard, President
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WARRANT EXERCISE FORM
---------------------
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ______________ shares of Common Stock of SYTRON, INC.,
and hereby makes payment of $ ____________ representing the aggregate Exercise
Price required in connection therewith. The undersigned also surrenders the
Warrant certificate to be processed in accordance with the terms set forth
therein.
------------------------------
Signature
------------------------------
Signature, if jointly held
------------------------------
Print Name
------------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
----------------------------------
(if other than to the registered holder of the within Warrant)
Name _____________________________________________________________
(Please typewrite or print in block letters)
Address _________________________________________________________
_________________________________________________________
Social Security or Taxpayer
Identification Number
______________________________________
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, _______________________________________ hereby sells,
assigns and transfers unto
Name ___________________________________________________________
(Please typewrite or print in block letters)
Address ________________________________________________________
the right to purchase Common Stock of SYTRON, INC., represented by this Warrant
to the extent of _____________ shares as to which such right is exercisable and
does hereby irrevocably constitute and appoint ____________________________
Attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
DATED: __________________________, _______.
__________________________
Signature
__________________________
Signature, if jointly held
Exhibit 10(dd)
February 1, 1998
LOAN AND SECURITY AGREEMENT
---------------------------
LOAN AND SECURITY AGREEMENT ("Agreement") dated as of February 1, 1998
between Sytron, Inc., a Pennsylvania corporation (collectively referred to,
together with its subsidiaries, as the "Company") and the undersigned lender
(the "Lender").
RECITALS
--------
WHEREAS, the Company, through its wholly owned subsidiary companies,
develops, markets, and supports intelligent access control and alarm monitoring
products for commercial customers;
WHEREAS, the Company is seeking to obtain from the Lender and from other
lenders executing an agreement identical to this Agreement (sometimes
collectively referred to as the "Lenders") a loan or loans in an aggregate
principal amount of Eight Hundred Fifty Thousand ($850,000) Dollars (the
"Aggregate Loan") to be secured by certain Company assets as set forth below;
WHEREAS, upon the terms and conditions set forth in this Agreement, each
Lender (including certain persons restructuring some of the Company's existing
indebtedness) will make a loan (the "Loan") to the Company in the principal
amount set forth next to the Lender's signature at the foot of this Agreement;
and
WHEREAS, the parties desire to set forth the terms and conditions governing
the making of the Loan and the other transactions contemplated in this
Agreement,
NOW, THEREFORE, in consideration of the making of the Loan and the mutual
covenants and conditions set forth herein, the parties hereby agree as follows:
1. Loan Terms and Interest Payments:
---------------------------------
(a) The Lender hereby agrees to lend to the Company, and the Company
hereby borrows from the Lender, the principal sum set forth next to the Lender's
name and signature at the foot of this Agreement, for a two-year term which
shall commence on the date hereof and expire on the date (the "Maturity Date")
which is the second anniversary of the date of this Agreement. Such principal
sum shall bear interest accruing monthly on the outstanding principal balance at
the rate of nine and one-half percent (9.5%) per annum.
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<PAGE>
(b) Interest shall be payable quarterly on each May 1, August 1,
November 1 and February 1, and shall be paid in United States funds, by check or
wire transfer to the order of the Lender, directed to such address or account as
shall be specified by notice from the Lender to the Company for such purpose. At
the election of the Lender only, such election to be made in writing at least 15
days prior to each interest payment date, interest for any quarter shall be paid
in the form of the Company's common stock ("Common Stock"), $.0l par value,
calculated at a per share price equal to ninety (90%) percent of the average
closing bid price of the Common Stock, as reported for the market in which the
Common Stock is traded, over the course of the five (5) business days
immediately preceding the date the interest payment is due.
(c) The Company hereby acknowledges receipt of the proceeds of the
Loan. For purposes of this Agreement, and unless otherwise indicated by the
context, the word "Loan" shall mean the principal amount advanced by the Lender,
all interest due thereon, and any other amounts includible therein.
2. Promissory Note:
----------------
The obligation of the Company to repay the Loan, including all interest
thereon, is evidenced by the Company's promissory note (the "Note") delivered to
the Lender in the form annexed hereto as Appendix A. The Note shall be executed
and delivered by a duly authorized officer of the Company, concurrently with the
execution and delivery of this Agreement.
3. Security for Loans, Collateral:
-------------------------------
As collateral security for the repayment of the Loan and accrued interest,
and the performance of the Company's other obligations under this Agreement, the
Company hereby assigns and grants to the Lender and the other Lenders, pro rata,
a continuing first priority lien on and security interest in the Company's
accounts receivable (as defined below) in an aggregate amount of not less than
Nine Hundred Thirty-Five Thousand ($935,000) Dollars and not more than One
Million Twenty Thousand ($1,020,000) Dollars, subject to the terms and
conditions of this Agreement, including, without limitation, the following:
(a) For purposes hereof, "accounts receivable" (i) shall mean any and
all present and future accounts created by the Company in the ordinary course of
business arising out of the Company's sale or lease of goods, or rendition of
services, and (ii) shall be the Company's most recent accounts receivable, which
in any event, shall have had no more than ninety (90) days elapse from the
invoice date of the account. (The Company's accounts receivable subject to such
first priority lien and security interest shall include the accounts receivable
of any and all subsidiaries, and are referred to, for purposes of this
Agreement, as the "Collateral").
(b) The first priority lien and security interest in the Collateral
shall be for the ratable benefit of the Lenders.
2
<PAGE>
(c) Upon or prior to the initial execution of this Agreement and every
six months thereafter, the Lender, together with the other Lenders, may, at the
Company's expense, obtain the following searches:
(i) Uniform Commercial Code ("UCC") searches with the Secretary
of State and local filing office of each state where the
Company maintains its executive offices, a place or places
of business, or assets; and
(ii) Judgment, federal tax lien and corporate tax lien searches,
in all applicable filing offices of each state searched
under section 3(c)(i) above.
(d) The Company shall execute and deliver, prior to the receipt of the
Loan proceeds:
(i) Financing statements on form UCC-1, in favor of an agent for
the Lenders, for filing in any jurisdiction where any
Collateral is or may be located and in any other
jurisdiction that the Lenders shall deem appropriate; and
(ii) Any other agreements, documents, instruments, and writings,
reasonably required by the Lender to evidence, perfect, or
protect the liens and security interests in the Collateral
granted-under this Agreement, or as the Lender may
reasonably request from time to time.
The Company shall also execute and deliver, from time to time after receipt of
the Loan proceeds, all such agreements, documents and instruments as are
reasonably requested by the Lender to update, correct, supplement, perfect and
protect the Lender's security interest in the Collateral.
(e) Prior to the execution of this Agreement, the Company will prepare
and deliver a list indicating the accounts receivable constituting the
Collateral, the names and current addresses of each account debtor, the amounts
owed by each account debtor, the date of each invoice reflecting each account
debt, the aging of each account debt, the terms of payment, and the date the
account debt was originally incurred, all with respect to the Collateral (such
list being referred to as the "Collateral Resort"). The Company shall, within
ten (10) days after the last day of each calendar month thereafter, deliver an
updated Collateral Report showing the foregoing information, the receipt of
payment from each account debtors, and any change in the composition of the
Collateral.
(f) The Company shall not make any agreement under which any account
debtor may acquire or receive a deduction or discount of such debtor's
obligation, and the net amount from
3
<PAGE>
each account shall be paid in full at its maturity as expressed in the invoice
evidencing such account.
(g) If immediately prior to the execution of this Agreement, the
aggregate amount of the accounts receivable constituting the Collateral is less
than $935,000, and the Company is unable to furnish eligible accounts receivable
to make up the difference between the actual amount of such accounts receivable
and $935,000 (the "Receivables Deficiency"), then the Lender may nevertheless
elect to proceed with the execution and delivery of this Agreement on the
following additional terms and conditions:
(i) The Lender, together with all similar Lenders, shall specify
the amount and identity of the accounts receivable which
Lender and such other Lenders are accepting as Collateral
under this Section 3 (referred to as the "Initial
Receivables");
(ii) The proceeds of the Aggregate Loan, including proceeds of
the Loan from Lender, will not be initially remitted to the
Company but will be deposited in an escrow or trust account
(the "Account") to be opened and maintained at CitiBank N.
A., pursuant to the terms and conditions of an escrow
agreement (the "Escrow Agreement") in the form annexed
hereto as Appendix B. The escrow agent ("Escrow Agent")
under the Escrow Agreement shall be Investment Information
Services Ltd. of Ipswich, United Kingdom.
(iii)Upon the execution and delivery of this Agreement and the
Note, and the deposit oft he proceeds of the Aggregate Loan
in the Account, the Lender and the other Lenders will cause
the Escrow Agent to disburse a sum to the Company from the
Account, which sum will be the quotient obtained by dividing
the Initial Receivables by 1. 1, provided, however that
there shall be deducted from the disbursement due to the
Company an amount equal to the gross amount of all prior
loans to the Company which are being repaid through the
execution and deliver of agreements and notes of like tenor
to the Agreement and Note (the "Refinanced Loans");
(iv) As and when the amount of the Collateral is increased from
the amount of the Initial Receivables, as set forth in a
current Collateral Report, the Escrow Agent shall remit to
the Company additional finds from the Account, in such
amount that, after each such remittance, the amount of the
Collateral will be not less than 110% of(x) the total prior
remittances from the Account to the Company plus (y) the
aggregate amount of the Refinanced Loans. Conversely, if a
Collateral Report shall indicate that the amount of the
Collateral has decreased and, accordingly, such amount is
less than 110% of the total of such remittances plus the
aggregate amount of the Refinanced Loans, the Company shall,
within three days after issuance of such Collateral
4
<PAGE>
Loans, the Company shall, within three days after issuance
of such Collateral Report, remit to the Account a cash
payment equal to the amount of the decrease in the
Collateral divided by 1. 1.
4. Representations and Warranties: The Company makes the following
representations and warranties, on which the Lender relies in making the Loan;
(a) Existence and Corporate Power: The Company is a corporation duly
organized and existing in good standing under the laws of the Commonwealth of
Pennsylvania, and is duly qualified to do business in those jurisdictions in
which it conducts operations requiring such qualification. The Company's
subsidiaries are duly organized and existing in good standing in their
respective states of incorporation and are similarly qualified to do business in
each jurisdiction where such Qualification is required.
(b) Power To Enter Agreement: Due Authorization: The making and
performance at this Agreement and the execution and delivery of the Note are
within the corporate powers of the Company. have been duly authorized by all
necessary corporate action, and do not contravene any contractual restriction
that is presently binding or is to be binding on the Company;
(c) Valid and Binding Agreement: This Agreement and the Note have been
duly executed by the Company and constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with the terms and
conditions contained therein.
(d) No Material Restrictions: The Company is not a party or subject to
any charter provision, by-law, mortgage, lien, lease, license, permit, financing
agreement, contract, instrument, law, rule, ordinance, regulation, order,
judgment or decree, or any other restriction of any kind or character, which (i)
is reasonably expected to have a material adverse effect upon the Company or
(ii) would limit or prevent the entering into of this Agreement or the
consummation of the transactions contemplated by this Agreement, other than (x)
a factoring agreement with United Credit Patriot Funding ("United Credit"),
which is being terminated, without further obligation of the Company thereunder,
concurrently with the execution of this Agreement, and (y) prior loan agreements
with certain other lenders who have executed instruments waiving any
prohibitions or conflicting terms contained in such prior agreements.
(e) Collateral: The Collateral Report sets forth, and each Collateral
Report to be delivered subsequently under this Agreement will set forth, a
complete and correct list and ageing by month of invoice for each account
receivable constituting the Collateral. Each such account receivable is and,
during the term of this Agreement will be, free and clear of all liens and
encumbrances (other than as set forth in this Agreement) and any set-offs or
counterclaims; created in the ordinary course of business in a bona fide arm's
length transaction; reflected on the Company's books and records in accordance
with generally accepted accounting principles ("GAAP") consistently applied;
and represented by a written invoice or comparable written document which
5
<PAGE>
document: (i) is legal, valid, binding and enforceable against the obligor in
accordance with its terms and provisions, except as may be limited by bankruptcy
or other laws and equitable principles affecting contracts generally, (ii) does
not violate or conflict with any provision of applicable law, (iii) has not been
amended or modified in any respect except as set forth in the Collateral Report,
(iv) reflects all agreements and understandings with the obligor thereof, and
(v) may be subjected to the first priority lien and security interest of the
Lender without the consent of the obligor. The amounts reflected in such
accounts receivable are fully collectible on a schedule consistent with past
collection practices of the Company.
(f) Violations of Law: The Company is in compliance with all laws,
ordinances, regulations, rules, decrees, awards and orders relating to the
Company's business, including without limitation, all laws, ordinances,
regulations, rules, decrees, and orders relating to wages, hours, hiring,
promotions, retirement, working conditions, air, soil, and water pollution,
nondiscrimination, health, safety, pensions, benefits, trade regulation, and
warranties, and the Company hereby represents and warrants that there are no
existing violations of such laws, ordinances, regulations, rules, decrees,
awards, or orders claimed or threatened against the Company.
(g) Subordination of Junior Loans: The Company previously issued
promissory notes to each of Katonah West Pension Plan, Springhill Holdings,
Ltd., and Werren Holdings, Ltd. (collectively, the "Junior Notes") for an
aggregate principal amount of $300,000. The Company has entered into a
Subordination Agreement with the holders of the Junior Notes pursuant to which
the indebtedness evidenced by the Junior Notes shall be at all times and in all
respects wholly subordinate, junior and subject in right of payment of the Note
and Notes of like tenor issued in connection with the Aggregate Loan. Without
limiting the effect of the foregoing, "subordinate," as used herein, shall be
deemed to mean that, in the event of a default in the payment of the Note or of
any liquidation, insolvency, bankruptcy, reorganization, or similar proceedings
relating to the Company, all sums payable on the Note shall first be paid in
full, including all due interest, before any payment is made upon the
indebtedness evidenced by the Junior Notes, and in such event, any payment or
distribution of any character which shall be made in respect of the Junior Notes
shall immediately be paid over to the holders of the Note and of Notes of like
tenor issued in connection with the Aggregate Loan, for application of such
payment or distribution to the payment of such Notes pro rata among the Lenders,
unless all amounts outstanding under the Aggregate Loan shall have been paid and
satisfied in full.
(h) Books and Records: The books and records of the Company are and
will continue to be true, accurate and complete in all material respects and
have been and will be maintained in accordance with GAAP applied on a consistent
basis.
(i) Financial Statements: The Company has heretofore furnished the
Lender with (i) the audited consolidated financial statements of the Company for
the fiscal year ended as of September 30, 1996 and earlier periods, certified by
the Jones, Jensen & Company, independent public accountants, and (ii) unaudited
interim statements for the period ended
6
<PAGE>
December 31, 1997 (such audited and unaudited financial statements being
sometimes referred to herein as the "Financial Statements"). The Financial
Statements have been prepared in accordance with GAAP, consistently followed
throughout the periods indicated. The Financial Statements present fairly, in
all material respects, the financial condition of the Company as of the date or
dates indicated therein and the results of operations and cash flows of the
Company for the periods indicated. Since the date of the Financial Statements,
no event has occurred or is expected to occur which has had, or may be
reasonably anticipated to have, a material adverse effect on the Company or its
business.
Absence of Certain Recent Changes: From the date of the Company's most
recent audited financial statements until the date of this Agreement, the
Company has conducted its operations and business only in the ordinary course
and has not:
(i) Entered into any transaction not in the ordinary course of
business or which are otherwise inconsistent in any respect with
past practices or conduct of the business of the Company;
(ii) Except for an aggregate of $500,000 principal amount of short
term loans from a group of lenders, incurred any indebtedness for
borrowed money,
(iii)Created, assumed, or permitted to exist any lien, pledge,
security interest, encumbrance or mortgage of any kind on any of
the Company's assets, other than that of United Credit;
(iv) Except as set forth in Schedule "4(j)" annexed, acquired the
securities or substantially all of the assets of any other
entity; or
(v) Except as set forth in Schedule "4(j)" annexed, merged or
consolidated with any entity, or disposed of a substantial
portion of its assets.
(k) Pending Litigation: There are no pending or threatened actions or
proceedings before any court or administrative or regulatory agency which may
materially adversely affect the financial condition or operations of the
Company.
(j) Capital Stock: The authorized capital stock of the Company
consists of a single class of Twenty Million (20,000,000) shares of Common
Stock, $.0l par value, of which approximately 3,175,145 shares are outstanding
as of the date hereof, all of which are fully paid and validly issued and
outstanding. The shares of Common Stock are the only voting shares of the
Company. There are no outstanding options or warrants for the purchase of shares
of Common Stock except as set forth in Schedule 4(l).
7
<PAGE>
5. Covenants: While this Agreement is in effect and until the Loan has been
paid in ill, including any interest or other charges which have accrued pursuant
to the terms and conditions as contained herein and in the Note, the Company
covenants as follows:
(a) The Company shall not pledge, assign, transfer, or otherwise
encumber or dispose of the Collateral or the proceeds of the Collateral. The
Company shall receive and apply proceeds from the payment of accounts receivable
constituting the Collateral in the ordinary course of business. All new accounts
receivable generated in the course of the Company's business and constituting
the Collateral shall be subject to the lien and security interest imposed under
this Agreement and shall comply with the representations set forth in Section
4(e).
(b) The Company shall at all reasonable times give each Lender access
to all places where any of the collateral or records pertaining thereto may be
maintained and shall permit such Lender to make extracts from such records upon
reasonable notice to the Company. The Company shall at all times keep the Lender
informed of the name and location of each of its bank accounts.
(c) The Company shall not create, incur, or assume any indebtedness
for borrowed money unless (i) the repayment of such indebtedness will be limited
to sources other than the Collateral, and (ii) the terms of such indebtedness
will not impair the Collateral or adversely affect the Lender.
(d) The Company shall not, so long as the Loan is outstanding, enter
into any transaction in a nature of a merger or consolidation with another
entity, or undertake the acquisition of all or substantially all of the assets
of another entity, or the sale, lease or other disposition of all or
substantially all of the Company's assets, in which the Company would not be the
surviving entity, without the written consent of the Lender, which shall not be
unreasonably withheld provided that the Collateral and the Lender's interest
therein will remain unimpaired by such transaction.
(e) The Company shall take all actions reasonably necessary (and shall
cause its subsidiaries to take all actions reasonably necessary) to maintain the
lien and security interest of the Lender in the Collateral, and will not permit
any actions or conditions to occur which might impair the value of the
Collateral and such lien and security interest.
(f) The Company will reserve and set aside out of its authorized
capital shares a sufficient number of shares of Common Stock for issuance upon
any exercise of the warrants being issued to the Lender in accordance with the
terms of this Agreement.
6. Use of Proceeds: The first Seven Thousand Five Hundred ($7,500) Dollars
of the proceeds Aggregate Loan received by the Company shall be used to pay the
legal fees and related expenses incurred by the Lenders in connection with this
Agreement. The balance of the net proceeds of the Aggregate Loan may be used by
the Company in the ordinary course of business in good faith within its sole
discretion reasonably exercised.
8
<PAGE>
7. Optional Prepayment: The principal amount of the Note and accrued
interest may be prepaid by the Company in accordance with the terms of this
Agreement, in whole or in part, without premium or penalty at any time;
provided, however, that such prepayment shall be applied pro rata to the Loan of
each of the Lenders participating in the Aggregate Loan. Any such prepayment
shall be first applied to accrued and unpaid interest, the balance of which
shall then be applied to principal.
8. Conditions Precedent to Loan: Lender's obligation to make the Loan is
subject to the accuracy of and compliance with the representations and
warranties of the Company made in this Agreement. to the performance by the
Company of its covenants and other obligations under this Agreement. and to the
following further conditions to be satisfied before Loan proceeds are delivered
to the Company:
(a) The Company's factoring agreement with United Credit shall have
been terminated, the Company shall have received an instrument of satisfaction
and release from United Credit acknowledging that no further amounts are due
from the Company to United Credit, and United Credit shall have delivered a Form
UCC-3 terminating any lien or security interest held by United Credit on The
Company's assets.
(b) The Company shall have delivered the Collateral Report as set
forth in Section 3(e) above, a financing statement on Form UCC-1 as set forth in
Section 3(d) above, an updated subordination instrument with respect to the
Junior Loans, and waivers from certain other lenders as referred to In Section
4(d).
(c) The Company shall have executed and delivered the Note to the
Lender.
(d) The representations and warranties of the Company set forth in
Section 3 hereof shall be true and correct as of the Closing, and the Company
shall have complied with all applicable terms and conditions of this Agreement.
(e) The Company shall have delivered a certificate executed by the
chief executive officer and chief financial officer of the Company, to the
effect that all representations and warranties of the Company set forth in
Section 3 above are true and complete and do not omit any information necessary
to make such representations and warranties not misleading.
(f) All documents, agreements, instruments and other legal matters
shall be satisfactory in form and substance to the Lender and Lender's
attorneys.
9. Warrants:
---------
(a) The Company agrees to issue to the Lender, within 15 days after
funding of the Loan, a warrant (the "Warrant") entitling such Lender to purchase
the number of shares of Common Stock computed by multiplying the sum of 42,500
by a fraction, the numerator of which
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<PAGE>
is the principal amount of the Loan and the denominator of which is the
principal amount of the Aggregate Loan. The exercise price per share under the
Warrant shall be Two (32.50) Dollars and Fifty Cents.
(b) The Warrant shall be exercisable for up to five (5) years from the
date of issuance (except that no such exercise shall be permitted during the
so-called "quiet period" if a filing is made with the U.S. Securities Exchange
Commission for a public offering of any of the Company's securities), provided
however that the Warrant may not be exercised prior to March 31, 1998 in the
absence of a registration statement in effect with respect to the securities
issuable upon exercise of the Warrant or an opinion of counsel reasonably
satisfactory to the Company that such registration is not required.
(c) The Warrant shall contain such other terms, including
anti-dilution protection and "piggyback" registration rights with respect to the
Warrant Shares, as are set forth in the form of Warrant annexed to this
Agreement as Appendix C.
10. Monitoring of Accounts Receivable: For purposes of monitoring the
status of the Collateral and assessing compliance with the terms and conditions
of this Agreement, the Lender has appointed, with the consent of the Company, J.
D. Kish (the "Monitor"), a certified public accountant who is not an employee of
or consultant for the Company. The parties agree that:
(a) The Monitor will receive and examine monthly updates of the
Collateral Report, as well as copies of the monthly bank statements and
collection records to determine whether there is a total amount of at least
$935,000 of Collateral, including cash derived from proceeds of the Collateral,
and to determine whether the Collateral complies with the criteria set forth in
this Agreement.
(b) On a quarterly basis, the Monitor will visit the Company's
principal offices, where the Monitor will trace sample accounts receivable
comprising the Collateral, including all such accounts in excess of $25,000, and
will review actual invoices and payments in connection with such accounts. At
the same time, the Monitor will perform a reconciliation between the latest
Collateral Report and the Company's records and bank balances, but will not
contact Company customers directly without the consent of the Company, which
will not be unreasonably refused.
(c) The Monitor will receive, at the Company's expense, copies of the
Company's annual, quarterly and monthly financial statements, and copies of any
annual, quarterly or other periodic reports filed with the Securities and
Exchange Commission.
(d) The Company will cooperate in furnishing information and in making
its facilities and records available to the Monitor. The fees of the Monitor
will be paid by the Company.
11. Events of Default:
------------------
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(a) Each of the following events shall constitute an Event of Default:
(i) Failure to make payment of the principal or accrued interest
on the Note when and as the same shall become due and payable;
(ii) Failure to maintain the amount and composition of the
Collateral required under Section 3(a), including, without limitation, failure
to replace any account receivable if such account receivable is aged longer than
Ninety (90) days or any failure to deliver a Collateral Report within the time
required under Section 3(e) of this Agreement;
(iii) Default in the due observance or performance of any
covenant, warranty, representation, condition, or agreement on the part of the
Company to be observed or performed pursuant to the terms hereof
(iv) Application for, or consent to, the appointment of a
receiver, trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its
debts as they mature;
(vi) General assignment by the Company for the
benefit of creditors;
(vii) Filing by the Company of a voluntary petition in bankruptcy
or a petition or an answer seeking reorganization, or an arrangement with
creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 90 days; or
(ix) Termination of a material portion of the business of the
Company or a chance of control of the Company.
(b) If any Event of Default shall have occurred and shall not have
been cured within Ten (10) days after notice of such default, the Lender may, by
notice to the Company, declare that all indebtedness, liabilities, and other
obligations of the Company to the Lender shall be forthwith due and payable
whereupon all such indebtedness, liabilities, or other obligations shall become
so due and payable.
12. Rights and Remedies:
--------------------
(a) Upon the occurrence of an Event of Default, the Lender shall have
all the rights and remedies of a secured party under the UCC and other
applicable laws with respect to all
11
<PAGE>
the Collateral, such rights and remedies being in addition to all other rights
and remedies available in law or in equity or provided for herein. Lender may
sell or cause to be sold any or all of the Collateral, in one or more sales or
parcels, at such prices and upon such terms as Lender may deem best, and for
cash or on credit or for future delivery, without Lender's assumption of any
credit risk, and at a public or private sale as Lender may deem appropriate.
Unless the collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, Lender will give the
Company reasonable notice at the time and place of any public sale thereof or of
the time after which any private sale or any other intended disposition thereof
is to be made. The requirements of reasonable notice shall be met if any such
notice is mailed, postage prepaid, to the Company's address shown herein, at
least five (5) days before the time of the sale or disposition thereof Lender
may invoice any such sale in Lender's name or in the Company's name, as Lender
may elect, as the seller, and in such latter event such invoice shall be marked
payable to Lender. Lender may be the purchaser at any such public sale and
thereafter hold the property so sold at public sale, absolutely, free from any
claim or right of any kind, including any equity of redemption. The proceeds of
sale shall be applied first to all costs and expenses of and incident to such
sale, including attorneys' fees, and then to the payment (in such order as
Lender may elect) of all amounts due under this Agreement. Lender will return
any excess to the Company, and the Company shall remain liable for any
deficiency.
(b) In addition to the foregoing and to all other rights, option, and
remedies available to Lender under this Agreement or at law or equity, the
Lender may exercise all rights available under the UCC and any other applicable
statute, including, but not limited to:
(i) The right to take possession of; send notices regarding and
collect directly the Collateral with or without judicial process (including
without limitation the right to notify United States postal authorities to
redirect mail addressed to the Company); or
(ii) By its own means or with judicial assistance, enter the
Company's premises and take possession of the Collateral and the related records
and documents; or
(iii) Require the Company at the Company's expense to assemble
all or any part of the Collateral and make it available to Lender.
(c) All rights and remedies granted hereunder or otherwise available
shall be deemed concurrent and cumulative and not alternative remedies and
Lender may proceed with any number of remedies at the same time until all the
amounts hereunder are paid in full. The exercise of any one right or remedy
shall not be deemed a waiver or release of any other right or remedy.
(d) If an Event of Default shall have occurred and be continuing, and
if the Lender shall have declared a default as set forth in Section 11(b), the
Lender and other Lenders may, by written consent of Lenders holding,
collectively, not less that 50% of the outstanding principal amount of the
Aggregate Loan, by written consent, appoint an agent or trustee (the "Agent") to
act
12
<PAGE>
on their behalf in collecting the amounts due under, and enforcing the terms, of
this Agreement; provided, however, that, until the Lender and such other Lenders
shall so act by written consent, the Agent acting on their behalf shall be
Investment Information Services, Ltd., of Ipswich, United Kingdom. an& if the
Lender and such other Lenders are unable to agree on the identity of such Agent,
Investment Information Services Limited shall continue as such Agent. In any
such event, the Agent shall be authorized to act on behalf of the Lenders
appointing such Agent and may exercise each and every right and remedy of the
Lender set forth under this Agreement with respect to the collection of the
unpaid balance of the Loan.
(e) The Lender shall notify the Company of the appointment of such
Agent, and all communications Thereafter from the Company to the Lender shall
also be sent to the Agent.
(f) In the event an Agent is appointed to act for the Lender as set
forth above, such Agent shall be deemed to have received from the Company, and
the Company hereby explicitly agrees that such Agent shall be vested with, a
power of attorney to act for, in the name of; and on behalf of the Company and
its officers (including, without limitation, the power to sign the Company's
name) for The purpose of taking possession of the Collateral, collecting the
proceeds thereof notifying the Company's account debtors, and taking such other
actions as are reasonably necessary :o collect, on behalf of the Lender, amounts
due under this Agreement, and such power of attorney shall continue until all
such amounts are paid.
13. Miscellaneous.
--------------
(a) No remedy herein enumerated is intended to be exclusive of any
other remedy allowed by law out each and every remedy shall be cumulative and in
addition to every other remedy herein enumerated or allowed by law.
(b) No failure or delay to exercise any right or power or any partial
exercise, accruing upon any default hereunder shall impair any such right or
power or be construed to be a waiver of any such default or any acquiescence
therein.
(c) This Agreement and all rights, benefits, powers, and obligations
hereof shall inure to the benefit and shall bind, respectively, the successors
and assigns of the Lender and the Company.
(d) In the event any part or parts of this Agreement shall be invalid
or unenforceable for any reason, then such invalid or unenforceable part or
parts shall be deemed and held to be separate and severable, and the remainder
of this Agreement shall continue in full force and effect.
(e) The Company agrees to pay and to save Lender harmless from all
cost, liability or expense, including reasonable counsel fees and expenses, in
connection with the enforcement of
13
<PAGE>
the Lender's rights under the Note or this Agreement.
(f) Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft or destruction of the Note, upon receipt by the Company of
a reasonably satisfactory indemnification, the Company shall execute and deliver
a replacement Note of like tenor and date. Any such new Note shall constitute an
additional contractual obligation on the part of the Company, and the Note so
lost, stolen or destroyed shall not be at any time enforceable by anyone.
(g) This Agreement and the Appendices and Schedules referred to herein
constitute the entire agreement among the parties with respect to the
transactions contemplated hereby and supersede all prior agreements, discussions
and proposals with respect thereto, whether written or oral. This Agreement may
be modified only by a written instrument executed by the parties.
(h) Each party hereto covenants and agrees promptly to execute,
delivery, file or record such agreements, instruments, certificates and other
documents and to perform such other and further acts as the other parry hereto
may reasonably request or as may otherwise be necessary or proper to consummate
and perfect the transactions contemplated hereby.
(i) The Note and this Agreement shall be construed and enforced in
accordance with the laws of the State of New York without regard to choice of
law. The parties agree that any claims arising hereunder shall be brought only
in a court of general jurisdiction in the County and State of New York, hereby
waive any objection to the jurisdiction of such court, and waive a trial by
jury.
(j) The Company hereby waives presentment, notice of dishonor, and
protest of all instruments evidencing any liabilities, as such term is defined
in the Uniform Commercial Code.
14. Descriptive Headings: The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
15. Notices: All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered, unless otherwise specified,
either personally, by facsimile transmission (receipt verified), by registered
or certified mall (return receipt requested), postage prepaid, or sent by
express courier service (receipt verified), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice; provided, that notices of a change of address shall be effective only
upon receipt thereof).
14
<PAGE>
To the Company:
Sytron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Attn: Mitch Feinglas,
Chief Executive Officer
Telephone No.: (303) 469-6100
Facsimile No.: (303) 469-7100
with a copy to:
Robert Snively
4450 Arapahoe Avenue, Suite 100
Boulder, CO 80303
Telephone No.: (303) 415-2566
Facsimile No.: (303) 604-9117
To the Lender:
/s/ Charles Robinson
- ------------------------------- ------------------------------
10101 Grosvenor Place Apt. 1115
- ------------------------------- ------------------------------
Rockville, MD 20852
- ------------------------------- ------------------------------
- ------------------------------- ------------------------------
With Copies To:
Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue 28th Floor
New York, New York
Attn: Andrew J. Goodman, Esq.
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
15
<PAGE>
16. Counterparts: As to any Lender, this Agreement may be executed in two
or more counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of the
date first above written.
SYTRON, INC.
By: /s/ Robert Howard
------------------------------
Robert Howard, President
LENDER
Name: Charles Robinson
----------------------------
(Please Print)
$50,000.00 /s/ Charles Robinson
- -------------------------- ------------------------------
Principal Amount of Loan Signature
Address:
-------------------------
------------------------------
------------------------------
16
Exhibit 10(ee)
SECURED PROMISSORY NOTE
DUE JANUARY 31, 2000
Dated: February 1, 1998 Principal Amount $50,000.00
FOR VALUE RECEIVED, the undersigned, SYTRON, INC., a Pennsylvania corporation
(the "Company"), promises to pay to Janet Robinson or registered assigns (the
"Holder") the amount of Fifty Thousand Dollars and all accrued interest thereon
on January 31, 2000 (the "Due Date"). Interest on the above-stated sum shall
accrue at Nine and One Half (9.5%) Percent per annum. Interest hereunder shall
be compounded quarterly.
Interest shall be payable quarterly on each April 1, July 1, October 1 and
January 1 during the term hereof with the first such interest payment due and
payable on April 1, 1998. Interest shall be paid in United States funds, by
check or wire transfer to the order of Holder, directed to such address as shall
be specified by notice from the Holder to the Company for such purpose. At the
election of the Holder only, which election shall be expressed in writing to the
Company, interest may be paid in the form of shares of the Company's common
stock, $0.01 par value (the "Common Stock"), with the value of the Common Stock
used to effect the interest payment determined by multiplying by ninety (90%)
the average closing bid price of the Common Stock as reported in the principal
market in the United States on which the Common Stock is traded over the course
of the five (5) business days immediately preceding the date the interest
payment is due.
This Secured Promissory Note (this "Note") is issued by the Company pursuant and
subject to the terms of that certain Loan and Security Agreement dated the date
hereof (the "Loan Agreement") between the Company and the Holder, and is secured
by a perfected, first priority security interest in certain accounts receivable
of the Company as more particularly set forth in the Loan Agreement. The Holder
is entitled to the benefits of the Loan Agreement and may enforce the agreements
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof.
<PAGE>
2
Each of the following events shall constitute an Event of Default:
(i) Failure to make payment of the principal or accrued interest on
the Note when and as the same shall become due and payable;
(ii) Failure to maintain the amount and composition of the Collateral
required under Section 3(a) of the Loan Agreement, including, without
limitation, failure to replace any account receivable if such account receivable
is aged longer than Ninety (90) days or any failure to deliver a Collateral
Report within the time required under Section 3(e) of the Loan Agreement;
(iii) Default in the due observance or performance of any covenant,
warranty, representation, condition, or agreement an the pan of the Company to
be observed or performed pursuant to the terms hereof;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its debts
as they mature;
(vi) General assignment by the Company for the benefit of creditors;
(vii) Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization, or an arrangement with creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 90 days; or
(ix) Termination of a material portion of the business of the Company
or a change of control of the Company.
If any Event of Default shall have occurred and shall not have been cured
within ten (10) days after notice of such default, the Holder may, by notice to
the Company, declare that all indebtedness, liabilities, and other obligations
of the Company to the Lender shall be forthwith due and payable whereupon all
such indebtedness, liabilities, or other obligations shall become so due and
payable.
-2-
<PAGE>
3
Upon the occurrence of an Event of Default, the Holder shall have all the
rights and remedies of a secured parry under the UCC and other applicable laws
with respect to all the Collateral as defined in the Loan Agreement, such rights
and remedies being in addition to all other rights and remedies available in law
or in equity or as provided for in the Loan Agreement, including, but not
limited to:
(i) The right to rake possession at send notices regarding and collect
directly the Collateral with or without judicial process (including without
limitation the right to notify United States postal authorities to redirect mail
addressed to the Company); or
(ii) By its own means or with judicial assistance, enter the Company's
premises and take possession of the Collateral and the related records and
documents; or
(iii) Require the Company at the Company's expense to assemble all or
any part of the Collateral and make it available to Holder.
All rights and remedies granted hereunder or otherwise available shall
be deemed concurrent and cumulative and nor alternative remedies and Holder may
proceed with any number of remedies at the same time until all the amounts
hereunder are paid in full. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other ri2ht or remedy.
The following additional terms shall apply to this Note:
1. Secured Obligation. The obligations of the Company under this Note are
secured by the Collateral pursuant to the terms of the Loan Agreement, and the
Holder shall have the rights with respect to such Collateral as defined in and
under the terms of the Loan Agreement.
2. Transfer. Subject to compliance with applicable federal and state
securities laws, this Note shall be transferable in whole or in part. Any such
transfer shall be effected by the presentation of this Note to the Company for
transfer, accompanied by a duly completed and executed Assignment Form in the
form attached hereto as Schedule A.
3. Governing Law. This Note shall be construed and enforced in accordance
with the laws of the State of New York without regard to choice of law
principles. The parties agree that any claims arising hereunder shall be brought
only in a court of general jurisdiction in the County and State of New York,
hereby waive any objection to the jurisdiction of such court, and waive a trial
by jury.
4. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered, unless otherwise specified,
either personally, by facsimile
-3-
<PAGE>
4
transmission (receipt verified), by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service (receipt
verified), to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; provided, that notices of a
change of address shall be effective only upon receipt thereof).
To the Company:
Sytron, Inc.
2770 Industrial Lane
Broomfield, CO 80020
Attn: Mitch Feinglas,
Chief Executive Officer
Telephone No.: (303) 469-6100
Facsimile No.: (303) 469-7100
with a copy to:
Andrew Telsey,Esq.
CO
--------------------- ----
To the Holder:
/s/ Janet Robinson
------------------------------
10101 Grosvenor Place Apt. 1115
-------------------------------
Rockville, MD 20852
-------------------------------
With Copies To:
Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, New York
Attn: Andrew J. Goodman, Esq.
Telephone No.: (212) 661-2150
Facsimile No.: (212) 949-6131
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note and has delivered it
to the Holder, on the day and year first above written.
SYTRON, INC.
By: /s/ Robert Howard
-------------------------------
Name: Robert Howard
Title: President
[Corporate Seal]
ATTEST
- ---------------------------------
Secretary
-5-
<PAGE>
Schedule A to Note
ASSIGNMENT
, 19
---------- ---
Sytron, Inc.
2770 Industrial Lane,
Broomfield, Colorado 80020-1620
Attention: President
Gentlemen:
The undersigned holder (the "Assignor") of the attached note (the "Note)
hereby assigns and transfers $___ principal amount of the Note to _______ (the
"Assignee"). As a condition to the assignment of the Note by Assignor to
Assignee, Assignee hereby represents, warrants and acknowledges to the Company
and Assignor as follows:
1. Assignee is acquiring the Note for its own account, for investment and
not with a view to the distribution thereof except as allowed under the
Securities Act of 1933, as amended, and other applicable state securities laws;
and
2. Assignee acknowledges that the Note will bear appropriate legends as
reasonably required for compliance with the Securities Act and applicable state
securities laws.
ASSIGNOR:
--------------------------------
ASSIGNEE:
--------------------------------
-6-
Exhibit 10(ff)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE,
ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO
THE PROVISIONS OF THAT ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT
SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION
VOID AFTER 5:00 P.M. MOUNTAIN TIME, ON JANUARY 31, 2002
WARRANT TO PURCHASE SHARES OF COMMON STOCK
SYTRON, INC.
(Incorporated under the laws of the State of Pennsylvania)
Warrant for the Purchase of 2,500 Shares of Common Stock
--------------------------------------------------------
No. 1013
FOR VALUE RECEIVED, SYTRON, INC. (the "Company"), a Pennsylvania
corporation, hereby certifies that Janet Robinson, or permitted assigns
(collectively referred to as the "Holder") is entitled, subject to the
provisions of this Warrant, to purchase from the Company, on or after July 31,
1998, or at any other time as specifically provided for herein, and expiring at
5:00 p.m. Mountain Time on January 31, 2002, (the "Expiration Date") Eighteen
Thousand Five Hundred (18,500) fully paid and non-assessable shares of the
Company's Common Stock (the "Warrant Shares"), at a price per share of $1.625
(the "Exercise Price").
The term "Common Stock" means, unless the context otherwise indicates, the
Common Stock, par value $.01 per share, of the Company as constituted on the
date hereof , together with any other equity securities that may be issued by
the Company in addition thereto or in substitution therefore. The number of
shares of Common Stock to be received upon the exercise of this Warrant may be
adjusted from time to time as hereinafter set forth. Unless the context
otherwise indicates, the term "Company" means, and includes the corporation
named above as well as (i) any immediate or more remote successor corporation
resulting from the merger or consolidation of the Company (or any immediate or
more remote successor corporation of the Company) with another corporation, or
(ii) any corporation to which the Company (or any immediate or more remote
successor corporation of the Company) has transferred its property or assets as
an entirety or substantially as an entirety.
<PAGE>
The Holder agrees with the Company that this Warrant is issued, and all the
rights hereunder shall be held subject to, all of the conditions, limitations
and provisions set forth herein.
1. Expiration of Warrant. The Warrant shall expire at 5:00 p.m. Eastern Time
on the Expiration Date or, if such day is a day on which banking
institutions in New York are authorized by law to close, then on the next
succeeding day that shall not be such a day
2. Exercise of Warrant. This Warrant may be exercised in whole or in part at
any time, on or after November 30, 1997, or at any other time as
specifically provided for herein, by presentation and surrender of this
Warrant to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Warrant Exercise Form attached
hereto duly executed and accompanied by payment (either in cash or by
certified or official bank check, payable to the order of the Company) of
the Exercise Price for the number of shares specified in such form and
instruments of transfer, if appropriate, duly executed by the Holder or his
or her duly authorized attorney. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant, subject to all of the
conditions, limitations, and provisions set forth herein, evidencing the
rights of the Holder thereof to purchase the balance of the shares
purchasable hereunder. Upon receipt by the Company of this Warrant,
together with the Exercise Price, at its office, or by the stock transfer
agent of the Company at its office, in proper form for exercise, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
The Holder shall pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on exercise of this Warrant.
3. Reservation of Shares. The Company will at all times reserve for issuance
and delivery upon exercise of this Warrant all shares of Common Stock or
other shares of capital stock of the Company (and other securities) from
time to time receivable upon exercise of this Warrant. All such shares (and
other securities) shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and non-assessable and free
of all preemptive rights.
4. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant, but the Company
shall pay the Holder an amount equal to the fair market value of such
fractional share of Common Stock, in lieu of each fraction of a share
otherwise called for upon any exercise of this Warrant, as determined by
the Company's Board of Directors.
5. Exchange, Transfer, Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its
stock transfer agent, if any, for other Warrants of different
2
<PAGE>
denominations, entitling the Holder or Holders thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
Upon surrender of this Warrant to the Company or at the office of its stock
transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge (but subject to the restrictions on transfer set forth in
Sections 10 and 11 below) execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be cancelled. This Warrant may be divided or combined with other
Warrants that carry the same rights upon presentation hereof at the office
of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof.
6. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled
to any rights of a stockholder in the company, either at law or in equity,
and the rights of the Holder are limited to those expressed in this
Warrant.
7. Adjustment Provisions.
a. If the Company, at any time after the Base Date and prior to exercise
of this Warrant, shall have subdivided its outstanding shares of
Common Stock (or other securities at the time receivable upon the
exercise of the Warrant) by recapitalization, reclassification or
split-up thereof, or if the Company shall have declared a stock
dividend or distributed shares of Common Stock to its stockholders,
the number of Warrant Shares purchasable under this Warrant
immediately prior to such exercise shall be proportionately increased,
and if the Company prior to such exercise, shall have at any time
combined the outstanding shares of Common Stock by recapitalization,
reclassification or combination thereof, the number of Warrant Shares
subject to this Warrant immediately prior to exercise shall be
proportionately decreased.
b. In case of any reorganization of the Company (or any other
corporation, the securities of which are at the time receivable on the
exercise of this Warrant) after the Base Date, or in case after such
Base Date the Company (or any such other corporation) shall
consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in
each such case, the Holder of this Warrant upon the exercise thereof
as provided in Section 2 above, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be
entitled to receive the securities or property to which such Holder
would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto.
c. In case the Company shall, after the Base Date, issue shares of its
Common Stock to any of its employees, officers, directors, or
consultants at a price less than the then fair market value of such
shares determined by the Company's directors acting in good faith
3
<PAGE>
(except for issuance of shares under a Company incentive stock option
plan approved by the Company's directors and stockholders and not
exceeding in authorization up to Ten (10%) Percent of the Company's
then outstanding shares), or shall issue rights warrants, options, or
convertible securities permitting the holders thereof to acquire
shares of the Common Stock at less than the fair market value thereof,
the number of Warrant Shares and the Exercise Price shall be
proportionately adjusted so that the holder of this Warrant, upon the
exercise thereof, shall not receive any lesser percentage ownership of
the Common Stock of the Company in return for payment of the Exercise
Price than he or she would have received in the absence of the
issuances referred to in this paragraph.
d. Whenever the number of Warrant Shares purchasable upon the exercise of
this Warrant is required to be subject to adjustment, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such adjustment by a fraction (x) the numerator
of which shall be the amount of Warrant Shares which would be
purchasable upon exercise immediately prior to such adjustment and (y)
the denominator of which shall be the number of Warrant Shares so
purchasable immediately after such adjustment.
e. The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution, issue or
sale of securities, sale of assets or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the
terms of the Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the
rights of the Holder of this Warrant. Without limiting the generality
of the foregoing, while any Warrant is outstanding, the Company:
ii. will not permit the par value, if any, of the shares of stock
receivable upon the exercise of this Warrant to be above the
amount payable therefor upon such exercise; and
ii. will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue or sell
fully paid and non-assessable stock upon the exercise of all
Warrants at the time outstanding.
f. In case:
i. the Company shall take a record of the holders of its Common
Stock (or other securities at the time receivable upon the
exercise of the Warrant) for the purpose of entitling them to
receive any dividend (other than a cash dividend at the same rate
as the rate of the last cash dividend theretofore paid) or other
distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or
4
<PAGE>
ii. of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation; or
iii. of any voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
iv. any other event specified in this Section 7 requiring the taking
of such a record,
Then, and in each such case, the Company shall mail or cause to
be mailed to each holder of any Warrant at the time outstanding a notice
specifying, as the case may be, the date on which a record is to be taken for
the purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right; or the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place, and the time, if any,
to be fixed, as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or such other securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up. Such notice shall be mailed at least twenty days prior to the record
date therein specified and this Warrant may be exercised prior to said date
during the term of the Warrant without regard to any prior notice required under
any other provision of the Warrant.
8. Registration Rights.
a. If the Company proposes, at any time to file a registration statement
on a general form for registration under the 1933 Act and relating to
securities issued or to be issued by it, then it shall give written
notice of such proposed filing to the Holder. If, within twenty days
after the giving of such notice, the Holder shall request in writing
that all or any of the Warrant Shares be included in such proposed
registration, the Company will also register such shares as shall have
been requested in writing.
b. In addition, if an Event of Default, as defined in a certain Loan
Agreement between the Company and the Holder of approximately even
date herewith, shall occur, then upon written request by the Holder,
the Company, at its expense, shall prepare and file, one time only, as
promptly as is possible, and shall use its best efforts to make
effective, a registration statement on a general form for registration
under the Securities Act of 1933, as amended (the "1933 Act") covering
the Warrant Shares then issued or still issuable under the Warrant,
determined as of the date of the Holder's written request.
In connection with the filing of a registration statement pursuant to
this section, the Company shall:
5
<PAGE>
a. notify such Holder as to the filing and status thereof and of all
amendments thereto filed prior to the effective date of said
registration statement;
b. notify such Holder promptly after it shall have received notice
of the time when the registration statement becomes effective or
any supplement to any prospectus forming a part of the
registration statement has been filed;
c. prepare and file without expense to such Holder any necessary
amendment or supplement to such registration statement or
prospectus as may be necessary to comply with the 1933 Act or
advisable in connection with the proposed distribution of the
securities by such Holder;
d. take all reasonable steps to qualify the Warrant Shares for sale
under the securities or blue sky laws of such reasonable number
of states as such Holder may designate in writing and to register
or obtain the approval of any federal or state authority which
may be required in connection with the proposed distribution,
except, in each case, in jurisdictions in which the Company must
either qualify to do business or file a general consent to
service of process as a condition of the qualification of such
securities;
e. notify such Holder of any stop order suspending the effectiveness
of the registration statement and use its reasonable best efforts
to remove such stop order;
f. undertake to keep such registration statement and prospectus
effective for a period of nine months after its effective date;
g. furnish to such Holder as soon as available, copies of any such
registration statement and each preliminary or final prospectus
and any supplement or amendment required to be prepared pursuant
to the foregoing provisions of this section, all in such
quantities as such Holder may from time to time reasonably
request.
c. The Holder agrees to pay any underwriting discounts and commissions,
transfer taxes, registration fees and their own counsel fees with
respect to the Warrant Shares being registered. The Company will pay
all other costs and expenses in connection with a registration
statement to be filed pursuant to this section including, without
limitation, the fees and expenses of counsel for the Company, the fees
and expenses of its accountants, and all other costs and expenses
incident to the preparation, printing and filing under the Act of any
such registration statement, each prospectus and all amendments and
supplements thereto, the costs incurred in connection with the
qualification of such securities for sale in such reasonable number of
states as the Holder have designated, including fees and disbursements
6
<PAGE>
of counsel for the Company, and the costs of supplying a reasonable
number of copies of the registration statement, each preliminary
prospectus, final prospectus and any supplements or amendments thereto
to such Holder.
d. The Company agrees to enter into an appropriate cross-indemnity
agreement with any underwriter (as defined in the 1933 Act) for such
Holder in connection with the filing of a registration statement
pursuant to this section.
e. If the Company shall file any registration statement including therein
all or any part of the shares of the Company's Common Stock held by
the Holder, the Company and each Holder shall enter into an
appropriate cross-indemnity agreement whereby the Company shall
indemnify and hold harmless the Holder against any losses, claims,
damages or liabilities (or actions in respect thereof) arising out of
or based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, or any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make statements therein not
misleading unless such statement or omission was made in reliance upon
and in conformity with written information furnished or required to be
furnished by any such Holder, and each such Holder shall indemnify and
hold harmless the Company, each of its directors and officers who have
signed the registration statement and each person, if any, who
controls the Company, within the meaning of the 1933 Act against any
losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration
statement, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
statements therein not misleading, if the statement or omission was
made in reliance upon and in conformity with written information
furnished or required to be furnished by such Holder expressly for use
in such registration statement.
f. Anything to the contrary herein notwithstanding, if the shares of the
Company's Common Stock held by the Holder may be sold by the Holder
thereof in a transaction pursuant to Rule 144 promulgated under the
1933 Act, the Holder shall not be entitled to require the Company to
register such securities pursuant to any registration statement filed
under the 1933 Act.
g. For a period of one year after the effective date of the registration
statement filed pursuant to this Section 8, the Company at its expense
will file such post-effective amendments as may be necessary to make
available for use a prospectus meeting the requirements of the 1933
Act. The Company will cause copies of such prospectus to be delivered
to any person selling the shares of Common Stock as may be required by
the 1933 Act and the rules and regulations of the Securities and
Exchange Commission.
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<PAGE>
9. Transfers to Comply with the 1933 Act. This Warrant and any Warrant Shares
have not been registered under the 1933 Act and may not be sold,
transferred, pledged, hypothecated or otherwise disposed of except as
follows: (1) to a person who, in the opinion of counsel 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 1933 Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of
this Section 10 with respect to any resale or other disposition of such
securities; or (2) to any person upon delivery of a prospectus then meeting
the requirements of the 1933 Act relating to such securities and the
offering thereof for such sale or disposition, and thereafter to all
successive assignees.
10. Legend. Unless the Warrant Shares have been registered under the 1933 Act,
upon exercise of any of the Warrants and the issuance of any of the Warrant
Shares, all certificates representing such Shares shall bear on the face
thereof substantially the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, assigned, transferred or
otherwise disposed of, unless registered pursuant to the
provisions of that Act or unless an opinion of counsel to
the Corporation is obtained stating that such disposition is
in compliance with an available exemption from such
registration.
11. Notices. All notices required hereunder shall be in writing and shall be
deemed given when sent by telecopier (with verified receipt), delivered
personally, mailed by certified or registered mail, return receipt
requested, or sent by overnight express delivery service to the Company or
Holder, as the case may be, for whom such notice is intended, to the
address of such party of which the Company or Holder has been advised by
written notice.
12. Applicable Law. The Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the State of
Pennsylvania.
13. Loss of Warrant Certificate: Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation
of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the company shall execute and
deliver a new Warrant of like tenor and date. Any such new Warrant executed
and delivered shall constitute an additional contractual obligation on the
part of the Company, whether or not this Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
8
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf, in its corporate name, by its duly authorized officer, all as of the day
and year first above written.
Dated: February 1, 1998 SYTRON, INC.
a Pennsylvania corporation
By: /s/ Robert Howard, President
---------------------------------
Name and Title
Robert Howard, President
9
<PAGE>
WARRANT EXERCISE FORM
---------------------
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ______________ shares of Common Stock of SYTRON, INC.,
and hereby makes payment of $ ____________ representing the aggregate Exercise
Price required in connection therewith. The undersigned also surrenders the
Warrant certificate to be processed in accordance with the terms set forth
therein.
------------------------------
Signature
------------------------------
Signature, if jointly held
------------------------------
Print Name
------------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
----------------------------------
(if other than to the registered holder of the within Warrant)
Name _____________________________________________________________
(Please typewrite or print in block letters)
Address _________________________________________________________
_________________________________________________________
Social Security or Taxpayer
Identification Number
______________________________________
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, _______________________________________ hereby sells,
assigns and transfers unto
Name ___________________________________________________________
(Please typewrite or print in block letters)
Address ________________________________________________________
the right to purchase Common Stock of SYTRON, INC., represented by this Warrant
to the extent of _____________ shares as to which such right is exercisable and
does hereby irrevocably constitute and appoint ____________________________
Attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
DATED: __________________________, _______.
__________________________
Signature
__________________________
Signature, if jointly held
Exhibit 10(hh)
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") modified, dated this 15th
day July, 1996, by and between Sytron, Inc., f/k/a MHB Technology, Inc., a
Pennsylvania corporation, 5353 Manhattan Circle, Suite 201, Boulder, Colorado
80304 (the 'Company") and Katonah West Pension Plan ("Katonah"), Springhill
Holdings, Ltd., ("Springhill") a corporation organized pursuant to the laws of
the British Virgin Islands, Werren Holdings, Ltd., ("Werren"),a corporation
organized pursuant to the laws of the British Virgin Islands and Werren
hereinafter jointly referred to as a "Holder or the "Holders"), with Holders
principal place of businss or purposes herein located at 5353 Manhattan Circle,
Suite 201, Boulder, Colorado 80304 for Katonah and at the Channel Islands for
Springhill and Werren.
The Company and Holders hereby agree as follows:
R E C I T A L S
WHEREAS, Holders have each agreed to loan to the Company certain amounts as
included and represented by those certain Promissory Notes dated even date
hereof (the "Notes"), of which this Agreement is a part; and
WHEREAS, as-part of the terms of the Notes, the Company has agreed to issue
to Holders a specific number of shares of the Company's common stock, which
number of shares is subject to when the Company elects to repay the Notes (the
shares of the Company's Common Stock presently held by and to be issued to
Holders hereinafter referred to as the "Shares"); and
WHEREAS, Holders have also agreed to pledge certain shares of U.S.
Environmental Systems, Inc. owned by each Holder in order to guarantee an
oblioation of the Company to pay Dorado, Inc. ("Dorado"), the principal sum of
$200,000. In consideration therefore, the Company has agreed to issue to Holders
certain Shares. In the event Dorado elects to enforce such guarantee, the
Company has agreed to issue to Holders additional Shares; and
WHEREAS, as part of the consideration give to the Holders by the Company
for issuance of the Notes and pledging the aforesaid stock, the Company's Board
of Directors has agreed to grant to Holders certain registration rights, wherein
the Company will grant to the Holders the right to cause to be registered the
Shares pursuant to and under the Securities Act of 1933, as amended (the "33
Act"),
NOW, THEREFORE, the parties hereby agree as follows: 1. Definitions. As
used in this Agreement, the following terms will have the following definitions
unless the context requires otherwise. Additional definitions may be found in
the preamble, introduction and throughout this Agreement.
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the 33 Act.
"Exchange" as defined in section 3(a) of the Securities Exchange Act of
1934,15 U.S.C. sections 78a, et seq.
"Registration Expenses" means the expenses described in Section 8 of this
Agreement.
"Registration Statement" means any filing by the Company with the
Commission, on forms prescribed by the 33 Act, to register its securities for
public sale thereof (except for registration statements filed under Form S-B).
<PAGE>
"33 Act" means the Securities Act of 1933, as amended, or any similar
federai statute, and the rules and regulations of the Commission promulgated
under that legislation, all as the same shall be in effect at the time.
2. Description of Shares. As referenced above, the Holders have both loaned
certain funds to the Company and guaranteed certain indebtedness of the Company.
The parties hereto hereby agree and acknowledge that the following include all
of the Shares subject to this Agreement, including a description as to how and
when additional Shares will be issued to the Holders and become subject to this
Agreement in the future:
Springhill: 17,156 Shares - in consideration for the guarantee;
47,150 Shares - if guarantee enforced;
up to 34,200 Shares - in consideraton for the Note.
21,374 Shares - in consideration for Note 2.
Katonab: 5,700 Shares - in consideration for the guarantee;
15,700 Shares - if guarantee is enforced;
up to 186,208 Shares - in consideration for the Note.
41,794 Shares - in consideration for Note 2.
Werren: 17,150 Shares - in consideration for the guarantee;
47,150 Shares - if guarantee is enforced;
up to 7,592 Shares - in consideration for the Note.
Private Capital Group 98,663 Shares - in consideration for Note.
The Company hereby represents that, by execution hereof, it has agreed to
register up to an aggregate of 378,000 Shares on behalf of the Holders, which
obiigation is contingent as the same relates to a portion of the Shares as more
fully described in each Holders applicabie Note, at which this Agreement is a
part, as well as that certain letter of guarantee dated September 25, 1995,
issued by the Company and attached hereto and incorporated herein as Exhibits 1,
2 and 3.
3. Incidental Registration. If the Company at any time subsequent to the
date of this Agreement (other than pursuant to Section 4 of this Agreement),
proposes to register any of its securities under the 33 Act far sale to the
public, whether for its own account or for the account of other security holders
or both (except with respect to registration statements not available for
registering the Shares for sale to the public), it will give written notice to
each of the Holders of its intent, which notice shall include a list of the
jurisdictions in which the Company intends to qualifyits Common Stock under the
applicable state securities laws. Upon the written request of each Holder, given
within 10 days after receipt of notice from the Company, to register any of the
Holders Shares (which request shall state the intended method of disposition),
the Company will cause the Shares as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company to the extent requisite to permit
the sale or other disposition by the Holders (in accordance with their
respective written request) of the Shares so registered. Each Holder shall each
be entitled to two (2) exercises of the piggyback registration itghts provided
in this Section t3. In the event that any registration pursuant to this Section
3 shall be, in whole or in part, an underwritten public offering of Common
Stock, any request by Holders pursuant to this Section 3 to register a Holders
Shares shall specify that either: (i) the Shares are to be included in the
underwriting on the same terms and conditions as the shares of Common Stock
otherwise being said through underwriters under such registration; or (ii) the
Shares are to be said in the open market without any underwriting.
Notwithstanding anything to the contrary contained in this Section 3, in the
event that there is a firm commitment underwritten offering of securities of the
Company pursuant to a registration covering shares of the Company's Common Stock
and any of the Holders do not elect to sell their respective Shares to the
underwriters of the Company's securities in connection with such offering, that
Holder shall refrain from seiling any of its withheld Shares so registered
pursuant to this Section 3 during the period of distribution of the Company's
securities by the underwriters and the period in which the underwriting
syndicate participates in the after market; provided, however, that such Holder
shall, in any event, be entitled to sell its Shares in connection with the
registration commencing on the 90th day after the effective date of the
registration statement.
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<PAGE>
4. Demand Registration Rights.
4.1 Required Registration. At any time following the date of this
Agreement and provided that the Company has not provided notice to the Holders
of its intent to file a registration statement pursuant to Section 3, above
herein and subject to the terms included herein, the Holders of Shares
constituting a least a majority of the total Shares then outstanding may tender
demand that the Company register under then Securities Act all or any portion of
the Shares held by that requesting Holder or Hoiders for sale in the manner
specified in the notice. A Holder may tender written demand on the Company to
cause all or any portion of that Holders Shares to be registered under the 33
Act, registering for sale those securities as required pursuant to the terms of
the applicable notice. The Company shall be obligated to register its Common
Stock pursuant to this Section 4 on oniy two occasions.
4.2 Participation by the Company. The Company shall be entitled to
include in any Registration Statement referred to in this Section 4, for sale in
accordance with the method of disposition specified by the Holders and in
accordance with applicable provisions of the 33 Act, its securities for its awn
account, except as and to the extent that, in the opinion of the managing
underwriter (if such method of disposition shall be an underwritten public
offering), inclusion would adversely affect marketing of the proposed offering.
Except as provided in this Section 4, the Company will not effect any other
registration of its Common Stock, whether for its awn account or that of other
holders until compietion of the period of distribution of the contempiated
registration of the Holders Shares relevant herein.
4.3 Underwriting. If the Holders demand registration of their Shares
pursuant to the terms included herein and the Holders intend to distribute their
Shares by means of an underwriting, Holders shall so advise the Company within
thirty (30) days after the date at the notice referenced in Section 4.1, above.
The Company, the Holders and the proposed underwriter shail enter into an
underwriting agreement in customaryform and shall execute powers of attorney and
custodial agreements in customary form for selling shareholders. A draft of the
underwriting agreement shall be sent to Holders at least five days after the
signing of the Letter of Intent with the underwriter. f a Holder, prior to the
filing of the registration statement, disapproves of the terms of the
underwriting, such Holder may elect to withdraw from the offering by written
notice to the Company and the underwriter within 10 days after receipt of the
proposed underwriting agreement. If a Holder elects to withdraw, with the
results being that less than a majority of the outstanding unregistered Shares
have demanded registration, the Company shall abandon such registration, but
shall remain obligated to cause the Shares to be registered upon receipt of such
a demand from the Holders of a majority of the unregistered Shares at the time
of such demand.
5. Registration Procedures. If the Company undertakes to effect the
registration of its Common Stock under the 33 Act, either pursuant to the
provisions of Section 3 or 4 hereinabove, the Company will, as expeditiously as
possible:
(i) prepare and file wit[f the Commission a registration statement
(which, in the case of an underwritten public offering, shall be on a form of
generai appiicabiiity satisfactory to the managing underwriter) with respect to
the Shares and use its best efforts to cause the registration statement to
become and remain effective for the period of the contemplated distribution;
(ii) prepare and file with the Commission amendments and supplements
to the registration statement and the related prospectus as necessary to keep
the registration statement effective for the period of distribution and as may
be necessary to comply with the provisions of the 33 Act with respect to the
disposition of all Shares covered by that registration statement in accordance
with the intended method of disposition provided in the registration statement;
(iii) furnish to the Holders and to each underwriter a number of
copies of the registration statement and the included prospectus (including each
preliminary prospectus) reasonably requested in order to facilitate the public
sale or other disposition of the Shares covered by the registration statement.
3
<PAGE>
(iv) register or qualify the Shares covered by the registration
statement under the securities or bJue sky laws of those jurisdictions as each
Holder arid, in the case of an underwritten public offering, the managing
underwriter, shall reasonably request;
(v) immediately notify each Holder and underwriter under the
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 33 Act, of the happening of any event as a
result of which the prospectus contained in the registration statement, as then
in effect, includes an untrue statement of material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misieading in the light of the circumstances then existing;
(vi) it the offering is underwritten, to use its best efforts to
furnish, at the request of the Holders, on the date that Shares are delivered to
the underwriters for sale pursuant to such registration; (1) an opinion of that
date of counsel representing the Company for purposes of the registration,
addressed to the underwriters and Holders, stating that the registration
statement has become effective under the 33 Act and that (A) to the best
knowiedge of counsei, no stop order suspending the effectiveness of the
registration statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the 33 Act, (B) the
registration statement, the related prospectus, and each amendment or
supplement. comply as to form in all material respects with the requirements of
the 33 Act and the appilcable rules and regulations of the Commission (except
that counsel need express no opinion as to financial statements), and (C) to
such other effects as may reasonably be requested by counsei for the
underwriters or Holders; and (2) a letter of that date from the independent
public accountants retained by the Company, addressed to the underwriters and to
the Holders, stating that they are independent public accountants within the
meaning of the 33 Act and that, in the opinion of the accountants, the financiai
statements of the Company included in the registration statement or the
prospectus, or any amendment or supplement, comply as to form in all materiai
respects with the applicable accounting requirements of the 33 Act, and the
letter shall additionafly cover such other financial matters (including
information as to the period ending no more than five business days prior to the
date of such letter) with respect to the registration far which the letter is
being given as the underwriters or Holders may reasonably request; and
(vii) make avaliabie for inspection by Holders, any underwriter
participating in any distribution pursuant to the registration statement, and
any attorney, accountant, or other agent retained by Hoiders or the underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors, and employees to
supply all information reasonably requested by any at the Hoiders, underwriter,
attorney, accountant or agent in connection with the registration statement.
For purposes of paragraphs (i) and (ii) above and of Section 3, the period
of distribution of Shares in a firm commitment underwritten public offering
shall be deemed to extend until each underwriter has completed the distribution
of all securities purchased by it, and the period of distribution of Shares in
any other registration shall be deemed to extend until the earlier of the sale
of all covered Shares covered or nine months after the effective date.
In connection with each registration, Holders will furnish to the Company
in writing information with respect to themselves and the proposed distribution
by them as shall be reasonably necessary in order to assure compliance with
federal and applicable state securities laws.
In connection with each registration covering an underwritten public
offering, the Company agrees to enter into a written agreement with the managing
underwriter in that form and containing those provisions as are customary in the
securities industry for such an arrangement between major underwriters and
companies of the Companys size and investment stature, provided that the
agreement shall not contain any provision applicable to the Company which is
inconsistent with the provisions of this Agreement and further, provided that
the time and place of the ciosing under the agreement shall be as mutually
agreed upon between the Company and the managing underwriter.
4
<PAGE>
6. Expenses. All expenses incurred by the Company in complying with this
Agreement, including, without limitation, all registration, qualification, and
filing fees, blue sky fees and expenses, printing expense, fees and
disbursements of counsel and independent public accounts for the Company, fees
of the National Association of Securities Dealers, Inc., transfer taxes, escrow
fees, fees of transfer agents and registrars and costs of insurance, but
excluding any Selling Expenses are "Registration Expenses'. All underwriting
discounts and selling commissions applicable to the sale of Shares are "Selling
Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement filed pursuant hereto. All Selling Expense relating to
the Shares sold in connection with any registration statement filed pursuant
hereto shall be borne by each Holder, pro rata to the number of Shares sold by
each Holder herein (except to the extent the Company or any other party which
holds similar registration rights shall be a seiler).
7. Indemnification. Insofar as any indemnification is not held to be
against public policy, in the event of a registration of any of the Shares under
the 33 Act pursuant hereto, the Company will indemnify and hold harmless each
underwriter of Shares and each Holder against any losses, claims damages, or
liabilities, joint or several, to which each Holder or underwriter may become
subject under the 33 Act or otherwise, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which the Shares was registered under the 33
Act pursuant hereto, any preliminary prospectus or final prospectus contained in
that the registration statement, or any amendment or supplement, or arise out of
or are based upon the omission or alleged omission to state a material fact
required to be stated in the registration statement or necessary to make the
statements in the registration statement not misleading, or any violation by the
Company of any rule or regulation promulgatec under the 33 Act applicable to the
Company and relating to action or inaction by the Company in connection with any
registration, and will reimburse each Holder thereat far any legal or other
expenses reasonably incurred by him in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will riot be liable in any such case if and to the extent that
any such loss, claim, damage, or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omissions
made in conformity with information furnished by Holders in writing specifically
far use in the registration statement or prospectus.
In the event of a registration of any of the Shares, under the 33 Act
pursuant hereto, Holders will indemnity and hold harmless the Company and its
affiliates, and each underwriter and each affiliate of any underwriter, against
all losses, ciaims, damages, or liabilities, joint or several, to which the
Company or underwriter or affiliate may become subject under the 33 Act or
otherwise, insofar as those lasses, claims, damages or liabilities arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which the Shares
were registered under the 33 Act pursuant hereto, any preiimiriary prospectus or
finai prospectus contained in the registration statement, or any amendment or
supplement of the registration statement, or arise cut of or are based upon the
omission or alleged omission to state in the registration statement a material
fact required to be stated or necessary to make the statements in the
registration statement not misleading, and will reimburse the Company, each
underwriter, and/or affiliate thereof for any legal or other expenses reasonabiy
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that Holders will be
liable hereunder in any case it and only to the extent that any such lass,
claim, damage or liability arises out of or is based upon an untrue statement or
aileged untrue statement or omission or aileged omission made in reliance upon
and in conformity with information pertaining to that Holder, as such, furnished
in writing to the Company by the Holders specifically for use in that
registration statement or prospectus; and provided further, however, that the
liability of each Holder hereunder shall be imited to the proportion of any such
loss, claim, damage, liability or expense which is equai to the proportion that
the public offering price of Shares sold by Holders under the registration
statement bears to the total public offering price of all securities sold under
the registration statement, but not to exceed the proceeds received by Holders
from the sale of Shares covered by that registration statement.
5
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Promptly after receipt by an indemnified party of notice of the
commencement of any action, the indemnified party shall, if a claim is to be
made against the indemnifying party, so notify the indemnifying party in
writing, but the omission to notify the indemnifying party shall not relieve the
indemnifying party from any liability which the indemnifying party may have to
any indemnified party other than under this Section 7. In case any action shall
be brought against any indemnified party and the indemnified party shall notify
the indemnifying party of the commencement, the indemnifying party shall be
entitled to participate in and, to the extent the indemnifying party shall wish,
to assume and undertake the defense with counsel satisfactory to the indemnified
party, and, after notice from the indemnifying party to the indemnified party of
its election so to assume and undertake the defense, the indemnifying party
shail not be Liable to the indemnified party under this Section 7 for any legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so elected; provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses availabieto the indemnified party which are different from or
additionai to those availableto the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of separate counsel
and other expenses related to participation to be reimbursed by the indemnifying
party as incurred.
8. Changes in Common Stock. if, and as often as, there are any changes in
the Common Stock by way of stock split, stock dividend, combination, or
reclassification, or through merger, consolidation, reorganization, or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Shares as so changed.
9. Representations and Warranties of the Company. The Company represents
and warrants to the Holders as follows:
9.1 Authorization, Default. The execution, delivery and performance of
this Agreement by the Company has been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Articles of incorporation or Bylaws of
the Company, or any provision of any indenture, agreement, or other instrument
to which it or any of its properties or assets is bound, or conflict with,
result in a breach of, or constitute (with due notice or apse of time or both) a
default under any such indenture, agreement, or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties.
9.2 Enforceability. This Agreement has been duly executed and
delivered by the Company and constitutes fegal, valid and binding obligations of
the Company, enforceable in accordance with its terms, except as may be imited
by appiicabie bankruptcy, Insolvency or similar laws affecting creditors' rights
generally or the avaiJability of equitable remedies, or except as to the
enforceability of indemnification under the 33 Act.
10. Change in Commission Forms or Procedures. In the event that the
Commission shall adopt new forms or procedures which authorize or permit other
means of secondary distribution which may require action by the Company other
than registration under the 33 Act, the parties hereto agree that the foregoing
provisions shall apply, as nearly as may be, to such new forms or procedures so
long as the economic or other burden of compliance therewith to the Company or
the Holders is not materially greater than the burden contemplated by the
foregoing provisions.
11. Notice. Any notice provided or permitted to be given under this
Agreement must be in writing, but may be served by deposit in the mail,
addressed to the party to be notified, postage prepaid, and registered or
certified, with a return receipt requested. Notice given by registered mail
shall be deemed delivered and effective on the date of delivery shown on the
return receipt. Notice may be served
6
<PAGE>
in any other manner, including telex, telecopy, telegram, etc., but shall be
deemed delivered and effective as of the time of actual deilvery. Far purposes
of notice, the addresses of the parties shall be as indicated herein, or such
other address as the parties hereto may so advise, in writing, in the future.
12. Entire Agreement. This Agreement, which incorporates all prior
understanding relating to its subject matter, contains the entire agreement of
the parties with respect to its subject matter and shall not be modified except
by written instrument executed by each party.
13. Waiver. The failure of a party to insist upon strict performance of any
provision of this Agreement shall not constitute a waiver of, or estoppel
against asserting, the right to require performance in the future. A waiver or
estoppel in any one instance shall not constitute a waiver or estoppel with
respect to a later breach.
14. Severability. If any of the terms and conditions of this Agreement are
held by any court of competent jurisdiction to contravene, or to be invalid
under, the laws of any political body having jurisdiction over this subject
matter, that contravention or invalidity shall not invalidate the entire
Agreement. Instead, this Agreement shall be construed as if it did not contain
the particular provision or provisions held to be invalid, the rights and
obligations of the parties shall be construed and enforced accordingly and this
Agreement shall remain in full force and effect.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal law and not the law of conflicts, of the State of
Colorado.
16. Construction. The headings in this Agreement are inserted for
convenience and identification only arid are not intended to describe,
interpret, define, or limit the scope, extent, or intent of this Agreement or
any other provision hereof. Whenever the context requires, the gender of all
words used in this Agreement shall include the masculine, feminine, and neuter,
and the number of all words shall include the singular and the plural.
17. Counterpart Execution. This Agreement may be executed in any number of
counterparts wAh the same effect as if all the parties had signed the same
document. All counterparts shall be construed together and shall constitute one
and the same instrument.
18. Successors and Assigns. Except as otherwiseprovided, this Agreement
shall apply to, and shail be binding upon, the parties hereto, their respective
successors and assigns, and all persons claiming by, through, or under any of
these persons. The rights of Holder under this Agreement shall be freeiy
assignable.
19. Cumulative Rights. The rights and remedies provided by this Agreement
are cumulative, and the use of any right or remedy by any party shall not
preclude or waive its right to use any or all other remedies. These rights and
remedies are given in addition to any other rights a party may have by law,
statute, in equity or otherwise.
20. Reliance. All factual recitals, covenants, agreements, representations
and warranties made herein shail be deemed to have been relied on by the parties
in entering this Agreement.
21. Drafting Party. This Agreement expresses the mutual intent of the
parties to this Agreement. Accordingly, regardless of the party preparing any
document, the rule of construction against the drafting party shall have no
application to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals on the date set forth hereinabove.
SYTRON, INC.
/s/ Robert Howard
---------------------------------------
HOLDERS:
KATONAH WEST PENSION PLAN
By:
-------------------------------------
Trustee
SPRINGHILL HOLDINGS, LTD.
By:
-------------------------------------
WERREN HOLDINGS, LTD.
By:
-------------------------------------
PRIVATE CAPITAL GROUP LTD.
By:
------------------------------------
Exhibit 10(ii)
EXHIBIT "B"
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement'), dated this ___ day of
October, 1995, by and between Sytron, Inc., f/k/a MHB Technology, Inc., a
Pennsylvania corporation, 5353 Manhattan Circle, Suite 201, Boulder, Colorado
80304 (the "Company") and Katonah West Pension Plan ("Katonah"), Spring Hill
Holdings, Ltd., a corporation organized pursuant to the laws of the Channel
Islands ("Spring Hill") and Werren Holdings, Ltd., a corporation organized
pursuant to the laws of the Channel Islands ("Werren"), (Katonah, Spring Hill
and Werren hereinafter jointly referred to as a "Holder or the "Holders"), with
Holders principal place of business for purposes herein located at 5353
Manhattan Circle, Suite 201, Boulder, Colorado 80304. The Company and Holders
hereby agree as follows:
RECITALS
WHEREAS, Holders have each agreed to loan to the Company certain amounts as
included and represented by those certain Promissory Notes dated even date
hereof (the "Notes"), of which this Agreement is a part; and
WHEREAS, as part of the terms of the Notes, the Company has agreed to issue
to Holders a specific number of shares of the Company's common stock, which
number of shares is subject to when the Company elects to repay the Notes (the
shares of the Company's Common Stock presently held by and to be issued to
Holders hereinafter referred to as the "Shares"); and
WHEREAS, Holders have also agreed to pledge certain shares of U.S.
Environmental Systems, Inc. owned by each Holder in order to guarantee an
obligation of the Company to pay Dorado, Inc. ("Dorado"), the principal sum of
$200,000. In consideration therefore, the Company has agreed to issue to Holders
certain Shares. In the event Dorado elects to enforce such guarantee, the
Company has agreed to issue to Holders additional Shares; and
WHEREAS, as part of the consideration give to the Holders by the Company
for issuance of the Notes and pledging the aforesaid stock, the Company's Board
of Directors has agreed to grant to Holders certain registration rights, wherein
the Companywill grantto the Holders the right to cause to be registered the
Shares pursuant to and under the Securities Act of 1933, as amended (the "33
Act"),
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms will have
the following definitions unless the context requires otherwise. Additional
definitions may be found in the preamble, introduction and throughout this
Agreement.
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the 33 Act.
"Exchange" as defined in section 3(a) of the Securities Exchange Act of
1934, 15 U.S.C. sections 78a, et seq.
"Registration Expenses" means the expenses described in Section 6 of this
Agreement.
"Registration Statement" means any filing by the Company with the
Commission, on forms prescribed by the 33 Act, to register its securities for
public sale thereof (except for registration statements filed under Form 5-8).
<PAGE>
"33 Act" means the Securities Act of 1933, as amended, or any similar
federai statute, and the rules and regulations of the Commission promulgated
under that legislation, all as the same shall be in effect at the time.
2. Description of Shares. As referenced above, the Holders have both loaned
certain funds to the Company and guaranteed certain indebtedness of the Company.
The parties hereto hereby agree and acknowledge that the following include all
of the Shares subject to this Agreement, including a description as to how and
when additional Shares will be issued to the Holders and become subject to this
Agreement in the future:
Spring Hill: 17,150 Shares - in consideration for the guarantee;
47,150 Shares - if guarantee is enforced
up to 34,200 Shares - in consideration for the Note.
Katonab: 5,700 Shares - in consideration for the guarantee;
15,700 Shares - if guarantee is enforced;
up to 186,208 Shares - in consideration for the Note.
Werren: 17,150 Shares - in consideration for the guarantee;
47,150 Shares - if guarantee is enforced;
up to 7,592 S hares - in consideration for the Note.
The Company hereby represents that, by execution hereof, it has agreed to
register up to an aggregate of 378,000 Shares on behalf of the Holders, which
obligation is contingent as the same relates to a portion of the Shares as more
fully described in each Holders applicable Note, of which this Agreement is a
part, as well as that certain letter of guarantee dated September 25, 1995,
issued by the Company and attached hereto and incorporated herein as Exhibits 1,
2 and 3.
3. Incidental Registration. If the Company at any time subsequent to the
date of this Agreement (other than pursuant to Section 4 of this Agreement),
proposes to register any of its securities under the 33 Act for sale to the
public, whether for its own account or for the account of other security holders
or both (except with respect to registration statements not available for
registering the Shares for sale to the public), it will give written notice to
each of the Hoiders of its intent, which notice shail include a list of the
jurisdictions in which the Company intends to qualify its Common Stock under the
appilcabie state securities laws. Upon the written request of each Holder, given
within 10 days after receipt of notice from the Company, to register any of the
Holders Shares (which request shall state the intended method of disposition),
the Company will cause the Shares as to which registration shaH have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company to the extent requisite to permit
the sale or other disposition by the Holders (in accordance with their
respective written request) of the Shares so registered. Each Holder shaH each
be entitled to two (2) exercises of the piggyback registration rights provided
in this Section 3. In the event that any registration pursuant to this Section 3
shall be, in whoie or in part, an underwritten public offering of Common Stock,
any request by Holders pursuant to this Section 3 to register a Holders Shares
shall specify that either: (i) the Shares are to be included in the underwriting
on the same terms and conditions as the shares of Common Stock otherwise being
sold through underwriters under such registration; or (ii) the Shares are to be
sold in the open market without any underwriting. Notwithstanding anything to
the contrary contained in this Section 3, in the event that there is a firm
commitment underwritten offering of securities of the Company pursuant to a
registration covering shares of the Company's Common Stock and any of the
Holders do not elect to sell their respective Shares to the underwriters of the
Company's securities in connection with such offering, that Hoider shah refrain
from selling any of its withheld Shares so registered pursuant to this Section 3
during the period of distribution of the Company's securities by the
underwriters and the period in which the underwriting syndicate participates in
the after market; provided, however, that such Holder shall, in any event, be
entitled to seil its Shares in connection with the registration commencing on
the 90th day after the effective date of the registration statement.
2
<PAGE>
4. Demand Registration Rights.
4.1 Required Registration. At any time following the date of this
Agreement and provided that the Company has not provided notice to the Holders
of its intent to file a registration statement pursuant to Section 3, above
herein and subject to the terms included herein, the Holders of Shares
constituting a least a majority of the total Shares then outstanding may tender
demand that the Company register under then Securities Act all or any portion of
the Shares held by that requesting Holder or Holders for sale in the manner
specified in the notice. A Holder may tender written demand on the Company to
cause all or any portion of that Holder's Shares to be registered under the 33
Act, registering for sale those securities as required pursuant to the terms of
the applicable notice. The Company shall be obligated to register its Common
Stock pursuant to this Section 4 on only two occasions.
4.2 Participation by the Company. The Company shall be entitled to
include in any Registration Statement referred to in this Section 4, for sale in
accordance with the method of disposition specified by the Holders and in
accordance with applicable provisions of the 33 Act, its securities for its own
account, except as and to the extent that, in the opinion of the managing
underwriter (if such method of disposition shall be an underwritten public
offering), inclusion would adversely affect marketing of the proposed offering.
Except as provided in this Section 4, the Company will not effect any other
registration of its Common Stock, whether for its own account or that of other
holders until completion of the period of distribution of the contemplated
registration of the Holders Shares relevant herein.
4.3 Underwriting. If the Holders demand registration of their Shares
pursuant to the terms included herein and the Holders intend to distribute their
Shares by means of an underwriting, Holders shall so advise the Company within
thirty (30) days after the date of the notice referenced in Section 4.1, above.
The Company, the Holders and the proposed underwriter shall enter into an
underwriting agreement in customary form and shall execute powers of attorney
and custodial agreements in customary form for selling shareholders. A draft of
the underwriting agreement shall be sent to Holders at least five days after the
signing of the Letter of Intent with the underwriter. If a Holder, prior to the
filing of the registration statement, disapproves of the terms of the
underwriting, such Holder may elect to withdraw from the offering by written
notice to the Company and the underwriter within 10 days after receipt of the
proposed underwriting.agreement. If a Holder elects to withdraw, with the
results being that less than a majority of the outstanding unregistered Shares
have demanded registration, the Company shall abandon such registration, but
shall remain obligated to cause the Shares to be registered upon receipt of such
a demand from the Holders of a majority of the unregistered Shares at the time
of such demand.
5. Registration Procedures. If the Company undertakes to effect the
registration of its Common Stock under the 33 Act, either pursuant to the
provisions of Section 3 or 4 hereinabove, the Company will, as expeditiously as
possible:
(i) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering, shall be on a form of
general applicability satisfactory to the managing underwriter) with respect to
the Shares and use its best efforts to cause the registration statement to
become and remain effective for the period of the contemplated distribution;
(ii) prepare and file with the Commission amendments and supplements
to the registration statement and the related prospectus as necessary to keep
the registration statement effective for the period of distribution and as may
be necessary to comply with the provisions of the 33 Act with respect to the
disposition of all Shares covered by that registration statement in accordance
with the intended method of disposition provided in the registration statement;
(iii) furnish to the Holders and to each underwriter a number of
copies of the registration statement and the included prospectus (including each
preliminary prospectus) reasonably requested in order to facilitate the public
sale or other disposition of the Shares covered by the registration statement.
3
<PAGE>
(iv) register or qualify the Shares covered by the registration
statement under the securities or blue sky laws of those jurisdictions as each
Holder and, in the case of an underwritten public offering, the managing
underwriter, shall reasonably request;
(v) immediately notify each Holder and underwriter under the
registration statementat any time when a prospectus relating thereto is required
to be delivered under the 33 Act, of the happening of any event as a result of
which the prospectus contained in the registration statement, as then in effect,
includes an untrue statement of material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing;
(vi) if the offering is underwritten, to use its best efforts to
furnish, at the request of the Holders, on the date that Shares are delivered to
the underwriters for sale pursuant to such registration; (1) an opinion of that
date of counsel representing the Company for purposes of the registration,
addressed to the underwriters and Holders, stating that the registration
statement has become effective under the 33 Act and that (A) to the best
knowledge of counsel, no stop order suspending the effectiveness of the
registration statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the 33 Act, (B) the
registration statement, the related prospectus, and each amendment or
supplement, comply as to form in all material respects with the requirements of
the 33 Act and the applicable rules and regulations of the Commission (except
that counsel need express no opinion as to financial statements), and(C) to such
other effects as may reasonably be requested by counsel tor the underwriters or
Holders; and (2) a letter of that date from the independent public accountants
retained by the Company, addressed to the underwriters and to the Holders,
stating that they are independent public accountants within the meaning of the
33 Act and that, in the opinion of the accountants, the financial statements of
the Company included in the registration statement or the prospectus, or any
amendment or supplement, comply as to form in all material respects with the
applicable accounting requirements of the 33 Act, and the letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to the registration for which the letter is being given as the
underwriters or Holders may reasonably request; and
(vii) make available for inspection by Holders, any underwriter
participating in any distribution pursuant to the registration statement, and
any attorney, accountant, or other agent retained by Holders or the underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors, and employees to
supply all information reasonably requested by any of the Holders, underwriter,
attorney, accountant or agent in connection with the registration statement.
For purposes of paragraphs (i) and (ii) above and of Section 3, the period
of distribution of Shares in a firm commitment underwritten public offering
shall be deemed to extend until each underwriter has completed the distribution
of all securities purchased by it, and the period of distribution of Shares in
any other registration shall be deemed to extend until the earlier of the sale
of all covered Shares covered or nine months after the effective date.
In connection with each registration, Holders will furnish to the Company
in writing information with respect to themselves and the proposed distribution
by them as shall be reasonably necessary in order to assure compliance with
federal and applicable state securities laws.
In connection with each registration covering an underwritten public
offering, the Company agrees to enter into a written agreement with the managing
underwriter in that form and containing those provisions as are customary in the
securities industry for such an arrangement between major underwriters and
companies of the Company's size and investment stature, provided that the
agreement shall not contain any provision applicable to the Company which is
inconsistent with the provisions of this Agreement and further, provided that
the time and place of the closing under the agreement shall be as mutually
agreed upon between the Company and the managing underwriter.
4
<PAGE>
6. Expenses. All expenses incurred by the Company in complying with this
Agreement, including, without limitation, all registration, qualification, and
filing fees, blue sky fees and expenses, printing expense, fees and
disbursements of counsel and independent public accounts for the Company, fees
of the National Association of Securities Dealers, Inc., transfer taxes, escrow
fees, fees of transfer agents and registrars and costs of insurance, but
excluding any Selling Expenses are "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Shares are "Selling
Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement filed pursuant hereto. All Selling Expense relating to
the Shares sold in connection with any registration statement filed pursuant
hereto shall be borne by each Holder, pro rata to the number of Shares sold by
each Holder herein (except to the extent the Company or any other party which
holds similar registration rights shall be a seller).
7. Indemnification. Insofar as any indemnification is not held to be
against public policy, in the event of a registration of any of the Shares under
the 33 Act pursuant hereto, the Company will indemnify and hold harmless each
underwriter of Shares and each Holder against any losses, claims damages, or
liabilities, joint or several, to which each Holder or underwriter may become
subject under the 33 Act or otherwise, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which the Shares was registered under the 33
~kct pursuant hereto, any preliminary prospectus or final prospectus contained
in that the registration statement, or any amendment or supplement, or arise out
of or are based upon the omission or alleged omission to state a material fact
required to be stated in the registration statement or necessary to make the
statements in the registration statement not misleading, or any violation by the
Company of any rule or regulation promulgated under the 33 Act applicable to the
Company and relating to action or inaction by the Company in connection with any
registration, and will reimburse each Holder thereof for any legal or other
expenses reasonably incurred by him in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage, or liability arises out of or is based upon an
untrue o statement or alleged untrue statement or omission or alleged omissions
made in conformity with information furnished by Holders in writing specifically
for use in the registration statement or prospectus.
In the event of a registration of any of the Shares, under the 33 Act
pursuant hereto, Holders will indemnify and hold harmless the Company and its
affiliates, and each underwriter and each affiliate of any underwriter, against
all losses, claims, damages, or liabilities, joint or several, to which the
Company or underwriter or affiliate may become subject under the 33 Act or
otherwise, insofar as those losses, claims, damages or liabilities arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which the Shares
were registered under the 33 Act pursuant hereto, any preliminary prospectus or
final prospectus contained in the registration statement, or any amendment or
supplement of the registration statement, or arise out of or are based upon the
omission or alleged omission to state in the registration statement a material
fact required to be stated or necessary to make the statements in the
registration statement not misleading, and will reimburse the Company, each
underwriter, and/or affiliate thereof for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that Holders will be
liable hereunder in any case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to that Holder, as such, furnished
in writing to the Company by the Holders specifically for use in that
registration statement or prospectus; and provided further, however, that the
liability of each Holder hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
that the public offering price of Shares sold by Holders under the registration
statement bears to the total public offering price of all securities sold under
the registration statement, but not to exceed the proceeds received by Holders
from the sale of Shares covered by that registration statement.
5
<PAGE>
Promptly after receipt by an indemnified party of notice of the
commencement of any action, the indemnified party shall, if a claim is to be
made against the indemnifying party, so notify the indemnifying party in
writing, but the omission to notify the indemnifying party shall not relieve the
indemnifying party from any liability which the indemnifying party may have to
any indemnified party other than under this Section 7. In case any action shall
be brought against any indemnified party and the indemnified party shall notify
the indemnifying party of the commencement, the indemnifying party shall be
entitled to participate in and, to the extent the indemnifying party shall wish,
to assume and undertake the defense with counsel satisfactory to the indemnified
party, and, after notice from the indemnifying party to the indemnified party of
its election so to assume and undertake the defense, the indemnifying party
shall not be liable to the indemnified party under this Section 7 for any legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so elected; provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses availableto the indemnified party which are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of separate counsel
and other expenses related to participation to be reimbursed by the indemnifying
party as incurred.
8. Changes in Common Stock. If, and as often as, there are any changes in
the Common Stock by way of stock split, stock dividend, combination, or
reclassification, or through merger, consolidation, reorganization, or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Shares as so changed.
9. Representations and Warranties of the Company. The Company represents
and warrants to the Holders as follows:
9.1 Authorization, Default. The execution, delivery and performance of
this Agreement by the Company has been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Articles of Incorporation or Bylaws of
the Company, or any provision of any indenture, agreement, or other instrument
to which it or any of its properties or assets is bound, or conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any such indenture, agreement, or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties.
9.2 Enforceability. This Agreement has been duly executed and
delivered by the Company and constitutes legal, valid and binding obligations of
the Company, enforceable in accordance with its terms, except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies, or except as to the
enforceability of indemnification under the 33 Act.
10. Change in Commission Forms or Procedures. In the event that the
Commission shall adopt new forms or procedures which authorize or permit other
means of secondary distribution which may require action by the Company other
than registration under the 33 Act, the parties hereto agree that the foregoing
provisions shall apply, as nearly as may be, to such new forms or procedures so
long as the economic or other burden of compliance therewith to the Company or
the Holders is not materially greater than the burden contemplated by the
foregoing provisions.
11. Notice. Any notice provided or permitted to be given under this
Agreement must be in writing, but may be served by deposit in the mail,
addressed to the party to be notified, postage prepaid, and registered or
certified, with a return receipt requested. Notice given by registered mail
shall be deemed delivered and effective on the date of delivery shown on the
return receipt. Notice may be served
6
<PAGE>
in any other manner, including telex, telecopy, telegram, etc., but shall be
deemed delivered and effective as of the time of actual delivery. For purposes
of notice, the addresses of the parties shall be as indicated herein, or such
other address as the parties hereto may so advise, in writing, in the future.
12. Entire Agreement. This Agreement, which incorporates all prior
understanding relating to its subject matter, contains the entire agreement of
the parties with respect to its subject matter and shall not be modified except
by written instrument executed by each party.
13. Waiver. The failure of a party to insist upon strict performance of any
provision of this Agreement shall not constitute a waiver of, or estoppel
against asserting, the right to require performance in the future. A waiver or
estoppel in any one instance shall not constitute a waiver or estoppel with
respect to a later breach.
14. Severability. If any of the terms and conditions of this Agreement are
held by any court of competent jurisdiction to contravene, or to be invalid
under, the laws of any political body having jurisdiction over this subject
matter, that contravention or invalidity shall not invalidate the entire
Agreement. Instead, this Agreement shall be construed as if it did not contain
the particular provision or provisions held to be invalid, the rights and
obligations of the parties shall be construed and enforced accordingly and this
Agreement shall remain in full force and effect.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal law and not the law of conflicts, of the State of
Colorado.
16. Construction. The headings in this Agreement are inserted for
convenience and identification only and are not intended to describe, interpret,
define, or limit the scope, extent, or intent of this Agreement or any other
provision hereof. Whenever the context requires, the gender of all words used in
this Agreement shall include the masculine, feminine, and neuter, and the number
of all words shall include the singular and the plural.
17. Counterpart Execution. This Agreement may be executed in any number of
counterparts with the same effect as if all the parties had signed the same
document. All counterparts shall be construed together and shall constitute one
and the same instrument.
18. Successors and Assigns. Except as otherwise provided, this Agreement
shall apply to, and shall be binding upon, the parties hereto, their respective
successors and assigns, and all persons claiming by, through, or under any of
these persons. The rights of Holder under this Agreement shall be freely
assignable.
19. Cumulative Rights. The rights and remedies provided by this Agreement
are cumulative, and the use of any right or remedy by any party shall not
preclude or waive its right to use any or all other remedies. These rights and
remedies are given in addition to any other rights a party may have by law,
statute, in equity or otherwise.
20. Reliance. All factual recitals, covenants, agreements, representations
and warranties made herein shall be deemed to have been relied on by the parties
in entering this Agreement.
21. Drafting Party. This Agreement expresses the mutual intent of the
parties to this Agreement. Accordingly, regardless of the party preparing any
document, the rule of construction against the drafting party shall have no
application to this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals on the date set forth hereinabove.
SYTRON, INC.
By: /s/ Allen M. G
-----------------------------------
HOLDERS:
KATONAH WEST PENSION PLAN
By:
-----------------------------------
Trustee
SPRING HILL HOLDINGS, LTD.
By:
-------------------------------------
WERREN HOLDINGS, LTD.
By:
--------------------------------------
8
Exhibit 10(jj)
SECURITY AGREEMENT
Date: October , 1995
--
Debtor: SYTRON, INC.
Address: 5353 Manhattan Circle
Suite 201
Boulder, Colorado 80303
Secured
Parties: KATONAH WEST PENSION PLAN at the above address
SPRINGHILL HOLDINGS, LTD.
WERREN HOLDINGS, LTD.
Address: 8 Queensway House, Queen Street
St. Helier, Jersey JE2 4WD
Channel Islands
1. Security Interest. Debtor hereby grants to Secured Parties a security
interest ("Security Interest") in all of the following property and in all
Proceeds and Products thereof in any form including, but not limited to,
insurance proceeds, all parts, accessories, attachments, special tools,
additions and accessions thereto and thereof, increases and profits received
therefrom, all substitutions therefor, goods represented by, and books and
records pertaznang thereto, whether any of the foregoing is now owned or
hereafter accuirec:
All accounts, inventory, equipment, fixtures and general intangibles
of Debtor now owned or hereafter acquired (hereinafter referred to as the
"Collateral")
2. Indebtedness Secured. The Security Interest granted by Debtor secures
payment of any and all indebtedness and liabilities of Debtor to Secured
Parties, whether now existing or hereafter incurred, of every kind and
character, direct or indirect, joint or several, absolute or contingent, due or
to become due, and whether any such indebtedness or liability is from time to
time reduced and thereafter increased or entirely extinguished and thereafter
reincurred, including, without limitation, any sums advanced by Secured Parties
for taxes, assessments, insurance and other charges and expenses as hereinafter
provided.
3. Representations and Warranties of Debtor. Debtor represents and warrants
and, so long as any Indebtedness remains unpaid, shall be deemed continuously to
represent and warrant that: (a) Debtor is the owner of the Collateral free of
all security interests, adverse claims or other encumbrances, except the
Security Interest and prior security interests in Debtor's Collateral and
accounts receivable, held by those parties
<PAGE>
previously disclosed to Secured Parties, attached hereto as Exhibit "1". Secured
Parties hereby acknowledge that the security interest granted herein shall be
subordinate to those security interests included in Exhibit 1 previously granted
by Debtor; (b) Debtor is authorized to enter into this Security Agreement and
this Security Agreement is not in contravention of any law or any indenture,
agreement or undertaking to which Debtor is a party or by which it is bound; (c)
Debtor is duly organized and existing under the laws of the state of
Pennsylvania and in good standing and authorized to do business in all states in
which Debtor is doing business; (d) Debtor is engaged in business operations,
Debtor's business is carried on, Debtor's chief executive office is located and
Debtor's records concerning the Collateral are kept at the address specified
above and the Collateral is located at the address specified above; (e) each
Account, Chattel Paper, Document, Instrument, General Intangible, which is an
outstanding obligation, and Contract is genuine and enforceable in accordance
with its terms against the party obligated to pay it ("Account Debtor"); (f) any
amounts represented by Debtor to Secured Parties as owing by each or any Account
Debtor is the correct amount owing, not subject to any defense, offset, claim or
counterclaim against Debtor; and (g) the Collateral shall be used exclusively
for business purposes.
4. Covenants of Debtor. So long as any Indebtedness remains unpaid, Debtor
(a) will defend the Collateral against the claims and demands of all other
parties, including any Account Debtor, will keep the Collateral free from all
security interests or other encumbrances, except as disclosed herein and the
Security Interest and will not sell, transfer, lease, or otherwise dispose of
any Collateral or any interest, other than in the normal course of Debtor's
business, without the prior written consent of Secured Parties; (b) will notify
Secured Parties promptly in writing of any change in Debtor's address, specified
above or in Debtor's name, identity or corporate structure; (c) will notify
Secured Parties promptly in writing of any change in the location of any
Collateral or of the records with respect thereto or any additional locations at
which the Collateral or records are kept, and upon reasonable notice will permit
Secured Parties or its agents to inspect the Collateral; (d) will notify the
Secured Parties immediately upon the acquisition of any titled vehicle or other
assets constituting collateral which may not be perfected by the filing of a
financing statement under the Uniform Commercial Code; (e) in connection
herewith, will execute and deliver to Secured Parties such financing statements,
and other documents as may be requested by Secured Parties, will pay all
reasonable costs of title searches, and filing financing statements and other
documents in all public offices requested by Secured Parties, and will do such
other things as Secured Parties may request; (f) if the Collateral is not a
fixture, will prevent the Collateral or any part thereof from being or becoming
a fixture; (g) will keep, in accordance with generally accepted accounting
principles, consistently applied, accurate and complete books and records
concerning the Collateral, will mark any
2
<PAGE>
and all such records concerning the Collateral, at Secured Parties' request to
indicate the Security Interest, and will permit Secured Parties or its agents to
audit and make extracts from and copy such records or any of Debtor's books,
ledgers, reports, correspondence or other records and will furnish Secured
Parties with financial statements and such other information; (h) will not,
without Secured Parties's written consent, make or agree to make any alteration,
modification or cancellation of, or substitution for, or credits, adjustments or
allowances on, any Collateral; (i) will promptly notify Secured Parties of any
default by any Account Debtor in payment or performance of its obligations with
respect to any of the Collateral; and (j) will promptly notify the Secured
Parties in the event of a materially adverse change in business or Collateral or
any other occurrences which could materially and adversely affect the security
of the Secured Parties.
5. Verification of Collateral. Secured Parties shall have the right to
verify all or any Collateral in any manner and through any medium Secured
Parties may consider appropriate and Debtor agrees to furnish all assistance and
information and perform any acts which Secured Parties may require in connection
therewith.
6. Default.
(a) Any of the following events or conditions shall constitute an
event of default ("Event of Default") hereunder: (i) nonpayment when due,
whether by acceleration or otherwise, of, principal or of interest of any
Indebtedness, or failure by Debtor to perform any obligation, term or condition
of this Security Agreement or any other agreement between Debtor and Secured
Parties and such nonpayment or failure continues for a period of ten (10) days
after such Event of Default; (ii) nonpayment when due of any tax imposed on
Debtor or on any assets of Debtor or any other liability of Debtor for borrowed
money; (iii) if Debtor or any indorser or guarantor of any of the Indebtedness
commences a voluntary case under any Chapter of the Bankruptcy Code as now or
hereafter in effect, takes any equivalent or similar action by filing a petition
or otherwise under any other federal or state law in effect at such time
relating to bankruptcy or insolvency, makes a general assignment for the benefit
of creditors or admits in writing an inability to pay its debts generally as
they become due; (iv) a petition is filed against the Debtor, any general
partner of Debtor or any such indorser or guarantor under any other federal or
state law in effect at the time relating to bankruptcy or insolvency, or a
trustee, receiver, custodian or agent is appointed under applicable law, or
under contract, whose appointment or authority is to take charge of any property
of the Debtor, any general partner of Debtor or any such indorser or guarantor
is for the purpose of enforcing a lien against such property or is for the
purpose of general administration of such property for the benefit of the
creditors of the Debtor, any general partner of Debtor or any such indorser or
guarantor; and (v) if any certificate, statement, representation, warranty or
audit heretofore or
3
<PAGE>
hereafter furnished by or on behalf of Debtor pursuant to or in connection with
this Security Agreement or otherwise (including, without limitation,
representations and warranties contained herein) or as an inducement to Secured
Parties to extend any credit to or to enter into this or any other agreement
with Debtor, proves to have been false in any material respect or to have
omitted any substantial contingent or unliquidated liability of or claim against
Debtor, or if upon the date of execution of this Security Agreement, there shall
have been any materially adverse change in any of the facts disclosed by any
such certificate, representation, statement, warranty or audit, which change
shall not have been disclosed in writing to Secured Parties at or prior to the
time of such execution.
(b) The Secured Parties, either jointly or severally, at their sole
election, may declare all or any part of any Indebtedness not payable on demand
to be immediately due and payable upon the happening of any Event of Default.
The provisions of this paragraph are not intended in any way to affect any
rights of Secured Parties with respect to any Indebtedness which may now or
hereafter be payable on demand;
(c) Upon the happening of any Event of Default, Secured Parties'
rights and remedies with respect to the Collateral shall be those of a secured
party under the 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 now or hereafter in effect between Debtor and
Secured Parties;
(d) Without in any way requiring notice to be given in the following
manner, Debtor agrees that any notice by any of the Secured Parties of sale,
disposition or other intended action hereunder in connection herewith, whether
required by the Uniform Commercial Code or otherwise, shall constitute
reasonable notice to Debtor if such notice is mailed by regular or certified
mail, postage prepaid, at least five (5) days prior to such action, to Debtor's
address specified above or to any other address which Debtor has specified in
writing to Secured Parties as the address to which notices hereunder shall be
given to Debtor; and
(e) Debtor agrees to pay all costs and expenses incurred by Secured
Parties in enforcing this Security Agreement, in preserving, processing,
selling, collecting upon or in realizing upon any Collateral and in enforcing
and collecting any Indebtedness, including, without limitation, if Secured
Parties retains counsel for any such purpose, a reasonable attorney's fee.
7. Miscellaneous.
(a) Debtor hereby authorizes Secured Parties, at Debtor's expense, to
file such financing statement or statements, or other documents relating to the
Collateral without Debtor's
4
<PAGE>
signature thereon as Secured Parties at their option may deem appropriate and
appoints Secured Parties as Debtor's attorney-in-fact without requiring Secured
Parties to execute any such financing statement or other documents in Debtor's
name and to perform all other acts which Secured Parties deems appropriate to
perfect and continue the Security Interest and to protect and preserve the
Collateral;
(b) After the occurrence of an Event of Default as hereinabove
describe, Secured Parties may notify any or all Account Debtors and other
parties obligated to pay the Collateral of the Security Interest granted hereby
and may also direct any and all such parties to make all payments of the
Collateral to Secured Parties;
(c) (i) As further security for payment of the Indebtedness, Debtor
hereby grants to Secured Parties a security interest in and lien on any and all
property of Debtor which is or may hereafter be in Secured Parties's possession
in any capacity, including, without limitation, all monies owed or to be owed by
Secured Parties to Debtor, and with respect to all of such property, Secured
Parties shall have the same rights hereunder as it has with respect to the
Collateral;
(ii) Without limiting any other right of Secured Parties, whenever
Secured Parties have the right to declare any Indebtedness to be immediately due
and payable (whether or not it has so declared), Secured Parties at their sole
election may set off against the Indebtedness any and all monies then owed to
Debtor by either of the Secured Parties in any capacity, whether or not due, and
Secured Parties shall be deemed to have exercised such right of set-off
immediately at the time of such election even though any charge therefor is made
or entered on Secured Parties' records subsequent thereto;
(d) Upon Debtor's failure to perform any of its duties hereunder after
applicable ten (10) day notice, Secured Parties may, but shall not be obligated
to, perform any and all such duties and Debtor shall pay an amount equal to the
expense thereof to Secured Parties forthwith upon written demand by Secured
Parties;
(e) Secured Parties may demand, collect and sue on the Collateral (in
either Debtor's or Secured Parties' name, at the latter's option) with the right
to enforce, compromise, settle or discharge the Collateral and may indorse
Debtor's name on any and all checks, commercial paper, and any other Instruments
pertaining to or constituting the Collateral;
(f) No course of dealing and no delay or omission by Secured Parties
in exercising any right or remedy hereunder with respect to any Indebtedness
shall operate as a waiver thereof or of any other right or remedy and no single
or partial exercise thereof
5
<PAGE>
shall preclude any other or further exercise thereof or the exercise of any
other right or remedy. Secured Parties may remedy any default by Debtor
hereunder or with respect to any Indebtedness in any reasonable manner without
waiving the default remedied and without waiving any other prior or subsequent
default by Debtor. All rights and remedies of Secured Parties hereunder are
cumulative;
(g) Secured Parties shall have no obligation to take, and Debtor shall
have the sole responsibility for taking, any and all steps to preserve rights
against any and all prior parties to any Instrument or Chattel Paper, whether
Collateral or Proceeds and whether or not in Secured Parties' possession. Debtor
waives protest of any Instrument constituting Collateral at any time held by
Secured Parties on which Debtor is in any way liable;
(h) The rights and benefits of Secured Parties hereunder shall, if
Secured Parties so agree, inure to any party acquiring any interest in the
Indebtedness or any part thereof;
(i) If more than one Debtor executes this Security Agreement, the term
"Debtor" shall include each as well as all of them and their obligations,
warranties and representations as used herein, shall include the heirs,
executors or administrators and the successors or assigns of those parties;
(j) No modification, rescission, waiver, release or amendment of any
provision of this Security Agreement shall be made except by a written agreement
subscribed by Debtor and by a duly authorized officers of Secured Parties;
(k) All terms herein shall have the same definitions as set forth in
the Uniform Commercial Code of the State of Colorado unless otherwise defined
herein;
(1) This Security Agreement shall remain in full force and effect
until Secured Parties shall give written notice of its discontinuance to the
Debtor.
8. Risk of Loss. Debtor shall at all times bear the full risk of loss or
theft of, damage to or destruction of the Collateral.
9. Severability. If any provision of this Security Agreement shall be held
invalid under any applicable laws, such invalidity shall not affect any other
provision of this Security Agreement that can be given effect without the
invalid provision, and, to this end, the provisions hereof are severable.
10. Governing Law. This Security Agreement and the transactions evidenced
hereby shall be construed under the internal laws of the State of Colorado
without regard to principles of conflict of law.
6
<PAGE>
11. Execution by Secured Parties. This Agreement shall take effect
immediately upon execution by the Debtor and the execution hereof by the Secured
Parties shall not be required as a condition to the effectiveness of this
Security Agreement. The provision for execution by the Secured Parties is solely
for the purpose of filing this Security Agreement to the extent required or
permitted by law.
12. Notice. Any notice under this Agreement shall be in writing and shall
be deemed delivered if sent certified return receipt requested, to a party at
the principal place of business specified in this Agreement or such other
address as may be specified by notice given after the date hereof.
This Agreement shall have the effect of an instrument under seal.
ATTEST DEBTOR: SYTRON, INC.
/s/ Donald E. W By: /s/ Richard T. Case
- --------------------------------- -------------------------------------
Richard T. Case, President
Secured Parties:
KATONAH WEST PENSION PLAN
By:
----------------------------------
Trustee
SPRINGHILL HOLDINGS, LTD.
By:
----------------------------------
WERREN HOLDINGS, LTD.
By:
----------------------------------
7
Exhibit 10(kk)
PROMISSORY NOTE
U.S. $10,000.00 Boulder, Colorado
October 3, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Werren
Holdings, Ltd., a corporation organized pursuant to the laws of the British
Virgin Islands and with its principal place of business located at the Channel
Islands, or order, ("Note Holder") the principal sum of Ten Thousand NO/100
($10,000.00) U.S. Dollars, with interest accruing at the rate of Ten percent
(10%) per annum. Payment of principal and interest, as accruing, shall be
payable at the offices of Note Holder, or such other place as the Note Holder
may designate, in one payment due on or before one year from the date of this
Note. As additional consideration to induce Note Holder to undertake the loan
subject hereto, Borrower hereby agrees to issue to Note Holder shares of
Borrower's common stock as included in Exhibit "A" attached hereto and
incorporated herein as if set forth. The various rights and obligations relevant
to such common stock are included in that certain Registration Rights Agreement,
by and between the parties hereto, attached hereto as Exhibit "B" and
incorporated herein as if set forth.
In the event payments due hereunder are not tendered within ten (10) days
from the date the same become due ("event of default"), the entire principal
shall accrue interest at the rate of Eighteen percent (18%) per annum and the
failure to make any payment of principal or interest when due or any default
under any encumbrance or agreement securing this Note shall cause the whole Note
to become due at once (acceleration). In the event of default, Borrower shall
be additionally obligated to tender the full number of its common shares to Note
Holder as indicated in Exhibit "A" hereto.
Payments received for application to this Note shall be applied first to
the payment of late charges and fees, if any, second to the payment of accrued
interest at the increased rate specified herein, if any, and the balance applied
in reduction of the principal amount hereof.
This Note is secured by that certain Security Agreement by and between the
parties hereto, dated even date hereof, attached hereto and incorporated herein
as Exhibit "C".
Borrower may prepay the principal amount outstanding under this Note, in
whole or in part, at any time without penalty. Any partial prepayment shall be
applied against the principal amount outstanding and shall not postpone the due
date of any subsequent payments or change the amount of such payments. Further,
the number of shares of Borrower's common stock shall be reduced as indicated in
Exhibit "A" hereto.
The Borrower agrees to pay to the Note Holder, when incurred,
<PAGE>
all costs and expenses incidental to collection of the amounts due herein,
including but not limited to, reasonable attorneys fees and costs of collection,
regardless of whether Note Holder elects to commence legal action to enforce
this Note.
Presentment, notice of dishonor, and protest are hereby waived by and all
other makers, sureties, guarantors and endorses hereof. This Note shall be the
joint and several obligation of Borrower and all other makers, sureties,
guarantors and endorses, and their successors and assigns.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by certified mail, return receipt requested, addressed to Borrower
at the Borrower's address stated below, or to such other address as Borrower may
designated by notice to the Note Holder.
BORROWER: SYTRON, INC., f/k/a
MHB TECHNOLOGY, INC.
By: /s/ Richard T. Case
-------------------------------
Richard T. Case, President
Borrower' s Address:
5353 Manhattan Circle
Suite 201
Boulder, Colorado 80303
2
<PAGE>
EXHIBIT "A"
Repayment Period (1) Number of Shares
- -------------------- ------------------
3 months 1,998 599
4 months 2,597 600
5 months 3,197 599
6 months 3,796 733
7 months 4,529 466
8 months 4,995 599
9 months 5,594 999
10 months 6,593 600
11 months 7,193 399
12 months 7,593
- ---------
(1) In the event the full amount of principal and interest are not paid on the
anniversary date as indicated, the applicable number of common shares shall
be tendered.
Exhibit 10(ll)
PROMISSORY NOTE
U.S. $45,000.00 Boulder, Colorado
October 3, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Springhill
Holdings , Ltd., a corporation organized pursuant to the 1aws of the British
Vigin Islands, and with its principal place of business located in the Channel
Islands, or order, ("Note Holder") the principal sum of Forty-five Thousand
NO/l00 ($45,000.00) U. S. Dollars, with interest accruing at the rate of Ten
percent (10%) per annum. Payment of principal and interest, as accruing, shall
be payable at the offices of Note Holder, or such other place as the Note Holder
may designate, in one payment due on or before one year from the date of this
Note. As additional consideration to induce Note Holder to undertake the loan
subject hereto, Borrower hereby agrees to issue to Note Holder shares of
Borrower's common stock as included in Exhibit "A" attached hereto and
incorporated herein as if set forth. The various rights and obligations
relevant to such common stock are included in that certain Registration Rights
Agreement, by and between the parties hereto, attached hereto as Exhibit "B" and
incorporated herein as if set forth.
In the event payments due hereunder are not tendered within ten (10) days
from the date the same become due ("event of default"), the entire principal
shall accrue interest at the rate of Eighteen percent (18%) per annum and the
failure to make any payment or principal or interest when due or any default
under any encumbrance or agreement securing this Note shall cause the whole Note
to become due at once (acceleration). In the event of default, Borrower shall be
additionally obligated to tender the full number of its common shares to Note
Holder as indicated in Exhibit "A" hereto.
Payments received for application to this Note shall be applied first to
the payment of late charges and fees, if any, second to the payment of accrued
interest at the increased rate specified herein, if any, and the balance applied
in reduction of the principal amount hereof.
This Note is secured by that certain Security Agreement by and between the
parties hereto, dated even date hereof, attached hereto and incorporated herein
as Exhibit "C".
Borrower may prepay the principal amount outstanding under this Note, in
whole or in part, at any time without penalty. Any partial prepayment shall be
applied against the principal amount outstanding and shall not postpone the due
date of any subsequent payments or change the amount of such payments. Further,
the number of shares of Borrower's common stock shall be reduced as indicated in
Exhibit "A" hereto.
The Borrower agrees to pay to the Note Holder, when incurred,
<PAGE>
all costs and expenses incidental to collection of the amounts due herein,
including but not limited to, reasonable attorneys fees and costs of collection,
regardless of whether Note Holder elects to commence legal action to enforce
this Note.
Presentment, notice of dishonor, and protest are hereby waived by and all
other makers, sureties, guarantors and endorses hereof. This Note shall be the
joint and several obligation of Borrower and all other makers, sureties,
guarantors and endorses, and their successors and assigns.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by certified mail, return receipt requested, addressed to Borrower
at the Borrower's address stated below, or to such other address as Borrower may
designated by notice to the Note Holder.
BORROWER: SYTRON, INC., f/k/a
MHB TECHNOLOGY, INC.
By: /s/ Richard T. Case
----------------------------------------
Richard T. Case, President
Borrower' s Address:
5353 Manhattan Circle
Suite 201
Boulder, Colorado 80303
2
<PAGE>
EXHIBIT "A"
Repayment Period (1) Number of Shares
- -------------------- ----------------
3 months 9,000
4 months 11,700
5 months 14,400
6 months 17,100
7 months 20,400
8 months 22,500
9 months 25,200
10 months 29,700
11 months 32,400
12 months 34,200
- ----------------
(1) In the event the full amount of principal and interest are not paid on the
anniversary date as indicated, the applicable number of common shares shall
be tendered.
Exhibit 10(mm)
PROMISSORY NOTE
U.S. $245,000.00 Boulder, Colorado
October 3, 1995
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay Katonah
West Pension Plan, 5353 Manhattan Circle, Suite 201, Boulder, Colorado 80304, or
order, ("Note Holder") the principal sum of Two Hundred Forty-five Thousand
NO/l00 ($245,000.00) U. S. Dollars, with interest accruing at the rate of Ten
percent (10%) per annum. Payment of principal and interest, as accruing, shall
be payable at the offices of Note Holder, or such other place as the Note Holder
may designate, in one payment due on or before one year from the date of this
Note. As additional consideration to induce Note Holder to undertake the loan
subject hereto, Borrower hereby agrees to issue to Note Holder shares of
Borrower's common stock as included in Exhibit "A" attached hereto and
incorporated herein as if set forth. The various rights and obligations relevant
to such common stock are included in that certain Registration Rights Agreement,
by and between the parties hereto, attached hereto as Exhibit "B" and
incorporated herein as if set forth.
In the event payments due hereunder are not tendered within ten (10) days
from the date the same become due ("event of default"), the entire principal
shall accrue interest at the rate of Eighteen percent (18%) per annum and the
failure to make any payment of principal or interest when due or any default
under any encumbrance or agreement securing this Note shall cause the whole Note
to become due at once (acceleration). In the event of default, Borrower shall be
additionally obligated to tender the full number of its common shares to Note
Holder as indicated in Exhibit "A" hereto.
Payments received for application to this Note shall be applied first to
the payment of late charges and fees, if any, second to the payment of accrued
interest at the increased rate specified herein, if any, and the balance applied
in reduction of the principal amount hereof.
This Note is secured by that certain Security Agreement by and between the
parties hereto, dated even date hereof, attached hereto and incorporated herein
as Exhibit "C".
Borrower may prepay the principal amount outstanding under this Note, in
whole or in part, at any time without penalty. Any partial prepayment shall be
applied against the principal amount outstanding and shall not postpone the due
date of any subsequent payments or change the amount of such payments. Further,
the number of shares of Borrower' s common stock shall be reduced as indicated
in Exhibit "A" hereto.
The Borrower agrees to pay to the Note Holder, when incurred, all costs and
expenses incidental to collection of the amounts due
<PAGE>
herein, including but not limited to, reasonable attorneys fees and costs of
collection, regardless of whether Note Holder elects to commence legal action to
enforce this Note.
Presentment, notice of dishonor, and protest are hereby waived by and all
other makers, sureties, guarantors and endorses hereof. This Note shall be the
joint and several obligation of Borrower and all other makers, sureties,
guarantors and endorses, and their successors and assigns.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by certified mail, return receipt requested, addressed to Borrower
at the Borrower's address stated below, or to such other address as Borrower may
designated by notice to the Note Holder.
BORROWER: SYTRON, INC., f/k/a
MHB TECHNOLOGY, INC.
By: /s/ Richard T. Case
-------------------------------------
Richard T. Case, President
Borrower' s Address:
5353 Manhattan Circle
Suite 201
Boulder, Colorado 80303
2
<PAGE>
EXHIBIT "A"
Repayment Period (1) Number of Shares
3 months 49,002) 14701
4 months 63,703) 14700
5 months 78,403) 14700
6 months 93,104) 17967
7 months 111,071) 11434
8 months 122,505) 14701
9 months 137,206) 24501
10 months 161,707) 14700
11 months 176,407)
12 months 186,208) 9801
- ----------------
(1) In the event the full amount of principal and interest are not paid on the
anniversary date as indicated, the applicable number of common shares shall
be tendered.
Exhibit 23(a)
Jones, Jensen & Company, LLC
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Sytron, Inc. and subsidiaries
Broomfield, Colorado
We consent to the use in this Registration Statement of Sytron, Inc. and
Subsidiaries on Form SB-2, of our report dated November 20, 1998 of Sytron, Inc.
and Subsidiaries for the years ended September 30, 1998 and 1997, which are part
of this Registration Statement, and to all references to our firm included in
this Registration Statement.
/s/ Jones, Jensen & Company
- --------------------------------
Jones, Jensen & Company
Salt Lake City, Utah
February 3, 1999
